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Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Bank Hapoalim Fourth Quarter and Full Year 2025 Results Conference Call webinar. For your convenience, this call will be accompanied by a PowerPoint presentation. May we suggest, if you have not yet done so, that you access the presentation on the bank's website, www.bankhapoalim.com, by clicking on financial information on the homepage and then click on the annual report presentation. [Operator Instructions] As a reminder, this conference is being recorded March 5, 2026. With us on the line today are Mr. Yadin Antebi, CEO of Bank Hapoalim; Mr. Ram Gev, CFO; Mr. Victor Bahar, Chief Economist; and Ms. Tamar Koblenz, Head of Investor Relations. I would like to remind everyone that forward-looking statements for the respective company's business, financial condition and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Such forward-looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risks in product and technology development, and the effect of the company's accounting policies as well as certain other risk factors, which are detailed from time to time in the company's filings with the various securities authorities. In the event of the siren in Israel, we will pause briefly and resume the call as soon as possible. Mr. Antebi, would you like to begin? Yadin Antebi: Thank you. Good afternoon, and thank you for joining us for our review of the bank's 2025 results. We are publishing our financial statements and holding this call at a time when the geopolitical environment in the Middle East and around the world is undergoing material change. We continue to witness Israel's unique resilience and its ability to adapt rapidly. Throughout its history, Israel has consistently emerged stronger from periods of adversity. And we believe that after the current conflict, the economy is positioned to regain strength and to continue to grow. With this environment, Bank Hapoalim will continue to play a meaningful role in supporting the recovery and growth of the economy. Let us now turn to the results. We ended 2025 with very strong results. Net profit of ILS 9.8 billion, return on equity of 15.9%, loan growth of 13.4%. These results reflect the disciplined execution of our strategy, which I will touch on shortly. Alongside these strong financial results, this was a year of significant activity across the bank. We addressed a number of innovative and impactful initiatives, including growth across all business segments. The introduction of 2-year financial targets, the distribution of bank shares to our customers under the Bank of Israel outlined, the launch of an AI bot that supported the share distribution process, a new marketing strategy of proactive banking and a major step forward in the development of Bit, our payment app. All these efforts led us to deliver results that exceeded the targets we published a year ago. Net profit of ILS 9.4 billion excluding income of insurance versus a target of ILS 8.5 billion to ILS 9.5 billion. Return on equity of 15.3% excluding net income versus a target of 14% to 15%. Credit growth of 13.4% compared with a target of 7%, dividend payout of 50% for the year, or 53% for the moment the Bank of Israel permitted to distribute more versus a target of at least 50%. Looking ahead, it is clear that the macroeconomic environment has changed compared with a year ago, when we published our targets for '25 and '26. GDP growth assumptions have improved, but market implied interest rate and inflation are lower for the next 2 years than they were a year ago. Nevertheless, most of the updated 2-year targets we are publishing today are higher than the previous ones. For '26 to '27, we expect net profit of ILS 9 billion to ILS 10 billion, return on equity of 14% to 15%, accelerated loan growth of 8% to 9% and a higher payout ratio of 50% to 60%. It is important to note that towards the end of the year, we will begin the relocation to the new Poalim Center building. As part of this transition, we intend -- initiated steps to realize and enhance our own real estate assets. Accordingly, starting in 2027, we expect to recognize pretax gains of between ILS 800 million to ILS 900 million, which we have reflected in the updated targets. Regarding special tax on banks, our assumptions reflect an impact similar to that of the past 2 years. I would like to briefly review the progress we have made in executing the strategic focus areas we approved about a year ago. As a reminder, our strategic focus are -- areas are sales growth, leadership in service and fairness, Bit as an innovation engine, operational and efficiency, GenAI and data. In our retail activity, the focus is on strengthening sales capabilities across all channels, branches, call centers and digital. To support this, the division underwent an organizational restructuring designed to enhance sales effectiveness and customer service. We adopt a proactive service model and introduce new service standpoints. Naturally, many of these processes intersect with technology and here, too, we made a substantial leap forward with the implementation of an AI bot as a foundation for future automation. In mortgages, we made a major improvement in SLA, which also helped us improve pricing. Here as well, we are already seeing results, including an increase in our marginal market share. In corporate banking, our goal is to accelerate growth with maintaining excess portfolio quality and healthy margins. One of our key achievements this year was a significant reduction in the end-to-end credit approval process, benefiting both our customers and our growth objectives. We also enhanced our digital offering for corporate clients, and today we provide fully digital end-to-end services. In our capital markets activity, we are the #1 player in Israel, both the country's largest brokerage and as leading trading. Poalim Equity, our real asset investments arm, continued to grow at an average pace of about ILS 1 billion per year. This year, it also recorded substantial realizations resulting in strong profitability. Bit is a success story I am extremely proud of. With 3.5 million active customers and an annual P2P transaction volume of ILS 30 billion, notably, 2/3 of our Bit customers conduct their primary banking activity with other banks, representing a major growth opportunity for us. Over the past year, Bit reached an important milestone with the launch of new products and services that generate revenue and/or reduce costs. We intend to continue expanding our offering to provide Bit users with solutions that simplify and enhance their financial management. We are already a highly efficient bank with a cost-income ratio of below 35%, but we still see room for further improvement. We have a retirement program under which about 10% of our workforce will retire by 2028. In addition, we are making significant efforts to reduce other operating expenses. These are not. There are no shortcuts here, just virtuous management. We are already seeing solid results with a nearly 8% reduction in other expenses this year. Alongside this potential I described, I would like to highlight several strengths as we enter 2026. We have accumulated the largest credit loss reserves in the sector, which I believe will decline in a more stable geopolitical and economic environment. We have the highest financial margin in the industry, reflecting profitability-oriented growth, and disciplined balance sheet management. We hold significant gains in the available for sale portfolio, while competitors carry losses. And as noted, we intend to sell our real estate assets, similar to steps already taken by peers, and recognized pretax gains of ILS 800 million to ILS 900 million starting 2027. Today, nearly every bank or company speaks about GenAI and data. We're not only talking, we have made substantial progress in this area. Our goal is to expand the use of capabilities to support operational and business processes, reduce SLA and more. One of our successful use cases is Danit, our AI bot, which handled thousands of customer calls during the share distribution campaign we conducted. The bot handled the most calls and completed the process end-to-end. Before I hand over to Ram to review the quarterly and annual results, I would like to reiterate our targets for '26 and '27. Net profit of ILS 9 billion to ILS 10 billion, return on equity of 14% to 15%, accelerated loan growth of 8% to 9% and higher payout ratio of 50% to 60%. Thank you, and Ram, please go ahead. Ram Gev: Thank you, Yadin, and good afternoon to everyone on the call. I'm happy to walk through the bank's fourth quarter and full year 2025 results in the next few minutes, and discuss the key drivers behind what we consider an exceptional year for the bank. A year marked by a high return on equity, nearly ILS 10 billion in net profit, strong business momentum and all supported by excellent capital strength and high-quality credit metrics. Let's dive into the numbers and start with Slide 20, where we are showing the continuous growth in profitability. This morning, we reported a 15.9% return on equity for the full year with net profit of ILS 9.8 billion and an EPS of ILS 7.43. Adjusted for the ILS 380 million income we recorded from insurance reimbursement in the third quarter, ROE is 15.3% and the net profit is ILS 9.4 billion, both comfortably above our financial targets. The fourth quarter profitability was impacted by a negative CPI and a onetime ILS 200 million provision made in respect of the labor dispute. As a result, the reported ROE of 13% for the quarter does not fully reflect the bank's underlying profitability. Next, let's talk about our credit book. We continued to deliver strong and high-quality growth throughout the year. In 2025, total credit increased by 13.4%, of which 4.9% in the last quarter, to a balance of more than ILS 500 billion. Another important key quality of our portfolio is its diversification across segments. This is a key parameter not only from a growth and risk balancing perspective, but also because it gives a greater flexibility to be selective in how we grow, and to allocate growth to areas where we see stronger profitability profile. And indeed, growth was recorded across all segments in 2025 and in various economic sectors. This is a reflection of our ability as a leading bank to translate the strength of the remarkable Israeli economy into growth in our activity. Corporate credit grew 25.8%. Commercial credit, essentially middle market businesses, grew 11.3%, and retail activity, consumer mortgages and small businesses grew roughly 7% to 12%. The next slide, Slide 23, presents our financing income. The consistent growth trend in our financing income and margins reflects 2 key factors. Increased business activity combined with government bond portfolio repositioning. As a reminder, as part of this process, we realized losses on legacy securities, mostly in 2024, and we invested in higher-yield and longer-duration assets. This resulted in 9.6% growth in total financing income and a slight increase in the financial margin. This was achieved despite the lower contribution from the CPI and ongoing competitive pressure on margins and unlike all our peers. On the right-hand side, we show the income from regular financing activity excluding the CPI, which is consistently growing, and further highlights the aforementioned key strengths. In this slide, we take a quarterly view of financing income. The volatility of the CPI resulted in a gap of over ILS 650 million between the fourth and third quarters. This is the reason for the decrease in income from regular financing activity and margins. Here as well, we show the income from regular financing activity excluding the CPI which due to the growth in activity continued to grow nicely. On fees, the positive trend continues across various types of fees. So our business activity continues to expand. Total fees grew 11.3% in 2025 driven by most fee types such as securities conversion differences and account management fees. The increase in credit card fees is mainly attributed to one-off revenues received from the international card organizations. Let's move to present our disciplined cost management. The takeaway here is that even alongside the impressive growth in our activity, total expenses are down, or if we adjust for one-off, total expenses remained flat year-on-year. Looking at the cost-income ratio in both presented years, there were one-offs. In 2024, we provisioned for an early retirement plan of almost ILS 600 million. And on the other hand, 2025 income included the insurance reimbursement. So if we look at the adjusted figures, the cost-income ratio is down to the mid- to low 30s. This is among the lowest efficiency ratios globally. In the fourth quarter, expenses increased due to several nonrecurring items, primarily the provision related to labor dispute at the bank. Just to give you some color, we are currently working on structural changes to the bank's employment framework, changes that will yield benefits for many years to come. While no agreements have been finalized yet, we have recognized a provision in anticipation for future settlement. On Slide 27, our productivity ratios, which have been improving over time, both income per employee and credit per employee support the positive jaws effect. Moving on to discuss provision for credit losses and the quality of our book on Slides 28 and 29. Provision for credit losses amounted to ILS 421 million or 0.31% of our credit book, driven completely by collective allowance and net automatic charge-offs. The increase in the collective allowance reflects our prudent approach and is due to the growth of the credit portfolio and the continued uncertainty in the economic environment. Individual provision, however, saw income due to recoveries. It's important to highlight that this prudent approach places us in the strongest position entering 2026 relative to peers with high reserve levels and the highest reserve ratio across a range of scenarios. On credit quality metrics, on the left-hand side, we see the NPLs continue to drop, now at 0.48%, while the NPL coverage ratio continued to rise to more than triple the NPLs as we continue to increase the collective allowance. On the right-hand side, the allowance to loans ratio remained high at 1.72% and over 95% of the total allowance is collective. In the next slide, the bank has the largest retail deposit base in the sector, which provides a significant competitive advantage. Our deposit base continued to grow in 2025, 3.2% in the last 12 months. Retail deposits decreased this year but still represent 54% of total deposits. Liquidity ratios, LCR and NSFR, continue to be well above the minimum requirement. Now let's move to present our capital position, which continues to benefit from strong organic generation capabilities, leading to 11.2% growth in the last year. The CET1 capital measure was 11.98%. And you can see in the waterfall graph, the contribution of our strong profitability, and to a lesser extent, the positive OCI allowing for substantial growth in activity as well as substantial profit distribution to our shareholders. On dividends, our strong capital position allowed us to increase our profit distribution where in addition to the 50% payout, we declared a distribution of additional ILS 200 million. This sums up to 60% distribution for the fourth quarter, 48% by cash dividend, ILS 0.79 per share, and the rest through share buybacks. So for 2025, total shareholder distribution amounted to 50% of net profit, consistent with our financial target, driven by a ILS 4.1 billion cash dividend, reflecting a 4.6% yield and ILS 4.9 billion total distribution. Before we move to briefly discuss macroeconomics, I'm moving to Slide 33 for a quick update on our expected real estate asset sale. As you know, and as some of you have noticed when passing by, we are currently constructing the bank's next headquarters building in Tel Aviv called Poalim Center. Beyond the financial significance of this move, which will allow us to further align our organizational culture with our future plans, including by bringing all headquarters employees together under one roof, rather than being scattered across several buildings as we are today. The planned relocation will start at the end of this year, and we expect to sell existing properties from 2027 onwards. As this event is approaching, and we are already progressing with the betterment of assets and sale processes, we have provided disclosure in the financial statements regarding initial estimates for the expected profit from the sale of our main properties, estimated at ILS 800 million to ILS 900 million before tax. Let's now talk briefly about macro situation in Israel. While each military conflict is unique, past episodes offer a useful framework for assessing the current operations economic impact. We expect a temporary slowdown in activity broadly similar to the second quarter of 2025 contraction and dependent mainly on the operations duration followed by a partial rebound. The economy entered the year with solid momentum and assuming the operation remains short, GDP growth is still expected to exceed 4% this year. As shown on right-hand chart, the shekel has strengthened as markets view geopolitical risk as moderating, supported by another strong year in high tech, including several large acquisitions. Headline inflation has eased to 1.8% year-on-year, partly due to currency operation. Our base case assumes low persistent inflationary impacts from the current operation, keeping near-term inflation contained. The policy rate has been cut to 4% with inflation expectations well anchored, and market pricing implies roughly three additional cuts by year end. So to summarize, 2025 saw very strong performance across all metrics, well above our financial targets. Return on equity was 15.9% or 15.3% adjusted for the income from insurance. Financing income and margins continue to be strong, driven by the growth in activity and asset rollover. The strong growth in credit of 13.4% during 2025 was broad-based across all segments and economic sectors. This was achieved with no compromise on the quality of the book as reflected in the NPL ratio of only 0.48%, and allowance to NPL ratio of 310%. In the fourth quarter, we declared on a 50% distribution plus ILS 200 million from existing capital services. So the overall payout ratio in 2025 was 50%. And then lastly, we introduced updated financial targets for 2026 and 2027. ILS 9 billion to ILS 10 billion net profit, ROE target remains 14% to 15%, credit growth target base increased to 8% to 9%, and profit distribution of 50% to 60%. To conclude, we are proud of the strong performance this year and of the clear, ambitious targets we have set for the next 2 years. We are well positioned to continue delivering substantial plan. We will now be happy to take your questions. So back to you, operator. Operator: [Operator Instructions] The first question is from David Kaplan. David Kaplan: I have first couple of questions on the bank's sensitivity to interest rates. You have those tables that you gave at the beginning of the report. And I'd like you to help us understand a little bit why is it that the 1% change in the interest rate has a greater impact on the equity of the bank than it does on the P&L. Start with that. Yadin Antebi: I'm not sure I understood the question, David. I can repeat. We give -- we, of course, disclosed our interest rate sensitivity. It's around ILS 800 million. As you refer to the equity side? David Kaplan: I'm talking about the table that's on Page 90 of the report where you talk about an increase or a decrease in the interest rate by 1%, and the impact it would have on the equity of the bank after tax, right? And it's about ILS 1 billion, whether it's up or down. But on the table that's just above that on the same page, you -- where you go through the income statement, the impact is much smaller or much different. And so how does that work through the P&L of the bank? And why do we see a greater impact on the income than we do on the -- sorry, on the equity that we do on the income of the bank. Yadin Antebi: The important figure here is the ILS 800 million, David. That's the full influence the bank's top line and the income. We probably have disclosure on the capital as well, but it's not -- I don't think it's a material disclosure. David Kaplan: Okay. I guess maybe the second question I have is on -- you mentioned in your presentation and in fact, it's true that you managed to maintain first of all a higher NIM in 2025 than in 2024, which given the interest rate environment was already surprising given the -- what we see the trends we've seen in other banks in the market here. What is it about your mix of business that allows you to do that? Yadin Antebi: It's not -- I think it's not the mix of the business, but it's the discipline of the organization and the emphasis that we put on spreads. There are areas that spreads are going down, of course, but we put a lot of value not only growing the business, but also pricing both the deposit side and the credit side was the right measures. Of course, we have a lot of competition around. And we have to deal with that as well. But pricing is very important from our point of view, both deposit and credit side. Ram Gev: Maybe if I add to what Yadin said. Well, the main factors on the NIM, globally and here in Israel as well are the interest rate environment, inflation environment and the margins. So what is important to us is to be with the highest NIM in the industry. And you can see that we are well positioned entering 2026 relative to our peers in our NIM. And we want to keep -- to be in that situation to hold the highest NIM in the industry. Obviously, the impact of changes in the interest rate is -- will affect everyone. But like Yadin mentioned, discipline on pricing and what we did when we repositioned our -- part of our securities portfolio when we sold it in 2025 and extended duration enable us to maintain relatively stable NIM during this year compared to 2025, and that's positioned us more favorably looking at the future. David Kaplan: Okay. And then just one last question on the financial targets that you gave for '26 and '27. Presumably, you're taking into account there the market expectations for inflation and for interest rates. At any point, do you look at it from your internal projections for those things? Or do you always look at it from a market perspective? That's the first question. And second of all, if something were to change drastically and expectations were to see rates or inflation, the expectations for rates or inflation change significantly, would you update your targets? Yadin Antebi: Yes. Thank you, David, for that. We spent a lot of time last time on March before we published our '25 and '26 results. And we have different ideas and discussions internally, what will be the right figures to publish. What we decided last time and we were consistent with last year's decision is we don't want to play around any goals or projections of interest rates or inflation because that will make your life much harder in analyzing our profitability. So what we decided was just to take market pricing for both inflation and Bank of Israel interest rate because we're very sensitive to that, as you, of course, know. So moving those numbers and taking other figures will make our projections and our targets seem like not eligible enough. Regarding the second part of your question, we don't intend to update on every move of the interest rate. And you can see that we just discussed the sensitivity. There are many metrics that move around, not only interest rates, we feel comfortable with the guidance and the targets that we have published for these 2 years. David Kaplan: Okay. Great. Sorry. I actually do have just one more question. I was looking at the tables towards the back of the report, the volumes versus pricing. And in this current year, volume had a much greater impact on the change in net interest income than did pricing. And I guess that partly had to do with the lower-than-expected inflation, I guess, over the course of the year. But in comparing it to the change in volume and pricing in the previous year, where there was a much greater split, can you talk a little bit about how you managed to generate so much income simply off of the volume growth? Yadin Antebi: The book is growing and the balance sheet is growing. So we're making, of course, more profit on a larger balance sheet. And we're balancing it or we're mitigating or we're trying to mitigate where we have pressure from the market in terms of pricing. So that will be like our normal course of handing the bank, the business. David Kaplan: Okay. And what was the impact here though, from inflation? Or was it a minimal? Yadin Antebi: Can you ask that again, please? David Kaplan: What was the impact of inflation on the change in pricing here when I look at that table? Or is it not really an effect. Yadin Antebi: The change in pricing? David Kaplan: How do -- how did the CPI affect the change in income within pricing? Yadin Antebi: No. Inflation more or less doesn't change pricing. Okay. You're talking about pricing of the credit spreads? David Kaplan: We can take this offline and discuss it later. Operator: The next question is from [ Jan ] Benning. Canberk Benning: Just one on the cost-to-income ratio. So both the adjusted and the stated cost-to-income ratio came down quite -- I think, quite significantly from last year. I'm just wondering if, going forward, you have a specific cost-to-income ratio in mind. I know you haven't published anything, but I'm just trying to think -- obviously, cost efficiency is an important objective for you. And I'm just trying to, one, think about how far you think that cost-to-income ratio can come down. And whether -- sort of a secondary question to that is whether any artificial intelligence initiatives you are implementing across the bank can support both the revenue line and also bring costs down. Yadin Antebi: Thank you, Jan, for that. Yes, of course, we have an internal cost-to-income target or ratio that we follow both for '26 and '27. We follow and we have a lot of work. I talked about it in my part, and Ram also talked about it. Operational efficiency is a major issue internally. We put a lot of effort to make sure that we're continuing on the right path of making the bank more efficient than it is today. You know we discussed in previous meetings the efficiency program that we have and the reduction of the number of employees. We believe AI, and I talked about that as well, will have a major impact on the bank, okay, in terms of the call centers, in terms of the people that write code here. We have a very large technology division, hundreds of people that write code. So this is something that will dramatically affect AI the way we write code here. We do have different AI initiatives internally also within writing code, for example. But I'm very open at this stage. None at this stage has gone down to the bottom line of the P&L in terms of reducing expenses up to 2025. Looking forward, I'm sure that we will have dramatic changes that will implement -- will be implemented both in the call centers, both in writing software, changing the way we operate in terms of SLA regarding how fast we reach our clients. So these will all go down to our cost base. Last part of your question, you asked about the technology expenses. Yes, they are high. We're taking the best engineers in Israel. I think we discussed at the time that we got in the guy that ran the tech division of Playtika. He is running today since I think March 2025, the IT division within the bank, building internally new people, new ways of writing software, going faster to market, using AI better, different metrics and know-how that he knew and grew up actually from the gaming industry, which is a very, very sensitive industry in terms of AI and technology. So going back to your question, yes, these will all be impacted on the P&L of the bank looking forward. Canberk Benning: That makes a lot of sense. And then my second question is just looking at the credit growth target that you've got. So you've got 8% to 9% across '26 and '27. I'm just wondering is there any specific areas of the credit book that you're looking to grow? And any areas that you're looking to gain market share and whether that's greater market share in the retail segment or in corporate? Just some color on that would be useful. Yadin Antebi: Just like 2025, we're a very large bank in Israel, more or less 25%, 30% market share depending on the different areas that we bank with. So we will sell credit all around, whether it be retail or small businesses or middle market companies or large corporates, it will be on different sectors. It will be on infrastructure in Israel. It will be on real estate, it will be with hotels. So we're all around. There's no specific sector that I think we will say this is where we want to grow because we're very strong on all sectors. Operator: The next question is from David Taranto. David Taranto: This is David Taranto with Bank of America. The first question is a follow-up to my colleague's question on efficiency. Could you please elaborate a bit on your existing efficiency plan? Is the program tracking in line with your initial expectations in terms of pace, headcount reduction and cost savings? Or should we expect any change to the timing, or magnitude of the planned savings? Yadin Antebi: David, congratulations for your first call with us, and thank you again for covering the banks in Israel. Cost program, as we said in our December '24 financial statements, it's a 770 employee reduction done through 4 years, starting 2025. We started to implement it. Our full savings will be realized 2028. We disclosed that figure of ILS 300 million. There is -- there are conflicts internally in terms of our internal union. They didn't like the plan too much. So we do have discussions. Discussions have started. They are not concluded yet. We will -- I believe we will meet our 770 program on time. David Taranto: Okay. And the second question is on the asset quality. Your coverage ratios are extremely high and most of the provisioning remains collective. And can you break down how much of the collective allowance reflects managed macro overlay versus what comes purely from credit models? And what would trigger you to release any excess overlays this year? Yadin Antebi: Yes. Thank you, David, for this question as well. This is something we were very different in 2025 compared with our peers. We thought that 2025 is a year that we should be very conservative in terms of provisions. Even though you will not see within our books any material specific losses, we thought it would be right to be conservative and to continue to accumulate more credit provisions. We did that through the year and also Q4 2025. Looking forward, we think -- and I mentioned that when I talked about entering '26 and '27, we think that this is one of our key strengths looking forward because if we were right -- if we are right and Israel is going on the right track in terms of the geopolitical situation, in terms of the growth of the economy, in terms of things going back to normal in Israel, we have high reserves that we hope we will be able to release. But this is looking forward, and will be managed, of course, during '26 and '27. Ram Gev: David, if I can add to what Yadin said and elaborate. So we implement the CECL methodology on provisioning on credit losses. And overall, we run, let's say, 3 scenarios. So -- and we weigh those 3 scenarios into a combination. We have a baseline scenario of pessimistic and optimistic. By the way, the reality is better than the optimistic scenario actually. So it's hard to separate the elements that you mentioned because the actual figures are a combination of these 3 scenarios. Adding to that, some qualitative elements that we put to reflect uncertainty. But I think you can get a figure to -- what you asked, if you look at our coverage ratio standing at 1.72% and compare it, let's say, to our peers, you'll see that we have, let's say, roughly 30 basis points up to the average. So that reflects -- roughly reflects our conservative approach, hopefully, to meet the positive and optimistic scenario. David Taranto: That's clear. And 2 more, please. The first one on the expected pretax real estate gains, should we assume standard corporate income tax on these proceeds? And will the regulator allow you -- allow this profit to flow into the regular payout calculation? Or should we expect it to be treated separately in terms of payout? Ram Gev: Yes. Usually, it's the regular, but we may have from time to time some losses to offset from that. We don't know exactly what will be the final outcome for that. That's the reason why we disclosed the -- let's say, the before tax estimates. Obviously, if we will have some losses to deduct from that, then it doesn't matter whether it's included in the tax, let's say, the super tax or no. But if there won't be any, let's say, deductible losses, then generally speaking, it's included in the super tax as well. David Taranto: Okay. And the last one is on the AFS book. You have a strong unrealized gain position in your AFS book. And if the rates continue to come down, this position should build up further. Can you give us more color on the portfolio structure, in particular, what share of the AFS book is in fixed rate securities and how sensitive the unrealized gains are to, let's say, 50 bps lower yields? Ram Gev: We have a disclosure on our book we can direct you later on, on the sensitivity for 1% change on our fair value and equity. The overall effect, but part of it is from the AFS is the overall effect is about ILS 1 billion, but the available for sale is only part of it. So I can direct you to our disclosure on that on Page 19 in our statements. Operator: The next question is from Chris Reimer. What is driving your confidence around the increased loan growth target? And given potential for further leveraging of technology, do you see a case for further year-on-year decline in expenses? Yadin Antebi: Thank you for that. We feel strength of the market, and that's why we thought it would be right to increase our credit target -- credit growth target. We saw the strength of the market '24 and then in '25. We see the pipeline of the different projects that we're handling both infrastructure and others. We -- even before the Iran war now, the growth in Israel and the projections were very high. And after the war once it ends, we're sure that Israel is going to be in a new era in terms of the geopolitical environment. So that gives us a lot of comfort regarding the credit growth. The second part of the question in terms of the technology, I think I answered this before. Yes, we're spending a lot of money on IT and technology. But we also see that in different areas, the IT costs may go down because of different infrastructure that will be used here through AI, for example. This is not for the -- as I said, not right for '25. But looking forward, this might be material. We're trying to manage both costs or actually 3 different costs, the employees' cost, the technology cost and all our other costs. Operator: The next question is from Valentina Stoykova of Barclays. Given ongoing lion's war, I was wondering whether you could briefly outline the best and worst-case stress scenarios for Hapoalim and the key macro assumptions used. Where do you see your COR in a worst-case scenario? And also, should we think about the upcoming Tier 2 callable option? And as a follow-up, could you outline the main risks you see to delivering on the ROE target? Yadin Antebi: Great. Thank you for that. Good question. Actually, I believe that whatever happens, Israel is going to get out of this war dramatically stronger than what -- from the position we were 10 days ago. And that is mainly because the whole geopolitical here may change -- environment may change. It goes back to the fact that a very aggressive country is already in a different position. It goes down to different agreements with our Arab neighbors that we've been talking for years about extending, for example, the Abraham Accords. So this might happen as well. So whatever happens, I think Israel is going to be a much stronger country and a much stronger economy looking forward. And that, of course, reflects on the bank. The 2 -- you asked about the 2, the best-case scenario and the worst-case scenario and maybe I'll think out loud. The best-case scenario will be a very short war, just like the 12 days war, ending with a new regime in Iran and having Abraham Accords with all the Arab countries around, including Iran. That's like the best-case scenario. The worst-case scenario is a long war that is taking a long time. I don't think that will happen, but it might happen. And that will, of course, influence government and businesses in Israel and deficit. I don't think this option is really relevant. But if you're looking for something which is extreme, that may happen. Reflecting on the ROE can change on the different scenarios. But personally, I'm very optimistic because I think that like the essence of the Mediterranean is really changing day by day over the last week. Ram Gev: Yes. And to add to what Yadin said, Valentina, you asked about the cost of risk and the effect. So we have a disclosure in Page 81 of the financial report. Like I mentioned before, while calculating the collective allowance, we are using different scenarios, pessimistic base scenario and optimistic, and we are creating some combination of that. So we have disclosure there if we work only by the pessimistic scenario, what will be the additional effect on the provision. And if we work only according to the optimistic scenario, what will be the decrease in the provision. So you have full disclosure there. And like I mentioned before, what we saw after 2025 in the first campaign with Iran is actually that the reality was better even than the optimistic scenarios that we ran. Operator: There are no further questions at this time. This concludes the Bank Hapoalim Fourth Quarter and Full Year 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Operator: Greetings, and welcome to the Kingstone Companies, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Stefan Norbum, Kingstone Companies, Inc. Investor Relations representative. Thank you. You may begin. Stefan Norbum: Thank you and good morning everyone. Joining us on the call today will be President and Chief Executive Officer, Meryl Golden, and Chief Financial Officer, Randy Patten. On behalf of the company, I would like to note this conference may contain forward-looking statements, which involve known and unknown risks and uncertainties, and other factors that may cause actual results to be materially different from projected results. Forward-looking statements speak only as of the date on which they are made, and Kingstone Companies, Inc. undertakes no obligation to update the information discussed. For more information, please refer to the section entitled “Risk Factors” in Part I, Item 1A of the company's latest Form 10-Ks. Additionally, today's remarks may include references to non-GAAP measures. For a reconciliation of these non-GAAP measures to GAAP figures, please see the tables in the latest earnings release available at the company's website at https://www.kingstonecompanies.com. With that, it is my pleasure to turn the call over to Meryl Golden. Meryl? Meryl Golden: Thanks, Stefan. Good morning, everyone, and thanks for joining our call. I am delighted to share the results of our most profitable quarter and year in Kingstone Companies, Inc.’s history. I want to thank the amazing Kingstone Companies, Inc. team and our select producers for making it possible. Let me start with the headlines. In the fourth quarter, we delivered net income of $14.8 million, diluted earnings per share of $1.30, diluted operating earnings per share of $1.80, a GAAP net combined ratio of 64.2%, and an annualized return on equity of 51%. For the full year, net income more than doubled to $40.8 million, diluted earnings per share increased 95% to $2.88, and our return on equity was 43%. These results exceeded the guidance we provided in November. I am particularly proud that from year-end 2023 to year-end 2025, we grew direct premiums written 39% while improving our combined ratio by 30 points. These results are structural, not simply weather-driven, and they validate the transformation we have executed. What sets Kingstone Companies, Inc. apart and what drove these results is clear. First, our Select product, now 57% of policies in force compared to 45% one year ago, continues to improve risk selection, properly matching rate to risk and driving lower claims frequency. Second, our producer relationships generate strong retention and consistent new business flow. Third, our operating efficiency, with a net expense ratio that improved from 41% in 2021 to 30% in 2025, provides durable margin advantage. And last, our conservative financial position, with no debt and robust reinsurance, means we can grow with confidence. Turning to the quarter, direct premiums written grew 14% to $82.8 million, driven by higher average premiums and strong retention. For the full year, direct premiums written grew 15% to $277.8 million, and our New York personal lines policies in force grew over 7%. The hard market conditions in our Downstate New York footprint have not changed materially. Demand from our producers remains strong, supported by policies from the GARD Renewable Rights Agreement which we began writing in September. New business policy count has increased sequentially from Q2, and in Q4 grew 25% over Q3. In this environment, what separates the winners from the rest is straightforward: highly segmented products to better assess risk, low expenses, claims execution, and deep producer relationships. We have built these advantages; we will not chase volume at the expense of underwriting discipline. Net earned premium growth remains a powerful tailwind. Net premiums earned increased 38% in the fourth quarter and 46% for the full year, primarily due to our reduced quota share, which allows us to retain a greater share of premium and underwriting profits. The decision to reduce our quota share reflects our confidence in the quality of our book and that our underwriting results warrant retaining more premium. As such, we have reduced our quota share even further for 2026, and net earned premium growth will continue to be a tailwind. On underwriting, our fourth quarter net combined ratio of 64.2% reflects exceptional performance across the board. The underlying loss ratio was 34.7%, an improvement of over 14 points from the prior-year quarter, driven by meaningfully lower claim frequency. The improvement in frequency, particularly for non-weather water, our largest peril, is a trend we have shared throughout the year, and we attribute it to the effectiveness of risk selection in our Select product. During the quarter, we also recognized the benefit from continuing improvements in our claims operations, with faster cycle times and providing earlier visibility into ultimate property claims cost. For the full year, our underlying loss ratio improved nearly 4 points to 44.4%, and our catastrophe loss ratio was just 1.2 points. I want to be direct. While we benefited from very low catastrophe activity in 2025, our underlying performance improved materially. Even with a normalized catastrophe load, our full-year combined ratio would have been in the low 80s, reflecting the differentiated platform we have built. As we shared in the second quarter, we have set a five-year goal of $500 million in direct premiums written by year-end 2029, approximately doubling the size of the company through continued growth in New York, measured expansion into new markets, and strategic inorganic opportunities. I am pleased to share that our first new market will be California, which we will be entering in 2026 on an excess and surplus (E&S) lines basis. California is one of the largest homeowners markets with $15 billion in written premium, almost double the size of New York, and the largest E&S homeowners market in the country, where the supply-demand imbalance for homeowners coverage continues to grow. The E&S approach gives us the flexibility to price wildfire risk using forward-looking models to set prices to achieve our margin requirements and to apply strict underwriting standards, including rigorous property-level risk selection and real-time accumulation management. We will start small, consistent with our disciplined approach, and scale as we gain confidence in our pricing and product. The initial contribution from California will be modest, less than 5% of our 2026 premium, with the vast majority of our volume continuing to come from New York. But the opportunity is enormous, and California will become a large contributor to our growth over time. Turning to our outlook for 2026, I want to explain an important change in how we are reframing our outlook for this year because we think it will help investors better understand our business. Starting this year, we are introducing the underlying combined ratio, which excludes catastrophe losses and prior-year reserve development, as our primary operating lens. We define it as the underlying loss ratio plus the net expense ratio. This metric isolates the performance we control, including pricing, risk selection, claims management, and operating efficiency, from the inherent volatility of catastrophe events. In 2025, our underlying combined ratio was 74.4%, an improvement of 5.1 points from 79.5% in 2024. That improvement is structural. It reflects Select product penetration, earned rate adequacy, and operating leverage, and is independent of catastrophic weather events. At the same time, our record combined ratio of 75% benefited from an outlier low catastrophe loss ratio of just 1.2 points. To put that in context, the six-year average cat loss ratio from 2019 through 2024 is 7.1 points. Both 2024 and 2025 were well below the average, including two consecutive mild winters. So when you look at our 2026 guidance, I want to be very clear about the bridge. The headline year-over-year change in earnings per share and return on equity is driven almost entirely by our assumption of a higher-than-normal catastrophe load, not by any deterioration in our underlying business. In fact, our underlying combined ratio guidance of 74% to 76% is comparable to 2025. The headline story is straightforward: the controllable business is healthy and growing; the year-over-year change reflects cat normalization. Here is our updated guidance for fiscal year 2026: direct premiums written growth of 16% to 20%; an underlying combined ratio, excluding catastrophes and prior-year reserve development, of 74% to 76%; a catastrophe loss assumption of 7 to 10 points, which is at or above the six-year historical average and reflects the elevated winter storm activity we experienced in 2026; and a net combined ratio of 81% to 86%. Diluted earnings per share of $2.20 to $2.90, with a midpoint of $2.55, reflects an increase at the midpoint relative to our initial outlook and the benefit of a lower quota share cession for 2026. The 16% to 20% direct premium growth target helps keep us on pace toward our five-year goal of $500 million in direct premiums written by year-end 2029. I want to give investors the tools to model different catastrophe scenarios. On an illustrative basis, and this is not guidance, each one point of catastrophe loss ratio has approximately a $0.13 impact on diluted earnings per share. So if you want to see what our earnings power looks like at fiscal year 2025 cat levels of 1.2 points, the illustrative answer is approximately $3.53 per diluted share, which represents 23% growth year over year. That is the underlying trajectory of this business. I want to emphasize that weather is unpredictable, and our 2026 guidance assumes a higher-than-average catastrophe year given the winter weather in 2026. As a reminder, our catastrophe reinsurance program limits our maximum first event loss to $5 million pretax, or approximately $0.27 per share after tax, whether from a hurricane or a winter storm. We will refine our outlook as the year unfolds. Before I hand it to Randy, I want to briefly address the regulatory proposals in New York regarding homeowner insurer profitability. We share the goal of affordability for consumers, and we are monitoring these proposals closely and engaging constructively through industry bodies. We believe any final legislation will need to account for the inherent volatility of catastrophe-exposed property insurance and the importance of maintaining carrier capacity and availability for New York homeowners. We will continue to execute with discipline, advance our measured expansion roadmap, and allocate capital prudently to drive sustained profitable growth. I remain highly confident in Kingstone Companies, Inc.’s strategic direction and fully committed to creating long-term shareholder value. With that, I will turn the call over to Randy Patten, our Chief Financial Officer, for a more detailed review of our results. Randy? Randy Patten: Thank you, Meryl, good morning again, everyone. The fourth quarter was our most profitable quarter in the company's history and our ninth consecutive quarter of profitability. During the quarter, we reported net income of $14.8 million, diluted earnings per share of $1.03, a 64.2% combined ratio, and an annualized return on equity of 51%. For the full year, net income was $40.8 million, more than doubling the prior year and the most profitable in company history. Performance is driven by strong net earned premium growth as our reduced quota share and our 2024 new business surge continue to earn in. This was combined with very low catastrophe losses, favorable frequency trends, and lower expenses, aided by adjustments to the sliding-scale ceding commissions due to both an improvement in the attritional loss ratio and low catastrophe losses. As a reminder, the quota share reduction from 27% to 16% for the 2025 treaty year reflected the improved quality of our book and increased our projected earnings per share by approximately $0.25 for 2025. For the 2026 treaty year, we have further reduced our quota share cession from 16% to 5%, reflecting continued confidence in the quality of our underwriting portfolio and capital position to support our growth. This reduction is expected to increase projected earnings per share by approximately $0.20 for 2026, as incorporated in our updated guidance ranges. Our net investment income for the quarter increased 55% to $3.0 million, up from $1.9 million last year. For the full year, we achieved a 44% increase, reaching $9.8 million. The momentum is due to robust cash generation from operations, which has enabled us to grow our investment portfolio to $309.7 million and benefit from higher fixed income yields. We also continue to reposition a portion of the portfolio to capitalize on attractive new money yields of 4.7% in the fourth quarter. While we remain conservative in our investment strategy, we are actively seeking opportunities to enhance our portfolio yield and duration. As of 12/31/2025, our fixed income yield is 4.3% with an effective duration of 4.4 years, up from 3.7% and 3.9 years at 12/31/2024, an increase of 60 basis points and a half year, respectively. During the quarter, we recognized an additional $1.0 million in sliding-scale contingent ceding commissions under our quota share treaty, with about half coming from lower attritional losses and half from lower catastrophe losses, which contributed a 1.9 percentage point decrease in the 27.9% expense ratio reported in the fourth quarter. For the full year of 2025, we reported an expense ratio of 30%, an improvement of 1.3 percentage points from the prior year. Reaching 30% for the expense ratio is an important milestone for the company. As a reminder, the company's expense ratio was 41% in 2021, and in four years we have successfully lowered the expense ratio by 11 points through several expense initiatives. I would now like to provide some detail on the guidance framework Meryl introduced. For the full year 2025, our underlying combined ratio was 74.4%, comprised of a 44.4% underlying loss ratio and a 30% expense ratio. This was a 5.1 point improvement from 79.5% in the prior year. For the full year of 2026, we are guiding to an underlying combined ratio of 74% to 76%, reflecting continued benefits from our Select product and operating leverage. Our full-year 2025 catastrophe loss ratio of 1.2 points was well below the six-year historical average of 7.1 points for the 2019 through 2024 period. Our full-year 2026 guidance includes 7 to 10 catastrophe loss points, which is above our historical average and incorporates the elevated winter storm activity experienced during 2026. The difference between our full-year 2025 reported combined ratio of 75% and our full-year 2026 guided range of 81% to 86% is mostly attributable to the inclusion of above-average catastrophe losses and minimal change to our underlying combined ratio. I will conclude my portion of the call today discussing our capital position. We have no debt at the holding company. Shareholder equity ended the year at $122.7 million, an increase of 84% during the year. Book value per diluted share increased 75% to $8.28, and book value excluding accumulated other comprehensive income increased 56% to $8.69. For 2025, return on equity is 43%, an increase of nearly seven percentage points from the prior year. Given this foundation and our outlook, we declared our third consecutive quarterly dividend during 2026 and have ample capital to fund the disciplined growth initiatives that Meryl outlined. With that, I will now turn the call back to Meryl for closing remarks. Meryl Golden: Thanks, Randy. I just want to underscore one thing. The results we are sharing today reflect the durable competitive advantages we have built in underwriting, in our producer relationships, and in our operating model. We are entering 2026 with a strong foundation, a clear roadmap for profitable growth, and the financial flexibility to execute. We look forward to updating you as the year progresses. Operator, we are ready for questions. Operator: Thank you. We will now open for questions. Our first question today is coming from Robert Farnam of Brean Capital. Please go ahead. Robert Farnam: Hey there and good morning. I have a couple of questions. One, let us just talk about California first, because obviously California risks are not quite the same as Downstate New York risks. So I kind of wanted to know, and I think this is going to be your first foray into kind of the excess and surplus lines basis of writing things. So I just want to know, how do you see the differences in the risks? How do you expect performance-wise? I am just trying to get a little bit more color as to how California may be different from New York. Meryl Golden: Sure. So we hired an actuarial consulting firm earlier this year to look at the landscape of all the catastrophe-exposed property markets for Kingstone Companies, Inc. to expand, and California came out on top because it is a very large market, it is dislocated, and it is completely diversifying for Kingstone Companies, Inc. relative to New York. So our plan is to enter with the same differentiators as we have in New York. We are going to be using our Select product, and that same firm that helped us build the Select product is helping us modify it to be appropriate for the California market. We are entering E&S so we can have a highly segmented product and use best-in-class models for underwriting and rating of wildfire risk and for risk aggregation. And we are fortunate that we have some underwriters and some claims employees that have experience in California, so that will be really helpful to us. But mostly, the point I want to make about our entry into California is that we will be disciplined. Our plan is to enter small, less than 5% of our premium for 2026, make sure we understand the market and we are doing everything right before we expand. Robert Farnam: And if I read right in the presentation, you have a 30% quota share on the California business. Is that right? Meryl Golden: That is correct. Out of an abundance of caution, we have a 30% quota share for California initially. Robert Farnam: Okay. And are you looking to write all across California, or are you looking, like, Northern California, Southern California? Or coastal California? You know, where the wildfires could possibly be? I am just kind of curious. Obviously, in New York, you have a specific targeted area, so I did not know if California would be similar. Meryl Golden: Yes. So in California, we are going to write all across the state. It is really important to manage our concentration in any area of California to manage the wildfire exposure, and we will be doing that in real time. And we are focused on low to moderate wildfire risk. Robert Farnam: Okay. Same kind of target size value for homes as in New York? Or something? Meryl Golden: Same as New York. Robert Farnam: Okay. Just to change tack a little bit here. So your expense ratio—obviously, you have had a lot of progress getting it down to 30%. Do you see, like, where do you see a happy run rate as to where that expense ratio can get to? Are you pretty much where you should be, or do you think you could still squeak some improvement out of that? Meryl Golden: Randy, do you want to take that? Randy Patten: Sure. Hey, Bob. Good morning. Robert Farnam: Hey. Randy Patten: Yes. So reaching a 30% expense ratio is a huge milestone for the company. As you know, if you look back to 2021, we were at 41%. I think with some economies of scale, we can get that expense ratio down possibly another half to a full point. But it is kind of where we expect it to be—kind of in the 29% to 30% range is where ultimately we will be comfortable with that expense range. Meryl Golden: Great. I just want to add, Bob, that most of the expense to enter California has already been incurred in terms of developing the product and programming the product, and we will likely need to add some staff, but a modest amount of staff as we continue to grow in California. So I think we are going to get scale economies, as the platform we have built is scalable. Robert Farnam: Yes. Right. Yes. I saw that in the presentation. You are talking about your ability to scale up is not going to have a whole lot of impact on the expenses at this point. So that is great. Last question for me—I probably ask you every quarter—but obviously, with such profitable business, has there been a change in competition at this point in New York? It is just something that baffles me that you do not have a whole bunch of other companies trying to get into the same market to try to capture the same profitability. Meryl Golden: Yes. I mean, we have been hearing lately about different companies planning to enter the state, but let us not forget that competition has come and gone in New York, and Kingstone Companies, Inc. has been able to execute regardless of the competitive environment. We are in a really good place in Downstate New York. We have our Select product that properly matches rate to risk, low expenses, we are providing great service to our producers and our policyholders, and we have very deep and broad producer relations. So I feel confident we can compete successfully with whoever is entering New York State. Robert Farnam: Okay. Good. Good answer. Congrats on a great year. That is it for me. Meryl Golden: Thanks, Bob. Operator: Thank you. Next question is coming from Gabriel McClure, a Private Investor. Please go ahead. Gabriel McClure: Good morning and congrats on an outstanding quarter. Meryl Golden: Thanks, Gabe. Yes. So— Gabriel McClure: I think Bob asked most of the questions that I had for you. Just wanted to circle back on the exposure limits on the policies in California. Can you remind us again what our exposure limits are on our New York policies? Meryl Golden: Sure. We just, in New York, increased the available Coverage A, or value of the home, to $5 million. So we had been operating with a max of $3.5 million for all of last year, and we have just increased to $5 million. And that would be our plan for California as well. We are going to start off with a cap that is a bit lower, and as we gain confidence in our product, we will open up to $5 million as well. Gabriel McClure: Okay. Got it. And then I think in your prepared remarks, you made a little bit of reference to the winter storm that you all had a couple of weeks ago. Did we have some noticeable claim activity from that storm? It looked pretty bad from out here in Arizona. Meryl Golden: Yes, Gabe, it is obvious you are not in the Northeast because it has been a bad winter. We have not just had one winter storm. There have actually been seven catastrophe events that have been declared since January 23. So the one thing I want to say is our claims department has been working so hard. I am so proud of the way they have managed this catastrophe event and the service that they have been able to provide to our policyholders. And our estimates for the winter storm losses have been included in our guidance for 2026. So we have mentioned that we are planning for an at or above average catastrophe loss year of 7 to 10 points, and that includes the catastrophe activity from Q1. Hopefully, the winter is over, and there will not be any more catastrophes declared. Gabriel McClure: Okay. Yes. I hope so. Got it. Okay. And then just last thing, the California opportunity is super exciting and interesting. I know Bob asked most of my questions already, but is there anything interesting or anecdotal that you have about the California market that you might want to share? Meryl Golden: I think what is really important to understand is that the market is in need of capacity, and many people think that is because of wildfire. And certainly, wildfire is a major risk for California, but the primary issue in California is the regulatory environment, which precludes companies from charging adequate prices for the underlying exposure. So as an E&S writer, we are not subject to that same regulation, so it gives us a real advantage, and that is why you are seeing in California the E&S market for homeowners is growing faster than any other place in the United States. So I think it is a terrific opportunity to highlight the differentiators that Kingstone Companies, Inc. brings to the market, particularly relative to pricing sophistication and producer relationships, and I am really excited to start writing business there in Q2. Gabriel McClure: Sounds really good. That is all for me. Thanks, Meryl. Operator: Thanks, Gabe. We are showing no additional questions in queue at this time. I would like to turn the floor back over to Ms. Golden for closing comments. Meryl Golden: Great. Thank you, everyone, for joining us today. It is a really exciting time for Kingstone Companies, Inc., and we appreciate your support. Have a wonderful day. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Operator: Good day, everyone, and welcome to the Genesco Inc. Fourth Quarter Fiscal 2026 Conference Call. Just a reminder, today’s call is being recorded. I will now turn the call over to Jason Ware, Vice President of Finance and Investor Relations. Please go ahead, sir. Jason Ware: Good morning, everyone, and thank you for joining us to discuss our fourth quarter fiscal 2026 results. Participants on the call expect to make forward-looking statements reflecting our expectations as of today, but actual results could be different. Genesco Inc. refers you to this morning’s earnings release and the company’s SEC filings, including its most recent 10-Ks and 10-Q filings, for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made today. Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures are reconciled to their GAAP counterparts in the attachments to this morning’s press release and in schedules available on the company’s website in the quarterly results section. We have also posted a presentation summarizing our results here as well. With me on the call today is Mimi Eckel Vaughn, Board Chair, President, and Chief Executive Officer, and Sandra Harris, Senior Vice President of Finance and Chief Financial Officer. I would like to turn the call over to Mimi. Mimi Eckel Vaughn: Good morning, everyone, and thank you for joining our fourth quarter earnings call. Let me begin by taking a moment to thank Sandra for the contributions she has made to our company. Since stepping into the CFO role, she has been part of our important progress, strengthening our financial discipline, navigating through a dynamic external environment, and working to achieve meaningful profit improvement. We wish her the best of luck in her future endeavors. We have already begun an active search for her successor and plan to work through this search expeditiously. As a reminder, I will assume the role of interim CFO in a seamless transition working closely with our talented and deeply experienced finance leadership team and leveraging my prior time in the CFO role. This morning, I will start with a review of the quarter and year before turning it over to Sandra to cover our financials and walk through guidance for the coming year. Then I will come back and discuss our strategy and fiscal 2027 initiatives before opening it up for questions. We delivered a strong finish to fiscal 2026 with fourth quarter results that exceeded our expectations and reflected outstanding execution during the most important shopping period of the year. We exit the year with clear momentum as we head into fiscal 2027. As we have discussed throughout the year, the consumer environment remains selective and intentional. The consumer engages during key shopping moments and pulls back in between, a pattern that became even more pronounced in the back half of the year. We saw it clearly in December. After a choppy October and a measured November, demand accelerated meaningfully during peak holiday weeks. The final weeks leading up to Christmas were among our strongest of the year. When the consumer came out to shop, they came out with purpose. We had just the right assortment, and our people were ready to serve them however they wanted to shop, and they responded decisively. For the quarter, total comparable sales increased 9%, building on robust 10% comparable performance last year. Stores were especially strong, propelled by exceptional conversion over holiday and higher transaction size, while digital reaccelerated, especially during peak weeks. This balanced performance across channels reinforces the strength of our multi-channel model, especially in high-volume periods. Journeys once again led the way. The transformation and strategic growth work we have been executing over the past two years—elevating the assortment, leaning into our sharp point on the style-led teen girl, building our brand, improving the experience, and rolling out 4.0 stores—continues to translate into sustained comp growth and meaningful profit improvement with double-digit comp gains in Q4 this year on top of double-digit gains last year. Holiday performance at Journeys was driven by a powerful combination of demand for both casual and athletic lifestyle footwear. Casual and boots saw a notable lift and really drove the business, particularly within key brands and franchises. At the same time, we continued to build athletic as a year-round category for our customer, and that strength added to the quarter. The work of our expert merchant team helped drive strong full-price selling and higher average selling prices, clear proof that when we deliver key styles and must-have product, the consumer is willing to stretch for it. What is most exciting is we grew total customers in December and January and continued to achieve market share gains. Journeys performance far outpaced the overall footwear market as Journeys gains important traction with the larger youth customer base we are targeting, especially the teen girl. Our 4.0 stores shined over the holidays and continue to outperform the fleet, driving higher traffic and improved productivity. These stores not only elevate the experience but reinforce our authority across brands and categories. We now have more than 84 4.0 locations, and they are becoming an increasingly meaningful driver of performance. In addition, I want to give a shout-out to all our Journeys store teams across the store footprint who did an absolutely amazing job and delivered fantastic conversion during the holiday this year. At Schuh, the U.K. retail environment remained highly competitive, ending in a lackluster holiday season, especially for discretionary categories. While many of the brands driving Journeys growth also resonated at Schuh, greater price sensitivity had the U.K. consumer looking for bargains. With the goal of exiting the year in a clean inventory position, the team navigated the season, driving positive comps at the expense of gross margin, with promotional activity taking a toll on profitability for the quarter. Taking a broader view, we see a similar consumer opportunity to Journeys in the U.K., but are clear-eyed about the work ahead at Schuh. As I will discuss shortly, we are focused on restoring margin discipline and improving store productivity in fiscal 2027. Moving now to our branded business, at Johnston & Murphy, we made encouraging progress as the quarter unfolded with comps improving in each successive month and meaningfully in the run through holiday. Apparel and accessories performed well, supported by new trend, renewed product focus, and faster innovation cycles. The refresh in the ICON quarter-zip program and growth in knits and blazers were prominent contributors to these increases. Our partnership with Peyton Manning launched right before the start of the fourth quarter, generated strong engagement and traffic lift, and we saw improved comp trends in both stores and online as the holiday period progressed. Promisingly, this momentum has increased further into the first quarter with greater return to work and more interest in dressing up. Genesco Brands Group continued through its transition year. The tail end of the Levi’s and other license exits and tariff impacts weighed on results, but we have simplified the portfolio and prepared for the launch of Wrangler footwear this fall, which positions this business for healthy growth following the start-up year. Looking back, fiscal 2026 represents a meaningful step forward. We delivered positive overall comps in every quarter of the year while extending Journeys straight to six consecutive quarters of comp growth reaching back to fiscal 2025. We strengthened our market share in key customer segments. We improved operating income year over year. We delivered EPS in the range we laid out at the start of the year despite massive disruption and negative impacts from tariffs, a tough footwear backdrop, and a much more challenging U.K. market. And importantly, we demonstrated that our company can perform in a volatile, event-driven consumer environment. We see meaningful earnings opportunity to unlock in each of our strategically well-positioned businesses, but we must evolve our concepts to meet the needs of the customer, which have rapidly changed in recent years. Journeys has been our number one priority, and we have demonstrated real success unlocking much greater profitability. With Journeys on its way, we intensify our attention to our other businesses with Schuh at the top of the list. Importantly, we enter the year in a strong position to achieve this overarching goal, thanks to clean inventories and initiatives in place to drive the improvement. Indeed, Q1 is off to a good start in North America, even with the February weather disruption. The year reinforced a critical lesson: the right product, the right brand positioning, the right experience in stores and online. All of these matter, and when we get these aligned, we win, enabling us to take another meaningful step forward in fiscal 2027. I want to thank our talented and incredible people who are at the core of what we achieved in the year we just finished and will achieve in the year to come. And with that, I will turn it over to Sandra to walk you through the financial details for the quarter and our outlook for fiscal 2027. Sandra Harris: Thanks, Mimi. Overall for the quarter, we grew revenue, delivered high single-digit comps, meaningfully leveraged SG&A, and generated adjusted EPS of $3.74, up $0.48 versus last year. For the full year, adjusted EPS was $1.45, finishing above our revised estimates and well ahead of the prior year. Fourth quarter revenue of $800 million increased 7% year over year. Comparable sales rose 9% with stores up 9% and direct up 8%. Importantly, this marked our strongest quarterly comp performance of the year across both channels, delivered in our highest-volume quarter and on top of strong results last year. All businesses delivered positive comps in the quarter. Journeys led with 12% growth, driven by continued strength in key franchises and full-price selling. This built on 14% in Q4 last year, a remarkable stack comp result. Johnston & Murphy comps increased 2%, with sequential improvement in December and January. Schuh comps rose 3%, driven in part by holiday promotional activity. Notably, e-commerce penetration at Schuh exceeded 50% of sales in the quarter, reflecting a highly promotional environment and continued value-driven online behavior in that market. These gains, as well as favorable foreign currency impact, were partially offset by lower revenue from ongoing store optimization and closures, and the wind down of licenses at Genesco Brands. We ended the quarter with 42 net fewer stores versus a year ago, which was a decrease of about 3% of the fleet and 2% of the square footage, representing about 1% of the sales. Closing these stores was accretive to operating income and for many we also saw a positive sales transfer. Adjusted gross margin for the quarter declined 90 basis points versus last year. The decrease was primarily driven by heightened promotional activity at Schuh along with the ongoing tariff pressure and changes in channel mix at Genesco Brands. Journeys and Johnston & Murphy gross margins were supported by strong full-price selling that mostly offset brand mix shift and tariff pressures. SG&A expense was 39.1% of sales, leveraging 140 basis points year over year. In addition to our store optimization efforts related to right-sizing the store fleet that removes store expense, additional cost actions including rent reductions, selling salary efficiencies, freight negotiations, and other procurement efficiencies combined with high single-digit comp growth drove the leverage. We achieved this significant leverage despite the expected higher brand marketing investments and a meaningful increase in performance-based incentive compensation expense, which is primarily accrued in the fourth quarter as earned. As a result of our strong performance, adjusted operating income was $56 million for the quarter, an increase of 17% compared to $48 million last year, and adjusted diluted EPS was $3.74 versus $3.26 in Q4 last year. Full-year adjusted diluted EPS was $1.45 versus $0.94 last year, and we ended the year with an adjusted tax rate of 30%. Now turning to capital allocation and the balance sheet. We generated $164 million of free cash flow in the fourth quarter and nearly $84 million for the full year, ending the year in a positive net cash position. Year-end inventories were up modestly versus last year, reflecting a deliberate investment in key items at Journeys to support sustained consumer demand and continued momentum. Inventories at Schuh were lower on a constant currency basis as a result of significant promotional sell-through during the holiday period, leaving the business in a cleaner position exiting the year. And at Genesco Brands, inventories declined significantly with the sell-off of product related to the license exits. Capital expenditures in Q4 were primarily focused on retail stores, ending the year with 84 Journeys 4.0 stores. We also opened four new Johnston & Murphy stores during the quarter. While we did not repurchase shares in the fourth quarter, we repurchased approximately 600,000 shares earlier in the year, representing about 5% of shares outstanding at that time. We have $29.8 million remaining under our current authorization, and as a reminder, we have repurchased 50% of our outstanding shares since the beginning of fiscal 2020. Our strong liquidity and revolver capacity provide more than enough flexibility to support our strategic priorities and disciplined capital allocation approach. Turning now to fiscal 2027 guidance. We exited the fourth quarter with solid momentum. As we look to fiscal 2027, we expect continued strength at Journeys, improvement at Johnston & Murphy, and a reset for Schuh to drive profitability. While we navigate a fluid external and consumer environment, we expect to add to this year’s gains. Before I get into the specifics of our guidance, there are a few key factors shaping this year that I want to highlight: first, positive comps being offset by store closures and license exits resulting in flattish sales; second, gross margin improvement driven by reduced Schuh promotions and lapping license exit headwinds; third, continued cost discipline, though no leverage on a flat sales base; and fourth, quarterly tax rate volatility due to the valuation allowance with a comparable full-year rate. This all results in healthy improvement in operating profit and earnings per share for the year. Let me expand on each of these, beginning with sales. For fiscal 2027, we expect comparable sales to increase approximately 1% to 2%, after increasing 6% in fiscal 2025 and 9% in fiscal 2026. Journeys comps are projected to be positive again this year, which along with positive comps at Johnston & Murphy will more than offset negative comps at Schuh from the promotional reset. This is a deliberate trade-off. We are prioritizing margin recovery and earnings improvement at Schuh over short-term comp gains. These comp gains will be reduced by approximately $30 million of sales from planned net store closures related to our ongoing store optimization efforts, including Schuh, and roughly $30 million of net sales from the license exits. As a result, we expect total sales to range from down 1% to flat for the year. By division, we expect low single-digit sales growth at Journeys, as comp growth is partially offset by planned store closures; Schuh sales are expected to decline mid-single digits, reflecting store closures and sales headwinds with fewer promotions; we expect Johnston & Murphy sales to increase mid-single digits, helped by new stores and wholesale expansion; and at Genesco Brands, sales will decline due to the timing gap between Levi’s wind down and the launch of Wrangler later in the year. For the full year, we expect gross margin to improve approximately 50 to 60 basis points, driven primarily by margin recovery at Schuh with more full-price selling, and at Genesco Brands as we lap prior liquidation. At Journeys, we expect modest rate pressure from brand mix but growth in average selling prices. Regarding tariffs, although we expect higher unmitigated dollar exposure in fiscal 2027 due to a full-year impact, ongoing mitigation efforts including pricing actions and sourcing adjustments are expected to result in a net negative operating income impact of approximately $5 million to $10 million, already included in these assumptions. With the flat sales, we expect full-year SG&A as a percent of sales to deleverage only about 10 to 30 basis points compared to last year, reflecting investments to support longer-term growth, along with continued store optimization efforts and cost savings initiatives, including the benefits from our strategic technology transformation we announced back in January. As in prior years, profitability will be weighted to the back half of the year given seasonal sales patterns. We expect year-over-year operating income growth to improve after the first quarter, but be quite weighted to the fourth quarter, as we benefit from higher volume, improved store productivity, and lapping a highly promotional period at Schuh. Our guidance assumes no share repurchases, resulting in fiscal 2027 average share count of approximately 10.9 million. We expect our full-year effective tax rate to be approximately 30%. However, as an important call-out, due to our tax valuation allowance and our seasonal earnings profile, we expect our effective tax rate to be materially lower in the first three quarters, roughly 7% to 8%, with a fourth quarter true-up to reach the full-year rate. This will distort quarterly earnings per share comparisons, particularly in Q1 and Q2 where a lower tax rate will generate higher losses per share in loss-making quarters. So we recommend investors focus on operating income trends as the cleanest read on underlying performance. Based on these assumptions, we expect fiscal year adjusted operating income to be in the range of $32 million to $38 million and adjusted EPS to be in the range of $1.90 to $2.30. We expect capital expenditures of $65 million to $70 million, primarily for Journeys remodels and selected new stores at Journeys and Johnston & Murphy. Now for some additional color specific to the first quarter. We expect first quarter comps to be in line with the full-year range, fueled by stronger anticipated tax refunds and more robust Journeys comps, diluted to some extent by notably negative Schuh comps. Even with the positive comp, sales will be down a little for the reasons that we have discussed. For gross margin, we expect the rate to be flattish to last year, as there is more opportunity for pickup as the year progresses. On SG&A, we expect deleverage at the high end of our annual range given it is our lowest-volume quarter. This results in an expected adjusted operating loss that is a little over $1 million worse than last year, and adjusted EPS that will be quite a bit lower than last year due to the tax rate impacts. Again, Q1 is the most pressured quarter year over year. We expect improvement from here with higher sales volumes and more gross margin recapture. In fiscal 2027, we remain focused on driving profitable growth by investing in our businesses, continuing cost discipline, and improving performance in challenged areas. Our aim is to build on the progress made in fiscal 2026 and continue rebuilding the company toward historical profitability levels to unlock shareholder value. And now, I will turn it back over to Mimi to provide an update on our fiscal 2027 strategy. Mimi Eckel Vaughn: Thank you, Sandra. We advanced our business over the last few years through our footwear-focused strategy, comprised of six pillars designed to meet evolving customer needs and improve our cost structure in response to changes in the retail landscape. Looking back, we more than doubled e-commerce to nearly $600 million in a little over five years, now representing over 25% of direct-to-consumer sales. We added BOPIS and other essential omnichannel capabilities. We introduced loyalty and signed up over 15 million members in just a few short years. We dramatically evolved our product assortments. We built meaningful data analytics and CRM capabilities, and we removed tens of millions of dollars from our cost structure, among other achievements. Entering the new year, we are evolving our focus with what we call “footwear first,” an advancement of our strategy that centers our work even more clearly around the customer. Our priorities going forward are now on four strategic growth drivers: number one, creating and curating winning product; number two, elevating our distinctive retail and consumer brands; number three, delivering exceptional consumer experiences; and number four, building amazing teams. In addition, reshaping the cost structure remains a focus until we achieve historical profit levels, but it is now embedded in our annual plans. These four drivers form our overall company strategy, but each business has its own important slate of initiatives for the new year that brings this to life. Starting with Journeys, we have said Journeys’ strategic growth plan aims to make Journeys the destination for the style-led teen, especially the teen girl. No other concept goes across athletic, casual, and canvas footwear. This is how Journeys is differentiated and represents the white space we found to build on its strengths to serve a wider teen audience interested in style and trend that is six to seven times larger than the market we have traditionally served and who is underserved in the mall today. In fiscal 2027, you will see us building on our progress in the second full year of executing this strategy. In addition, we are taking the four key areas we have been concentrating on for Journeys and expanding them to five. Together, these initiatives position us to continue comp growth and expand profitability as we have successfully demonstrated so far. Starting with product and diversifying our footwear leadership, we achieved success with a more premium, more elevated assortment, giving us confidence to expand our female-led positioning and open-to-buy with key vendors. We grew through a diversified portfolio of multiple brands this past year and see opportunity to extend a number of iconic franchises across categories, including lifestyle running, casual, low profile, and sandals. Growth will come from trend leadership and newness from these categories, growth from the new brands we introduced last year, and growth from new models from existing in-demand brands. Leaning into these key trends and newness, we see opportunity to drive ASP increases once again this year as well. Second, building the Journeys brand, bringing our refreshed trend and style-led positioning to expand awareness with this broader teen audience and acquire new customers. Our Life on Loud campaign, with 750 million impressions across top streaming platforms and social in the fall, will extend into spring, backed by increased media spend totaling millions of dollars. For back-to-school and holiday, we will be unveiling a new creative concept with headline talent backed by even more media spend. We will elevate our editorial content, expand our employee ambassador program, and increase our social media presence to fuel discovery and our position that Journeys is the place for the latest on-trend footwear. As a preferred brand partner, we will build upon our activations like the ones we did last year with the Nike launch and the customization tour with UGG. And lastly, we will launch a community platform focused on teen well-being, creating energy and positivity to engage with our customer base. Third, reimagining the store fleet. Our new 4.0 format is a key component of our strategy and demonstrates the power of an elevated physical shopping experience, delivering stronger new customer acquisition and higher comp lift. In the coming year, we will double the 4.0 store count, adding another 80-plus to our fleet. About two-thirds of these will be remodels, and the balance will be relocations to bigger footprints and some additional new stores for more growth. We expect to end the year with about 20% of the fleet converted to 4.0 stores. Another exciting initiative is expanding the 4.0 concept to Journeys Kidz and experimenting to test the results. This new Kidz concept will be connected to the big Journeys format but with some intentional differences. Among other features, Kidz 4.0 will increase display across all size ranges to see if we are able to drive higher store volumes. The fourth and new area we have broken out for Journeys is driving digital evolution. With the growth of AI, improving discoverability within search is a key focus. Improving the website experience is another, along with testing new online customer acquisition and retention tactics in general and also in connection with the All Access loyalty program. And finally, unlocking the power of our people. Our investment in building stronger retail teams engaged in better selling behaviors and stronger conversions paid dividends, and we are building on these efforts in the coming year. Now moving over to Schuh, we see the same opportunity in the U.K. as we have at Journeys to be the leading fashion footwear destination for style-led youth with a sharp point on the female customer under 25. As such, we moved Schuh under the Journeys Retail Group and Andy Gray’s leadership in late fall last year. We have a number of the elements in place at Schuh, such as a new store format, and have the strategy work underway to refine our customer proposition and competitive positioning. However, in the year to come, our immediate priority is on actions to significantly improve Schuh profitability in this reset year. Some of the most important are reducing Schuh’s reliance on discounting. While the U.K. market has been challenged with heavy promotional activity, matching promotions helped sales but hurt profits. We ended the year in a clean inventory position, enabling us to begin removing several calendar promotions and focus on gross margin recovery. This reset will take some time, but our aim is to get back to full-price selling of must-have product. As part of this and to further the progress the merchant team has made on product elevation and brand access, Schuh will leverage the Journeys Global Retail Group under the leadership of Chris Santella to work with our key brand partners to better serve this coveted customer. This was a critical component of the Journeys strategic growth plan when we started that work as well. Efforts began last year and will continue this year to optimize the store fleet, closing unproductive stores to improve the overall cost base and store channel economics. Finally, we are targeting additional cost reduction actions in areas like selling salaries and rent reductions and implementing quick wins on experience like better visual merchandising and social media updates. As progress on these initiatives take hold, we will then shift our focus to Schuh’s strategic growth plan focused further on customer, brand awareness, and experience. Moving now to our branded platform, Johnston & Murphy will expand its consumer reach as a modern lifestyle brand. Delivering fresh and distinctive products continues as the primary focus. The plan this year is to capitalize on the favorable trend shift for J&M—more tailored styling, more dressing up—while maintaining comfort. We plan further growth in apparel and accessories, building on success injecting the assortment with greater freshness due to shorter lead times, and capitalizing on trends like the shift into knits. In footwear, we are renewing the assortment with 30% more new introductions, including franchise updates and new concepts like the Ripley. We will leverage accelerated development tracks to deliver greater freshness in season as well. We plan to add to our brand and awareness building like the successful partnership with Peyton Manning, and expand distribution by opening 10 to 15 new stores, which increases our fleet by 5% to 10%. And finally, Genesco Brands has done an incredible job quickly building out a full line for Wrangler footwear in anticipation of the fall launch. As we move into the year, our evolved footwear-first strategy centers on the consumer and rebuilding profitability while driving growth. With the work we have already done and this new strategy, we are confident in our ability to drive improvement while positioning the company for future growth beyond fiscal 2027. And with that, I will now open it up for questions. Operator: Thank you. We will now be conducting a question-and-answer session. We will be taking two to three questions from each analyst for the first round, and if there are additional questions, we encourage you to get back in the queue. