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Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Brilliant Earth Group, Inc. Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Colin Bourland, Vice President of Strategy, Business Development, and Investor Relations. Please go ahead. Colin Bourland: Thank you, and good morning, everyone. Welcome to the Brilliant Earth Group, Inc. Fourth Quarter 2025 Earnings Conference Call. My name is Colin Bourland, Vice President of Strategy, Business Development, and Investor Relations. Joining me today are Beth Gerstein, our Chief Executive Officer, and Jeffrey Kuo, our Chief Financial Officer. During the call today, management will make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a description of the risks that could cause our actual performance and results to differ materially from those expressed or implied in these forward-looking statements. These forward-looking statements reflect our opinion only as of the date of this call, and we undertake no obligation to revise or publicly release the result of any revision to these forward-looking statements in light of new information or future events unless required by law. Also, during this call, management will refer to certain non-GAAP financial measures. A reconciliation of Brilliant Earth Group, Inc.'s non-GAAP measures to the comparable GAAP measures is available in today's earnings release, which can be found on the Brilliant Earth Group, Inc. Investor Relations website. I will now turn the call over to Beth. Good morning, everyone, and thank you for joining us. Beth Gerstein: I am pleased to share strong Q4 results today. We delivered our largest quarter ever of net sales in Q4, driving 4% year-over-year growth in net sales with particularly strong performance in fine jewelry. We also delivered positive adjusted EBITDA, above the midpoint of our stated guidance, highlighting the agility of our business model. Our results reflect the success of the investments we have been making across product, brand, and experience. 2025 was a banner year for Brilliant Earth Group, Inc. We celebrated our twentieth anniversary and achieved major accomplishments across each of the strategic priorities that drive our growth. Before we dive into the results, I want to remind you of that growth strategy and how it guides our execution in this highly competitive and dynamic industry. We believe that these four things are key to realizing the growth opportunity ahead of us. First, our aim is to build Brilliant Earth Group, Inc. into the most loved and trusted jewelry brand. 2025 was a year of incredible brand momentum and successes. Our brand was at the center of many high-visibility moments this year, as stars like Beyoncé, Sabrina Carpenter, and Selena Gomez chose our product for major events in their lives. And we expanded our brand reach through unique partnerships ranging from Jane Goodall to Ring Pop. Second, create great product that is distinctive and ownable and builds affinity for the Brilliant Earth Group, Inc. brand. Have particular focus on expanding beyond our core bridal business into fine jewelry. And 2025 was a breakthrough year in which we grew fine jewelry mix to 17% of bookings with many iconic product releases, including our signature Pacific green-colored lab diamond collection, our Medallions with Meaning, and our Love Decoded collection. Our success in fine jewelry has turned what was a nascent portion of sales just five years ago into a business on a path to $100,000,000 annually. Third, deliver joyful and personalized shopping experiences that delight customers, foster lasting relationships, and set new standards for modern luxury retail. Last year, we continued to deliver industry-leading digital experiences and opened two new showrooms, reaching 42 in total. And our physical retail strategy continues to evolve with the opening of our first flagship showroom in Beverly Hills earlier this year, which showcases our new approach to experiential retail. And fourth, continue to develop our industry-leading asset-light business model utilizing cutting-edge technology and processes to drive long-term profitable growth. The results we shared today demonstrate the power of our model and this team's ability to deliver. Now let me walk you through some performance highlights of Q4. For the fourth quarter, net sales were $124,400,000, representing 4.1% growth year over year, and the highest quarter of net sales in our history. ASPs in Q4 were up year over year across the assortment. Much of the growth in ASP was driven by changes in mix to higher-priced items within each assortment, as we are seeing particular strength with the higher-end consumer combined with strong total and repeat order growth. For the full year, net sales reached $437,500,000, up 3.6% year over year. We delivered a fantastic holiday performance, including another record-breaking Cyber Weekend. Throughout the holiday selling period, our seamless omnichannel model drove strong traffic and conversion, both online and in our showrooms. From our Joyful Delight in the Details holiday campaign to showroom executions, including new experiences like trunk shows and deeper inventory investments, we saw strong performance during the quarter, especially in the ten days leading up to Christmas, where we drove 15% year-over-year bookings growth as customers sought Brilliant Earth Group, Inc. as their go-to gifting destination. Our gross margin was 55.9% in Q4 and 57.5% for the full year, approximately in line with what we had communicated during our Q3 earnings call, highlighting our ability to drive strong margins despite significant metal and tariff headwinds. You all know that the challenges presented by record metal prices and fluctuating tariff conditions are unprecedented. Our ability to manage through these conditions has been a testament to the strength of our business model and our team. This is an industry-wide impact, but our ability to optimize the performance drivers within our control has allowed us to navigate these challenges and still deliver profitability within our expectations. Jeffrey will talk more about the impacts, but as we are now into the new year, you can expect that we will continue to focus on optimizing our business in the ways that we can control to mitigate as much of the external cost pressures as possible. Our strong gross margin, another quarter and year of year-over-year marketing leverage, and overall operating expense discipline enabled us to drive a Q4 adjusted EBITDA of $4,200,000, or a 3.3% margin, and full-year adjusted EBITDA of $12,000,000, or a 2.7% margin, illustrating the agility of our business model and our continued discipline in cost management. Turning to some additional highlights for the quarter. Fine jewelry was a clear standout. In Q4, for the first time, we had multiple days where we hit $1,000,000 in fine jewelry bookings. We are seeing strong demand for both self-purchase and gifting, with almost half of new customers discovering Brilliant Earth Group, Inc. through fine jewelry in Q4, resulting in another record quarter in fine jewelry. Fine jewelry bookings grew 34% year over year in Q4, with strong unit and ASP growth, reaching 23% of total bookings mix for the quarter and 17% for the full year. As you know, fine jewelry has been one of our top strategic priorities for several years as we diversify beyond our bridal heritage, and we have driven extraordinary results. Our full-year 2025 fine jewelry bookings are more than three times bigger than they were just four years ago at the time of our IPO. Our iconic and signature fine jewelry collections, like Jane Goodall, Soul, and Love Decoded, and collaborations like Ring Pop, continued to significantly outpace overall fine jewelry bookings growth as customers are increasingly drawn to Brilliant Earth Group, Inc.'s one-of-a-kind styles through campaigns that capture consumers' imagination. We have also had great success driving growth in lab-grown diamond fine jewelry. As you know, we are early leaders in the lab diamond space. We have immense opportunities as lab diamonds continue to increase in popularity amongst consumers. In Q4, bookings from fine jewelry made with lab diamonds grew 61% year over year, and we continue to see significant opportunities for lab diamonds to increase the addressable market of consumers looking to buy diamond jewelry for everyday wear. In wedding and anniversary bands, we set another record, delivering our largest fourth quarter of bookings ever with double-digit year-over-year growth. And we continue to see success across both our men's and women's collections, with outperformance in giftable and higher price point diamond rings in Q4. And in engagement rings, we continue to drive booking of approximately 1% year over year in the second half of the year. Our signature collections, the exclusive designs we are known for, continue to drive strong results, growing double digits year over year in Q4. Turning to our seamless omnichannel experience, we continue to innovate across our digital and in-person customer experience. In digital, we made many enhancements from online imagery and merchandising to overall up-leveling of our online shopping experience. In showrooms, we opened two new locations in 2025, one in Southlake, Texas, and another in Alpharetta, Georgia, ending the year with 42. And as our showroom format strategy continues to evolve to more ground-floor and mall locations, we have had increasing success with retail customers who walk into the showroom without a prior appointment. In fact, orders from these retail customers grew 61% year over year in Q4. In January, we opened our first flagship showroom in Beverly Hills. This showroom is a new and evolved concept that celebrates the artistry, craftsmanship, and quality that we are known for, while immersing customers in the fullest physical expression of our brand to date. In addition to elevating our hallmark appointment experience, we have introduced several new features, including an eternity bar featuring the widest breadth of our engagement and wedding assortment and our unique design-your-own experience, a fine jewelry personalization station, a dedicated VIP showroom, and an exclusive new date night appointment offering that is an exceptional personalized experience for couples. The date night appointment is a simple idea that takes what can be a stressful process for couples and makes it genuinely fun and celebratory. The Beverly Hills flagship is both an evolution and elevation of our retail strategy. In fact, Forbes called our concept a blueprint for the future of luxury jewelry retail, and we agree. Beyond the opening of our flagship, we expect to open another two showrooms in 2026. For Q1 to date, I am pleased to report that we have seen a continuation of strong performance with strong year-over-year bookings growth, year-over-year new and repeat order growth, as well as an encouraging Valentine's Day start to the year. ASPs are also up year over year across engagement rings, wedding and anniversary bands, and fine jewelry, consistent with what we observed in Q4, demonstrating strength among our higher-income consumers. We also recognize that the industry is facing historically high metal costs. We believe we are well positioned to navigate this environment with our agile and sophisticated merchandising, pricing, and sourcing strategies. Before I hand the call over, I also want to share that today we released our 2025 Mission Report, which marks our two decades of impact and charts our progress toward our four mission pillars: transparency, sustainability, compassion, and inclusion. I invite you to read the report, in which we also introduced the next generation of initiatives designed to expand our impact even further. And finally, I want to thank our incredible team for their commitment and tireless efforts this past year. Their passion and execution are the reason we can stand here today, twenty years in, and say with confidence that the best is still ahead for Brilliant Earth Group, Inc. I will now turn the call over to Jeffrey. Jeffrey Kuo: Thanks, Beth, and good morning, everyone. As Beth mentioned, we are pleased to report fourth quarter and full-year results where we continue to successfully drive our strategic initiatives, deliver top-line growth, and sustain profitability and positive free cash flow despite a challenging cost environment. Let me take you through the details. Q4 net sales were $124,400,000, up 4.1% year over year, which was our biggest quarter ever and near the midpoint of our stated guidance range. Full-year 2025 net sales were $437,500,000, up 3.6% year over year. Total orders grew 6.5% year over year in Q4 and 13% for the full year. Repeat orders grew 15% year over year in Q4 and 13% for the full year, demonstrating the effectiveness of our customer acquisition and retention efforts, and