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please for our first question. Our first question is from the line of Mitch Kummetz with Seaport Research. Please proceed with your questions. Mitch Kummetz: Yes, thanks for taking my questions. I guess my first question is on Journeys. I was hoping you could say how the business is performing quarter to date. Also, what sort of comp is embedded in the low single-digit sales increase? I would guess probably something kind of in the mid-single-digit range as far as comp goes. And then do you expect comp to be pretty consistent for Journeys over the course of the year by quarter, or do you expect it to be stronger in the back half given that that is where we see, you know, back-to-school and holiday pop up and the consumer being very event driven? And then I do have a couple of follow-ups. Mimi Eckel Vaughn: Perfect. Thanks for joining us this morning, Mitch. We have been really pleased by Journeys growth and performance over the last couple of years, and I will just take you back and say that this is our first full year of the Journeys turnaround. And so when you look to see where comps have been, we increased comps by 6% in fiscal 2025 and then followed by 9% in fiscal 2026, so really incredible comp growth. I will take your first question and say how is the business performing quarter to date. As I said, we are really pleased with where we are quarter to date. It has only been a month, it has been February, but we are tracking in the mid-single digits, and there has been a lot of disruption in terms of weather, but there was a lot of disruption last year as well. When we think going forward and expect the comp for this year, we do not quite get to mid-single digits for this year. I think it really is just being mindful or excited about all the initiatives that we have. We are mindful of the peaks and valleys that come through the course of the year, which we saw last year, and I think that we have embedded that within our forecast. In terms of the comp by quarter, we expect a higher comp in the early part of the year. We are looking at tax refunds and think that it should be a positive tailwind to what we see in Journeys. And then, of course, in the back part of the year, the business comped an incredible 12% on top of a 14% last year, so we are mindful of that. But all these great initiatives are in place to continue to drive that business forward. Most importantly, we are taking Journeys to a place it has never been before with a more elevated product mix and serving a broader customer base. Mitch Kummetz: And then thank you for that, Mimi. And then my second question, also on Journeys. Can you talk a little bit about maybe some changes to the assortment this year? I know you had said on prior calls that you had added, you know, HOKA, Saucony, and Nike, and Nike came late in the year. I am just curious with those brands in particular. I know that when you introduce brands like that, they start out, you know, in select stores. Curious to know if you are, you know, growing the number of stores that those brands are in and if you are—are any other new brands that you could speak of that you will be adding to the Journeys assortment in fiscal 2027? Then I have one last question. Mimi Eckel Vaughn: Great. I have talked a lot about how fashion has been broadening and that our teams are embracing more wearing and occasions. The really important takeaway here is that we need to have the brands that our customer has and what is represented within their closet, and so that is what we have been striving to do. And Journeys is the place that no matter what is relevant—and there will always be something relevant—we will be well positioned to be very deep in what matters most to our consumer. And so what I will talk about for this year is that once again, our year is not dependent on adding new brands. We see opportunity within the existing franchises. I think our growth was spread out. I think it is 10 different brands that we see growth spread out across, and we see some continued opportunity to add to the franchises that saw some very good growth this year. And so as far as the new brands, we do expect some growth from these new brands. We do expect to add additional product in on balance. But again, the overall growth for the year is really not dependent on adding anything new. And when we add the next brand, I will let you know. Mitch Kummetz: My last question on Schuh. Can you say how much pressure Schuh was on gross margin in 2026 and how much recovery you are anticipating in 2027 as you, you know, cut out some of the promotions in that business? Mimi Eckel Vaughn: Sure. I think what is important is that we are going to withdraw from promotions. We will not get there all the way this year, but we will make a really good dent into it. And I will ask Sandra just to recap how much we gave up in gross margin and how much we expect to pick up. Sandra Harris: Yes, Mitch. So the deleverage that was created in 2026 in gross margin, or the lower gross margin, 60% of that is attributable to Schuh, with the majority of the rest related to the exit of the licenses, with some small impact from tariffs. Mimi Eckel Vaughn: Yes, so I think it was 250 basis points altogether, and we do not think we will take all of that back up as we go through the course of the year this year. I think it has been a couple of years in a row that we have lost gross margin due to the promotional environment. We cannot get it all back in one year, but we are going to make a very good start. Operator: Thank you. Our next questions are from the line of Joseph Vincent Civello with Truist Securities. Please proceed with your questions. Joseph Vincent Civello: Hey, guys. Thank you so much for taking my questions. You gave some great color on the category strength during Q4 and where you see growth coming from this year. Can you talk about the canvas category at all, how that performed over the holidays, and what you are thinking about the pipeline for that in 2026? Mimi Eckel Vaughn: Joe, thanks for joining us this morning. When I think about the growth that Journeys experienced in the fourth quarter and the categories that propelled the growth, it really was all about casual and about boots. We saw a nice pickup in boots after several years of not a lot of forward momentum in the boot category. And so our fourth quarter was all about casual. And what is exciting about our business is that we have got a nice balance, and so we have got athletic in other parts of the year and we will be leaning into athletic, particularly lifestyle running, through the course of the spring. Canvas continues to be a relevant and important category for our customer base. It is a much more accessible price point than some of the other categories. But we have seen the consumer stretching up to pay up for what they want, and we are not anticipating growth in the canvas category overall for this year. Joseph Vincent Civello: Got it. And you have made a lot of gains, obviously. You know, we have talked about the new brands, higher heat, the customizable event. Are you continuing to see brands engage more with you guys, you know, just to provide, you know, more premium in-store experiences for customers? Mimi Eckel Vaughn: For sure. We—and they—are so excited about what we have accomplished over the last couple of years. And it all starts with who is the consumer we are trying to serve. And we are—we have always been known for teens. We have always been a bit more female-focused, but we are leaning significantly into that. And when you think about how well that customer is served with apparel, she is really well served where you can think of 10 to 15 places that she goes in the mall, and the place that she can go for her footwear is to Journeys. And so our brands want access to this very coveted customer. This customer has demonstrated that she likes to shop in the physical world. It is a pastime. It is fun. It is engaging. She is super educated about what she wants. She keeps up with fashion trends, and we are continuing to lean further into our trend leadership and into the style setting that is out there, and working with our brands to be able to do it. So it is a fantastic partnership in terms of what we are able to do together. So what is important is that we are promoting the Journeys brand, but also promoting the brands that our consumer wants. And so going forward, we have done activations with our brands. We will continue to do activations with our brands. We are adding more premium product. We do see additional opportunity to push up ASPs through the course of the year, and the consumer is responding really well. We have committed to opening more 4.0s, so we have a great environment for our brands to put their products, and, yes, we will continue to build. Joseph Vincent Civello: Got it. Yes, makes sense. And then on that ASP comment, can you sort of break out, like, how much of that might be coming from, you know, just continuing to expand your premium assortment versus underlying, like, product—the pipeline that the brands are setting themselves, like, in terms of higher ASPs? Mimi Eckel Vaughn: Sure. So it is both. For sure, the industry has been taking price increases and, you know, always when brands have heat or items have heat or franchises have heat, brands are always seeing an opportunity to be able to take price increases as appropriate—just with a nod, if you are a hot brand, you certainly have the opportunity to expand pricing. And then overall cost pressure from higher tariffs is driving some of that as well. But it is also that we are improving the premium nature of our assortment, and so we are actually adding items that are at a higher average selling price than the overall assortment today. So altogether, it is a positive combination. We are just seeing, in general, some ASP pickups from, in general, some price increases, but also adding new items to the assortment that are more premium in nature. Operator: Thank you. As a reminder, if you do have additional questions, we encourage you to get back in the queue. Next question comes from the line of Sam Poser with Williams Trading. Please proceed with your question. Sam Poser: Good morning, everybody. Thanks for having me on the call. I have got a handful. Number one, what is the timing by concept of the store openings and closings? And then within that, how many 4.0 stores are you planning to have open this year? Mimi Eckel Vaughn: Sam, thank you for joining us this morning, and I will talk about 4.0s, and then I will ask Sandra to talk about openings and closings for the year and just overall timing of that. But we are delighted with the 4.0 performance. I know you have been in our stores. We managed to get more than 80—I think it is 84—open through the course of the year this year, and we plan to open 80 more over the course of the year again this year, and it will be about 20% of our fleet. But what is notable, and I want to call this out to you, is that about two-thirds of those are just remodels in place, which is what we mostly did last year. But about a third of them are larger stores, so we are expanding our footprint in many of the locations because we really like what we have seen. We have been able to drive more productivity, and we need more space. And particularly in the more premium malls, we are performing even better than average. And so more premium malls, more opportunity to take bigger square footage, allows us to be able to not just get the lift from the remodel in place but to add square footage overall. And so we will continue with that. And I think I did call out too that we are doing a Kidz 4.0, and we are going to see how that works. Over to Sandra for the openings and closings. Sandra Harris: Yes, and then, Sam, in our summary deck that is posted, there is a listing of the openings and closings expected for next year by division. But just in general, we are expecting to open 23 stores next year, predominantly weighted to Johnston & Murphy, and that will be more towards the back half of the year. And in regard to the closures, we have about 75 stores. About 75% of that will be Journeys and the ongoing store optimization, which we do around lease expiration timing. And then we have about 13 for Schuh and six for Johnston & Murphy. And those are actually timed— Sam Poser: Time out. I know all of that. I read that in the thing. All I am trying to do is figure out by quarter how many you are opening and planning to open and close by concept, by quarter. That is what I am trying to figure out. I know the total. I just do not want to put in my model you are opening stores at the wrong time or closing stores at the wrong time. Mimi Eckel Vaughn: Right. Yes, Sam. So on the 4.0s, we are doing them obviously throughout the year pretty evenly. Q1, Q2, with about double of that in Q3, so they are open and they are ready and they are productive, right? And then in regard to the other Johnston & Murphy stores, opening them in the prime period—Q3 and some into Q4. On the store closures, it is all around lease expiration, but predominantly they are split between Q1 and Q2 and trailing off in Q3 and Q4. Sam Poser: Okay. Thank you. And then can you talk about the sales in the license businesses and how much, like, how down that is going to be in the first half of the—how bad it is going to be year over year in the first half? Is it expected to be up at any point in time in the year? And you ran, I think you had, like, around a 30% to 35% gross margin at one time, it was down. What is the thought process to get back to those higher gross margins within that business? Mimi Eckel Vaughn: Yes. So I will give you a little color, and I will get Sandra to get the numbers. So we expect the most pressure from the down sales—I think we told you it is a net $30 million altogether. We expect the most pressure in the second quarter and then the third quarter, not much in the fourth quarter, and then some in the first quarter. So the majority of what is—I would say about two-thirds of the loss is going to happen between the second and third quarters. It used to be a 35% gross margin business. We absolutely want to get it back to that level. We will not be there yet this year. We are starting up the Wrangler, and I know you have seen the line, and the team has done an amazing job getting the full line out quickly. But the plan here is that our Dockers business—we are down to Dockers and Wrangler. We simplified the assortment. And, you know, Dockers is moving toward that 35%. We are going to need some time to experiment with Wrangler, and therefore will not hit that gross margin level until we grow that business. Sam Poser: And then lastly, I understand that there is an opportunity with Wrangler in mass, but that does not appear like where you are starting it. Can you talk about the timing and the initial plans for the type of—where you are looking to put it this year? Mimi Eckel Vaughn: Sure. There is opportunity for Wrangler in many tiers of distribution. And if you look where the apparel is distributed, it informs the thinking that mass is an opportunity, but there are much higher tiers of distribution where we are going to start. And so the initial collection—and we are going to be focused on Western, and we are going to be focused on work. We call the first horizon Western specialty, farm and ranch. Really, the top of the pyramid is where we are starting—tier-one distribution that will really set the halo for later distribution in mass. So it is not going to be in the near term that we are going to get to mass. It is going to be in some of the more premium accounts, Sam. So that is how we are going about establishing the footwear part of this brand. Operator: Our next question comes from the line of Mantero Moreno-Cheek with Jefferies. Please proceed with your questions. Mantero Moreno-Cheek: Thank you for taking my question. Can you triangulate what is driving the ticket and traffic at Journeys and the rest of the brands? And then also, on inventory, you ended the year up 2% and I am just guessing that it implies that units are down. Is there anything you can discuss there on inventory, on AUR, ticket, and traffic? And I will follow up after that. Mimi Eckel Vaughn: Sure, Mantero. I will start with just talking about traffic and ticket and the like, and then I will hand it to Sandra to talk about inventory. But in general, in the fourth quarter and in general in the footwear industry, traffic has been down. I think for the industry in general, traffic was down close to 10% in the fourth quarter. And I think that is a measure of a couple of things. One is that consumers are more educated, they are doing less window shopping, they know what they want when they come in. And so the traffic that is coming in is more qualified traffic. What we have been working on is we have been working on conversion, and our businesses across the board saw higher conversion in the fourth quarter. I called out Journeys conversion. The store associates are really doing phenomenal work to drive great conversion for the customers across the lease line well into the double-digit levels. And then average selling price is the other piece that is moving the needle. And so it is conversion and selling price and transaction size that is moving the needle. Units are down overall. I think the consumer in general is stretching up to buy what they want, and units are down across the industry. But the important thing is that they are really stepping up and accepting the price points and reaching to buy that must-have product that they want. Sandra Harris: Yes, one final note on inventory: units are down, but we also have the exits of the licenses at Genesco Brands Group, and then we also have the highly promotional cadence at Schuh, which sold off a lot of inventory. And so on a constant currency basis, they are down well. Mantero Moreno-Cheek: Thank you. And then my follow-up is, have you—or did you—say how much higher the 4.0 stores are comping versus the rest of the chain? Mimi Eckel Vaughn: Yes, we did. For this time around, we said that they have been comping 25%-plus, and they continue at that level. And we saw stronger everything. You heard how strong Journeys was over the fourth quarter, but you can take everything that we said and 4.0s were even stronger—stronger traffic, stronger conversion, stronger selling prices, more new customers. And new customers are going to be the hook for the 4.0 stores. It is the visible difference and the manifestation of the new Journeys strategy. And so the ability to attract new customers is stronger in the 4.0s, and so we will continue to roll out this year and have more opportunity to do that. Operator: Thank you. Mimi Eckel Vaughn: Thank you. Operator: At this time, we will turn the floor back to management for closing remarks. Mimi Eckel Vaughn: Great. Thank you, everyone, for joining us, and we look forward to talking with you on our next call. Operator: This will conclude today’s conference. We thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day. Sandra Harris: Thank you.
Operator: Good afternoon, ladies and gentlemen, and welcome to the African Rainbow Minerals Interim Results for the 6 months ended 31 December 2025. [Operator Instructions] Please note that this event is being recorded. I will now hand the conference over to Thabang Thlaku. Please go ahead. Thabang Thlaku: Thank you very much. Good afternoon, everyone. So we're all together in the room here. We've got the entire management team. We've got Phillip Tobias, Tsung Shang, Mike Schmidt, Jacques van der Bijl, Thando Mkatshana, La Berger and Johan Jansen. So the entire management team is here to answer all your calls. We're not going to do an introduction. We're going to go straight into Q&A. So we'll just give them some time to take Q&A. Operator: [Operator Instructions] Our first question comes from Ntebogang Segone of Investec. Ntebogang Segone: Perfect. I think my question is quickly on Thando or to Thando in relation to the ARM Coal. I mean I see domestic sales were down 15% year-on-year at GGV and then PCB also was down 3%. And then I also see also on the revised guidance, particularly around those local sales volumes going forward, they've been revised downwards. Could you please just provide some guidance on the contracts and downward revision of that coal business and how we should then be looking at it, particularly on the local sales side? And then in relation to Modikwa, I just wanted to understand, so I saw that like -- so tonnes more were up 5% year-on-year, but the PGM concentrate did go down by 3% due to that plant recovery. How does the recoveries outlook profile with open pit combined look like for Modikwa? And if you could maybe speak more around that 4% unit cost reduction at Modikwa and how we should also look at it going forward? I'll leave it there for now. Thando Mkatshana: With regard to the domestic sales, the main supplies to Eskom. As you probably know, the burn rate in terms of Eskom and power generated from their side has been reducing. So we are having that impacting our domestic sales. The positive thing out of that, obviously and tying it up with an improved performance from TFR is that some of the coal we do divert into the export market prices. So in terms of our contract with Eskom, we have contracted for GGB, it's about 2.5 million tonnes at 100% for the full year of sales. But yes, it all depend on whether they are responsible for the entire logistics as well in terms of getting transport and picking it up. But from time to time, when they don't use or take that coal and derivatives into the export market. I hope that kind of answers your question. Ntebogang Segone: Yes. And the water accumulation there in the coal business there with Mundra, how will that impact production going forward? Thando Mkatshana: Yes, that's a simple -- maybe a bit of quick background is that, that used to be an old underground mine where we're mining now. So we are mining those eras through an open cast method, and we had better accumulation of coal. We have -- that has been, I would say, in the once-off matter. We have since revised the pit layout and we've added additional pumping capacity. Having said so though, across all our business, I think the range that we have been experiencing in the last 2 years has been somehow more than the normal range. So those have impact from time to time. But in the main challenge of the water accumulation has been addressed for now. Unknown Executive: Will you take the Modikwa question. Unknown Executive: Certainly. I must state that the open cost is not the preferred source of ore for Modikwa. We're putting that through the concentrator while we are building up the reserves underground in the UG2. The 6E grades for the underground UG2 is 4.76 grams per tonne. While for the open cast, it's higher, it's anything between 5.2 grams a tonne and 6.5 grams a tonne. The challenge, however, sits with the recovery. Typical recovery for normal underground UG2 is sitting at about 84.5%, 85% while the open cast closer to surface, highly oxidized can be sitting between 50%, 54%. The benefit of the open cast is that it's a much lower cost operation. UG2 cost per 6E ounce comes in underground ZAR 20,200 per 6E ounce, while the open cast comes in at ZAR 16,000. So although you lose some ounces, you're seeing the benefit in terms of the cost. We're going deeper with the open cast. So as you are proceeding deeper, the ore becomes less oxidized and your recovery goes up. So we are confident in the outlook for the open cast as a temporary gap filler Modikwa. Thank you. Operator: [Operator Instructions] And we do have the next person in the queue, which is Tim Clark of SBG Securities. J. Clark: All right. I've got a few questions. I'll sort of roll through them slowly. Let's start with -- the finished stock that you've agreed to sell the 1.2 million tonnes. Can you give us an idea, please, of just the sort of time frame over which you'll sell that, what the offtake is, what the contract is? Unknown Executive: Yes. So the contract has been concluded for 1.2 million tonnes over a 12-month period, which started in February. So the intention is to offtake 100,000 tonnes per month for 12 months. J. Clark: That's very helpful. Let's talk about just how we should think about Nkomati going forward just in terms of spend. You've got this chrome plant, which is going to give some kind of revenue credit. How should we think about it? Just -- I mean, you've got the liability outstanding. Can you give us like some kind of sense or guidance just for our models for the next, I don't know, 2, 3 years of what we should model in terms of -- how we should think about Nkomati in terms of the plant and then offsetting and the spend on rehab, please? Unknown Executive: Thank you for that. I will also ask Tsu to help in terms of the rest of the rehab. But to an extent, this, as you pointed out, this revenue subsidizes the cost of care and maintenance, which as we have indicated in the past, I think we're going to be generating between ZAR 20 million and ZAR 25 million of revenue that will come and subsidize that cost. And yes, so I'm not sure if I've answered. On the rehab side, did you ask on the rehab in terms of margin, we are currently not really undertaking major rehab because we are completing this feasibility study in terms of looking at optionality going forward. As we have indicated, we have quite advanced on that. And I think it is very encouraging and we're confident that when we take it to the Board, it will get approval and we'll make an announcement in due course. So there's no really major rehab that's happened. Same for the water treatment plant, which we have indicated in the past. J. Clark: Okay. So that feasibility study, is that another version of a nickel -- is the feasibility study just to open up another nickel mine effectively a new Nkomati in some different form? Sorry, I don't know much about it. Unknown Executive: Yes. That's what it will entail really recommissioning the mine and bring it back to life. But obviously, in a much more, let me say, a remodel maybe a smaller scale than previously. That's what we are looking at. But yes, we'll be able to share the details in terms of the actual volumes and so on after we've finalized that study and taken further report. But I think that gives a good indication. And in line with that, obviously, also with the very encouraging chrome prices, we are looking at a potential a bigger chrome production than what we are currently doing. Unknown Executive: And on the rehab liability, Tim. So that rehab liability. Unknown Executive: Sorry, just giving more color on the rehab liability. Tsundzukani T. Mhlanga: Yes. Thanks, Tim. Just to let you know, so that we have as at 31 December from Nkomati just over ZAR 2 billion, so it's ZAR 2,011 million or ZAR 2.0 billion. But then just remember that we did receive the ZAR 325 million from Norilsk, which was their contribution as part of the transaction towards the rehab water -- water rehab. Thabang Thlaku: Sorry, it's Thabang. I just -- I want to ask additional questions on your behalf, so we can just clarify some things. So current monthly production of chrome, where are they now and what are we planning to... Unknown Executive: Around 8,500 tonnes per month that we are achieving. But we will peak at about 11,000 tonnes per month of chrome concentrate. Thabang Thlaku: At steady state? Unknown Executive: With the current project. The bigger at the stage we're still finalizing a few items related to the vent recovery process, and that will complicate those volumes, but they are much higher than the current project. Thabang Thlaku: When do you expect to get to 11,000 tonnes per month? Unknown Executive: 11,000 tonnes per month in the month of April. Thabang Thlaku: In April? Unknown Executive: Yes. Thabang Thlaku: And what kind of profit margins are we seeing with the chrome production at Nkomati more or less? Unknown Executive: That plant, it cost us about ZAR 10 million, so I just want to check. It cost us just under ZAR 10 million per month to produce that -- ZAR 20 million to ZAR 25 million. So it's between ZAR 15 million and ZAR 10 million dependent obviously on the chrome price. Unknown Executive: Yes. I think maybe just to come in, overall, just correct me if I understood well. I think in the next 12 months, we should be able to make at least a profit of ZAR 100 million with this 500,000 tonnes as the EBITDA would be positive? Thabang Thlaku: It's revenue or profit? Unknown Executive: Yes. It varies between as I said. Thabang Thlaku: And then just to add -- with regards to the broader Nkomati question, I think it's too early for us to give too much information. As you can imagine, with the geopolitical changes that have been happening, there are some offtakers who've been looking for nickel supply out of Indonesia because of their relationship with China. As a result, Nkomati has become a little bit more attractive to other nickel producers. But it's still early stages. We're doing the study, and we're only sort of going to go for board approval later in the year. And once we do have the details, we'll come back and guide the market accordingly. J. Clark: I'll ask one last question, please. Just on Two Rivers, I was just reading your commentary about being impacted by sympathetic geological structures. I never heard of those before. Can you just chat to how long it's going to take before your productivity improves as the geology improves? Just how long -- you sort of spoke about it improving over time now that you're getting past the docs, maybe you can just give us some timing. Johan Jansen: This is Johan Jansen. What we encountered was a fault parallel to the advancing phases. So about 18 months ago, we started intersecting the fault. We've done redevelopment, went through the fault. We've established the faces on the other side of the fault, which was quite an effort. And at this stage, we are busy bringing the supporting infrastructure up to date the conveyor belts, moving them back to within 60, 80 meters from the face. We've already seen an improvement in the productivity, and we will continue to see that over the next quarter. And by the start of the next financial year, we will be back on 320,000 tonnes per month. Unknown Executive: I think, Tim, that's what I said that -- Tim, that's what I said, our forecast for F '27 will be an improved output because we'll be moving towards strength out of these geological features. Operator: [Operator Instructions] Our next question comes from Thobela of Nedbank. Thobela Bixa: I did get cut off a few times here. Please forgive me if I do ask questions that have been asked already. Earlier on during the webcast, you talked about the value in use model when I asked a question about the realized pricing on the manganese. Could you just expand some more what is meant by value in use model for ARM? And how does that potentially improve your realized pricing? And it did seem as though -- and it did seem as though she wasn't just talking about just sort of the manganese operation, but this perhaps could be applied in other divisions. Can I just get clarity on that as well? So that's my first question. And then I'll ask my second question later. Unknown Executive: Thobela, I would like to expand on that. So what is value in use, you take your specific and you are correct, we need -- for manganese at Black Rock as well as iron ore at Khumani and it is tested in various applications. So where it would be used in different smelters and for what purpose in the smelters. And you develop a model to determine the intrinsic value of your ore type to the customer buying it. And through having that value, you can maximize the economic value you get back in your pricing. And to just further explain it, obviously, in a smelter, they don't only use your specific type of ore. They would use different suppliers type of ore, which has got different grades and contaminants. And we know Black Rock as well as Khumani has got a very high-grade reserves. And we are doing this work in specific to ensure that we get the netback per product on maximizing economic value. So it would mean that we would receive above an index price realization for premiums for our specific product based on our product's value. Thobela Bixa: Okay. No, that's clear. Go ahead, Thabang. Thabang Thlaku: Your answer also applies to iron ore question. Okay, Thobela, go to your next question. Thobela Bixa: Yes. Maybe just a follow-up on that is, would that then maybe mean that your sales volumes perhaps because you may -- I mean, would your sales volume remain the same in terms of how you are forecasting currently? Or would this value in use kind of affect your sales potentially given perhaps you may have to change your products back there? Unknown Executive: No, it would not have any impact on your volumes. The only impact that it would have is on your revenue line. Intent is to see if we can get better prices due to the specific ore type, and we can engage on that. So no, volumes will remain the same, both for Black Rock and Khumani, which is currently in the 5-year plan. Thobela Bixa: Okay. And then my second question is around the domestic sales in the iron ore division. I think my question, I guess, is you've talked about having signed a new contract to sell for domestic sales. Where would those -- given that Beeshoek was the one that you used to supply to your domestic markets. So I'm guessing Khumani will be now the one supplying into that. And is that -- I mean my understanding was that your export sales, you derived better revenue there versus perhaps on the domestic side. Could you just clarify as to why perhaps go via this route. Unknown Executive: So for clarity, the contract on Beeshoek was signed with AMSA, and it was for 1.2 million tonnes. We're sitting with a stockpile of 1.48 million tonnes. The only reason why we signed a contract with AMSA and it is not at a brilliant rate, it's ZAR 800 per tonne, where our previous rand per tonne on Beeshoek was ZAR 1,221. So you can imagine it's 25% lower than our previous base price. That's the best option we could get to get some value for the stocks currently lying at Beeshoek. The intent is never to supply the domestic market from Khumani, no. Khumani is an export mine. And our revenue receiving from exports is much better. So yes, the domestic market will definitely not be supplied by Khumani. This is an isolated matter in specific pertaining to Beeshoek being on planned maintenance, and we're having that 1.48 million tonnes of stockpile. Unknown Executive: And maybe just to comment to, I mean, just a bit of background. You remember that at some stage, we said we don't have a long-term contract with our sole customer, but we were still busy in negotiation with them. And then the last basically delivery of all was done in July, during which period we were still negotiating. And that was at the back of the November '24 when they announced the potential shutdown of the long steel business. So that being announced in November, they were still taking some products for us. And with us being in the mining, obviously, you have to be producing, delivering stockpile so that we can really deliver whatever quantities that are required. So we -- at the back of hope that we're going to enter into an agreement, we still carried on mining and we only need to do the line on the sand out end of October, we said we cannot carry on. At that time, we've already accumulated 1.486 million tonnes. So we just have to basically sell this and clean up everything at... Thobela Bixa: Okay. No, that's helpful. I have my one last question on Two Rivers. I think if I recall well, in terms of your ramp-up profile of prior to the Merensky project being put on care and maintenance. It was quite significant just in terms of what was anticipated then? And then if I look at the current ramp-up profile with the Merensky project being sort of pulled back again into production, this one, this ramp-up profile seems a bit softer. Could you just explain what's the thinking now versus before you put that particular project on care and maintenance. Unknown Executive: Thobela, on the Merensky project, like we communicated earlier today, we started the decline development in October last year, a limited development whilst we're just finishing the feasibility study to recommence with the project. And we plan to complete all of that work as well as the review work and third-party work by May this year, and then we'll take it to the partners for approval with the planned restart date of the 1st of July. The current -- we have redone the whole life of mine model and optimize the mining cuts, et cetera, we get the best value out of the project. And extracting the resource at the maximum grade. And with this latest ramp-up schedule, the schedule that we've done, we ramp up to 200,000 tonnes per month over a 3-year period. So from July 3 years we have steady state production. We are benefiting now obviously from the fact that we've already got 3 levels developed and we are proceeding down towards Level 4, of which 2 are already equipped. So we do have quite a big head start compared to the original feasibility study. Unknown Executive: Thobela, Tsu just actually made me aware. When you're looking at our PGM forecast, the Merensky numbers are not there. So you can't compare this to the numbers that we gave you in 2024 because we're still to include that once we go through the government -- yes. Once the governance process is done, then we'll update the Merensky guidelines. Thobela Bixa: I'm actually looking at the year before that, 2023, where at the time, the Merensky project was due to come in online. And then if I look at your ramp-up profile then, I have it right in front of me. I think from '23 to -- let's say, well, from '24 to '25, you're going to move from 313 cores to 485 cores or kilo ounces. So that's that big jump versus perhaps, I guess, the current softer profile. Thabang Thlaku: Yes. But that's because those numbers did include the Merensky estimate and these don't... Unknown Executive: I can add I think we haven't disclosed in the we haven't disclosed in the current numbers the Merensky ramp-up, like Thabang and Tsu rightly say that we still believe that governance process. However, I can share that the work that we've done with the mining schedule, that ramp-up is over a 3-year period. So I think it's substantially still in line with what we've guided before. Thobela Bixa: Okay. So -- Go ahead. Unknown Executive: Just to help you -- just to clarify, I mean, remember what Doug said, where we stopped in August '24 we were already at Level 3, and this is going to be a 5-level operation, delivering 25,000 tonnes per half level. So we need to develop to Level 4 and to Level 5. And that is basically going to take us about 2 years to do that. Then the third year that Jacques is referring to is when we ramp up to steady state, so which is basically from the beginning, it will be a total of 3 years to get to steady state. Thobela Bixa: Okay. Because my -- I guess my understanding was that the bringing back of the Merensky project would take a lot less time than what I'm hearing now. I guess that's where the misunderstanding would have been. Unknown Executive: I can maybe also just add too that obviously, with the concentrated plant finished, we could sequence now and see exactly when is the optimal that with a combination of building stockpile upfront maybe for the first 6 months or a year and then only starting that. So it doesn't mean that it's a 3-year ramp-up, you're only going to start seeing ounces -- do incremental additional ounces from Merensky in 3 years' time. You could, as quick as within about 12 months, you start to see additional ounces coming from Merensky. Operator: We have a follow-up question from Ntebogang of Investec. Ntebogang Segone: Just a quick one on the Two Rivers production currently, yes, there were like some geological challenges faced in 1H. I just want to quickly confirm as to going forward, is the 3.09 head grades that was reported for 1H sustainable going forward? Or if you could maybe guide us more on how you see that head grade improving as then the geological issues improve? And then in relation to the Two Rivers Merensky project, I mean my understanding is that there's around ZAR 2.6 billion of working capital that needs to be put for it to then be able to get back online. With the current planning, I don't know if it's fair for me to ask if you could maybe provide just some form of color in terms of how you're going to be spending that ZAR 2.6 billion over the next 2 years, if it is then what is approved. And then I think my second last question or my last question is mainly around project priority. I just want to have some like a greater clarity around your growth projects. I mean you've got Nkomati, you've got Bokoni, you've got Two Rivers Merensky project. Are you able to -- or even other M&A and then there's also Surge also as well as part of your growth projects, right? Are you able to explicitly rank those growth projects in order of capital priority for us? Yes, I'll leave it there. Unknown Executive: Yes. Do you want to comment on the grade? Unknown Executive: Yes. If I can go first on the grade, please. Thank you for the question. The grade of 3 mining is a fair outlook of what we could expect going forward. We've moved into an area with split reef. So the grades will no longer be as high as it has been in the initial phases of the project. But the monitoring of the quality of the mining is excellent, and I expect to see the grade remaining where it is. Unknown Executive: Thank you very much. And then in terms of the project, yes, you are correct. I mean we've got the trade-off studies that is currently underway in Nkomati. We are now recovering chrome from the 500,000 tonnes stockpile that you mentioned, and there's another study as well on the chrome side that is taking place, a study basically to restart nickel. So that is basically Nkomati complex. And you come to Two Rivers, obviously, the project there that still needs to be concluded is the Merensky. And as Jacques says, also, we're basically at the tail end of completing that study. The numbers will be put on the table to see what are the returns, confirm the capital that is required, confirm everything and basically the contributions that, that project is going to bring to the Two Rivers mine. And then we also mentioned that we already completed the DFS at Bokoni. We're doing the independent review, third-party review. We do the value engineering, firm up the numbers. And these 3 will have to be ranked in the order of priority and an investment decision will be made at the right time in terms of how we stagger them. The Surge where we are, we will most probably say one can say maybe the best guess is come end of June, we should really have the outcome of the pre-feasibility study, whereafter that will really transition to a definitive feasibility study with some regulatory approval process. We see that process being concluded most probably the best case towards 2029. And then if everything else work well, that mine should really go into execution around 2030. So if you look at the project staggering, the Surge is still about -- last year, we used to say 5 years. It's about 4 years now from execution unless things are really expedited in terms of the approval in cost. We've also seen the response from the Canadian government as far as expediting some of these critical mineral projects. Unknown Executive: If I may also just add with regards to the capital. Maybe just in reference with Khumani, alluded to the volumes that we are looking at the potential open pit mining is less than what we did before. And also the fact that the mine was a producing mine was placed on care and maintenance, the ramp-up capital that we would require to put that mine back into operation is not as substantial as completely building greenfields mine. So it's certainly, I think, a lot more affordable. And depending on how the economics stack up because it's an open pit, it ramps up production very quickly. It should become potentially cash positive generator in a much shorter period of time compared to Bokoni project, where there's a new concentrator plant that needs to be built and substantial underground development. And with regards to Merensky, I think the biggest amount of money that would have to be spent is on the mining, specifically building working capital and stockpile to consistently be able to feed the mill. And both Two Rivers substantially stronger balance sheet, the forecast is that Two Rivers would be able to fund the full capital required to complete and ramp up Merensky from the strength of its own balance sheet and from its cash flow generation without requiring additional funds from the 2 partners. And that then really just leads to current that we would have to see and we're busy with finalizing that work. What we've also said is we are looking at a much smaller study and 120,000 tonnes and we believe this is the right size, which strikes the right balance between capital required as well as sufficient volumes to ensure sustainability and cash competitiveness from a unit cash cost point of view. And we would be able to provide further guidance on that cash flow required to support that project during the next results issue. Thabang Thlaku: Ntebogang, is your question answered? Ntebogang Segone: The ranking part is the one that's not answered. Thabang Thlaku: Yes. Yes, that's the sense that I got, Ntebogang. We're sort of giving you detail on what we're doing at the projects, but we're not ranking them. But if I had to summarize what I think Phillip and Jacques are trying to say is that if you look at the current project pipeline, quite a few of these projects are actually still in steady state. And until they're completed and we've got Board approval, it's very difficult for us to say we're going to prioritize project A over project B, right? So that's number one. And I think Jacques was also just trying to illustrate to you that some of the projects are actually going to be able to self-fund because they'll be generating some cash themselves. And some bigger projects like Bokoni and Surge, only once we've got the information in front of us, will we be able to make a decision going forward. Because remember, your capital allocation model is continuously evolving. And it would be very premature for us to say we're prioritizing this now in 2, 3 years' time once the studies are done and we've got board approvals, the world has changed. So yes, so we can't give you an explicit project ranking right now, specifically because a lot of these are still in study phase and don't have work. Unknown Executive: And as just said earlier on, most probably when we come to the next reporting cycle, we will be having detailed outcome and the decision would have been made. We'll be able to update the market in terms of where we are. Unknown Executive: If I may also just add, as part of this analysis, we're obviously doing very detailed cash flow schedules for all of these projects. And then we also look at it on a portfolio view, where we look at from an ARM's point of view, what is the forecast cash flow coming in from the operations, what would be the cash required to finance each one of these projects as well as our other commitments with regards to returning money back to the shareholders in the form of dividends that we are committed to. So we're making a very prudent decision in terms of which project will start first. And also maybe we don't do all of them at the same time just because from an affordability point of view that we do stagger in. And then maybe just one last point. There's absolutely no decision made at this time. We are still busy with the study book, and we will review the results as well as the cash flow requirements on a portfolio view very carefully before a recommendation or decision is made. Ntebogang Segone: Maybe to finish off, which is -- my question is mainly around balance sheet, right? So your balance sheet has strengthened to now currently with net cash of around ZAR 8.4 billion. And then I'm also then taking into account of the Harmony hedge collar. So one can possibly consider that I'm not an accountant, but like a lazy balance sheet. So I'm trying to understand with the excess cash that you guys have on my view, what is management thinking around using that cash for future growth? So that's what I'm trying to understand in your projects, the ranking and also the prioritization in terms of capital allocation. I don't know if I'm making sense. Unknown Executive: Thanks for that question. No. So I might have a different view from yourself in terms of it being a lazy balance sheet, but be that as it may, that's okay. So I think -- so I mean, you're quite right. Our balance sheet has strengthened from June where we are now, sitting still in a relatively strong net cash position. But the question you're asking, that was actually quite valid and quite -- one that we actually deliberate amongst ourselves with and specifically knowing that we've got these projects, we've got this project pipeline. We have ammunition in terms of raising additional funds through using Harmony collar and end -- but at the same time, still looking at the projects that are in the pipeline and seeing those that can generate cash as quickly as possible because at the same time, you do not wish to be strained or find yourself in distress in terms of having to honor commitments and you don't have enough cash. So as Jacques was saying that you really do need to look at it from a portfolio perspective. Yes, you're sitting on cash currently, but there is a pipeline. But there are also other moving parts where we're looking at the cash coming in from Assmang in the form of management fees as well as dividends and all the other commitments. And then it's really just quite a tight balancing act that we're going to have to make. So that -- also the balance sheet will also be informing the decisions that we make in terms of which project we're actually going to proceed with, what is palatable for us and what we can comfortably deliver on without straining the balance sheet. But again, if we find ourselves in a place where -- and I'm hoping we are there, where we decide not to go with any projects, then instead of sitting then on the cash, we will definitely look at returning that cash to the shareholders. Because remember, we look at the cash and we say, okay, how can we generate a return more than that cash just sitting in the bank, and that's where then we will deploy that cash towards to say we believe we can get you as a shareholder, a better return than our weighted average cost of capital. But if not, then the default then say, okay, then let's rather then return to shareholders. I hope that helps a little bit. Operator: Our next question comes from Andrew Snowdowne of Ninety One. Andrew Snowdowne: I am seeing you next week, but I thought I'd ask this question now anyway. And it's just really following on the previous question. The capital allocation slide that you showed, was that the order of priority in which you're looking at things? Or are you just saying these are all the things that are considered because it is quite an interesting order in which is displayed. I guess that's the first question. And then the second one, maybe you can talk me through why you put the collar in place in the first place if you're not actually using it. Again, to the previous point, you're sitting on -- I'm in the same camp. It's a lazy balance sheet. 18% of your market cap is now sitting in cash. You're also seeing a significant value for your Harmony stake. And yet there doesn't seem to be any real initiative by management to try and unlock any of that value. So maybe you can just talk me through some of that. And again, in line with that, just looking at where you're ranking things like share buybacks and maybe you can just remind us where -- just how much you're allowed to buy back at this point. Tsundzukani T. Mhlanga: Thanks. So maybe just the first question around the capital allocation guidelines. So the way they are documented that it's not an order of priority. I think we do have a footnote at the bottom of the slide where we do say that. And then secondly, the question around... Unknown Executive: Collar, if we're not going to use that... Unknown Executive: I can speak to that. I think when that collar was put in place, it was to reflect the time and the strategic intent behind it, which I'll share now. But at that point in time, specifically on our PGM basket prices were a lot more depressed. We're talking about March, April last year, even though it was our view that the metals were in deficit, however, due to the destocking of the substantial inventory above surface, we haven't seen the metal prices were not reflective of the fundamentals, the supply of the 3 metals, specifically platinum, palladium and rhodium. So the whole strategic intent behind the collars there was at that time, even the strong rally up in the gold price, Harmony share price responded quite positively. And we said, given those growth ambitions that we do have, the uncertainty around the PGM prices, how long it will take before it starts to recover, it may be good to just try and strengthen the balance sheet by having some fixed security in place that if we want to, for instance, in future, deploy some of our cash on some of these growth projects that we are -- that could be value accretive and generate cash above our weighted average cost of capital. We don't want to get into a position where you draw down your available cash on the balance sheet and then the commodity price weakness continues and you start to come under balance sheet stress. So in that case, it's good if there's a facility available, maybe linked to a revolving credit facility that you do have access to. So it's really just capitalizing at the time on the good Harmony prices that we saw. And with the benefit of hindsight, it sort of rallied even further beyond that. But in the context of where we were with the commodity prices and not knowing exactly how long it will take, specifically for the PGM prices to respond. Where we are now, we still think it's a good facility because that strategic intent behind it hasn't fallen away. So the -- if we do proceed with some of these projects, it may still be good to put a revolving credit facility in place. We will obviously use the cash first because that's a lower cost of interest compared to paying interest on the RCF. But at least you've got access to that liquidity on a very short period of time if you need it. Because as a holding company and a commodity producer, especially in today's world, commodity prices are very volatile up and down, and you need a bit of headroom to make sure that you've got -- you can cover yourself in any eventuality that may happen. I hope that sort of provides a bit of clarity. And the only reason why we have used the collar is use of proceeds. We haven't finished the studies yet, and we will do that over the next couple of months. And as soon as we make a decision, then we will look at what is the most appropriate way to utilize that strategically to protect the balance sheet. Andrew Snowdowne: Maybe just a very quick follow-up on that. Because your actions and the outlook comments don't seem to be marrying up at the moment. You're talking about a much stronger second half versus the one you've just reported. And if we look at what the basket price, and particularly for PGMs has done since then, iron ore, I think there's a consensus a little bit lower, but it's still holding up. The rand, yes, was stronger, but it's now been weakening a little bit with the events in the Middle East. The sense is you should be generating very significant free cash flow over the next 6 months, which puts you in an even stronger position. So maybe you could -- do you agree with that view, first off, what are your concerns at this point because the actions by the company don't seem to be marrying with the outlook. Just how good an outlook do you need before you start utilizing that significant cash balance? I guess that's the question. Jacques van der Bijl: If I can answer that, you're quite right. I think our outlook is also very much in line with some of our peers and the commentary that Mats made that we do think in the context at least of the PGM prices, the prices will remain stronger for a longer period of time, which is positive. And that we will specifically from our 2 operations, Two Rivers as well as Modikwa should be at least current basket prices quite strongly cash generative. However, we've seen also how quickly things can change in today's world with the volatility. And we have been wrong in the past what we've guided on the outlook and it doesn't transpire. So that's why we do think that it is prudent to keep a certain amount of cash or access to cash in the form of RCF available that you don't overextend yourself. But the intent is once these projects are -- studies have been completed and we have properly evaluated to make a decision on going forward with them or not. And at that point in time, we'll be in a much better position to see what resources do we need from the balance sheet to be able to support those projects. Unknown Executive: Sorry, I just wanted to add something to what Jacques, yes -- just to add to what Jacques said, I think someone said it on the podium earlier. Yes, the platinum operations will be generating cash, but that won't necessarily come through the center. That cash will be used to fund the requirements of those businesses on Two Rivers, specifically on Merensky. So depending on what that built in, I'm not sure what it is, we'll go towards that. And then we do what as well is some increased CapEx requirements that, that cash -- the mine as it is, is generating that cash will go towards funding that. I just wanted to add that. Unknown Executive: Andrew, the last question was on the issue of the share buybacks. You did ask a question as to whether we consider doing another share buyback. I mean, as Tsu mentioned, it's part of the thing that we consider whenever we have a capital allocation review decisions to say which ones come first. Where we are now, as Jacques mentioned, in the next 2 months, there's some serious decisions that we have to be made in terms of those 3 project studies. And this thing as well is weighed against all the other points that we have to consider. And we do take note of what you raised with... Andrew Snowdowne: Super. Maybe one last one. And as you can tell, we're going to have an interesting meeting next week. The -- just can you maybe give me a sense because I'm sure you've done the calculations to at current spot the sort of free cash flow that you'd expect to generate? Or is that a number you're willing to share? Unknown Executive: No, is that free cash flow in CVM or at group level? Andrew Snowdowne: Either way, just an indication because, again, from what we've seen so far and what things have done, if anything, the one number that surprised everybody is just how strong cash generation is. My worry is that management is coming across a little bit too conservative given the current market conditions, hence the question. Unknown Executive: We have to get that information, sorry. Can we give it to you when we see you next week. Or we can drop you an e-mail once we have found the number. Operator: We have a follow-up question from Ntebogang of Investec. Ntebogang Segone: Sorry, guys. Just a quick one, right? So if the PGM -- if the cash flow from the PGM business will be funding these projects. Now my question is around dividends going forward. I mean dividends, your dividend policy is based on dividend received. Ferrous outlook seems muted. So you're not expecting as much dividend received from Ferrous as historic levels. And then now the cash from the PGM business, all of all, essentially, I'm assuming that now because we will be funding these projects, it will then not be going to dividends to the African Rainbow Minerals. So how should we then look at dividends going forward for ARI? Unknown Executive: We are committed to basically giving cash back to our shareholders so -- and it's a capital allocation decision, but it's a commitment that we have made in the bigger scheme of things. As we weigh this project that we need to advance, we also basically take into consideration the dividend payment as well. Unknown Executive: Yes. Maybe I can add, Ntebo. So our dividend policy remains that 40% to 70% of the dividends that we receive from the underlying operations. So yes, as you point out, we might not be expecting -- and I mean we were not expecting actually before this rally in the PGM basket price. We were not expecting dividends coming through from those operations for the next 3 years. So thankfully, we're in a better place. But if those operations are able to fund their requirements and there's anything that's left over that will obviously be given up through to ARM and to our partners. But I think what you can model if you need to model is work with that 40% to 70%. In last couple of years, we have gone above that range, and that is when we -- looking at the cash that we're actually sitting on, we say, okay, actually, we can afford to go beyond that range and we make that decision. We've made it a few times quite often. So -- but just to be on the conservative side, still use that 40% to 70% as a guideline for the dividends that ARM would then be paying. Unknown Executive: I think also maybe just to add on, I think it just sort of links to the question that Andrew asked before, at current spot prices, and we'll run the numbers. But sort of my assessment is that if the current spot price prevail in the -- the cash generative -- cash that will be generated above as well as is quite substantial. And I think that most likely will be more than what the -- so there will be surplus cash available even after servicing requirements to complete the Merensky study as well as the development at the Da. So there is a good chance that if the current prices prevail, that there will be cash passed up through the form of dividends to our book. Unknown Executive: And equally, as ferrous is facing challenges due to pricing and cost and while we try to turn around that business, you can expect more on that front. Operator: Ladies and gentlemen, with no further questions in the question queue, we have reached the end of the question-and-answer session. I will now hand back for closing remarks. Unknown Executive: Thank you, everyone, for dialing in. We appreciate your participation. We will be on the road next week -- investors. If you've got any more questions or you feel like we may be didn't answer some of your questions to your satisfaction, please feel free to call me or send an e-mail and we'll endeavor to give you accurate answers as soon as possible. But thank you very much, everyone. Operator: Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and welcome to the African Rainbow Minerals Interim Results for the 6 months ended 31 December 2025. [Operator Instructions] Please note that this event is being recorded. I will now hand the conference over to Thabang Thlaku. Please go ahead. Thabang Thlaku: Thank you very much. Good afternoon, everyone. So we're all together in the room here. We've got the entire management team. We've got Phillip Tobias, Tsung Shang, Mike Schmidt, Jacques van der Bijl, Thando Mkatshana, La Berger and Johan Jansen. So the entire management team is here to answer all your calls. We're not going to do an introduction. We're going to go straight into Q&A. So we'll just give them some time to take Q&A. Operator: [Operator Instructions] Our first question comes from Ntebogang Segone of Investec. Ntebogang Segone: Perfect. I think my question is quickly on Thando or to Thando in relation to the ARM Coal. I mean I see domestic sales were down 15% year-on-year at GGV and then PCB also was down 3%. And then I also see also on the revised guidance, particularly around those local sales volumes going forward, they've been revised downwards. Could you please just provide some guidance on the contracts and downward revision of that coal business and how we should then be looking at it, particularly on the local sales side? And then in relation to Modikwa, I just wanted to understand, so I saw that like -- so tonnes more were up 5% year-on-year, but the PGM concentrate did go down by 3% due to that plant recovery. How does the recoveries outlook profile with open pit combined look like for Modikwa? And if you could maybe speak more around that 4% unit cost reduction at Modikwa and how we should also look at it going forward? I'll leave it there for now. Thando Mkatshana: With regard to the domestic sales, the main supplies to Eskom. As you probably know, the burn rate in terms of Eskom and power generated from their side has been reducing. So we are having that impacting our domestic sales. The positive thing out of that, obviously and tying it up with an improved performance from TFR is that some of the coal we do divert into the export market prices. So in terms of our contract with Eskom, we have contracted for GGB, it's about 2.5 million tonnes at 100% for the full year of sales. But yes, it all depend on whether they are responsible for the entire logistics as well in terms of getting transport and picking it up. But from time to time, when they don't use or take that coal and derivatives into the export market. I hope that kind of answers your question. Ntebogang Segone: Yes. And the water accumulation there in the coal business there with Mundra, how will that impact production going forward? Thando Mkatshana: Yes, that's a simple -- maybe a bit of quick background is that, that used to be an old underground mine where we're mining now. So we are mining those eras through an open cast method, and we had better accumulation of coal. We have -- that has been, I would say, in the once-off matter. We have since revised the pit layout and we've added additional pumping capacity. Having said so though, across all our business, I think the range that we have been experiencing in the last 2 years has been somehow more than the normal range. So those have impact from time to time. But in the main challenge of the water accumulation has been addressed for now. Unknown Executive: Will you take the Modikwa question. Unknown Executive: Certainly. I must state that the open cost is not the preferred source of ore for Modikwa. We're putting that through the concentrator while we are building up the reserves underground in the UG2. The 6E grades for the underground UG2 is 4.76 grams per tonne. While for the open cast, it's higher, it's anything between 5.2 grams a tonne and 6.5 grams a tonne. The challenge, however, sits with the recovery. Typical recovery for normal underground UG2 is sitting at about 84.5%, 85% while the open cast closer to surface, highly oxidized can be sitting between 50%, 54%. The benefit of the open cast is that it's a much lower cost operation. UG2 cost per 6E ounce comes in underground ZAR 20,200 per 6E ounce, while the open cast comes in at ZAR 16,000. So although you lose some ounces, you're seeing the benefit in terms of the cost. We're going deeper with the open cast. So as you are proceeding deeper, the ore becomes less oxidized and your recovery goes up. So we are confident in the outlook for the open cast as a temporary gap filler Modikwa. Thank you. Operator: [Operator Instructions] And we do have the next person in the queue, which is Tim Clark of SBG Securities. J. Clark: All right. I've got a few questions. I'll sort of roll through them slowly. Let's start with -- the finished stock that you've agreed to sell the 1.2 million tonnes. Can you give us an idea, please, of just the sort of time frame over which you'll sell that, what the offtake is, what the contract is? Unknown Executive: Yes. So the contract has been concluded for 1.2 million tonnes over a 12-month period, which started in February. So the intention is to offtake 100,000 tonnes per month for 12 months. J. Clark: That's very helpful. Let's talk about just how we should think about Nkomati going forward just in terms of spend. You've got this chrome plant, which is going to give some kind of revenue credit. How should we think about it? Just -- I mean, you've got the liability outstanding. Can you give us like some kind of sense or guidance just for our models for the next, I don't know, 2, 3 years of what we should model in terms of -- how we should think about Nkomati in terms of the plant and then offsetting and the spend on rehab, please? Unknown Executive: Thank you for that. I will also ask Tsu to help in terms of the rest of the rehab. But to an extent, this, as you pointed out, this revenue subsidizes the cost of care and maintenance, which as we have indicated in the past, I think we're going to be generating between ZAR 20 million and ZAR 25 million of revenue that will come and subsidize that cost. And yes, so I'm not sure if I've answered. On the rehab side, did you ask on the rehab in terms of margin, we are currently not really undertaking major rehab because we are completing this feasibility study in terms of looking at optionality going forward. As we have indicated, we have quite advanced on that. And I think it is very encouraging and we're confident that when we take it to the Board, it will get approval and we'll make an announcement in due course. So there's no really major rehab that's happened. Same for the water treatment plant, which we have indicated in the past. J. Clark: Okay. So that feasibility study, is that another version of a nickel -- is the feasibility study just to open up another nickel mine effectively a new Nkomati in some different form? Sorry, I don't know much about it. Unknown Executive: Yes. That's what it will entail really recommissioning the mine and bring it back to life. But obviously, in a much more, let me say, a remodel maybe a smaller scale than previously. That's what we are looking at. But yes, we'll be able to share the details in terms of the actual volumes and so on after we've finalized that study and taken further report. But I think that gives a good indication. And in line with that, obviously, also with the very encouraging chrome prices, we are looking at a potential a bigger chrome production than what we are currently doing. Unknown Executive: And on the rehab liability, Tim. So that rehab liability. Unknown Executive: Sorry, just giving more color on the rehab liability. Tsundzukani T. Mhlanga: Yes. Thanks, Tim. Just to let you know, so that we have as at 31 December from Nkomati just over ZAR 2 billion, so it's ZAR 2,011 million or ZAR 2.0 billion. But then just remember that we did receive the ZAR 325 million from Norilsk, which was their contribution as part of the transaction towards the rehab water -- water rehab. Thabang Thlaku: Sorry, it's Thabang. I just -- I want to ask additional questions on your behalf, so we can just clarify some things. So current monthly production of chrome, where are they now and what are we planning to... Unknown Executive: Around 8,500 tonnes per month that we are achieving. But we will peak at about 11,000 tonnes per month of chrome concentrate. Thabang Thlaku: At steady state? Unknown Executive: With the current project. The bigger at the stage we're still finalizing a few items related to the vent recovery process, and that will complicate those volumes, but they are much higher than the current project. Thabang Thlaku: When do you expect to get to 11,000 tonnes per month? Unknown Executive: 11,000 tonnes per month in the month of April. Thabang Thlaku: In April? Unknown Executive: Yes. Thabang Thlaku: And what kind of profit margins are we seeing with the chrome production at Nkomati more or less? Unknown Executive: That plant, it cost us about ZAR 10 million, so I just want to check. It cost us just under ZAR 10 million per month to produce that -- ZAR 20 million to ZAR 25 million. So it's between ZAR 15 million and ZAR 10 million dependent obviously on the chrome price. Unknown Executive: Yes. I think maybe just to come in, overall, just correct me if I understood well. I think in the next 12 months, we should be able to make at least a profit of ZAR 100 million with this 500,000 tonnes as the EBITDA would be positive? Thabang Thlaku: It's revenue or profit? Unknown Executive: Yes. It varies between as I said. Thabang Thlaku: And then just to add -- with regards to the broader Nkomati question, I think it's too early for us to give too much information. As you can imagine, with the geopolitical changes that have been happening, there are some offtakers who've been looking for nickel supply out of Indonesia because of their relationship with China. As a result, Nkomati has become a little bit more attractive to other nickel producers. But it's still early stages. We're doing the study, and we're only sort of going to go for board approval later in the year. And once we do have the details, we'll come back and guide the market accordingly. J. Clark: I'll ask one last question, please. Just on Two Rivers, I was just reading your commentary about being impacted by sympathetic geological structures. I never heard of those before. Can you just chat to how long it's going to take before your productivity improves as the geology improves? Just how long -- you sort of spoke about it improving over time now that you're getting past the docs, maybe you can just give us some timing. Johan Jansen: This is Johan Jansen. What we encountered was a fault parallel to the advancing phases. So about 18 months ago, we started intersecting the fault. We've done redevelopment, went through the fault. We've established the faces on the other side of the fault, which was quite an effort. And at this stage, we are busy bringing the supporting infrastructure up to date the conveyor belts, moving them back to within 60, 80 meters from the face. We've already seen an improvement in the productivity, and we will continue to see that over the next quarter. And by the start of the next financial year, we will be back on 320,000 tonnes per month. Unknown Executive: I think, Tim, that's what I said that -- Tim, that's what I said, our forecast for F '27 will be an improved output because we'll be moving towards strength out of these geological features. Operator: [Operator Instructions] Our next question comes from Thobela of Nedbank. Thobela Bixa: I did get cut off a few times here. Please forgive me if I do ask questions that have been asked already. Earlier on during the webcast, you talked about the value in use model when I asked a question about the realized pricing on the manganese. Could you just expand some more what is meant by value in use model for ARM? And how does that potentially improve your realized pricing? And it did seem as though -- and it did seem as though she wasn't just talking about just sort of the manganese operation, but this perhaps could be applied in other divisions. Can I just get clarity on that as well? So that's my first question. And then I'll ask my second question later. Unknown Executive: Thobela, I would like to expand on that. So what is value in use, you take your specific and you are correct, we need -- for manganese at Black Rock as well as iron ore at Khumani and it is tested in various applications. So where it would be used in different smelters and for what purpose in the smelters. And you develop a model to determine the intrinsic value of your ore type to the customer buying it. And through having that value, you can maximize the economic value you get back in your pricing. And to just further explain it, obviously, in a smelter, they don't only use your specific type of ore. They would use different suppliers type of ore, which has got different grades and contaminants. And we know Black Rock as well as Khumani has got a very high-grade reserves. And we are doing this work in specific to ensure that we get the netback per product on maximizing economic value. So it would mean that we would receive above an index price realization for premiums for our specific product based on our product's value. Thobela Bixa: Okay. No, that's clear. Go ahead, Thabang. Thabang Thlaku: Your answer also applies to iron ore question. Okay, Thobela, go to your next question. Thobela Bixa: Yes. Maybe just a follow-up on that is, would that then maybe mean that your sales volumes perhaps because you may -- I mean, would your sales volume remain the same in terms of how you are forecasting currently? Or would this value in use kind of affect your sales potentially given perhaps you may have to change your products back there? Unknown Executive: No, it would not have any impact on your volumes. The only impact that it would have is on your revenue line. Intent is to see if we can get better prices due to the specific ore type, and we can engage on that. So no, volumes will remain the same, both for Black Rock and Khumani, which is currently in the 5-year plan. Thobela Bixa: Okay. And then my second question is around the domestic sales in the iron ore division. I think my question, I guess, is you've talked about having signed a new contract to sell for domestic sales. Where would those -- given that Beeshoek was the one that you used to supply to your domestic markets. So I'm guessing Khumani will be now the one supplying into that. And is that -- I mean my understanding was that your export sales, you derived better revenue there versus perhaps on the domestic side. Could you just clarify as to why perhaps go via this route. Unknown Executive: So for clarity, the contract on Beeshoek was signed with AMSA, and it was for 1.2 million tonnes. We're sitting with a stockpile of 1.48 million tonnes. The only reason why we signed a contract with AMSA and it is not at a brilliant rate, it's ZAR 800 per tonne, where our previous rand per tonne on Beeshoek was ZAR 1,221. So you can imagine it's 25% lower than our previous base price. That's the best option we could get to get some value for the stocks currently lying at Beeshoek. The intent is never to supply the domestic market from Khumani, no. Khumani is an export mine. And our revenue receiving from exports is much better. So yes, the domestic market will definitely not be supplied by Khumani. This is an isolated matter in specific pertaining to Beeshoek being on planned maintenance, and we're having that 1.48 million tonnes of stockpile. Unknown Executive: And maybe just to comment to, I mean, just a bit of background. You remember that at some stage, we said we don't have a long-term contract with our sole customer, but we were still busy in negotiation with them. And then the last basically delivery of all was done in July, during which period we were still negotiating. And that was at the back of the November '24 when they announced the potential shutdown of the long steel business. So that being announced in November, they were still taking some products for us. And with us being in the mining, obviously, you have to be producing, delivering stockpile so that we can really deliver whatever quantities that are required. So we -- at the back of hope that we're going to enter into an agreement, we still carried on mining and we only need to do the line on the sand out end of October, we said we cannot carry on. At that time, we've already accumulated 1.486 million tonnes. So we just have to basically sell this and clean up everything at... Thobela Bixa: Okay. No, that's helpful. I have my one last question on Two Rivers. I think if I recall well, in terms of your ramp-up profile of prior to the Merensky project being put on care and maintenance. It was quite significant just in terms of what was anticipated then? And then if I look at the current ramp-up profile with the Merensky project being sort of pulled back again into production, this one, this ramp-up profile seems a bit softer. Could you just explain what's the thinking now versus before you put that particular project on care and maintenance. Unknown Executive: Thobela, on the Merensky project, like we communicated earlier today, we started the decline development in October last year, a limited development whilst we're just finishing the feasibility study to recommence with the project. And we plan to complete all of that work as well as the review work and third-party work by May this year, and then we'll take it to the partners for approval with the planned restart date of the 1st of July. The current -- we have redone the whole life of mine model and optimize the mining cuts, et cetera, we get the best value out of the project. And extracting the resource at the maximum grade. And with this latest ramp-up schedule, the schedule that we've done, we ramp up to 200,000 tonnes per month over a 3-year period. So from July 3 years we have steady state production. We are benefiting now obviously from the fact that we've already got 3 levels developed and we are proceeding down towards Level 4, of which 2 are already equipped. So we do have quite a big head start compared to the original feasibility study. Unknown Executive: Thobela, Tsu just actually made me aware. When you're looking at our PGM forecast, the Merensky numbers are not there. So you can't compare this to the numbers that we gave you in 2024 because we're still to include that once we go through the government -- yes. Once the governance process is done, then we'll update the Merensky guidelines. Thobela Bixa: I'm actually looking at the year before that, 2023, where at the time, the Merensky project was due to come in online. And then if I look at your ramp-up profile then, I have it right in front of me. I think from '23 to -- let's say, well, from '24 to '25, you're going to move from 313 cores to 485 cores or kilo ounces. So that's that big jump versus perhaps, I guess, the current softer profile. Thabang Thlaku: Yes. But that's because those numbers did include the Merensky estimate and these don't... Unknown Executive: I can add I think we haven't disclosed in the we haven't disclosed in the current numbers the Merensky ramp-up, like Thabang and Tsu rightly say that we still believe that governance process. However, I can share that the work that we've done with the mining schedule, that ramp-up is over a 3-year period. So I think it's substantially still in line with what we've guided before. Thobela Bixa: Okay. So -- Go ahead. Unknown Executive: Just to help you -- just to clarify, I mean, remember what Doug said, where we stopped in August '24 we were already at Level 3, and this is going to be a 5-level operation, delivering 25,000 tonnes per half level. So we need to develop to Level 4 and to Level 5. And that is basically going to take us about 2 years to do that. Then the third year that Jacques is referring to is when we ramp up to steady state, so which is basically from the beginning, it will be a total of 3 years to get to steady state. Thobela Bixa: Okay. Because my -- I guess my understanding was that the bringing back of the Merensky project would take a lot less time than what I'm hearing now. I guess that's where the misunderstanding would have been. Unknown Executive: I can maybe also just add too that obviously, with the concentrated plant finished, we could sequence now and see exactly when is the optimal that with a combination of building stockpile upfront maybe for the first 6 months or a year and then only starting that. So it doesn't mean that it's a 3-year ramp-up, you're only going to start seeing ounces -- do incremental additional ounces from Merensky in 3 years' time. You could, as quick as within about 12 months, you start to see additional ounces coming from Merensky. Operator: We have a follow-up question from Ntebogang of Investec. Ntebogang Segone: Just a quick one on the Two Rivers production currently, yes, there were like some geological challenges faced in 1H. I just want to quickly confirm as to going forward, is the 3.09 head grades that was reported for 1H sustainable going forward? Or if you could maybe guide us more on how you see that head grade improving as then the geological issues improve? And then in relation to the Two Rivers Merensky project, I mean my understanding is that there's around ZAR 2.6 billion of working capital that needs to be put for it to then be able to get back online. With the current planning, I don't know if it's fair for me to ask if you could maybe provide just some form of color in terms of how you're going to be spending that ZAR 2.6 billion over the next 2 years, if it is then what is approved. And then I think my second last question or my last question is mainly around project priority. I just want to have some like a greater clarity around your growth projects. I mean you've got Nkomati, you've got Bokoni, you've got Two Rivers Merensky project. Are you able to -- or even other M&A and then there's also Surge also as well as part of your growth projects, right? Are you able to explicitly rank those growth projects in order of capital priority for us? Yes, I'll leave it there. Unknown Executive: Yes. Do you want to comment on the grade? Unknown Executive: Yes. If I can go first on the grade, please. Thank you for the question. The grade of 3 mining is a fair outlook of what we could expect going forward. We've moved into an area with split reef. So the grades will no longer be as high as it has been in the initial phases of the project. But the monitoring of the quality of the mining is excellent, and I expect to see the grade remaining where it is. Unknown Executive: Thank you very much. And then in terms of the project, yes, you are correct. I mean we've got the trade-off studies that is currently underway in Nkomati. We are now recovering chrome from the 500,000 tonnes stockpile that you mentioned, and there's another study as well on the chrome side that is taking place, a study basically to restart nickel. So that is basically Nkomati complex. And you come to Two Rivers, obviously, the project there that still needs to be concluded is the Merensky. And as Jacques says, also, we're basically at the tail end of completing that study. The numbers will be put on the table to see what are the returns, confirm the capital that is required, confirm everything and basically the contributions that, that project is going to bring to the Two Rivers mine. And then we also mentioned that we already completed the DFS at Bokoni. We're doing the independent review, third-party review. We do the value engineering, firm up the numbers. And these 3 will have to be ranked in the order of priority and an investment decision will be made at the right time in terms of how we stagger them. The Surge where we are, we will most probably say one can say maybe the best guess is come end of June, we should really have the outcome of the pre-feasibility study, whereafter that will really transition to a definitive feasibility study with some regulatory approval process. We see that process being concluded most probably the best case towards 2029. And then if everything else work well, that mine should really go into execution around 2030. So if you look at the project staggering, the Surge is still about -- last year, we used to say 5 years. It's about 4 years now from execution unless things are really expedited in terms of the approval in cost. We've also seen the response from the Canadian government as far as expediting some of these critical mineral projects. Unknown Executive: If I may also just add with regards to the capital. Maybe just in reference with Khumani, alluded to the volumes that we are looking at the potential open pit mining is less than what we did before. And also the fact that the mine was a producing mine was placed on care and maintenance, the ramp-up capital that we would require to put that mine back into operation is not as substantial as completely building greenfields mine. So it's certainly, I think, a lot more affordable. And depending on how the economics stack up because it's an open pit, it ramps up production very quickly. It should become potentially cash positive generator in a much shorter period of time compared to Bokoni project, where there's a new concentrator plant that needs to be built and substantial underground development. And with regards to Merensky, I think the biggest amount of money that would have to be spent is on the mining, specifically building working capital and stockpile to consistently be able to feed the mill. And both Two Rivers substantially stronger balance sheet, the forecast is that Two Rivers would be able to fund the full capital required to complete and ramp up Merensky from the strength of its own balance sheet and from its cash flow generation without requiring additional funds from the 2 partners. And that then really just leads to current that we would have to see and we're busy with finalizing that work. What we've also said is we are looking at a much smaller study and 120,000 tonnes and we believe this is the right size, which strikes the right balance between capital required as well as sufficient volumes to ensure sustainability and cash competitiveness from a unit cash cost point of view. And we would be able to provide further guidance on that cash flow required to support that project during the next results issue. Thabang Thlaku: Ntebogang, is your question answered? Ntebogang Segone: The ranking part is the one that's not answered. Thabang Thlaku: Yes. Yes, that's the sense that I got, Ntebogang. We're sort of giving you detail on what we're doing at the projects, but we're not ranking them. But if I had to summarize what I think Phillip and Jacques are trying to say is that if you look at the current project pipeline, quite a few of these projects are actually still in steady state. And until they're completed and we've got Board approval, it's very difficult for us to say we're going to prioritize project A over project B, right? So that's number one. And I think Jacques was also just trying to illustrate to you that some of the projects are actually going to be able to self-fund because they'll be generating some cash themselves. And some bigger projects like Bokoni and Surge, only once we've got the information in front of us, will we be able to make a decision going forward. Because remember, your capital allocation model is continuously evolving. And it would be very premature for us to say we're prioritizing this now in 2, 3 years' time once the studies are done and we've got board approvals, the world has changed. So yes, so we can't give you an explicit project ranking right now, specifically because a lot of these are still in study phase and don't have work. Unknown Executive: And as just said earlier on, most probably when we come to the next reporting cycle, we will be having detailed outcome and the decision would have been made. We'll be able to update the market in terms of where we are. Unknown Executive: If I may also just add, as part of this analysis, we're obviously doing very detailed cash flow schedules for all of these projects. And then we also look at it on a portfolio view, where we look at from an ARM's point of view, what is the forecast cash flow coming in from the operations, what would be the cash required to finance each one of these projects as well as our other commitments with regards to returning money back to the shareholders in the form of dividends that we are committed to. So we're making a very prudent decision in terms of which project will start first. And also maybe we don't do all of them at the same time just because from an affordability point of view that we do stagger in. And then maybe just one last point. There's absolutely no decision made at this time. We are still busy with the study book, and we will review the results as well as the cash flow requirements on a portfolio view very carefully before a recommendation or decision is made. Ntebogang Segone: Maybe to finish off, which is -- my question is mainly around balance sheet, right? So your balance sheet has strengthened to now currently with net cash of around ZAR 8.4 billion. And then I'm also then taking into account of the Harmony hedge collar. So one can possibly consider that I'm not an accountant, but like a lazy balance sheet. So I'm trying to understand with the excess cash that you guys have on my view, what is management thinking around using that cash for future growth? So that's what I'm trying to understand in your projects, the ranking and also the prioritization in terms of capital allocation. I don't know if I'm making sense. Unknown Executive: Thanks for that question. No. So I might have a different view from yourself in terms of it being a lazy balance sheet, but be that as it may, that's okay. So I think -- so I mean, you're quite right. Our balance sheet has strengthened from June where we are now, sitting still in a relatively strong net cash position. But the question you're asking, that was actually quite valid and quite -- one that we actually deliberate amongst ourselves with and specifically knowing that we've got these projects, we've got this project pipeline. We have ammunition in terms of raising additional funds through using Harmony collar and end -- but at the same time, still looking at the projects that are in the pipeline and seeing those that can generate cash as quickly as possible because at the same time, you do not wish to be strained or find yourself in distress in terms of having to honor commitments and you don't have enough cash. So as Jacques was saying that you really do need to look at it from a portfolio perspective. Yes, you're sitting on cash currently, but there is a pipeline. But there are also other moving parts where we're looking at the cash coming in from Assmang in the form of management fees as well as dividends and all the other commitments. And then it's really just quite a tight balancing act that we're going to have to make. So that -- also the balance sheet will also be informing the decisions that we make in terms of which project we're actually going to proceed with, what is palatable for us and what we can comfortably deliver on without straining the balance sheet. But again, if we find ourselves in a place where -- and I'm hoping we are there, where we decide not to go with any projects, then instead of sitting then on the cash, we will definitely look at returning that cash to the shareholders. Because remember, we look at the cash and we say, okay, how can we generate a return more than that cash just sitting in the bank, and that's where then we will deploy that cash towards to say we believe we can get you as a shareholder, a better return than our weighted average cost of capital. But if not, then the default then say, okay, then let's rather then return to shareholders. I hope that helps a little bit. Operator: Our next question comes from Andrew Snowdowne of Ninety One. Andrew Snowdowne: I am seeing you next week, but I thought I'd ask this question now anyway. And it's just really following on the previous question. The capital allocation slide that you showed, was that the order of priority in which you're looking at things? Or are you just saying these are all the things that are considered because it is quite an interesting order in which is displayed. I guess that's the first question. And then the second one, maybe you can talk me through why you put the collar in place in the first place if you're not actually using it. Again, to the previous point, you're sitting on -- I'm in the same camp. It's a lazy balance sheet. 18% of your market cap is now sitting in cash. You're also seeing a significant value for your Harmony stake. And yet there doesn't seem to be any real initiative by management to try and unlock any of that value. So maybe you can just talk me through some of that. And again, in line with that, just looking at where you're ranking things like share buybacks and maybe you can just remind us where -- just how much you're allowed to buy back at this point. Tsundzukani T. Mhlanga: Thanks. So maybe just the first question around the capital allocation guidelines. So the way they are documented that it's not an order of priority. I think we do have a footnote at the bottom of the slide where we do say that. And then secondly, the question around... Unknown Executive: Collar, if we're not going to use that... Unknown Executive: I can speak to that. I think when that collar was put in place, it was to reflect the time and the strategic intent behind it, which I'll share now. But at that point in time, specifically on our PGM basket prices were a lot more depressed. We're talking about March, April last year, even though it was our view that the metals were in deficit, however, due to the destocking of the substantial inventory above surface, we haven't seen the metal prices were not reflective of the fundamentals, the supply of the 3 metals, specifically platinum, palladium and rhodium. So the whole strategic intent behind the collars there was at that time, even the strong rally up in the gold price, Harmony share price responded quite positively. And we said, given those growth ambitions that we do have, the uncertainty around the PGM prices, how long it will take before it starts to recover, it may be good to just try and strengthen the balance sheet by having some fixed security in place that if we want to, for instance, in future, deploy some of our cash on some of these growth projects that we are -- that could be value accretive and generate cash above our weighted average cost of capital. We don't want to get into a position where you draw down your available cash on the balance sheet and then the commodity price weakness continues and you start to come under balance sheet stress. So in that case, it's good if there's a facility available, maybe linked to a revolving credit facility that you do have access to. So it's really just capitalizing at the time on the good Harmony prices that we saw. And with the benefit of hindsight, it sort of rallied even further beyond that. But in the context of where we were with the commodity prices and not knowing exactly how long it will take, specifically for the PGM prices to respond. Where we are now, we still think it's a good facility because that strategic intent behind it hasn't fallen away. So the -- if we do proceed with some of these projects, it may still be good to put a revolving credit facility in place. We will obviously use the cash first because that's a lower cost of interest compared to paying interest on the RCF. But at least you've got access to that liquidity on a very short period of time if you need it. Because as a holding company and a commodity producer, especially in today's world, commodity prices are very volatile up and down, and you need a bit of headroom to make sure that you've got -- you can cover yourself in any eventuality that may happen. I hope that sort of provides a bit of clarity. And the only reason why we have used the collar is use of proceeds. We haven't finished the studies yet, and we will do that over the next couple of months. And as soon as we make a decision, then we will look at what is the most appropriate way to utilize that strategically to protect the balance sheet. Andrew Snowdowne: Maybe just a very quick follow-up on that. Because your actions and the outlook comments don't seem to be marrying up at the moment. You're talking about a much stronger second half versus the one you've just reported. And if we look at what the basket price, and particularly for PGMs has done since then, iron ore, I think there's a consensus a little bit lower, but it's still holding up. The rand, yes, was stronger, but it's now been weakening a little bit with the events in the Middle East. The sense is you should be generating very significant free cash flow over the next 6 months, which puts you in an even stronger position. So maybe you could -- do you agree with that view, first off, what are your concerns at this point because the actions by the company don't seem to be marrying with the outlook. Just how good an outlook do you need before you start utilizing that significant cash balance? I guess that's the question. Jacques van der Bijl: If I can answer that, you're quite right. I think our outlook is also very much in line with some of our peers and the commentary that Mats made that we do think in the context at least of the PGM prices, the prices will remain stronger for a longer period of time, which is positive. And that we will specifically from our 2 operations, Two Rivers as well as Modikwa should be at least current basket prices quite strongly cash generative. However, we've seen also how quickly things can change in today's world with the volatility. And we have been wrong in the past what we've guided on the outlook and it doesn't transpire. So that's why we do think that it is prudent to keep a certain amount of cash or access to cash in the form of RCF available that you don't overextend yourself. But the intent is once these projects are -- studies have been completed and we have properly evaluated to make a decision on going forward with them or not. And at that point in time, we'll be in a much better position to see what resources do we need from the balance sheet to be able to support those projects. Unknown Executive: Sorry, I just wanted to add something to what Jacques, yes -- just to add to what Jacques said, I think someone said it on the podium earlier. Yes, the platinum operations will be generating cash, but that won't necessarily come through the center. That cash will be used to fund the requirements of those businesses on Two Rivers, specifically on Merensky. So depending on what that built in, I'm not sure what it is, we'll go towards that. And then we do what as well is some increased CapEx requirements that, that cash -- the mine as it is, is generating that cash will go towards funding that. I just wanted to add that. Unknown Executive: Andrew, the last question was on the issue of the share buybacks. You did ask a question as to whether we consider doing another share buyback. I mean, as Tsu mentioned, it's part of the thing that we consider whenever we have a capital allocation review decisions to say which ones come first. Where we are now, as Jacques mentioned, in the next 2 months, there's some serious decisions that we have to be made in terms of those 3 project studies. And this thing as well is weighed against all the other points that we have to consider. And we do take note of what you raised with... Andrew Snowdowne: Super. Maybe one last one. And as you can tell, we're going to have an interesting meeting next week. The -- just can you maybe give me a sense because I'm sure you've done the calculations to at current spot the sort of free cash flow that you'd expect to generate? Or is that a number you're willing to share? Unknown Executive: No, is that free cash flow in CVM or at group level? Andrew Snowdowne: Either way, just an indication because, again, from what we've seen so far and what things have done, if anything, the one number that surprised everybody is just how strong cash generation is. My worry is that management is coming across a little bit too conservative given the current market conditions, hence the question. Unknown Executive: We have to get that information, sorry. Can we give it to you when we see you next week. Or we can drop you an e-mail once we have found the number. Operator: We have a follow-up question from Ntebogang of Investec. Ntebogang Segone: Sorry, guys. Just a quick one, right? So if the PGM -- if the cash flow from the PGM business will be funding these projects. Now my question is around dividends going forward. I mean dividends, your dividend policy is based on dividend received. Ferrous outlook seems muted. So you're not expecting as much dividend received from Ferrous as historic levels. And then now the cash from the PGM business, all of all, essentially, I'm assuming that now because we will be funding these projects, it will then not be going to dividends to the African Rainbow Minerals. So how should we then look at dividends going forward for ARI? Unknown Executive: We are committed to basically giving cash back to our shareholders so -- and it's a capital allocation decision, but it's a commitment that we have made in the bigger scheme of things. As we weigh this project that we need to advance, we also basically take into consideration the dividend payment as well. Unknown Executive: Yes. Maybe I can add, Ntebo. So our dividend policy remains that 40% to 70% of the dividends that we receive from the underlying operations. So yes, as you point out, we might not be expecting -- and I mean we were not expecting actually before this rally in the PGM basket price. We were not expecting dividends coming through from those operations for the next 3 years. So thankfully, we're in a better place. But if those operations are able to fund their requirements and there's anything that's left over that will obviously be given up through to ARM and to our partners. But I think what you can model if you need to model is work with that 40% to 70%. In last couple of years, we have gone above that range, and that is when we -- looking at the cash that we're actually sitting on, we say, okay, actually, we can afford to go beyond that range and we make that decision. We've made it a few times quite often. So -- but just to be on the conservative side, still use that 40% to 70% as a guideline for the dividends that ARM would then be paying. Unknown Executive: I think also maybe just to add on, I think it just sort of links to the question that Andrew asked before, at current spot prices, and we'll run the numbers. But sort of my assessment is that if the current spot price prevail in the -- the cash generative -- cash that will be generated above as well as is quite substantial. And I think that most likely will be more than what the -- so there will be surplus cash available even after servicing requirements to complete the Merensky study as well as the development at the Da. So there is a good chance that if the current prices prevail, that there will be cash passed up through the form of dividends to our book. Unknown Executive: And equally, as ferrous is facing challenges due to pricing and cost and while we try to turn around that business, you can expect more on that front. Operator: Ladies and gentlemen, with no further questions in the question queue, we have reached the end of the question-and-answer session. I will now hand back for closing remarks. Unknown Executive: Thank you, everyone, for dialing in. We appreciate your participation. We will be on the road next week -- investors. If you've got any more questions or you feel like we may be didn't answer some of your questions to your satisfaction, please feel free to call me or send an e-mail and we'll endeavor to give you accurate answers as soon as possible. But thank you very much, everyone. Operator: Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.
Operator: Good day, and welcome to the Allient Inc. Fourth Quarter Fiscal Year 2025 Financial Results. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Craig Mychajluk, Investor Relations. Please go ahead. Craig Mychajluk: Yes, thank you, and good morning, everyone. We certainly appreciate your time today as well as your interest in Allient Inc. On the call today are Richard S. Warzala, our Chairman, President and CEO, and James A. Michaud, our Chief Financial Officer. Rick and Jim will review our fourth quarter and full year 2025 results, provide a strategic and operational update, and share our outlook. We will then open the line for questions. As a reminder, our earnings release and the company's slide presentation are available on our website at allient.com. If you are following along, please turn to Slide 2 for our safe harbor statement. During today's call, we will make forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated. These risks and factors are outlined in our SEC filings and in the earnings release. We will also discuss certain non-GAAP measures we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release as well as the slides. With that, please turn to Slide 3, and I will turn it over to Rick to begin. Richard S. Warzala: Thank you, Craig. Welcome, everyone. We entered 2025 with clear priorities: expanding structural margins, strengthening the balance sheet, and positioning the portfolio around durable secular growth drivers. As we close the year, I am pleased to say we made measurable progress on all three. We delivered a strong fourth quarter and, importantly, exited 2025 with improving momentum across the business. The fourth quarter reflected several highlights, but it can be summarized by a few themes: improving industrial demand, disciplined execution across the organization, and structural margin expansion driven by our Simplify to Accelerate Now program. This performance was not only a function of higher volumes; it was operating leverage. It was improved mix. And it was sustained cost discipline translating directly into stronger profitability. We saw improving conditions at our largest vertical, industrial. A significant automation destocking we have discussed throughout the year appears largely behind us, and ordering patterns are returning to more normalized levels. At the same time, demand for our power quality solutions supporting data center infrastructure remains strong. Vehicle performance was stronger than expected in the quarter, primarily tied to commercial automotive production timing. While we do not view that as a structural shift, it contributed to the top line in the period. Medical remained steady and consistent, and aerospace and defense reflected normal program timing dynamics. So what we experienced in Q4 was broad participation across the portfolio. That balance across verticals matters. It reinforces diversification of the model and supports the durability of our results. Equally important, the margin expansion we delivered was not simply volume-driven. It reflected better mix when compared with last year's results, improved cost structure, and continued execution under our Simplify to Accelerate Now initiative. The operational work we have been doing over the past few years is now clearly embedded in the model. Turning to Slide 4, and looking at the full year, 2025 was about strengthening the foundation of the company. We set out a clear objective under our Simplify to Accelerate Now program: reduce complexity, improve throughput, and strengthen margins in a way that is sustainable. We targeted a set of structural savings in the range of $6 million to $7 million for 2025, and while not yet complete, we delivered meaningful progress on that target. These savings are being realized through footprint optimization, where we are consolidating overlapping operations and focusing our resources where we have scale and competitive advantage; accelerated product development, where we streamlined our process and reduced time to market for our offerings; and lean manufacturing disciplines, where we improved standard work and reduced non-value-added time on our shop floors, consistent with best practices that help cut cost while improving quality and reliability. This is a journey and it never ends. One example that speaks to all three is the transition of our Dothan facility. We announced this last year as part of our realignment strategy, with the plan to focus Dothan on advanced fabrication capabilities, including machining. As a result, we transferred assembly work to facilities where we have complementary capabilities. That effort, while still a work in progress, is expected to drive down costs and reduce complexity across our North American footprint. Overall, we delivered record gross margins for the year. We expanded operating income at a rate well ahead of revenue growth. We generated record operating cash flow. And we reduced net debt significantly, bringing leverage down to levels that give us real financial flexibility. The balance sheet today looks very different than it did a year ago. And that matters because it allows us to invest in organic growth, support new program launches, and pursue disciplined capital allocation opportunities from a position of strength. With that, let me turn it over to Jim for a more in-depth review of the results. James A. Michaud: Thank you, Rick, and good morning, everyone. Turning to Slide 5, fourth quarter revenue increased 17% year over year to $143.4 million, including 15% organic growth on a constant currency basis. The growth was driven primarily by strengthening industrial demand, particularly automation and power quality applications, as well as increased commercial automotive shipments within the vehicle market. From a geographic perspective, 50% of revenue was generated in the U.S., with the balance coming primarily from Europe, Canada, and Asia Pacific, consistent with our diversified footprint. Let me walk you through performance by major vertical because that is where the real story sits. Industrial revenue increased 24% in the quarter. The primary driver was strengthening automation demand as ordering patterns from our largest automation customer returned to more normalized levels following the extended destocking cycle. In addition, demand for power quality solutions supporting data center infrastructure remained very strong. Those applications continue to benefit from electrification and digital infrastructure investment. Vehicle revenue increased 35%. This was primarily due to increased commercial automotive shipments tied to a transitioning model program. As Rick mentioned, we view this as production schedule timing rather than a new long-term run rate. Construction markets also improved, and power sports conditions appear to have stabilized relative to earlier softness. Medical revenue increased 9%, supported by steady demand for surgical instruments and continued traction in precise motion applications. Aerospace and defense declined 5%, reflecting the lumpy nature of defense and space program shipments along with the previously announced M10 Booker Tank program cancellation. Importantly, underlying defense program activity remains solid. Distribution channel sales increased 11%, although that remains a smaller component of total revenue. Turning to Slide 6, here we show the composition of our revenue over the trailing twelve months, along with the year-over-year change in each market and the key drivers of that change. This slide really highlights something important about how the business has evolved, and what you are seeing in the mix is intentional. Industrial remains our largest vertical, and it is increasingly anchored by higher-value applications: power quality for data center infrastructure, motion solutions tied to automation, and applications aligned with electrification. That is where we have been directing engineering focus and capital. Aerospace and defense continues to represent a meaningful and growing contributor. While quarterly shipments can be lumpy, the underlying program activity and pipeline remains solid, and that vertical provides longer-cycle visibility. Medical remains steady and consistent. Surgical applications continue to be reliable contributors, and our precision motion capabilities position us well in that space. Vehicle, while still important, is a smaller percentage of the mix than it was previously. That is partly market-driven, but it is also strategic. We have intentionally shifted away from lower-margin programs and toward higher-value applications across the portfolio. So when you step back, the mix today is more margin-accretive and better aligned with durable secular growth drivers than it was just a couple of years ago. That evolution matters because it supports the margin expansion and earnings durability we have delivered. On Slide 7, gross margin expanded 90 basis points year over year to 32.4%. The improvement was driven by higher volumes, favorable mix, and operational efficiencies from our Simplify initiative. Sequentially, gross margin moderated largely due to a higher proportion of vehicle revenue, which carries lower relative margins. For the full year, gross margin expanded 150 basis points to a record 32.8%. Turning to Slide 8 and the drivers behind the margin and operating income expansion, what stands out in 2025 is not just the headline results, but how we have achieved them. As Rick outlined, the Simplify to Accelerate Now program was designed to structurally reduce complexity, improve throughput, and strengthen margins. The operating performance you see here is the financial expression of that work. The structural savings we delivered in 2024 and now 2025 are embedded in the business, and they are showing up directly in leverage and operating income expansion. Realignment costs related to these actions during the year are primarily associated with the Dothan transition. The transition to date has been successful not just from a cost perspective, but operationally. We are realizing enhanced manufacturing focus and early elements of the anticipated savings. When you layer these structural improvements with improved volume and mix, the impact on leverage becomes clear. At the operating level, we drove meaningful improvement in expense discipline. We captured upside from higher volumes while at the same time controlling SG&A, allowing operating income to grow significantly faster than revenue. In the fourth quarter, operating income increased 76% to $11.4 million, or 7.9% of revenue. For the full year, operating income increased 46% to $44 million, or 7.9% of revenue. Turning to Slide 9, you can clearly see how the structural margin expansion and disciplined execution translated into meaningful bottom-line growth. Net income for the quarter more than doubled to $6.4 million, or $0.38 per diluted share. Adjusted net income was $9.3 million, or $0.55 per share. Adjusted EBITDA was $19 million, or 13.3% of revenue, up 170 basis points. For the full year, net income was $22 million, or $1.32 per diluted share. Adjusted EBITDA was $76.9 million, or 13.9% of revenue, representing 210 basis points of expansion year over year. Our full-year effective tax rate was 23.3%. For 2026, we expect our tax rate to be between 21% and 23%. Turning to Slide 10, this slide reflects disciplined execution against the three financial priorities we outlined at the beginning of the year. Those priorities were improving working capital and inventory efficiency, taking out structural costs, and reducing debt and strengthening the balance sheet. Starting with cash generation, we delivered record operating cash flow of $56.7 million for the year, up 35% from the prior year. That level of cash conversion reflects both improved profitability and better working capital management. Inventory discipline was a major focus in 2025. Despite navigating automation normalization and rare earth considerations during the year, we improved inventory turns to 3.2 times compared to 2.7 at the end of 2024. That is a meaningful step forward. We tightened planning processes, aligned production more closely with demand signals, and reduced excess inventory that had built up during the prior cycle. Importantly, we did that while maintaining strong customer service levels. On receivables, days sales outstanding improved to 57 days for the year versus 60 last year. That reflects better collections, stronger billing discipline, and improved customer mix. When you combine inventory turns improvement with DSO reduction, you see a structurally better working capital profile. Capital expenditures for 2025 were $7 million, with disciplined, focused investments tied to customer programs and productivity initiatives. For 2026, we expect capital expenditures in the range of $10 million to $12 million, primarily supporting customer programs and growth initiatives. So Slide 10 is really about execution. We said we would improve working capital. We did. We said we would drive structural cost improvements. We did. And we said we would reduce debt. That shows up clearly on the next slide as the balance sheet story is directly connected to the execution we just discussed. Total debt declined to $180.4 million. Net debt declined to $139.7 million, a $48.4 million reduction year over year. Our leverage ratio improved significantly to 1.82 times from 3.01 at the end of 2024. Our bank-defined leverage ratio ended the year at 2.34, comfortably within covenant levels and providing meaningful headroom. The combination of stronger earnings, improved cash conversion, and disciplined CapEx allowed us to materially deleverage in a single year. That is important for two reasons. First, it lowers financial risk and reduces interest burden over time. Second, it creates flexibility to invest in organic growth, support new program launches, and evaluate disciplined capital deployment opportunities from a position of strength. So when you look at Slides 10 and 11 together, they tell a clear story. Operational improvements translated into cash. Cash translated into deleveraging, and deleveraging translated into flexibility. That is the financial flywheel we have been working toward. And with that, if you advance to Slide 12, I will now turn the call back over to Rick. Richard S. Warzala: Thank you, Jim. As we move through the fourth quarter, order trends improved. Automation demand is stabilizing, power quality tied to data center infrastructure remains strong, and our aerospace and defense pipeline continues to provide long-term, long-cycle visibility. Orders were up sequentially and year over year; we exited with a book-to-bill ratio slightly above one. That is important as it reflects positive momentum as we enter 2026. Backlog ended the year at approximately $233 million, with the majority expected to convert within three to nine months, consistent with our historical patterns. The visibility we have today supports a constructive start to the year. As we look into 2026, we believe we are positioned to build on that momentum. At the same time, we remain realistic. The macro environment is still uneven across certain end markets. Customer capital spending can move in phases, and policy and tariff considerations remain part of the broader landscape. We continue to monitor developments closely, and we will adjust as needed. With respect to the recent Supreme Court ruling and broader trade policy discussions, we are continuing to evaluate any potential implications. As we have discussed previously, we have taken proactive steps over the past several years to diversify our supply base, localize certain sourcing where appropriate, and manage tariff exposure through pricing and operational adjustments. We remain disciplined in how we evaluate these developments, and we will adjust as needed. What gives us confidence is what we control. We control our cost structure, and it is structurally better than it was a few years ago. We control working capital discipline, and we demonstrated that in 2025. We control capital allocation, and we strengthened the balance sheet meaningfully over the past year. And we continue to align the portfolio around higher-value motion controls and power solutions serving durable secular drivers of electrification, automation, energy efficiency, increased defense spending, and digital infrastructure. These drivers are not short-cycle themes. They represent long-term shifts in how energy is generated and used, how systems are automated, and how infrastructure is built. Allient technologies are directly aligned with those transitions. We exit 2025 with improved margins, stronger cash flow, and a materially stronger balance sheet. That combination provides flexibility and resilience, and it positions us to execute through varying market conditions. We believe we are entering 2026 from a position of strength. We have an excellent opportunity to leverage the foundation we have been building through our Simplify to Accelerate Now initiatives, simplify our organization, drive out cost, and accelerate growth rates well into the future. With that, operator, please open the line for questions. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Our first question comes from Tomohiko Sano with JPMorgan. Please go ahead. Tomohiko Sano: Good morning. Thank you for taking my questions. So while the cyclical macro recovery, such as improving ISM, is expected, Allient has clearly been driving structural growth and margin improvement through initiatives like Simplify to Accelerate Now. Looking ahead to 2026, which do you see as the bigger contributor to growth and margin expansion, external tailwinds or your own self-help measures? Any more color on 2026, please? Thank you. Richard S. Warzala: Okay. If I understand your first question, you are looking for what are the seculars that we expect to be generating the largest growth opportunities for us in 2026. Is that correct? Tomohiko Sano: Mhmm. I want to get a better sense about cyclical characteristics of the recovery you have seen versus the structural themes you see in 2026. Richard S. Warzala: I am sorry. I do not know whether it is our line or your line, but you are breaking up on us, and I am having a hard time picking up some of the comments or questions. Tomohiko Sano: I am sorry. Could you talk about 2026 growth of sales driven by cyclical recovery versus structural items? For the revenue side, I wanted to get some color on the margin side as well. Thank you. Richard S. Warzala: Okay, I think I have it here now. First off, as we talked about here, as we have been repositioning our business and looking at where we see some of the longer-term drivers, we mentioned data center infrastructure. We do see that continuing. We see, I believe, one of the issues that has been addressed quite a bit over the last few days here has been about the energy side of it and how they are going to generate power, and it seems like some of the companies are stepping up to do that on their own, which I think was a major concern. That does not affect us. We obviously need the power, and as the data center expansion continues, we play a significant role in making sure that power is being delivered efficiently and effectively, and eliminating distortion within the grid and so forth. So I think we do see that opportunity continuing now into 2026 and into the future. Again, it is based upon infrastructure; it is based upon capital projects, and of course those are subject to the developments as the prime contractors and developers determine the right timing for those. As far as aerospace and defense, we have heard, let us call it, defense more than aerospace. That is impacted by many factors, and now, given the war that is going on in Iran right now, I think it is going to take a little bit of time to settle down for us to figure out how that will have an impact on our business, whether it is immediate or long term. That is too soon to call. As far as the other programs go, which we have been very actively involved in, we see some of the key drivers in terms of defense applications, whether it is drones, whether it is missile defense, and so forth. We have been a player in those markets for some time now, and we do see that continuing. One thing that is occurring there is, of course, the requirement for defense products and suppliers to be based in North America or the U.S., and that definitely plays to an advantage for us as we do have a significant manufacturing base and design engineering team in North America. The other areas that we see opportunities, of course, is we do not see medical slowing down. The advent of AI in medical and the use of sophisticated diagnostic tools, and again, some of the key areas that we have been involved in for many years, we continue to participate, and we are excited about that. Automation will come, and automation comes in the form of our normal industrial automation and even in the robotic side of it, sometimes referred to as humanizing and so forth. Again, it is another area we participated in, and we continue to participate in. We see growth and stabilization there. European markets, especially Germany, seem to be remaining a little bit soft, and they are not predicting any growth for 2026. We will see how that shakes out as the year goes along, but the forecast we are getting right now is that the industrial markets in Germany, in fact, may decline this year, which we saw some signs that it was going to improve; the latest information we are getting is that may not be the case. And I think our diversification in many different markets plays well for us, and there is a good balance. We do believe that the industrial sector will continue to grow because we do have automation in that sector, as we call it, and also the data center infrastructure is in there as well. So we do see that continue to grow, and we see defense growing, whether it is timing—as Jim had mentioned, the government canceled the M10 Booker program—and that is a realignment of how they see the priorities on the battlefield going forward and the challenges that are being faced. As far as margins, margins are a big factor based upon mix for us. I can tell you that our focus and emphasis on new applications has been in the markets where the margins are above our average. That has been our focus, will continue to be our focus, and capital spending will align with that. So I think that we are in pretty good shape. Our book-to-bill ratio was improving, and that is one of the things that we pay close attention to to determine whether we have converted some of the opportunities we are working on, and it is showing up in bookings that will later show up in shipments. That is a long-winded answer; I hope I have covered them all. If not, you can ask me to add to that if necessary. Tomohiko Sano: Thank you. Very helpful, Rick. Thank you. And just a follow-up on capital allocation. Congrats on leverage improved and strong cash flow generation. How would you prioritize capital allocation for 2026 among organic growth investment, M&A, and shareholder returns, please? Richard S. Warzala: Sure. I would say to you that, again, going into 2026, we feel that our pipeline of opportunities is quite strong, and our investments that we make will be to support what we have control over and in hand right now, which is some significant opportunities, and we will need to invest to realize some of those opportunities. So that is going to be the majority of the investment that we see going forward. I would also say to you that we are paying very close attention in terms of the pipeline of acquisitions. We have had certain areas that we will not discuss on the call here that we are paying close attention to, and if the opportunity does arise, we think we are well positioned to take advantage of that and to move forward with it. I think the Simplify to Accelerate Now initiative—I just want to make it clear—we are not done. We had several initiatives that were well underway and executed quite successfully, but certain things were not completed in 2025 that are carrying into 2026, and we will have the discipline to get them done and drive cost out. We also see other opportunities when we look at our infrastructure and our footprint to continue to drive cost out, to become more efficient in the way we do things. So that is not ending; that will continue. It is not like we did a mad push for a couple years and it is all completed. It is not. There is more opportunity ahead of us. And 2026 will not be one where we just sit back and say, okay, let us take a deep breath and look at what we did and move on from here. We are going to be aggressively going after additional opportunities to improve our cost base, and they are there. Tomohiko Sano: That is very helpful as well. Thank you very much. That is all from me. Richard S. Warzala: Thank you, Tomo. Operator: The next question comes from Gregory William Palm with Craig-Hallum. Please go ahead. Gregory William Palm: Thanks. Good morning, everybody. Congrats on a good way to finish 2025. I do not remember the last time you actually grew revenues sequentially from Q3 to Q4. Maybe it has happened once or twice, but I understand a little bit was due to some outsized growth in commercial vehicle, which you talked about. But broadly speaking, what else drove the better-than-expected seasonality that you would normally see? And just to be clear, what kind of trends have you seen so far in Q1? Richard S. Warzala: Yeah, great question, Greg, because it was abnormal. You are absolutely correct. You have followed us a long time, and as we say, going into Q4, there are always some unknowns. We have seen years where demand was pent up—supply chain crisis, things like that—which caused irregularities in the normal cyclical patterns that we would see during the year. We did in fact have a few pull-ins that we had not anticipated, so it did elevate Q4 sales to a certain extent, one that we mentioned in the commercial vehicle side of it. We do not see that having—that was a one-time surge based upon some demand that had been sitting out there, and we see returning to normal. A couple other areas were a few surprises, and I will not mention in detail what they were. They were pulling in product, and then as we turned the year, we saw that reflected in a little bit lower demand in the first quarter. So there were some offsets there that we are going to have to address and see—it is still early, of course—how that lands. But that is a little bit unusual, and thank you for pointing it out, because there were, I will say, three different drivers of that. One was a one-time, which will reduce to normal, and the other two, we did see a little bit of reduction after they were pulled ahead as we started the year. But nothing that we see that will change normal run rates on an annual basis. It was just unusual. Gregory William Palm: Leaving this aside, what type of demand are you seeing right now across your markets? Any change? I know things strengthened as we went through 2025, but any strength? I am just curious as you look at what has occurred over the last week, what kind of risks or even opportunities could that bring about this year? Richard S. Warzala: Our order input seems to be coming in quite well, and we saw improvement through the year, and as you mentioned, we watch that very closely because that is obviously an indicator of what we are going to see in terms of converting it into shipments. That is encouraging. We see that continuing to flow in nicely. As far as what has happened in the last week, of course, there is no surprise in saying that on the defense side of the business, we certainly do supply products that are being utilized right now. How that converts into orders—you know, we were also surprised when they were heavily consumed, and we did not see production orders happening as fast as we would have expected, which indicated there was a big stockpile. We think the stockpile had been chewed up. We saw some return to starting to ship again for some defense-related products. So if you just ask for what our gut feel is, there will need to be an increase in certainly some of the products that we deliver to do some replenishment. What the total amount is—the impact—is hard for me to say. But I am sure we will start seeing some of that fairly soon. Gregory William Palm: I know you mentioned drones, and that is an opportunity that you have called out a little more recently. Are you able to share with us any traction that you are seeing, just in terms of what the opportunity set might be emerging there? Richard S. Warzala: Our company is well regarded and well respected for high-performance solutions, custom engineering, and so forth. I would say our activity in that market had been primarily in that space, and it accelerated. It certainly accelerated as far as the pipeline of opportunities, the prototyping that we are doing, the quoting that we are doing. It also seems to be expanding into the class one or group one, whichever way you want to describe it, devices, and has caught our attention. One of the areas of opportunity for us that we see is that we know how to produce product and buy in. We have one of the benefits that we enjoy based upon having a certain percentage of our business—as we have stated in the past, we try to keep it in the single digits—automotive, is we know how to produce higher-volume solutions cost-competitively with the use of automation. So I see it as very encouraging, and I see it as a real opportunity for us to take our know-how that we have gained and developed over the years and to redeploy it into some of these other areas. While the pricing and the margins may not necessarily be the same as the higher-performance custom engineered products, certainly the volumes do give you the opportunity from a volume standpoint and from an operating margin standpoint to be incremental to our business. So that is an area that we see. The shift to North America has created an increase in inquiries. As I said, we have been in the business in different applications. We see our technology base in electronics and controls and motors and lightweighting and composites definitely gives us an opportunity to expand that. So we are pretty excited about it. Gregory William Palm: And I guess just last one. I recall last year you announced the facility expansion where you are doing a bulk of the data center work, and I am curious what the status is of that. Do you feel like you have adequate capacity once it is done to capitalize? What are you seeing in terms of the opportunity set there? Richard S. Warzala: Yes. To answer your question, it is coming along extremely well. It will be late second quarter, early third quarter when it is fully operational. Timing could not have been better. That is all I can say. Timing could not have been better. The opportunities we are seeing, and the fact that we had addressed it in advance to expand our capabilities and our footprint, were definitely fortuitous as the demands of the market continue to go up. I think they will start to unfold later in the year. You will start to see some significant increases in volume in that area. And our timing was good. Gregory William Palm: Okay. Perfect. Appreciate all the color. Thanks. Richard S. Warzala: Thank you, Greg. Operator: The next question comes from Matt McAllister with Lake Street Capital Markets. Please go ahead. Matt McAllister: Hey, guys. Thanks for taking my questions. I want to go back to the data center opportunity. From your comments here in the Q&A and then prepared remarks, it sounds like it would be safe to say you expect the data center opportunity to accelerate in 2026 over 2025 in terms of growth rate. Is that correct? James A. Michaud: Yes, we do. Richard S. Warzala: And what I would say to you is that definitely the opportunities are there. As Greg asked in the previous question about the expansion to our facility, our main facility was underway, and last year was approved and is reaching the point of completion. That is critical for us to be able to handle the increased demand that we expect to see. I will say to you that there was an acceleration into last year of some of the products that we produce and accelerated deliveries, and you are going to have to pay close attention to the order input rates and what we see there, because it is not a smooth, incrementally improving business. You can see fairly substantial jumps in opportunities and timing of orders and when the demand and shipments are going to occur. It is not just going to be a straight line. We will see that perhaps in the third and fourth quarters of this year where you will see some ramping. Matt McAllister: Is this growth primarily driven by new contract wins with new customers, or is it a mix between expanding wallet share with existing customers? Richard S. Warzala: The market itself is expanding, and we have talked in the past about some of our capabilities that put us in a very nice competitive position in the market, and I think that is what is driving it. So it is market expansion, and the technology we have to support and service that is also being recognized and accelerating some of those opportunities for us as well. I do not want to—you are fairly new, and I appreciate you joining us as an analyst. In the past, we talked about an acquisition that we did in Wisconsin that gave us capability and a manufacturing capability and footprint in Mexico. We have been leveraging that to a great extent and helping us accelerate our ability to meet those demands. It has proven to be very helpful for us as we have been addressing some of those. So it has been our capability, our production capability, the expansion that we are doing to continue to improve upon that, as well as our technology, which gives us a nice competitive edge in the marketplace. I am not saying we are alone, but we clearly have product that is recognized as high-performing and very cost effective. Matt McAllister: Okay. And then last one for me. With the M10 Booker program coming to an end, is there any other program you can share with us to give us an idea where you expect to head next, or is it something you cannot share? Richard S. Warzala: No. I would rather not share. Sure, we could share what defense programs, but as we found out with M10 Booker, that was not a one-year program. That was a six- or seven-year program. If you look at it, there is logic behind what is happening. As the battlefield is transitioning, the utilization of drones, the utilization of missiles, less boots on the ground—Booker was a larger vehicle. It is not going to go away in itself for the need for those larger vehicles and boots on the ground in some applications or some arenas. But we will see a shift towards smaller, more agile, more autonomous vehicles, and we are positioned as well on those. One of the things for us to get the message out—as we have acquired companies in the past, and we looked at more of a fully integrated solution—we provide significant advantages in that we can handle the electrification; we can handle actuation. So we have got motors, we have got controls, we have got drives, we have got I/O, and we have lightweighting composites. Those composites are used quite extensively, and composites are not just for lightweighting. There are other reasons you use lightweighting: structural integrity or improved strength, EMI protection, as well as lightweighting to make them more efficient as you move towards whether it is electric or hybrid vehicles to improve battery life and so forth. I would say that we are in a unique position to be able to offer all of that to some of the prime contractors in addition to one of the things where the Department of War is pushing really hard now—accelerated development. These long design-in cycle times like a six- or seven-year Booker program and then canceling at the end, the speed of play is going to be absolutely critical. If you have products that are already being utilized in other markets that you can leverage, that gives you a competitive advantage. In many cases they are vehicles, and since we have been very strong in the vehicle market with some of our products, we are able to leverage those. So COTS—commercial off-the-shelf—products are critical. We can leverage those, and we can apply engineering and modifications to fit them for purpose, whether it is more ruggedized, more environmental, lighter, higher performance, and so forth. We are very excited about it, and we have made an investment. You have not seen the returns on those investments yet, but we are highly confident that we are positioning ourselves well for the future. Matt McAllister: Awesome. Thanks. Operator: Again, if you have any questions, please press star then 1. Our next question comes from Ted Jackson with Northland Securities. Please go ahead. Ted Jackson: Thanks very much. You guys sound so optimistic; it is infectious. A couple of questions. Dick, on the domestication of work and its drive for you, you have been dancing around that, and this whole thing with DAA—there are two buckets to bringing stuff back into the country. One is the actual manufacturing, and the other is the supply chain. For Allient, the manufacturing bucket is pretty straightforward. Is there work that you need to do on the supply chain to bring anything into compliance within DAA by the time it becomes fully into effect in January? Richard S. Warzala: It is a very good question. The answer is there is always going to be work to be done there. There are no quick answers to some of the rare earth minerals and materials that are being utilized in some of the higher-performing products here. You are 100% correct. We have the capacity and the capability to produce in North America. We have got ample capacity, and some of the work that we have been doing over the past few years that we have talked about—facility rationalization—and it is there, and it is to our advantage. We have about 1,200,000 square feet of manufacturing space within the company, and in North America a substantial portion of that. We freed up a significant amount of space that we can redeploy if there is a quick demand and a ramp-up for certain initiatives that may be undertaken. Supply chain is another challenge, and we have been hot and heavy on it and working on it. We have a team that is on it, but I will not tell you that it is completely solved. We are subject to other governments and other policies they may impose. We have been working hard to minimize the impact, to solidify supply chain sources, but some of that ramp-up has not been as quick as we would have liked to have seen it or the government would have liked to have seen it. So there is clearly going to have to be—government is going to have to look at that and really decide—there is a desire and there is a reality, and whether the two meet. I think we will be working through some of that this year. It is an excellent question. It is something that we are on top of. We are doing everything we can possibly do to resource. We already started before some of this had happened. Regionalization of supply chain had nothing to do with tariffs and duties and restrictions. It was more of a logical business decision. So we were pretty well prepared. On the other hand, we cannot control when some of the other factors that come into play could impact us. Jim, do you have anything you want to add to that? James A. Michaud: What I would tell you, Ted, and this is just really dovetailing what Rick just mentioned, the Feds are investing billions of dollars in a number of companies here in the U.S., and obviously we have been in contact with all of them. But as Rick just mentioned, it is going to take time for all of the supply chain in and around the rare earths and the processing of materials and so forth to evolve. I do not think it is going to all happen when we hit January 1. But I can tell you we have teams here that are working diligently with a variety of different suppliers, and we are setting the foundation for us to partner with these companies that the government is investing in. Ted Jackson: I did want to get into magnets, but let us keep on, and so I am going to jump over here. On the main issue for you on the supply chain side is rare earth around magnets. Everyone has that problem. I have to believe that your government is well aware of that. Do you have any dialogue with the government? Do they understand that at some level you have to be practical, or are you just saying that yourself? Richard S. Warzala: As Jim mentioned, we have been in close contact with the government and the key in the government, working hand-in-hand to—and that is why I said to you, at some point in time, there is a desire and there is a push, but there is also reality of the timing when all of this could occur. I can just tell you this: we are hand-in-hand. We are in there. We are working with the identified sources that are being supported and invested in. And we are not letting up on it. We are not stopping there. It is a continuous effort to make sure that we are working all the angles as well as staying very close to the key government officials and activities that are being undertaken right now. Ted Jackson: Beyond magnets, is there any other critical components or parts that you have had to go out and resource or need to resource to move into compliance? Richard S. Warzala: Yes, to answer your question, there are other components, but they are not as complicated or as difficult to resource. It may be a cost factor more than anything. Something else that does impact that as well. Without getting into all the details of the different components that we are seeing, you are seeing certain supply shortages in pockets of areas, even electronic components. You see some things popping up based upon demand in other areas that are occurring that are stressing the supply chain. But to answer your question, yes, there are other components that are key. If you are talking about motors, for a motor to function—whether it is laminated steel, whether it is bearings—there are alternatives. The alternatives may be more costly, but there are alternatives. Magnets are a little bit unique in themselves, so highlighting the magnet side of it is important. The others are there, but they get impacted based on other factors. Ted Jackson: So it sounds like it will just be a topic for discussion every quarter as you progress through it, and you are not the only one. There are so many different companies. I am shifting over to the commercial vehicle market and the fourth quarter. You had like a pig in the python with regards to the fourth quarter. I would ask, one, if you could quantify it a bit to help us realign how our first quarter will look, because you typically have some seasonality from fourth to first, just to make sure that it is helpful for analysts in terms of getting their 2026 numbers done. And then on a more macro level, the commercial vehicle market seems very much on a rebound. You have seen a pickup in freight rates. If you listen to PACCAR and Volvo and all the Class 8 guys, starting in November they saw order activity bookings pick up substantially. It continued through January. I have talked to some of their suppliers. It continued through February. You are going to see a lot of that translate into an improved demand environment probably when we get to the back half of 2026, assuming this continues, and it sets up well for 2027. Can you talk about what things you are supplying into that market and how you see that market playing out as we roll through the year and into 2027? Richard S. Warzala: Is your question about what we supply into the commercial automotive, or what do we supply into the truck and construction, or all of them? Ted Jackson: All of them. I was trying not to get too granular, but I am always interested in more than this. I am American. Richard S. Warzala: What I will say is this. Yes, we did see, and we can echo, that we saw some improvements. When we talk about vehicle—and thanks for bringing it up because many times people have their own definition—our definition of vehicle is commercial automotive, bus, construction, marine, agricultural, truck, and rail. That is what we consider vehicles. We have to continually remind people when we talk about vehicle, and also we do have powersports in there. When we talk about vehicle, do not get too wrapped up in thinking of us as an automotive company. We have mentioned we have a target to keep that in single digits. The major reason for that is it is a long lead-time design-in cycle time, it is very cost competitive, and it is heavily capital intensive. We have chosen to invest our money in other areas. But we did see increases across the board. The impact of the one-time effect of the fourth quarter that you could see going forward, I would tell you about $2.5 million in fourth quarter. As far as the applications go, when you get into agricultural, construction, and so forth, we are in several applications, different types of actuators and so forth. One of the key elements that we are in across the board in vehicles is steering applications. It is agnostic to whether it is gas or electrification, so we can be utilized in each. We are also involved in electrohydraulics for some of the larger vehicles, again primarily in the steering area. We have great expertise in steering, and that is where we focus our efforts not just in vehicle but also in some of the industrial applications as well. Does that help you? Ted Jackson: That does. I know we are at the timeline, so I will stop. Richard S. Warzala: Okay. Thank you, Ted. Thank you, everyone. I think if there are no more questions, which I believe there are not, operator, can you confirm that? Operator: Yes. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Richard S. Warzala: Thank you, everyone, for joining us on today's call and for your interest in Allient. We will be participating in the JPMorgan Industrials Conference in Washington, D.C. on March 17. As always, please feel free to reach out to us at any time, and we look forward to talking to you all again after our first quarter 2026 results. Have a great day, and that will conclude the call, operator. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the South Bow Corporation fourth quarter and year-end 2025 earnings call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, we will open up for questions. To ask a question during the session, you will need to press 1-1 on your telephone, then hear an automated message advising your hand is raised. To withdraw your question, please press 1-1 again. Please be advised that today’s call is being recorded. I would now like to hand it over to your speaker, Martha Wilmot, Director, Investor Relations. Please go ahead. Martha Wilmot: Thank you, Victor, and welcome, everyone, to South Bow Corporation’s fourth quarter and year-end 2025 earnings call. With me today are Bevin Mark Wirzba, President and Chief Executive Officer; Van Dafoe, Senior Vice President and Chief Financial Officer; and Richard J. Prior, Senior Vice President and Chief Operating Officer. Before I turn it over to Bevin, I would like to remind listeners that today’s remarks will include forward-looking information and statements, which are subject to the risks and uncertainties addressed in our public disclosure documents, available under South Bow Corporation’s SEDAR+ profile and in South Bow Corporation’s filings with the SEC. Today’s discussion will also include non-GAAP financial measures and ratios that may not be comparable to those presented by other entities. With that, I will turn it over to Bevin. Bevin Mark Wirzba: Thanks, Martha, and good morning, everyone. We appreciate you joining us today. 2025 was an important year for South Bow Corporation. It was a year that tested our organization, but ultimately a year that demonstrated the resilience of our business and the discipline of our decision making. We delivered financial results that were slightly ahead of expectations, advanced our first growth initiative to completion, and, most importantly, continued to operate safely. Safety remains the foundation of everything we do. In a year of significant activity, we delivered a strong occupational safety record, reflecting the commitment of our employees and contractors even under challenging conditions. We also made meaningful progress on our Milepost 171 remedial actions, continuing to prioritize system integrity and working toward returning Keystone to baseline operations. Richard will speak to Milepost 171 shortly. Our focus on safety and operations goes hand in hand with South Bow Corporation’s financial discipline. Strong financial performance in 2025, supported by our highly contracted and predictable cash flows, enabled us to deliver on our capital allocation priorities. Now turning to growth. At our Investor Day last November, we outlined our ambitions to grow our business. Today, we see multiple potential paths to achieving those growth objectives. This will include a combination of organic opportunities that leverage our existing infrastructure to support anticipated crude oil production growth in the Western Canadian Sedimentary Basin, as well as inorganic opportunities that diversify and enhance the competitiveness of our base business. The policy environment in North America is becoming more constructive, and we believe Canada has a tremendous opportunity to grow production and add incremental egress in the coming years. Canadian producers aspire to materially grow their asset bases, and with our customer-led strategy, we are looking to put forward the most competitive solutions to meet their needs, while aligning with our capital allocation principles and risk preferences. All growth at South Bow Corporation will be balanced with financial discipline. This is non-negotiable for our team and board of directors. We remain committed to maintaining a strong balance sheet and returning a meaningful and sustainable dividend to our shareholders, all while investing in growth. That balance is central to our strategy. The Blackrod Connection project is a good example of how we think about organic growth at South Bow Corporation. It builds on existing infrastructure and enables us to safely and reliably move Canadian crude to a desirable market at a competitive toll. A recent endeavor of ours, the Prairie Connector project, has garnered some attention. While currently in early stages, the project would provide firm transportation service from Hardisty, Alberta, leveraging and optimizing South Bow Corporation’s pre-invested infrastructure and connecting to other systems downstream to deliver Canadian crude to U.S. refining and demand markets, including Cushing and destinations on the Gulf Coast. An open season to determine commercial interest is currently underway, and we look forward to discussing this potential solution further in the future. With that, I will now ask Richard and Van to provide an update on the operational, commercial, and financial aspects of the business. Go ahead, Richard. Richard J. Prior: Thanks, Bevin. I will start by talking about our safety performance. We had significant construction activity levels across our business last year, from the Blackrod project, to the Milepost 171 response and restoration, to executing a significant maintenance and integrity program. The scope amounted to more than 2.5 million work hours, where we achieved zero recordable safety incidents. Our strong focus on safety supports the well-being of our workforce and the communities where we operate. Earlier this week, we placed the Blackrod Connection project into commercial service less than 24 months from the time of sanctioning. The project was on time and on budget, with exceptional safety performance. As our first growth initiative, this is a significant accomplishment for the organization and demonstrates that we have a highly capable team that can develop and execute organic projects and deliver competitive solutions to our customers. Turning to Milepost 171, last month, PHMSA posted the results of the independent third-party root cause analysis, which confirmed that the characteristics of the incidents were unique and that the pipe and welds met industry standards for design, materials, and mechanical properties. We began proactively addressing many of the recommendations after the incident occurred last April and have made significant progress on our remedial actions and integrity work, with 11 in-line inspection runs and 51 integrity digs to investigate 68 pipe joints completed across the system so far. In parallel, we continue to work closely with our in-line inspection technology providers to enhance tool performance and detection capabilities. We are operating the Keystone pipeline at a high system operating factor, which has enabled us to continue meeting our contracted commitments while under pressure restrictions. As we progress our remedial and integrity work and share our findings with the regulators, we expect pressure restrictions to be lifted in a phased manner. The lifting of pressure restrictions would present an opportunity for a modest increase in spot movements later in 2026. With that, I will turn it over to Van to walk through our financial performance and outlook. Van Dafoe: Thanks, Richard, and good morning. First, I will speak to our financial performance in 2025. South Bow Corporation delivered solid results despite a challenging backdrop that included geopolitical and market uncertainty, tight pricing differentials, and pressure restrictions following Milepost 171. South Bow Corporation delivered normalized EBITDA of $1,020 million in 2025, slightly above our expectations of $1,010 million, with a modest outperformance driven by our marketing segment. While 90% of our business is underpinned by high-quality cash flows generated from long-term contracts, our marketing affiliate does make small contributions to our bottom line. Early last year, we took steps to reduce our risk exposure in the face of market volatility, and the team did a great job throughout the year to partially offset some of those losses. Our tax team also did an exceptional job optimizing our tax position throughout the year. Reflecting these efforts, South Bow Corporation reported distributable cash flow of $709 million, in line with revised guidance and more than 30% above our original guidance. This outperformance expanded our free cash flow position, enabling us to accelerate our deleveraging priority. We exited 2025 with a net debt to normalized EBITDA ratio of 4.7x, slightly better than the expected 4.8x. All other items were in line with our 2025 guidance. After a solid year, South Bow Corporation is starting 2026 in a position of strength, and we are reaffirming our financial outlook for the year. As Blackrod cash flows ramp in the second half of the year, we will continue to direct our free cash flow to strengthening our balance sheet, remaining on track to meet our leverage target of 4.0x in the medium term. As we deleverage, we also intend to allocate capital towards growth, and we will share our growth capital plans once we have sanctioned our next initiative. Finally, the stability of our financial results enables us to deliver a meaningful return to our shareholders. In 2025, we returned $416 million, or $2.00 per share, through our sustainable dividend. With that brief financial overview, I will hand it back to Bevin for closing remarks. Bevin Mark Wirzba: Thanks, Van. Thanks, Richard. To close, I will come back to what defines South Bow Corporation. We operate critical and enduring energy infrastructure in a corridor that connects one of the strongest and most secure supply basins in North America to some of the most attractive refining and demand markets, and we have a growing set of customer-led opportunities that leverage our pre-invested infrastructure. We plan to do that with a focus on safety, integrity, and discipline, and you can trust that our growth will be paired with balance sheet strength and sustainable shareholder returns. That is fundamental to how we run this company. 2025 showed what South Bow Corporation can deliver. We are confident in the foundation we have built, and the path ahead offers even greater opportunity. You can expect us to execute it the right way. With that, I will now ask the operator to open the line for questions. Operator: Thank you. And as a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Theresa Chen from Barclays. Your line is open. Theresa Chen: Good morning. With respect to the open season for the Prairie Connector project, can you discuss any early indications of commercial interest at this point, understanding that you are still very early on? And then, in general, how are you thinking about competition for U.S.