the continued resonance of our brand and products with consumers. Average order value, or AOV, was $2,001 in Q4 and $2,082 for the full year. This represents a decline of 2.3% year over year in Q4 and 8.2% for the full year. Our Q4 AOV reflects the continued success we have had in driving strong fine jewelry performance, which carries a comparatively lower price point, along with year-over-year growth in ASPs across the assortment, as we see strong success driving sales of higher price point items. Q4 gross margin was 55.9%, and full-year gross margin was 57.5%. This represents a 370 basis point decline year over year in Q4 and a 280 basis point decline for the full year. To put the Q4 margin environment in context, gold prices at the end of Q4 were up approximately 67% year over year, while platinum was up approximately 144% year over year, both at or near what were then all-time highs, and we continue to navigate a challenging tariff environment. We are extraordinarily proud of our ability to deliver strong gross margins in this environment, which speaks to the strength of our premium brand positioning, our data-driven price optimization engine, our globally diversified supply chain, and the agility of our team and business model to adapt quickly to changing market conditions. We delivered Q4 adjusted EBITDA of $4,200,000, or a 3.3% adjusted EBITDA margin. During that time, the gold spot price increased approximately $400 an ounce and platinum over $675 an ounce between the time of our last earnings call and the end of the year, and we were still able to deliver adjusted EBITDA above the midpoint of our guidance range and exceeding expectations. Full-year 2025 adjusted EBITDA was $12,000,000, or a 2.7% adjusted EBITDA margin. This highlights the sustainability of our business model, driven by our strong gross margins, continued marketing leverage, and overall operating expense discipline. Q4 operating expense was 55.9% of net sales compared to 57.6% of net sales in Q4 2024, representing approximately 170 basis points of leverage year over year. Full-year 2025 operating expense was 58.7% of net sales compared to 59.5% in 2024, representing approximately 80 basis points of leverage year over year. Our disciplined management of expenses while also driving growth and investing in the business is demonstrated in this year-over-year leverage. Q4 adjusted operating expense was 52.7% of net sales compared to 53.9% in Q4 2024. Full-year 2025 adjusted operating expense was 54.9% of net sales compared to 55.4% in 2024. Adjusted operating expense does not include items such as equity-based compensation, depreciation and amortization, showroom pre-opening expenses, and other nonrecurring expenses. Q4 marketing expense was 24.6% of net sales compared to 26.1% in Q4 2024. This represents approximately 150 basis points of year-over-year leverage. Full-year marketing expense was 24.2% of net sales compared to 25.7% in 2024, also approximately 150 basis points of marketing leverage. This is our second year of driving year-over-year leverage in marketing spend, and these results speak to our dynamic management of marketing spend, including use of AI and machine learning to drive efficiencies, while still making strategic investments to grow the brand. Employee costs as a percentage of net sales were higher in Q4 by approximately 110 basis points as adjusted year over year. For the full year, employee costs were approximately 90 basis points higher as adjusted. This includes growth in showroom employees, including from newly opened showrooms; we continue to strategically invest in our showroom expansion. Other G&A as a percentage of net sales declined year over year by approximately 90 basis points as adjusted in Q4, as we continue to drive operating expense efficiencies and amortize expenses over a larger net sales base. For the full year, other G&A as a percentage of net sales was higher by approximately 10 basis points as adjusted, as we balanced prudent investment with disciplined cost management. Year-over-year inventory grew approximately 39%, principally as a result of strategic procurement opportunities to purchase diamond and jewelry inventory at advantageous prices during the year in light of tariffs. Even with this increase, our 4x inventory turns as of year end continue to be significantly higher than the industry average of one to two times. We maintain conviction that the agility of our data-driven, capital-efficient, and inventory-light operating model continues to be a compelling competitive advantage. We ended the fourth quarter with approximately $79,100,000 in cash. As you know, during Q3, we paid off our term loan, leaving us with no debt on the balance sheet, and we completed the one-time dividend and distribution of approximately $25,000,000. For the full year, we generated approximately $5,800,000 in free cash flow, demonstrating our continued ability to generate cash while making strategic investments and driving growth. Turning to our outlook for 2026. As Beth mentioned, we have carried our momentum into the new year. For our annual guidance, we expect net sales to grow in the mid-single-digit percent range year over year. We expect continued headwinds in gross margin, with metal prices near all-time highs, and expect gross margin to be in the mid-50s percent range for the year, assuming that metal prices remain at similar levels to where they are today. We expect to continue driving year-over-year leverage in marketing expense as a percentage of net sales for the year, continuing the success we have had in the past two years, driving increasing efficiency while delivering strong top-line results. We will continue to make selective medium- and longer-term investments in 2026, including in employee costs and other G&A, such as investments in technology and in our showrooms. We expect to deliver positive adjusted EBITDA for the year, but slightly lower than last year's adjusted EBITDA dollars given the challenging metal cost environment. We also expect that most of this year's adjusted EBITDA will come from Q4. For Q1, we expect net sales to grow in the mid-single-digit percent range year over year. We expect adjusted EBITDA margin to be in the negative mid-single-digit range as a percentage of sales, driven in significant part by both the speed and magnitude of recent gold and platinum price increases, with both metals remaining near all-time highs. I also want to address our previously stated medium-term outlook. As many of you know, we laid out a set of medium-term targets, and we have been on our way to delivering on those medium-term targets. You can see this in our improving net sales growth trajectory and our continued leverage of marketing expense as a percentage of net sales, where we have now delivered two consecutive years of full-year leverage. However, the precious metal environment we are operating in today is unlike anything our industry has experienced. Gold and platinum prices have reached levels that were impossible to anticipate when we set those targets, and this has had a meaningful impact on gross margin. Because of this level of uncertainty in metal prices and the magnitude of their impact, we do not believe it is appropriate to speak to targets beyond the current year at this time. We remain confident in the underlying health and trajectory of our business, and we will continue to share our perspective on the path forward as visibility improves. In closing, our data-driven approach, including agile price optimization, disciplined expense management, and our asset-light business model, positions us well to outperform the industry while delivering profitable growth. With that, I will turn the call over to the operator for questions. Operator: Thank you. We will now open for questions. To ask a question, please press 11 and wait for your name to be announced. To withdraw your question, please press 11 again. The first question comes from Oliver Chen with TD Securities. Your line is open. Julia Shlansky: This is Julia Shlansky on for Oliver Chen. I am curious to hear about your expectations for AOV growth in the context of guidance for the next year, and expectations for gold and platinum hedging, and how much of your current inventory that you have secured throughout the year is effectively hedged or price loaded. Thank you. Beth Gerstein: Okay, great. I can start on AOV. In Q4, it was slightly down, which I think is actually the smallest decrease that we have seen for a bit of a while. Overall, what is driving AOV is we are seeing ASPs increase across the assortment. Part of that is due to the price positioning that we have, the strength of our brand, and the strong reception we are seeing for our iconic jewelry collections, as well as a great reception from our higher-income customers. So ASPs are up across the assortment. We are also seeing really strong performance in fine jewelry, and as fine jewelry is a lower category, that is what is driving the overall effect. That is what we are seeing from a high level. Jeffrey, I do not know if you want to comment more on AOV, and then maybe you can lean into the gold and platinum question. Jeffrey Kuo: No, I think you covered that well, Beth. From the perspective of how we are managing metal costs, we have a variety of different tools that we use. Hedging is one of those strategies. As you know, we also are able to price optimize and really think dynamically about pricing, think about things like design and product engineering and ways to manage costs while maintaining very high quality standards, as well as vendor optimization and negotiations. We have a lot of different tools at our disposal, and you can see that in the results of how we navigated Q4. We were able to navigate these very significant changes in metal prices and still deliver an adjusted EBITDA that was within our expected range. Colin Bourland: Great. Thank you both. Operator: Thank you. Our next question will come from Ashley Owens with KeyBanc Capital Markets. Your line is open. Ashley Owens: Hi, great. Good morning, and thanks for taking our questions. As we think about 2026, how would you frame the key bookings growth drivers across the business, whether that is further bridal recovery or continued fine expansion? And how should we think about share gains relative to industry growth over the next year? Beth Gerstein: We are really encouraged by the growth that we have been seeing and the continuation of some of the strong growth that we saw in Q4. The drivers that I mentioned in the remarks—with fine jewelry being very strong, with our showroom strategy, and with the brand awareness—continue to be key growth drivers in 2026. It is really a continuation of all of the initiatives that we have been talking about, and we are very encouraged by the brand resonance that we are seeing and by some of the breakthrough moments that we are partnering with and driving overall increased awareness. On the fine jewelry side, we are going to continue to see this be a growth driver. There is a lot of opportunity. It is a very large market, and we are also continuing to outperform the industry as it relates to fine jewelry. We are very encouraged by the growth signals that we are seeing there and are going to continue to lean in and continue to be that go-to destination for jewelry. One of the stats that I mentioned—that half of our new customers discover us now through fine jewelry—just shows you the size of the opportunity and how it is gaining momentum. Ashley Owens: Within the $100,000,000 longer-term opportunity you called out, do you expect the business to become less dependent on some of the engagement ring cycles and volatility we have seen and driven more by repeat purchases and gifting occasions? And then quickly on gross margin and the mid-50s outlook for the year given the metal environment, as we think about modeling for 2026, should we assume that persists through the year, or is there potential for sequential improvement as pricing, sourcing adjustments, or fine jewelry mix growth increase and those things flow through? Thank you. Beth Gerstein: Sure. Yes, in terms of how we are thinking about the business, fine jewelry is a continuation of the diversification away from our bridal heritage. We are continuing to be bridal leaders and introduce new collections, and we continue to see that as an important part of our overall growth, but fine jewelry becomes more and more of a driver. We are continuing to see that diversification. Even wedding and anniversary bands, having double-digit growth, show an evolution of the business, and if you look at a lot of the independents out there where the mix is leaning more toward fine jewelry, that is the path that we are on as well. Jeffrey, do you want to talk about gross margin? Jeffrey Kuo: In terms of gross margin outlook for the year, as I mentioned, we are looking at gross margin to be in the mid-50s percent