-bound WCS egress from Enbridge and Energy Transfer, as well as the impact of incremental Venezuelan barrels flowing to the U.S. Gulf Coast, potentially displacing WCS in PADD 3? What do you see as Prairie Connector’s key competitive advantages? Bevin Mark Wirzba: Thank you, Theresa. Thanks for joining the coverage group. To your question on the Prairie Connector, we are in early stages as I mentioned. I did say in our remarks that we are a customer-led strategy, meaning that we had good alignment with our customers heading into the open season. That is as much as I can share with respect to the outcome of the open season at this time. Obviously, in addressing your second question, the impacts of the other open seasons and Venezuela, my earlier remarks also focused on providing the most competitive solution for our customers, and we believe what we have put forward is a very competitive offering that should attract the attention that we are looking for. With respect to the other opportunities, owning and controlling the most competitive and direct path to the Gulf Coast has always been an advantage that South Bow Corporation has leveraged, and we will continue to do so. Theresa Chen: Thank you. And in relation to the existing Keystone system, after sharing the root cause analysis related to Milepost 171, can you talk about the timeline of lifting the pressure restrictions in a phased manner? Can you give some details around this? What are your expectations for how much the pressure and hydraulic capacity could step up beginning in 2026? And then, within your annual guidance, how much of an impact is this given expected capacity for higher spot movements, but also the expectations for tight differentials nonetheless? Can you help us reconcile this? Bevin Mark Wirzba: Thank you, Theresa. Even initially after the incident, as Richard pointed out, we have been working very closely with our regulator on all the remedial efforts, and we have made tremendous progress on the digs and in-line inspections to date. Early on, we were able to have some de-rates lifted already on the system as we progressed. What we described in our release is that we intend to continue those remedial efforts at pace this year so that we could see a lifting of the corrective action order by the end of this year. We are in active dialogue with the regulator to ensure that what we are doing and what we are finding informs the plans as we go forward. In terms of the capacity that would be realized, it would be returning to the kind of operational capacity that we delivered in previous years, which was, I believe in 2024 and early 2025, just north of 600,000 barrels per day of delivered capacity. With respect to your last part of the question, our outlook in terms of our earnings and our guidance, the timing of this incident occurred when ARBs were quite tight with TMX coming on in 2024. The basin was long-piped by approximately 250,000 barrels per day. In 2025, we saw the basin grow north of 100,000 barrels per day and continuing to grow here in 2026. We believe that our guidance, while it includes the impact of not being able to move as many spot volumes as we had hoped, reflects that the market really does not open for us until early 2027, and then, at that point, we are planning and targeting to have the de-rates lifted so we can take advantage of those ARBs as the basin grows and overtakes the egress out of the basin. Theresa Chen: Thank you very much. Operator: One moment for our next question. Our next question will come from the line of Robert Hope from Scotiabank. Your line is open. Robert Hope: Morning, everyone. Two questions on the Prairie Connector. Maybe first, just in terms of a follow-up on when you think incremental capacity will be needed out of the basin? And then how would that mesh with what you would think would be a reasonable regulatory time frame and construction time frame if this project does proceed. Bevin Mark Wirzba: Thanks, Rob. One of the benefits of having a strategy that focuses on our pre-invested corridors is that we are in a position where our permits are in place in Canada for the Prairie Connector, and we are working closely with the Canada Energy Regulator to manage through that. Obviously, it is early stages, so we are not going to share our timelines for a potential development, but I would suggest, much like the Blackrod project where we were working within an existing corridor, our ability to advance construction quickly in a regulated environment is consistent with the Prairie Connector project objectives. With respect to the timeline of the need for the project, you can see from our customer base that most are announcing or suggesting they have growth ambitions over the next three to five years of quite materiality. Being able to develop the project over the mid-term would be consistent with providing a competitive solution for our customers at the time frame of when they are intending to have their production growth. Robert Hope: Alright. Appreciate that color. And then maybe as a follow-up, as we take a look at what the Prairie Connector would connect into in the U.S. and the path down to the Gulf Coast, we have seen Bridger file already for some regulatory approvals there. But how do you envision working with partners to help get barrels down to the Gulf Coast? Bevin Mark Wirzba: Great question, Rob. We will not speak on behalf of other developers. What I can say is our team has learned through many previous projects that allocating risk appropriately amongst all stakeholders—our customers, ourselves as developers, and partners—is really critical. The team has been working diligently on that front to ensure that we have the right alignment amongst all stakeholders to ensure that we have a project that could be advanced within our risk preferences, which, as I have stated, is critical. We will not sacrifice our capital allocation discipline through advancing any project. Robert Hope: Alright. Appreciate the color. Seems like an interesting project. Thank you. Bevin Mark Wirzba: Thanks, Rob. Operator: Thank you. One moment for our next question. Our next question will come from the line of Robert Kwan from RBC Capital Markets. Your line is open. Robert Kwan: Great. Thank you. Good morning. If I can just ask about how your growth initiatives—do you have a preference, or how do you think about the role of joint ventures and partnerships versus just outright acquisitions, over and above the organic initiatives? Bevin Mark Wirzba: Thank you, Robert. Within our strategy, we have always said that leveraging the pre-invested capital on the ground and organic allows us to develop projects at a 6x to 8x EV-to-EBITDA build multiple, and Blackrod was demonstrated at the low end of that range. Clearly, organic development that fits the needs of our customers with the same risk preferences that we have been able to achieve with even our base operations is far more accretive for shareholders over the long term. But as I pointed out in my remarks, to complement that organic strategy, there are opportunities that we believe we could leverage inorganically that provide diversity and provide some additional synergies to the business. Obviously, those will not advance at that same EV-to-EBITDA build multiple, but the combination of an organic and inorganic strategy, we believe, can deliver the shareholder returns we are targeting. Robert Kwan: Great. Thanks. And if I could just finish by asking about the open season, there is some language there about asking potential shippers to demonstrate market demand for incremental egress opportunities. What should we take away from that specific wording? And then how should we think about this with respect to the existing Keystone capacity and your contract rollovers or expirations that would occur in roughly the same proximity as this initiative? Bevin Mark Wirzba: Two great points, Robert. First, the language is actually pretty benign in that, from a regulatory standard, we have to prove need and necessity for any development that happens. That need and necessity on our existing permits was demonstrated years ago, and that need and necessity still exists today. The language is really pointing to our customers indicating to us, if they support the open season, that they have need and necessity—they have growth ambitions that require us to develop this capacity. On the second point with respect to base Keystone operations and potential impact of recontracting, the way we think about it is we are really developing a corridor. The Prairie Connector would be in addition to that corridor, and it really serves the same customer base and the same demand markets. We believe that the combination of the two would be an extremely competitive corridor going forward, and we believe that we can provide that competitive solution for customers going forward, making the corridor in and of itself the ideal solution for getting Western Canadian oil sands production down to the Gulf Coast. Robert Kwan: That is great. Thanks, Bevin. Appreciate the thought. Operator: One moment for our next question. Our next question will come from the line of Sam Burwell from Jefferies. Your line is open. Sam Burwell: Hey. Good morning, guys. Another open season question, but maybe from a different angle. Are there any learnings to be had from what happened with the original Keystone XL, especially on the U.S. side? Anything that went wrong on that project that is within your control to perhaps do differently with this one? Obviously, the route will be different, and it is different in many ways. What gives you more confidence in this project’s success where Keystone XL did not? Bevin Mark Wirzba: Sam, great question. I was around, and many of our team were around, during that last attempt. There are a tremendous amount of learnings. Subject to the permit that we have, we are developing it in a very consistent manner to that permit’s requirements, but our conversations with our customers and how we can work with them through a commercial offering—we are leveraging a lot of those learnings in those commercial discussions that are confidential at this time. As I mentioned in my opening remarks, the policy environment in North America has been far more constructive. The unfortunate events that are ongoing in Iran and the tragic events in Ukraine have highlighted that energy security and establishing energy corridors are critical. Those realities are a great backdrop for us to provide a solution that increases energy security in North America between the great resource in Canada and the strong demand markets on the U.S. Gulf Coast. Sam Burwell: Okay. Understood. And then, tying onto that, the Bridger proposal mentioned that a Presidential Permit is required to cross the border. That was obviously an issue with Keystone XL that everyone knows about. Is there a point in time, or a point in construction, or some threshold met whereby the Presidential Permit is ironclad and cannot be revoked? Has anything changed with that dynamic since 2021 when President Biden effectively put the kibosh on Keystone XL? Bevin Mark Wirzba: Per my earlier remarks, Sam, we are only going to talk to our component of a project, which is delivering service from Hardisty to the border. My comments around risk allocation and structuring, and your earlier comment around lessons learned—there are a lot of things going into the commercial dialogue right now amongst ourselves and with our partners. I will leave our partners to speak to their own business. We have really focused on finding a solution that we can deliver for our customers, with an allocation of risk that makes sense for all stakeholders in this approach. If we are not able to achieve that risk allocation that we all believe we need, then the project just will not advance. Sam Burwell: Okay. Understood. Thank you, Bevin. Bevin Mark Wirzba: Thanks, Sam. Operator: Thank you. One moment for our next question. Our next question will come from the line of AJ O’Donnell from TPH. Your line is open. AJ O’Donnell: Hey. Morning, everyone. I am going to sneak in one more about the Prairie Connector, maybe just talking about leveraging your existing corridor. I think we know that you have some pipe already in the ground in Canada. But let us say things go to plan and the project moves forward. Thinking about these barrels getting into Cushing and ultimately getting down to the Gulf Coast, can you speak to what is needed on your U.S. Gulf Coast infrastructure in order to accommodate potentially 450,000 barrels per day going down to the Coast? Would that be all on the existing Keystone system, or would you be looking to leverage other infrastructure as well? Any details you can provide there would be great. Bevin Mark Wirzba: AJ, the Keystone system in this corridor has been built in phases—Phase 1, Phase 2, Phase 3. Phases 2 and 3 were the extension of the Keystone system to Cushing and then to the Gulf Coast. Phase 3 of the system, the Gulf Coast, was sized and built for the original expansion of that system, which is what we are now building into with our Prairie Connector. It is just a continuation of that sequenced expansion of the broader Keystone system. We did build capacity on that Gulf Coast section for increased volumes. There will be some facility modifications through our base Keystone system, but this is all a continuation of that sequenced expansion of our base corridor. AJ O’Donnell: Okay. Thanks, Bevin. And then maybe just one more, shifting into marketing. I realize it is a smaller portion of your business, but spreads have been on the move, particularly WCS Houston trading pretty far back from Brent and WTI right now. Can you speak to what is going on at Houston and if you are seeing any opportunities either in the short or medium term to potentially capture some upside there, either through marketing or maybe storage opportunities? Bevin Mark Wirzba: AJ, great question. We are always in a dynamic crude oil market. It appears in the last few years, with some macro volatility earlier this year with Venezuela and now with the war that is ongoing in Iran. We have taken a really risk-off strategy with our marketing affiliate. As we pointed out, last year we went through a situation where, early in the year, there were tariffs that caused volatility. That caused us to reevaluate how we leverage our marketing affiliate and get back to a customer-led strategy. The strategy around our marketing affiliate is really to reduce the overall operating costs and variable tolls for our customers. We do not try to take advantage of swings that we see down in Houston on the WCS. We do manage and contract MarketLink, because we still have capacity there, and we have seen some movements, as you say, but it is really a non-material part of our strategy. We are focused on our 90% contracted business and managing that as best we can. Operator: Thank you. One moment for our next question. Our next question will come from the line of Ben Fullerton from TD Cowen. Line is open. Aaron MacNeil: Oh, I guess I had my associate run this one. It is Aaron MacNeil here. Good morning, all. Thanks for taking my questions. You guys highlighted Blackrod as a successful project in the context of the balance sheet and in your prepared remarks. Maybe bigger picture, can you speak to how you may look to finance a potentially larger-capital and longer-duration project given the leverage and payout ratio profile of South Bow Corporation? Bevin Mark Wirzba: Thanks, Aaron. At our Investor Day, we laid out a number of different financing strategies, whether it is financing a project at the asset level or partnering with other capital sources. We will look at the specifics of any capital project to ensure that we manage the cost of capital as well as match it to the execution risk. The point I would like to make is, when you think about us developing projects—going back to my comments around within our risk preferences—means that we are not going to take risks that would not allow us to debt finance something, and that can be a base case for people to look at. You have to have the conditions, the contract terms, the investment-grade counterparties, and the risks mitigated to a level that can attract debt-level financing that aligns with our risk preference. That might not be the best way to finance it, but the principles around managing the risks are consistent with any financing approach. We wanted to make clear to our market in November that there are multiple solutions on that front. I will just remind that we go back to our risk preferences and making sure that anything we develop meets those criteria. Van Dafoe: And, Aaron, it is Van here. We will also keep with our deleveraging journey to get to 4.0x by the mid-term, 2028. We are not deviating from that. Aaron MacNeil: Okay. That is helpful. And then, switching gears a bit, we have been fielding a lot of questions on the Grand Rapids arbitration. I can appreciate that you are not going to speak to the ongoing legal matter, but I was hoping you could help with some clarifying items. First, again, I assume the answer is no here, but is the Blackrod Connection project included in the scope of a potential sale? And then, second, how should we be thinking about sanctioning new projects with connectivity to Grand Rapids while arbitration is ongoing? Bevin Mark Wirzba: Aaron, Blackrod we advanced as South Bow Corporation alone. PetroyChina is not involved in that project. They were offered an opportunity to participate in it, and that is as much as I can say. As part of the partnership agreement, when we do pursue growth—obviously growth within the partnership frame is open to all partners—and whether or not our partners choose to capitalize into those projects is up to them. Aaron MacNeil: Okay. Alright. That is all for me. Turn it back. Operator: Thank you. One moment for our next question. The next question will come from the line of Robert Catellier from CIBC Capital Markets. Robert Catellier: Hey. Good morning. Most of my questions have been exhausted here, but I will take a shot in the dark to see if you are interested in putting out a potential capital number for the Prairie Connector project should it make it through the open season and have enough commercial interest? Bevin Mark Wirzba: Robert, unfortunately, you are not going to bait me with that. I will take a pass. We are obviously in early stages. Our team has done a good amount of work, given it is an existing corridor, but we are not establishing any cost at this point in time. Robert Catellier: Understood. And related to that, is there any ability or understanding that you can invest in some of the downstream pieces, whether it is project or otherwise, should the project move forward? Bevin Mark Wirzba: We are really speaking to the Prairie Connector component as how we are looking to participate going forward, and we are still in commercial discussions ongoing. As you can appreciate, the scale of what would be contemplated in Canada is a very meaningful development for South Bow Corporation. Robert Catellier: Okay. Thanks very much. Operator: Thank you. One moment for our next question. Our next question comes from the line of Jeremy Tonet from JPMorgan Securities. Your line is open. Jeremy Tonet: Hi. Good morning. Bevin Mark Wirzba: Morning, Jeremy. Jeremy Tonet: Just wanted to turn to slide 19, if we could, with the Blackrod and project ramp there. If you could remind us what gives you confidence to the ramp as you laid out in the slide—it looks like the 2027 contribution could be three to four times the size of 2026. With the project just online now, can you walk us through that a little bit more? Bevin Mark Wirzba: Great question, Jeremy. We did the final tie-in weld earlier this year, so our systems are fully prepared for our customer to begin the ramp-up. The sequence of events that we are not in control over on their end—whereby they have already been steaming their asset. Once the wells start producing, they will fill their tankage and infrastructure, fill the pipeline, and then fill our tankage. That is when the production will actually start hitting the Grand Rapids corridor. There is a build-up that takes time to effectively get through commissioning and filling the existing infrastructure, and that happens through the balance of the last half of this year. We have made comments in the market previously—I will remind folks that the commercial agreements agreed to between ourselves and our customer were to acknowledge that ramp in terms of their production growth. In 2027, our outlook is that we will have a full-year contribution of that EBITDA, given the commercial agreements. Jeremy Tonet: Got it. Understood. Thank you for that. And if we think about 2027 in totality, are there any other major moving pieces as we think about growth at that point in time? Bevin Mark Wirzba: I will refer to my previous remarks, Jeremy. We are working hard this year to move through the corrective action order and complete the remedial efforts, which would then allow us, if the order is lifted, to return to full capacity on our base systems, which would give an opportunity for us to achieve that spot capacity out of the basin at a more material level than what we are experiencing. Just to remind you, 94% of our base system is take-or-pay, and we reserve 6% for spot capacity. That is the capacity we are targeting to leverage in 2027. Jeremy Tonet: Understood. I will leave it there. Thank you. Bevin Mark Wirzba: Thanks, Jeremy. Operator: Thank you. One moment for our next question. Next question will come from the line of Patrick Kenny from NBC. Your line is open. Patrick Kenny: Thank you. Good morning, everyone. Just maybe back on the funding plan for Prairie Connector, assuming a successful open season here. Can you confirm your desire for Alberta government involvement, if any, either as an equity partner or perhaps providing loan guarantees through construction, just to help protect your financial guardrails along the way? Bevin Mark Wirzba: Thanks, Patrick. You are referring to the model that was pursued historically, and I believe the Premier has been clear that she wants private developers to develop projects. We are pursuing Prairie Connector as South Bow Corporation today. With respect to your question around loan guarantees and other commercial matters, I will refer back to my comments that we are looking at the risk framework and allocating risk appropriately amongst the customers and us as a developer and, broadly, other stakeholders. We feel that we are in a different environment today where we are able to have those discussions and ensure good alignment of where those risks should be allocated. Patrick Kenny: Got it. Thanks for that. And then maybe on the 60-day review period following the March 30 deadline. How should we think about this period in terms of the binding commitments? Can they be nullified by any material change in policy such as the emissions cap, industrial carbon tax, or any other developments that might come out of the MOU between Alberta and Ottawa? Would these binding commitments basically be taking on the full stroke of pain risk, so to speak, beyond March 30? Bevin Mark Wirzba: As you point out, Patrick, there is a lot going on. When I refer to a constructive policy environment, constructive also means a very active policy environment where our customers are working closely with not only us on this open season, but considering the broader framework that the federal and Alberta governments are putting together. That is consistent with the timeline of what we are pursuing. I will not speak to those conditions or those discussions because I am not a part of them. Our timeline with having a binding open season and the time from there is just the regulated approach of how you develop a project. That is why we have been thoughtful about making a competitive solution for our customers, acknowledging the significant commitment that they have to make over the time frame of the development to commit to a project like this. These are not small decisions by anyone. I think the basin customers have relayed that, under the right policy environment, there is an ability for them to grow. We will have to defer to them on whether they feel they have the confidence to grow into the capacity that we are offering. Patrick Kenny: Okay. That is great, Bevin. I appreciate the comments. Operator: Thanks, Patrick. Thank you. One moment for our next question. Our next question comes from the line of Benjamin Pham from BMO. Line is open. Benjamin Pham: Hi. Thanks. Good morning. Maybe to start off on potential acquisitions. Can South Bow Corporation provide an update on your appetite and observations on acquisitions since your Investor Day? I am also particularly interested in valuation levels on M&A versus organic growth. Bevin Mark Wirzba: Ben, as articulated in the Investor Day and in my earlier remarks, we are pushing all the boats down the field—both organic and inorganic. Certainly, organic, leveraging our pre-invested corridors, has better valuations. To complement and diversify our business, we have been in active dialogues to try to move down the path on inorganic opportunities. In both cases, as per my last response to a previous question, we can put forward the most competitive organic opportunities for our customers, but it still takes our customers to decide if they can commit. On the inorganic side, we can provide a compelling potential solution for an acquisition, but it takes the counterparty to similarly view it as a good outcome. We are managing a multi-pronged approach where we are advancing conversations on organic and inorganic in parallel. Benjamin Pham: And then maybe just a quick follow-up on that. It sounds like you have not seen, with the market valuations expanding meaningfully since your Investor Day, that the spread between the two has widened since that time? Bevin Mark Wirzba: I think we have seen a flight to the energy sector and, in particular, to hard assets like infrastructure. Many have moved. I think that has raised the confidence in shareholders in the space and the investment proposition that infrastructure has. It gives us more confidence in the equity capital markets, if something did work on the inorganic side, that it could be supported in a transaction. Yes, valuations have improved, but I think the strength and thesis around infrastructure investment has strengthened as well. If anything, it is a slight tailwind for us. Benjamin Pham: Got it. And maybe on the Prairie Connector—you had the Big Sky proposal about a year ago. Are you able to compare and contrast the two? Is it just something more to downstream is changing, Canada is unchanged? And then, secondarily, on the Canadian permits, is that just a permit reaffirming with the CER, as you mentioned earlier in your commentary? I just want to clarify that portion of it. Bevin Mark Wirzba: In contrast to 2025, we had a Canadian government that was going through a significant transition. We had a potential tariff environment that was very uncertain, and we had a policy and regulatory framework that was not clear and did not provide the signposts for our customers to legitimately view any kind of meaningful growth as an alternative. Fast forward a year later, all those three things have materially moved in favor of a more constructive environment to consider a development. We did find that the Prairie Connector project—getting barrels to the U.S. Gulf Coast—is a very strategic advantage, and leveraging that pre-invested corridor more broadly also provides advantage. With respect to the permitting situation, these are very complex developments. The largest of the permit requirements, as you say, are held with the Canada Energy Regulator. We have to work within those permits that have been awarded, and there are expectations and things that we have to do to maintain them if we begin developing the project. There are no other material permits required at this point in time. Benjamin Pham: Okay. Understood. Thank you. Operator: Thanks, Ben. One moment for our next question. Our next question comes from the line of Sumantra Banerjee from UBS. Your line is open. Sumantra Banerjee: Hi. Good morning. Thanks for taking the question. I was curious—how you mentioned that you materially exited the TSA with TC and were able to see some workflow optimization. Are there any specific examples of the optimization you could talk to? Bevin Mark Wirzba: Thanks, Sumantra. Our team had three objectives last year, in addition to table stakes of safe operations, and one of those objectives was exiting the TSAs as soon as we could. That ties to one of our key objectives this year, in terms of now optimizing our business workflows and processes. We have already begun seeing some optimizations occur since October when we were effectively off of the TSAs, and we have a number of work streams along that front in each of the areas. An easy example would be supply chain and procurement—utilizing the historical ERP system that we had until we stood up our own system, all those business processes around invoicing and procurement were done in the old way, and now we are able to establish new processes. We have workstreams on financial planning and analysis and on our systems. We are building a new process around budgeting and real-time analysis of our financials and costs, giving the tools to our teams so they can run the business as efficiently as possible. We see 2026 as a big year of standing up all those optimizations. We are leveraging the latest technology in AI where it is appropriate and where it can help make those processes more efficient. Sumantra Banerjee: Got it. That is really helpful. Just wanted to shift towards capital allocation quickly. I know you outlined your priorities in the release, but how are you looking at balancing dividend growth versus reducing the leverage? Bevin Mark Wirzba: I will turn it over to Van on our dividend policy. I want to remind folks that we are going to stick to our capital allocation philosophy with respect to building out this business. When we spun, we were allocated a significant amount of debt and a very meaningful and sustainable dividend, but at a very high level and at payout ratios maybe a bit higher than we like. Van, you can talk through our journey on deleveraging and dividend growth. Van Dafoe: Sure. Thanks, Bevin. Our payout ratios on a DCF basis and on an earnings basis were higher than what we would like. We would like them to be, on a DCF basis, in the low 60s on a consistent basis, and, obviously, under 100% on an earnings basis. Until that time, we would not contemplate a dividend increase. On top of that, our journey to get to 4.0x leverage—again, we would not contemplate a dividend increase until we get to that point. Once we do, our plan would never be to forecast future dividend growth. If we decide we are going to increase our dividend, we would state that, and that would be our new dividend level. Sumantra Banerjee: Got it. That is really helpful. Thank you so much. Bevin Mark Wirzba: Thank you. Operator: This concludes the question-and-answer session. I would now like to turn it back over to Bevin for closing remarks. Bevin Mark Wirzba: Thank you for joining us today and for your continued interest in South Bow Corporation. We look forward to connecting with you in a couple of months’ time. Have a great day. Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Good morning, ladies and gentlemen, and welcome to Cohen & Company Inc.'s fourth quarter 2025 earnings conference call. My name is Robert, and I will be your operator today. Before we begin, Cohen & Company Inc. would like to remind everyone that some of the statements the company makes during this call may contain forward-looking statements under applicable securities laws. These statements may involve risks and uncertainties that could cause the company's actual results to differ materially from the results discussed in such forward-looking statements. The forward-looking statements made during this call are made only as of the date of this call; the company undertakes no obligation to update such statements to reflect subsequent events or circumstances. Cohen & Company Inc. advises you to read the cautionary note regarding forward-looking statements in its earnings release and its most recent annual report on Form 10-K filed with the SEC. Earlier today, Cohen & Company Inc. issued a press release announcing fourth quarter and full-year 2025 financial results. Today's discussion is complementary to that press release, which is available on the company's website at cohenandcompany.com. This conference call is being recorded, and a replay of it will be available for three days beginning shortly after the conclusion of this call. The company's remarks also include certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in the company's earnings release. After the prepared remarks, the call will be opened up for questions. I would now like to turn the call over to your host, Mr. Lester Brafman, Chief Executive Officer at Cohen & Company Inc. Thank you. You may begin. Thank you, Robert, and thank you, everybody, for joining us for our fourth quarter 2025 earnings call. Lester Brafman: With me on the call is Joe Pooler, our CFO. We are pleased with our strong fourth quarter and full-year 2025 results, which were driven by the continued expansion of our client franchise and particularly our full-service boutique investment bank, Cohen & Company Capital Markets, which continues to focus on frontier technologies including digital assets, energy transition, and natural resources. In 2025, we strengthened our leadership team with the appointment of additional managing directors to expand our presence in the energy and energy transition sectors as well as across space technology, aerospace, and communications infrastructure. During the year, CCM closed $43,000,000,000 in transactions and, according to SPAC Research, ranked number one in SPAC IPO underwritings by left book-run deals and in the de-SPAC advisory with leading share in de-SPAC PIPE transactions, reflecting the strength of our client franchise and execution capabilities. Supported by its growing team and strong pipeline of transactions, we believe that CCM is well positioned for continued success over the long term. CCM's pipeline is more robust than it was a year ago, reflecting our strong IPO presence and significant de-SPAC opportunities. Going forward, we will continue to focus on being the advisor of choice to growth in frontier technology sectors of the economy. For the full year of 2025, basic and fully diluted net income attributable to Cohen & Company Inc. per share was $8.33 and $4.35, respectively. Total revenue was $275,600,000, an increase of 246% from 2024, and adjusted pretax income of $41,400,000, representing 15% of total revenue. We finished 2025 with $2,300,000 of revenue per employee. Additionally, we announced a special dividend of $0.70 per share as well as our recurring quarterly dividend of $0.25 per share. These dividends are in addition to the special dividend of $2 per share that was announced in December 2025 and paid in January 2026. As we look ahead, with first quarter 2026 revenue trending substantially higher than first quarter 2025, we are well positioned to continue building on the significant momentum underway and remain confident in our ability to drive long-term sustainable value for our stockholders. Now, I will turn the call over to Joe to walk through this quarter's financial highlights in more detail. Thank you, Lester. I will begin with a discussion of our operating results for the quarter. Joe Pooler: Our net income attributable to Cohen & Company Inc. shareholders was $8,100,000 for the quarter, or $1.48 per fully diluted share, compared to net income of $4,600,000 for the prior quarter, or $2.58 per fully diluted share, and a net loss of $2,000,000 for the prior-year quarter, or $1.21 per fully diluted share. Our fully diluted earnings per share calculation reflects all convertible membership units in our primary operating subsidiary, Cohen & Company LLC, as if they are converted to shares, and it also reflects an income tax expense adjustment at an estimated effective tax rate as if our ownership structure was a full C-Corp for the entire period. Our adjusted pretax income was $18,300,000 for the quarter, compared to adjusted pretax income of $16,400,000 for the prior quarter and an adjusted pretax loss of $7,700,000 for the prior-year quarter. As a reminder, adjusted pretax income and loss is a key earnings measurement for us as it incorporates enterprise earnings attributable to our convertible non-controlling interest, which is substantially held by our Founder and Chairman, Daniel Cohen. Daniel holds his interest in the enterprise through the primary operating subsidiary, Cohen & Company LLC, which is a consolidated subsidiary of Cohen & Company Inc. As noted in prior earnings calls, CCM has become an increasingly important component of our company, generating revenue of $50,800,000 in the fourth quarter and $180,184,000,000 in the full year 2025, an increase of 370% from full-year 2024. CCM revenue as a percentage of total company revenue was 67% for the full year 2025. Investment banking and new issue revenue was $55,000,000 in the fourth quarter compared to $69,000,000 for the prior quarter and $8,200,000 for the year-ago quarter. $50,800,000 of our investment banking and new issue revenue came from our CCM business and was primarily driven by SPAC M&A and SPAC IPO transactions. European insurance origination generated an additional $3,600,000, and commercial real estate origination generated $300,000 for the quarter. As a reminder, we received financial instruments as consideration for services provided by CCM instead of cash at times, which are included in other investments at fair value on our consolidated balance sheets. Beginning in the fourth quarter, and reclassified historically, any realized or unrealized gains or losses on these financial instruments after the day of the transaction closing are now being reported in our investment banking and new issue revenue line item. Net trading revenue came in at $13,800,000 in the fourth quarter, up $300,000 from the prior quarter and up $4,900,000 from the prior-year quarter. Asset management revenue totaled $2,700,000 in the quarter, up $700,000 from the prior quarter and up $600,000 from the prior-year quarter. Fourth quarter principal transactions and other revenue was positive $31,500,000, primarily due to the completion of the business combination between our sponsored SPAC, Columbus Circle Capital Corp I, and ProCap Financial. The December 5, 2025 closing of the business combination resulted in $33,000,000 of principal transactions revenue in the fourth quarter from the markup of consolidated founder and placement shares, primarily held by the consolidated sponsor of the SPAC. After the business combination closing, there was an offsetting $16,500,000 of compensation expense related to the founder shares that were allocable to employees upon the closing, and there was an offsetting $8,500,000 of non-convertible non-controlling interest expense related to founder shares allocable to third-party investors in the consolidated sponsor. At the end of the year, Cohen & Company Inc. held 2,543,000 shares of ProCap Financial, which trades on NASDAQ under the symbol BRR. Compensation and benefits expense for the fourth quarter was $57,800,000, which was up from both prior quarters primarily due to fluctuations in revenue and the related incentive compensation, including the $16,500,000 of expense recorded related to the founder shares allocable to Cohen & Company Inc. employees from the sponsor of Columbus Circle Capital Corp I. The number of company employees was 126 at the end of the year, compared to 124 at the end of September and 113 at the end of the prior year. Net interest expense for 2025 was $1,500,000, including $1,200,000 on our trust preferred securities, $200,000 on our senior promissory notes, and $45,000 on our bank credit facility. Loss from equity method affiliates totaled $5,100,000, primarily due to $3,100,000 of mark-to-market losses on one of our SPAC series fund investments, which was partially offset by a $1,500,000 credit recorded in the net income (loss) attributable to non-convertible non-controlling interest line item. In terms of our balance sheet at the end of the year, equity was $103,100,000 compared to $90,300,000 as of the end of the prior year. The non-convertible non-controlling interest component of total equity was $400,000 at the end of the year and $11,500,000 at the end of the prior year. Thus, the total enterprise equity excluding the non-convertible non-controlling interest was $102,600,000 at the end of the year, a $23,800,000 increase from $78,800,000 at the end of the prior year. At quarter end, consolidated corporate indebtedness was carried at $33,000,000. As Lester mentioned, we declared a quarterly dividend of $0.25 per share and a special dividend of $0.70 per share, both payable on April 3, 2026 to stockholders of record as of March 20, 2026. The $0.70 per share special dividend is on top of the $2 per share special dividend that was announced in December 2025 and paid in January 2026. The Board of Directors will continue to evaluate the dividend policy each quarter, and future decisions regarding dividends may be impacted by quarterly operating results and the company's capital needs. With that, I will turn it back over to Lester. Thanks, Joe. We remain confident in our ability to execute on our strategic priorities and continue driving progress as we enhance long-term value for our stockholders. Please direct any offline investor questions to Joe Pooler at (215) 701-8952 or via email to investorrelations@cohenandcompany.com. The contact information can also be found at the bottom of our earnings release. Operator, you can now open the call lines for questions. Thank you for joining us today. Operator: We will now open for questions. At this time, we will be conducting a question-and-answer session. 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 keys. Our first question comes from Mike Grondahl with Northland Securities. Your line is now live. Hey, guys, thank you and congrats on a nice year. Joe, I think in your comments, or Lester, talking about the pipeline, you said it was robust and off to kind of a good start. Could you go into just a little bit more detail there, kind of what you are seeing, and is there any sector sticking out? Lester Brafman: Yeah. I think if we were standing on this call a year ago and looking at where our pipeline is, we are ahead of where we were last year. I think that is as much kind of context as I would like to give. And in terms of sectors, look, we dominate in the SPAC, in the de-SPAC space. That is really our strength. And so from there, as we spoke before, it really leads us into deals across all of the frontier technology space, which you are looking at whether it is digital assets, whether it is energy, energy transition, any real growth companies really fits into the SPAC product. Now, that being said, business begets business, and from what we have printed in the SPAC space, we have got some traditional M&A mandates, some capital raises, capital markets advisory work, and we are starting also to build out more industry verticals in that frontier technology space, hiring a banker focusing on space and aerospace, as well as some of the telecommunications, new telecommunications areas, and energy in the energy space as well. So when we think about industries, we think about what fits into that SPAC product. Mike Grondahl: Got it. Mike Grondahl: And then what would you say your top two priorities for 2026 are? Lester Brafman: Our top two priorities in 2026 are expanding our investment bank, expanding our footprint, getting more verticals, and not being as dependent on the SPAC product. So that is one priority. And on the fixed income trading side is, again, continue to do the same thing, continue to grow our footprint there. We are looking to add probably eight people or so in that area, all synergistic with leading with the mortgage space and trading with other products around there. So when I think about how our investment bank has grown dramatically, obviously year over year, we are in the right spaces and we have spent a lot of time making sure we have really good market share, but I do not want to forget about the fixed income trading business, which revenue-wise was close to $50,000,000 this year, and we would like to get that up to $60,000,000–$65,000,000 or so. That is where we have been, and I think if we get a couple of rate cuts, we should be able to get a little wind at our back in that area as well, but again, a little bit more stable on the fixed income side and looking at more growth in the capital markets side of investment banking. Mike Grondahl: Got it. Then maybe just lastly, I do not know if you have it handy or not, but the investment banking MD headcount at the end of 2024 and then what it was at the end of 2025? And just with your expansion plans, a rough estimate of where it could be at the end of 2026? Lester Brafman: I do not have those numbers in front of me. I think we have promoted two MDs, and again, I do not have the exact number, but my sense is we promoted a couple of MDs last year and we have hired a couple of MDs into new areas this year so far. My guess is we probably add another two to three through promotions and hiring over the year, maybe as many as four or five. So I guess two to five would be how you bound the range, or three to five is how you bound the range there. Joe Pooler: Yeah, and that is right. At the end of the year, the investment bank had 28 total employees, and we anticipate growth of about five, excluding interns, in 2026. But that can move around to the extent that we see an opportunity to hire an MD that makes sense. Mike Grondahl: Perfect. Thanks, guys, and good luck in 2026. Lester Brafman: Okay. Thanks, thanks. Operator: There are no further questions at this point. I would like to turn the call back over to Lester Brafman for closing comments. Lester Brafman: Thank you, Robert, and thanks, everyone, for listening today. We look forward to reconvening next quarter. You may now close the call. Operator: This concludes today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Greetings. Welcome to Orion Properties Inc. Year End 2025 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Emma Little, Investor Relations. Thank you. You may begin. Emma Little: Thank you, and good morning, everyone. Yesterday, Orion Properties Inc. released its results for the quarter and year ended 12/31/2025, filed its 2025 Form 10-Ks with the Securities and Exchange Commission, and posted its earnings supplement to its website at onlreit.com. During the call today, we will be discussing Orion Properties Inc.’s guidance estimates for calendar year 2026 and other forward-looking statements, which are based on management's current expectations and are subject to certain risks that could cause actual results to differ materially from our estimates. The risks are discussed in our earnings release as well as in our Form 10-Ks and other SEC filings, and Orion Properties Inc. undertakes no duty to update any forward-looking statements made during this call. We will also be discussing non-GAAP financial measures, such as funds from operations, or FFO, and core funds from operations, or core FFO. These non-GAAP financial measures are not a substitute for financial information presented in accordance with GAAP, and Orion Properties Inc.’s earnings release and supplement include a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measure. Hosting the call today are Orion Properties Inc.’s Chief Executive Officer, Paul McDowell, and Chief Financial Officer, Gavin Brandon. And joining us for the Q&A session will be Chris Day, our Chief Operating Officer. With that, I am now going to turn the call over to Paul McDowell. Paul McDowell: Good morning, everyone, and thank you for joining us on Orion Properties Inc.’s 2025 Year End Earnings Call. As recently announced, Orion Properties Inc. has begun a strategic options review process as management and the board of directors continue to explore pathways to unlock value for our shareholders. Since this process is in the early stages, we will focus today's call on our operating performance and the tremendous progress we made further stabilizing the portfolio and executing our business plan during 2025, which has now positioned us for core FFO earnings growth in 2026 and beyond. We completed over 900,000 square feet of leasing in 2025, on top of the 1,100,000 square feet we leased in 2024, reflecting an improving market backdrop. We also signed an additional 183,000 square feet after year end. These are meaningful volumes, particularly given the reduced size of our portfolio and have really moved the needle to enhance the quality and stability of our lease roll. One critical metric to measure our success is weighted average lease term, or WALT, which averaged nearly 10 years on new leases signed in 2025. This is nearly double our portfolio average WALT. Overall, the average WALT for all leasing activity in 2025 was 7.5 years, which continues to move in the right direction and is approaching six years for the total portfolio. Cash rent spreads on fourth quarter renewals were up for the third straight quarter at 12.8%, though overall, 2025 rent spreads remained volatile and were down 7.1% for the year, but were up an average of 3.7% when comparing ending rents in the current term versus ending rents in the renewal term. Importantly, our 2025 leasing momentum and noncore dispositions translated into a 600 basis point improvement in our leased rate year-over-year to over 80% at year end and a 500 basis point improvement in our occupancy rate to 78.7% at year end. Equally significant, our lease rollover profile has improved and we entered 2026 with scheduled lease expirations totaling just $11.4 million of annualized base rent in 2026. This is relative to the nearly $16.2 million of annualized base rent that was scheduled to expire in 2025 and $39.4 million in 2024. This positions us to drive further occupancy gains and stabilize revenues as we continue to lease, sell vacant properties, and selectively recycle capital into new cash-flowing assets throughout this year and into next. Leasing momentum remains constructive so far in 2026. Our pipeline is robust, and we have over 1,000,000 square feet in either discussion or documentation stages, which includes several full building leases as well as longer duration renewals and new leases with terms materially greater than the average of our portfolio. Our accelerating portfolio improvement through increased disposition activity was another key story for the year. During 2025, we sold 10 properties totaling more than 960,000 square feet for approximately $81 million of gross proceeds, which included two vacant traditional office properties and one stabilized traditional office property sold in the fourth quarter for $32 million. Subsequent to year end, we sold two more vacant properties in Bedford, Massachusetts, and Malvern, Pennsylvania, totaling an additional 516,000 square feet for over $13 million, and are under contract to sell additional noncore properties for gross proceeds of roughly $36 million in the near term, including the 37.4-acre Deerfield, Illinois property where we completed the demolition of the six buildings formerly leased to Walgreens during the fourth quarter. While the per square foot price of these sales varied from $17 per square foot to $216 per square foot, our focus was on selling properties where we felt the releasing prospects did not outweigh the burden of continuing to carry them. These sale transactions will substantially reduce the estimated carry costs associated with these vacant properties by a combined $10.3 million annually. Our 2025 and near-term dispositions will generate a total of roughly $130 million, and this has allowed us to maintain reasonable debt levels while still funding vital tenant improvement allowances, leasing commissions, and other capital expenditures to support our strong leasing activity. We are also actively evaluating opportunities to recycle a modest percentage of these proceeds into acquisitions as we continue to shift our portfolio concentration away from traditional suburban office properties and toward dedicated use assets, or DUAs, where our tenants perform work that cannot be replicated from home or relocated to a generic office setting. These property types include medical, lab, R&D, flex, and government properties, all of which we already own. Our experience is that these assets tend to exhibit stronger renewal trends, higher tenant investment, and more durable cash flows. A terrific example of this strategy is the Barilla Americas headquarters building we just purchased at the end of last week in Northbrook, Illinois. In addition to serving as Barilla's headquarters, the building also houses their sole test kitchen and R&D facility in the U.S. Worldwide, the Barilla Group is the world's largest maker of pasta and their pasta and sauces are a familiar sight on U.S. grocery shelves. The 75,000 square foot building is subject to a 10.8-year lease with current net rents at approximately $15.30 per square foot and growing 2.5% annually. We bought the property for $15 million, equating to a going-in cash capitalization rate of 8.1% and an average capitalization rate over the approximately 11-year lease term of 9%. At year end, approximately 35.8% of our portfolio by annualized base rent consisted of dedicated use assets, versus 31.8% at the end of 2024, and we expect this percentage will continue to increase over time through disposition activity and targeted acquisitions. We recognize, as a small cap REIT, that G&A expense is a very important consideration and we remain disciplined on expenses at the corporate level. In 2025 and early 2026, we reduced headcount by more than 10%, including at the executive and senior vice president levels, and managed controllable G&A. We estimate these initiatives will generate about $1.8 million of annualized savings. These efforts are, however, offset by inevitable inflation, expected increased accounting fees associated with SOX 404 internal control audit requirements beginning in 2026 for us, and legal and other expenses associated with managing an activist investor. Turning very briefly to the balance sheet, as Gavin will give more detail in his remarks. In February, we were able to deal with both our major debt maturities that had been scheduled to come due within the next year. First, with the support of our existing lenders, we entered into a new $215 million secured revolving facility which will mature in February 2029, inclusive of two six-month extension options. Second, we extended our existing $355 million CMBS loan by three and a half years to August 2030, inclusive of two extension options totaling 18 months. These very significant achievements give us the financial flexibility and term to continue to execute on our business plan. A final note on our strategic options process. While we have increasing confidence in our stand-alone prospects, over the past three years, as we have consistently disclosed, management and the board have devoted time to considering avenues for Orion Properties Inc. to potentially pursue in addition to our business plan. Our ongoing public strategic options review process will provide further opportunity to consider with our board and our financial advisers what could be a range of potential strategic alternatives to maximize stockholder value. And as we have said before, we remain very open to pursuing any actionable proposals. To sum up, the progress we have made over the past four years, and which progress accelerated in 2025, has materially de-risked and stabilized our portfolio and we are finally set for meaningful growth from a core FFO standpoint over the next several years. Our priorities in 2026 remain: improve portfolio quality, lengthen WALT, renew tenants and fill vacant space, reduce risk, lower expenses, prudently manage leverage, and position Orion Properties Inc. with a more stable and durable earnings profile. We believe these are the right steps to unlock long-term value which will make Orion Properties Inc. attractive to investors and potential strategic partners alike. I will now turn the call over to Gavin Brandon for the financial results. Gavin Brandon: Thanks, Paul. For the fourth quarter of 2025 compared to 2024, Orion Properties Inc. had total revenues of $35.2 million as compared to $38.4 million, and core FFO of $0.19 per share as compared to $0.18 per share. As expected, we recognized $0.03 per share of lease termination income in 2025 associated with the Fresno, California asset sale. Adjusted EBITDA of $16.1 million versus $16.6 million. The year-over-year changes in operating income are primarily related to current year vacancies and costs incurred for the Deerfield demolition, offset by income from our San Ramon property acquired in 2024 and carry cost savings from dispositions of vacant assets. G&A came in as expected at $6 million compared to $6.1 million. CapEx and leasing costs were $17.8 million compared to $8.2 million, which primarily relates to work performed at our Buffalo, New York property for our new 160,000 square foot lease with Ingram Micro, which is expected to commence in April 2026, and at our Lincoln, Nebraska property where our new 886,000 square foot lease with the United States government commenced in February 2026. For the full year 2025 compared to 2024, Orion Properties Inc. had total revenues of $147.6 million as compared to $164.9 million, and core FFO of $0.78 per share, which included approximately $0.09 per share of income from lease terminations and end-of-lease obligations. This compares to core FFO of $1.01 in 2024, which included $0.04 per share of lease termination income. Adjusted EBITDA was $69 million versus $82.8 million. The year-over-year decreases in operating income are primarily related to current year vacancies and costs incurred for the demolition discussed earlier, offset by income from our 2024 acquisition and carry cost savings from dispositions of vacant assets, as well as successful property tax appeals. G&A came in as expected at $20.3 million as compared to $20.1 million in 2024. 2025 G&A includes $423,000 in legal and other expenses related to managing an activist investor. CapEx and leasing costs were $60 million compared to $24.1 million in the prior year. The increase in CapEx in 2025 was driven by completion of landlord and tenant improvement work related to the acceleration in our leasing activity. As we have previously discussed, CapEx timing is dependent on when leases are signed and work is completed on leased properties. We expect to allocate more capital to CapEx over time as leases roll and new and existing tenants draw upon their tenant improvement allowances. Our net debt to full-year adjusted EBITDA was a relatively conservative 6.8x at year end, and on a modified basis, net of restricted cash, was approximately 6.2x. As of 12/31/2025, and as adjusted for our new secured $215 million revolver, we had total liquidity of $145.9 million, including $22.9 million of cash and cash equivalents and $123 million of available revolver capacity. We also had $39.9 million of restricted cash, including our pro rata share of the joint venture's restricted cash. Orion Properties Inc. continues to manage leverage while maintaining significant liquidity to support our ongoing leasing efforts and provide the financial flexibility needed to execute on our business plan for the next several years. Since our spin, we have repaid a net $173 million of outstanding debt as of year end while supporting our current business plan. As Paul mentioned, on February 18, we entered into a credit agreement for a new senior secured credit facility revolver, which refinances our original credit facility revolver. The new credit facility revolver extends the maturity date until February 2029, including two six-month borrower extension options. It reduces the lender's commitment to $215 million to more closely align with our business plan, reduces the interest rate margin on our borrowings by 50 basis points to SOFR plus 2.75%, and eliminates the 10 basis point SOFR adjustment, which will help to lower future interest expense. As of 03/05/2026, we had $127 million outstanding and $88 million of borrowing capacity under our new credit facility revolver. We appreciate the continued support from our lending group and the timeliness of executing the credit agreement prior to our 10-K filing, which alleviated any accounting disclosures with respect to near-term debt maturities. On February 17, we amended our CMBS loan. The loan modification agreement extends the maturity date by two years to February 2029, subject to two borrower extension options for a total of 18 months until August 2030. During this time, the fixed interest rate on the CMBS loan of 4.971% will remain unchanged, and excess cash flows after payment of interest and property operating expenses will be swept by the lender to be applied to a combination of prepaying the outstanding principal balance of the CMBS loan and funding reserves which we can access principally for capital expenditures. As part of the loan modification, we negotiated partial release provisions for certain assets in the pool that we may dispose of and repay principal. Additionally, yield maintenance premiums will no longer apply to principal payments made during the term. Potential property dispositions, as well as the amortizing nature of the CMBS loan, will repay principal and reduce interest expense during the term, further lowering leverage over the next several years. As of 03/05/2026, we had $353 million outstanding under the CMBS loan and $37.7 million in an all-purpose reserve. Turning to the York Street joint venture. The nonrecourse mortgage debt was $128.8 million as of year end, and our 20% share of that was $25.8 million. Due to the capital constraints of our joint venture partner, the joint venture was unable to make an approximately $16 million loan principal prepayment to satisfy the 60% loan-to-value condition to extend this debt obligation until 11/27/2026. The lenders have been providing short-term extensions while the joint venture remains in active, cooperative discussions with the lenders with respect to the plans of the portfolio and an additional extension. Further, the joint venture has entered into a contract to sell one of the assets out of the portfolio and is in active discussions with the lenders on additional asset sales to repay debt. Due to the uncertainties regarding the Arch Street joint venture investments, as of 12/31/2025, we reduced the carrying value of our investment to zero and recorded a loan loss reserve against our member loan to the Arch Street joint venture. The impairments are driven by accounting rules, which are focused on the probable recoverability of our investment in and collection of the member loan based on facts and circumstances as of 12/31/2025. The Arch Street joint venture contributed approximately $0.05 of core FFO in 2025, which primarily related to interest income from our member loan and management fees. We have not included income from the JV in our outlook for this year past February 2026. While we have written our investment in the JV down due to the uncertainty around the debt finance and our partner's ability to meet capital calls, we continue to believe that the portfolio, which is performing with an occupancy rate of 100% and a weighted average lease term of 6.3 years, has positive equity. We expect to continue to work with the JV's lenders and our JV partner to find a way to collect our member loan in full and unlock our equity. As for the dividend, on 03/04/2026, Orion Properties Inc.’s board of directors declared a quarterly cash dividend of $0.02 per share for 2026. Turning to our 2026 outlook. As previewed last quarter, 2025 represented a trough for our core FFO, excluding lease-related termination income, as our recent leasing and capital initiatives begin to translate into improved recurring earnings power over 2026 and beyond. Core FFO for the year is expected to range from $0.69 to $0.76 per diluted share. As a reminder, core FFO for 2025 would have been $0.69, excluding $0.09 of lease termination income. G&A is expected to range from $19.8 million to $20.8 million. Excluding noncash compensation, we expect 2026 G&A will be in line or slightly better than 2025. We also do not expect G&A to rise significantly in the outer years, including noncash compensation. As a percentage of revenue and total assets, our G&A remains in line with other similarly sized public REITs. Net debt to adjusted EBITDA is expected to range from 6.5x to 7.3x. With that, we will open the line for questions. Operator: Thank you. If you would like to ask a question, you may press star followed by one. You may press two if you would like to remove your question from the queue, before pressing the star keys. Our first question is from Mitch Germain with Citizens JMP. Please proceed. Mitch Germain: Thank you. It seems like your leasing pipeline is almost two times higher relative to last quarter. Is that just an overall conviction that you are seeing in office leasing? Is the tide really turning a bit more positively here? Paul McDowell: Good morning, Mitch. I think it is probably a little bit of both, frankly. You know, our portfolio is not very big, so the numbers can move pretty dramatically if we start to get some leasing momentum on one or two properties, which is exactly the case that has occurred from last quarter to this quarter. And I would characterize that leasing momentum that we have gotten as a result of the market improving somewhat. So I think it is a bit of both. But I would reemphasize that the number may be volatile quarter over quarter. Mitch Germain: And from a historical context, and I know that the track record is three, four years for you guys, when you look at your leasing pipeline and compare that to the success rate that you have had, maybe if you have thought about what the percentage is that you have seen historically in your ability to take the pipeline into a lease? Paul McDowell: We have not calculated that specifically. But I will tell you, Mitch, that our success rate has improved very significantly over the past two years. I think, in 2023, you might remember, we only leased 230,000 square feet of space and we did not have any new leases. And in 2024, we did 1,100,000 square feet, and in 2025, we did 900,000 square feet, and 183,000 square feet so far this year, with a pretty strong pipeline. So I would say that our ability to turn inquiry into signed leases has really improved a lot. And I would say that the decision-making process at tenants has also shortened up quite significantly, where they are now looking at space, deciding it meets their needs, and then entering into lease negotiations with us. Mitch Germain: That is helpful. Last one for me. The Barilla transaction, was that a broker that brought it to you, was it a relationship, and I do understand some of the criteria as to why you consider it a stronghold or an investment, and maybe what percentage of the asset is office versus nontraditional or more like industrial space? If you could provide some context there. Paul McDowell: Well, the transaction came to us through the broker. You know, it was brokered. It was a marketed transaction, so we saw it as well as other market participants. Stephanie Peacher works for us, she is the one who does acquisitions, and so she keeps a close eye on the market, and she brought that in from the brokerage community. The property itself contains the test kitchens and R&D facilities for the Barilla operations here in North America and South America as well, so very important. From a percentage perspective, about half, roughly, is their test and R&D, and half is office. Mitch Germain: Thank you. Operator: Our next question is from Matthew Gardner with JonesTrading. Please proceed. Matthew Gardner: Hey, good morning, guys, and thanks for taking the question. It is good to see you back in the market acquiring properties. How should we think about the pace of the remaining, I guess, vacant properties being disposed of throughout the year, and then what should we look for from you to go out and acquire more properties? Paul McDowell: Yes, that is a great question. On the vacant property side, it is important to note that we had a huge amount of activity in 2025—obviously, 10 properties in 2025 and then two additional vacant properties in 2026—and then we have pending a couple of additional sales, our vacant land in Deerfield, Illinois. With respect to the pace of vacant sales in the future, we do not have that much vacancy left, but as we generate—as vacancy comes online, we are going to take a hard look, and we will make a judgment about whether or not we sell those properties or whether we hold them for lease-up. Some of the vacancy that we have now, we feel pretty confident about our ability to lease it up, so that is the primary focus. With respect to acquisitions, we have been very judicious. This is only our second acquisition since the spin. But we do want to recycle capital, and so when we have capital recycled from sale of either vacant properties or stabilized properties, both of which we did last year, we look at that capital, and we can allocate it towards debt repayment, we can allocate it towards our existing asset base for tenant improvements and leasing commissions and building improvements and the like, or we can allocate it towards acquisitions, all of which we expect to do during the course of this year. Matthew Gardner: I guess just looking at the upcoming lease maturities, it looks like through 2028, there is a little under 46% that is scheduled to roll over. What kind of opportunity does this present to you in terms of being able to go out there and grow these cash spreads and generate that FFO growth? Paul McDowell: Well, I think we do expect core FFO to grow meaningfully in the coming years as the portfolio stabilizes and as we rent stuff up. We have had, I would characterize it, which is I think reflective of the broader market, mixed renewal rent increases or decreases. Sometimes the market requires us to lower rents for renewal because that is just what the market will bear. But as we have seen at the end of last year, where we had three quarters in a row of increases in renewal rents, we hope that continues into 2026 and 2027 as the market gradually recovers. But I think it is going to be volatile quarter over quarter. Matthew Gardner: Got it. That is helpful. Thank you, guys. Operator: There are no further questions at this time. I would like to turn the conference back over to Paul for closing remarks. Paul McDowell: Okay. Thank you, everyone, for joining us today on the call. We had a terrific year in 2025, and we are hoping to have just as good a year in 2026. We look forward to updating you on our first quarter later in the year. Thank you. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Hello and welcome to BCP Investment Corporation's Fourth Quarter and Full Year Ended December 31, 2025 Earnings Conference Call. An earnings press release was distributed yesterday, March 5, after market close. A copy of the release, along with an earnings presentation, is available on the company's website at www.bpinvestmentcorporation.com in the investor relations section and should be reviewed in conjunction with the company's Form 10-K filed yesterday 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 a number of factors, including those described in the company's filings with the SEC. BCP Investment Corporation assumes no obligation to update any such forward-looking statements unless required by law. Speaking on today's call will be Ted Goldthorpe, Chief Executive Officer, President, and Director of BCP Investment Corporation; Brandon Satoren, Chief Financial Officer; and Patrick Schafer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of BCP Investment Corporation. Please go ahead, Ted. Good morning. Ted Goldthorpe: Welcome to our fourth quarter and full year 2025 earnings call. I am joined today by our Chief Financial Officer, Brandon Satoren; our Chief Investment Officer, Patrick Schafer; and the rest of the team. Following my opening remarks on the company's performance and activities during the fourth quarter and full year, Patrick will provide commentary on our investment portfolio and our markets, and Brandon will discuss our operating results and financial condition in greater detail. I would like to start by discussing some highlights. 2025 was a transformational year for the company. In July, we completed our merger with Logan Ridge, and in August, we successfully completed a rebranding and name change. The merger meaningfully strengthened our platform, expanded our scale, and broadened our portfolio diversification. At the same time, our rebranding better reflects our affiliation with the broader BC Partners Credit platform and is a representation of our long-term vision as we position the company for its next phase of growth. In December, we completed our tender offer by purchasing roughly 558,000 shares at an aggregate cost of approximately $7,600,000, which was accretive to NAV by $0.18 per share. Consistent with our diligent capital markets management strategy, during the year, we also proactively extended and laddered our unsecured debt maturities, issuing $75,000,000 of 7.75% notes due October 2030 and $35,000,000 of 7.50% notes due October 2028, while also redeeming our 4.875% notes due 2026. These actions further diversified our funding base and provide us with enhanced financial flexibility. As a result of this year's performance and the successful execution of multiple strategic initiatives, the Board of Directors approved a quarterly base distribution of $0.32 per share for the quarter ended 03/31/2026. Additionally, the Board also approved the transition of the company's base dividend payment schedule from quarterly to monthly beginning in April 2026 while retaining the potential for quarterly supplemental distributions. We believe this change better aligns our distribution schedule with shareholder interests. The Board approved a regular monthly base distribution of $0.09 per share for each of the months of April, May, and June 2026. Also consistent with previous years, on 03/04/2026, the Board authorized a renewed stock purchase program of up to $10,000,000 for approximately a one-year period. All these initiatives I have discussed are designed to enhance shareholder value and reaffirm our commitment to shareholders. During the quarter, we generated net investment income of $7,400,000, or $0.57 per share, compared to $8,800,000, or $0.71 per share, in the prior quarter. For the year, we generated $25,100,000, or $2.28 per share, compared to $24,000,000, or $2.59 per share, for 2024. We remain focused on executing our strategic initiatives, managing expenses, optimizing portfolio positioning, and earnings and distribution coverage over time. Before handing the call over, I would like to take a moment to address recent developments in the broader credit markets, specifically regarding the software segment. Over the last several weeks, we have seen a notable risk-off move in public software valuations, driven largely by uncertainty and speculation around how quickly AI adoption might change competitive dynamics, rather than broad-based fundamental deterioration across the sector. As a reminder, BCP Investment Corporation remains broadly diversified, with investments across 34 industries, with software representing approximately 12.5% of the portfolio's fair market value. We have been proactive in evaluating our software-related exposure through an AI disruption lens. Based on our internal review, the overwhelming majority of software exposure we track is assessed as low to medium AI impact; only a small portion is viewed as high impact. We also believe the market will increasingly differentiate between companies that are mission-critical and embedded in customer workflows, often supported by proprietary data, higher switching costs, and customers operating in regulated industries, versus simpler point solutions that may be more vulnerable if they fail to incorporate AI into their products and operations. As a result, our focus remains on scale, activity, and credit quality, structure, underwriting, and monitoring that emphasizes revenue durability, retention, pricing power, and downside protection. Looking ahead, while macroeconomic headwinds persist, we believe current market dynamics continue to create compelling opportunities for our disciplined strategy. We anticipate that 2026 will bring increased activity in the M&A market and expect to capitalize on opportunities in our portfolio. With a larger, more diversified platform and a stronger balance sheet headed into the year, we believe we are well positioned to drive continued earnings growth and long-term value creation. With that, I will turn the call over to Patrick Schafer, our Chief Investment Officer, for a review of our investment activities. Patrick Schafer: Thanks, Ted. During the fourth quarter, we were intentionally prudent in new investment deployment as we executed on several key capital initiatives, including our debt refinancing and tender offer. We view this as disciplined capital management, and we are looking to deploy into attractive opportunities as conditions warrant. Competition remains elevated across sponsor-backed direct lending, particularly for higher-quality assets, and we continue to see lenders competing not only on spreads but also on terms and certainty of execution. In environments like these, we continue to stay disciplined, prioritizing transactions where we can achieve appropriate economics alongside strong documentation and downside protections. When pricing and returns are not compelling, we are comfortable stepping back and continuing to be selective from a credit quality perspective to focus on maximizing risk-adjusted returns for our shareholders. Turning to slide 10, originations for the fourth quarter were $9,600,000 and repayments and sales were $40,400,000, resulting in net repayments and sales of approximately $30,800,000. Overall yield on par value of new debt investments during the quarter was 11.8%. This compares to a 12.9% weighted average annualized yield excluding income from nonaccruals and collateralized loan obligations. As of 12/31/2025, our investment portfolio at year-end remained highly diversified. We ended the year with a debt investment portfolio, when excluding our investments in CLO funds, equities, and joint ventures, spread across 74 different portfolio companies and 34 different industries, with an average par balance of $3,500,000 per investment. Turning to slide 11, at the end of 2025, we had 13 investments on nonaccrual status, attributable to 10 portfolio companies, representing 47.1% of the portfolio at fair value and cost, respectively. This compares to 10 investments attributable to 8 portfolio companies on nonaccrual status as of 09/30/2025, representing 3.8% and 6.3% of the portfolio at fair value and cost, respectively. On slide 12, excluding our nonaccrual investments, we have an aggregate debt investment portfolio of $391,700,000 at fair value, which represents a blended price of 92.7% of par value and is 81.5% comprised of first lien loans at par value. Assuming a par recovery, our 12/31/2025 fair values reflect a potential of $30,900,000 of incremental net value, or a 14.8% increase to NAV. When applying an illustrative 10% default rate and 70% recovery rate, our debt portfolio would generate an incremental $1.46 per share of NAV, or an 8.7% increase as it rotates. I will now turn the call over to Brandon to further discuss our financial results for the period. Brandon Satoren: Thanks, Patrick. For the quarter ended 12/31/2025, the company generated $17,500,000 in investment income, a decrease of $1,400,000 as compared to $18,900,000 reported for the quarter ended 09/30/2025. The decrease in investment income was primarily driven by the distribution from our Great Lakes joint venture coming in $1,300,000 lower than the prior quarter and historical levels as a result of a nonrecurring item, as well as the impact of two additional investments on nonaccrual and decreases in base rates. For the year, total investment income was $61,200,000 compared to $62,400,000 in 2024. For the quarter ended 12/31/2025, total expenses were $10,100,000, which represents a $200,000 decrease as compared to $10,300,000 reported for the prior quarter. The decrease in expenses was primarily driven by lower incentive fees and general and administrative expenses, partially offset by higher financing costs associated with 30 days of duplicative interest expense associated with calling the company's April 2026 notes, which amounted to $500,000. For the year, total expenses were $36,200,000, or a $2,200,000 decrease as compared to $38,400,000 in 2024. The decrease in expenses compared to the prior year was primarily driven by lower incentive fees. Accordingly, our net investment income for the fourth quarter of 2025 was $7,400,000, or $0.57 per share, which constitutes a $1,000,000 decrease, or $0.14 per share, from $8,400,000, or $0.71 per share, reported for the prior quarter. Core net investment income for the fourth quarter was $4,100,000, or $0.32 per share, compared to $5,200,000, or $0.42 per share, in the third quarter of 2025. For the year, net investment income was $25,100,000, or $2.28 per share, compared to $24,000,000, or $2.59 per share, in 2024. As of 12/31/2025, our net asset value totaled $209,200,000, a decrease of $22,100,000, or 9.6%, from the prior quarter's NAV of $231,300,000. On a per share basis, NAV was $16.68 per share as of 12/31/2025, representing an $0.87 decrease, or 5%, as compared to the company's prior quarter NAV per share of $17.55. Notably, the difference between the 9.6% decrease and 5% is the accretive impact of the tender offer and our buyback program. Broadly speaking, the decline in NAV was due to $14,500,000 in net realized and change in unrealized losses on the portfolio, as well as core net NII not covering the dividend paid during the quarter by approximately $2,000,000. As it relates to the right side of our balance sheet, we ended the year with gross and net leverage ratios of 1.5x and 1.4x, respectively, which compares to gross and net leverage ratios of 1.4x and 1.3x, respectively, for the prior quarter. Specifically, as of 12/31/2025, we had a total of $312,300,000 of borrowings outstanding with a current weighted average contractual interest rate of 6.9%. This compares to $324,600,000 in borrowings outstanding as of the prior quarter with a weighted average contractual interest rate of 6.1%. The company finished the year with $124,700,000 of available borrowing capacity under the senior secured revolving credit facilities, which are subject to borrowing base restrictions. Finally, I am pleased to share that during the quarter, the company refinanced its $108,000,000 of unsecured notes maturing in April 2026 by issuing $75,000,000 of 7.75% notes due October 2030 and $35,000,000 of 7.50% notes due October 2028. These actions reduced near-term refinancing risk and better laddered the company's debt capital structure by staggering the company's maturities, which improves the company's balance sheet. With that, I will turn the call back over to Ted. Ted Goldthorpe: Thank you, Brandon. Ahead of questions, I would like to reemphasize our commitment to our shareholders. Our focus remains on disciplined capital allocation, maintaining a high-quality portfolio, and delivering attractive risk-adjusted returns. With a larger, more diversified platform and a strengthened balance sheet, we believe we are well positioned to drive continued earnings growth and value creation in the quarters ahead. Thank you once again to all our shareholders, employees, and partners for your ongoing support. This concludes our prepared remarks, and I will turn the call over for questions. Thank you. Operator: Quick reminder before we start the Q&A. If you would like to withdraw a question or your question has been answered, please press 1 again. Thank you. We will take our first question from Erik Zwick from Lucid Capital Markets. Please go ahead. Erik Zwick: Thanks. Good morning, everyone. You know, Ted, in your prepared comments, you mentioned the actions that you took in 2025 reflect the long-term vision as you position the company for its next phase of growth. I am curious, from your perspective, if you think about the next year or two, what do you think the mix of growth looks like from organic and acquisition mix? And I guess I am kind of curious on that latter potential source of growth, the acquisitions. What the pipeline looks like in terms of opportunities. And I guess if I add another piece in there, are there any other initiatives for growth that you are considering at this point as well? Ted Goldthorpe: Yes. It is a great question. I do not see us pursuing organic growth. I mean, anything, given where our stock trades, makes sense for us to continue to buy back stock. So the tender plus share buybacks obviously were a pretty nice tailwind to NAV for us. In terms of all this recent choppiness in the market, all the recent headlines, our M&A pipeline is probably bigger than it has ever been. So that includes both public entities and unlisted entities. So we expect to be able to grow our platform. We had to get Logan Ridge done, and that sets us up to do continued M&A. As you know, we have kind of rolled up a number of BDCs over the last couple of years, and it is a key part to our strategy to basically continue to do that, optimize the portfolios, and continue to buy back stock. Erik Zwick: That is helpful. And then, thinking about the pipeline, organic growth, and maybe the size of the portfolio, it sounds like you still consider the buyback a pretty attractive use of capital at this point. Is that the right read on your comments there? Ted Goldthorpe: Yes. I mean, you can see our originations. Our repayments and sales are way higher than originations. The reason for that is it is more accretive for us to basically take the liquidation and buy back stock. That is what we will be doing. On a go-forward basis, we are very, very, very cautious in terms of new deployment. We are really looking for areas where we can deploy capital at very wide spreads, and again, those opportunities are just few and far between. We think there is a little bit of a disconnect between actual risk and the way risk is being priced, and so we are being pretty judicious on deploying new capital. Erik Zwick: That is great color. Thanks. And last one, maybe for Brandon. Just looking at the dividend income that you recognized in the quarter, I think it was around $200,000 or something, $197,000, and that was quite a bit below the prior kind of four-quarter average, closer to, like, $1.9 million. So just curious if there is something noteworthy that changed in the fourth quarter and what the run rate of dividend income might look like going forward? Brandon Satoren: Yes, that is right, Erik. The decrease was driven by the much lower Great Lakes—our Great Lakes joint venture’s—distribution this quarter. There was a nonrecurring item associated with it. It is an evergreen product, and every three years it rolls into a new series. That occurred in the prior quarter, and that impacted the Great Lakes distribution this quarter. It is very much a nonrecurring item. The product is sensitive to rates, so where it was previously earning and distributing is probably higher than what we are modeling going forward, but it still should generate, call it, low-teens return on a near-term basis going forward. I would also make the distinction that the nonrecurring item was just the difference between ROC versus income, so it was not necessarily a cash distribution question; it was how we are supposed to recognize the cash in terms of ROC versus income. That is right. Erik Zwick: Great. Thank you for taking my questions this morning, guys. Operator: Thank you. Our next question comes from the line of Christopher Nolan from Ladenburg Thalmann. Please go ahead. Christopher Nolan: Hey, guys. Ted Goldthorpe: Hey, Chris. Christopher Nolan: The declining dividend, should we use that as a proxy for the earnings run rate going forward in the second half of the year? Brandon Satoren: No. That was the nonrecurring item that Erik had just asked about, Chris. So next quarter, we would expect that to return to more normalized historical levels. Christopher Nolan: Okay. And then the driver in the realized loss? Ted Goldthorpe: The largest driver on the realized was a portfolio company called CPFLEX. Patrick, do you want to give some color on that? Patrick Schafer: Yes. I mean, to be honest, Chris, it was a company that was going through a sale process. The sale process had been going on some time. We had a bid that was fully covering par plus accrued interest, and we were working towards the end. To be entirely honest, in the last couple of weeks of the transaction, there were some junior lenders in the capital structure that basically created a massive amount of hold-up value, and the lenders were forced into this discussion of whether we should file the company for a prepack and then get these guys out and move on. Again, we were a small part of the syndication, but there was just an overall view that, between the costs associated with the prepack and the risk that the buyer would move away from us, lenders were willing to accept what amounted to a good amount of hold-up value at the end of the day. The difference effectively between what we had it on the books at and what we ended up realizing was that last little bit of a couple folks holding us hostage. Christopher Nolan: Got it. And then, for unrealized depreciation, were there any particularly big drivers there? Patrick Schafer: Unrealized depreciation? Yes. Please. The biggest one is called HTC Hostway. Again, kind of a similar-ish story, but they were working through LOIs, and they have two different business units and were selling two different business units. They ultimately completed the sale of one of the business units, but the other one—effectively the buyer came back and retraded, like, a $0.50 discount or something like that, which obviously did not make any sense and we were not going to take. We said no. They came back at a higher valuation, but still not something that the company was comfortable with. There is a large lender that is leading the process there. Ultimately, the conclusion was to sell the first business where we got a reasonable cash offer and paid down some debt, and then we will take the second business back to market at some point this year would be my guess. But for valuation purposes, we are using that lower retraded valuation for purposes of that. So that is the driver of the unrealized depreciation. That is the biggest and the big needle-mover there. Christopher Nolan: Got it. And then I guess strategically, on your comments in terms of the growth drivers—acquisitions—are there a lot of potential BDC sellers out there, and is the pricing for these things going down? What sort of color can you provide? Ted Goldthorpe: I would say that there are a lot of permanent capital vehicles for sale. I think the choppiness is going to just exacerbate it. Scale matters. I think there are a lot of subscale vehicles that are going to have a hard time with originations, costs, and growth and fundraising. As I said, our pipeline is really robust, and it is a mix of both private and public entities. Actually, we are pretty excited about the M&A market. We think it is a really good way to create value for our shareholders. Christopher Nolan: Interesting. Okay. Great. Thanks, guys. Ted Goldthorpe: Thank you. Operator: Our next question comes from the line of Angelo Guarino, a Private Investor. Please go ahead. Angelo Guarino: Good morning. Thanks for taking my call. This is going to be a little bit of a tough talk—big picture tough talk. I am really trying to understand where you guys are focused on. So here are a couple data points. June 30, 2019, a couple quarters after you took KCAP, NAV per share, split-adjusted, $37 a share. Over that time, you have distributed $16 per share, split-adjusted, to shareholders, and now we are sitting $20 a share NAV below that. I have been a big supporter of you. I have been a big supporter of management, been a big supporter of the strategy, and have been growing. But you keep on using terms like risk-adjusted returns, shareholder value, continued growth, and shareholder value. I am trying to understand why it seems to me that quarter after quarter your hair is not on fire about the drip, drip, drip of the base value of our investment, which is NAV. You have to agree that BDCs are rarely going to trade at huge multiples of NAV, and why am I not seeing or hearing you talk about being—your hair on fire—about what has been happening to NAV ever since you took KCAP. Ted Goldthorpe: Okay. I will answer that question. I do not necessarily subscribe to everything you said, but the reality is we have probably bought back more stock than any BDC as a percentage of our business. When we say things like that, we are trying to be judicious about how we allocate capital. We have obviously inherited a series of portfolios that were at the relative tail end and are winding those down. If you look at a lot of the headwinds toward NAV, a lot of it has come from inherited positions. When we took those on, we have been working those out over the last—I cannot remember the start date you used—but it is still over the last seven years. In the meantime, we bought back stock, we refinanced the capital structure, and we have done a number of actions that we think are shareholder-friendly. I totally hear what you are saying, and the math is the math. But when you say our hair is on fire, I would not necessarily say that. I would say we have a good command for— Angelo Guarino: I guess what I am saying is I want your hair to be on fire. Ted Goldthorpe: I do not know if you will love to hear— Angelo Guarino: A lot of discussion about—I do not know what increasing shareholder value means if, quarter after quarter or year after year, NAV is just going down, down, down. I do not hear you addressing it in a way that is clear of where that turning point is going to be, where we are going to be seeing at least stable NAV. At the same time, sure, you did the stock buybacks. It was a good deal. But even in the face of stock buybacks, we had a decrease of NAV of $0.80 in just one quarter. That is not just a one-off. This has been going quarter after quarter after quarter. I am asking you as someone who is a supporter and has been very supportive of all—since you bought KCAP—because I was a KCAP holder. I have been here for this whole ride. Why am I not hearing what I think I need to hear that tells me when this is going to—when this drip is going to stop and this thing is going to turn? Just saying that I have bought back stock at a good deal—fine—but over six and a half years, I have lost $20 in NAV, and I have got $16 in distributions. I had to pay taxes on that distribution. It would have been better off to just liquidate KCAP and give it to me six and a half years ago and let me put them in Treasuries. I am trying to understand where this is going and when, and why I am not hearing you address in these conference calls where this turn is going to occur. Is that a better way of putting it? Ted Goldthorpe: Yes. I mean, listen, we are very open-minded to having a broad discussion. Maybe we should just take this offline, and we are happy to sit down with you and take you through it, and maybe optimize our communication next quarter. So why do we not take it offline? We are happy to listen to you, of course, and listen to all of our shareholders, and happy to have that conversation. Angelo Guarino: Okay. Ted Goldthorpe: Thank you. Operator: Our next question comes from the line of Paul Johnson from KBW. Please go ahead. Paul Johnson: Yes. Thanks for taking my questions. I just wanted to echo that a little bit. I just want to understand as well where you really can provide value for shareholders, just given where we are at. In my opinion, at least at this point, I do not think that you have necessarily demonstrated that the mergers have been positive for shareholders, that this has been—that any of these have worked out, and it is clear that buying some of these assets at NAV has not necessarily been a good deal. It sounds like that is still the consideration and the plan going forward, but to me, it has not been a great way to increase shareholder NAV for you guys. So what other ways can we stabilize what is in the portfolio today and you can provide shareholders, aside from trying to scale up through mergers going forward? Ted Goldthorpe: I mean, we used to provide a lot of disclosure about where we bought the assets versus where we monetized them, and we should put that back in the presentation and walk people through why we think a number of the actions we have taken were the right and prudent actions. We will provide additional—We have historically disclosed that in a lot of detail, and obviously, we should just continue to do that, and then lay out the roadmap for why we think that makes sense. Paul Johnson: Thank you. That is all for me. Operator: There are no further questions in the queue. I will now turn the call back over to our CEO, Ted Goldthorpe, for closing remarks. Ted Goldthorpe: Great. Well, thank you all for attending our call. As always, please feel free to reach out to us with any questions, which we are happy to discuss. We look forward to speaking with you again in May when we announce our first quarter 2026 results. Thank you. Operator: The meeting has now concluded. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome to the Information Services Group Fourth Quarter 2025 Conference Call. This call is being recorded, and a replay will be available on ISG's website within 24 hours. Now I'd like to turn the call over to Mr. Will Thoretz for opening remarks and introduction. Mr. Thoretz, please go ahead. Will Thoretz: Thank you, operator. Hello, and good morning. My name is Will Thoretz. I'm Head of Corporate Communications for ISG. I'd like to welcome everyone to ISG's Fourth Quarter conference call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer; and Michael Sherrick, Executive Vice President and Chief Financial Officer. Before we begin, I would like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements, which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects. These statements are not guarantees of future results and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. For a more detailed listing of the risks and other factors that could affect future results please refer to the forward-looking statement contained in our Form 8-K that was furnished last night to the SEC and the Risk Factors section of our most recent Form 10-K and 10-Q filings. You should also read ISG's annual report on Form 10-K and in the other relevant documents, including any amendments or supplements to these documents filed with the SEC. You will be able to obtain free copies of any of ISG's SEC filings on either ISG's website at www.isg-one.com or the SEC's website at www.sec.gov. ISG undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. During this call, we will discuss certain non-GAAP financial measures, which ISG believes improves the comparability of the company's financial results between periods and provides for greater transparency of key measures used to evaluate the company's performance. The non-GAAP measures, which we will touch on today include adjusted EBITDA, adjusted net earnings and the presentation of selected financial data on a constant currency basis. Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. A the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8-K, which was filed last night with the SEC. And now I would like to turn the call over to Michael Connors, who will be followed by Michael Sherrick. Mike? Michael P. Connors: Thank you, Will, and good morning, everyone. I should note that Will is now handling the opening of our call after the passing of a long-time colleague, Barry Holt in December. Barry was with me when I started the firm in 2006 and was heard on all of our investor calls up until now. Our condolence is again to the whole family. Today, we will review our solid Q4 results driven by double-digit growth in Europe and in our recurring revenues. Progress on our AI initiatives, our view of the current demand environment and our outlook for Q1. ISG delivered a strong Q4 to cap off in an outstanding year, powered by continuing client interest in our AI-centered transformation services. In the fourth quarter, nearly 35% of our revenues were from AI-related research and advisory services. For the full year, that number was nearly 30%, up 3x from 2024. This shows that AI is rapidly being mainstreamed as a core aspect of our traditional technology transformation work. Technology disruption has always fueled our growth in times of significant change, enterprises often struggle to adapt, so they turn to a trusted adviser for insights and expertise to chart the path forward and our results reflect that. We are still in the early stages of AI adoption will continue to accelerate as the technology and its governance matures. For our clients, it's not a question of if they will leverage AI, it's a question of how. Success requires the right data engineering, proper governance and workers ready to embrace the operating model changes AI is creating. We're seeing our AI clients leverage our entire value chain, research, benchmarking, advisory and governance, so they can navigate this new paradigm quickly and effectively. For the fourth quarter, ISG delivered revenues of $61.2 million, at the top end of our guidance and up 6% versus the prior year. Our growth was led by Europe, which continued its second half momentum with Q4 revenues up 28% and by our recurring revenues, which were up 13% globally led by our research and platform businesses, especially government services. For the full year, recurring revenues were $112 million, 46% of our total. Propelled by a more profitable mix of business and our strong operating discipline, we saw a continued acceleration of our profitability in Q4. Adjusted EBITDA was $8.1 million, that was up 24%, and our EBITDA margin rose nearly 200 basis points to 13.2%. For the full year, our revenues were $245 million, up 7%, led by an 11% growth in our Americas region, and this excludes our '24 results from the divested automation unit. Our adjusted EBITDA exceeded $32 million, and that was up 28% versus the prior year. And our margin for the full year was 13.2%, up 300 basis points. ISG continues to be a cash-generating engine with full year operating cash flow of $29 million, up 46% versus the prior year. A little over 2 years ago, we launched a series of initiatives and investments to establish leadership in AI, and we're continuing to develop and deploy new capabilities as we move through 2026. In January, we acquired the AI Maturity Index, it's an AI readiness benchmarking and intelligence platform that allows organizations to identify gaps in their workforce readiness and use a data-driven approach to achieve rapid improvement. Combined with our change management services, our AI maturity offering helps clients accelerate the return on their AI investments. The platform is already generating strong interest in opening up new client discussions about our broad range of AI-related capabilities. Also in January, we formed a dedicated team to drive continued expansion of our AI leadership. This AI acceleration unit is addressing our most complex and far-reaching AI initiatives. It is led by our Chief AI Officer, Steve Hall, who returned from Europe this month and will now have this unit on a full-time basis. The team includes experts from across our advisory, research and change management teams. We are living in an AI-centered world and are committed to seizing this opportunity. Nearly every technology transformation now requires some element of AI, and this is fundamentally changing the value proposition for both service and software providers. We are at the center of this revolution with innovations like our autonomy level pricing model, which provides clients a new way to value work depending on the degree of AI effort applied to a task. Our AI-powered sourcing solution, ISG Tango is built to address this changing landscape. We continue to add new functionality and expand the amount of total contract value, or TCV, we run on the platform. It is now more than $25 billion. That's up from $7 billion from the prior year. Now let me turn to our regions. The Americas delivered $38 million of revenue in Q4 and driven by double-digit growth in our research and governance businesses and in our consumer and enterprise industry verticals. For the year, excluding the '24 results from the divested automation unit. The Americas region finished up 11%, its best performance since 2021. Key plan engagements during the fourth quarter included Baxter, AGCO and Marriott. During the quarter, we won a multimillion dollar engagement with a leading consumer products company. ISG is supporting a next-generation global business services program. leveraging AI and other technology to optimize processes across this company. Their goal is to reduce operating costs by 40%. We also generated more than $1 million in revenue, working with a leading U.S. hospital network. This one on an AI-driven technology sourcing engagement that will deliver savings to this company of more than $130 million or 20% of their operating costs. Our Europe region continued its second half momentum with an excellent fourth quarter. Revenues were up 28% to $19 million, driven by double-digit growth in our advisory software and research businesses. and in our consumer health sciences, manufacturing and public sector verticals. Key client engagements in Europe in the fourth quarter included manpower, American Express and Roche. ISG is working with a large multinational player at the heart of the AI industry on a series of engagements worth more than $1 million. Our work includes helping this client incorporate AI and detect service management, workplace benchmarking, hybrid cloud sourcing and software, engagements that have firmly established ISG as the client's adviser of choice and provide us with a strong foundation for additional work through the year. And another $1 million-plus engagement, we're working with a global marketing and media company to deliver technology strategy, sourcing and transformation. With software providers incorporating AI aggressively into new contracts, we're also conducting a complex multi-region software advisory engagement. This will generate $15 million in annual savings for this client alone and align their AI consumption with demand. Now turning to Asia Pacific. Our Q4 revenues of $3.9 million were down $1.1 million compared with the prior year. We did see double-digit growth in our insurance industry vertical. However, we will need the public sector, as I mentioned a while back to reignite greater spending for this region to return to historical growth patterns, which we expect later this year. Key clients in the quarter include Singtel Optus with Singapore Exchange and Resolution Life. During the quarter, we won a $1 million engagement with a large Australian retailer to support the client's AI-driven technology transformation and its selection of a BPO provider to modernize its finance operations and HR functions with an AI-enabled business processes. Now let me turn to the broader market. As we look at overall demand, we see clients remaining cautious in a still uncertain macro environment, even if they continue to invest in AI-related business transformation, cost optimization and insights to plan the journey ahead. Increasingly, we see clients demanding clear business outcomes, a reshaping of their partner ecosystems and specialized capabilities. This plays directly to our strengths. ISG is well positioned to deliver insights and actions that lead to real business value for clients. Our proprietary data platforms and the on-the-ground expertise continue to deliver great ROI for our clients. So with that, let me turn to guidance. Despite continued macroeconomic uncertainty, ISG remains well positioned, and we are confident in our ability to capitalize on the accelerating demand for AI-led transformation. For the quarter, we expect revenues in the range of $60.5 million to $61.5 million and adjusted EBITDA between $7.5 million and $8.5 million representing continued year-over-year growth. Now let me turn the call over to Michael Sherrick, who will summarize our financial results. Michael? Michael Sherrick: Thank you, Mike, and good morning, everyone. Revenue for the fourth quarter was $61.2 million, up a solid 6% from the prior year. For the quarter, currency had a positive $1.3 million impact to revenue. Americas revenue was $38.3 million, up 1% in the fourth quarter. For the full year, excluding the 2024 results from our divested automation unit Americas revenue was up 11%, its best year-over-year growth in 4 years. For the quarter, Europe delivered revenue of $19.1 million, up 28%, while Asia Pacific revenue was $3.9 million, down $1.1 million from the prior year. Fourth quarter adjusted EBITDA was $8.1 million, up 24% from $6.5 million in the year-ago period and resulting in an EBITDA margin of 13.2%, which was 189 basis points higher year-on-year. For the quarter, ISG delivered operating income of $5.1 million, resulting in an operating margin of 8.4%. Reported net income for the quarter was $2.6 million or $0.05 per fully diluted share as compared with net income of $3 million or $0.06 per fully diluted share in the prior year. I would note, during the fourth quarter of 2024, ISG recorded a $2.3 million net gain on the sale of its automation unit. Excluding this gain, net income and GAAP EPS would have been $0.7 million and $0.01 per fully diluted share, respectively. Fourth quarter adjusted net income was $4 million or $0.08 per fully diluted share compared with adjusted net income of $3 million or $0.06 per fully diluted share in the prior year's fourth quarter. Headcount as of December 31, 2025, was 1,290. For the quarter, consulting utilization was 69%, in line with our average fourth quarter utilization. Full year utilization of 73% was in line with our mid-70s target. We ended the year with cash of $28.7 million, flat from the end of the third quarter and up $5.6 million year-on-year. For the quarter, net cash provided by operations was $5.1 million, supported by our solid operating results and continued focus on working capital. For the full year, we generated operating cash flow of $29 million, up 46% year-on-year. During the quarter, we paid dividends of $2.2 million and repurchased $2.3 million of stock. Our next quarterly dividend will be paid March 26 to shareholders of record as of March 20. At quarter's end fully diluted shares outstanding were $50.5 million, down $100,000 from the prior year. Our quarter-end gross debt-to-EBITDA ratio was just under 1.9x, down from 2.4x at December 31, 2024, and just below our 2x to 2.5x target range. At quarter's end, our debt was unchanged. And for the quarter, our average borrowing rate was 5.8%, down 125 basis points year-on-year. Overall, our balance sheet remains solid and continues to improve, providing us with a strong foundation to both operate and invest in the business, especially in our AI initiatives. Mike will now share concluding remarks before we go to Q&A. Mike? Michael P. Connors: Thank you, Michael. To summarize, ISG delivered another strong quarter, continuing our AI-powered momentum. Our 6% revenue growth in Q4 was led by double-digit growth in Europe and our recurring revenue businesses. We grew our adjusted EBITDA by 24% and margins by nearly 200 basis points. Our strong Q4 capped an outstanding year with revenues up 7%, driven by an 11% growth in the Americas. Adjusted EBITDA was up 28% and margins for the year up 300 basis points. We continue to generate strong cash flow, delivering operating cash of $29 million for the year, up 46%. Looking ahead to disruptive and powerful force of AI will continue to be a growth catalyst for ISG as the technology matures and adoption begins to scale. In this environment, our ability to deliver the full value chain of our research, our benchmarking, advisory and governance is a key competitive advantage for ISG. One that we believe enhances ROI for our clients and creates long-term value for our shareholders. So thank you very much for calling in this morning. And now let me turn the session over to the operators for your question. Operator: [Operator Instructions] Our first question comes from Marc Riddick from Sidoti. Marc Riddick: Good morning. So I wanted to start with some of the things that you're seeing. Maybe you could talk a little bit about -- you touched on this in the prepared remarks might be a little bit on what you're seeing as to differentiation of climate verticals. But also maybe you could talk a little bit about -- you've talked in the past about the sort of the offensive versus defensive spending that you're seeing? Maybe you could talk a little bit about maybe how that's evolved and maybe what you're seeing currently there? Michael P. Connors: Yes. So look, I think, first of all, there is -- I think it's a mix, Marc, there's a lot of defense going on, but there's also a lot of offense. I think it varies by industry segment, if I was thinking about the industries and thinking about offense, defense. First of all, where we're seeing a real significant area is around consumer, around retail. We see it around the financial services area, energy, utilities. And why is all that? Well, certainly, the consumer has been hit pretty hard in this whole kind of macro environment. The challenges around AI and the data centers puts pressure on the energy and utility companies. With the oil kind of moving, now the energy companies are flushing a bit more with cash. But we're seeing kind of a combination of trying to get a transformation journey going, and it varies. The consumer side is very defensive, I would say, on most of the areas. And clients like the energy side or even health sciences, I would say, are a little more offensive. So it's mixed back but all of them are working to try to figure out how they can embed AI to make their operations efficient, make it smoother for our client, customer exchange or user experience. And so it's kind of all over the board, which is good for us. There's a lot of disruption, and we like disruption from both a technology and an industry standpoint, Marc. Marc Riddick: Great. And then I know it's a little early in the process, I suppose, but maybe you can talk a little bit about the acquisition early days. It seems as though it's something that's it's fairly attractive for you and as well as the opportunities and maybe add clients from the base that you currently work with. But maybe you could talk a little bit about be it the early days of what you're seeing with the maturity innings as well as then maybe you could segue into sort of the current acquisition appetite and maybe what you're seeing out there? Michael P. Connors: Yes. So again, what this does is it assesses kind of the readiness by individual in an organization. And then you add up all the individuals and you get a good picture of the readiness of the workforce. Let me give you an example. There was a company, there was a large, let's call it, audit firm that one of the big technology firms was developing a new audit platform for. And as a result of this or platform, they estimated that they could save if you think about a lot of the work that goes on and quarterly gatherings of information from audit firm, they thought they could estimate savings of somewhere between 20% and 30%. It turns out that technology was great, but the audit partners were not willing to engage and embrace the new platform. Why? Well, the new platform, if you can actually take 20% to 30% cost out of some of those services, if you're charging a large client x millions of dollars for that audit today, likely you are not charging that same amount for that audit tomorrow with a new kind of efficient audit platform. That group was not ready, although they spent the money from a technology standpoint to prepare them. What this assessment does is it allows us to go into clients, assess individuals, build it up and clear prices understand what is the readiness level of their workforce to embrace, engage views and be ready for AI. And so for us, this is opening doors because our AI, energy and efforts around a lot of our clients. This readiness is an important factor to be sure that they can have success when implementing them. So anyway, it's -- as we think it's a great door opener for us, and it really has been a nice little add-on to our overall AI advisory business. And I will say, Marc, we are happy to have you or anyone on this call, we're happy to send you a link. You can take it yourself, this readiness on an individual basis. It literally takes only about 15 minutes. You get your own report, you get your own assessment. It's all done digitally, if you will, and it's pretty cool. So just let us know. Marc Riddick: Sounds good. Looking forward to that, definitely. And then maybe just thoughts on the current acquisition pipeline out there or appetite for -- certainly with the balance sheet being stronger, continuing to improve. Maybe talk a little bit about your appetite, currently. Michael P. Connors: Yes. So we are still in the market. We are constantly looking at M&A, as you know, that is kind of our heritage. We're looking at anything that can help us around recurring revenues and help us around our AI journey with clients. And the market is pretty good. We're having some good discussions, and we'll see how things unfold. But we're in a pretty strong position, and we feel pretty good about what may be out there during the course of the next year or so. Operator: Our next question comes from David Storms from Stonegate. David Storms: Just wanted to maybe circle back to the acceleration unit. What do early wins look like for them? I know there's a lot up in the air and things are changing rapidly. But what would you hope to accomplish over maybe the short to medium term? Michael P. Connors: Yes. I think from a quantitative standpoint, I'll start there and kind of build into it. We have about 30% of our revenues today that are AI related. Now that's up from about 10% about a year or so ago. We are looking to get to 50%. And one of the reasons for that is, is that we have a great talented upskilled workforce globally. And because of that, we are in high demand on all things AI. And with that, that means we want to be able to utilize the capabilities we have with our client base, and we have, I think, some pretty firm pricing as a result of that. . So number one, just from a targeting standpoint, we want this unit to help us move from kind of 30% to 50%. So if you want to look at it on a quantitative basis. The key is this is kind of a small almost I'll look at it as a seal team where we have our Chief Software Analyst, we have a Chief Change Management Officer. We have our Chief AI Officer, which Steve Hall has been that for almost 3 years now. We have this small group of people that are really helping us accelerate on a global basis. And that's what we're looking to accomplish, continuing to add features like the AI Maturity Index and other things as we move through '26 and '27. So that's our thinking around it, Dave. David Storms: That's great color. I appreciate that. With a lot of the movement that we're seeing with [indiscernible] landscape, how are you seeing the visibility in your pipeline change? Or is it becoming more difficult to manage that as things move through the process faster? Or are you seeing customers maybe measure twice and cut once and still have maybe some extended sales cycles? Michael P. Connors: Yes, it's a good question. It does mix. We have seen -- let me use the U.S. We have seen some things in the U.S. move out of the first quarter into the second quarter. The pipeline is still very strong. The pace is a bit mixed, again, depending on what's going on in the world. We have the new tariff situation. Now we have a bit of the geopolitical, that always puts a little bit of a little bit of fear into the buyers, if you will. But having said that, I think our view of '26 is that we will see our work, we will see an acceleration as we go through the year. I think you'll continue to see Europe where it is. I think Asia Pacific will be a back half. I think the U.S. will be -- we have a tough compare quarter-over-quarter in the first quarter, but you'll see the U.S. really accelerate, I think, in Q2 onwards based on our pipeline. So it's a little bit mixed, and it just kind of depends on this macro environment and how people behave. But the demand is there. The pipe is there, the pace I think will be choppy for a quarter or 2 quarters, depending on how the world reflects. David Storms: That's great. I do really appreciate that. And then maybe just one more for me, trying to tie together your recurring revenue and the AI revenue. Are you seeing AI spend be pretty recurring? Or are there sections of it that tends to be more or less recurrent than others? Just any thoughts there would be great. Michael Sherrick: Yes, Dave, it's Michael. I mean, I think it's a mix. I mean, as you can imagine, AI is very quickly becoming a part of most projects and things that we do. And so as a result, some will be in things that are recurring, right? Things like governance, things like research, those will be recurring and others will be embedded into two projects, right, where we're looking at back office towers that are moving to a genetic AI and other forms of technology to help automate and drive efficiency. So it's going to be a combination, very similar, I think, to prior technology movements. Operator: Our next question comes from Vince Colicchio from Barrington Research. Vincent Colicchio: So I'd like to have you talk about labor supply for a moment. we know that with -- in AI type work, labor is leverageable, highly productive. But having said that, is your AI -- are your AI capabilities where they need to be to meet current demand. And to get to your 50% target, will it be difficult to get the people you need? Michael P. Connors: Yes. Good question, Vince. First of all, we have now -- while we scale the entire workforce up on AI skills and so on through the end of last year, we now have what we call an advanced training that's ongoing that we expect all of our client-facing colleagues around the world to be completed by the end of April. So this will take them to another level. The second bit is because we have 30% of our revenues and engagements that have embedded, if you will, and we're getting a lot of hands on experience with our team. So one, I think we're going to be in a very good place skill-wise, I think we're going to be in a very good place in terms of real, live engagements, hands-on work with our clients, and we feel pretty good that we have the talent base or can attract the talent base to supplement what we currently have, but we have been reskilling and upskilling our teams now for almost 18 months and feel pretty good about it. So from a labor standpoint, we've always had very low turnover industry, as you know, quite a bit below industry averages, and that continues today. So that allows the retention of the skill sets that we have and then we'll complement it accordingly. Vincent Colicchio: So it sounds like Europe will continue to be strong in Q1. And just curious about what service lines should lead in Q1 into early Q2? Michael P. Connors: Yes. So I think you're right, that's how we see it, if we see the U.S., they have a tough quarter-over-quarter compare, but Europe still continue kind of their strong, if you will, growth areas. But the area there will continue to be and all things on the recurring revenue streams in Europe. The backlog, as you know, we talked about this, Europe was a little behind the U.S. It began to catch up in terms of buyer behavior and movement on AI journey during the second half of last year, it's picked up momentum. You saw that in the fourth quarter, and we think you'll see that in in the first quarter. The pipeline in the U.S., in particular, is very heavy. Things have moved out a little bit, but we expect that also to move nicely upwards as the year progresses. So our recurring revenues around research, our governance, especially AI governance are all very hot, and we expect that to continue during the first quarter. Vincent Colicchio: When I think about this index business, it seems like a really good tip of the spear to get you into a lot of new accounts. I assume you're thinking like that. And are you seeing that pay off so far? I mean it's very early. Michael P. Connors: Yes. It is a tip of the spear, and it's -- we've got about 30 clients that are currently in our pipeline. But more importantly, we are using it as a door opener with our AI services. It's a terrific tool. It's a terrific assessment. It gives instant feedback to an enterprise in terms of where their workforce is. So yes, we're very excited about. It's kind of the tip of the spear. We like it and as I said earlier, we're happy to send you the link for you to do it yourself. It's all gone electronically digitally. It's pretty swift. You'll see how it operates with the clients as well. Operator: Our next question comes from Kasi SriHari from Singular Research. Kasi SriHari: Yes. So my first question is for what you're seeing in the field, are clients beginning to consolidate their advisory and benching spend around a smaller set of partners for AI and sourcing? Or is the wallet share still spread across multiple firms? Michael P. Connors: Good question. I think from our perspective, we think there's going to be some consolidation. And the reason we think it is because clients want more of them being informed with information. They want an outcome. So the insights are going to be very important, but execution with scale is probably even more important. And if you can combine the insight with the advisory of sale, and then you can actually help them AI govern, we think that's nirvana. And that's why we think we're really well positioned. So we'll see how this progresses over the next year or 2 years. But our sense is that clients are becoming much more interested in an outcome based, not just being informed. So that's how we see this evolving over the next couple of years. Kasi SriHari: And as you deploy this majority index with more clients. Are you seeing any patterns by industry or geography in terms of who's actually generally ready to scale versus who is still in the early stage? And how does that prioritize your own go-to-market strategy? Michael P. Connors: No, it's a good question. I think it's too early to give you a, I'll call it, a fact-based assessment on that. I would say that based on what we have done from an assessment standpoint, what this index has done, it's pretty all over the board. It's really the -- because it's still so new, we think it's we all are seeing this every day, and we think it's been around. But the reality is this is 2.5 years old, but really less than that in terms of any kind of scale going on. So I think it's a mixed bag. I don't have an industry specific, if it's that. I would say that when the workforce is as dispersed and divested as a major Global 200, Global 300 company, much more difficult to get the readiness. If the enterprise is smaller and a little more contained, maybe a bit better. But we'll need a little more time to get a fact-based approach. But right now, it's pretty broad-based, I would say. Kasi SriHari: Got it. And given that with your new team related to, given that most 30% of your revenue is now AI-related, what portion of your delivery teams are actually spending majority of the tape in AI-centric versus more traditional sourcing and transformation mix to evolve in 2026? Michael P. Connors: Yes. No, that's a very good question. I think I would say 75%, 80% of our workforce is now engaged in something AI related. It may be very early stage and therefore, converting from revenue maybe smaller in some cases. But when you have 30% of your revenue, you're getting it heavier in some spots, lighter and others. But I would say 75% to 80% of our workforce now is touching AI in their work. . Kasi SriHari: And does the AI world come with premium pricing in terms of billable holes? Michael P. Connors: We think that the AI work that we're doing is, I'll call it, firmly priced. Kasi SriHari: Okay. Got you. And on the consumer side, you mentioned that that's a very hot vertical for you, partly because of the tariffs. And with the recent consumer win, are the consumer engagements tending to be -- I assume are not to be short on the urgent but cost takeouts more long term? And can you talk about how you're transforming that into a multiyear relationship, if you could talk about that over? Michael P. Connors: Yes. No, good question. So on the consumer side, we're very very active with a number of large consumer companies globally, and I gave a few examples, I think, in our prepared remarks. But what they're really looking at is taking their entire kind of operating cost base kind of breaking that up into different, I'll call it, towers and saying, how can we optimize that cost base in the very near term utilizing all the technology capability that's out there and do it at scale and with a significant outcome. And that's why I think some of the examples I gave you, we have one we're working on a very large consumer company. Their goal is 40% of their operating costs reduced within the next 3 to 4 years. It's a very large number. It's a multibillion dollar, if you will, optimization, using technology, using AI, using automation, using lots of other techniques but that is not atypical of the consumer companies, different scale on that one. The other one you saw -- I think I gave an example was a 20% optimization using it. The way they're looking at it is first inform me, give me the research you have around AI, the capabilities, what does the ecosystem look like, you are experts in that. Tell me who is out there, who is doing one at what levels? How does that apply to my particular business and then importantly, help me execute it. So don't just inform me, don't just give me an analyst kind of perspective, but give it to me, advise me, help me execute it all the way to the end. And that is what we're seeing there. Operator: Our last question comes from Joe Gomes from NOBLE Capital. Jacob Mutchler: Jacob Mutchler on for Joe Gomes this morning. My first question is related to ISG Tango. Just curious if you could talk about what is driving that growth and how that -- how Tango's performing with mid-market clients and -- and then also if you could touch upon a comment you made on the prepared remarks about, I believe it was increasing, was it the technical capabilities of Tango or maybe the amount of flow that it could handle -- any color would be appreciated. Michael P. Connors: Sure. Well, first of all, on pain, let me cover a couple of things just to give you the scope and scale. We have about $25 billion of contract value now running through that approximately. So this is at approximately $11 billion of that, so call it a little over 40% of that is the mid-market. You'll recall when we launched this, we felt that this platform would enable us to go into companies that we had not been into before. because of the way we price, which is higher priced, if you will, tougher to justify at a mid-market company. But what Tango does is it digitizes a lot of the process. And so the beauty of it is that it's a win-win for the enterprise. And the enterprise, we put all the data onto our platform. The ones that are bidding for some of the work that the enterprise wants to have done, whether it's in infrastructure or applications or supply chain, they get to go to the digital platform. The client then can see everything that the technology companies like the IBMs or Accenture are doing. And then what the outcome is, is that for the enterprise, they get speed to value. So what may have taken longer will take shorter because it's all digitized. And from the technology provider standpoint, take it the Accenture, the IBM, they know that there's going to be an outcome. So the the cost of the pursuit of the enterprise X., they know that they're making an investment. They may win they may lose, but they know they're going to be a winner or a loser. And so from that standpoint, they know there'll be an outcome, and they also get speed to the outcome. So the process from beginning to end is also quicker. And then from an ISG standpoint, we are able to gather of all that data. We put it into our black box. And importantly, we're able to utilize talent in a bit more flexible way on a global basis because it takes us a little less time, and we can take our talent and spread them over multiple kind of engagements. So that's the win-win-win with Tango, and that's why I think it's moved at the pace that it has. So the mid market, by the way, is -- yes, I said about 30%. I think it's around 25% -- it's around 25%, just to give you -- just to clarify, Jason. Jacob Mutchler: Got you. Okay. And then briefly turning to Asia. What is the -- I know you mentioned that you're expecting to return to growth in the back half. Is there a catalyst of what's going to precipitate that event? Or just any color around what's going to help drive Asia back to growth? Michael Sherrick: Yes. Jacob, I think it's Michael. As Mike commented, for Asia, we really need to see the the public sector begin to improve. We've seen some improvement in the pipeline there. Obviously, we need to close that business, but that's obviously the the early sign of beginning to see some life come back is that we're seeing some better opportunities in our pipeline. Operator: And I'm showing no further questions. I'll turn the call back over to Mike Connors for his closing remarks. Michael P. Connors: Okay. In closing, let me thank all of our professionals worldwide for our continuing progress and further collaboration and unwavering dedication to our clients in driving our long-term success. I think our people have a passion for delivering the best information, insights, advice and support to our clients as they continue their AI-powered transformations, and I could not be prouder of them. And thanks to all of you on the call for your continued support and confidence in our firm. Have a great rest of the day. Operator: This concludes today's teleconference. You may disconnect at any time.
Operator: Greetings, and welcome to the Drilling Tools International Corp. 2025 Year End and Fourth Quarter Financial Results 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, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard, investor relations. Thank you, sir. You may begin. Ken Dennard: Thank you, operator, and good morning, everyone. We appreciate you joining us for Drilling Tools International Corp.'s 2025 Year End and Fourth Quarter Conference Call and Webcast. With me today are R. Wayne Prejean, Chief Executive Officer, and David R. Johnson, Chief Financial Officer. Following my remarks, management will provide a review of year-end fourth quarter results and 2026 outlook before opening the call for your questions. There will be a replay of today’s call that will be available via webcast on the company’s website that is drillingtools.com. There will also be a telephonic recorded replay available until March 13. Please note that any information reported on this call speaks only as of today, 03/06/2026, 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 Drilling Tools International Corp.’s 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 company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K to understand certain of those risks, uncertainties, and contingencies. The comments today will also include certain non-GAAP financial measures including, but not limited to, adjusted EBITDA and adjusted free cash flow. The company provides these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. A discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures, and reconciliations to the most directly comparable GAAP measures can be found in our earnings release and our filings with the SEC. And now with that housekeeping behind me, I would like to turn the call over to R. Wayne Prejean, Drilling Tools International Corp.’s Chief Executive Officer. Wayne? R. Wayne Prejean: Thanks, Ken, and good morning, everyone. I will open with some comments on our full-year results, then hand the call over to David to review fourth quarter financials and our 2026 outlook. After that, I will wrap it up with a few additional thoughts before we open up for questions. We are pleased with our strong performance in the fourth quarter, which enabled us to finish the year on a positive note. These results demonstrate our ability to deliver consistent returns in the face of continued market softness. Despite global rig count declining 7% year over year, we were able to produce resilient results and generate significant free cash flow. In fact, Drilling Tools International Corp.’s annual adjusted free cash flow has grown each year since going public in 2023. This is an achievement we take great pride in and underscores our ability to operate efficiently, capitalize on opportunities in the market, and navigate the evolving energy landscape. Our 2025 results came in at or above the high end of our guidance ranges. We generated total rental revenues of $129,600,000 and total product sales revenues of $30,100,000, or $159,600,000 on a consolidated basis. Adjusted net income for 2025 was $3,400,000, and adjusted diluted EPS for 2025 was $0.10 per share. We generated 2025 adjusted EBITDA of $39,300,000 and adjusted free cash flow of $19,200,000. We completed our fourth acquisition in January 2025 since going public, and we were able to meaningfully reduce our net debt compared to the same period a year ago. This reflects our capital discipline and intentional focus on paying down debt. As the market softened throughout the year, we utilized our flexible CapEx model and pivoted to harvesting cash, which we then used to pay down over $11,000,000 of debt in 2025. We also returned a portion of our free cash flow to shareholders through our share buyback program. These actions reinforce our commitment to enhancing shareholder value and maintaining our solid financial position. Geographically, our Eastern Hemisphere operations experienced continued growth in 2025, and this expansion was a large contributor to the resilience of our results. Year over year, our Eastern Hemisphere revenue grew by 78% and contributed approximately 14% of our total revenue. The Eastern Hemisphere segment has continued to perform well, reflecting significant demand for our tools along with consistent execution and Drilling Tools International Corp.’s growing market presence. Western Hemisphere operations were impacted by soft North American drilling and completions activity in 2025 but managed to see only a low single-digit revenue decline when compared to 2024. As the situation evolves in the Middle East, we are focused on supporting our employees and clients. As of today, most all rigs are operating. Assuming this remains the same, we anticipate a positive baseline of activity with upside driven by oil capacity expansion and strategic gas development. This momentum sends an encouraging signal as we look to further expand our Eastern Hemisphere operations. Our strong alignment with local operators positions us well for continued expansion. And, again, assuming there are no major rig activity or infrastructure disruptions, we expect our customers to scale up their activities heading into 2026, and we expect growing market adoption of our tools to make us the service company of choice in the region. As evidence of the traction that our tools have gained in the Eastern Hemisphere today, our wellbore optimization product line offering continues to benefit from the significant increase in utilization of Drill-N-Ream tools and our ClearPath Stabilizer technology throughout the Eastern Hemisphere. We expect this constructive trend to continue as rig activity in Saudi Arabia stabilizes and selective programs are reactivated, creating incremental demand tailwinds for our Eastern Hemisphere segment. Over the past 24 months, we have completed several strategic acquisitions, and even as market conditions have tempered some of the near-term upside, we have remained focused on disciplined integration and realization of targeted synergies. This has allowed us to strengthen Drilling Tools International Corp.’s foundation and position the company for meaningful financial improvement as activity levels rebound. I am encouraged by our team’s ability to make the best out of a challenging environment, and I firmly believe that this will set us up for future success. David will now take you through our results in greater detail and introduce our 2026 outlook. David? David R. Johnson: Thanks, Wayne. In yesterday’s earnings release, we provided detailed year-end and fourth quarter financial tables, so I will use this time to offer further insight into specific financial metrics. Wayne gave an overview of our full-year results in his opening comments, so I will provide some additional color on our fourth quarter results. However, just to echo Wayne’s comments from earlier, we are pleased to have achieved another record year for adjusted free cash flow. Even with the general industry and typical Q4 seasonal softness, we prioritized generating and preserving cash flow by managing cost and CapEx. We intend to maintain our capital discipline strategy in 2026 by driving operational efficiency across the business. As of 12/31/2025, we had $3,600,000 of cash and cash equivalents, net debt of $42,200,000, and a net leverage ratio of 1.1x, which is down slightly from 1.2x a year ago, despite taking on additional debt to fund the Titan Tools acquisition in 2025. Now turning to our fourth quarter results. We generated consolidated Q4 revenue of $38,500,000. Fourth quarter tool rental revenue was $30,400,000, and product sales revenue totaled $8,100,000. Net income attributable to stockholders for the fourth quarter was $1,200,000 or $0.03 per share. Q4 adjusted net income was $1,500,000 or adjusted diluted EPS of $0.04 per share. Fourth quarter adjusted EBITDA was $10,100,000, and adjusted free cash flow was $6,100,000. Our capital expenditures in the fourth quarter were $4,000,000. Looking at maintenance CapEx for the fourth quarter, it was approximately 10% of total revenue. And just as a reminder, our maintenance capital is primarily funded by tool recovery revenue, which keeps our rental tool fleet relevant and sustainable regardless of market trends. CapEx is just one component of our capital discipline strategy. We take a disciplined approach to all capital deployment, prioritizing opportunities that align with our capital allocation framework and support long-term value creation for shareholders. For example, we paid down $5,500,000 in debt in the fourth quarter and overall approximately $11,000,000 in 2025, bringing down our net debt to EBITDA leverage ratio to 1.1x. We have also been active in our share buyback in 2025, where we purchased approximately $660,000 of common shares averaging $2.17 per share. We remain focused on maintaining a strong financial position and will thoughtfully use our capital allocation levers as attractive opportunities arise. Looking at our geographic segment mix, we continue to benefit from our diversified geographic footprint and customer base, with 14% of our total Q4 revenue coming from our Eastern Hemisphere segment. This growth reinforces the effectiveness of our strategy and commitment to delivering consistent, high-quality performance across our global footprint, especially as we look ahead to a market rebound. As we disclosed in yesterday’s earnings release, and as Wayne alluded to earlier, we have released our 2026 full-year guidance ranges that reflect year-over-year growth at the midpoint. 2026 revenue is expected to be in the range of $155,000,000 to $170,000,000. Adjusted EBITDA is expected to be within the range of $35,000,000 to $45,000,000. Capital expenditures are expected to be between $818,000,000 and $23,000,000. And finally, we expect our 2026 adjusted free cash flow to range between $17,000,000 to $22,000,000. We have constructed these ranges with the assumption that activity will remain relatively flat in 2026 and improve slightly in the second half of the year. Regardless, we continue to believe that our established geographical footprint will provide a meaningful runway for growth as market momentum returns. That concludes my financial review and outlook section. I will now turn the call back over to Wayne for closing comments. R. Wayne Prejean: Thank you, David. We continue to make substantial headway on our synergy program called OneDTI. We have been able to align our operating divisions into integrated systems and processes as well as onboard new business units into our Compass platform to manage assets and transactions from our customers. This represents an important milestone for the company’s growth potential, as it streamlines workflows, enhances accountability, and materially shortens the timeline for integrating future acquisitions into the Drilling Tools International Corp. platform. We also remain active in evaluating additional M&A opportunities that align with our strategic and financial objectives. As we continue to thoughtfully scale our current operations, we believe Drilling Tools International Corp. is the preferred provider for downhole tool rentals supporting wellbore construction and casing installation. Despite the near-term softness we expect to occur within the first half of the year, our outlook for 2026 reflects not only the solid foundation we have established, but also our forward-looking commitment to operational excellence and delivering consistent results. We believe there are several potential catalysts across multiple geographies that offer upside potential later in the year, including rig reactivations in Saudi Arabia, incremental tenders in the broader Middle East, and increased project activity in select international markets where we have recently expanded our presence, among others. These are not built into our guidance but may materialize into areas of outperformance. Looking forward, I am optimistic about the momentum we are building across the organization and the attractive opportunities we see on the horizon. The investments made to date are beginning to gain traction and are positioned to drive meaningful results. We are confident that elevated demand for complex wellbore solutions should further reinforce the need for our differentiated technology and the value-added solutions we deliver to customers around the world. Our ongoing focus on generating shareholder value is supported by the prospect of a more favorable market backdrop emerging later this year. Finally, I want to address the conflict in the Middle East as it pertains directly to Drilling Tools International Corp. As of yesterday, our Middle East personnel were all accounted for, have sheltered in place per local government requirements, and are maintaining continuity with customers’ needs and supporting our operations. We have experienced minimal disruption to our ongoing business thus far. We do not have any American expat employees in the conflict zone, but we do have numerous expat employees from other nationalities who are based in the Middle East. We are diligently monitoring the situation and have launched our crisis response plan, which is providing resources to support our team members in the area. We are conducting frequent meetings, obtaining regular operational updates, and are maintaining communications with our personnel in the region. I want to thank every member of the Drilling Tools International Corp. organization for their continued commitment to working in a safe, inspired, and productive manner, with special thanks to those personnel who are in the Middle East for their continued support of our operations. Our thoughts are with you every day. Our employees’ commitment has been essential in navigating a constantly evolving environment and essential to the success and future growth we are building together. With that, we will now take your questions. Operator? Operator: Thank you. 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. A confirmation tone will indicate your line is in the question queue. 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 key. Thank you. Our first question comes from the line of Stephen Michael Ferazani with Sidoti. Stephen Michael Ferazani: Morning, everyone. Appreciate the detail and color on the call this morning. I also appreciate, Wayne, your message on Middle Eastern safety. I think that is certainly appreciated right now. Couple of really strong numbers that surprised me in the quarter. Wanted to get your thoughts and color around what drove it. First one, the big one was the EBITDA margin this quarter, highest in, it looks to us, like, in six quarters. Six quarters ago, the rig count was much better. What drove that really strong margin this quarter? You want to take that one, please? David R. Johnson: Yes. I think it was just a combination of, you know, we did not see all the Q4 typical seasonal softness in some of our numbers. Then we were further benefiting from some of the cost reductions that we did earlier in the year. So, kind of the combination of that, we had, you know, our product mix was a little bit different. Yes, just an overall good quarter compared to the rest of the year. Stephen Michael Ferazani: Anything specific one-quarter type mix here? Because your margin in the quarter was above the full-year guide for 2026 on the margin line. David R. Johnson: Yes. I think mainly it was a product sale impact. We had some additional product sale that is in a little bit better margin profile, especially on the lost-in-hole DVR type sales. That is driving improved margins there. So it helps support the overall quarter. But, generally, it was steady state, good performance overall. Stephen Michael Ferazani: Got it. And then all of your numbers came in at the, as you noted, very high end of your full-year ranges. The one that beat was adjusted free cash flow. It is a very strong free cash flow quarter. Anything driving that? And you put out really solid guidance for free cash flow again next year. David R. Johnson: Yes, Steve, I think that is a good point. We are definitely seeing kind of that durable free cash flow generation since going public. That was kind of our stated goal, focusing on the M&A front for growth and really demonstrating that we can generate that free cash flow. But typically, and we will see it kind of every year, where a lot of our CapEx is front-loaded in the year. So as we kind of cycle through those first couple of quarters, then I think we saw our third quarter was stronger than the first and second quarter, and then our fourth quarter was even stronger on the free cash flow side for that reason. Stephen Michael Ferazani: Got it. That is helpful. And speaking about free cash flow, your leverage now, I mean, you are barely above 1x. Great place to be. And if we are, theoretically, and I think you think that we are at a trough on your annual EBITDA or very close, by our model, your leverage goes under 1x next year. What is the thought here? What is M&A looking like? Are there opportunities? Would you still reduce debt further? Are you thinking about cash flow? R. Wayne Prejean: Well, we have stated in previous quarters and on previous calls, we have a healthy pipeline of M&A opportunities that we are constantly evaluating, and we will continue to look at the most accretive, most attractive strategic opportunities that are out there. Our use of funds as they flow will be debt service, M&A, some buybacks, but mostly, throughout 2025, we focused on integration and gaining efficiencies from what we acquired. So right now, we are probably looking at a number of opportunities, and they ebb and flow as the market dictates, but there are definitely still opportunities on the horizon. Stephen Michael Ferazani: Got it. That is helpful. And I saw, you know, just going through the new deck you put up, the guidance does show you expect Eastern Hemisphere share of revenue to be even higher next year if we have seen that steady growth. Can you talk about where the opportunities are in Eastern Hemisphere? Also particularly curious about your opportunities in APAC. R. Wayne Prejean: So, throughout, as we have integrated all of the product lines and all the business units and aligned our management team and sales team, they are all firing on all cylinders and doing a great job. So we are getting lots of opportunities throughout Africa with various products. We are moving products around many of the countries in the Middle East, and, despite the ongoing conflict in the Middle East, we are able to continue maintaining our customer support. Surprisingly, most everyone is still in operation. You have probably heard different news reports of different things and facilities and refineries, but drilling operations are still commencing without major disruptions to our knowledge. Then we also have our Malaysian entity up and running with our Asia-Pac focus. So that is starting to gain traction, and we are distributing a lot of our new technologies, such as our Drill-N-Ream, our deep casing products, and our ClearPath product lines, which was an acquisition of the ED Projects Group a year ago. So all of those things are starting to get traction in the Middle East and Asia-Pac. Stephen Michael Ferazani: Got it. That is helpful. What is implied in your guidance in terms of revenue per active rig in the U.S.? How are you thinking about that? I think a lot of us assume we are modeling in sort of a flat rig count January 1 to December 30. How are you thinking about that? Can you grow revenue per active rig in a flattish market? R. Wayne Prejean: We see it as, we model it as, a steady state with opportunistic realities where some of our new technology gains traction. Those things are evolving in different markets. So we think our opportunity to overachieve is as those new technologies gain more traction, that is where we will see our opportunity to increase over and above where we are today. But mostly, the market is a steady state environment. Stephen Michael Ferazani: Got it. That is helpful. Last one for me, and I know this is a totally unfair question, but I have to ask it anyway. In terms of, we are only a week in, but in terms of the Middle East developments we have seen so far, any thoughts? And we do not know how long or how this exactly plays out. How you are positioned one way or the other as this plays out, any thoughts? I know it is an unfair question. R. Wayne Prejean: Well, I will start with, if you will notice, our revenues are about 14%, as we have stated in here, and we hope that they will grow, but they are only—and the Middle East is a part of that 14% of Eastern Hemisphere. So it is still a smaller part of our overall revenue and earnings stream, but it is emerging and growing. It could be—how it is going to be affected is unknown today. All we know today is that things are still operating. I do not think anyone is sure of exactly what the impact might be. We do not have a lot of personnel scattered throughout. We have some personnel that are scattered throughout different parts of that area, and they are all safe and accounted for today and operating. So we are able to move tools about. We are able to support our customers’ operations. They are asking for support. So despite the noise and everything that is going on and the unknowns, what we know today, it feels like it is minimally disruptive. And I do not mean that to minimize the conflict and the impact of it, but, from a business point of view, so far, our team has performed just fantastic. We are operating off our COVID-style playbook of how to do crisis management and deal with remoteness and things like that. So a lot of lessons learned from that experience on how to operate remotely with our clients and coordinate logistics and things like that. All of our team is working well in that regard. Stephen Michael Ferazani: Got it. Okay. Thanks so much, Wayne. Appreciate it, David. R. Wayne Prejean: Thank you. Thank you, Steve. Operator: Our next question comes from the line of John Matthew Daniel with Daniel Energy Partners. Please proceed with your question. John Matthew Daniel: Hey, guys. Thanks for having me. Just three quick ones for you. Assuming this is a safe one here, but the revenue guidance you provided for 2026, I am assuming that was all created pre-Iran. Is that fair? David R. Johnson: Correct. John Matthew Daniel: Okay. And then, good job on paying down the $11,000,000 in 2025. Do you have an established goal for 2026? I mean, look at the free cash flow guidance, which is, say, $20,000,000 at the midpoint. Roughly, what would you envision as being allocated to debt reduction versus buybacks? R. Wayne Prejean: I think if you look at our historical paydown events, such as the one you just described, one could expect continued paydown, majority of the debt. Hopefully, we could probably accelerate that, but it will depend on the occurrences that are happening throughout the year. And as these events unfold, particularly the events in the Middle East, it will help us understand where we need to focus our efforts on investments. If the U.S. market picks up, we can dial that up. If we find that the conflict is less impactful and it returns to more normal, we can dial that up, and so on. So, as other parts of the world, the good news is we are spread out throughout and now established with infrastructure and capabilities in many parts of the world. We have a lot more diversification in how we can deploy our capital in meaningful ways across different geomarkets depending on where the needs are and the adjustments are made. John Matthew Daniel: Last one, and, again, recognizing we are like five days into this thing or whatever. But, yes, there is a little bit of turmoil, right? Just look at crude prices, market concerns, etcetera. R. Wayne Prejean: Sure. John Matthew Daniel: Wayne, the question would be, in a weird way, does this get you excited that there are going to be great opportunities to capitalize on the turmoil, or do you go more defensive? How do you think about just running the business the next few quarters as this is all playing out? R. Wayne Prejean: Well, John, it is a very dynamic and fluid situation because there are so many unknowns of how things will be impacted. Speculation is dangerous on my part, but we kind of feel like we are in a position to deal with the situation in multiple areas, as I just stated. So I think we are flexible with regard to the opportunity that may present itself as a result of this conflict. And when I mean that, I do not mean to diminish the impact of a war, but oil is a dynamic commodity. And so if there is a major supply disruption, someone else will fill that gap, and we are prepared to participate in where that activity may be. Our fleet is relevant and sustainable. We have the diverse geomarket exposure now with different technologies. So we are in a good position to deal with how this dynamically unfolds. John Matthew Daniel: Okay. Last one. I lied. I told you there were three; there are four. Just looking at the chart here at WTI, $88 right now. Brent, better. I mean, there has been a lot of pricing pressure for the service industry the last couple of years. I mean, things have changed. How do you even start thinking about how you are going to start your customer discussions given the backdrop where we are? R. Wayne Prejean: Sure. I mean, particularly in North America, there has been a meandering rig count, mostly meandering downward with capital discipline and the need for improved earnings. But our business has what we call a ceiling and a floor on pricing and how we participate in the market and how we provide our customers value. If the price is too low, no one will invest in it. If the price is too high, everybody will invest in it. So we feel like we are very efficient in the middle to upper tier of that range, participating with our clients. Now, how do we get OFS pricing up? I think it is just a matter of time, in my opinion, that people are going to have to reinvest in equipment, and that will drive the pushback on pricing reductions and get to a more neutral state and maybe upward in the future. And, of course, an activity increase will immediately create probably a stress point in the supply chain throughout the industry. I think we can all make that calculation. John Matthew Daniel: Thanks for having me, guys. Have a great weekend. R. Wayne Prejean: Thanks, John. Operator: We have reached the end of the question-and-answer session. Mr. Prejean, I would like to turn the floor back over to you for closing comments. R. Wayne Prejean: So, thank you, everyone. We had a good quarter and a good year, and we have a pretty positive outlook throughout 2026. But there are some challenges ahead of us, the conflict notwithstanding. We are prepared from a company point of view and our employee point of view, and we have a great customer base and good geographic diversity. We are executing well in all those markets. Thank you for your interest in Drilling Tools International Corp. We appreciate your time on the call. Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time, and have a wonderful day.
Operator: Good morning, and welcome, everyone, to Granite Ridge Resources, Inc. Fourth Quarter and Full Year 2025 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 you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. I will now turn the call over to James Masters, Vice President, Investor Relations. James Masters: Thank you, operator. Good morning, everyone. We appreciate your interest in Granite Ridge Resources, Inc. We will begin our call with comments from Tyler Parkinson, our President and Chief Executive Officer, who will review the quarter’s results and company strategy along with an overview of 2026 financial and operating guidance, and introduce our newly announced Chief Financial Officer, Kyle Kettler. He will then turn the call over to Kyle to review our financial results in greater detail. Tyler will then return to provide closing comments before we open the call for questions. Today’s conference call contains certain projections and other forward-looking statements within the meaning of federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ from those expressed or implied. We ask that you review the cautionary statement in our earnings release. Granite Ridge Resources, Inc. disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on these statements. These and other risks are described in yesterday’s press release and our filings with the Securities and Exchange Commission. This call also includes references to certain non-GAAP financial measures. Information reconciling these measures to the most directly comparable GAAP measures is available in our earnings release on our website. Finally, this call is being recorded, and a replay will be available on our website following today’s call. With that, I will turn the call over to Tyler. Tyler Parkinson: Thank you, James, and good morning, everyone. We are proud to report results for our third full year as a public company. While much has changed since the company went public in 2022, our commitment to pursuing the highest risk-adjusted rate of return projects and creating durable shareholder value remains the same. It is that commitment that drove our evolution from a traditional nonoperated company pursuing a diversified investment strategy to a capital allocator focused on the Permian Basin, backing proven management teams to acquire and develop high-quality assets, a strategy shift that is the driving force behind our results. For the fourth quarter and full year 2025, average daily production increased 27% year over year to 35,100 barrels of oil equivalent per day. Total production for the year increased similarly to 32,000 barrels of oil equivalent per day. Adjusted EBITDAX for the quarter was approximately $70,000,000 and $315,000,000 for the full year. Capital expenditures for the fourth quarter were $127,500,000, split approximately half to development and half to inventory acquisitions. Our full year capital expenditures were $401,000,000. Finally, we maintained our quarterly dividend of $0.11 per share, which continues to demonstrate our commitment to return meaningful capital to shareholders. Since going public, we have significantly increased production while maintaining a conservative balance sheet. That capital-efficient growth is a result of consistently hitting our underwriting targets and increasing our capital allocation to operator projects thanks to a structural opportunity we identified in the market. Over the past decade, private capital retreated from the natural resources sector in a major way, fundamentally changing the landscape for energy development. Private equity fundraising declined dramatically, and the remaining capital focused on fewer teams chasing larger opportunities. This left a scarcity of capital and competition in the unit-by-unit operated segment. At the same time, proven operating teams who had built and sold successful companies increasingly lacked access to aligned capital partners. Granite Ridge Resources, Inc. recognized the opportunity and stepped into the gap by developing our operative partnership model. We first partnered with Admiral Permian Resources, a Midland-based operator with multiple successful exits and deep ties in the community. Central to our strategy was that the Delaware Basin, containing some of the highest quality shale resource in the world, is now controlled by a small number of large asset managers overseeing vast overlapping land positions. These land positions come with a variety of complications like lease expirations, fragmented working interest, and inventory management issues that can turn into high-return drilling opportunities for the right partner. Granite Ridge Resources, Inc., through Admiral, has become that partner. Over the past three years, we have executed over 50 transactions in the Permian Basin and have grown net production to nearly 10,000 BOE per day. Granite Ridge Resources, Inc. and Admiral have become preferred counterparties, and inventory additions continue to outpace our two-rig development program. We have also signed up three additional operator partners, each pursuing a different strategy in the Permian. We have been deliberate about limiting public disclosure of these partners to preserve their competitive positioning. Each team has successfully built and exited private equity-backed companies in the Permian and have significant personal capital invested alongside us, creating meaningful alignment. We look forward to sharing their progress and demonstrating the scalability of the operator partnership strategy. These partnerships greatly expanded our proprietary deal flow, which was already a competitive strength. Last year, we reviewed nearly 700 opportunities with a capture rate of just 15%. In 2025, we invested $122,000,000 across 107 transactions, securing approximately 20,500 net acres and 331 gross, or 77.2 net, locations, almost exclusively split between two buckets: nonoperated in the Utica Shale and operated partnerships in the Permian. Because we focus on short-cycle opportunities underwritten at strip pricing, our entry costs remain notably low relative to large-format transaction comps. In the Permian, our average acquisition cost per net location was just $1,400,000, far below recent public market transactions. This is a through-cycle strategy. We target 25% full-cycle returns at strip pricing, compound production and cash flow growth, and protect downside through disciplined leverage. Since our first operator partnership investment with At Home, we have fundamentally transformed our business from passive non-op to controlled capital with scale, growing production and high-quality near-term inventory, the results of which are becoming clear in our financials and outlook. Granite Ridge Resources, Inc. came public with cash on the balance sheet and no debt, but subscale. In the years since, we deliberately used leverage to achieve sufficient scale to support our next evolution: sustainable free cash flow. We are getting close. We see 2026 as a year of transition. Production growth is moderating, and development capital expenditures are aligning more closely with expected cash flow. At current strip prices, we expect to achieve free cash flow from operations in 2027. The midpoints of guidance for production and capital for this year are as follows. We expect annual production to average 35,000 barrels of oil equivalent per day, representing a 9% increase over 2025, and we expect our exit in 2026 to be essentially flat or modestly up from exit in 2025. We forecast oil volumes to be approximately 51% of total production. Development capital expenditures are projected at $315,000,000, with an additional $20,000,000 to $30,000,000 for acquisitions that we currently have in the pipeline. Approximately 90% of the capital invested in 2026 will be focused on operated projects. To summarize, we will spend roughly 15% less than last year to achieve production growth of approximately 9%. At current strip pricing, we anticipate a modest outspend in 2026. One of our expressed goals for the business is to generate alpha through the expansion of cash flow above maintenance capital. We currently estimate maintenance capital of approximately $250,000,000, which provides room for disciplined growth above that level. We have built our business for capital-efficient growth and free cash flow visibility at $60 oil. In response to the geopolitical shocks of the past week, we have added oil hedges and will continue to closely monitor the market. Recent events aside, we have been encouraged by the market resilience shown to date and remain bullish on the medium-term outlook. Should prices fall below $60 per barrel for a sustained period, we retain flexibility with our partners to adjust the development schedule and moderate capital deployment. Finally, let me expand on two recent announcements. Alongside Diamondback Energy, we partnered with Conduit Power to support the development of 200 megawatts of natural gas-fired power generation scheduled to come online fully in 2027. This transaction will effectively provide a synthetic hedge to our Permian gas realizations and is expected to enhance value by approximately $1 to $2 per Mcf on our gas exposed to this contract. We think similar opportunities may exist to further improve our gas realizations, and we will be diligent in pursuing them. Second, we recently announced the appointment of Kyle Kettler as our Chief Financial Officer after a six-month search. We went through a thoughtful, diligent process to find the right person that can help guide us through this next season of growth. Our business has matured, and the challenges and opportunities are much different than they were a few years ago. We were looking for an oil and gas professional with tremendous experience in capital markets, but also someone with creativity, a track record of creating value, somebody that could be a thought partner as we grow the business. We could not be happier that Kyle decided to join us. He brings significant capital markets expertise, an extensive network, and a keen strategic perspective that will be critical as we transition towards sustainable free cash flow, the next phase of Granite Ridge Resources, Inc.’s development. I am thrilled to welcome him to the team in his first earnings conference call. Kyle? Kyle Kettler: Thank you, Tyler, and good morning, everyone. It is my pleasure to join my first Granite Ridge Resources, Inc. earnings call, and I look forward to spending time with our analysts and investors in the months ahead. Granite Ridge Resources, Inc. is building something truly different, allocating capital and creating value from a platform that is unique in public and private E&P. I am excited to be here. Tyler covered the strategic highlights and 2026 outlook, so I will focus on the fourth quarter and full year financial results and our capital position. For the fourth quarter, oil and natural gas sales totaled $105,500,000. Revenue was essentially flat compared to the prior-year quarter because of commodity pricing; however, production grew an impressive 27% year over year. In the fourth quarter, our average realized oil price was $55.49 per barrel, compared to $65.53 per barrel in the same period last year. Natural gas averaged $1.81 per Mcf in the quarter, or 48% of Henry Hub. These weak realizations, particularly in the Permian Basin, had a meaningful impact on revenue and, by extension, EBITDAX and operating cash flow. As a result, adjusted EBITDAX for the quarter was $69,500,000, and operating cash flow totaled $64,500,000. For the full year, oil and natural gas sales totaled $450,300,000, with production increasing 28% year over year to 31,984 barrels equivalent per day. Full year adjusted EBITDAX was $315,000,000, and operating cash flow was $296,400,000. The takeaway is straightforward. Our asset base is scaling, oil remains roughly half of the mix, and volume growth is industry leading. Pricing, especially in the Permian Basin, was a swing factor in fourth quarter revenue and cash flow. That dynamic reinforces the importance of initiatives like the Conduit Power transaction Tyler mentioned, which we expect will help improve Permian gas realizations over time. On the cost side, lease operating expense in the fourth quarter was $7.72 per barrel equivalent. That is higher than last year, driven primarily by our increasing focus on the Permian Basin. Service costs, primarily saltwater disposal, increased, a dynamic that is structural in the basin. For the full year, LOE averaged $7.27 per barrel equivalent. Our 2026 guidance for LOE is $6.75 to $7.75 per barrel equivalent. Production and ad valorem taxes ran just under 6% of revenue in the quarter, and G&A was $8,000,000, including $1,400,000 of noncash stock compensation. On a full-year basis, cash G&A was what we expected. Annual guidance for these metrics is the same as last year: production taxes of 6% to 7% of revenue and cash G&A of $25,000,000 to $27,000,000. Turning to capital. This is where the strategic shift Tyler described really starts to show up in the numbers. We invested $127,500,000 in the fourth quarter, roughly half into development and half into acquisitions. For the full year, total capital was $401,000,000, including $279,000,000 of drilling and completion capital and $122,000,000 of property acquisitions. That acquisition capital was not large-format M&A. It was nimble, repetitive, unit-by-unit inventory capture, high-graded, and underwritten at strip. Our acquisition strategy gives us control over timing and capital intensity. We are not locking in multiyear development programs irrespective of commodity price. Operationally, we placed 67 gross wells online during the quarter and 322 gross wells for the year. That activity underpins the 28% annual production growth we delivered in 2025. Now onto the balance sheet. We exited the year with $350,000,000 outstanding on the 2029 senior notes and $50,000,000 drawn on the revolver. Liquidity totaled $339,500,000 at year end. Net debt to adjusted EBITDAX was 1.2 times, inside of our long-term range. Looking ahead to 2026, we are deliberately shifting gears. The plan is to grow production while reducing capital spending. 2026 production is expected to average 34,000 to 36,000 barrels equivalent per day, with oil just under half the mix. Development capital is projected at $300,000,000 to $330,000,000, and total capital is $320,000,000 to $360,000,000, including acquisitions. The key point is this: growth is moderating, capital intensity is coming down, and development spending is aligning much more closely with expected cash flow. That transition from scale-building to cash flow durability is the financial inflection point for the company. And through the transition, we are maintaining our $0.11 per share quarterly dividend. So, stepping back, the last three years have been about scaling the platform and capturing inventory, while 2026 is about capital efficiency and balance sheet discipline, positioning Granite Ridge Resources, Inc. to generate sustainable free cash flow. With that, I will turn it back to you, Tyler. Tyler Parkinson: Thanks, Kyle. Let me close with a few high-level points. First, 2025 was a transformational year for Granite Ridge Resources, Inc. We scaled the operator partnership model, expanded our controlled inventory in the Permian, and grew production 28% year over year. We leaned into an opportunity set that is structurally advantaged and difficult to replicate. Second, we are now shifting from outsized growth to durability. Our 2026 plan reflects a moderation in growth, tighter alignment of development capital with cash flow, and a clear path towards sustainable free cash flow generation in 2027. Third, our competitive advantage is our structure and business development engine. By underwriting unit by unit at strip pricing, partnering with proven operators, and maintaining capital flexibility, we consistently hit our investing underwriting targets, which has resulted in significant growth in production and asset value. Finally, we remain committed to balanced shareholder returns. The dividend remains a core component of our framework. As we cross into free cash flow, we will have increasing optionality around capital allocation. We appreciate the continued support of our shareholders, partners, and employees and look forward to the year ahead. Operator, we are ready to take questions. Operator: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Phillips Johnston with Capital One. Your line is open. Please proceed with your question. Phillips Johnston: Hey, thanks for the time. First, a question for Kyle. Your fourth quarter realized oil and gas prices as a percentage of NYMEX were a little bit lower than usual in the fourth quarter, especially on the gas side. I think in your comments, you alluded to weak Waha prices as the driver on the gas side, so that makes sense and is not surprising. But is there anything to call out on the oil side? And as a follow-up, what should we be thinking about for our models in 2026 in terms of both oil and gas differentials? Kyle Kettler: Yes, thanks. Yes, the fourth quarter was weak on natural gas realization, and that was driven by Waha pricing. We have a substantial portion of natural gas coming from the Permian Basin, and that Waha basis widened out during the quarter on us. Going forward, we have modeled that. You can see the strip. We are utilizing that as a way to predict what Waha prices will be over the next year, and those prices are pretty low early in the year, and they tighten up a little bit towards the back end of the year, and then 2027 going forward. The strip is much better but still negative around a dollar or so. On the oil side of the equation, there is not anything particularly that sticks out. There is a bit of a negative difference between realized and benchmark prices, but we have that in our model going forward as well. Phillips Johnston: Okay. Sounds good. And then could you maybe give us a sense of how many net wells are planned for 2026 relative to the 38 that you brought online last year? And would you expect any significant change in the mix for this year? I think last year’s mix was close to 85% in the Permian, with most of the balance in Appalachia, Haynesville, and the DJ. I just wanted to get some color there. Kyle Kettler: You bet. So last year was 38 net wells turned online. Towards the end of the year, it got a little gassier with some Haynesville wells coming on. We see 2026 being about 29 net wells coming online, and the relative mix of gas and oil should tilt back towards oil as the year goes on with more Permian Basin activity. Tyler Parkinson: Yes, Phillips, on that point, on the oil point, if you look at oil production growth from 2025 to 2026, we see 12% growth there, so a little more oil growth from 2025 to 2026 versus gas. Phillips Johnston: Yes, and that, I guess, implies your oil mix ticks back up to 51% from 49% in Q4 here. Alright. Great. Thanks. Operator: Your next question comes from the line of Derek Whitfield with TPH&Co. Your line is open. Please proceed with your question. Derek Whitfield: Good morning, and congrats on the acquisition success you had in 2025. I wanted to start on slide 14. As you think about the business’ transition to sustainable free cash flow in 2027, are you outlining that this morning as a business objective for 2027 based on your desire to lower leverage, or is it based on your current view of the opportunities ahead of you? I am not trying to pin you down as we live in a dynamic environment, just trying to understand the driver and how firm the message is. Tyler Parkinson: It is not an opportunity set driver. It is a leverage driver. We have been very consistent about wanting to run the business to about one to one and a quarter leverage just to execute the base business plan. We have said that we would go north of that for something more strategic, but to operate the base business plan, think of that as one and a quarter. We have planned this year and next year in a more than $60 oil environment. That is the lens we are looking through when we are thinking about 2027 free cash flow. Obviously, with higher prices, there is going to be some additional capacity that we could take in 2026 and 2027 to continue to prosecute additional capture or additional development drilling and still be able to deliver some free cash flow. Derek Whitfield: Great. And as my follow-up, I wanted to focus on your operated partnerships. We appreciate what you are highlighting with Admiral in today’s presentation, but could you offer some color on general activity and inventory levels across your other operated partnerships? Tyler Parkinson: I would love to fill in some blanks there. We have spoken publicly about our first two. Admiral had the benefit of getting a head start on our other three partners, so they are the most secure and steady state of the four partners. I think the Admiral story is pretty clear to everyone in the public domain. They are focused on Delaware Basin, unit-by-unit inventory capture from some of the larger asset managers in the basin. That story has been successful. We are running a couple of rigs there. We are adding inventory faster than the development base there, so we hope to be able to replicate this same evolution with the other three partners. Partner two is actually PetroLegacy. We have mentioned that before, former EnCap-backed. That team is focused on the northern Midland Basin Dean play. They have captured a position there in the Dean play. We will probably get started on some selective development of that position this year. That market has gotten extremely competitive, as everyone knows, so I am not sure how much additional running room we will have there. The PetroLegacy team is looking at some other opportunities in the basin and also potentially outside of the basin. We hope to have some drilling results from them this year. Our third team, we have not disclosed who that is, but I can tell you what they are doing. They are another successful team that has exited private equity. They are focused on some of the emerging plays in the Permian Basin—think Woodford, Barnett. Those transactions will probably look a little more blocky from an acreage perspective—larger chunks of acreage. They will come with some appraisal to figure out what exactly we have, but if that is successful, that will add a lot of medium-term inventory for us and start to fill in some of the development drilling in 2028 and beyond. Team four is our newest team. They are also a Midland-based team, an exit from private equity. They look a lot like the Admiral team, mainly focused on Midland Basin opportunities. I think they will be sourcing opportunity from the larger asset managers out there on a unit-by-unit basis. We are about six months into that one, so that is very new, but they have already started to capture inventory. Typically, it takes us maybe 12 to 18 months to get enough inventory to have about 18 months to two years of inventory in front of the team in order for us to justify picking up a rig. I probably would not expect a whole lot of development activity from that team this year, but as we move into 2027, I think we will see them start to fill in some development. Operator: Your next question comes from the line of Jerry Giroux with Stephens. Your line is open. Please proceed with your question. Jerry Giroux: Good morning, and thanks for taking my question. My first question is in regards to the move to generating free cash flow in 2027. First, continuing at the same growth rate you have been doing the last couple of years, how did you decide to generate free cash flow versus growing? And the second part is, I know it is early, but if this free cash flow will be returned to shareholders, and if so, in what form are you thinking? Or will this just be cash that goes on the balance sheet for maybe a good opportunity? Tyler Parkinson: It is probably to be determined on the second part. We have a lot of options there, and when we get there, we will see what the best option is at that time. On the first part, we want to transition the business into something that is more durable and long term. We think we have done a good job of gaining some scale over the past handful of years, maturing the business and the strategy. We still see a ton of opportunity in front of us from an inventory capture standpoint, but being able to show some free cash flow and keep our leverage around our target, which is still very conservative at one and a quarter times, will still give us a lot of opportunity to pursue additional inventory capture if we wanted to accelerate some. Kyle Kettler: I would just add, the growth rates were pretty significant over the last couple of years, and it will still be high single digits going into next year. So it will still be pretty good growth. A lot of the capital spending is through operated partnerships, and that is based on a development plan we have coordinated with them. That puts us in this modeling position where we think we can see into 2026 and 2027 and turn into free cash flow in the 2027 time period. Jerry Giroux: That is perfect. Thanks for the color. And then one more question about slide nine. Could you give a little more color on that slide? You talked about Granite Ridge Resources, Inc. retains 92% of the ten-year projected cash flows, then also that the Hamburglar wells or pads achieved the hurdle reversion. Could you give a few more details on this case study? Kyle Kettler: You bet. What we did here was just to give you an example of the economics between us and our operated partners. We had some questions from investors over time on this one. The thrust of it is to show that while we do have some reversions in the reserve database, they are effectively not very punitive at all. They are relatively very small on a multiple-of-capital basis, and that is really what we are trying to achieve with this end-of-slide. Jerry Giroux: That is perfect. Thank you. Operator: Your next question comes from the line of Noah Hungness with Bank of America. Your line is open. Please proceed with your question. Noah Hungness: Morning. For my first question, I was hoping you could touch on the opportunity set and the competitiveness you are seeing to add inventory. In 2025, you were able to add locations well below what we saw from going market price. How do you see those dynamics today? Tyler Parkinson: Good question. That opportunity still exists for us. Our operator teams are still executing on transactions that look exactly like that. We have roughly $25,000,000 of acquisition capital expenditures scheduled right now. That is basically what we have captured or have line of sight to now. If we wanted to continue to add inventory and increase that budget, that opportunity is still available to us. As I said in the remarks, that has been a very good opportunity for us over the past couple of years, and we see the operated partnership inventory captures having a number of years out in front of us. As far as the rest of deal flow, we have seen still very strong deal flow. I think we had a record last year on deal flow that we screened, and that is continuing. The distributed wellbore market is still very strong. We do not participate in that market very much. Returns there are not something that we would underwrite to, but that is a very strong market. The larger marketed packages are still out there with lots of divestiture targets from a lot of the consolidation. Again, we do not participate in that market either. Lastly, on some of the smaller marketed processes for non-op, we are seeing probably the least amount of deal flow and trending down. That has been a little bit weak, but that is not an area that we typically source opportunity from. Finally, in the Appalachia Utica Shale Basin, we are still seeing a ton of opportunity there. That is a traditional non-op play for us. We have been very successful over the past year and a half leasing there. We added probably another couple thousand net acres in the Utica play in Q4, and we are continuing to see lots of opportunity there. Noah Hungness: That is helpful color. And then for my second question, Tyler, could you talk about how we can think about the oil cadence through 2026? And then what does exit-to-exit production growth look like for oil? Tyler Parkinson: Sure. Exit-to-exit oil production growth is 12%. That is Q4 2025 to Q4 2026. Oil growth over the year will be down a little bit in the first half—low single-digit decline in Q1 and Q2—and then increasing in the second half. From Q4 to Q4, we expect 12% growth. Operator: There are no further questions at this time. That concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day.