for the year given the metal environment. As we go through the year, we do have more and more ways to mitigate some of the headwinds, including things like pricing and the operational actions that I mentioned earlier. We have more tools over time. We do not have a more specific shaping on a quarter-by-quarter basis of how we expect gross margin to look, but we think that our agility overall that we have demonstrated in recent quarters continues to serve us well, and we are better positioned than the industry at large to be able to navigate a variety of different conditions. Ashley Owens: Super helpful. I will pass it along. Thank you. Operator: Thank you. As a reminder, to ask a question, please press 11. The next question comes from Anna Glaessgen with B. Riley Securities. Your line is open. Anna Glaessgen: Hi. Good morning. Thanks for taking my questions. I would like to start on the embedded pricing within the guidance. I think on the Q3 call we talked about Q4 being a particularly challenging time to lift prices as the consumer is generally more price sensitive. Are you assuming that at the turn of the year in Q1 there is better opportunity to offset the headwinds that you have been noting in gross margin? Beth Gerstein: Yes, I can start there. We are seeing an improved opportunity in terms of continuing to optimize and take selective price increases. Jeffrey mentioned the speed and the volatility in terms of metal prices overall, which is especially notable in Q1. One of the advantages that we have is a very sophisticated pricing algorithm. We are very much a test-and-learn and data-driven company, and we also have a premium brand positioning with proprietary designs. All of that enables us to have more pricing power. Q1 certainly gives us a better opportunity than Q4, where we tend to be a little bit more selective. This is something that we have a lot of experience navigating throughout our history, and we are going to continue to use the tools available to us, but we do see opportunity to be selective in terms of increasing our pricing. Anna Glaessgen: Great. Turning to OpEx, with the mid-50s approximately gross margin assumption, to get to slightly lower profitability from 2025, it seems to imply an escalation in operating expense leverage in the year. Could you maybe talk to the biggest opportunities there? Jeffrey Kuo: Yes, I would be glad to. I would like to frame how we are thinking about overall guidance for the year. You can see that we have seen strong performance on the top-line side, and we are guiding to a higher growth rate overall for the year than last year. We have been very successful in driving marketing efficiencies and expect to be able to continue to drive year-over-year marketing efficiencies this year. The big headwind that is incorporated is on the metal pricing side and the impact on gross margin. That is something that is facing the entire industry. You can see the very large and very fast shifts in terms of metal price recently, and that is really the main factor. Some of the things like marketing leverage help us to offset that, and we are going to be disciplined in terms of other OpEx areas such as employee and other G&A costs to balance, as we always have, making medium- and longer-term investments with driving profitability. Our approach to OpEx is that we are going to be disciplined and look to continue to drive efficiency in areas like marketing. What you are seeing in terms of the year-over-year change in profitability is really coming from the metal cost that we are seeing in the environment overall. Anna Glaessgen: Got it. One more follow-up, if I may. I believe, Jeffrey, you said in the prepared remarks that most of the adjusted EBITDA in 2026 should be from Q4. That seems to be roughly in line with historical seasonality. I was just wondering if you are implying that we could potentially see a negative EBITDA in Q2 or Q3? Jeffrey Kuo: You are right that we do expect most of the profitability in Q4, and that factors in a number of different things. Seasonally, Q4 is our biggest quarter, and you are going to see that come into play. We may have discussed in prior calls how a lot of our operating cost structure is not highly seasonal, so you have a relatively more stable base of things like employee costs and other G&A over the course of the year. In Q4, you have the opportunity to amortize that over a much larger revenue base, and that is factored into our guidance. As you go over the course of the year, we think that we have more and more opportunities to capture efficiencies and be able to mitigate some of the metal cost headwinds as we go through the year. Anna Glaessgen: Great. Thanks. Operator: Thank you. I am showing no further questions in the queue at this time. I will now turn the call back over to Beth for closing remarks. Beth Gerstein: Thank you, everyone, for joining us, and we look forward to talking to you in our next quarterly call. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Welcome to the Lexicon Pharmaceuticals, Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a brief question-and-answer session. As a reminder, this call is being recorded today, 03/05/2026. I will now turn the call over to Lisa DeFrancesco, SVP, Investor Relations and Corporate Communications for Lexicon Pharmaceuticals, Inc. Please go ahead, Lisa. Lisa DeFrancesco: Thank you, Michelle. Good morning, and welcome to our Q4 and full year 2025 Earnings Conference Call. Joining me today are Dr. Michael S. Exton, Lexicon Pharmaceuticals, Inc.'s Chief Executive Officer and Director; Dr. Craig B. Granowitz, Senior Vice President and Chief Medical Officer; and Scott M. Coiante, Senior Vice President and Chief Financial Officer. This morning, Lexicon Pharmaceuticals, Inc. issued a press release announcing our financial results for the fourth quarter and full year of 2025, which is available on our website at www.lexpharma.com and through our SEC filings. A webcast of this call, along with a slide presentation, is also available on our website. During this call, we will review the information provided in the release, provide a corporate update, and then use the remainder of our time to answer your questions. Before we begin, let me remind you that we will be making forward-looking statements, including statements related to the safety, efficacy, clinical development, regulatory status, and therapeutic and commercial potential of sotagliflozin, pilovapitan, LX9851, and our other drug programs, as well as our business generally. These statements may include characterizations and projections related to clinical development, regulatory status, and market opportunity for our drug programs, and commercial performance of INPEFA for heart failure. This call may also contain forward-looking statements relating to our growth and future operating results, discovery and development of our drug candidates, strategic alliances, and intellectual property, as well as other matters that are not historical fact or information. Various risks may cause our actual results to differ materially from those expressed or implied in such forward-looking statements. We refer you to our most recent Annual Report on Form 10-Ks and other SEC filings for detailed information describing such risks. I will now turn the call over to Michael S. Exton. Mike? Michael S. Exton: Yes, thanks, Lisa. Good day, everyone. Thanks for joining us today. As I reflect back on this year, my first full year as CEO at Lexicon Pharmaceuticals, Inc., I am enormously proud of all the progress we have made. In addition to all we have accomplished in 2025, we had a tremendously productive start to this year, so we are excited to give you some updates on our recent progress and discuss the many important milestones ahead of us in 2026. By way of a high-level overview, Lexicon Pharmaceuticals, Inc. is advancing three very strong, novel, late-stage programs in the therapeutic areas of cardiometabolic disease and chronic pain. In cardiometabolic, we have sotagliflozin, which is currently in late-stage development in hypertrophic cardiomyopathy. We are also planning an NDA submission for sotagliflozin in type 1 diabetes and collaborating with our licensee, Beatrice, on making sotagliflozin available in patients outside the U.S. and Europe. We also have our novel, oral, early-stage program in obesity, LX9851, which is being advanced by Novo Nordisk. Within chronic pain, we have pilovapitan, a Phase III-ready drug candidate for diabetic peripheral neuropathic pain. Each of these programs have key potential catalysts upcoming, which we will cover shortly. Any one of these programs alone would represent a significant scientific achievement to be excited about, but taken together, they comprise a portfolio that we are quite proud of. Now, before I jump into the details and next steps for each of these programs, I want to emphasize that in addition to the R&D excellence behind this pipeline, we have also been diligent about driving operational excellence, as well as improving our financial position and cost structure to sustainably support our core programs going forward. So looking ahead, we have set clear goals for what we need to achieve in 2026. The Sonata HCM Phase III trial of SOTA for obstructive and nonobstructive is enrolling well, and we expect to complete enrollment in the middle of this year. We received feedback from FDA that data from the third-party STENO-1 study can support an NDA resubmission for Zynquista for glycemic control in type 1 diabetes if supported by patient exposure and safety data from the study. Now, based on the data we have seen thus far, we expect to resubmit in 2026 with potential approval later this year. Our partnership strategy continues as we support our existing licensees, Novo Nordisk and Beatrice, while also exploring new partnerships where appropriate to augment our capabilities, including seeking a partner for Phase III development of pilovapitan. And last but not least, we are financially well positioned following our recent raise. We plan to maintain our operational discipline to support long-term growth with diligent expense management and continued focus on deploying capital towards the highest value, highest impact opportunities. Collectively, this truly demonstrates our lead-to-succeed strategy in action. Now, we entered 2026 with significant momentum, and that has really continued in the first few months of the year. In January and February alone, we announced a successful end of Phase II meeting with pilovapitan in DPNP with no objections raised by the FDA to advancement into Phase III development. We strengthened our financial position with more than $100 million in additional cash from our recent capital raise as well as the Novo Nordisk milestone payment. We continued enrollment in the ongoing Sonata HCM Phase III study of sotagliflozin for HCM, surpassing 50% enrollment completion earlier this quarter, and progressed our work towards a potential resubmission of our NDA for Zynquista in type 1 diabetes later this year, if the STENO-1 patient exposure and safety data requirements identified by the FDA are achieved. So as you can see, we are very much off and running, and so much more to come. With that, I will ask Craig to provide a deeper dive on our lead programs. Craig? Craig B. Granowitz: Thank you, Mike, and good morning, everyone. As most of you know, our pipeline is focused in two primary therapy areas, the first being cardiometabolic disease and the second being chronic pain. I will start with our cardiometabolic platform, sotagliflozin. As we approach important upcoming milestones for sotagliflozin in both HCM and T1D, it is an opportune time to review sotagliflozin's unique mechanism of action. As the only dual inhibitor of both SGLT1 and SGLT2, we want to focus on the importance of the SGLT1 effects. While SGLT2 is expressed primarily in the kidney, SGLT1 is expressed in the kidney but also in other tissues, particularly the GI tract and the heart, as well as the endothelium. We believe that inhibition of SGLT1 in the GI tract is important in postprandial glycemic control in patients with T1D. Similarly, we believe that inhibition of SGLT1 in the heart has important effects on myocardial health, particularly in disease states like HCM. It is also thought that inhibition of SGLT1 in the endothelium may be important in reduction of ischemic events like stroke and MI. The graphic on the next slide demonstrates the distribution of SGLT1 and SGLT2 protein expression in human tissues. On the right-hand side of the panel, it is evident that SGLT2 expression occurs primarily in the kidney. SGLT1, but not SGLT2, is expressed in the GI tract and heart. It is also noteworthy that SGLT1 expression in the heart is significantly upregulated in patients with ischemic heart conditions and in patients with hypertrophic cardiomyopathy. We will continue to discuss these and other factors contributing to the growing body of evidence supporting the potential benefit of SGLT1 inhibition for the treatment of HCM in the coming months. The mechanistic differentiation leads us to the rationale behind our current development efforts for sotagliflozin, a potential first-in-class therapy for HCM and glycemic management in type 1 diabetes. Regarding HCM, interest and awareness of the disease has been growing, particularly with new treatment options becoming available, but this disease remains an area of severe unmet need for both people with obstructive HCM and particularly those with nonobstructive HCM. Our Sonata HCM Phase III study includes patients from both populations, and top-line results are expected in 2027. In type 1 diabetes, Lexicon Pharmaceuticals, Inc. has been committed to the development of a novel treatment for glycemic control in patients with T1D for many years. The FDA has provided feedback that clinical trial data from STENO-1, a third-party funded investigator-initiated study of sotagliflozin, may support a resubmission of our NDA for Zynquista in T1D. Based on the study data we have seen to date, we are preparing to resubmit the NDA and potentially receive regulatory approval in 2026. Elaborating further on the opportunity for HCM, our Phase III Sonata HCM study is a large, global, registrational trial with a KCCQ endpoint, designed to support a regulatory filing and broad label in HCM. We have completed the initiation of our target 130+ study sites in approximately 20 countries across the United States, Europe, Israel, and Latin America. I could not be more proud of the team's significant efforts in achieving this goal. Sonata is the only registrational trial currently enrolling patients with both obstructive and nonobstructive HCM. The study is pragmatic in design, allowing for patients currently being treated on a CMI. The enrollment in the study is stratified but not capped, and as Mike mentioned, we have surpassed the 50% enrollment target earlier this quarter and are on track to complete enrollment by midyear. As I mentioned earlier, as a dual inhibitor of SGLT1 and SGLT2, we believe that sotagliflozin could offer distinct advantages for the treatment of obstructive and nonobstructive HCM. Importantly, it is the only drug, to our knowledge, in clinical development for HCM that works both inside and outside the heart. It acts directly on the myocardium to modify cellular energetics, and we believe it has the potential to be a first-line agent with no REMS in both obstructive and nonobstructive HCM. Additionally, sotagliflozin is already approved for heart failure, with no observed risk of A-fib to date. This is important given that many patients who have HCM go on to experience major adverse cardiovascular events, such as myocardial infarction, stroke, or heart failure. Complementing the upcoming clinical results from the Sonata trial are two investigator-initiated trials, the SOTAcardia and the SOTA Cross studies. SOTAcardia, data from which was presented at the American Heart Association meeting last November, evaluated the effects of sotagliflozin in patients with HFpEF without diabetes with a baseline ejection fraction greater than 50%. Clinically, these patients have a number of symptomatic and anatomical characteristics similar to those with nonobstructive HCM. Data from SOTAcardia showed improvements in patient symptoms such as KCCQ score and six-minute walk test, as well as cardiac function, such as left ventricular mass and left atrial filling pressure, findings which support the rationale for sotagliflozin's use in nonobstructive HCM. SOTA Cross is a crossover study evaluating sotagliflozin in symptomatic nonobstructive HCM. This is an ongoing 12-week crossover study with a readout expected in 2027, measuring a number of outcomes, including cardiac function, symptoms, and biomarkers. Moving on to the next slide, there is a growing body of evidence that supports sotagliflozin's unique potential for reducing cardiovascular events. This slide highlights recent data presented at the Scientific Sessions and the HCM Society and an upcoming presentation at the American College of Cardiology's 75th Annual Scientific Sessions that highlights sotagliflozin's impact on cardiac remodeling in HCM, the benefits of sotagliflozin in HFpEF, and sotagliflozin's effects on MACE events in patients with type 2 diabetes. In summary, we are excited to complete enrollment in Sonata HCM and look forward to upcoming data presentations at ACC and several HCM-related medical meetings in the second half of this year. Now turning to Zynquista, our sotagliflozin program in type 1 diabetes. As we previously announced, we had productive meetings with the FDA in late 2025, during which they confirmed that STENO-1, a third-party funded investigator-initiated study of sotagliflozin being conducted by the Steno Diabetes Center in Denmark, appears to be sufficient to support a review of a resubmission of our NDA for Zynquista in T1D. Based on current STENO-1 enrollment estimates and safety data we have received to date, we are planning for an NDA resubmission and potential regulatory approval in 2026. There are approximately one million patients with type 1 diabetes in the United States, and there has not been a new therapy approved for over a century to help those patients achieve glycemic control alongside insulin. That is an unacceptable status quo. The outpouring of support for Zynquista from the diabetes community has been remarkable and reinforces what we have always known. These patients desperately need new treatment options. If approved, Zynquista would be the first and only oral therapy in class for type 1 diabetes. It is not just a commercial opportunity, though certainly it is, but it is a chance to fundamentally improve how we treat this challenging medical condition. Global development of LX9851 in obesity remains on track, and our progress on this program triggered a $10 million milestone payment in February under our license to Novo Nordisk, with potential for another $20 million in additional milestones in 2026. We have now fully handed off development to Novo Nordisk following the completion of IND-enabling activities, and we are encouraged by the continued enthusiasm for this asset and its novel mechanism. Just this week, the Journal of the Endocrine Society highlighted our recent publication on ACSL5 inhibition as a featured article. These preclinical data provide some insights as to the potential of ACSL5 as a target and LX9851 as a drug candidate for obesity and chronic weight management. In addition to our cardiometabolic programs, Lexicon Pharmaceuticals, Inc. also has a Phase III-ready non-opioid asset for neuropathic pain, pilovapitan. Pilovapitan is a novel investigational agent targeting AAK1, and like sotagliflozin, pilovapitan has a broad pipeline and appeal potential. Our lead indication for pilovapitan is DPNP, supported by two Phase II studies that provide evidence of consistent and clinically meaningful pain reduction. We have accumulated data from more than 600 patients treated with pilovapitan and have demonstrated a well-understood and acceptable safety and tolerability profile. Beyond DPNP, we believe there are other potential applications for pilovapitan. The AAK1 pathway is central to a number of cellular processes such as synaptic signaling between neurons involved in pain signaling and spasticity. With this in mind, we are conducting IND-enabling work in multiple exciting neuroscience indications. As Mike mentioned, we had a successful end of Phase II meeting with the FDA for pilovapitan in DPNP. During that meeting, FDA raised no objections to the advancement of pilovapitan into Phase III development in that indication. The Phase III program would include two placebo-controlled, 12-week, two-arm registrational studies comparing a 10 milligram daily dose to placebo. The primary endpoint of the Phase III studies would be placebo-controlled change in average daily pain score from baseline to Week 12. FDA also confirmed that it will not require any additional preclinical or clinical studies that would be expected to complicate or delay the advancement of the program into Phase III development and potential regulatory submission. With this regulatory alignment in hand, we are continuing our ongoing discussions with partners. I will now turn it over to Scott to provide an update on the company's financials. Scott M. Coiante: Thank you, Craig. We begin this morning with our results for both fourth quarter and full year of 2025. Total revenues were $5.5 million and $49.8 million for the quarter and year ended 12/31/2025, respectively. Revenues for the fourth quarter of 2025 include $4.3 million of licensing revenue recognized from the Novo Nordisk agreement and net sales of INPEFA of $1.1 million. Revenues for the year ended 12/31/2025 include $45 million of licensing revenue from the Novo Nordisk agreement and $4.6 million of net sales of INPEFA. Total revenues for the fourth quarter and full year 2024 include the upfront payment of $25 million received upon entering into the Viatris license agreement, and net sales of INPEFA of $1.6 million and $6 million, respectively. Research and development expenses for the fourth quarter of 2025 decreased to $11.3 million from $26.7 million in 2024. Full year 2025 research and development expenses decreased to $61.1 million from $84.5 million in 2024, primarily reflecting lower external research expenses from our progress in Phase II clinical trial, partially offset by increased investment in our Sonata Phase III clinical trial. Selling, general and administrative expenses for the fourth quarter of 2025 decreased to $8.8 million from $32.3 million in 2024. Full year 2025 SG&A expenses decreased to $37.3 million from $143.1 million in 2024. The decrease in 2025 reflects lower costs resulting from the company's strategic repositioning in late 2024 and our significantly reduced marketing and promotional efforts for INPEFA in 2025. Net loss for the fourth quarter of 2025 was $15.5 million, or $0.04 per share, compared to a net loss of $33.8 million, or $0.09 per share, in the corresponding period in 2024. Net loss for the full year 2025 was $50.3 million, or $0.14 per share, compared to a net loss of $200.4 million, or $0.63 per share, in the same period in 2024. For the fourth quarter of 2025 and 2024, net loss included non-cash stock-based compensation expense of $2.8 million and $1.5 million, respectively. And for the full years of 2025 and 2024, net loss included non-cash stock-based compensation expense of $12.5 million and $13.5 million, respectively. As of 12/31/2025, Lexicon Pharmaceuticals, Inc. had $125.2 million in cash, investments, and restricted cash, as compared to $238 million in cash and investments as of 12/31/2024. Subsequent to year-end, Lexicon Pharmaceuticals, Inc. strengthened its cash position by more than $100 million from net proceeds received from the sale of common and preferred stock and a milestone payment from Novo Nordisk. I would like to now note a few financial highlights from both the fourth quarter and full year 2025. In addition to the revenue highlights, which I mentioned previously, operating expenses were reduced by $39 million for the fourth quarter of 2025 as compared to the fourth quarter of 2024. We continue to look for ways to reduce costs and streamline our operations. We also meaningfully improved our cost structure for 2025, with operating expenses down $129.5 million for 2025 as compared to 2024, reflecting our strategic repositioning in late 2024 and substantially reduced marketing and promotional spend for INPEFA in 2025. In addition, we also reduced our total debt by approximately $46.3 million in 2025, primarily using the proceeds from the Novo Nordisk upfront payment. Moving ahead to 2026, we expect total operating expenses to be between $100 million and $110 million. R&D expenses are expected to be between $63 million and $68 million and do not include costs associated with Phase III pivotal studies of pilovapitan, as our goal would be to move this asset forward with a development partner. SG&A expenses, which include sales and marketing expenses, are expected to range between $37 million and $42 million. I will now turn it back to Mike for closing remarks. Michael S. Exton: Yes, thanks, Scott. Now, before we turn to Q&A, I just want to say again how excited we are about the year ahead in 2026. Last year was a year of progress, and 2026 is a year of potential and possibility with several pivotal milestones ahead across our three core programs, with multiple upcoming catalysts that we believe can drive substantial value creation. From pilovapitan partnership opportunities in neuropathic pain, to sotagliflozin's multiple shots on goal across HCM, heart failure, and type 1 diabetes, to LX9851's near-term milestone potential in obesity, we are really