Operator: Good morning. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Methanex Corporation fourth quarter 2025 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the conference call over to the Vice President of Investor Relations at Methanex Corporation, Mr. Robert Winslow. Please go ahead, Mr. Winslow. Robert Winslow: Good morning, everyone. My name is Robert Winslow, and I recently joined Methanex Corporation as Vice President, Investor Relations. Welcome to Methanex Corporation’s fourth quarter 2025 results conference call. Our fourth quarter 2025 news release and 2025 annual report were posted yesterday, and can be accessed through our website at methanex.com. I would like to remind listeners that our comments today may contain forward-looking information, which by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from actual results. We may also refer to non-GAAP financial measures and ratios that do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Any references made on today’s call reflect our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, our 50% interest in the Natgasoline facility, and our 60% interest in Waterfront Shipping. To review the cautionary language regarding forward-looking statements, and definitions and reconciliations of the non-GAAP measures, please refer to our most recent news release, MD&A, annual report, and investor presentation, all of which are posted on our website under the Investor Relations tab. I will now turn the call over to Methanex Corporation’s President and CEO, Rich Sumner, for his comments, followed by a question and answer period. Rich Sumner: Thank you, Robert, and good morning, everyone. We appreciate you joining us today to discuss our fourth quarter 2025 results. I would like to start the call by thanking all our global team members for their continued commitment to Responsible Care and safety, which remains at the core of our company’s culture. Over 2024 and 2025, we have had the best two years’ safety performance in our company’s history, even as we navigated significant changes to our asset portfolio and supply chain. As a demonstration of these results, we have had zero Tier 1 process safety incidents over the past two years, and recorded only 0.09 and 0.12 recordable injuries per 200,000 hours worked in 2024 and 2025, respectively, compared with the chemical industry average of 0.59 in 2024. These outstanding achievements are a testament to our employees’ and contractors’ continued focus on strong planning, hazard awareness, and reliable behaviors. Turning now to a financial and operational review of the company. Our fourth quarter average realized price of $331 per tonne and produced sales of approximately 2,400,000 tonnes generated adjusted EBITDA of $180,000,000 and an adjusted net loss of $11,000,000. Adjusted EBITDA was lower compared to 2025, as higher sales of produced methanol were offset by a lower average realized price and the impact of immediate fixed cost recognition related to plant outages in the fourth quarter. Turning now to industry fundamentals. We are closely monitoring the current events in the Middle East region, its impact on global markets, and our business. Looking back on the fourth quarter, we estimate that global demand increased in China by about 4% while demand outside of China was relatively flat. Increased demand in China in the fourth quarter compared to the third quarter was driven by increased demand for methanol into energy applications and higher operating rates by methanol-to-olefin producers, the latter also being supported by high operating rates and import supply availability from Iran. Steady imports from Iran, particularly through October and November, also led to higher coastal inventories in China, which pushed pricing towards the $250 per metric tonne range. Towards the end of the fourth quarter, we believe seasonal gas constraints significantly reduced Iranian output, leading to MTO producers’ reduced operating rates in response to decreasing supply. Through 2026 up until current market escalations, our average realized pricing has been quite stable, with some small increases on slightly tighter supply conditions. After considering first quarter posted prices and factoring in higher customer discounts through recontracting for 2026, our first quarter average realized price is estimated to be $330 to $340 per tonne. Current escalation in the Middle East brings significant risk to reliability of methanol supply to the market from this region. We continue to see significantly reduced methanol supply from Iran, and we believe it is also impacting operations and trade flows from other producers. This has led to an increase in spot methanol pricing in Asia Pacific and Europe, with Chinese methanol prices now trading above $300 per metric tonne and European spot prices now trading close to $400 per tonne. Now turning to our operations where our methanol production was higher in the fourth quarter compared to the third quarter. Starting with our newly acquired assets in Texas, we produced 216,000 tonnes at Beaumont and 186,000 tonnes from our equity share of Natgasoline. During the fourth quarter, Beaumont experienced a short unplanned outage, and Natgasoline took a planned 10-day outage to replace a catalyst that is important to environmental compliance. We have been actively working with both of these manufacturing sites on integration plans, completing detailed reviews of systems and technical findings, and are pleased with the progress to date. In Geismar, production was slightly higher in the fourth quarter as all three plants operated reasonably well, although we did experience some minor unplanned outages. In Chile, after completing a planned turnaround in September, we operated both plants at full rates for most of the fourth quarter, utilizing gas supply from Chile and Argentina. During December, a third-party pipeline failure caused a temporary restriction on gas supply to our facilities, and this resulted in approximately 75,000 tonnes of lost production. The gas supplier developed a resolution to this issue in early 2026. We are now operating both plants at full rates, which we expect to sustain through April. In Egypt, we had higher production in the fourth quarter as the third quarter was partially impacted by seasonal gas availability constraints. There has been stabilization of gas balances in the region, but some continued limitations on supply to industrial plants are expected going forward, particularly in the summer. The plant is currently operating at full rates. We are closely monitoring the regional situation for any potential impact on gas supply to the plant. In New Zealand, we produced 171,000 tonnes as increased gas supply was available in the non-winter season. Notwithstanding the short-term dynamic, structural gas supply availability in New Zealand continues to be challenging, and we are working with our gas suppliers and the government to optimize our operations in the country. Our expected equity production for 2026 is approximately 9,000,000 tonnes of methanol. Actual production may vary by quarter based on timing of turnarounds, gas availability, unplanned outages, and unanticipated events. Now turning to our current financial position and outlook. During the fourth quarter, solid cash flows from operations allowed us to repay $75,000,000 of the Term Loan A facility, and end the year in a strong cash position with $425,000,000 on the balance sheet. Since the start of 2026, we have repaid a further $50,000,000, and the balance of the Term Loan A facility is currently $300,000,000. Our priorities for 2026 are to safely and reliably operate our business and continue to deliver on our integration plan. We remain focused on maintaining a strong balance sheet and ensuring financial flexibility, and our near-term capital allocation priority is to direct all free cash flow to the repayment of the Term Loan A facility. Based on a forecasted first quarter average realized price between $330 and $340 per tonne, and similar produced sales, we expect slightly higher adjusted EBITDA in the first quarter compared to the fourth quarter. We will now open for questions. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We encourage everyone to limit yourself to one question and one follow-up. You are welcome to requeue for additional questions. Your first question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open. Joel Jackson: Thanks, everyone. Welcome aboard, Rob. Nice to hear from you again. Rich, team, can you talk about costs? So if you look at Q4 and we think of costs, not gas cost, but other cost, logistics, other things going on, can you talk about what does that look like into the first half of this year in Q1? Seems like costs have really elevated. What is going on? Are there any artifacts, some of things going on with the OCI, taking over the OCI asset? Thanks. And then my second question is, obviously, you all know what is going on in the world. And there is a lot of methanol sitting in Iran and Saudi and around the Middle East. You obviously set your contract prices, your posted prices for March just on the onset of this. It is early, but what do you think is going to happen here in the market? If this continues, can you talk about what will we see in the short term, the medium term, as you see your business potentially changing from what is going on? Rich Sumner: Joel, a couple of points I would make on cost is we did see the unabsorbed cost come through. That is really about how the assets ran through December. We saw some outages there that result in immediate recognition of those costs to the P&L. As we think into where we were, our fixed costs, we would expect those to come down. Our ocean freight was probably a longer supply chain in the third and fourth quarter. As we said, we do have probably a higher percentage of sales coming through in the last few quarters, higher than we expect as we move into the new year with our contracted position. And then we are not yet all the way through the OCI transaction. So right now, we are spending costs as we move through to create the synergies post-deal, and that will happen through 2026 and when we get into 2027. We are not all the way there, obviously, and what we need to do is to continue the integration plans, and as we move through, we would expect beginning in 2027 that our fixed cost structure also adjusts down to the new base of the business. For your second question, I think for us, our first priority here is our supply to customers. This is where our reliability of supply and our global supply chain really demonstrates its value. Where we are today, that is our first commitment. Pricing has increased in all regions with anticipation of tightness coming out because the amount of tonnes on the internationally traded market here is quite meaningful that is currently impacted. So our first commitments are to our customers, and as of right now, we will see some benefits because of the tightness on pricing through March, but the real reset will come through into the second quarter. I think we are talking about around 15 to 20 million tonnes of the globally internationally traded methanol market here, so it is a significant impact which will ultimately impact all global markets, and we have seen pricing come up around the world. We are watching things really closely here, obviously, with our customers, trying to make sure we keep them whole while also looking at the risks on the global market and potentially some demand destruction that could come out of the market as well. So we are watching things very closely, and we are really talking to all our customers about how we can keep them supplied through this. Operator: Your next question comes from the line of Ben Isaacson with Scotiabank. Your line is open. Ben Isaacson: Thank you very much, and good morning. I have a question and a follow-up. Rich, can you remind us how opportunistic are you able to be when we have price spikes? I know most of your volume is contracted. Can you just talk about how you can take advantage of short-term price spikes, and is there some kind of lag in that recognition? And my follow-up is in the Middle East. I know things are moving very quickly. Are you aware factually of any damage to methanol assets or export or port infrastructure in Iran? And are you seeing a slowdown in gas flow from Israel to Egypt? Rich Sumner: Thanks, Ben. We are a term contract supplier, so our first priority is our commitment to our customers, and we reset price monthly. Right now, we are selling based on our March contract price, and we would expect, under current conditions, that we would be resetting into April to be reflective of the market. Our first priority today is the security of supply to our customers globally. Of course, there are certain mechanisms in our contracts which may adjust up slightly, and that is built into our forecast, so you could see that there could be a little bit of a push up in our guidance on where pricing is for the first quarter, but generally, it will reset into April. Our first commitment is really about how we make sure we keep the industry operating for our customers and really help them take care of their business. On your follow-up, no, we are not aware of any damage to any methanol facilities. We are monitoring the situation really closely. As far as it relates to the gas supply from Israel into Egypt, our understanding is that gas is not flowing, that they have all but shut down the gas imports from Israel today. We are working really closely with our gas suppliers in Egypt. Our plant continues to operate. It is the low season in terms of demand on the gas grid in Egypt, and the Egyptian government has been getting more supply through LNG imports. So far, we have sustainable operations there, but we are watching things and monitoring them really closely. Operator: Your next question comes from the line of Hamir Patel with CIBC Capital Markets. Your line is open. Hamir Patel: Hi. Good morning. Rich, in your price guidance for Q1, you referenced new customer discounts for 2026. So how should we think about how much, maybe on an annual basis, those have shifted, and will that largely be apparent in Q1, or will it adjust over the year? And with respect to 2026, the 9,000,000 production guide, can you give us some color on some of the regional puts and takes embedded in that? I imagine the Egypt piece is probably the most fluid. Rich Sumner: I think Q1 is the reset, Hamir. When we think about where our realized pricing is for Q1, if you go region by region, China is going to be up because we saw that the supply built in China through Q4. The European contract settlement actually results in slightly lower pricing for Q1 compared to Q4. And then when we look at where North America, Latin America, and Asia Pacific are, they are relatively flat on a realized basis. So that should be a resetting. The discount for Q1 should be a good guide for the rest of the year, and then on an average realized basis, we are expecting to be up a little bit. This is all pre the current developments. Prior to the current situation, we were going to be slightly up mainly because of China and factoring in those other considerations. On your production question, you can think of it in terms of a little over 6,000,000 tonnes in North America, about 1,300,000 to 1,400,000 tonnes for Chile, which is consistent with where we were last year, around 0.5 to 0.6 million tonnes for Egypt, which is obviously less than around an 80% operating rate, and then Trinidad would be one plant, really the Titan plant, around 800,000 tonnes. For New Zealand, our guide is less than half a million tonnes, and that is because of the situation we face with gas supply. Those are rough numbers to help you break that out by plant. Operator: Your next question comes from the line of Steve Hansen with Raymond James. Your line is open. Steve Hansen: Good morning, and thanks for the time. I want to go back to the discount issue, or perhaps even the weighted average global price, just as we think about the shifting dynamics there. It did strike me that the realized price came in lower, but not just because of the discount, because of that global weighted average. Has there been a material shift in the sales mix here in the last two quarters relative to prior? It does seem that the formulas we used in the past are becoming outdated. And just on the operational rhythm or cadence at the new facility in Geismar, it sounds like things are running well now. But just to give us a sense for that cadence, is it running to plan, and you think you suggested even full rate? Is there anything else in the tempo that we should expect to change over the balance of the year, whether it be turnarounds or other major pickups? Rich Sumner: I think what we do is give guidance in terms of percentages in regional allocations, Steve, so you can use those as a good guide. The proportion of China was higher as we moved through Q4 for sure, and that is partly because when we acquired the assets, we did inherit a fairly large uncontracted position from the OCI business. We contracted into Q1 now, and I think if you work the percentages and the pricing, you would get close to our ARP, but we can help you with that offline if, for some reason, it is not adding up. On Geismar, we are pleased with the operation. We have gotten through the ATR challenges that we had, and we feel really good about the way the asset is running. In a lot of ways, it is about just continuing to ensure safe, reliable operations in Geismar, and the team is doing a fantastic job there. We have put those issues behind us, and right now, we have really good stable production coming out of Geismar. Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Your line is open. Jeff Zekauskas: I remember that you were less hedged on gas at Beaumont and Natgasoline. Is your hedging now consistent with your other North American plants, and when there was that gas spike in January, was that something that you felt, or you were hedged against it? And in Trinidad, do you expect your operating rates to rise relative to the fourth quarter or fall in the first quarter? Rich Sumner: Thanks, Jeff. Our hedging today, what we are guiding towards, is about 50% hedged for our North American assets, and that is across the whole portfolio. We did see gas pricing, as we always do, come up through the winter period, and then we did hit the gas spike. We will talk more about our operations when we get to our first quarter results, but we would normally expect gas prices to come up, and we have different ways to manage that. We would have had some open exposure, but we would have been managing that. We will talk more about that in our first quarter. We do expect the gas pricing, and that is part of the guide—really, when we look at slightly higher earnings, part of the reason that it is slightly higher and not higher is because there is a bit higher gas cost coming through in the first quarter compared to the fourth quarter, which we will give more information on when we disclose that in the coming weeks. In Trinidad, we are running the one plant, the smaller Titan plant, based on our gas contract for the plant. We expect that operation to be very consistent, and we will operate that plant. Our main focus is going to be on gas contract renewals for the Titan facility. That contract comes up at the end of the September timeframe, and we would expect to have good operations from that plant up until that timeframe. We are already looking at the contract renewal. Most producers are already in discussions for their feedstock recontracting in Trinidad, and we are making sure we are in discussions as ours comes up later in the year. I would anticipate that we are running that plant at similar rates to last year until that time. Operator: Your next question comes from the line of Josh Spector with UBS. Your line is open. Chris Perilla: Hi. Good morning. It is Chris Perilla on for Josh. As you had lower production out of the OCI, the acquired assets sequentially, can you give us an update on the integration there and what the cost puts and takes over the course of 2026 are, or what you are budgeting for the spend to get the synergies? Is there a step-up in the spend there in the year, or is that cost now kind of baked in on a go-forward basis at least through the end of the year? And then could you just update if the gas supply situation in Trinidad, absent contract, has improved since the events in Venezuela? Rich Sumner: The first thing I would say about the assets is we are pleased with the way the operations are going there. When we modeled the acquisition, we used operating rates of around 85% to 90%, and we have definitely achieved over and above that since we have owned the assets. We are really impressed with the teams that we are working with, and we are working collaboratively together to bring our global expertise and work with the expertise at both sites to create value from the asset. We did have some downtime in Natgasoline, and that was partly getting ahead of environmental compliance and taking a proactive outage, and then we did have some minor downtime at the Beaumont plant as well. On the other parts of the integration, we said about $30,000,000 in synergies that we were targeting to realize by the end of 2026. We have realized some of those, but you also have to take on higher costs when you are integrating systems and integrating teams during that phase. We are in the middle of that right now, and we would expect to complete that as we move through 2026 and then have realized the $30,000,000 in synergies as we move into 2027. To your spend question, no, when we did the modeling around the deal, we set assumptions around operating rates and an assumption around CapEx spend on average per year. The plants have been operating above our assumptions on the deal, and both of the assets have come off turnarounds in 2024 and 2025, so the CapEx spend relative to where we had deal assumptions, which would have been an average, is much lower in the early phase of the asset, which is good for us because we are in a deleveraging period. On your question regarding Venezuela, there are announcements about fields being developed there and for import into Trinidad. That is a longer term. When we look at the Dragon field that has recently been announced, the things I would say are: the size of these fields relative to the demand-supply gap suggests more than just the Dragon field needs to be developed; there are other fields also being developed, but that is going to take time and a lot of progress; and ultimately, we will also need to ensure that the commercial agreements and pricing for that gas allow that to make sense long term for methanol. There is a lot to be done there. Our focus is really on the short term right now—how we are operating our plants in Trinidad with a contract renewal ahead of us, before any of this gas could come on. Operator: Your next question comes from the line of Nelson Ng with RBC Capital Markets. Your line is open. Nelson Ng: Great, thanks, and good morning. Quick question on the supply-demand dynamics. Rich, you talked about potential demand destruction. I think you talked about in the past how MTO facilities’ economics are somewhat challenged. Do you expect a large reduction in MTO demand, and from your customer perspective, do you have a sense of how price sensitive they are? And then in terms of your production in New Zealand, it is staying relatively low in 2026. I presume that facility is marginally profitable. What are some of the key factors you look at in terms of making a decision to potentially mothball that last plant? Rich Sumner: Thanks, Nelson. There are a lot of dynamics going on right now. Just in terms of MTO and MTO affordability, to your point, the price in methanol is rising, but so is the price downstream in the olefins market, and that is because it is not just methanol that is constrained, but so is naphtha, and so are all the oil derivatives that come out of the Middle East, which means that pricing has gone up. Olefins pricing has gone up, which makes methanol more affordable. So there are a lot of dynamics at play right now. That is what is uplifting China price, but their pricing in the downstream has gone up too, so the affordability dynamics are changing as well. What is going to happen here, depending on the restriction on supply, is how that supply gets directed into which markets, and then what that does to price. We are watching things really closely. Right now, all energy and energy derivatives are lifting up because the demand-supply gap continues to grow every day that there is disruption in that region and not a lot of product flowing out. We are going to monitor this really closely. Our commitments are to work with our customers on security of supply, and we certainly see that there will be pressure until some relief comes into the market. On New Zealand, it really comes down to gas development and production out of the fields. These are very mature fields, and outside of the existing fields, there is not a lot of new exploration going on. Our concern would be that we have seen the forecast continue to decline. In that industry, you have to see capital going in and development consistently happening for operations to be sustained. Today, we have a profitable operation, but even when there is peak gas available, we are operating one plant at less than full rates, which is not ideal. We are watching things really closely and working with gas suppliers as well as the government to sustain operations, but it is a tough outlook right now. Operator: Your next question comes from the line of Matthew Blair with TPH. Your line is open. Matthew Blair: Great, thanks for taking the question. Could you talk about whether you are truly realizing the benefits of the OCI acquisition that closed in mid-2025? I am just looking at the total company EBITDA in Q3 and Q4. It is roughly flat to Q2, even though global spot methanol prices are also about flat, and I think the OCI acquisition should have provided at least $150,000,000 to $200,000,000 in EBITDA. Is this just a function of Q3 had some accounting headwinds, Q4 sounds like some unplanned outages, but are you getting the benefits of that OCI deal rolling through? And what percent of your North American methanol production is exported, and should we think about applying spot U.S. prices to those export volumes, or is that really still on a contract basis? Rich Sumner: I think maybe the way to answer this is to look at the numbers that we had on the deal. At a $350 methanol price, we said it was slightly over $1 billion in EBITDA. Methanol prices today are not at $350 per tonne. That is $20 lower across an asset base that is 9,000,000 tonnes. So the big thing is price. We are also pre-synergies on the deal, so we have not realized the synergies, and there are some other things on cost structure that are slightly above what our assumptions would have been on the deal. Some of those cost issues are transitionary, and I think we can get back to those numbers, but we certainly need the market to be a little tighter and methanol prices to be at the $350 level to hit the numbers that we disclosed. In today’s environment, we would be looking, at least in the short term, at going above $350. On your exports question, we run our global supply chain. Our assets feed our global supply chain. We give our regional sales percentages, and then you can see where our assets are located. Our product is not assigned to any particular region. It is a flexible supply chain where our main priority is to keep our customers full in the most cost-effective manner. We do have some cross-basin flows from the Atlantic over into Asia Pacific, but mostly the product stays within the Atlantic Basin. Operator: Your next question comes from the line of Laurence Alexander with Jefferies. Your line is open. Laurence Alexander: Good morning. First, can you help parse what the current situation means for the market in terms of the near term? How much of the near-term disruption is shipping being rerouted, and how long do you think it will take for you to start seeing customers shutting capacity in response to a tighter market? Can you help me parse the near-term supply chain adjustment versus how you are thinking about the demand adjustment? And secondly, on your shipping fleet, given that you can reroute tankers more quickly than somebody who is using shipments that might be contracted to ship other products rather than being committed to methanol, will you be seeing a benefit in Q2 or Q3 from that, and can you help size it? Rich Sumner: Thanks, Laurence. When we look at what supply is impacted today, Iran puts into the market around 9 to 10 million tonnes a year, and when you combine Saudi Arabia, Oman, Qatar, Bahrain, and other countries that are going to be impacted, it is probably another 9 to 10 million tonnes. Of a 100 million tonne market, but really a globally internationally traded market of 55 million tonnes, this is a pretty big impact. Of course, Iranian supply goes only into China, so that is a direct impact to the China market, and then the other product services mainly the Asia Pacific region, as well as some into Europe. Those trade flows today have stopped. How long this lasts, how quickly you are going to first work off inventories, and how long people have on inventory will ultimately determine how long people can operate. Our first commitment here is to our contract customers and the security of supply that we provide through our contracts, and that is our number one commitment. We will continue to monitor this as it evolves because it is certainly hitting methanol and a lot of other downstream oil and energy products as this develops. On shipping, our time charters certainly give us that security within our supply chain, and we have very little spot exposure in our fleet. We have seen shipping rates double on a lot of the lanes that we run. It is more about what it does to our competitors versus what it does to us. To the extent that pricing has to go up to help our competitors cover costs to meet security of supply, that is going to be baked into the pricing, which we can benefit from. It is not an immediate, instant hit to our cost structure because ours are fixed in, but we do think that is partially compensated through increasing price that is required to get other product into market. Again, that is another factor that we will be watching, and this demonstrates the value of our Waterfront Shipping company and having dedicated ships to our business. Operator: The last question comes from the line of Steve Hansen with Raymond James. Your line is open. Steve Hansen: Thanks. Just in the event that this conflict does last longer than planned or longer than some people might expect, how do you think about the incremental excess cash flow coming in the door? Is it just going to accelerate the paydown of Term Loan A? You have been at that a fairly rapid pace thus far anyways, but is that how we should think about that excess flow that comes in the door? Rich Sumner: Our first commitment is to our balance sheet right now. We have, as I said in the remarks, $300,000,000 left on the Term Loan A, and that is our first priority for cash. Of course, we are going to monitor things really closely here. Volatility is important. You can have fly-ups, and then you can have reversals depending on how quickly things change. But our first priority and commitment is to the balance sheet post-deal, and right now, this pricing environment is very supportive of that. Steve Hansen: Appreciate your time. Thanks. Rich Sumner: Thanks, Steve. Operator: There are no further questions at this time. I will now turn the call over to Mr. Rich Sumner. Rich Sumner: Thank you for your questions and interest in our company. We hope you will join us in April when we update you on our first quarter results. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Greetings, and welcome to the Mammoth Energy Services, Inc. fourth quarter and full year 2025 earnings conference 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 Mohammed Topiwala with Visara Advisors Investor Relations. Thank you. You may begin. Mohammed Topiwala: Thank you, operator. Good morning, everyone. We appreciate you joining us for Mammoth Energy Services, Inc.’s fourth quarter and full year 2025 earnings conference call. Joining us on the call today are Mark Layton, Chief Financial Officer, and Bernard Lancaster, Chief Operating Officer. We will start today with our prepared remarks and then open it up for questions. I want to remind everyone that some of today’s comments include forward-looking statements. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed herein. Please refer to our latest Securities and Exchange Commission filings for risk factors and caution regarding forward-looking statements. Our comments today also include non-GAAP financial measures. The underlying details and a reconciliation of GAAP to non-GAAP financial measures are included in our fourth quarter earnings press release, which can be found on our website. As a reminder, today’s call is being webcast, and a recorded version will be available on the Investor Relations section of Mammoth Energy Services, Inc.’s website following the conclusion of this call. With that, I will turn the call over to Mark. Mark Layton: Thank you, Mohammed, and good morning, everyone. I will start with a brief review of 2025 as a whole, cover fourth quarter results, and then turn it over to Bernard Lancaster, our Chief Operating Officer, to walk through operational performance by segment. I will then come back to cover the financials and our outlook for 2026, after which we will open the line for questions. With that, let me start with 2025. Over the course of the year, we executed four major transactions that meaningfully reshaped the company. Collectively, these transactions generated approximately $150,000,000 of proceeds, and they reflect two things. First, the value embedded in assets we built and operated well. And second, our willingness to monetize businesses that no longer fit our long-term return objectives. We sold our transmission and distribution and our engineering businesses at valuations we believe were attractive. Those were good businesses, and the prices we achieved reflect that. We think those outcomes are a direct signal of the value that exists inside this company, value that in our view is not reflected in where the stock currently trades. We also exited two businesses that were not meeting our return standards. First, we sold our pressure pumping equipment, which lacked scale, was capital intensive, and increasingly challenged from a cycle and return standpoint. Second, we divested a sand mine that had become a drag on performance and did not warrant continued investment based on logistical challenges with that particular mine and processing plant. Those were the right exits, and we are a leaner, more focused company because of them. At the same time, 2025 was the year we initiated a meaningful expansion of our platform in aviation rentals. We deployed more than $65,000,000 of capital with the goal of creating a more stable, recurring revenue stream with strong cash flow characteristics. Aviation started the year with limited scale, and it ended the year with real operating scale and a clear path to becoming a core earnings contributor as utilization ramps. Put simply, 2025 was a deliberate pivot: exit assets without a clear path to sustainable returns and redeploy capital into areas where we see a better return profile. Now turning to the fourth quarter. Revenue was $9,500,000 compared to $10,900,000 in the third quarter of 2025 and $10,000,000 in the fourth quarter of 2024, a year-over-year decline of approximately 6%. For the full year, revenue was $44,300,000 versus $45,600,000 in 2024, down approximately 3%, which we view as a reasonable outcome given the amount of portfolio change we executed throughout the year. Within the quarter, there were areas that performed well. Rentals, infrastructure, and accommodations all came in ahead of our internal revenue expectations. Aviation revenue continued its upward trajectory relative to continued deployment of aviation assets on lease. Infrastructure showed solid demand across grid- and broadband-related project work. Accommodations continued to improve on both occupancy and cost efficiency. I want to be direct about where we fell short. EBITDA in Q4 was below our expectations and below our standard. This was not a demand problem; it was an execution and cost control issue, and we own it. We have already started taking action. In infrastructure, we made additional management changes within the fiber business to address the performance issues that surfaced during the quarter. Across the rest of the portfolio, we are making targeted investments to address cost structure and improve the conversion of revenue to EBITDA. Bernard will walk through the specifics by segment. With that, I will turn the call over to Bernard Lancaster. Bernard Lancaster: Thanks, Mark. Q4 was a mixed quarter operationally with some pockets of real strength, which we will build upon in 2026. In our rental segment, we continued to build on our aviation business with another full quarter of revenue contribution. We exited the third quarter with approximately 15 aviation assets and added another 11 assets during the fourth quarter. A total of 16 of the 26 aviation assets were on lease at quarter-end, and we expect the remaining assets to go on lease during 2026, subject to maintenance schedules and customer delivery timing. There is still meaningful runway here. Non-aviation rentals showed good top-line momentum; assets on rent increased 15% sequentially to approximately 328 pieces. Profitability was pressured by higher equipment rental costs and insurance premiums. Our non-aviation rentals have lost some of the advantages previously realized from economies of scale. As a result, we have identified additional opportunities to be more strategic with our customer and fleet mix in an effort to reduce overall coverage requirements and expect to work through this process as we move into 2026. Investing in the non-aviation rental business is a priority in 2026, as we see strong demand and a tightening equipment market. Turning to infrastructure. Revenue came in ahead of our expectations, which speaks to the demand environment across network hardening, broadband expansion, and data center-related work. EBITDA, however, was not acceptable. Execution challenges in our fiber operations drove significant cost overruns and margin compression. We have already acted and made top-down management changes within the fiber business and tightened project oversight to improve accountability, schedule discipline, and cost control. These are meaningful changes, and our focus is on restoring consistent execution so the business can convert demand into profitable growth in 2026. Accommodations revenue was up, driven by a 25% increase in occupancy. This segment has been improving quarter after quarter, and the team deserves considerable credit for their consistent execution and excellent safety record. Sand and drilling were challenged in the quarter. In sand, pricing and volume pressure continued to significantly constrain the team’s results. We are focused on positioning ourselves to obtain more consistent volumes while also reducing the lease expense burden from parts of our railcar fleet that are no longer needed. In drilling, fourth quarter 2025 stepped down from a very strong third quarter performance as customer timing worked against our team. One of our priorities in 2026 is to invest back into our drilling business and improve performance through high-grading the asset base, where we see a clear path to better utilization and profitability. We believe that adding motor and MWD capacity to reduce rental expense and upgrading our power sections to improve customer marketability during the first half of the year will lead to material improvement in 2026. Overall, revenue performance in the fourth quarter showed that demand is there in several parts of our portfolio, but our execution and cost management did not meet our expectations. We are not making excuses; we are making changes, and I am confident the actions underway will drive a better trajectory in 2026. Thank you to our employees for the hard work through a demanding quarter. With that, I will hand it back to Mark. Mark Layton: Thanks, Bernard. Let me walk through our segment results for the fourth quarter of 2025, and then I will cover consolidated results, the balance sheet, and our outlook. Rental segment revenue was $3,300,000, up 19% sequentially and 179% year over year, mainly driven by the 23% sequential increase in aviation rentals in line with our commercial expectations. Non-aviation rental revenue increased 18% during the quarter, reflecting improved asset utilization. Our rental segment faced cost overruns driven by insurance costs and equipment rental expense due to equipment needed to support our operations and customer demands, although stronger equipment utilization and favorable aviation rental mix helped offset some of these pressures. The sequential rise in operating costs reduced overall segment profitability. Infrastructure segment revenue was $1,200,000, up 44% sequentially and 231% year over year. Profitability was impacted by fiber execution as Bernard described. Management and oversight changes we have made are focused on ensuring revenue performance flows through to the bottom line going forward. While we expect that there will be an EBITDA overhang on this business through 2026, we are encouraged by the early steps taken by the new leadership team. Accommodations revenue was $2,800,000, up 24% sequentially and up 19% year over year, reflecting higher occupancy. Sand segment revenue was $1,700,000, down 37% sequentially and down 67% year over year. Drilling segment revenue was $500,000, down 80% sequentially and down 38% year over year. Turning to consolidated results. For the fourth quarter of 2025, total revenue was $9,500,000, down 13% sequentially and 6% year over year. For the full year 2025, total revenue was $44,300,000 compared to $45,600,000 in 2024, a year-over-year decline of 3%. Net loss from continuing operations for the fourth quarter was $12,300,000, or $0.26 per diluted share, compared to $0.20 in the fourth quarter of 2024. Adjusted EBITDA from continuing operations was a loss of $6,800,000 in the fourth quarter of 2025 compared to a loss of $6,000,000 in the prior-year period. The underperformance relative to our plan was operationally driven, and we are taking targeted actions across each segment to address it. In our Sand and Drilling segments, cost of services decreased at a significantly lower rate than activity levels, resulting in margin compression driven by reduced utilization and lower fixed cost absorption during the winter slowdown typical in the oil and gas industry. In the Other segment, fully idled operations led to no revenue and only partial cost reductions, creating an unavoidable drag on profitability. SG&A expense during the quarter was $5,700,000, down from $6,900,000 in 2024, a reduction of approximately 17% year over year. On a fully normalized basis, excluding the bad debt expense related to PREPA in 2024, SG&A declined approximately 22%. We have more work to do on the cost structure as we continue to right-size the company for the portfolio we have today, and that remains a priority heading into 2026. Capital expenditures during the quarter were $25,900,000, nearly all directed toward aviation. Eight APUs, two engines, and one small aircraft were acquired during the quarter to bolster capacity and support future contracted deployment. For the full year, aviation accounted for the vast majority of our approximately $70,000,000 in total 2025 CapEx, reflecting our conviction in the return profile and scalability of that platform. Very little capital was allocated to drilling, sand, accommodations, or infrastructure during the year, and we expect that to change meaningfully in 2026 as we high-grade assets, pursue equipment acquisitions that reduce costs, and invest in the operational improvements needed to drive profitability across those segments. At quarter-end, we had $121,600,000 of unrestricted cash, cash equivalents, and marketable securities, and total liquidity of approximately $158,300,000 including our undrawn credit facility. Mammoth Energy Services, Inc. remains debt free. This gives us the flexibility to invest across the portfolio, pursue accretive opportunities, and absorb near-term volatility without any balance sheet pressure. Subsequent to quarter-end, we closed the sale of a property in Ohio that previously supported our pressure pumping operations, generating net proceeds of $4,600,000. The asset was no longer in use following our exit from that business, and converting it to cash was the logical next step. We flagged this because we think it is representative of a broader dynamic. There are assets on our balance sheet, some obvious and some less so, that carry value not reflected in where the stock trades. We will continue to identify and monetize positions where we are not generating an adequate return, and we expect to surface additional value through that process over time. Entering 2026, we are constructive on the path ahead, seeing a path to greater than 50% revenue growth in 2026 versus 2025, primarily driven by two main things: a full year of aviation contribution at higher utilization and improved asset utilization across our oil and gas-exposed businesses. To add some detail regarding our aviation portfolio, we nearly doubled the monthly revenue out of the portfolio from $600,000 in December to $1,000,000 in January. Once fully utilized, we believe this portfolio can generate monthly revenue of approximately $1,600,000 per month. On capital allocation, we expect non-aviation CapEx of approximately $11,000,000 in 2026, a mix of maintenance and targeted growth investments across our oil and gas and infrastructure segments. To be direct, we have underinvested in these businesses for several years, and that has been one of the contributors to the cost and performance issues. The investments are going into an existing asset base to address specific inefficiencies with identifiable paybacks. We expect the returns to be meaningful and relatively quick to materialize. We expect 2026 to be a year of inflection for Mammoth Energy Services, Inc.: revenue growth accelerating and positive EBITDA back within reach. We want to be clear on that last point. The current asset base, operated better and supported by the right level of investment, is capable of delivering positive EBITDA. From that foundation, our sights are set on mid-teens EBITDA margins and positive free cash flow as we move into 2027. The path is clear; the work is to execute against it. The macro backdrop in both areas is favorable. Oil and gas demand fundamentals are solid. Activity in our core basins is steady, and we see specific investment opportunities we are actively evaluating. In aviation, leasing demand in the regional market is holding up, and we have capacity coming available as the fleet continues to ramp. Revenue growth is only part of the equation. The priority in 2026 is ensuring that growth converts into EBITDA and cash flow, and we are working to improve operational execution along with deploying additional capital to help improve returns. On behalf of the entire Mammoth Energy Services, Inc. team, thank you to our employees for their continued commitment and to our shareholders for their support. That concludes our prepared remarks. We will now open for questions. Operator, please open the line for questions. Operator: Thank you. And at this time, we will be conducting our question-and-answer session. Ladies and gentlemen, there are no questions at this time. We will now hand the floor to Mark Layton for closing remarks. Mark Layton: Thank you again for joining us on the call today. 2025 was a year of real change for this company—in the portfolio, in the asset base, and in how we are positioned going forward. Q4 was a reminder that the work is not finished; we take that seriously. The setup heading into 2026 is straightforward. Demand is there, aviation is ramping, and the balance sheet gives us room to invest. The job is to execute. We look forward to updating you next quarter. Operator: Thank you. And with that, we conclude today’s call. All parties may disconnect. Have a good day.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Quanex Building Products Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. To ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. I would now like to hand the conference over to your speaker today, Scott Zuehlke, Senior Vice President, CFO and Treasurer. Thanks for joining the call this morning. Scott Zuehlke: On the call with me today is George Wilson, our Chairman, President and CEO. This conference call will contain forward-looking statements and some discussion of non-GAAP measures. Forward-looking statements and guidance discussed on this call and in our earnings release are based on current expectations. Actual results or events may differ materially from such statements and guidance, and Quanex Building Products Corporation undertakes no obligation to update or revise any forward-looking statement to reflect new information or events. For a more detailed description of our forward-looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release issued yesterday and posted to our website. I will now turn the call over to George for his prepared remarks. George Wilson: Thanks, Scott, and good morning to everyone on the call. Before beginning my commentary on our first quarter results, I would like to take a moment to recognize and thank Susan Davis for her many years of dedicated service as a Board member to Quanex Building Products Corporation and its shareholders. Her commitment, insight, and guidance have been invaluable to our organization. Susan consistently served as a steadfast voice for shareholders during our transformation from a metals company to a pure-play building products company and through three CEO transitions and several acquisitions. Her perspective and presence in the boardroom made a meaningful impact, and she will be greatly missed. On behalf of the board and the entire organization, we wish her all the best in her retirement. Turning now to our fiscal first quarter, market conditions remained soft and company performance was in line with our expectations. As is typical given the seasonality of our business, the first quarter is our most challenging from a volume standpoint. The holidays, coupled with the onset of winter weather, consistently create headwinds in our Q1, and this year was no exception. From a broader perspective, challenges in the global macroeconomic environment and the markets we serve continued to impact results. The most significant challenge continues to be end consumer confidence. While inflationary pressures, labor costs, and certain raw material costs have started to moderate, energy prices have risen. In addition, heightened geopolitical tensions, particularly in recent days, are contributing to a more cautious consumer environment worldwide. Despite the near-term headwinds, the longer-term underlying fundamentals for the residential housing sector remain constructive. In addition, inflation appears to be stabilizing, and there is an increasing expectation of additional rate cuts from the Federal Reserve this year. We continue to believe the structural drivers supporting both new construction and the repair and replacement markets remain intact. At this time, we do not anticipate a deeper downturn in the end markets we serve. In Europe, economic data from third-party sources point to early signs of stabilization and gradual recovery across most countries, which we view as an encouraging development as we look ahead. Now turning to our performance in 2026. In the Hardware Solutions segment, our focus is centered on two key priorities: stabilizing operational performance and strengthening our commercial organization, including the finalization of go-to-market strategies across our international markets. As previously disclosed last year, we identified an operational issue at our hardware facility in Monterrey, Mexico that required some incremental capital to remediate. We are pleased to report that our efforts have advanced to the point where we believe the plant is now stable, and we do not expect to provide updates on this matter going forward. Within the Extruded Solutions segment, our focus has been on advancing new product development initiatives, evaluating adjacent market opportunities, and relaunching and repositioning our Schlagel product lines. We are very encouraged by the progress being made across each of these areas as they are central to achieving our profitable growth objectives. These initiatives are expected to strengthen our competitive positioning and expand our addressable market over time. I anticipate being able to share additional details on new product launches and commercialization milestones later in the year. In the Custom Solutions segment, we continue to advance several initiatives designed to support future growth. More specifically, in our cabinet components operation, the primary focus has been on driving operational efficiencies to successfully integrate recent market share gains and ensure that we scale effectively. Within our access solutions operations, efforts have centered on optimizing operating methods to enhance process consistency, quality, and on-time delivery. And in our mixing and compounding operations, we remain focused on new products and chemistry development. These initiatives are enabling us to expand into adjacent markets that demand highly engineered solutions supported by strong technical expertise and service. Together, these efforts position the Custom Solutions segment to deliver improved performance while building a stronger foundation for sustainable growth. Looking at our corporate functions, our newly created commercial and operational excellence teams are now focused on new market development, the creation of global pricing strategies, logistics and sourcing projects to drive savings, ongoing ERP rationalization, and AI-led process improvements. We believe these efforts will produce the results needed for revenue growth, margin expansion, cash flow generation, and improved return on invested capital. From a capital allocation perspective, we will continue to focus on maintaining a healthy balance sheet through disciplined debt reduction. And looking ahead from a growth standpoint, we will focus on driving organic initiatives while pursuing targeted small bolt-on acquisitions, if available, that complement our existing platforms and capabilities. The outcome of these actions will be a stronger, more flexible balance sheet that is well positioned to support our long-term growth opportunities and strategic objectives. I will now turn the call over to Scott, who will discuss our financial results in more detail. Scott Zuehlke: Thanks, George. On a consolidated basis, we reported net sales of $409,100,000 during the first quarter of 2026, which represents an increase of approximately 2.3% compared to $400,000,000 for the same period of 2025. The increase was mainly due to foreign exchange translation and the pass-through of tariffs. We reported a net loss of $4,100,000, or $0.09 per diluted share, during the three months ended 01/31/2026, compared to a net loss of $14,900,000, or $0.32 per diluted share, during the three months ended 01/31/2025. On an adjusted basis, we reported a net loss of $300,000, or $0.01 per diluted share, during 2026, compared to net income of $9,000,000, or $0.19 per diluted share, during 2025. Adjustments being made to EPS are primarily for transaction and advisory fees, amortization of the step-up for purchase price adjustments on inventory, restructuring charges, amortization expense related to intangible assets, and foreign currency impact. On an adjusted basis, EBITDA for the quarter was $27,400,000, compared to $38,500,000 during the same period of last year. The decrease in adjusted earnings for 2026 compared to 2025 was mainly due to reduced operating leverage from lower volumes related to ongoing macroeconomic uncertainty coupled with low consumer confidence and higher but temporary operational costs related to our hardware plant in Monterrey, Mexico. Now for results by operating segment. We generated net sales of $189,100,000 in our Hardware Solutions segment for 2026, an increase of 2.4% compared to $184,700,000 in 2025. We estimate that volumes were down 3.6%, pricing was up 0.5%, the tariff impact was about 3.2%, and foreign exchange translation was a benefit of about 2.3%. Adjusted EBITDA was $4,500,000 in this segment for the first quarter, compared to $8,200,000 in the same period of last year, mainly due to decreased operating leverage related to lower volume, general inflation, and approximately $3,000,000 of incremental costs related to our hardware plant in Monterrey, Mexico. As George mentioned, we believe this plant is now stable. Our Extruded Solutions segment generated revenue of $139,000,000 in the first quarter, essentially flat compared to $139,600,000 in 2025. We estimate that volumes were down 2.6% year over year in this segment for the quarter, with pricing up slightly by 0.3%, and a positive foreign exchange translation impact of about 2.4%. Adjusted EBITDA declined to $20,900,000 in this segment for the quarter, versus $24,000,000 during the same period of last year, mainly due to decreased operating leverage related to lower volumes and general inflationary pressure. We reported net sales of $89,100,000 in our Custom Solutions segment during the quarter, which represented growth of 4.8% compared to prior year. We estimate that volumes were up 2.4%, pricing decreased by 2% in this segment for the quarter, and foreign exchange translation coupled with the pass-through of tariffs was a benefit of approximately 0.5%. Adjusted EBITDA declined to $4,600,000 from $6,300,000 in this segment for the quarter, mostly due to general inflation and higher SG&A. Moving on to the cash flow and the balance sheet, cash used by operating activities was $20,200,000 for 2026, which compares to $12,500,000 for 2025. Free cash flow was negative $31,500,000 in 2026 compared to negative $24,100,000 in 2025. Keep in mind that the first quarter of our fiscal year is usually the low watermark for the year due to the seasonality of our business. On a related note, we have historically been a net borrower in the first quarter of our fiscal year, but with the addition of Tyman and their longer cash conversion cycle, we now expect to be a net borrower during the first half of each fiscal year, with the majority of our cash flow generated in the second half. Our liquidity was $331,600,000 as of 01/31/2026, consisting of $62,300,000 in cash on hand plus availability under our senior secured revolving credit facility due 2029, less letters of credit outstanding. As of 01/31/2026, our leverage ratio of net debt to last twelve months adjusted EBITDA was 2.8 times. We do expect our leverage ratio to increase slightly in Q2, but we also believe we will exit 2026 with a net leverage ratio closer to 2.0 times as we generate cash and repay debt in the second half. As George mentioned in our earnings release, our long-term view continues to be favorable as the underlying fundamentals for the residential housing market remain positive. While we entered fiscal 2026 with a cautious outlook due to the ongoing macroeconomic challenges, we remain somewhat cautious in light of the geopolitical events now occurring. We are optimistic that demand for our products will improve as consumer confidence is restored over time. We are monitoring the situation in the Middle East, which could have an impact on customer demand, raw materials pricing, and shipping rates for our international hardware business, but as of now, we are comfortable with providing guidance for fiscal 2026. During our last earnings call in December, we mentioned that fiscal 2026 could be somewhat flat compared to fiscal 2025, with puts and takes, but that the first half of 2026 may be more challenged than 2025, implying a somewhat improved second half year over year. Our current views remain consistent with that message. Overall, on a consolidated basis for fiscal 2026, we estimate that we will generate net sales of $1,840,000,000 to $1,870,000,000, which we expect will yield approximately $240,000,000 to $245,000,000 in adjusted EBITDA. In addition, the following modeling assumptions should be reasonable for the full year 2026: gross margin of 28% to 28.5%; SG&A of $295,000,000 to $300,000,000, which reflects bonus accrual at target; D&A of $105,000,000 to $110,000,000; adjusted D&A, excluding intangible amortization, of $65,000,000 to $70,000,000, which should be used to calculate adjusted EPS; interest expense of $50,000,000; a tax rate of about 24%; CapEx of $70,000,000 to $75,000,000; and free cash flow of approximately $100,000,000. As always, we will stay focused throughout the year on the things that we can control, with an emphasis on generating cash to continue paying down debt. Please use the following cadence for fiscal 2026 versus fiscal 2025: on a consolidated basis, we expect revenue to be up 12% to 14% in 2026 compared to 2025. Adjusted EBITDA margin, again on a consolidated basis, is expected to be up 500 to 550 basis points in 2026 compared to 2025. Operator, we are now ready to take questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. George Wilson: One moment for questions. Operator: And our first question comes from Kevin Gainey with Thompson Davis and Company. You may proceed. Kevin Gainey: Hey, George, Scott. Good morning. It is Kevin. Morning. For Adam. Yep. Maybe to start, if you could break out how the Extruded Solutions segment did. Margins in that segment were much higher than what we expected. Maybe you can talk about what drove the margin improvement there? Scott Zuehlke: Well, in general, I would say that the Extruded Solutions segment, the products that are included in that segment, have historically been our most profitable products. So you have things like the IG spacer, you have our vinyl profile business in the UK, which is called Liniar. Those have historically been very profitable businesses for us and continue to be. George Wilson: I think you would see the operating model within that segment too tends to revolve around larger, more levered plants. So, you know, fewer sites, tends to be less fixed cost, which drives margin in that product line. Again, I think part of the reasoning for the resegmenting too is to give our investor base a little more clear look into each of these different segments and what product lines are actually contributing what. So, you know, we know that this is new, a new perspective for you and others, but this has been very consistent for us throughout our whole period of having these products. Kevin Gainey: Sounds good. Appreciate the color on that. And then maybe if you could talk on the Custom Solutions segment as well and maybe what drove the strongest year-over-year revenue growth in that. George Wilson: You know, one of the bright spots with tariffs and just some of the macroeconomic environment has been in our cabinet components and our wood components business. We have been able to secure some new market share as people have insourced product from overseas, consolidated their facilities, and have outsourced that product, and our team has done a very good job of being able to show the value that we can create for our base in providing a wide array of products just in time as they need it, minimizing their working capital needs, and allowing us to do what we do well. So that really drove some revenue growth in what has really been a soft market, but that has been a bright spot for us on revenue. And our focus in that segment now is actually we are kind of in hiring mode in some of those plants to be able to make sure that we have the capacity and the ability to satisfy demand once the seasonal uptick does occur. But we have been very happy with the performance and what our team is doing there to show our value to our customers. Kevin Gainey: That sounds good. And then maybe, I know recently the builder show was done recently. Is there any takeaways that you could have from that? What maybe the sentiment was or optimism going into the year? George Wilson: You know, the show was well attended, which I think everyone would agree on. I think that there is guarded optimism. You know, there are a lot of moving pieces in everything in the world right now. You have now the geopolitical issues in Iran, and what is going on there, the potential push on inflation. You have the political climate in the US. Just a lot of moving pieces. So I think what we have heard is that, without a fault, everyone believes in the long-term view and the optimism that exists in the housing market, like we mentioned in this earnings call, that the indicators are there that housing is in demand, and there is pent-up demand that will be released at some point. It is just, I think, the feel of the show is when is that going to happen and what needs to make it happen to give the end consumer some confidence, whether it is a relief on some energy pricing, whether it is Fed movement, whether it is a couple more data points on inflation, or all of the above. So long answer to what should have been: guarded optimism. Kevin Gainey: Sounds good, George. Thank you, guys. Thanks. I will turn it over. Thank you. Operator: Our next question comes from Julio Romero with Sidoti and Company. You may proceed. Julio Romero: Good morning, George. Good morning. Your guidance implies the remaining nine months of the year is going to see flattish sales year over year but see some year-over-year margin expansion, about 70 to 80 basis points across the remaining nine months. Based on that Q2 cadence you stated earlier, that definitely implies it will be back-half weighted. If you could just talk about the cadence of that margin expansion between the third and fourth quarters, the expected? And then secondly, maybe just where across the portfolio you would see that margin lift? Scott Zuehlke: Good question. I think the main driver for the second half of 2026 versus the second half of 2025, if you recall, the issues we had in Monterrey impacted EBITDA by, I think, $13,000,000 in the second half of last year. We consider that plant stable; we should not see that impact in the second half of this year. So that alone is going to drive most of the margin expansion. George Wilson: That is obviously in our Hardware segment. Julio Romero: Yep. Good reminder, and congrats on completing that Monterrey issue. My second question is just on trying to better understand how much longer Tyman legacy Tyman extends the cash conversion cycle versus legacy Quanex, and then related to that, you mentioned capital allocation remains debt repurchase remains your key priority there. Just how are you thinking about debt pay down in the back half? Thank you. Scott Zuehlke: From a cash conversion standpoint, historically, Quanex was 45 to 60 days cash conversion. Tyman, legacy Tyman, was double that. So while we have made some progress in getting Tyman more towards the made-to-order versus a made-to-stock, that takes time. And there are certain pieces of that business that will never move to a made-to-order because it is more distribution. But I think what you will see from us really over the next probably two to three years is a significant improvement in getting that cash conversion cycle for the legacy Tyman business down, which will obviously impact cash flow positively. George Wilson: There are obviously multiple projects that we have identified to make that change, and I feel very comfortable where we are at in that progress, and more to come. But I think the softness in the market has allowed us to focus on the things that we need to do integration-wise and that we knew we needed to do, and I am very pleased with where we are at at that point. Scott Zuehlke: And then as far as the debt pay down, clearly it is our priority, especially given the macro backdrop here. We do feel like there is shareholder value creation if we can get that leverage or net ratio down closer to 2 and even below 2 over the next couple years for sure. So that is our focus. George Wilson: Makes sense. Julio Romero: Thanks very much. Operator: And as a reminder, to ask a— Our next question comes from Steven Ramsey with Thompson Research Group. You may proceed. Steven Ramsey: Hey. Good morning, everyone, and thanks for taking my questions. I wanted to look at spacers within the Extruded segment. Solid double-digit growth in the quarter and a good product category for quite some time. A couple of questions there. What were the drivers of growth within the quarter? And do you think spacers is a growth product in FY 2026? And then can you talk about the margin profile of that product relative to the segment in 2026? George Wilson: I will split my answers. I think the driver in the growth of all spacer markets, but especially our product lines that Quanex Building Products Corporation offers, is definitely being driven by the demand, and some of it code-related, on the performance, the thermal performance of windows. So as energy costs go up, you are able to justify the replacement of windows with higher-performing thermal windows, whether it is keeping warm air in the northern climates or better keeping the cold air in where we air condition. As we see migration from single-pane to double-pane windows, double-pane to triple-pane in some areas, that is driving an increase in volume demand, which lends itself well. And as codes and standards change to demand higher-performing, thermally performing windows, that falls right in line with the products that we offer at Quanex Building Products Corporation. So we do believe it has the potential to be a growth driver in 2026 and, to be honest, further years as that continues to take hold. Consumers are changing, energy costs are becoming a bigger part of the world, and these types of products are going to be demanded more, and we feel very good about that as a leading product in our portfolio. In terms of the breakout of profitability within the segment or even getting into any more granularity, we have not and cannot, for obvious reasons, provide any breakout there. We just have not provided that publicly. Steven Ramsey: Okay. Fair enough, and good color. You have talked about bundling being an opportunity for you over time with the Tyman integration going to market. In a tough backdrop, can you talk about if this is happening in any product sets or segments right now, or do you need a better demand backdrop to really see bundling become an opportunity? George Wilson: It is a great question. I think we are seeing it. We have started the development of that. It has been slow to take hold for two reasons. One is the macro backdrop. Obviously, volume helps any sort of bundling or incentive package regardless of what you are doing. The second one is, it is really hard to go to your customers and try to offer advantages of bundling when you have a product line that was not performing because of some operational issues. It is just a core fundamental for us that I have to have my house in order before I can offer those types of incentives as a valuable supplier. So I am not going to insult my customer base by trying to push incentives when I need to better improve operational performance. We are at that point. I feel really good at what we have done to protect our customers in something that was unforeseen. There will be a time and a place in the near future where we can have those conversations and give our customers opportunity to share in the benefits of what we provide. We were not there a year ago, and we are just getting to that point now. Steven Ramsey: Okay. That is helpful to hear. Last one for me. Cabinet wood components being a good story right now, and this was a segment that I pondered would potentially be a strategic value to someone else and maybe not core to Quanex Building Products Corporation. With the recent success, does this change the potential of this segment staying within the company and being a profit driver in the next couple of years? George Wilson: We are happy with what the segment is doing. We operate under a philosophy that, as a public company, I think everyone is this way. We are going to drive our product lines and our segments to perform the best they can to create as much shareholder value as we can, whether they are in the portfolio. The reality is every segment is potentially for sale every day. So you never say never, but we are extremely happy with what that group has done. I think that they are driving value for us, and I am pleased with their performance. I cannot give you any more of a clear answer because everything every day is always a negotiation. Steven Ramsey: Sure. Thanks for the color. Operator: I would now like to turn the call back over to George Wilson for any closing remarks. George Wilson: Thanks for joining the call today, and we look forward to providing our update in June. Thank you very much. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Greetings. Welcome to Nutex Health's Fourth Quarter and Full Year 2025 10-K Earnings Call. [Operator Instructions] Please note this conference is being recorded. At this time, I'll now turn the conference over to Jennifer Rodriguez, Investor Relations Manager. Thank you, Jennifer. You may now begin. Jennifer Rodriguez: Good morning, everyone, and welcome to Nutex Health, Inc. Fourth Quarter and Full Year 2025 Earnings Call. My name is Jennifer Rodriguez, and I'm happy to serve as your moderator today. We're truly grateful for your participation and your continued interest in our company as we share the highlights of another exceptional year. Please note that this call is being recorded for future reference. Joining me this morning are some of the key leaders driving Nutex Health Forward, our Chairman and CEO, Dr. Tom Vo; our Chief Financial Officer, Jon Bates; our President, Dr. Warren Hosseinion; and our Chief Operating Officer, Wes Bamburg. Together, they'll provide prepared remarks to give you a comprehensive view of our performance, strategies and vision, after which we'll open the floor for your questions. Before I turn this over to Dr. Vo, I'd like to take a moment to address a few important points. Today's discussion may include forward-looking statements, which reflect management's current expectations about our future performance. These statements are based on what we know today, but they are subject to risks, uncertainties and other factors that could cause our actual results to differ from mobile share. For a deeper dive into these forward-looking statements and the factors that might influence them, I encourage you to review the press release and Form 10-K filed earlier this week as well as our various SEC filings. You'll find all the details there. Additionally, we may reference non-GAAP financial measures such as adjusted EBITDA during the call. For those interested in how these metrics reconcile to GAAP standards. Please refer to the press release and Form 10-K, where we've included that information. With those housekeeping items out of the way, it's my pleasure to hand the call over to Dr. Tom Vo, our Founder and Chief Executive Officer. Dr. Vo, the floor is yours. Thomas Vo: Thank you, Jennifer, and good morning, everyone. Thank you for joining us today. It's a pleasure to meet with you as we review Nutex Health's fourth quarter and full year 2025 results. This past year has been one of exceptional growth, operational discipline and continued innovation as we advance our mission of delivering high-quality, concierge level accessible health care to the communities we serve. Our organization remains deeply committed to a patient-first culture and I'm really excited to walk you through the accomplishments, strategies and opportunities that shape our year. First, let's discuss the full year 2025 financial and operational performance. Total revenue reached $875.3 million, an 82% increase from $479.9 million in 2024. Net income increased to $7.8 million to $52.1 million during '24. Note that this includes a noncash expense of $117 million for stock-based compensation for 2025 in the form of a onetime obligations of earnout shares issuable to qualifying under construction and ramping hospitals. This expense would decrease drastically in future years as most of the under construction facilities from 2022 have already vested. Adjusted EBITDA, which includes the add-back of the stock-based compensation rose $25.6 million, up 152.6% from $102.8 million in the prior year. On the volume side, our hospitals recorded a 188,300 total patient visits up 11.8% from 168,400 in 2024. 