firing on all cylinders this year. Each of these programs addresses serious unmet medical needs, and each has the potential to be transformative for patients who desperately need new treatment options. We have the pipeline, we have the team, and we have the momentum, and I am incredibly excited about what lies ahead. We will now open for questions. Operator, please go ahead. Craig and Scott and I will take your questions. Operator: Thank you. To withdraw your question, please press 1, 1 again. We ask that you please limit yourselves to one question and one follow-up before reentering the queue. One moment for our first question. Our first question will come from the line of Andrew Tsai with Jefferies. Matt (for Andrew Tsai, Jefferies): Hey, good morning. This is Matt dialing in for Andrew Tsai. Congrats on the progress this quarter. Just a couple of questions from me. How much patient work updated does the open-label IST STENO-1 study have on DKA safety right now for you to be able to guide to a potential approval in 2026? And then what are the exact timelines from submission to approval that you are expecting? Is this going to be a Class 1 or Class 2 resubmission here? Michael S. Exton: Yes, thanks, Matt. I will let Craig talk about the data. We are expecting a six-month review here, so reemphasizing that the data that we are seeing, we expect a submission this year and as well an approval before the end of 2026. Craig, do you want to talk about the data that we are seeing? Craig B. Granowitz: Yes. So, again, Matt, I need to be a bit careful because this is not our trial. It is an investigator-initiated study. But as a reminder, this is a large trial. It is 2,000 patients total: 1,000 patients which were on or are considered the standard of care and then another 1,000 which are randomized based on baseline characteristics to enhanced care, which would include sotagliflozin in a significant percentage of patients but also the possibility of being on semaglutide and/or Kerendia, depending upon baseline patient demographics. The study has enrolled the majority of the patients. And, again, I do not want to overstep Dr. Rossing and the Steno group, but enrollment has proceeded briskly. I think you can see some of their updates on clintrials.gov, and the enrollment, as we laid out with FDA, is proceeding to plan. We pre-agreed with FDA on two important criteria for resubmission. The first would be the total exposure required. The second would be a rate of DKA. I can be a bit more expressive about the second criteria because the FDA put that in their end-of-review letter: that they were really looking for a rate of diabetic ketoacidosis at or below that achieved with the 400 milligram dose arm in the inTandem program, which, in the FDA's parlance, was a number needed to harm of about 26, which corresponds to a rate of about 3.5 cases per 100 patient-years. I can tell you that currently we are tracking in a way, both in terms of total exposure and DKA rates, that give us a high degree of confidence in where we stand in terms of our submission and approval timelines that both Mike and I highlighted during the call. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Yigal Nochomovitz with Citigroup. Yigal Nochomovitz: Okay, thank you. I have got a question on the partnerships for the pain program. So you had the end of Phase II meeting. Could you just talk about how much the results from that meeting have accelerated partnering discussions since then? And is there a clearer line of sight to transacting something this year? Thank you. And also, how much more can you say about what Novo plans to do with 9,851? You know, in terms of how it is going to be inserted into the development program, meaning in combo with the GLP-1 or for those perhaps not responding well enough, or perhaps even as a maintenance therapy, you know, following the course of GLP-1 therapy? What can you say there? Is that really Novo's call now? Michael S. Exton: Yes, thanks, Yigal. So I would not say that they accelerated because we are in constant dialogue with a number of partners that we have been communicating with, but it allowed the conversations to be a little more specific and obviously provide some confidence around the program being able to move into Phase III and take away that sort of regulatory risk, if you like, which has been incredibly well received by partners. So we continue to talk details with them and look forward to providing some more updates in the very near future. Yes. I do not necessarily want to speak on Novo, but I think I have sort of hypothesized where I think that LX9851 would fit into the treatment paradigm and certainly with some of the background for their enthusiasm. But before I do that, Yigal, let me just reinforce how impressed we have been with the Novo team. And I think you know, we all recognize that perhaps they are sort of losing the battle in injectables and have really pivoted strongly towards oral formulations as being the future and their future in obesity management. And, really, we have had that hypothesis all along that the future of obesity treatment will be in oral combinations of different MOAs, just like it is in most of cardiometabolic disease, whether it be hypertension, hyperlipidemia, etcetera, because it allows you to get synergies by combining different MOAs, and orals obviously facilitate that ability to drive combinations. I think they are being very open, and they therefore are really doing an incredible amount of work on this program to see whether it is going to be as a standalone monotherapy, to see whether it is in combination, to see whether it is right at the initiation of treatment, whether it becomes a maintenance therapy. I think all of those options are on the table for them, and they are really driving very, very hard, which gives us confidence, as we mentioned in the opening remarks, around the potential of receiving those two further milestones this year, which would really be an accelerated Phase I development. And we are excited about the possibility of clearing that hurdle and then really getting into Phase II and beyond, which would be very material for the company. Craig, do you have any additional thoughts? Craig B. Granowitz: I will just add from the scientific standpoint, the mechanism is complementary to semaglutide. You know, as we have communicated, I think it is nicely summarized in the Journal of the Endocrine Society paper that just came out this week. As we mentioned during the prepared remarks, this mechanism is thought to be really the only agent that is in development acting on what is called the ileal brake, which is a very different neuroendocrine signal of satiety that we have seen and we have communicated, I think, at prior meetings, could act additively both to the amylin mechanism and certainly to the GLP or semaglutide mechanism. So I think that is really how Novo is thinking about this, that this agent could be acting either alone or in combination with semaglutide, or potentially in an additional combination with both an amylin analog and semaglutide analog. But, again, we do not want to speak for Novo, our partner. Operator: Thank you. And one moment for our next question. Our next question is going to come from the line of Joseph Pantginis with H.C. Wainwright. Joseph Pantginis: Hey, guys. Good morning. Thanks for taking the question. So, Mike, I know the intent for pilovapitan is moving forward with an expected partner, but I want to ask the question this way. So, based on, you know, the larger coffers that you have now and how things are rapidly progressing with the data and your FDA discussions, are you looking towards any sort of flexibility or optionality with regard to even starting the study on your own prior to getting a partner? That is very helpful. Thank you. And maybe a question for Craig here. When you look at the SOTA profile for HCM, just curious how you believe the SOTAcardia and SOTA Cross studies on the periphery could potentially impact future sNDAs and/or the marketing potential as you look at the broadening profile for SOTA in HCM? Michael S. Exton: Yes. It is a great question, Joe, and it is a great position to be in when you have got a number of opportunities ahead of you. And, you know, we are really very much focused on our near-term cardiometabolic opportunities. So I think what we see in the opportunity with T1D for SOTA as well as HCM are both incredibly large commercial opportunities for us, and so we are very much focused on driving that forward. We have been continuing to do some work in preparation of what the Phase III program would look like for pilovapitan. And, in fact, that has been a part of the partnering discussions as well, as we continue to sort of engage in a very granular timeframe of what would be expected moving forward. And even that is changing as we speak. As you know, the recent announcement by Dr. Makary for one-trial possibility is something that is coming into our thought process as well. We need to consider that as a possibility for pilovapitan, as we will be for all programs. So we are doing work in parallel, but we are not going to invest the financial commitment to commencing a Phase III trial for pilovapitan because we really want to invest that cash for both T1D and HCM at the moment. Craig, did you have anything else? Craig B. Granowitz: Yes, I think, Mike, you summarized the strategic part really well. I just wanted to reinforce the importance of the patient groups in the legislative dimension as well. And what we have seen in this regard is tremendous interest from the patient community in really trying to bring that into a legislative position. As well as, as you know, Joe, a lot has been done in the acute pain setting, particularly in light of the opiate situation. Patients who are on chronic pain treatment like DPNP are at much higher risk of actually developing opiate addiction. There has been a really strong interest across the board in the pain community, both on the opioid avoidance side as well as the diabetes community, in terms of really trying to put momentum behind this effort from a legislative front. So we are really trying to approach this from multiple different ways: a regulatory, legislative, patient access standpoint, as well as, as Mike said, we have really now finalized what the development program would be under standard conditions based on the end of Phase II meeting. So we continue to really look at all of these areas as the discussions continue because we do not want to just have the asset sitting there. Michael S. Exton: Yes, no, exactly. So I think Craig summarized that well. There is a bunch of activity that we are doing to continue the preparation for the program, in parallel with the discussions. But our investment of capital is squarely focused at this time on Zynquista and HCM because we see those opportunities coming at us very, very fast. Craig B. Granowitz: Yes, thanks for the question, Joe. You know, we try to approach this in a way that really is the sum of the total is far greater than each of the individual parts. And we have really tried to take a pragmatic design approach to Sonata HCM that would be clear, efficient, and rapid, that would spare capital in terms of doing a study that would achieve the goals of the FDA and other health authorities, but not add dramatically to the cost or slow enrollment. And in that regard, we are really looking at SOTA Cross, SOTAcardia, and a number of other trials that we have been discussing, investigator-initiated trials looking at various imaging, functional, and patient feel outcomes that would complement the primary endpoint of Sonata HCM. And we hope that the sum total of all of that will provide more mechanistic understanding of how the SGLT class will complement that of the CMIs, and also could be the first and only in HCM, but also to differentiate the dual mechanism of SOTA and the SGLT1 effects from the SGLT2 inhibitors that are not being studied and have no data in HCM. Michael S. Exton: Yes, no, and just allow me to throw a little more color onto that, Joe, because it is a very important element of our portfolio, and we think it is a great opportunity not only for SOTA and patients with HCM, but for Lexicon Pharmaceuticals, Inc. So as we noted, we did raise, you know, close to $100 million earlier this year, and we are spending a small portion of that this year at the moment, as, sorry, Scott gave in his guidance for the year. But one of the important elements that we are going to undertake is to have a small field medical team to really bring about what is a ton of evidence now showing, you know, a lot of the reason to believe of SGLT1 as being a new class of medicine and having evidence that indicates it will be a very significant medicine for both obstructive and nonobstructive HCM. So we are going to employ that field force as we march towards the data in Q1 2027 to not only talk about Sonata, not only talk about SOTA Cross and SOTAcardia, which are very important elements, but a lot of the mechanistic evidence, one of which we presented today. And I think as we sort of educate the physician community beyond top KOLs, we really see why SOTA has significant potential in HCM. So it is really an important focus for the company over the next 12 months. Thank you, guys. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Yasmeen Rahimi with Piper Sandler. Shannon (for Yasmeen Rahimi, Piper Sandler): Hi, this is Shannon on for Yasmeen Rahimi. Congrats on progress, and thanks for taking our question. Can you just help us understand your visibility and confidence for getting the additional 50% enrollment for Sonata by mid-2026? And then, also, is the cadence of that enrollment the same in both cohorts for nHCM and oHCM? Great. Thank you so much. Michael S. Exton: Yes, great, great question. So I will let Craig have first go with that one. Craig B. Granowitz: Yes, Shannon, it is a great question. We have a really nice window right now of enrollment. There are not a lot of competing global trials right now. We have, as I mentioned during the prepared remarks, all 130 sites now open across 20+ countries, and we are at that, what I would call, steep part of the S-shaped enrollment curve. We have sort of gotten over the early parts. We have had a few protocol amendments to make enrollment, clarify things where there were open issues, and enrollment has really ticked up consistent or ahead of our projections at this point. And as Mike mentioned, we have crossed the 50% enrollment target much earlier in this quarter, and we see continued uptake in enrollment across all of the regions. The U.S., Europe, and Latin America are all contributing. Your second part of your question regarding enrollment is we have enrolled significant numbers of patients with both obstructive and nonobstructive HCM. What we are seeing, not surprisingly, is that there are some patients, particularly at these large academic centers, that are being treated currently with the CMIs for obstructive. So we are seeing even more patient inflow for the nonobstructive cohort than the obstructive cohort, but we believe that we have enough patients in both cohorts to achieve what we set out in the trial. And as we mentioned, the trial is stratified but not capped, so we did stratify the patients based on their baseline of either being obstructive or nonobstructive, but we have not set a formal cap of a specific number of each group, and that we did discuss and align with FDA before we started the trial. Michael S. Exton: And, Shannon, it is a great point. Enrollment is never linear, as all those people know who have run clinical trials in any clinical trial. And, you know, we have our target curve, and our enrollment curve is right on that target curve, and we continue to enroll strongly such that we have a high degree of confidence that we will hit that midyear target, which will have then a data readout in 2027. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Roanna Ruiz with Leerink Partners. Michael (for Roanna Ruiz, Leerink Partners): Hi, this is Michael on for Ruiz at Leerink Partners. Thank you for taking our question. I have a question about the Phase III design of the pilovapitan program. Previously, you mentioned several measures to mitigate the placebo response that you saw previously. Are you able to comment on what the enrollment criteria changes will look like for Phase III? Like, for instance, will you require a minimum pain score threshold, things like that? Thank you. Great. Thank you so much. Michael S. Exton: Yes, great, great question, Michael. Thank you for that question. I think the changes that we are going to have, as we have mentioned, probably the single largest change we are going to have is actually to expand enrollment. During the year, we did run a renal impairment study, and we believe that having a renal impairment study completed with no impact on clearance with GFRs down to 30 significantly increases the enrollment potential for this study. There is a high degree of correlation between neuropathy and nephropathy, both in terms of the enhancement of patients but also the severity of their neuropathic pain. As GFR drops, you tend to see a higher percentage of patients that have neuropathic pain, but also the more severe neuropathic pain. In terms of the other entry criteria, we are really looking at similar pain scores at baseline. I think the only change that we looked at—and we looked at a number of variables that might have affected the placebo rate—on the patient characteristics, the only one that we saw that was meaningful, and, again, this is all retrospective, looking back at the completed data, was the duration of their neuropathy prior to enrollment. So we might make some minor changes to the enrollment criteria in terms of the duration of their neuropathy of about a year. I believe in the Phase II study it was six months, but to extend that to approximately one year. The other major elements that, in talking to our advisers and to the FDA and in discussions with them, we are going to do more regarding the training of patients during the pain score, because, again, reinforcing constantly how to use the visual analog scale for pain management, both with the sites and the patients, is another element that we think that we can do to have more consistency across patient enrollment in the study sites. And also, we now have a large number of study sites that have significant experience with us running these trials because we have now run two large trials, two large Phase II trials, so we think we have a good supply of sites to enroll these studies that will have experience with this drug and now have experience with doing DPNP studies. Operator: Thank you. I am showing no further questions at this time, and I would like to hand the conference back over to Michael S. Exton for closing remarks. Michael S. Exton: Yes, thanks so much, operator, and thanks, everyone, for your questions. Very much appreciated. Look, as I reflect on 2025, moving into 2026, the company has made a leap forward, in my opinion. If you think about where we were last year, we needed to really summarize all of the Phase II data for pilovapitan, we needed to find a path forward for Zynquista, we needed to accelerate the enrollment of SOTA in HCM. And fast forward to nearly at the end of 2026, and we now have clarity on pilovapitan, and partnership discussions are ongoing, we are on the precipice of a resubmission for Zynquista, and we are nearly closing the enrollment of the HCM study, Sonata, with a readout in 2027. So we have got an amazing set of opportunities ahead of us, and hopefully you can see how pumped we are about all of those things coming our way in 2026 and beyond. So we feel very good. We are pushing very hard and look forward to giving you some more updates as the year progresses. So thanks very much, everyone. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.
Operator: Good morning, and welcome to the Park-Ohio Holdings Corp. Fourth Quarter and Full Year 2025 Results Conference Call. At this time, all participants are in a listen-only mode. After the presentation, the company will conduct a question-and-answer session. Today's conference is also being recorded. If you have any objections, you may disconnect at this time. Before we get started, I want to remind everyone that certain statements made on today's call may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risks and uncertainties may be found in the earnings release as well as in the company's 2024 10-K, which was filed on March 6, 2025, with the SEC. Additionally, the company may discuss adjusted EPS, adjusted operating income, and EBITDA as defined on a continuing operations or consolidated basis. These metrics are not measures of performance under generally accepted accounting principles. For reconciliation of EPS to adjusted EPS, operating income to adjusted operating income, and net income attributable to Park-Ohio Holdings Corp. common shareholders to EBITDA as defined, please refer to the company's recent earnings release. I will now turn the conference over to Mr. Matthew V. Crawford, Chairman, President, and CEO. Please proceed, Mr. Crawford. Matthew V. Crawford: Great. Thank you, Daryl, and welcome, everyone, to our end of 2025 fourth quarter conference call. I am very proud of our Park-Ohio Holdings Corp. team throughout 2025 and especially during the fourth quarter. Strong cost management combined with the benefit of improved productivity in key locations offset demand volatility in many industrial end markets, caused by tariffs and general economic uncertainty. This uncertainty also delayed new business launches throughout the year and some new business awards in a few cases. Also during the fourth quarter, we made cash management a priority and met our debt reduction goal of $40,000,000. Most importantly, though, we focused on our long-term goals regarding asset allocation, durable growth, and deleveraging. Regarding asset allocation, we continue to invest above our maintenance capital levels as we improve productivity and lower our cost to serve through automation, information technology, and vertical integration. While we continue this journey through 2026 and beyond, we are beginning to see the positive impacts on new business and improved profit flow-through. Our growth capital investment, which represented more than a third of our total capital expense, will not only underpin our significant growth in 2026, but is also targeted in products and services where we have above-average margins and a sustainable competitive advantage. Lastly, while we are still above our target— Patrick W. Fogarty: We have some music— Matthew V. Crawford: —there, Daryl. Are we okay, or did everyone hear that last sentence? Operator: You are okay. I apologize for the technical difficulties. Matthew V. Crawford: Okay. I am going to reread the last couple sentences just in case. I will read the last paragraph. I apologize if anyone heard music there for a few seconds. Most importantly, we focused on our long-term goals regarding asset allocation, durable growth, and deleveraging. Regarding asset allocation, we continue to invest above our maintenance capital levels as we improve productivity and lower our cost to serve, through automation, information technology, and vertical integration. While we continue this journey through 2026 and beyond, we are beginning to see the positive impacts on new business and improved profit flow-through. Our growth capital investment, which represented more than a third of our total capital expense, will not only underpin our significant growth in 2026, but is also targeted in products and services where we have above-average margins and a sustainable competitive advantage. Lastly, while we are still above our target net debt leverage ratio, our cash performance in the fourth quarter and the investment we have made toward 2026 growth, including additional working capital, should put us in a good position to take a step forward in this area. So we start 2026 extremely excited to be rewarded with above-average growth, and with solid incremental operating leverage in all profitability metrics. Thank you for your support, and thank you to all of our outstanding partners in our business. Now over to Pat to cover the quarter results. Patrick W. Fogarty: Thank you, Matt, and good morning. Overall, we are pleased with our accomplishments in 2025, many of which will support future sales growth and drive improved operating margin and free cash flow. Our accomplishments during the year included the following. First, we refinanced our $350,000,000 senior notes with new senior secured notes maturing in 2030. In addition, we amended our revolving credit agreement to extend the maturity date by five years. Refinancing completed during 2025 provides us with the capital structure to support our sales growth and investment in future years. Second, we invested $12,000,000 in information technology during the year and began the implementation of new ERP systems in Supply Technologies and in our Industrial Equipment Group. We expect significant benefits from these investments, including lower working capital levels, lower operating costs, and improved information flow to and from our supply base and our customers. In Supply Technologies, we broke ground on a new state-of-the-art North American distribution center which will be operational this year. This important investment will significantly improve how we service our customers and provide best-in-class warehouse operations with lower costs, lower working capital, automated sorting and kitting, and additional value-added services to support our customer. Also, in our fastener manufacturing business, we invested in automation equipment to improve plant