1.3% of that growth came from mature facilities, demonstrating their resilience and continued relevance in their markets. On the balance sheet, even with 3 new hospitals opening in 2025 and early 2026, the current portion of long-term debt decreased slightly to $14.4 million to $13.2 million. Net long-term debt increased from $22.5 million to $29.2 million, still very low relative to our revenue and expansion pace. Net cash from operating activities of $248.1 million for the 12 months ended December 25, 2025. And cash on hand grew dramatically to $186 million as of 12/31 2025, up from $41 million a year earlier. Next, I'd like to touch on the fourth quarter financial [indiscernible] During the fourth quarter, we did recognize a onetime $55 million revenue reduction related to the cumulative true-up of 18, 950 arbitration claims that were deemed ineligible by our traders under the IDR process. The periods involved for July 2024, and we first started through an arbitration and IDR through the end of December 2025. 18-month reconciliation resulted from a mid-2025 CMS directive instruction IDRs to resolve and clear the existing backlog of disputes. Fortunately, this process was very slow. On the inefficient side, and involve a lot other providers, including itself. This catch-up period reduced the number of active disputes compared to the same period last year and consequently lower reported net revenue for the quarter. It's important to emphasize that this was a onetime reconciliation driven by CMS mandate. So to put this number into perspective, approximately 18,950 cars deemed ineligible equate to an average of roughly 1,050 cards per month. And according to Halo MD, our IDR consultant, an ineligible rate for Nutex Health is roughly 8%, all the charts that we submit. This is significantly better than the national average of approximately 19%, indicating that our processes are performing well above industry norms. Additionally, Halo MD is continuing to challenge the ineligibility determinations for a portion of these charts. Should any of these disputes be resolved in our favor associated revenues will be added to future monthly and quarterly financial results. The good news, though, is that excluding the impact of this adjustment, our Q4 2025 adjusted revenue would be approximately $206.7 million, just consistent and in line with revenue levels from previous quarters However, even with a slight decrease in accrual revenue, operating cash flow remained very strong. Net cash provided by operating activities was $70.4 million in the fourth quarter compared to only $100,000 in the same quarter last year, demonstrating that cash collection continues to perform very well. We encourage investors seeking a deeper financial understanding of our business to focus on the full period from 2024 and through December 2026. Quarterly results can appear lumpy to the natural rate constraints of accrual-based accounting, which can shift the timing of revenue and expense recognition. Jon will provide additional insights into these dynamics later in the presentation. In terms of arbitration and IDR process performance, we continue to perform well within the IDR framework. It is now a normal part of our revenue cycle process. 50% to 60% of our claims are submitted through the IDR process. When a determination is issued eval in over 85% of those cases, demonstrating that insurers are still underpaying in 85% of the cases that we sent to arbitration. We are also currently realizing an average cash collection rate of more than 85% and our legal determination wins. We are actively monitoring the forthcoming IDR final rules from the office of management and budget and other federal agencies. At this time, we do not expect any material changes to the current process and remain optimistic that the final rule will further strengthen and streamline the IDR process with additional end dates for insurers to comply. An example of a more efficient IDR system would be avoidance such as the 18-month true-up that we just experienced for the fourth quarter in the future. On the regulatory and legislative outlook front, we are closely watching the progress of the No Surprises Act -- I'm sorry, no Surprises Enforcement Act, also known as the Murphy Act. It is designated as HR 4710 in the house and S-2420 in the Senate. These mills are currently under review in the following committees in the house, the energy and on commerce, education and workforce and ways and means. And in the Senate, it is currently being reviewed in the health, education, labor and pension it otherwise known as helped. Our 2025 financial and operational results demonstrate the strength of our model, the scalability of our platform and our disability focused on 3 core metrics: ER visit growth inpatient volume growth and revenue per patient. Many of you know, Nutex Health has operated since 2010. More than a decade as a private company, our micro hospital model built on concierge level, high-accessible care, deliver consistent and respectable profitability. After going public in 2022, we faced challenges, primarily driven by the faulty implementation of the No Surprises Act or the NSA which materially reduced reimbursement across our industry. The authors of No Surprises Act are credit anticipated that insurers might use the payment process to underpay smaller providers like us. That reason, Congress included the independent dispute resolution IDR process as an essential safeguard, giving providers a meaningful avenue challenge unfair reimbursement. Now this mechanism insurers would have the unchecked ability to dictate payments unilaterally, effectively determining winners and losers in the marketplace and undermining fair competition resulting imbalance with Stifel free trade, in small operators and distort the health care ecosystem. In many ways, this is truly a David and Goliath [indiscernible]. As we enter the next phase for our growth, we are fortunate to have strong liquidity and adequate cash on hand. This financial position allows us to remain disciplined and highly return focused. Our capital allocation strategy continues to center on 4 priority areas: number one, share repurchases. Share repurchases activity underscore our conviction in the intrinsic value of new Excel, launched a $25 million repurchase program in late 2025 and completed it in early 2026. Earlier, we authorized an additional $25 million for further repurchases. These programs reflect our commitment to delivering shareholder value, prudent accretive capital deployment. For two, growth at existing hospitals, our existing micro hospital footprint remains a powerful engine for organic growth. We are heavily investing in both the ER and inpatient volume initiatives to expand capacity on service lines and enhanced revenue quality. In terms of ER volume initiative, we are strengthening community engagement, expanding referral pathways and diversifying service offerings. Targeted investment including services such as medical detach programs favor health services, outpatient imaging or patient procedures, personal injury services. These initiatives are in addition to our normal ER volume and will help expand patient access and improve the overall revenue mix. On the inpatient volume initiative, and to capture more high acuity cases and reduce unnecessary transfers, we are enhancing specialized equipment. We are very excited because with advances such as AI, medical device, biopharma, there are more cases that we could treat at our micro hospital than ever before. We have also expanded inpatient nursing and ancillary capacity. And to top it off, we are adding a tele specialist, I'm sorry, tell a hospitalist and tell a specialist coverage for all of our hospitals in the coming year. These upgrades allow us to manage high-acuity patients within our own facilities, increased retention and strengthening contribution markets. Wes, our COO, will discuss more on this operational part later. Early expansion of our IPA and published and Health division. Our independent physician Association currently operating in Los Angeles, Phoenix, Houston and South Florida continue to be a strategic advantage, strengthen our relationship with PV physicians enhanced care coordination and support by directional referrals and to expand our IP footprint into markets surrounding our hospitals, enabling more efficient care pathways, stronger physician alignment and by direction referrals between IPAs and the Nutex Hospital. This expansion also position us more effectively within the risk-based and value-based reimbursement models and our goal will be to operate as many IPAs around our existing hospitals as possible. Warren will discuss this more in detail when he speaks later. Lastly, real estate development strategy. We are evaluating opportunities to develop micro hospitals using a capital-efficient real estate model. Will we develop and own the facilities during the stabilization period build both operational and real estate value and possibly eventually execute a sale-leaseback transaction to recycle capital into future. This approach preserves strategic control of early-stage operations while enabling accelerated expansion without over leveraging the balance sheet. Today, Nutex Health operates 27 hospital facilities across 12 states. In 2025 and early 2026, we opened new hospitals in Sherman, Texas, St. Louis, Missouri and Amble, Texas. We are actively building a pipeline of new hospitals for later in 2026, 2027, 2028, starting in 2029. Each facility is designed around the same principles. [indiscernible] level care little to no emergency wait times and tailored inpatient and outpatient services that meet the needs of the local community and remains very strong. Physicians and community leaders across the country continue to approach us weekly using new facilities in their markets. We're trying to keep up with demand. In addition, we are in ongoing communication with payers and continually reviewing their in-network contracts to evaluate whether the terms are offered are fair and reason. Good news is that we are now receiving better offers than we have in the past. In closing, it has taken approximately 2.5 years to recalibrate our operational and reimbursement strategies. I am very pleased to share that in 2025, return to the level of profitability that our model has historically produced. Over the years, we have operated 4 different administrations, navigated the complexities of the Affordable Care Act drive through COVID, overcame the challenges of the No Surprises Act and are now actively optimizing our approaches to the IDR process. While no one can predict the future, our longevity and experience across multiple health care cycle give me confidence that Nutex can continue to pivot effectively against any geopolitical or regulatory headwinds. We are very excited while the trajectory of Nutex Health as we enter 2026. We are carrying significant momentum and we believe we are very well positioned to continue our disciplined, profitable growth. So with that, I'll turn it over to Jon Bates, our CFO, walk through the financials in more detail. Jon? Jon Bates: Thanks, Tom. Appreciate that, and good morning, everyone. I'm very excited to break down the financials for Nutex Health's fourth quarter and full year 2025, a year where we didn't just grow, but we continue to improve our business model while delivering on a record year for the company. Tom has given you some of the big picture, and I will zoom in a little more detail, beginning with the full year of 2025 results, and then we'll discuss the fourth quarter of '25 as well. So starting with the 12 months ended December 31, '25 compared to the same period in 2024. I wanted to start by highlighting the fact that the company worked very hard in 2025 to continue to improve our overall controls environment and that effort enabled us to remediate all previously disclosed material weaknesses in internal controls over financial reporting in 2025. It's a huge accomplishment that shows our commitment to having a solid control environment that can be relied upon by our shareholder base and the investment community. Now on to some of the numbers. Total revenue for the full year of 2025, as Tom indicated earlier, increased by 82.4% or $39.5 million, up to $875.3 million versus $479.9 million for the full year of 24% with the hospital division revenue being $844.2 million in 2025. Of the $844.2 million in the hospital revenue $7.8 million or approximately 63% related to a combination of both higher acuity claims as well as success through the IDR process. For some perspective, we reduced this 7% from the third quarter of 2025 when we were closer to 70%. Regarding arbitration-related revenue, we have submitted between 50% to 60% of our claims through the RDR process, which came down approximately 10% from the third quarter as well. And when an award determination is made, we currently prevail in over 85% of those determinations, and we currently have an average collection rate of over 85% of those determination wins. From an arbitration cost perspective, it's approximately about 26% of that arbitration related revenue. And of the total revenue increase mature hospitals increased their revenue by 73.4% for the year of 25% versus the same period in '24. Hospital visits, as Tom indicated earlier, increased by 11.8% or 19,891 visits to 188,279 visits in 2025, and versus 168,388 visits in the same period in '24, with those mature hospitals growing at 1.3% over the same period. Additionally, the Population Health division had a slight revenue growth of 0.7% to $31 million for the year of 2025 versus 30.9% for the same period in '24. So in addition to the revenue and visit growth note and above, facility and corporate costs also showed improvement for the year of '25 relative to '24. Total facility level operating costs and expenses increased $147.3 million during the period but only represented 49.2% or $431 million of total revenues for 2025 versus 59.1% or $283.7 million for the same period in so effective decrease of just under 10%. Of the $147 million increase for the period, $138.3 million related to the arbitration costs for the arbitration -- additional arbitrational revenue booked during this period. Total stock compensation expense for the 12 months ended December 31, 2025, was $117 million compared to only $16.6 million in the same period of $24 million, which is $100.4 million increase in '25 and just so you know, almost all of this increase was related to the 3 hospitals that completed their earn-out periods during the third quarter of '25. Now we do have 3 more facilities currently in the earn-out period with one of them completing the earn-out period in the first quarter of '26 in the remaining 2 completing their periods earn-out periods in the fourth quarter of '26. The gross profit for the 12 months in 2025, was $444.3 million or 50.8% of total revenue as compared to $196.3 million or only 40.9% of total revenue in the same period in again, just under 10% increase for the 12-month period ended December '24 versus 2025. From a corporate and other cost perspective, general and administrative expenses as a percentage of total revenue for the 12 months ended '25 decreased to 5.9% or $51.7 million from 8.7% or $41.9 million for the same period in 2024. Operating income for the 12 months ended December 2025 was $275.6 million compared to $130.7 million for the 12 months ended 2024, which is an increase of $144.9 million. Net income attributable to new tax was $70.8 million for 2025 compared to net income of $52.1 million for the 2024 period, an increase of $18.7 million. Adjusted EBITDA attributable to Nutex increased $156.8 million or 152.6% from $102.8 million in 2024 and to $259.6 million in 2025. So now let's move on to discuss more the fourth quarter of December 2025 and compare those results to the fourth quarter in December 31, 2024. And Tom indicated some of this on his earlier discussion. But for the fourth quarter of 2025, our total revenue did technically decrease by 41.1% or $105.9 million to $151.7 million versus $257.6 million for the fourth quarter of 2024. With a little more context, the company attributes $105 million decrease primarily to 2 items that we disclosed in our press release. Number one, was the onetime $55 million cumulative true-up of 8,950 arbitration claims that arbitrator is determined to be ineligible for the in the fourth quarter of 2025 under the independent dispute resolution process. These claims were submitted for the period from July '24 through all through December '25. So cumulatively, we believe the onetime cumulative arbitration true-up resulted from a mid-2025 CMS directed instructing the certified independent dispute resolution entities to address and clear any backlog they had of their disputes. The associated kit up reduced the number of active disputes compared to the same period in '24 and contributed to lower net revenue for the quarter. Now we believe the backlog has been materially addressed, but we'll continue to watch the process very closely. The second item was arbitration revenues of $69 million, and this is for the previous year 2024, that related to submissions that were in that related to the third quarter of 2024 that were recorded in Avenue in the fourth quarter of 2024. As you probably recall, prior to September 30 of 2024, the company did not have any sufficient historical data to determine the likelihood of a prevailing determination of potential award amount or the collectibility of such awards. But after considering the impact of the adjustments above, including that $69 million, our 2025 4th quarter revenue would be $206.7 million and the 2024 4th quarter revenue would be $188.6 million, which would result in a revenue increase of $18.1 million period-to-period, primarily driven by higher patient business in the fourth quarter of 2025 compared to the fourth quarter of 2024. So I just want to take a step back on how we accrue revenue for the company for those that maybe aren't as familiar with it, which hopefully will explain some of this situation and its impact as we move forward. So if you look at it, as the company has been predominantly out of network for over a decade with the billing process. Therefore, we have to negotiate most of the claims that are sent to payers based on what we believe we should be paid using market industry payment data. In our accrual process, there were 3 key items that we use in this process, and it is all based upon the historical results we have regarding payments by 3 items, payments by each specific payer, by each specific physical location of the visit and thirdly, by the specific acuity level of that visit. And the averages of those results over the recent past, let's say, 1 to 2 years of activity. And then we take those averages at that specific detail and then they're attached to a current period visit with similar characteristics of those averages, which then sets our accrual of realizable AR and revenue in the month of the visit. And then as payments come in, we adjust the accruals up and down, up or down based upon the results with the net impact being recorded to revenue in the period when the payment is ultimately received. So these numbers and the history we're talking about here are continually updated as each payment is made and our updated averages will affect the new current period visits as we move forward. And this is exactly how we've been doing it. since inception. So in the case of the arbitration activity, we added a layer to our standard revenue accrual process that is very similar to our baseline process. But because the process has been new to us since we began the process in July of 2024, we have continued to build this additional layer as we have more and more data. And in the case of the ineligible claim write-down or claims write-down in the fourth quarter of 2025, there had been a nominal number of items like that, small, nominal that we had seen and accounted for in our normal accruals up through the third quarter of 2025. But certainly, there was nothing material in there. And so we were not aware of any material indications in this area that ultimately led to the onetime true-up of outstanding disputes in the fourth quarter of 2025 that the RDR had in backlog until the fourth quarter of 2025. So that's the first time we understood what was going on. And so we're continuing to work to better understand the overall situation as it is so recent to that process. And now we believe we have a much better understanding of this and we'll monitor it as we go forward. Now as we have gotten this recent information and continue to fine-tune our accrual process, we believe that this situation did resolve a majority of their backlog of claims that would be deemed ultimately ineligible, but anticipate this will continue to be a part of the process as we move forward, but just at a much more nominal consistent rate. Now the industry data that we have seen indicates that ineligible claims within the entire IDR process have been closer to 19% of submissions. While our current data that we have through now, Nutex shows were cumulatively showing less than an 8% ineligible claims submission rate since we started the process in July of 2025. So we realize this is part of the overall arbitration process now, and we haven't included within the way we do our accrual process as we move forward. Now we'll finish with the rest of the fourth quarter 2025 discussion. For hospital division visits, we saw an increase during the quarter of 6.1% or 2,761 visits to 48,205 visits in the fourth quarter of 2025 versus 45,444 in the same period of 24 with mature hospitals slightly decreasing 0.3% in the fourth quarter of '25 compared to 2024. Additionally, the Population Health division revenue increased by $0.1 million or 1% to $8 million in the fourth quarter of 2025 from $7.9 million in the similar period of '24. Now we discussed the growth in the hospital revenue visits that we've seen in the fourth quarter. And now let's discuss the overall facility and corporate costs. Total facility level operating costs and expenses increased $10.5 million for the fourth quarter of '25 versus the fourth quarter of '24 to $105 million from $116 million for the same period in 2024. Total stock-based compensation for the 3 months ended December 31, 2025, was a credit of $2.6 million compared to an expense of $14.6 million for the same period in '24. Operating income for the fourth quarter of 2025 was $30.9 million compared to $114 million in the fourth quarter of '24, representing a decrease of $83.4 million quarter-to-quarter. Net income attributable to new tax was $11.8 million in the fourth quarter of '25. The comparable net income attributable to new tax was $61.6 million for the fourth quarter of in showing a $49.6 million decrease quarter-to-quarter. Adjusted EBITDA attributable to Nutex decreased $70.1 million from $86.7 million in the fourth quarter of $24 million to $16.6 million in the fourth quarter of '25. But as discussed above, we believe that the fourth quarter numbers aren't necessarily representative of a typical quarter because of the effect of the onetime cumulative arbitration true-up discussed previously. We believe that looking at the year-to-date numbers represents a much better picture of the company's strength as we continue to grow in visits and volume, and our cash flow continues to be extremely strong, with over $207 million in a hospital receipts collected in the fourth quarter of 2025 alone. Looking at our balance sheet, it remains very strong with cash and cash equivalents at December 31 of '25 at $185.6 million. It's up $144.9 million or 356.6% from just $40 million -- $40.6 million at the end of December '24. The other size will increase at the end of 2025 is the accounts receivable balance, which was a $319.4 million compared to $232.4 million at the end of '24 and our consistent strong collections throughout the year provides us continued confidence in this increase. Regarding cash flow. Net cash from operating activities increased by $225 million for the 12 months ended December of 2025 to $248.1 million as compared to only $23.2 million for the same period in 2024. On the liability side, as Tom indicated, our total bank debt increased by $2.1 million to $43.5 million at December '25 from $41.4 million at December of 2024, with the majority of this debt really just relating to equipment loans at our hospitals for such items as MRIs, x-rays, ultrasound and CTs, the main equipment that runs our facilities. So this is a very slight increase in 2024 with the overall balance being a relatively small amount of true operating debt for a company of our size, especially with opening 2 new facilities in 2025 and with another one in the early part of 2026. With all this said, our balance sheet remains very solid, and we have provided our company the flexibility to execute on our growth plan in 2026 and beyond. Now on to Warren Hosseinion, our President for a population health update. Warren? Warren Hosseinion: Thank you, Jon, and good morning, everyone. It's great to be with you today to discuss how Nutex Health is advancing population health management, an important piece of our mission to deliver sustainable, impactful health care. In 2025, we made strides in this area, and I'm excited to share the progress, the strategies driving it and our plans to keep pushing forward. Let's start with where we are today. Our Population Health Management division now oversees a diverse group of approximately 40,000 members across our platform including a mix of Medicare Advantage, commercial and Medicaid managed care members. That's a broad reach, and it's growing because of the trust we've built through our independent physician associations or IPA I am happy to report that each of our 4 operational IPAs were profitable in 2025. Our strategy revolves around physician networks our IPAs are comprised of networks of contracted and credentialed primary care physicians and specialists located around our facilities building strong partnerships with local doctors is critical. By forming these IPAs, we are building awareness of our hospitals among the local community doctors and their patients. Why do the physicians join our IPA. We offer these physicians ownership in our IPAs, they can also participate in the Board and committees of the ITA, we offer them to get on the staff of our hospitals so they can admit and follow patients we also incentivize the physicians to achieve high-quality metrics. We believe that over time, these relationships will not only increase the volume of patients to our hospital but also create a web of care that's seamless for patients. Our vision is that our hospitals and IP will work hand-in-hand to amplify our reach and effectiveness. We are fostering collaboration, sharing best practices and ensuring every provider is aligned with our patient-first culture. We're growing our IP strategically focusing on areas near our hospitals to leverage existing relationships and infrastructure. In 2025, we launched the new IP in Phoenix. In 2026, we plan on launching 2 IPAs, one in Dallas and one in San Antonio. Going forward, our strategy focuses on 3 areas: provider network expansion by partnering with physicians in high-value markets value-based contract growth by increasing the number of covered lives under management and technology scaling by enhancing our analytics and care management platform. With that, I'll turn it over to Wes Bamburg, our Chief Operating Officer. Wesley Bamburg: Thank you, Warren, and good morning, everyone. As mentioned earlier, volume is up. For the year 2025, total patient visits were up 11.8% from 2024, with mature hospital visits growing at 1.3% over the same period. This performance highlights solid demand and the disciplined execution behind our ER and inpatient initiatives. From an operational standpoint, our focus throughout the year has been ensuring that our investments translate into consistent execution across every facility as we broaden our service offerings ranging from medical detox and behavioral health to advanced outpatient imaging and procedures, we have been building the operational infrastructure required to support higher throughput and a more diversified patient mix. That includes standardizing workflows, strengthening our intake in triage processes and enhancing staffing models to seamlessly accommodate increased ER demand while protecting the patient experience. On the inpatient side, the expansion of specialized equipment and tele specialist capabilities has allowed us to manage more complex patients safely and effectively within our hospitals. Operationally, we've paired these enhancements with stronger clinical governance, upgraded care pathways and expanded training to ensure that higher acuity care is delivered with consistency and quality across the enterprise. These efforts are already improving patient retention, reducing avoidable transfers and supporting stronger contribution margins. From a cost management perspective, 2025 was a transformative year, driven largely by the ongoing advancement of our corporate purchasing and supply chain teams. Excluding arbitration expenses, operational costs were 33.4% of total revenue for 2025, down from 47.1% in 2024. Over the past year, this function has become far more centralized disciplined and data-driven giving us greater ability to engage more effectively with key vendors. As a result, we secured significantly better pricing on major imaging equipment, including MRI and CT scanners as well as improved rates on lab instruments and reagents. These categories have historically been among our highest cost items, so the impact on margins is meaningful. Lastly, during 2025, Nutex received more than 8,700 patient reviews averaging an enterprise rating of 4.8 out of 5, a level of satisfaction that continues to set us apart in the health care industry. This performance reflects the strength of our model and mission, which are built around delivering concierge-level service, little to no ER wait times and a highly personalized patient experience. As we scale, we are advancing system-wide standardization, both in how we engage with patients and in the care we deliver, ensuring that every Nutex facility delivers consistent outcomes, service and a best-in-class experience. These foundational elements continue to differentiate Nutex in a sector where patient satisfaction and reliability are critical drivers of long-term value. Across the organization, our teams remain deeply focused on reliability, scalability and disciplined execution. As we grow, we are firmly committed to ensuring that every new tech facility delivers the same high-quality patient-centered care that defines our brand and supports our long-term growth. Thank you, everyone, for your time, and back to you, Jen. Jennifer Rodriguez: Thank you, Wes and team for those updates. I will now turn it over to our operator, Rob, who will begin the Q&A portion of the call. Operator: [Operator Instructions] And our first question will be coming from the line of Thomas McGovern from Maxim Group. Thomas McGovern: I want to start with some high DR-related questions, right? So historically, and on today's call, you've discussed IDR submission rates in the range of 60% to 70% with historical collection rates hovering around 80%. If we look at the press release, it actually says that the submission rates were 50% to 60% with that with an improved collection of around 85%. So I just wanted to see if you guys could help us reconcile the shift, is this a reflection of maybe higher quality, fewer submissions but higher quality and that's leading to an improved collection? And how should we look at this dynamic moving forward? Unknown Executive: Jon, do you want to get -- yes, go ahead, Jon. Jon Bates: No, I was just going to say -- no, you're right, Thomas. Obviously, we've seen -- and the whole goal here in the independent dispute resolution is, ultimately, if we can get to a situation where we're able to get these claims resolved prior to it, that's a win. So of course, up through now to the third quarter, we were submitting a higher percentage. And actually, historically, it was around that 60% to 70%. But what we saw I've seen in the last quarter, now cumulatively sort of the impact is a little bit less in which we hope that will be the trend with the trend being that ultimately that would go down and we'd still be able to get what we believe to be fair and reasonable payments. And we believe that's still happening. And as we look to try to get in contracts with payers, which we're always looking to try to do, if we can find one that's reasonable, we'll continue to do that. So I think it's partly some of that going on for sure, and it's something we're going to watch real closely as we look and continue to watch reimbursement rates, which have stayed very strong throughout the year, as you've probably seen. And as you can tell, even the collection piece as you referenced was where we were kind of close on in the second and third quarter. Now we're collecting it 85-plus, continuing to have a strong legal determination wins of high -- mid- to high 80s. And so all of that, we anticipate hopefully even improving and we'll watch it as we go, but it's been a consistent pattern of an improvement there. So I think that's what we're seeing is that we're able to resolve more either with contracts or in open negotiations earlier on. It's still a smaller percentage, right, that we want there to be more of that on the front end. But for now, I think the trend is actually positive and the more watch reimbursement is affected with that. And as you know, and you and I have talked about this before, even if we are able to settle some of these earlier in the process was in open negotiations specifically open negotiations if they don't pay us well at the beginning, even if it's slightly less than even though we feel that we're getting is paid fair and reasonable, if it's slightly less than that, when you remove the cost component, from a net perspective, it ends up being similar or maybe even more positive. So we don't view it as negative at all, I just view it as kind of the opportunity as we move forward to watch this with our goal, ultimately, of getting everything resolved more timely, quickly and if we can have contracts across the board, we would do that. We just have not been able to successfully execute those and find reasonable fair payments yet from many of the payers. Tom, you might have more to add. Thomas Vo: No, that's correct, Thomas. And in essence, as you know, health care is all about ebb and flow. Some quarters higher, some quarters lower. But to Jon's point, it is definitely moving in the right direction with less submissions, which may mean that the payers are paying better and more correctly,first time. So we will continue to monitor that progress. Thomas McGovern: It sounds like solid improvement with open negotiations. And obviously, you don't have to do a whole drawn out arbitration process. That's great for you guys. Great. So next question for me. You guys recently reopened a hospital in Texas is back in January. First part of this question is, what led to that decision? What are you seeing in that market now that leads you to believe this is the right time to do so? And then a follow-up to that is, do you believe that you're on track -- you remain on track rather to open the 5 to 6 facilities you've discussed in the past in 2026. And maybe if you could -- Tom, you mentioned a new real estate strategy at [indiscernible]. So maybe if you could touch on that and how that might impact your planned openings in the year. Thomas Vo: Yes. No, thank you, Thomas. So the first question, our Ambo Hospital, we did have to close it. when we were going through the No Surprises Act issue. And after we established the IDR process, reimbursement get better. And so when that happened, it became a correct move to reopen it simply because we knew that there was volume there. And so the volume that we saw prior to the IDR was maybe not enough make it a profitable operation. But with the IDR process and better collection, better fair and reasonable collection that business made sense. And on top of that, as you know, we've essentially focus on more of an inpatient side. And so we became much better at it when we weren't as good at it back then. And so now that we're much better at the inpatient side, opening a slightly bigger hospital with more inpatient bed just made better sets and made a better business sense with a better projection. Does that answer the first question, Thomas? Thomas McGovern: Yes, yes. And then just a reminder, the second part of that question is, do you believe you remain on track for the 5 to 6 openings in '26 that we've discussed in the past? And then just how your new real estate strategy might influence the timing or the scope of these openings? Thomas Vo: Yes. So the 5 to 6 locations are both for '26 and '27. So in 2026, the 3 locations that are on track to be open are Jacksonville, West Little Rock and San Antonio. And so those are the 3 for sure this year that are essentially will be finished with construction, I would say, probably by third quarter. And then on top of that, we're already working on '27 and '28 and so we protect probably another 4 hospitals to open in '27 and probably another 4 after that. And then in terms of the real estate strategy, yes, now that we're fortunate enough to have some cash in the bank, the idea is to explore ways where new tax could essentially start the development on the new hospitals. And once the hospital has stabilized and convert it to a REIT or sell it to a real estate investor and take that cash out and we invest in the 3 to 4 new projects going forward. So essentially to recycle the cash. The idea is that, that cash would essentially be accrual, and it would be essentially profitable for the company, whenever we cycle that cash again. The initial investment is that cost but hopefully, when we do a sale leaseback, we would make a small profit on it and then use that to recycle the cash to continue with the pipeline. And by the way, we have not formalized anything yet, but that is under discussion as an additional way to maximize our cash and return some investor maximal shareholder returns. Operator: The next question is from the line of Gene Mannheimer with Freedom Capital. Eugene Mannheimer: So Tom, Jon, when did you -- when exactly did you learn about the true-up adjustments? And have you given any thought to preannouncing? Jon Bates: Yes, I can talk to that. Thomas Vo: Go ahead, Jon. Jon Bates: Yes. So the earliest indication we were getting was in and that was just information we were seeing on the early ineligible information was the middle part of the fourth quarter, and it was very, very new to us trying to understand it. In fact, a lot of it is it comes to us, we look at it and say, there we might even, in a lot of cases, disagree with it being deemed ineligible and there's a process we didn't talk about here, but that we're going back on some of these and saying, hey, there's -- we disagree with that. But long story short is we were getting information in the middle part of the quarter, but it was very, very new. So then us trying to understand exactly the impact, understand exactly the legitimacy of it has taken us a couple of months to go through and analyze it. So that's the reason we -- there was nothing -- we didn't know what to report because it was new. And as quickly as we got our clarity on it, then we had to -- we started to roll it through our numbers, which was as we were finishing out the year. And then from a timing perspective, this was the best opportunity based on the data we have. to when we would communicate it because we didn't really know much sooner than this exactly that impact. Eugene Mannheimer: Got you. That makes sense, Jon. And when we think about those 19,000 or so claims that were deemed ineligible, you do the math on that. I think it's about $2,900 a claim. So is it safe that these were mostly confined to ER visits and not any inpatient volumes? Jon Bates: Yes. That's good insight. So yes, a majority of those would be more. It was a little bit of the lower we call it, tier or acuity. And so yes, most were more relative to our -- what you call more and more standard ER-type visit, maybe with blending to maybe one step forward, maybe an observation or a couple inpatient, but majority of them were EOR-related. Eugene Mannheimer: Got you. And one more for me. In terms of any future true-ups that might happen, should there be any -- would those also likely to be reserved in the fourth quarter like what you had yesterday? Or could they be trued up anytime? Jon Bates: Absolutely. I mean it's -- we don't control that, but I can tell you that as we see the information, if we see any activity that shows and there's going to be, as I mentioned, there's going to be ineligibles in this process. I think a year ago, they were talking about it being a much higher percentage even what the industry says they finished with recently, which was 19-ish percent of every claim going through is deemed to be an eligible and we're significantly less than that as we're seeing, but we just became known in a material nature of it in the fourth quarter. There were smaller ones that came to us earlier in the period, not material and we addressed those and they went through our natural accrual process. And then this sort of sprung up on us in the fourth quarter was a big surprise, but now with more knowledge and more understanding of the communication from, say, CMS to a lot of those independent dispute resolution and user arbitrators I think they were almost threatening them to say, you guys don't catch up if you're behind, then we're going to find someone else to do it. And as a result, I think they got caught up. They also have added more arbitrators, certified arbitrators at this point as well. So we believe that the backlog concept is probably something more of the past. There will be some at all times. And then more importantly, we'll find out if there is something sooner in the process, and then we certainly will account for that as soon as we know it. But also, as we talked about in that whole description of how we accrue for revenue, the more data we have like this, now we incorporate that into our model, so there will even be some level of ineligible assumption in a current day visit based on what we're finding out now based on our percentages. So -- and then we'll adjust that like everything else every single month, which is a complex process, but I think we have a really phenomenal team that has been doing this for 3 or 4 years now in [indiscernible] and many auditors and banks have spent a ton of time analyzing our process, and they've all come away saying, what you guys are doing seems very solid. So it's just new. It's a new process, and I think we're getting better at this for the IDR side and who knows what's going to be next, but this looks to be the latest, newest situation that's happened, and we feel like we've addressed it and don't feel like it will be a material issue going forward, but we'll watch it and see. And to your point, we don't wait to record it at some later point as soon as we know it or see any indication of it happening, we're going to do our best to try to reflect it within the current numbers that we have so that we're properly recording our revenue costs and keeping in line with the accrual-based approach. Good question. Operator: At this time, I'll hand the floor back to Jennifer Rodriguez for closing comments. Jennifer Rodriguez: Thank you all for those valuable questions and answers. For all those joining us today, if you have more questions, please email us at investors@nutexhealth.com, and we'll get back to you promptly. On behalf of the Nutex management team, thank you all for joining us for our fourth quarter and full year 2025 earnings call. We've covered a lot, growth, strategy, challenges and our vision, and we appreciate your time and interest. A recording of this call will be available on our website for a limited time. So feel free to revisit it. Take care, everyone, and we look forward to keeping you updated on our journey. Operator: Thank you. You may now disconnect your lines at this time, and have a wonderful day.
Operator: Greetings, and welcome to the Methode Electronics Third Quarter Fiscal 2026 Results Conference Call. And please note, this conference is being recorded. I will now turn the conference over to your host, Joni Konstantelos, Managing Director of Riveron. Ma'am, the floor is yours. Unknown Executive: Good morning, and welcome to Methode Electronics Fiscal 2026 Third Quarter Earnings Conference Call. Our fiscal 2026 third quarter financial results, including a press release and presentation can be found on the Methode Investor Relations website. I'm joined today by John DeGaynor, President and Chief Executive Officer; and Laura Kawaltick, Chief Financial Officer. Please turn to Slide 2 for our safe harbor statements. This conference call contains certain forward-looking statements, which reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to the safe harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise. The forward-looking statements in this conference call involve a number of risks and uncertainties. We will also be discussing non-GAAP information and performance measures, which we believe are useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the SEC, such as the 10-K and 10-Q. Please turn to Slide 3, and I will now turn the call over to John DeGayner. Jonathan DeGaynor: Thanks, Jonny, and good morning. Welcome to Methode's Third Quarter 2026 Earnings Call. I want to begin by recognizing our global team for their continued focus on serving our customers in the face of a challenging and rapidly evolving environment while driving forward our multiyear transformation journey. Across our manufacturing sites and corporate functions, our teams have demonstrated resilience as we work through industry headwinds and advance our transformation initiatives. Your discipline, collaboration and commitment to continuous improvement are strengthening our foundation and positioning us for better long-term performance. Thank you. Moving to our third quarter results. We generated $234 million in sales and $7.3 million in adjusted EBITDA. While profitability was pressured year-over-year, we delivered positive free cash flow of $10 million in the quarter and approximately $17 million in year-to-date cash flow as we remain on track to achieve our fiscal '26 free cash flow targets. Importantly, our Industrial segment sales increased 9.5% year-over-year, reflecting continued strength in off-road lighting and power distribution solutions supporting data center applications. That performance demonstrates the benefit of our growing exposure to higher-growth industrial power markets and helps offset some of the headwinds we are seeing in North American automotive and in commercial vehicle lighting. Generating cash while navigating a volatile revenue environment is a clear reflection of the operational discipline we are building into this organization. Please turn to Slide 4. Our transformation journey continues. As I've said before, progress will not be linear and is not something that could be measured in a single quarter or even a few quarters. Our transformation is a multiyear effort focused on strengthening the foundation of the company, utilizing our resources as efficiently as possible and finding new sources of value. Along the way, we must refine our portfolio, align our business structure, optimize our footprint and embed operational discipline into everything we do. At the same time, there are factors outside of our near-term control, commercial vehicle market softness, EV program delays and macro volatility, particularly in North American automotive that will impact our improvement trajectory. We are addressing those realities directly with our teams and with our customers, but we are not allowing them to distract us from executing our priorities. Let me briefly recap these priorities. First, stabilize and improve our operational execution. When we started this journey, we had 2 facilities that were extremely challenged, Egypt and Mexico. We continue to see positive trends in Egypt as a result of the changes we have made there. The transformation of our Mexico facility is not as far along. We're making progress in upgrading the team and improving execution on both existing programs and new programs. However, we have not seen the productivity improvements as quickly as we initially expected, which has been exacerbated by commercial vehicle volume reductions and program delays from multiple North American customers. These external factors were the primary driver of our EBITDA guidance revision that Laura will talk about later in the call. We've built an entirely new leadership team in Mexico, and we are supplementing that team with both corporate and specialist external resources. Our new leadership team is getting fully up to speed and working hard to tackle the challenges in our 2 Mexico facilities, understanding root causes, driving accountability and resetting expectations. Naturally, when you're transforming an operation, there's a cleanup involved. You have to surface issues before you can permanently fix them. This is part of the process. It is not comfortable, but it is necessary. We are taking focused actions to improve execution, efficiency and cost control, and we expect performance to strengthen as those actions take hold. Second, we are refining and simplifying the portfolio. A clear example is the completed sale of the Dataamate business, which I'll talk about more in a minute. Third, align our cost structure and footprint. We completed the move of our headquarters from Chicago and sublease that facility. We've signed a purchase agreement on our Howard Heights facility in Illinois, a facility that formally housed our Dataamate business. So we are making good progress in reducing our overall footprint. And fourth, position the company to capitalize on secular growth opportunities, particularly in Power Solutions. We are actively capitalizing on the data center and vehicle electrification megatrends, reallocating resources toward the areas where the strongest long-term return potential. These are deliberate, measurable actions, and we are doing what we said we would do. These are not concepts, they are actions. Turning to Slide 5. For background, Datamate is a supplier of copper transceivers for enterprise and telecom networks. While it was a solid business, it was not aligned with our long-term power solutions strategy. Divesting it allows us to redeploy capital and management toward higher growth, higher return opportunities, particularly in our Industrial Power Solutions business. We are concentrating our capital management -- capital and management attention and engineering resources on the areas that can generate the greatest long-term returns. The proceeds from this sale and the Harvard Heights facility sale will be used primarily to repay debt and further strengthen our balance sheet, consistent with our disciplined capital allocation approach. Turning to Slide 6. Power Solutions has been part of the Methode DNA for more than 60 years. We are now leveraging that deep expertise to serve today's most demanding applications across EV, industrial and data center markets. We're expanding our customer base. We are adding experienced industry veterans into the industrial power business, and we are rotating engineering and commercial resources toward higher growth opportunities. This is not a short-term pivot. It is a structural reallocation of talent and capital, and we expect this to pay dividends over time, but we are still early in this journey. Let me spend a minute on data centers. Based on Q4 order patterns, we now have line of sight toward $120 million annualized run rate. This represents a significant increase in run rate year-over-year. Importantly, this run rate reflects current end customers through various contract manufacturers. It does not assume incremental wins from new accounts. Our actions regarding additional commercial and engineering resources and our investment in items like vendor-managed inventory are enabling us to react much more quickly to customers. We are seeing increasing momentum as a result of these actions. We are expanding our customer base, but our current run rate is supported solely by existing relationships. As momentum builds, the trajectory suggests a 50% increase in run rate year-over-year in the near term. This is a meaningful growth driver for Methode both for today and the future. Turning to Slide 7. Transformation is not linear. There will be turbulence, particularly in North American automotive, and we are seeing that today. But we are building a stronger operational foundation underneath the business. At the same time, we are executing every day. We're shipping product. We're supporting launches, and we are managing working capital. This dual focus of transformation while operating is critical. -- transformation does not happen in isolation. We remain encouraged by opportunities in our Industrial segment, especially in power distribution solutions supporting data center infrastructure. Those align directly with our core competencies while there is more work ahead, we are making measurable progress, strengthening execution, simplifying the organization, improving the balance sheet and positioning method for performance over time. I'll now turn it over to Laura to go through the financials. Laura Kowalchik: Thanks, John. And turning to Slide 8. Third quarter net sales were $233.7 million compared to $239.9 million in fiscal 2025, a decrease of 3%. The year-over-year decrease in sales reflected lower sales volumes in the automotive segment related to a reduction in North American electric vehicle volumes and the interface segment related to a previously announced appliance program roll off. Results were partially offset by a higher sales volumes in the Industrial segment, particularly for off-road lighting and power products as well as positive foreign currency translation which had a favorable impact of approximately $12 million in the quarter. As a reminder, the third quarter is also historically our weakest quarter for sales as it covers the year-end holidays. Gross profit was $38.8 million, down from $41.3 million in the prior fiscal year quarter, primarily a result of lower sales volume and product mix in the Automotive segment and interface cement. Selling and administrative expenses increased by $1.4 million to $39.1 million in the quarter. Restructuring and asset impairment charges included within selling and administrative expenses were $400,000. Income tax expense for the quarter was $2.8 million, down from $6.2 million in the prior fiscal year quarter. In the quarter, we realized a lower valuation allowance for U.S. deferred tax assets of $2.4 million compared to $6.5 million in the prior fiscal year quarter. Third quarter adjusted EBITDA was $7.3 million, down $5 million from the same period last fiscal year. Third quarter adjusted net loss was $13.1 million a $5.9 million change from the third quarter of fiscal 2025 attributable to the decrease in gross profit and increase in selling and administrative expenses, partially offset by a lower income tax expense. Third quarter adjusted loss per diluted share was $0.37 compared to a loss of $0.21 in the prior fiscal year third quarter. Please turn to Slide 9, where I will discuss the progress made with our disciplined capital allocation strategy. We ended the quarter with $133.7 million in cash, which was up $30.1 million compared to the end of fiscal 2025. Operating cash generation in the third quarter was $15.4 million. Third quarter free cash flow was $10.1 million compared to $19.6 million in the fiscal third quarter 2025. Although down year-over-year, we continue to generate robust free cash flow amidst a challenging operating environment with a free cash flow of $16.5 million year-to-date as we continue to operate with strong capital discipline. Net debt was down $16.9 million compared to the same period last year. Moving forward, we remain committed to driving strong cash flow generation to further pursue our capital allocation priorities of net debt reduction, selective high-growth investments, business improvements, portfolio alignment as well as returning value to our shareholders through dividends. Turning to Slide 10. Again, please note that fiscal 2025 was a 53-week fiscal year in fiscal 2026 is a 52-week fiscal year. Our guidance also does not reflect the sale of Data Mate or our Howard Hites, Illinois facility. For fiscal 2026, we have narrowed our net sales guidance, raising the low end of the range by $50 million to now be $950 million to $1 billion. The increase primarily reflects the benefit of foreign currency translation, which totaled approximately $25 million through the first 9 months of fiscal 2026. For the full year, we anticipate foreign exchange to provide an approximate $30 million benefit relative to our prior assumptions, which is largely driving the increase in our midpoint. In addition, we have lowered our adjusted EBITDA outlook to be in the range of $58 million to $62 million compared to our prior range of $70 million to $80 million. The reduction is primarily concentrated in North American auto and reflects updated cost assumptions related to multiple customer program delays and higher expenses associated with the transformation of our Mexico facility, including wages and professional fees. For fiscal year 2026, we continue to expect positive free cash flow in the fourth quarter and for the full year compared to an outflow of $15 million in the previous fiscal year. With that, I will hand it back to Jon for closing remarks. Jonathan DeGaynor: Thanks, Laura. To close, while the near-term environment remains dynamic and our improvement trajectory is not linear, we are taking deliberate actions to strengthen the company. We are stabilizing operations, refining the portfolio, aligning our footprint and cost structure and reallocating resources towards higher-growth power solutions opportunities. There is more work ahead, particularly in Mexico and within North American automotive. But the foundation we are building is real. At the same time, we are maintaining a sharp focus on cash generation and balance sheet discipline. We believe the actions we are taking today position method for improved performance and more consistent value creation over the long term. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question is coming from John Franzreb with Sidoti & Company. John Franzreb: I would like to start with Mexico. Can you just kind of review what's going on there? And how far along are you on the process and maybe time line when you think it will be completed. . Jonathan DeGaynor: Yes. So John, a couple of things. Thanks for your question, and Laura will chime in here as well. As we said on previous calls, the transformation in Mexico is probably about 6 months behind where we are with Egypt. And we are making progress there. But one of the challenges that we have is in Egypt, we have year-over-year revenue growth on top of performance improvement whereas in Mexico, we have continued -- we have year-over-year revenue shrinkage. Most of the roll off of our past programs is in Mexico and the primary impact of program delays is also in Mexico. So the -- what we're spending to prepare and launch new programs as well as the transformation there isn't getting any benefit from tailwinds of increased revenue. We're seeing -- we're spending the money to get the launches ready and we're seeing the delays. The team has been completely rebuilt over the last 6 months, and I'm really pleased with the progress that we're making on our day-to-day execution. But we're 6 months behind where we were with regard to Egypt. Laura Kowalchik: Yes. And as Jon mentioned, the decrease year-over-year in revenue, which results in the bottom line decreases as well as under absorption. We have some additional S&A expenses related to changing out the management team and wages as well as additional resources that we brought in to help with the operational performance. But despite this, we are seeing improvements in scrap and direct material costs as a percent of sales through our supply chain initiatives. John Franzreb: Now we had 3 great months of commercial truck orders. I'm curious, have you seen that flow through your P&L yet or any purchasing orders or anything? And also, does that impact the Mexico facility at all? Can you just maybe talk to that? Jonathan DeGaynor: So John, it does impact the Mexico facility and it's the impact of -- we're actually still seeing it as a headwind with regard to orders. Both what we've seen from DTA and PACCAR in is more of second half of calendar '26 as to where the volumes start to come back. And what we're seeing the impact, and we talk a little bit about it, is the trade-off between commercial vehicle volumes in our in lighting and some of the North American automotive programs. So we have a mix impact as well as volume impact. We do see some future growth later in this quarter and probably more into early of our fiscal 2027, but we aren't yet seeing it. John Franzreb: And one last question on Data made. How much in revenue or annualized revenue did that business contribute? And was it profitable? Or maybe you can give us maybe the scale profitability? . Jonathan DeGaynor: So it's roughly $18 million worth of revenue. It was profitable. But what I can say is in roughly $3 million worth of profitability. But what we can say, John, is the ability to pay down debt, the ability to exit an underutilized facility and to continue just our overall rationalization of structural cost, we believe we can largely offset that profitability. So we think overall, it's an accretive decision. Operator: Our next question is coming from Luke Junk with Baird. Luke Junk: I'll jump off there. Jon, can you just remind us of some of the key products and applications for that data made business? And I guess 1 of the obvious questions strategically is just why it wasn't too complementary with the core power business in data center? . Jonathan DeGaynor: So this is more of a data over copper. -- system. It's a small electronic data over copper product. It's not complementary with our data center activity whatsoever. And really, the judgment for this look was it's a good business. But as you think about the opportunities that we have, and you and I have talked many times about return on effort, what it would take to make that grow materially because it's been relatively flat in the $15 million to $18 million for revenue for a long period of time. As we looked at it, it was a good business -- it is a good business. But in order for us to make it grow versus putting more effort into our base data center business or some of the other areas where we can drive growth and really return for the shareholders, our decision was that probably is a better open for the business than method. Luke Junk: Sticking with data center, if I look at the chart that you guys provided, which is helpful. Just trying to extrapolate the data center piece in fiscal '26 specifically. It seems like it's trending fairly flat this year. Now I understand some of the reasons for that. I know you were implementing the VMI. There's some other things going on in the hood there. But just trying to understand, certainly, there's been a lot of CapEx growth this year. Should we perceive that there's been effectively like a little bit of a growth bubble because I'm just trying to get comfortable then stepping into, I think you said in the $120 million run rate on a go-forward basis given the clarification. Jonathan DeGaynor: So look, -- what we've said to you is -- and said to the investors is that as we move to an EDI-based sales forecast versus just a, if you will, a contract-by-contract sales forecast that we would give you transparency as soon as we knew it. This run rate that we're talking about is that transparency. This is backed with EDI. So you're right that on a total year basis, it looks like it's relatively flat. Part of that was due to some of the sales gap that we had moving from where we recognize the sale when the parts leave the boat in Shanghai to moving to vendor-managed inventory, which created a 6- to 8-week revenue gap. So -- the most important thing here is a flat -- relatively flat year-over-year, but Q4 run rate of $120 million with EDI that gives us great confidence in what we see on year-over-year growth and what we see into the future. The other aspect is I think you made a comment about CapEx growth. We have not had significant CapEx growth. It's actually down year-over-year. And there's been no material CapEx that's been invested for the data center business whatsoever. As a matter of fact, we're using some core competencies and some capabilities from other investments as we rotate into Mexico. So we have really use our capabilities. We rotated with this VMI and it is creating the momentum that we said it would and the $120 million run rate reinforces that. Laura Kowalchik: Yes. Our CapEx, just to jump in here. Our CapEx was $42 million for FY '25, and we're at 16.5% right under 17% approximately this year. Luke Junk: Yes. That $120 million, you also mentioned, Jon, that you have a line of sight to 50% kind of growth in the medium term. I think if I try to extrapolate what you're implying in the targets maybe about $85 million of data center this year. Is that -- what kind of base numbers should we use for that 50% opportunity? . Jonathan DeGaynor: And that's what we have said pretty consistently is $80 million to $85 million as a basis in our guidance. And as we talked about on the last earnings calls, that considered the impact of VMI. But what we're seeing here is a run rate that's actually higher, much of which will be setting us up into 2027 -- fiscal 2027. Luke Junk: And then last question for me, a Mexico, understand some of the challenges there. I think you had some initial improvements, but obviously, things that are cutting against you as well. It feels like maybe there's been some things that have cropped up that you weren't anticipating? I guess, is this some more contagion across launchings and the fact that just -- I know you had whatever is something in the range of 20 launches this year. Just that as you're spending to those that Silensys was pretty visible, but are there more launches that are becoming problematic at the margin? . Jonathan DeGaynor: Yes. So I think the way to think about this is as you bring new people in with fresh eyes, we do see some things from a performance perspective. But as Laura said, our scrap rates and our premium freight and other items that are really controllable performance-based items are better year-over-year. We -- what we have seen with regard to the new launches is we've spent the money both from a capital standpoint and from an engineering standpoint to prepare for the launches and we've had further delays even from what we said in the last quarter. So because those launches were primarily EV-based power application launches for North America, and many of our customers have further delayed their programs. That's where the challenge is. So we just don't have the revenue that we would expect as these launches -- as these programs start and ramp up, we're not seeing those. So as we've talked about we're dealing with it from a class standpoint. We're also dealing with it with going back to customers for recoveries on where we have those delays. Operator: Our next question is coming from Gary Prestopino with Barrington Research. Gary Prestopino: Jon, Laura. I just want to follow up on this EV issue. These are delayed programs. Is there any programs that have been outright canceled? . Jonathan DeGaynor: Yes, you okay. So as we -- Gary, just to answer that, as we've talked about there, we have talked about some Stellantis program cancellations as well as other programs that are delayed. And we've mentioned what we've done with regard to previously about going back to customers and particularly Stellantis with regard to dealing with cancellation claims. So those are ongoing. None of the customer negotiations are in our -- in this guide. I think it's important to note that neither the data make transaction nor the Hardwood Height transaction nor any customer recoveries are in this guide. Gary Prestopino: Let me ask the question another way just so I can get an idea. In the programs that you have right now that you're actually producing for and you're actually having take rates, was -- were the take rates less than you had anticipated and that has been causing you to channel down your expectations for the EV market this year? I'm just trying to get a handle on it, how this is all shaping out. Jonathan DeGaynor: Yes. So here's -- the answer is yes. And it's primarily in North America. So if you think about it, auto is 45% of method. EVs are 41% of auto. So as a total, EVs as a percentage of method through this year, through this fiscal year is 18%, where now take it to the next level, which is exposure to EVs -- of that 41% of auto that is EVs, only 14% of that is North America. If we were going back, and I don't have the number at my fingertips, if we've gone back when we originally set guidance, that number should have been much, much higher based on the assumption of launches from multiple programs. So the -- what we're seeing is expenses launch expenses, CapEx, building inventory, all those sort of things in Mexico, in a place where you have big programs rolling off that we've talked about across multiple quarters and none of the revenue coming from the EV programs. Gary Prestopino: What about what you're doing outside of North America, how would the take rate spend there? Jonathan DeGaynor: Those take rates are relatively on track. The growth on a year-over-year basis in Egypt, the top line growth we have bottom line that's driven by performance. We have top line growth that's basically driven by ramp-up of programs, particularly the EV programs that we launched there, and China is stable. So this is -- it's why we refer to it specifically as a North American automotive challenge and as an EV program cancellation or delay challenge. Gary Prestopino: Are the products that you guys produce the EVs, are they applicable to plug-in hybrids and hybrids. I mean can you bid on those new models that are coming out because it seems that that's the way the market's really rolling now. Jonathan DeGaynor: Yes. And our pipeline of bids has our quoting and cost estimating team is very busy. Operator: We have another question from John Franzreb with Sidoti. John Franzreb: I stick to the launch topic here. How many programs have you launched on so far in fiscal '26 and how many remain for this year -- and how does that compare to your expectations at the beginning of the year? I'm just trying to contextualize what kind of magnitude we're talking here. Jonathan DeGaynor: John, I don't I don't have the exact split between what we plan to launch and what we have launched versus cancellations. Our number was programs in this fiscal year. It was 56% over fiscal 2025 and fiscal '26. And because of the timing -- because of the timing of some of these delays, we spent the money on the launches before we ended up with either a delay or cancellation. So the number is still the same. It's just a question of whether we got the revenue from it. John Franzreb: And when looking at the product portfolio, where does that stand? I mean, is Data made the first of many? Or are you still like looking at everything you're trying to decide. I'm pretty sure at 1 point, you said there was some unprofitable businesses that you may want to exit. But can you just kind of give us an update on what -- how that process looks at this point? Jonathan DeGaynor: What we would say is that data mate was an important first step. It reinforces what we have said to the shareholders that we will continue to refine our portfolio as well as refine our overhead structure. The portfolio review is ongoing, and you can expect more to come in the future. Operator: Thanks, Jon. Thank you, everybody. Thank you, ladies and gentlemen. As we have reached the end of our Q&A session. This will conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Evaxion Business Update and Full Year 2025 Financial Results Webcast and Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Helen Tayton-Martin, CEO. Please go ahead. Helen Tayton-Martin: Thank you, and good morning, everyone. Thank you for joining us for Evaxion's business update following the reporting of our 2025 full year financial results yesterday. And apologies that this call is 24 hours later than we anticipated for technical reasons, we are delighted to be here today. My name is Helen Tayton-Martin, and I am honored to be leading this call for the first time as Evaxion's CEO. We move to the first slide. Okay. So on today's call, we will review the achievements of 2025 and touch on the milestones we anticipate for 2026. Our Chief Scientific Officer, Birgitte Rono, will then walk through our key R&D updates for the year, including the latest innovations from our AI immunology platform, after which our CFO, Tom Schmidt, will walk through our 2025 financial results before we close with a few concluding remarks and take questions. Right. Moving to the next slide. And of course, our comments and presentation today may contain forward-looking statements and all references on today's call, I'll refer to our filed SEC statements and specifically, our most recent 20th annual report for 2025 -- 2025 filed yesterday. So moving to the next slide. I will start with our 2025 achievements and our 2026 milestones. In 2025, we were very pleased to report tremendous progress across all pillars of the company. First of all, in business development, we were delighted with the progress in our collaboration with MSD and our infectious disease portfolio, with the decision by Merck to exercise its option over our EVX-B3 program candidate. Whilst the target for this program is not disclosed, we are very proud that this represents the first in-licensing to our knowledge of an infectious disease vaccine candidate identified and validated to an AI discovery platform. Whilst MSD chose not to exercise its option over our EVX-B2 candidate in gonorrhea, we remain very excited about the data and the prospects for this program, over which we have retained full rights and have seen significant interest. We were also pleased to enter into a collaboration with the Gates Foundation on the design of a new polio vaccine and are also seeing significant interest in our platform and pipeline programs more broadly from a number of parties. In R&D, we were very pleased to be able to present very positive [ to ] Phase II data at ESMO on our EVX-01 program with a personalized neoantigen-directed cancer vaccine in advanced melanoma patients. We also presented preclinical data at ASH on our first cancer vaccine we shared [ at antigen directed ] to a conserved endogenous retroviral EBR elements that we have identified in AML patients with our EVX-04 program. In our infectious disease portfolio, we were also able to move forward a new program with candidates identified from our AI immunology platform against [ Group A strep Coke ]. On the platform itself, the team has continued to innovate and use platform to not only identify optimal vaccine candidates, but improve their design biology for product delivery for us in our new automated module. And Birgitte will touch on all of these achievements shortly. We were also honored by the recognition of our AI immunology platform by the Galien Foundation for AI advances in human health. And finally, we were very pleased to see the capital influx of the business last year through financing, business development and the use of our ATM, which now gives us action a cash runway to the second half of 2027. And Thomas will talk more to this later. So moving to the next slide. Just as a reminder, our action has built a broad novel product basis pipeline of assets from its unique AI immunology platform. clinically validated with the cancer vaccine space with our EVX-01 [ peptide ] base vaccine in advanced melanoma that's supported by assets and data on DNA and RNA platforms and together with a preclinical pipeline of infectious disease vaccine candidate, focused on challenging targets remaining intractable with conventional approaches and subject to significant medical need. On to the next slide. This unique capability with AI immunology is something that we have also begun to investigate within the autoimmune field, given a wider range of diseases driven by autoimmune attack and the direct applicability of our platform to focus on immune mechanisms in disease. Autoimmune diseases affected over 14 million patients annually in the U.S. and are characterized by chronic debilitating conditions with treatment options focused primarily on the symptoms rather than the underlying cause of disease. Moving on to the next slide. This is why we believe our AI immunology platform is strongly positioned to focus on underlying disease mechanisms with greater specificity to identify autoimmune disease targets, which can be approached in different ways. There will be more to come on this later in the year. So finally, in the next slide, turning to our 2026 milestones. This year, we will be updating on our EVX-01 program with additional biomarkers and immunogenicity data, AACR and then the clinical data, 3-year data towards the [ later ] towards the end of the year. Well, we will be talking more about the autoimmune applications of our AI immunology platform and bringing forward data on our new EVX-B4 candidate in Group B [ rubric ] in the second half of the year. And finally, be ready to submit a regulatory application for our next EVX-04 candidate vaccine candidate for the shared her antigens in AML by the end of the year. And throughout, we remain committed to driving value from both our platform and our pipeline assets to partnership for our shareholders and patients. I'll now hand over to Birgitte to update you further on our R&D achievements. Birgitte Rono: Thank you, Helen. So 2025 marked a turning point with significant advancement across our R&D pipeline and also and our AI platform. And additionally, as Helen alluded to, we also entered into the in-licensing agreement with MSD on the EVX-03 program. So our 2025 focus has been on strengthening our platforms predictive power, maturing key R&D assets and are building the foundation for future partnerships. So the 2025 achievements position us well as we move towards the data with milestones in 2026, that Helen just presented. So with that, I will begin by walking through individual key programs and platform development. So next slide, please. [ EVX-01 ], our personalized peptide-based cancer vaccine in advanced melanoma continues to deliver strong clinical data. So our 2-year Phase II data presented at an oral session at ESMO in October showed strong clinical outcomes, including a high objective response rate of 75% and complete response rate of 25%. Notably, 92% of the responders remained in response at this 2-year mark. Key biomarker data included the very high [ immunogenicities ] rate with 81% of all the individual new antigen administered across patients, giving rise to a specific T-cell response. So this very impressive heat rate outcompete data from similar programs conducted by others. And this truly underlines the precision of our AI immunology platform, to identify better than vaccine targets. Two key milestones are expected for this program, as Helen also alluded to, additional biomarker and [ genicity ] data expected in the first half of '26, and we also plan to communicate the 3-year data from a subset of patients that are currently in expansion part of the Phase II study, and that will be reported in the second half of '26. So importantly, we aim to conduct future trials in partnership ensuring the broadest possible impacts for patients. So moving to the next slide and EVX-04, our after-shelf therapeutic vaccine for acute myeloid leukemia or e-mail, we have generated a compelling preclinical base evidence supporting its development. In this program, we are focusing on a completely novel class of tumor antigens, so-called endogenous retroviruses or ERVs that are selectively and highly expressed in AML blast, making them attractive as therapeutic targets. So with AI immunology, we have identified millions of shortages from patient sequencing tumor data and designed the [ EVX-04 ] vaccines with 16 optimal ERV [ anti fragment ] selected based on craft patients [ pellets ] and also on the immunological potential. So key data include invite vaccination studies, demonstrating that all of these 16 fragments in the vaccine induced a strong specific immune response and further that EVX-04 prevents tumor growth in several of our tumor [ virus ] and induce strong T-cell responses. So again, these findings reinforces the power of our platform. And here, we have expanded it to uncover unique tumor antigens that are not accessible through traditional discovery methods. Next slide, please. As we progress towards clinical business for EVX-04, we have completed key steps, including antigen selection and lead development we have conducted preclinical efficacy studies and are currently conducted further human cell-based translational assays. CMC work and GMP manufacturing are advancing according to plan. And the next major milestone for this program is the submission of the clinical trial application in the second half of '26, which enabled first in human system. So this program is a prime example of how AI immunology accelerates vaccine design from concept to clinic. So next slide, please. Now turning to our key indexes disease programs. So after retaining the full global rights to EVX-B2 late last year, we are now fully in control of the development of this highly differentiated vaccine candidate targeting -- gonorrhea. So our preclinical data package is strong and comprehensive demonstrating significant protection in a mouse infectious model. We have demonstrated broad efficacy against 50 clinically relevant -- dates reflecting coverage across diverse strengths and further induction of significant [ una ] and cellular responses in mice, and we have also demonstrated a well-established mechanism of actions supported by potent antibody-dependent complement-mediated killing. So collectively, these results position EVX-B2 as one of the most advanced and differentiated infectious disease preclinical gonorrhea vaccine candidates in an area of high unmet need where no approved vaccine exists today. So given the strength of our data, we see a clear opportunity to engage with potential partners to progress the program towards clinical development. So next slide, please. So a number of our key infectious disease vaccine program is EVX-B1. In this program, we are developing a margin target vaccine against cytomegalovirus or CMV and instead of relying on a single glycoprotein or limited set of glycoproteins, the program integrates both these well-described glycoprotein and novel antigens to target the prior -- from multiple complementary angles. So this broad multicomponent strategy is designed to enhanced vaccine efficacy and also to reduce the risk of viral escape. So we have applied AI immunology for both antigen optimization of the known glycoproteins and for identification of 2 novel antigens. So first, we improved these established CMV antigens that are essential for virus neutralization. And as part of this, we have engineered the glycoprotein B antigen, by locking in a prefusion state. And this AI analogy designed a construct has demonstrated a superior neutralization capacity compared to the native program. And secondly, we are identifying and validating entirely novel antigens and several of these -- they have already demonstrated the ability to inhibit [ Vinten ] further, we are characterizing them at the moment. So supported by this strong preclinical data, EVX-B1 represents a highly promising program for continued development and for future partnership discussions. Next slide, please. So now turning to the recent development of our AI-Immunology platform. So our AI-Immunology platform continues to expand capability. So the platform integrates [ multiomic ] data sets to generate ranked antigen lifts within 24 hours. So in October last year, we launched a an automated vaccine design module enabling sequence and structural optimization directly from this short-listed engines. At this end-to-end automation significantly reduced cost development time and also this. So next slide, please. So more specifically, the automated module enhances design of [ Sage ] antigen constructs, enabling higher expression, better formulation and improved manufacturability. So this capability directs the design of [ salable ] antigen constructs and also stabilizing antigens using in various posing producing more reliable antigen construct vendor, wire side variance. There is a faster and more cost-effective design cycle fully integrated into our antigen discovery and vaccine optimization workflow. So this strengthened the foundation for all of our programs across oncology and infectious diseases. So in conclusion, we have seen strong progress across our platform and our R&D pipeline, and we are encouraged by the momentum and we look forward to keeping you updated as we advanced to 2026. And with that, I will now hand over to Thomas, who will go us through our financial business. Thomas Schmidt: Yes. Thank you, Birgitte. And also a warm welcome from my side to our call today. And I will now walk you through the financial results for 2025. So turning to the next page. We have, throughout 2025, been really successful in expanding on our cash runway and also strengthening on our equity side. This has happened throughout the year through public offering and the use of ATM we did in January, followed by the MSD exercise fee and the ATM used in September. And furthermore, the exercise of investor warrants from our January offering in October and November, all summing up to a cash inflow of USD 32 million. Furthermore, as also shown on this slide, our EIB debt-to-equity conversion done in July of USD 4.1 [ billion ]. We've reduced certainly our cash -- future cash out and thereby certainly also expanding and extending our cash runway. And finally, with our filing in December of our prospectus supplement regarding our ATM. It has now created us with further flexibility ability and options as we move forward with expanding our pipeline and