floor productivity and operating margins in several locations. Our capital investments in this business are focused on increasing production capacity to meet the strong demand for our self-piercing and clinch products. In Assembly Components, we won new business during the year, rolling over $40,000,000 of incremental annual sales which will launch in the second half of this year and continue through 2027. We also implemented product price increases as well as plant floor improvements to increase profitability in 2026. And finally, in our industrial equipment business, we achieved record annual bookings totaling $217,000,000, including a record $47,000,000 reduction heating order placed by a leading steel producer. As a result, our backlogs were $180,000,000 at December 31, an increase of 24% over the prior year levels. Patrick W. Fogarty: Before I discuss our fourth quarter and full-year results, I want to comment on our 2026 guidance. As outlined in our press release, we expect consolidated revenues to grow to $1,675,000,000 to $1,710,000,000, an increase of 5% to 7% over 2025 consolidated revenues, driven by sales growth in each business segment. We expect adjusted earnings per share to increase to $2.90 to $3.20 per diluted share, an increase of 7% to 19% year over year. EBITDA, as defined, to range from 8% to 9% of net sales and we expect full-year free cash flow to range from $20,000,000 to $30,000,000. In our Supply Technologies segment, demand in power sports, industrial equipment, and heavy-duty truck end markets are expected to recover from low production levels in 2025, and we expect continued sales growth from electrical distribution customers supporting the AI data center expansion and continued strong growth from semiconductor, aerospace, defense, and agriculture end markets. Also, our fastener manufacturing business will continue to expand its products into new applications and will benefit from the continued use of lightweight materials and electrification. Patrick W. Fogarty: In our Assembly Components business segment, sales of our molded and extruded rubber and fuel-related products are expected to grow year over year, driven by increased production volumes and business launched in 2025 and improved customer pricing. In our Engineered Products segment, revenues are expected to be at record levels in 2026 driven by strong new equipment backlogs in many end markets including oil and gas, steel, and aerospace, and continued growth in global aftermarket demand. In addition, our forging equipment business recently won a new equipment order with an aerospace customer, and strong aftermarket order activity will drive an increase in 2026 revenues. Our Engineered Products segment is also seeing increased order activity from customers supporting the expansion of AI data centers. For example, we recently were awarded new business for power generation products including transformers and power generators used to control and regulate power to data centers. And we are actively responding to strong demand for our forged products from turbine generator customers who also provide power for data centers. Turning now to our fourth quarter and full-year results. Our fourth quarter was highlighted by operating cash flow of $49,000,000 and free cash flow of $36,000,000. We used our free cash flow and excess cash to reduce long-term debt by $40,000,000 during the quarter. Our full-year operating cash flow increased $42,000,000 from $35,000,000 in 2024, with the increase driven by lower working capital usage compared to 2024. CapEx totaled $40,000,000 in 2025 with investments in information technology totaling over $12,000,000 during the year. Consolidated fourth quarter net sales were $395,000,000, an increase of 2% year over year. The sales growth was driven by higher sales in our Supply Technologies and Assembly Components segments. Engineered Products demand was stable year over year as growth in our Industrial Equipment Group offset lower sales levels in our Forged and Machine Products Group. Full-year sales totaled $1,600,000,000, a decline of 4% from 2024 levels, with the decline occurring primarily in North American industrial end markets. Patrick W. Fogarty: Our fourth quarter gross margin is 17.3%, which was 70 basis points higher than a year ago, resulting from higher sales levels and implemented profit improvement initiatives across several of our businesses. Full-year gross margins were 17% in 2025, which were comparable to 2024 gross margins despite the lower sales levels. Excluding special items in both periods, fourth quarter adjusted operating income increased 4% to $20,000,000 compared to $19,000,000 in the 2024 period. Special items in the fourth quarter included a non-cash write-off of certain assets in our Forged and Machine Products Group, totaling $8,900,000 to align our investments in tooling and production assets with current business levels. Our effective tax rate was 12% in 2025, which is lower than the U.S. statutory tax rate due to research and development tax credits recognized during the year. We expect a more normalized tax rate in 2026 ranging from 18% to 20%. Adjusted earnings per share in the fourth quarter was $0.65 per diluted share compared to $0.67 in 2024, with the decrease due primarily to higher interest expense in the 2025 quarter. Our full-year adjusted earnings per share was $2.70 compared to $3.59 in 2024. And with respect to our segment results, in Supply Technologies, fourth quarter sales were $187,000,000 compared to $182,000,000 in the 2024 period, and operating income increased 31% to $21,000,000 compared to $16,000,000 last year. Operating income margin was up 240 basis points and was 11.1% of sales compared to 8.7% last year. The improved year-over-year fourth quarter results in 2025 were driven by higher sales and favorable impact of cost control measures taken during the quarter. Full-year sales in this segment were $748,000,000 compared to $776,000,000 in 2024, driven by lower customer demand in certain end markets, primarily in North America, including power sports, heavy-duty truck and bus, and industrial and agricultural equipment, offset by continued strong demand in data center, electrical, and semiconductor end markets. Full-year operating income in this segment was $72,000,000 compared to $75,000,000 in 2024. Operating margin was 9.7% in both periods, due to our efforts to reduce variable operating costs given lower demand levels. In our Assembly Components segment, fourth quarter sales were $92,000,000, up 2% from $90,000,000 a year ago. Adjusted operating income was stable at approximately $4,000,000 in both periods. Full-year sales in this segment were $381,000,000 compared to $399,000,000 last year. Lower unit volumes on certain auto platforms and production delays on new business launches impacted revenues during the year. Full-year adjusted operating income was $22,000,000 in 2025, compared to $27,000,000 in 2024, with the decrease driven by the lower unit volumes. We expect our operating margins in this segment to improve, resulting from expanding our rubber mixing, production plant floor automation, and improved margin flow-through from increased sales. In Engineered Products, fourth quarter sales were approximately $116,000,000 in both 2025 and 2024. We continue to see strong sales in our industrial equipment business, which grew 5% but was offset by lower sales in our Forged and Machined Products business. Fourth quarter adjusted operating income decreased to $3,000,000 due to lower profitability from the Forged and Machine Products Group. Full-year sales in this segment were $471,000,000 compared to $482,000,000 in 2024. The decrease was driven primarily by the closure of a small manufacturing operation in 2024 and lower demand from the railcar end market, which impacted our Forged and Machine Products Group. We continue to see growth in our industrial equipment business in 2025, driven by 7% growth in our aftermarket business. Adjusted operating income was $17,000,000 compared to $21,000,000 last year, with the decrease driven by lower sales levels and lower profitability in our Forged and Machine Products business. We expect significant improvement in operating profits in this segment in 2026, based on our strong new equipment backlogs, aftermarket demand, and operational improvements made in several of our plants. Now I will turn the call back over to Matt. Matthew V. Crawford: Great. Thank you, Pat. Before I turn it over to questions, I do want to emphasize Pat's comments around the fourth quarter. We returned to growth in the fourth quarter. Year over year, we were down a bit, but as I mentioned, things were a bit choppy earlier in the year regarding tariffs and global uncertainty in the industrial market. So getting back to growth in the fourth quarter is great. We plan on building on that in 2026 meaningfully. I also want to point out that we continue to absorb some expenses related to some of the IT transformation, new business launches, etcetera. So I think we will begin to see payback in 2026 and be able to build on that going forward as well. So some of the improvements, I think, are being masked by that. But we are very excited to demonstrate a big step forward in 2026. With that, I will turn it over and answer some questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, you may press star 1 on your telephone keypad. You may press star 2 to remove your question from the queue. One moment please while we poll for your questions. Our first questions come from the line of Steve Barger with KeyBanc Capital Markets. Please proceed with your questions. Jacob Moore: Hi. Good morning. This is Jacob Moore on for Steve Barger today. Thanks for taking our questions. Good morning. I just wanted to start with the guide. Specifically the 5% to 7% sales growth. I see at least one mention of pricing in the slide. So can we just begin with your assumptions for price versus volume in that overall sales number? Then maybe you could finish with a by-segment view of growth contributions for the year. Patrick W. Fogarty: Sure. This is Pat. The price increases that are included in our 2026 sales guidance is primarily in our Assembly Components group. And I would say it is a small part of the increase that we are seeing in revenues. We will see an increase in revenues relating to tariffs and the recovery of such tariffs with our customer base in our Supply Technologies segment. But I would say the majority, call it 75% of our growth in 2026, will be a result of production volume increases from our customers. And then relative to improvements in gross margin by business, I am going to refrain from giving any type of guidance on segment profitability in 2026 other than we expect improved flow-through in each of the business segments based on the increase in revenue that we are guiding to. So as we have experienced in 2025, and really for the last year and a half, our operating margins in both Assembly Components and Engineered Products group are below our expectations. And we expect improvement in each of those segments in 2026. Matthew V. Crawford: Jacob, I want to add to that while I completely agree with Pat's comments. There are tactical pricing discussions going on across the business. As you can see, a lot of our backlogs are very strong. So we are quoting new business in multiple areas. And we are also making sure that we dissect our customer base and our current pricing models and standards coming into the new year. So every one of our business continues to be evaluated, and I could think of a dozen different pricing conversations going on right now. Much more tactical, I think, than we would have seen in the past. So I think to Pat's point, the growth leans heavily towards new business or expanded current relationships. You know, that does not mean a percent or two in our model is $25,000,000 or $30,000,000 in price increases. So those are happening consistently across the board on a more tactical basis. Jacob Moore: Understood. That is really helpful. Thank you. And I want to dig into sales growth by segment as well, if you could comment on that. Patrick W. Fogarty: Yeah. Once again, we will not comment on individual business segments. But I would say, as I mentioned in my comments, that our guidance on increased revenues are across the board. And so they vary across the board. Engineered Products will be at record sales levels in 2026. We see continued growth in Assembly Components based on new business that we have already launched. That new business will be at full production levels in 2026. And then in Supply Technologies, we have seen nice growth in the AI data center space, where our business is focused on the switchgear manufacturers, those customers that provide digital infrastructure around data centers. We are seeing nice growth in that business. For example, two years ago, we had very little revenue in that