platform also. So really, really underlines the strong execution throughout the year. And turning to the next slide. that also leads into the highlights of 2025, where we really have delivered on all the targets that we set and we are progressing towards our aim of becoming a sustainable self-funding business. Both revenue and costs have improved while at the same time, we are continuing to invest in our platform and in our pipeline programs. As just mentioned on the previous slide, activities and execution of the MSD deal, the EIB debt conversion, our ATM and capital market activities have not only improved our cash position and runway, but has also significantly strengthened our equity. And with improved cash runway and equity -- equity we have created more stability and certainly have also reduced uncertainty. So I think that is really, really also a highlight for '25. And again, with the update of [ F3 ] and ATM, we have removed the constraints of baby shelf and also provides us far better flexibility and options in support of our long-term strategic initiatives and also the long-term plans we do have. Next slide. is on our profit and loss statement. As I just mentioned, revenue has improved, but also we've improved on our operational costs. So we've actually been successful in long in our operational spend whilst at the same time delivering on the quality that we would want to do from a pipeline and platform perspective. revenue certainly stems from our NST option exercises, but also important to mention, we also had a grant from the Gates Foundation that also has come in 2025 -- apologies. Net financial position of [ $4.6 million ] is driven by a premium that we received from -- our debt conversion -- debt-to-equity conversion from [ EIB ] and against that goes remeasurement of a derivative liability as some of our warrants or our [ launch ] from the public offering in January were in a different exchange setting, so the USD versus our reporting of DKK. Net loss for the year, [ $7.7 million ], certainly a better in compared to last year. And as I said before, also a good step on the way of becoming a sales funding and profitable business. Next slide, on the balance sheet. since we ended the year with a cash position of USD 23 million with a runway that now is extended into half year 2 of 2027 in certainly also a significant improvement compared to last year. And this, of course, will be used for operations expenses and investing into our platform and pipeline. We currently have an outstanding -- we have a total outstanding ADS of $8.3 million when assuming that all shares have been converted into ADSs. We've also, through the investor warrants exercise has been reducing the outstanding warrants in terms of ADSs by $1 million. which leaves another [ 2.8 million warrants ] outstanding. So also an improvement in that and really drives in the right direction. So in summary, from a financial position, we have during 2025, established a far better foundation that really makes us puts us in a good position to continue our execution of strategy and business for '26 and the years beyond. With that, I hand it back to Helen for some final concluding remarks. Helen Tayton-Martin: Thanks, Thomas. And just moving to the last slide. In summary, 2025 was a year of strong operational momentum for Evaxion, in which we achieved several key milestones. Overall, we strengthened the business considerably to the validation of our strategy with our AI-Immunology platform, delivering on both data and partnerships. This, in turn, has enabled us to both strengthen our financial position and consolidate our position as a leader in AI-based of discovery, design and early development. With a number of potential partnership discussions ongoing, we are already funded into the second half of 2027 through the financial milestones achieved in 2025. So we're in a good position to move forward through 2026. With that, I'll hand over to the operator for questions. Operator: [Operator Instructions]. Our first question today comes from the line of Thomas Flaten from Lake Street Capital Markets. Thomas Flaten: Maybe to start broadly, Helen, you've been in the seat now for a few months. I'm just curious if you could provide some overarching commentary on what you have implemented or are going to implement -- any changes in strategy? And any bigger picture notes like that, that could help us with the context of your tenure? Helen Tayton-Martin: Sure. Thanks. Thanks for the question. Yes, I joined at the end of November last year. So the last 3 months have flown by. But I already have a strong impression from my prior seat on the Evaxion Board. In terms of bigger picture, changes. I think the fundamental action remains really strong. And in fact, I think they have only got stronger through 2025. So the ability to have an AI platform that is built up over many years, many iterations, grounded in data and testing for that data in the lab, and ultimately in the clinic has really strengthened the core offering. So I remain really excited about the power of the platform in the oncology space and also in the infectious disease space. And I think we're sort of seeing a lot more traction around what we can do with the platform now from external engagement. So I think the fundamental strengths and core of what Evaxion has to offer is even stronger now than potentially before. And I think in a world of AI, everything, actually getting to products, actually producing candidates that can generate vaccines that generate a biological response and the clinical response is meaningful and is becoming recognized as meaningful, certainly in our partnering conversations, et cetera. So I think that, that is core. So clear observation I had before coming into the company and certainly strengthened by all my observations within it. and even more impressed by the team that's in place that can deliver on this. I think in terms of the overall strategy, what have Evaxion has done well is that early discovery, the early validation, that deep scientific and informatic embedded expertise, and we can certainly bring things forward into early clinical development, late preclinical, early clinical. And I think what we're going through at the moment is a process of really optimizing where we see the most value in the near term, both in terms of our oncology assets, but also within the infectious disease area. I think we are not positioned to take too much further forward into the clinic. So we've been very cautious about that but we certainly see strength in getting interest from external parties around the assets that we've already got. And actually, the capability of the platform. So there's not a fundamental change to strategy, but I think a sharpening and the deepening of focus around the assets that will have the most value. I hope that's helpful. Thomas Flaten: Yes, that's great. And just keying off of your last comment there about taking products into the clinic. You mentioned with EVX-04 in Birgitte's presentation that you would be looking to submit regulatory paperwork. Is that a product that you think you have to take into Phase I given that herbs are a bit new, a bit different in order to attract a partner interest? Helen Tayton-Martin: I think that's a very good question. We are certainly preparing to take it into the clinic, and we believe that we can do that to gain some initial proof of concept. There's a lot of interest around the platform at that particular metacandidate antigens in the vaccine. I think we're doing some further validation, which I think will continue to strengthen it. So the answer in short is not necessarily, but clearly, the more critical validating data that we can add to the package. The stronger the value proposition to an external partner, and that's obviously what we're all about is maintaining the -- building the value for as long as we can to strengthen our position. And I think we're very confident about what we can do with it preclinically and potentially clinically. Operator: Our next question today comes from the line of Michael Okunewitch from Maxim Group. Michael Okunewitch: Congrats on all the great progress you made. I guess to start off, I'd just like to see if you could comment a little bit on the partnering efforts for EVX-01. And in particular, if there's anything that you've heard either in your feedback from partners that you think you're still would be particularly important for us to watch for from the upcoming data releases, whether that's the 3-year data or the biomarker immunogenicity. Is there anything in particular you think is key for driving these partnering discussions? Helen Tayton-Martin: So that's a really good question. And I mean, clearly, the cancer vaccine space has had something of a checker passed -- way back, but more renaissance, I think, in the checkpoint era. And I think our data is certainly resonating with companies who are interested in the cancer vaccine area, understand the nuances around getting, I think, strong cancer -- antigens, [ presliced ] cancer antigens for not just immune recognition but for clinical benefit. So the -- it is a complex therapy to administer, but it is also potentially an effective therapy. And I think the sorts of things that gain interest of the -- not just the response rate that we've seen in 2 years, 1 year than 2 years at ESMO, but also the recognition of the antigens, the numbers that the [indiscernible], and I'll ask you to add comment to this as well. So I think the -- we're in a strong position with that updated clinical data package that we have, the translational data, I think it's going to be interesting. It continues to -- so why and how the immune response is happening in parallel to the clinical response. So that is, I think, a differentiator and also in the population, the advanced population rather than adjuvant melanoma population. And clearly, I think we're also seeing interest in this whole approach in other high mutational burden cancers too. So beyond melanoma knows of it. I think those are the differentiators thinking about where else this is applicable accolading the different biological parameters, the translational insights that we're seeing that's somewhat different to how others have reported on this with similar approaches. So quite a bit of interest. I think the number -- to be honest, a number of companies are on the fence, but we're looking with interest and very interested in the shared approach -- the share approach that our EVX-04 program offered. Birgitte, do you want to add some further comments? Birgitte Rono: So there's no doubt that the ability of our AI immunology platform to identify the relevant targets and is getting a lot of interest from potential partners and also from the academic community. And with this 81% hit rate, as we call it, I think this is very impressive. We have, of course, looked at other similar programs and seen that most of them are reporting hit rates way below 60%, meaning that the antigens that they are including in their vaccines are not all able to induce a specific T cell response. And this is, of course, a testament to the position of our platform. So that's one of the key elements. And another point that I would like to make is that we do see EVX-01 as not just a therapy for advanced melanoma. We believe that the same concept can be very useful in other occasions where there are a high mutational burden, meaning that there are several antigens to choose from. That includes many of the high prevalent cancer indications. It could be non-small cell lung cancer and also some of the colorectal cancers. Michael Okunewitch: Thank you. I appreciate that additional color on that. And then as a follow-up, I wanted to ask if you could provide a bit more color on how you're applying the AI immunology platform to autoimmune disease. You identified this as a new area of interest. And do you expect that this would be more focused on allergies? Or would you focus more on the major large autoimmune and inflammatory diseases. Any additional color you could provide on that would be helpful? Helen Tayton-Martin: Sure. I think the first thing to say is it's early in terms of our prioritization of the indications, but we've certainly done some work around that based on parameters, which I'll -- Birgitte you're happy to comment on that, I think, high level in terms of what's guiding where we focus will be -- that would be good. Birgitte Rono: Yes. So we have done a lot of analysis on most prevalent autoimmune diseases, and we do see a clear fit for our platform. I mean, we, of course, need to further improve it and build a few additional smaller unit that allows us to apply the immunology. But we do have many things in place that can be directly applied in this area. So we will, of course, share more when we have done both analysis on which key indications we will pursue and also when we have done a little bit more work on adjusting AI-immunology, so it fits these diseases. But we should remember to say that there's a lot of these smaller units we call them building blocks that we can directly apply for these tax of diseases. So not only for autoimmune diseases but also for other diseases where there is a strong immunological component. So of course, we need to build a little bit, but the majority is already in AI-Immunology. Operator: Our next question today will come from the line of RK from H.C. Wainwright. Swayampakula Ramakanth: Thank you. This is RK from H.C. Wainwright. Just to start off, Helen, a quick question for you. You have basically, we've been an architect and multibillion dollar balances at that [ immune ] especially the large deal that was transacted with GSK. And also, you have heard a lot of experience in transactions. And while Evaxion is technically a very strong company, they have always had a difficulty in translating that language into meaningful transactions. Of course, Merck is a pretty strong partner. Based on your experiences, and how you manage to translate that. What sort of discussions could you have at this point? especially when talking with large-cap pharma, I'm convinced them that an AI tools predictability is as good as a physical assay and get them to start looking into some of the products that Evaxion is generating. Helen Tayton-Martin: Thanks for the question. I think there are probably multiple dimensions to answer that question to the extent that it is possible to answer it at this point. One is that A lot of this is to do with timing. It's to do with data that validates that it's more than a sort of an AI platform. And I think actually, the fact that we have the scope to validate and iterate candidates target discovery with candidate development with cancer validation is something really novel that we're generally out there. And when I said timing -- there are obviously many of the large pharma, most of them will all have in-house AI platforms running in one form or another. But I don't think there are many that have got this sort of integrated long sort of longitudinal depth of expertise that actually has. So really, is that this is about crystallizing the offering through the validation of the cannabis we have and sort of being in dialogue with the right people. And you mentioned my background was a long time, 17 years in my precise company, building relationships establishing contact, understanding and listening to strategy, looking at the wider picture. These are all things that are very much part of how deals get done. And ultimately, it's down to relationships and credibility and really having something that fits the need. And all I can say at this point is we're reworking up some of those approaches and some of those themes in terms of how we are approaching potential partnering interaction, I have to say that the action team is well known with quite a few of these groups, but we're building and expanding that profile. And I think that's critical to the future success in partnering conversations. So it's being what you say you are in front of the right... Swayampakula Ramakanth: Perfect. Then going into relationships with Merck, especially regarding EVX-B2, Merck decided to extend the evaluation of the molecule rather than exercise the option at this point. Is this a function of them trying to do additional experiments or functional assets? Or are they requesting from new additional work so that they can come to a conclusion? Helen Tayton-Martin: Sorry, are you referring to the extension that they had last year before the opt decision there? Swayampakula Ramakanth: Yes, yes. Helen Tayton-Martin: I mean we can't really comment on, obviously, the combination nature of the interactions. All I can say is that sometimes is sort of R&D programs when they are back and forth and shared between organizations don't always run to plan. And so sometimes that requires looking at things again. But ultimately, then there are time frames around things, which have to follow through. So I think there are reasons for not taking sort of obviously, their reasons not multidimensional. All I can say is that we remain really excited about the data. We actually continue to build data on the program internally throughout that period of time as well. So we feel very, very bullish and strong about the data package but how and why I wanted to do that work? Or is it something we probably we can't really add any more commentary on. Swayampakula Ramakanth: Okay. On the EVX-01 durability, Birgitte, so you have shown 92% of the responders showing sustainability, be it 24 months. As we are looking forward to the 3-year durability what sort of exhaustion markers are you going to be tracking so that we understand how well the durability is. Birgitte Rono: Yes. Thank you for that question,. So it's correct that 92% of the responders remained in response with this 2 year mark. And I guess your question was related to the T-cell extortion -- as yes, we do a deep scar profiling, looking at activation marker, extortion markers and also at different phenotypes of the T-cells, so including CD4, CD8, but also looking into whether there are regulatory T-cells coming up. And so far, we have demonstrated that -- the profile of the T-cells are very favorable. So in more of the activation or effective type of sales and not too many that are having exhaustion markers. We also see that there's a like dominance of CD4 T-cells and with some patients are also mounting a CD8 T-cell by time. So we have -- during this extension phase of the study, we have been collecting additional blood samples that are currently being analyzed in our lab. So not to comment on that, but it's very exciting. And since EVX-01 is giving us a immunotherapy in this extension phase, we're also very curious of understanding what EVX-01 can drive on its own without having the background of the checkpoint inhibitors. Swayampakula Ramakanth: Okay. One last question from me. This is on the EVX-04... Operator: In the interest of time, we will move to our next question. And our next question comes from the line of Daniel Ben Hill from Jones. Daniel Ben Hill: On the autoimmune disease program, can you provide more detail on your strategy for validating early candidates? Helen Tayton-Martin: Thanks for the question. I mean it's early, and we probably cannot provide more details. But, Birgitte, do you want to comment on how we think about it. Birgitte Rono: Yes. So the first step is to settle on an indication. So we have done landscaping. We've done dianalysis on looking at the top 10 most prevalent ultimate diseases, and we are now narrowing down which one could be the most, I would say, interesting from a -- from our perspective, where there is a nice fit for AI-Immunology. And so that work is ongoing. We've almost completed it. And next step is to focused on building the additional smaller units that we will be needing in AI immunology to enable us to develop therapies for these diseases. And in parallel, we are also sitting on mouse models in our lab, so ensuring that we can also test the candidates that AI-Immunology is designing. So that is the current plan. So pretty traditional way of analyzing our existing the candidates that AI immunology is designing. Operator: Thank you. This concludes today's question-and-answer session. I will now hand the call back to Helen Tayton-Martin, CEO, for closing remarks. Helen Tayton-Martin: Thank you very much for everyone participating on the call today. It's been a great year of 2025 of transforming the company for Evaxion delivering on multiple milestones, leaving us in a stronger financial position than for some time, where we hope we can take the company forward and deliver on our 2026 milestones and continue to strengthen the value that comes from the platform and the asset. So thank you for your questions and your engagement, and we look forward to our next update. Thank you. Bye-bye. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Lufthansa Group Q4 2025 Results Conference Call and Live Webcast. I'm Moritz, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Marc-Dominic Nettesheim, Head of Investor Relations. Please go ahead, sir. Marc-Dominic Nettesheim: Yes. Thank you very much. And also from my end, a very warm welcome, ladies and gentlemen, to the presentation of our full year results 2025. With me on the call today are our CEO, Carsten Spohr; and our CFO, Till Streichert. Both of them will present the results for the past year and discuss our commercial outlook for 2026, and afterwards, as always, you will have the opportunity to ask questions. [Operator Instructions] Thank you very much. And with that, Carsten, over to you. Carsten Spohr: Yes. Thank you, Marc, and a warm welcome from me as well to this full year '25 conference, which I think will start in a little bit of a different tone, not because it's our famous 100-year celebration this year, which makes it a special year for us anyway. But while we were focusing on this to a certain degree, obviously last weekend when everything was changed again. So maybe I'll share with you a few thoughts on where we are when it comes to the situation at the Gulf first, which is, as you know, very dynamic. And of course, with a few thoughts on the whole year before I hand over to Till for more details and expected by you feedback on our numbers. And of course, also, we'd like to give you a view ahead as much as possible in such a dynamic environment. On the Gulf situation, like many of us, I would assume, we're a little bit surprised by the various dynamic turns this takes. In the end, our crisis management always asks us for safety first, which, in our case, meant we stopped flying a day early to the region, which also allowed us to have hardly any aircraft on location because we brought them home before. We then brought our crews home and then went into the next phase of our management of the situation by deciding to close 10 destinations initially, which included Larnaca. We are opening this next -- this Saturday, again, we'll keep the others closed for probably a few more days at least to remain. I think there's more and more now doubts. This is a question of days of reopening or was it weeks, we prepare for both, and we'll take you through this in the Q&A session, if required. Second, of course, big impact spike on fuel prices. Till will come back to that. We actually believe, due to the fact that we are hedged higher towards our main competitors, actually only other airline hedged the way we are is Ryanair with which who, as you know, hardly overlap, should give us a relative advantage where now prices in the markets need to go up to cover for higher fuel prices, especially, of course, for our American competitors and partners to more or less are not hedged at all. Third, extension or extra sections to be flown to markets beyond the Gulf. We have seen huge demand since day 1 for bookings coming in from Asia, to Asia, also South Africa, also very much in China towards Beijing and Shanghai. So we now decided to put extra sections into the air with spare aircraft we have due to the cancellations, spare crews we have and also by the fact that we're still in the winter schedule which doesn't put our fleet to the max. So we already announced quite a few extra flights to Bangkok. There will be more coming to Singapore, to Shanghai, to Cape Town, and to India, which will probably confirm the course of the last day from our revenue management teams that we have record inbound bookings, especially to those regions I mentioned. And that will allow us probably give also later on to a more positive outlook on the commercial output, at least of this initial phase of this crisis than we otherwise would have been able to do. Last but not least, the mother of all questions probably for European airlines. How much is the situation changing the view and the behavior of travelers, customers on this obvious Achilles' heel of geopolitical topics beyond aviation but surely in aviation. So we all -- I think we, the Gulf carriers will reopen eventually but how our traffic flows, how are cargo flows being directed in the future based on this terrible experience locally, I think is the mother of our questions for our industries, and we're sure we'll be discussing that later on. With that, let me, nevertheless, take you, of course, now back to '25, which, as you might recall, we have called a transition year from the very beginning. Various topics in the pipeline, we have addressed to you before, and of course, happy to also discuss today. Overall, the turnaround of the Lufthansa Airline remains our utmost priority. As also mentioned in the former quarterly result sessions, starting from operations. We have seen significant improvements, which also allowed us to reduce our flight irregularity costs by 43%, equivalent of EUR 362 million, significant input into our improved numbers of '25. And overall, also, we were quite cautious with our capacity increase, which only resulted a 4% or a little less, even 3.8% growth by lifting our revenues to a new record of EUR 39.6 billion. Nevertheless, of course, we're able to improve our profits, as you know, to at least by 19% compared to '24. This is a delta of EUR 350 million, far away from where Till and I want to take the company, talk about the 8% to 10% margins, but at least a step in the right direction and especially when it comes to the core airline operational stabilization was the basis for everything to come. We once again saw strong earnings contribution from MRO and Logistics. But for us, important that also in the core of the core, we are moving forward. We also have seen the first but only the first positive impacts of our fleet modernization and the associated product improvements. As you know, we finally were able to certify our Allegris seats also the 787, which is a big part of the 23 new aircraft deliveries we received. As a matter of fact, 7 of these 23 were 787 with now more or less all certified seats across all classes. That fleet alone, Boeing 787 will grow to 32 aircraft by the end of the year, '27 will have a significant impact on our modernization. Allegris, our new product in Lufthansa and SWISS Senses are now underway out of 3 hubs: Munich, Zurich and Frankfurt. Not only we are receiving very positive feedback but maybe more important for you in numbers, we have been able to achieve 12% higher yields for Allegris than for the former business class. To give you an example on business class, that's a big element of bringing up our ancillary revenues, which already went up 15% last year. And I'm pretty sure we'll show you some good numbers for '26 a year from today. Overall, that, of course, forced us to discuss how much we want to make sure that shareholders already participate from this improvement. We decided to increase the dividend by 10% to EUR 0.33 per share, which is a 10% increase, resulting in a dividend yield of 4% and a payout ratio of 30%. With that, let me turn to the traffic regions. I think we all remember Liberation Day last spring, when there were doubts about the development of the North Atlantic, it turned out as expected that the North Atlantic remained strong. And by the way, continues to do so. We'll come back to that later. And we managed to expand and sell capacity on this most profitable market segment of ours by 5%. In the fourth quarter, with an overall capacity growth of roughly 4%, we even managed to slightly increase unit revenues on a currency adjusted basis, which was clearly a trend reversal to the demand situation we saw in Q3. Going forward, I think the backbone of North Atlantic will remain but I think it's already fair to say we will see an increased shift of point of sales to the U.S. This stage where American customers tend to book earlier than European customers in Q3, in Q2, we are almost at a 60% above share of point-of-sale U.S. and obviously below 40% in Europe. Again, due to the later booking patterns of Europeans this will shift a little bit. But again, I'm convinced the trend of last year where we grew our American passengers by 10%, and our European passengers only by 1%, will probably result in even stronger dynamics this summer. Second largest intercontinental area for Lufthansa is not anymore China but by now India, which is also obviously one of the fastest-growing aviation markets in the world. We signed a partnership agreement with our long-term partner, Air India, following just a few weeks after the EU and India had concluded a new trade agreement. We, in this case, includes not only Lufthansa but the German economy, the German business environment, are quite positive and bullish on India. And of course, Lufthansa Group wants to be part of it. But also in South Korea and Japan, where we slightly increased capacity, along with demand, we were able to bring up profitability. And that is also true for South America, which, as you know, becomes more important for us also due to the fact that with IATA, we were able to double our capacities to Argentina and Brazil. The idea for '26 is to grow 6% on intercont and more or less stay flat on cont. And as I said, this, of course, does not include our recent extra sections, we are now in the process of offering. So these numbers, of course, are based on the regular flight pattern, which probably will change due to the short-term demand we are trying to take advantage of. Nevertheless, focused growth will remain our fundamental principle. We've seen the upside of this '25 and we'll probably see more of this in '26. Coming to the next slide. Let me talk a little bit about our obviously unique business model based on the fact of not having the same home market as our main competitors in Paris and London. We will be even more focused on the 4 business segments, and we'll also show them now also in our financial reporting with the 4 strategic pillars we know. Network Airlines will continue to be our core of the core by 70% turnover share. Of course, with Lufthansa Airlines being the biggest part of it. But we will also now be more transparent on our success in the point-to-point business where Eurowings is continuous, not only going strong to defend our non-hub home markets. You all know this is the utmost priority for Eurowings historically, we also see due to the fact that other airlines have been leaving Germany due to the high cost structure, additional market opportunities on the leisure side, we are continuously exploring. Third pillar, Logistics. Not surprisingly, the more unplannable the global economy is, the better for cargo. We've seen a good year in '25. Till will give you more numbers on in a minute. And already, the way things are starting now after the Chinese lunar year with a complete mix up of traffic lanes and supply chains due to the situation at the Gulf, we're probably looking at a good year here as well. And on top of that, new consumer behavior when it comes to e-commerce, I think combined, will make this big. This is a strong part of our company to come. That's even more true for Technik. We all have discussed with you before that '25 due to tariffs, there has been a little bit of a slowdown of our increase of margin and profits, which we don't expect to see again in '26. And obviously, the more or less new part of the Technik business being defense will probably also get more headwinds -- sorry, tailwinds, tailwinds from the unfortunate military developments in Iran over the last days and more to come. So I'm sure we'll be talking this -- we will be talking about this rather more than less in the future. Till with that little call it, 360 and almost hourly dynamic situation where we are, I hand over to you and talk to you in a few more minutes with some outlooks on my side on the strategic path before we are ready for your questions. Till Streichert: Yes. Thank you, Carsten, and also a warm welcome from my side. Exactly as Carsten said, I'll deal with the 2025 looking backwards. And then, of course, looking into 2026 and commenting on our outlook and then Carsten and I will try to answer your questions, in particular, to 2026 as much as we can in the best possible way. But let's first get 2025 out of the way. So 2025, as you've seen, revenue increased by 5.4% to EUR 39.6 billion, enabled by disciplined capacity growth of 3.8% of our Passenger Airlines, strong third-party revenue growth at Lufthansa Technik and as well continued strong demand for air cargo. And while costs developed in line with expectations last year, the cost increases continued to weigh on our P&L, such as a 10% increase in fees and charges or also a 40% increase for emission certificates last year. On the positive side, we did benefit from a lower fuel bill in 2025 and that was EUR 514 million lower than the year before. Overall, adjusted EBIT increased by EUR 350 million to EUR 1.96 billion and our adjusted EBIT margin improved to 4.9%. Please note, due to a one-off tax valuation effect, our positive EBIT development did not translate into a higher net income. Adjusted free cash flow amounts to EUR 1.2 billion, and this is a significant improvement, and this significant improvement was driven by the stronger adjusted EBIT, tax reimbursements and a slightly lower net CapEx. Turning now to our Passenger Airlines. The segment surpassed last year's results despite a challenging environment. Adjusted EBIT increased by EUR 41 million, supported by favorable fuel prices, a significantly lower irregularity impact and a positive earnings contribution from IATA. We are especially happy about Lufthansa Airlines adjusted EBIT improvement of around EUR 250 million. And this reflects the positive impact of the turnaround program. And across all our airlines, capacity grew, as mentioned before, 3.8%, with growth being primarily deployed to the North Atlantic and Continental routes, reflecting the strategic importance of both markets. In the second half of the year, we shifted capacity growth towards intercont markets while streamlining cont traffic. Seat load factor was at 83.2%, slightly higher than 2024 and with a clear momentum towards year-end. As anticipated, yields came under pressure, particularly on short haul and parts of long haul. However, I want to highlight that in our important North Atlantic traffic, unit revenue increased in the fourth quarter by 2.1% on a currency-adjusted basis, confirming the resilience of the demand. Moreover, yield weakness was, to a large extent, compensated by strong growth in ancillary revenues, up 15% for the full year as well as significantly lower irregularity related compensation cost. On the cost side, we have improved our performance throughout the year, while ex fuel CASK still increased by 3.6% in the first half of the year. The increase in Q3 was only 0.5% and the Q4 CASK was almost flat to prior year. This impact of our turnaround measures is important given the ongoing substantial cost inflation in fees, charges and personnel costs. As mentioned before, Lufthansa Airlines is of fundamental importance to us. So I'm happy to report progress. In its turnaround program, we achieved measures with a gross earnings impact of more than EUR 500 million, a clear confirmation that the turnaround is gaining traction. Looking ahead, we expect to measure volume to increase to EUR 1.5 billion by the end of 2026 and to EUR 2.5 billion by 2028. As communicated in our -- on our Capital Markets Day, we are targeting a high single-digit adjusted EBIT margin by 2028 to 2030 for Lufthansa Airlines. The key building blocks of this trajectory are clear: The continued renewal of our fleet, productivity improvements and the combined power of many other initiatives of the turnaround program. On fleet, we expect the Allegris share of the Lufthansa Airlines wide-body fleet to reach as much as 50% by the end of the year. This goes hand-in-hand with an improved yield level, we currently see a 12% RASK uplift from Allegris. On productivity, we will shift further 14 aircraft into our more cost-efficient AOCs, Discover Airlines and City Airlines, City Airlines has recently taken up operations out of Frankfurt and will operate 18 aircraft by the end of the year in total. Discover will operate 32 aircraft, including four A350s. Combined with further measures to improve cockpit and cabin staffing, this is expected to increase crew productivity by about 7% in 2026 compared to prior year. On our 700 turnaround initiatives, let me just comment on some of them. One example is ancillary revenues where we expect a further push driven by the prominent placement of additional services as well as the consistent monetization of the Allegris seating options. Our new cont fare structure will lead to a more personalized offer with the aim to increase customers' willingness to pay. And on the cost side, we will increase operational efficiency and hence, achieve a further reduction as well in fuel consumption. All of this improves financial performance. And in 2026, we expect that we can limit the increase of the Lufthansa Airlines ex fuel CASK to a maximum of half the annual rate of inflation. Moreover, it is noteworthy that this unit cost increase is fully driven by premiumization, hence an investment into value creation for both our customers and ultimately, our shareholders. Ladies and gentlemen, structural improvements do not only apply to our mainline, we also focus on digital transformation on a group level. Let me briefly touch on the progress of our One IT program. One IT is a group-wide transformation program and its aim -- its aim is to move toward a completely unified IT backbone, a common data and AI foundation and an integrated operating model under the recently founded legal entity Lufthansa Group .IO. The objective is clear, structurally lower IT costs while unlocking digital business value. And I'm pleased that already in 2025, the launch year of the program, One IT delivered its first tangible financial contribution. We realized more than EUR 50 million of IT cost savings through quick wins such as contract renegotiations, sourcing optimization and application rationalization. In 2026, One IT will focus on the implementation of structural changes followed by scaling on in 2027. The program targets in total about EUR 200 million of sustainable annual cost savings by 2030. This IT transformation will also enable significant additional business, value for example, ancillary revenues, personalized advertising or cost improvements and customer servicing. And this is why One IT is not only a cost program, but a core enabler of value creation across the entire group. Let me now turn to our Logistics segment. Lufthansa Cargo once again delivered a strong performance in 2025, demonstrating that the business is well positioned in the post-pandemic air freight environment. The revenue growth of 4% was driven by a 5% capacity increase as a result of one additional freighter and increased belly capacity. Strong demand was driven by Asian e-commerce, semiconductors, aviation components and pharmaceuticals, all of them high-margin verticals and therewith putting them into the focus of Lufthansa Cargo. Lufthansa Cargo delivered an adjusted EBIT of EUR 324 million, representing a 29% improvement driven by higher volumes and improved load factors more than compensating a decline in yields. On the cost side, Lufthansa Cargo showed a strong performance, ex-fuel unit cost decreased by around 6% and main drivers were here, lower charter expenses, IT cost reductions and improved crew productivity through optimizing network planning. Looking ahead, we expect for Lufthansa Cargo a clear earnings increase in 2026, building on a disciplined execution of its strategy and the strong market position in special cargo and premium products. Turning to our MRO segment. Lufthansa Technik achieved a 12% revenue growth, with total revenue exceeding EUR 8 billion for the first time, driven by a 23% increase in third-party business. While this was an exceptional top line development, adjusted EBIT amounted to EUR 603 million, broadly in line with the previous year. And this result was achieved despite sizable external headwinds. One of those headwinds came from foreign exchange developments, while the weak U.S. dollar had a net positive effect for our airlines, Lufthansa Technik was impacted negatively with a mid-double-digit million euro earnings effect. Lufthansa Technik was also affected by the U.S. tariffs on aluminum and steel impacting the results by roughly EUR 30 million. But please note that this was already significantly lower than originally assumed due to the swift and successful implementation of mitigation measures. These measures included adjustment to the production flows, renegotiations with customers and optimizing customs processes. These steps contributed to an earnings recovery in the fourth quarter and we expect that the negative effects will diminish further in 2026. In parallel, Lufthansa Technik continued to expand its global footprint. New or growing facilities in Portugal, Tulsa, Calgary and Malta will contribute to substantial capacity additions, particularly in the engine segment. And in 2026, we expect earnings at Lufthansa Technik to increase significantly, supported by normalization of tariff impact, continued growth in the engine segment and the benefits of the commercial initiatives already underway. Turning now to cash flow. 2025 was a year of significant improvement for the group, both in terms of cash flow profile and resilience of our balance sheet. Operating cash flow increased to EUR 4 billion, driven by higher earnings as well as a tax repayment from a German tax audit. CapEx includes the final payments for 23 new aircraft, of which 9 were wide-body aircraft. This was partially offset by 19 sale and leaseback transactions and net CapEx stands at EUR 2.5 billion and is therefore slightly below previous year's level and also below our expectation at the end of Q3 due to a delivery shift of 4 wide-body aircraft into the first half of 2026. And adjusted free cash flow reached close to EUR 1.2 billion, which represents a meaningful increase of EUR 350 million. Looking at our balance sheet. The combination of strong operating cash flow and disciplined investment led to a significant strengthening of our liquidity position, and we ended the year with liquidity of around EUR 10.7 billion, above our target corridor of EUR 8 billion to EUR 10 billion. And we expect this liquidity position to return to the target corridor -- into the target corridor by year-end 2026 as we use these available funds for aircraft, invest and payments. Financial net debt increased to EUR 6.4 billion, mainly driven by the capitalization of leases. And when including our net pension position, total net debt remained stable year-over-year. And as our profitability increased, our leverage ratio improved to 1.8x. We continue to be solidly positioned with an investment grade credit rating and ample financial flexibility to support our fleet renewal and growth plans. Now let's talk about fuel prices, which is, of course, on top of everyone's mind right now. So fuel costs developed favorably throughout 2025 and amounted to EUR 7.3 billion in line with guidance. For 2026, our fossil fuel bill estimate is around EUR 7.2 billion, thereof EUR 7 billion for fossil fuel and EUR 0.2 billion for mandatory SAF. All figures as of last week Friday. These numbers represent a tailwind of approximately EUR 100 million versus 2025, predominantly driven by the weaker U.S. dollar. And as you know, our hedging strategy continues to provide protection against volatility while also allowing us to benefit from price declines. And for the Passenger Airlines, we have already hedged around 82% of our fuel needs for the remainder of 2026. Since last Friday, we have, of course, seen a substantial increase in the jet fuel price, resulting from both higher crude oil price as well as higher jet crack. I will comment on this in more detail in a minute when we talk about our full year earnings outlook. So let's go there. And speaking now about our outlook for the current financial year. This is obviously not easy given the events in the Middle East. On the one hand side, I see the strength of our group and the progress we make in executing our strategy in all the dimensions and also in all the dimensions that we can control. On the other hand, I see what's happening around us and this does have an impact as well on our financials. The bottom line impact will depend on which effects are outweighing the others and also on whether those effects will change subject to the duration of the current situation. Being in this situation for only 6 days by now, obviously, does not provide us with sufficient hard data points to draw final conclusions for the rest of the year. But of course, we have data points from the first couple of days, which we were going to talk -- which we are going to talk about in a minute. Let's go through the building blocks of our outlook. We plan to increase capacity by around 4% and here also in a disciplined way. Clear focus will be on intercont routes where we expect to grow in mid- to high single-digit range while cont capacity will be broadly unchanged. I do expect cost inflation to persist but it will be partly offset by our transformation programs and the ongoing fleet modernization. And on this basis, we expect adjusted EBIT for 2026 to be significantly above the 2025 level, consistent with our commitment to delivering sustainable profitability improvements. Now let me put this into perspective of the Middle East crisis, and let me describe to you what we are currently seeing. One slide before, we've shown you a fuel price forecast based on last week's Friday, and that is the way we always presented to you each quarter, including also the fuel sensitivity, the fuel matrix where you can go along the axis and get an idea how things can move. Now since then, fuel prices have increased and taking a short-term perspective, just for the next 2 months, current fuel price levels mean about a 20% to 25% higher fuel cost for March and April compared to the underlying figures reflected in our EUR 7 billion forecast for the full year. However, for March, the impact -- and again, that's normal, for March, the impact will be further limited as about 60% of our physical settlements for fuel are priced at the prior month level. This does give us additional time to also adjust our revenue management approach. Having said that, broadly, in terms of fuel dynamics, we don't believe that fuel price levels remain in the long run where they are right now. Then we also have impacts from flight cancellations. Since 28th of February, we, of course, have stopped flying into the region. These are 10 destinations. And overall, to give you an idea, Middle East traffic would have represented about 3% of our capacity in the first quarter. For comparison in 2025, it was just about 2%. So you can see that the overall impact is somewhat limited. We estimate about a EUR 5 million earnings impact per week from those cancellations based on lost business and cost of care. On the other hand, we are also observing positive earnings effect. And firstly, since last weekend, more people have been flying with the Lufthansa Group Airlines instead of connecting via the Gulf hubs. Since the weekend, additional bookings on our Asia and Africa routes have by far overcompensated the cancellations we've seen on our Middle East routes. Over the past days, revenue intake for departures in March was about 60% higher than last year. Global net revenue intake for the full year during those days, was more than 20% higher than last year, indicating a positive impact in booking intakes also beyond March. We expect this situation to persist as long as the hubs in the Middle East cannot be fully serviced. Secondly, many people are currently changing their travel plans in the short term. And on this topic, we see the possibility that travel patterns might also change for longer. Potentially persisting -- potentially persisting security concerns around the Gulf region might also lead to more traffic within Europe or through European hubs or U.S. destinations. Thirdly, with more than 80% hedge ratio, we are hedged to a higher degree than many others. This provides us with a relative advantage, especially compared to those who are not hedged at all. And fourthly, a large part of the airfreight capacity in the Middle East is currently affected, about around 18% of global capacity is not available at the moment. This means that also cargo streams are shifting. And Lufthansa Cargo has observed an increase in demand over the past few days. Moreover, we've seen rise in cargo yields of 5% worldwide and plus 35% in the Middle East and Asia over the past few days, even a further yield uplift from these markets is conceivable. More longer term, we might also see more shift from seafreight to airfreight when things are time critical. Therefore, for me, the conclusion or the message is kind of clear. We do control what we can control, and we are obviously closely monitoring what's going on in the world right now. And even in the light of the current situation, we are convinced that we can significantly increase our adjusted EBIT in 2026. However, let me also be clear, the range of uncertainty has increased and there was also the range of possible outcomes. Let's now go back to what we control, that's our CapEx. Our CapEx outlook. Net CapEx is expected to amount to around EUR 2.9 billion, reflecting the planned delivery of up to 45 new aircraft. That's the largest single year fleet expansion in our company's history. And adjusted free cash flow is expected to be around EUR 0.9 billion slightly below last year due to the higher investment volume. We expect 2026 overall, to be a year of continued progress for the group on our path towards our midterm targets and our businesses are well positioned and on a clear trajectory towards long-term value creation. And on that note, knowing that, of course, 2026 will be at the center of our discussion, I believe. I'd like to hand back to Carsten for further remarks on the strategic outlook. Carsten Spohr: Yes. Thanks, Till. And just a few words on, indeed, how do we look into the future, of course, based on what Till and I communicated at the Capital Markets Day back in September, where we announced our medium-term financial targets, you are well aware of by now, centering around 8% to 10% adjusted EBIT margins. First, lever of -- the 4 key levers I'd like to address is obviously airline growth in a profitable way, which means for us more long haul than short haul. We actually want to grow the intercont fleet to 200 aircraft while we keep the short-haul fleet more or less flat. The additional required feed will be provided by coordinating our hub traffic in the future, centrally over all 6 hubs, which will give us a higher share of feed passengers to intercont destinations rather than short-haul to short-haul. At the same time, we're, of course, leveraging the One Group approach beyond this example. We do see a 3% margin uplift from fleet and new premium alone but there's also elements of the loyalty ecosystem and the ancillary push, which will pay into our midterm targets. Last but not least, the so-called One IT, where we're harmonizing the IT network, at least across the 6 hubs in many regards, even beyond our hub and Network Airlines is another example of this second lever. Third, airline cost transformation. Operational excellence focus in '25 has provided the stability I quoted was -- mentioned to you before. Now starting in '26, efficiency will be higher on the priority list. And we do believe, including more modern aircraft, including, of course, lessons learned, and finally, enough staffing at the European and especially German hub airports, we will be able to show that we keep our unit cost despite cost inflation flat in '26 as we already did in the fourth and last quarter of last year. Another element of this will be the fact that we grow fastest in those airlines with the best cost competitiveness, thinking about Discover, for example, and Lufthansa City Airlines. Yes, and last but not least, the so-called fourth lever is the additional focus on MRO and cargo. You know our Ambition 2030 program in Cargo, by which we want to achieve EUR 10 billion of revenue with the 10% EBIT margin by the end of the decade. And also in Lufthansa Cargo probably supported by the recent developments in the Gulf, we are looking to claim the top 3 position globally, again, coming out of top 5. Last but not least, defense was already mentioned, and we strongly believe, again, with current affairs probably creating a tailwind here that defense will be a very stable and highly profitable part of Lufthansa Technik to a higher degree. Last but not least, let's talk about a little bit more about maybe the single most important lever and most impactful lever we have, our fleet renewal. You're aware we're taking -- we're in the middle or at the beginning, if you might say, of the largest ever step towards a more modern and productive fleet. We expect 45 new aircraft this year alone, more or less 1 per week, and there is an unheard number of 27 widebodies among them. That will bring us to a new tech quota across the whole group of 1/3 with obviously resulting cost advantages and productivity gains. Also, we see some light at the end of the tunnel of the Pratt & Whitney engine issue. As far as it looks now, we'll be able to bring down the number of grounded aircraft to less than 10, which is 30% less than last year. Coming to an end, getting ready for your questions, you might share my view that the Lufthansa brand is an iconic brand in our industry for many, many years now, celebrating our 100 anniversary today. No doubt, we intend to maintain this in the future. And part of that must be the further improvement of the customer experience and be an example of Starlink, which we are looking to offer to our customers as of Q2, be it new lounges in almost all of our hubs and flagship lounge to be opened soon in JFK, where all of our group airlines or more or less all of our long-range group airlines are serving the airport at least once a day, where overall, the further integration of IATA creating more synergies is a step towards that product improvement for our customers. So overall, again, with all the uncertainties existing, we're looking optimistically into '26, and now -- look forward to your questions and comments. Thank you very much. Operator: [Operator Instructions] And the first question comes from Jaime Rowbotham from Deutsche Bank. Jaime Rowbotham: Two questions from me. Firstly, Carsten, I wanted to ask about these puts and takes, pros and cons of the current unfortunate situation. Till did a great job of running through some of them. Interesting to hear bookings to Asia Africa over compensated for cancellations to the Middle East. I just wanted to focus it maybe on the transatlantic, given it's so important for you, your U.S. competitors aren't hedged, so they are likely raising fares and hopefully, you can follow that a bit. At the same time, though, I wonder if fares are going up at just the wrong time in the sense that some people might be nervous to travel at all, which could have a downward impact on demand. Maybe you could just flesh out either what you've seen so far or what you think happens next insofar as that's possible. Second one for Till. Thanks a lot, for clarifying what might happen to fuel for March and April. I just wanted to ask, if possible, about the full year. So on the fuel slide, you tell us you as of last Friday, $71 for Brent, $26 for the crack spread to get to EUR 7.2 billion. Obviously, Brent now $88 and the crack spread about $100 a barrel. So it's costing more to refine than to buy the oil. Hopefully, that won't last. But the forward curves are pointing to a scenario that's not even covered by your sensitivity table where the jet crack part on the x-axis could double or triple versus what you show. You also mentioned in the footnote, the hedging you've got is part on gas oil and part on Brent, so you don't actually have the crack spread hedged. With that in mind, have you had a chance to do any scenario analysis on what a mark-to-market type fuel bill might look like for all of 2026? Till Streichert: I'll go second first and then maybe on the puts and takes, Carsten, if you want to add a little bit. So Jaime, absolutely. I mean, this is top of mind question how this is going to evolve. And you are quite right in terms of hedging. We've got a split and you know that we usually hedge blend with about 35% and gas oil as a proxy for jet crack with about 50%. And it's true that, obviously, jet crack has moved up. You can almost say off the chart of our fuel matrix on the right-hand side. So here, I would just highlight, and again, mathematically, you can calculate all of that, and we have done that. And the impact, obviously, if you would imagine that it stays for the full year is of size. On the other hand side, I also don't believe that this situation will going to stay there for a long time. And you can see also, and I'm sure you've looked at the volumes that have been traded driving ultimately the crack price, the crack spread. It's on very low liquidity. And therefore, there was -- I would also say a bit on the back of what President Trump yesterday evening said to possibly also escort tankers through the Strait of Hormuz. Ultimately, I do believe that this is not going to stay for long at these levels. And of course, leading now into the other side of the equation, it's true that the hedge levels do we have give us a solid upward protection. And of course, this differentiates us versus others that follow a non-hedging policy. And therewith, I do expect that also yields also or in particular, on the North Atlantic have got the potential to go up and increase. Carsten Spohr: Yes, Jaime, Carsten here. I think you already kind of put it in your question. There are pros and cons, and I think it's very difficult right now to quantify them exactly after just a few days. Again, cost of cancellations exist, probably like EUR 5 million per week is our best estimate. But at the same time, as you pointed out, we have a relative advantage on the fuel cost on the one hand. I think there's also historically a certain move of bookings towards highly trusted brands in times of crisis, we are definitely SWISS as the [indiscernible] Switzerland and Lufthansa to a certain degree, we probably benefit from. Then, of course, the question is, is the overall potential softness in travel for us, European carriers overcompensated by the shift of travel from carriers in parts of the world where people don't want to go now towards us. Hard to quantify at this point but not completely probably unexpected that will happen to a certain degree. And as I said before, there will be flexibility in our network as we are now within days putting capacity into China, into South Africa into Southeast Asia, of course, we're happy to also reallocate capacity throughout the whole summer if needed. If, for example, the demand tool from Asia become so strong that the next best route tool from Asia is more profitable then the weakest route on the North Atlantic, we would move the airplane. But I think it's way too early to discuss that now. Till Streichert: Let me add maybe just 1 additional point, if I may, just to give you a bit of a holding line as well on the RASK side. If we would have spoken 10 days ago and talked about RASK expectation for the first quarter, I would have said currency adjusted, so ex-X positive but including FX, slightly negative. Now as we speak today, with the net booking intake that we've seen over the past few days, this has shifted clearly to the positive side. And I expect that the RASK for the first quarter should reach a positive territory, even including the unfavorable FX headwind in comparison to prior year because remember, obviously, the U.S. dollar started to depreciate just in the second quarter last year. Operator: And the next question comes from Stephen Furlong from Davy. Stephen Furlong: Carsten, Till and Marc, congratulations on the results. Carsten, in the prepared remarks, I mean, you talked about the industry being more resilient to crisis than it used to be. Could you just amplify that? And then maybe just talk about the Allegris products and talk again about the kind of rollout of that product. I know there's been a lot of kind of news, comments and reports about some delays and then not delays and what the revenue kicker you're getting from that excellent product? Carsten Spohr: Yes, Stephen, thanks. I think has said this numerous times about the industry being more resilient before the unfortunate events that the Gulf started a few days ago. Because, unfortunately, already before that, we have more military conflict in the world than ever before since 1945. And whereas usually, when there's a conflict somewhere, bookings usually collapse because people are afraid to fly and want to stay home, this hasn't happened, not only not the last days, let's even go beyond that. We have seen, as you well know, record demand in the industry basically since COVID. And what is the background of this. I share the view of some of my American counterparts that for consumers, traveling has been higher prioritized since COVID as before. That's 1 element. We definitely don't have a period of overcapacity due to the shortage of engine and plane productions at the OEM level. And I think last but not least, you see more wealth around the world, not only in the saturated markets but also in other parts of the world, which airlines serve. I think all that combined -- by the way, the last one is why especially the premium classes, as you know, are booming now for many years. So I think all that combined shows that even though the world has not become more stable, our industry has. And now to also the last days might add to this because imagine this would have happened 20 years ago, I think you would see a very different booking environment than what we are seeing since last weekend. Allegris, yes, we had significant delays in certifying the Boeing aircraft with our Allegris seats who have a different manufacturer than the seats in our Airbus wide-bodies are manufactured by. We wanted to split the risk many years ago and also the capacity of none of the seat manufacturers was big enough to provide all of our wide bodies. But now these airplanes are coming in quick time, as I mentioned, 9 are here already. By the end of the year, we have 36, I think, as I said in my opening remarks, we have 28 seats in the 787, of which 25 are now certified as the end of March. And there is now only 3 seats, which will not be able to be sold by the end of March. And we even now decided to pull that 1 week forward giving us additional revenue opportunities by already having the seats open for a flight a few days before the end of the winter schedule. But that's only the 787 topic. And as mentioned also by the end of the year, in the Lufthansa Airline, 50% of our seats will either be Allegris or in case of the 380 aisle access seats. So we're another manufacturer. So this is now in full swing. We mentioned before, we have 12% to 13%, 14% higher yields on these seats than on our regular business class seats. So that's big and also the ancillary revenue increase, which we're expecting for '26 to a high degree, will come from Allegris versus the first time we actually charge for different seat types in business class, so that will also be, I think, tailwind for '26 and beyond. I hope that answers your question. Operator: And the next question comes from Alex Irving from Bernstein. Alexander Irving: I'll ask 2, please, both around technology. First of all, on IT, you signed in the last quarter for a new IT platform to implement across 9 of your group airlines. There's an IATA paper that's been around for a while that talks about a 2% to 3% improvement to RASK platforming like this. Is that the right way to think about the upside for Lufthansa Group? Or is the incremental gain less given your work to date in areas like continuous pricing, for example? Second question is on the distribution side of things, specifically, how are you approaching decision about whether and how to sell in large language models? Are you planning to engage directly through an API or to rely on existing infrastructure GDSs, travel agents and continue to pay commissions? Do you have a view on when you're likely to sell your first trip through an LLM? Till Streichert: Okay. I'll make a start on the first one, and then I'll see how far I get on the large language model based selling. Look, I mean, as you know, quite right, we want to embark on the journey of implementing on the one order path, it will be a long-term journey for the industry and also us but it is important to be amongst those ones that joined the pack at the beginning. And we do believe that there are clear benefits on the IT infrastructure on the one hand side because, I mean, as you know, the P&R standard, e-ticket standard and the miscellaneous data standard gets basically consolidated into a single order that is more efficient and drives back office efficiency on the other hand side, quite right. Once you've got this type of let me say, Amazon order type model, marketing and retailing obviously benefits as well. I am aware that IATA quotes these figures of 2% to 3% RASK benefit. To be honest, I find it quite early to take a view on this. But I do believe that principally, there are benefits also on the revenue side from better retailing. I think particularly for us, what I believe is good. We obviously come with scale when you think of passengers that we've got. And whenever you touch these large-scale transformations, when you get it for done at scale, it does give you normally a greater benefit. Look on the distribution, to be honest here, and large language models, I have to admit I'm not that deep into the status where we are. What I can tell you is that, clearly, we are advancing on many fronts in the digital arena to improve customer servicing, through large language model-based trainings, bots. And I don't know what the digital adoption right now is, but we are making progress on that front. But happy to come back and have a dedicated conversation on this. Operator: And the next question comes from James Hollins from BNB Paribas. James Hollins: So Till, on the turnaround update, maybe I always see a slightly in charge of this, so maybe I'm wrong. But as you see it, where have you outperformed, underperformed so far on the turnaround program? And you may not choose to answer this but if I take the Lufthansa Airline EBIT growth of EUR 250 million, which was a gross benefit of EUR 500 million. Is that 50% net versus gross benefit, a good indicator for the full year '26 EUR 1.5 billion? And then probably for Carsten and I know there's lots going on but I thought I'd better mention the strike you had in Q1. Maybe you could update on the cost of that where we are on some of the open CLAs and whether this current situation tends to lead to a bit of a backtrack from some of the union aggression? Till Streichert: Yes. So I mean turnaround, first, to give you my kind of assessment, I am happy with what we have achieved last year. Again, it's not easy to get such a large-scale program off the ground. And the EUR 500 million gross figure, as you know, has come from several initiatives. We've got EUR 700 million in the entire funnel. Several of them obviously have gained traction and delivered in 2025. Let me say, where were we strong and where maybe things will be moving in the future towards. Point where we were clearly strong and successfully executed was operational stability. You remember that was one of our big topics at the beginning of 2025. Get stability back into the production, into the system. That is good for our customers, was good for our customers. You can see that in NPS, customer satisfaction everywhere. And also in the significant benefits on the so-called IRREG cost charges and foregone revenue that is sizable. And that's a clear proof point but also on many other smaller initiatives. And again, I wouldn't speak about EUR 700 million initiatives if it wouldn't be quite granular. We've made good progress. What's ahead of us is clearly the focus on productivity. And this is why I made it also a point on my chart on my slide. And there, we will continue to move capacity into our lower-cost AOCs, Discover Airlines, City Airlines. You can see the aircraft that we are moving and also starting operations for City Airlines from Frankfurt and there with big focus for 2026 and beyond is productivity. Now to your question, gross versus net. Look, it's hard to say. To isolate it on a program level because we do have, obviously, underlying cost inflation drivers from a salary point of view, from a fees and charges point of view, and therefore, it's a bit of a harder ask to say how this -- how the gross is directly translated into a net. But I do see us on track to get the EUR 1.5 billion in 2026 delivered. Carsten Spohr: Yes. On the strikes, the number you're asking for day of strike like the 1 we just had, we probably estimated to be around [ EUR 50 million. ] You might see that's a lot less than what we had before. Why is that? Well, there's less support this time for the units going on strike, which results in more volunteers to continue operation. So therefore, we don't ground the whole fleet as we were forced to in the past but keep our most profitable routes in the area that's reducing the cost. Looking ahead, we are in constructive talks both with our cabin union, as a matter of fact happening today, and Verdi, our ground staff union and also for the cockpit union, actually, we have now 2 corporate units in Germany but for the 1 which is affected here for Unabhangige cockpit, we have offered even in a moderated fashion to talk about the bigger scheme of things, which right now has not been agreed to yet but the individual pilots very much want to stop the shrinking of the main airline, which becomes more and more obvious, as Till just pointed out with our shift of airplanes. So I'm quite optimistic that eventually, that shrinking on behalf of the pilots should come to an end, which will require us to talk on the bigger scheme of things. So I don't see any strike action like the one we saw in 2012 to 2016 or anything because there, we just now too much what the members want and believe that the answers, of course, can only be a reduction of the cost disadvantage of the main airline to the other AOCs in Lufthansa, whereas a strike itself and even the things they're asking for in the strike, and we are not willing to give in the airline with the lowest profit would increase the distance and the disadvantage on the cost side. So this will not be a long-lasting, I think, exercise. Operator: The next question comes from Harry Gowers from JPMorgan. Harry Gowers: First question, maybe just related to Jamie's question on the fuel hedging. Can you just confirm, do you fully hedge the crack component and that's all included within your comments on the March to April monthly impact? I think you said that gas oil hedging is a proxy for jet crack, and so does that type of hedging basically fully cover the price increases we're seeing in the crack spread market at the moment? That's the first one. And then second one, just on the ex-fuel unit costs. You have this comment around 2026 ex-fuel CASK is expected to be half of inflation for Lufthansa Airlines? Can we extrapolate that for the entirety, I guess, of the kind of new network airline segment? Is there any reason why those other airline businesses won't be reporting a similar cost results? And maybe just related to that, if I can squeeze 1 in, what are you assuming for the union agreements? And staff cost inflation in your overall kind of cost and EBIT guidance for the year? Till Streichert: Okay. Maybe a comment on just union agreements. I'll leave to you, Carsten, and I'll go on the first question -- on the second question first, ex-fuel unit cost. So let me be clear what I said is indeed for Lufthansa Airlines, half of inflation is our target. Now overall, as you will remember, we stayed away from giving a group guidance on CASK overall. So we limited it to a specification just for Lufthansa Airlines. Of course, all of the other airlines, our business units have got CASK saving programs in place but I don't want to give an overall cost guidance for the entire group. Going back to the first question, which is a fuel hedging, once again, we hedged gas oil 50%. So 50% is the element of our hedge. Our hedging composition included 35%. And gas oil as a proxy that is strongly correlated to jet crack but it's true currently, Jet crack is very high. We believe that the spread between jet and gas oil will come back to normal levels. And I think the spread currently is inflated mainly because of the illiquidity in the market. Carsten Spohr: Yes. Harry, if I got your question right, you wonder how union agreements would impact our guidance. So I think it's fair to say they will not impact our guidance. Where we have talks, we kind of know what we are willing to offer and how that would result in financial outputs. Of course, it's in our planning. And in the last strike we had for the pilots on the mainline, we told them that as long as the main line is not reaching its targets in terms of profitability. And that actually is the lowest profitability airline in the group. There is no any financial room for maneuver to pay even higher pension benefits, which are already higher than the ones in the other airlines. So there's also no room for additional costs here. That remains is, of course, the cost of strikes. But at the same time, the more strikes there are, the less airplane will be in that airline. So I think there's almost like a natural hedge if you want to use the term from our fuel environment. So the answer again, to your question is that there is no impact on the guidance to be expected from the current labor conflicts. Operator: And the next question comes from Axel Stasse from Morgan Stanley. Axel Stasse: I have two from me. On the first one, coming back on fuel, apologies. How much of that fuel inflation can be passed on? Obviously, you mentioned your exposure to jet and gas oil crack. But obviously, the U.S. guys are not hard at all. So if fuel goes up by 10% approximately, how much of that can be passed on? Can we assume half of it? The reason why I'm asking is because I'm slightly surprised to see you we're comfortable of providing an EBIT guidance without a lot of visibility in the near term on fuel. And I therefore assume you guys feel comfortable passing that on. So just trying to understand the extent of it. And then the second question is can you provide maybe an update on TAP, what are the latest news here? And how comfortable are you on TAP? Till Streichert: I'll take the first one, just on fuel once again. Two comments I would add in addition to what I already explained. I mean, first of all, ticket prices are made at the market level but we do see already increased yields also on the North Atlantic and the fuel price surcharges are being implemented. Now how much of that exactly I can't tell you but the situation is dynamic, and therefore, I think it is just not prudent to give you a statement on that. I think if in the future, fuel prices remain elevated, clearly, everyone and in particular, those ones that follow a no-hedge strategy or have got less hedge protection will need to pass on fuel prices. And that, in my view, provides an opportunity and allows for equally pass-through from our end of additional fuel cost. We have done first price increases already through the fuel price surcharge and have implemented them. And sorry, and just 1 more thing, Cargo. I wanted to speak about both segments. Cargo obviously works on a pass-through model as well. And there -- there is literally -- it's not on a daily basis but within a week, prices get adjusted for the input cost of fuel. Carsten Spohr: Yes. Actually, there's nothing really new on TAP. As you know, we are in the process because we believe there would be a perfect addition to our multi-hub network, also due to the fact that we are currently the weakest on the Latin American market. The overlaps are less than they would be for others, which probably has an impact on the antitrust approvals to be obtained. At the same time, there are so many open questions about the process and the outcome that it's impossible at this point to answer is creating value for our shareholders or not. If it doesn't create shareholder value, we will not do it. We don't need it. If it ends up to be a win-win of Portugal TAP and us, we will maybe see more progress here. Nothing else to add. Operator: And the next question comes from Muneeba Kayani from Bank of America. Muneeba Kayani: Firstly, Till, if I can just clarify your comments around the impact from the Middle East on kind of near-term March, April. Did you say that the higher bookings demand that you're seeing for Asia, Africa and all is compensating just the cancellation costs? Or is it compensating cancellation costs and the jet fuel higher costs on the unhedged portion? So that's my first question. And then secondly, just going back to the transatlantic and Carsten, in your experience, how long does it take for kind of U.S. airlines to adjust the capacity in such shocks on the oil price, given their lack of hedging? Till Streichert: Mona, let me take the first question, albeit I might not give you a totally conclusive answer on that. But yes, first of all, and let me go on the net booking intake and just to run you through that. And I've really taken the view on kind of what numbers do we see right now. And since last Saturday, our net booking intake has developed strongly, exactly as I said. And when we compare these net bookings which we have received between Saturday and Wednesday, end of day, for the month of March, this figure is about 60% higher than 1 year ago. And my second statement on the inflow side was, if I compare same period, those few days, net bookings for the rest of 2026, this figure is 20% higher than 1 year ago. So clearly, what I said on the negative side, the cost of the cancellations of the Middle East, we have comfortably covered. To your question now, does that cover as well the fuel cost. Look, it really depends on how long the fuel prices remain elevated because I've equally given you a view on March and March as such, while I said, nominally 20%, 25% higher fuel bill as we obviously settle the physical fuel bill with a month's delay, you can actually knock half of it off for a month, okay? So it's not that straightforward to say how all-in looks like but there are puts and takes. And I think we should clearly see both of them, albeit I'm not giving you a net figure right now because I can't. Carsten Spohr: Yes. Muneeba, Carsten, you asked for my experience, and I think the things I experience is twofold. First of all, the speed of reaction is a function of the impact of -- on the traffic. Think about 9/11, it took us all only days to come up with a different schedule when the skies reopened than the schedule we had before because it was so obvious impact was huge. I think this is a different situation here. But none of us knows how long the war will last, how long the impact will last, at which degree but I think it's worth to say that all of us have become much better in reallocating capacity to demand, also due to the lack of aircraft in general. What does that mean? When you have a route which is not performing well anymore, you can more easily find another route to provide profitability and value for your shareholders than in the past where maybe you already had loss-making routes and couldn't find something else because otherwise, we would have done it before. So I think with the profitability where it is also for the international business of the U.S. carriers, we're going to see a very market-focused reaction on both sides of the Atlantic, which fuses our optimism -- fuels our optimism, sorry, for my language. Operator: And the next question comes from Andrew Lobbenberg from Barclays. Andrew Lobbenberg: Can I ask about IATA, we haven't spoken about that beautiful pretty picture on the slide of the planes? How are you thinking about the decision to take majority in general? And then how are you thinking about it in the context of the unsettling events in the Gulf? And then can I just come back to the scale of current bookings? You've given us really precise figures on how bookings have come in for those destinations in the range of the Gulf that have gained. What has happened to booking inflows for short-haul Europe? What has happened to booking inflows on the North Atlantic in that short time period? Till Streichert: So look, first of all IATA, on it, maybe I'll just divert the sac, and just IATA has done a good 2025. Organically, they've reached breakeven on adjusted EBIT, which is positive, which is great. And you can actually back-calculate what also their overall net income was. Our 41% contributed with EUR 90 million. On our side, I do see many benefits of calling and integrate -- calling early and integrating IATA faster. We've made very good progress throughout last year. But as you can imagine, with the call option being open to be decided in June, we will keep our options open, and we continue to assess and then take a decision nearer by the time and will communicate. Secondly, on the different travel on the -- sorry, your second question was on Europe and North Atlantic in terms of sentiment, travel sentiment. We actually have so far not observed worsening of travel sentiment or also bookings in intra-Europe or North Atlantic but of course, it's to be seen. Operator: And the next question comes from Ruairi Cullinane from RBC Capital. Ruairi Cullinane: What have you done to Middle East capacity this summer? And linked to that, should we expect the EUR 5 million per week cost of cancellations to tail off even if the conflict doesn't come to an end soon? And then secondly, are you any less comfortable hedging fuel through Brent and the gas oil and leaving spread to jet fuel unhedged? Could you consider that in the future? Till Streichert: First of all, Middle East, I've given you an idea of the sizing. Last year, it was about 2% of our capacity. In Q1 normally that would have been 3%. Remember, last year, there was also a bit of on and off of flying into the Middle East, and this is why it was 2%, and we had it increased it a little bit. So I think what I've given you now is a EUR 5 million negative impact while we are not flying will rather go down because it does include, of course, a view on the cost of care. We took a view now of also those additional costs that is just on the ones where we actually need to care -- where we need to support, while also passengers guests are staying still need to be repatriated or flown back. If it stays long, we will clearly reallocate capacity. And then even this element of what I called negative impact or lost business from Middle East will obviously go away. And therewith, I would say this is not so much of an impact medium term. In terms of strategy of hedging, look, I think I've described it probably to the fullest extent I can do on this call. And we -- our hedging strategy is clearly designed through options and that's different to swaps where we want to participate, also in the downwards movement and therefore, I'm comfortable with the strategy that we have so far in place. Operator: And the next question then comes from Antonio Duarte from Goodbody. Antonio Duarte: The first one is on ancillaries. So 15% growth year-on-year, clearly doing very well, namely with Allegris rollout. Could you give us some color here where you see these terms of ranges going forward? And my second question is turning to the MRO. As you said, a bit of a margin compression seen in '25, a bit of recovery expected from your defense, et cetera. Would you be comfortable with the full recovery from the margin seen in '24? And any color on that would be great. Till Streichert: Okay. Let me make a start just on ancillaries. We have explained what we've seen on Allegris. And the additional seat options and also ancillary sales overall. If I split that, I do believe that the ancillary sales as such has got substance to continue. But of course, it's hard to be at a double-digit rate going forward, just a law of big numbers at one point in time. Therewith, I would like to go back to the Allegris element within the ancillaries. And here, we clearly see the benefit of selling the different seat options. And the main driver of that is obviously the number of aircraft coming with the Allegris cabin into it, and that has got runway and gives us longevity to continue to grow the ancillary sales category. Carsten Spohr: We always call it the big 3, Antonio, baggage, seating upgrades. And that, I think, will continue to drive ancillaries up as Till explained, with Allegris, of course, a special push. MRO, you know that in '25, MRO was suffering almost -- as the only part of the Lufthansa Group under tariffs, which, as you well know, for airplanes and engines don't apply. These tariffs, as we all know, have been ruled illegal by the Supreme Court. So at least they don't go forward. Probably there will also be reimbursements as we all know. So that will be definitely 1 of the reasons why we believe we can not only get back to '25 -- sorry, '24 margins in MRO, but we will continue to go towards the 10% we have planned for the end of the decade. And I'll leave that defense element out, which as I mentioned before, we'll see, I think, another support for the strategic development of Lufthansa Technik, even though it doesn't necessarily monetize short term. But again, we are committed to our 10% margin in '23. And some of the ramp-up costs we had in for Canada, for Portugal also won't repeat themselves. So overall, my optimism continues. Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Marc-Dominic Nettesheim for any closing remarks. Marc-Dominic Nettesheim: Thank you very much for your questions, for your interest and for the lovely discussion. We are happy to continue this from the Investor Relations side. We wish you a lovely afternoon and talk to you soon. Bye-bye. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.