space. Today, revenues are approaching $150,000,000 annually with that end market. So we expect that to continue into 2026 and beyond. Matthew V. Crawford: Jacob, I think that to Pat's point, we will see it across the board. AI and defense and power management really affecting Engineered Products and Supply Technologies. But we have talked consistently about the large $40,000,000 in new business that we have launched inside of Assembly Components. So, without commenting specifically, I think it should be relatively broad-based. I think it also depends. We have had significant backlogs in Engineered Products. As we can clear those backlogs, that should be a tailwind as well. Jacob Moore: That is really good color. I appreciate it. And if I could just follow up with the last one here on free cash flow. I know you are guiding to $20,000,000 to $30,000,000. The last couple of years have been in the low single-digit millions. I know you have been investing, you highlighted, but it sounds like you still have a lot to juggle this year too. So I want to ask what makes you confident that you have turned the corner, that the asset base can start to consistently produce cash flows? And what is your confidence level in that guidance? Matthew V. Crawford: Yes. Great question. Pat can give you a better answer. But I do want to comment. I talked earlier about volatility going back a couple years in the supply chain. Then I have talked, I think, about volatility in demand last year related to tariffs and global uncertainty. These last couple years have been really difficult to manage supply chain issues and demand issues. It has been not the best environment to predict the business needs of your customers and to manage your suppliers. So we have been heavy consistently, and I think we have been transparent on that, on working capital. I think as we come into 2026, whether it is some of the productivity tools we have talked about or whether it is just a little better visibility. I commented, I think, back in the second quarter call of last year, that while the sales were relatively stable year over year for the business, and let us use Supply Technologies as a kind of last mile; that is a good proxy for the economy. There was total turmoil under the hood in terms of end market. And aerospace and defense and AI was holding it up. Other key markets, most of the other key markets, were down. So that was a very difficult environment. We predict something slightly more, better visibility, and we are more prepared, I think, to handle it. So I think we can manage the business a little better on the cash side because of that. And, again, we are also going to begin to benefit from some of these data management tools as well. But it was a tough year last year to manage these things on top of investing heavily in the business. Patrick W. Fogarty: And, Jacob, I would add that our free cash flow estimates are a result of increased profits but also lower working capital usage relative to every dollar of sales increase. So we still have some embedded working capital that we expect to harvest in 2026. But we expect that as a percentage of sales, our growth will not require us to invest in as much working capital as we have in the past. Jacob Moore: Got it. Thank you very much. I will jump back in queue. Operator: Thank you. Our next question comes from the line of Dave Storms with Stonegate. David Joseph Storms: Good morning, and thank you for taking my questions. Matthew V. Crawford: Morning, Dave. David Joseph Storms: Wanted to just go back to the guide here, and maybe just get your thoughts on general cadence for 2026. Should we expect that it will be maybe a more typical seasonal year? Or is there anything that we should keep an eye out for that might throw that off? Patrick W. Fogarty: I think we would expect a similar trend of sales in each business segment as we have in the past. So I do not see anything that would change the look of the individual quarters in 2026. David Joseph Storms: That is perfect. Thank you. And then just wanted to kind of turn to the record backlog you have in EP. Is there anything more you can tell us about that? Maybe expected burn rate? Are there any outsized contracts in there that are going to demand a lot of focus, margin profile, anything like that would be very helpful. Matthew V. Crawford: I do not think there is anything unusual in there. I would say that our expertise in managing large power has provided more opportunity across the industrial segment, including things like data centers and AI. So the breadth of opportunity, I think, has grown in what 30 years ago was largely focused on the steel market and some related forming markets and hardening markets. So I would say the breadth of managing large power has increased the opportunity, if you will. So I would say that is a tailwind in the business. We are a global leader on the technical side in managing large amounts of power in industrial spaces. So we have names on our customer list that we just would not have seen five years ago, and trying to do things that they were not trying to do five years ago in battery steels and high-strength steels and so forth, as well as new energy markets and things like that. So I do think that that is a particular tailwind. You know, I also think we have talked a lot about durable sales. We love our aftermarket business there. And we continue to reinforce and support what increasingly is a global effort to upgrade the industrial space. I know our team, including Pat here, was just in Europe. I mean, we are absolutely seeing green shoots in the reinvestment of the industrial space over there. Whether that means new facilities, which we do not see as much of there, but certainly upgrading old facilities. So I think those markets are continuing to show life globally. David Joseph Storms: That is great color. I really appreciate that. And then maybe one more for me. You have mentioned a couple times now, we have talked about this in the past, the automation and information systems improvements. Just would love to get an update on how you think those are going, how much more runway you have there, and just any further thoughts on that. Matthew V. Crawford: Yes. That is a great question. And we are attacking this piece in lowering our cost to serve on multiple fronts. And I say it a lot because it is really something we did not focus on as much when we were growing so quickly over the years. First, I will start with data management. Our efforts, enterprise-wide in some cases, but more often by the different segments, to invest in tools that begin with creating really clean data. A lot of people want to talk about AI, and we have some tremendous use cases going on both on the sales funnel side and on the productivity side. But the reality of it is the journey begins with really getting clean, usable data. So I am very excited at the strides we are making to manage data better and give the tools to our— I have talked a lot in the past about the strength of our management teams increasingly, and giving them the tools to have the visibility to do everything from manage pricing and manage cash flow and working capital the way that we discussed. The opportunity is huge, particularly in a business like Supply Technologies. So I would say that. I think on the automation side, we continue to attack vigorously costs in the business that a few years ago were not a big deal. So, for example, warehouse space. Warehouse space has been explosive in terms of costs. So opening up, as Pat mentioned, a new distribution center, a larger one, allows us to have increased volumes and velocity, which allows us to invest in automation tools. Our flagship fastener manufacturing facility up in Toronto just invested several million dollars in finishing and packing equipment. This is not just about doing things more cheaply; it is about doing more. So we are really looking at those kinds of investments too, which are not just robotics. They are about really stripping long-term costs out of the business model while growing. It is about productivity today, but it is really about getting the flow-through that we talked about on the next $100,000,000 in sales. And then lastly, you did not mention it, but I will. When we talk about durable sales at higher margins, the vertical integration piece, particularly in Assembly Components, we have a wonderful footprint in the U.S., Mexico, China, a global footprint, and with very competitive position products with tremendous know-how, and I think it is critical that we continue to invest in the whole value stream. So as we look at improving material science and mixing capabilities on the rubber side, this is going to be really important to controlling our value stream. David Joseph Storms: Understood. Thanks for that commentary, and good luck in the next quarter. Matthew V. Crawford: Thank you. Patrick W. Fogarty: Thanks, Dave. Operator: Thank you. Our next questions come from the line of Jim Dowling. Please proceed with your questions. Jim Dowling: Two big picture questions. Pat mentioned the data center business running at a rate of $150,000,000. Could you expand that and give us your top five end markets across the entire company and what percentage of the total those top five might be? For example, steel, automotive, energy, etcetera. Matthew V. Crawford: Well, I will take the least exciting one, Jim, because that will give Pat a second to think. You have known us when automotive, light truck and auto, was north of a third of the business. Today, I will give Pat a chance to think, but that number probably hovers closer to about 20%, a little over 20%. So we have meaningfully culled the herd, so to speak, and gotten rid of some business that was too focused, I think, not just on the automotive space, but too much on the North American automotive space, and I think also were more capital intensive. So we have moved out of those businesses today. While that is still our biggest market, I want to be very clear that that is a business that today not only is global in nature, we compete very successfully in Asia, for example, but also I think it is a business that is extremely well diversified into products where we either have IP or we have business process or hard assets that put us in a very, very durable competitive position. So that is still our biggest market. But we really like where we are relative to the customer mix and the products that we are supplying. And while we do not see it in the margins yet, Jim, that is probably our biggest opportunity, as we have repositioned that business and invest in that business for growth. Are we looking to be 50% or 40% or even 30% OE automotive? No. But we like where we are today, and we will continue to invest in those positions that we have great accretive margins. Patrick W. Fogarty: Yeah. Jim, this is Pat. We are very fortunate to be a very diversified industrial company. Matt talked about the auto side of the business as that has decreased over the years. But within that block of business that we have, we are very diversified in terms of products, in terms of customers, in terms of the type of auto platform that we are providing our products to. Once you get beyond that, heavy-duty truck, semiconductor, power sports, steel, AI data center-related, electrical, oil and gas, are the top markets that would follow. And each of those individual markets do not represent more than 15% of our revenue base. So no one end market is really dominating our revenues. From that perspective, we are very diversified. Jim Dowling: In broad terms, what percentage of the business is going for OEM application versus aftermarket? Patrick W. Fogarty: I would say that Supply Technologies is 95% OE. Obviously, we do not always track perfectly what the OE does with that, because we do sell to their service arms too. So tracking exactly what goes into their service areas versus their direct OE business can be difficult. But you can think of that as primarily an OE supplier. I think on the aerospace side, even the MRO side, I guess, is still, in some cases, going into assemblers. I think on the automotive side, again, the vast majority is OE. We do sell aftermarket, both direct aftermarket on the extruded hose side. We also sell, obviously, to customers that use them as service parts. But, again, in both those cases, I would say that. I think on the equipment side and the forging business side, the equipment side is a bit more discrete in terms of their building capacity or improving capacity or investing in productivity inside their plants. And then the aftermarket, which is a $150,000,000 part of that business, is obviously all aftermarket. And that is, again, one of the exciting parts of the business model. So, while I would say in general the first two are largely OE-based, I think that the Engineered Products business is a bit more complex and skews a little bit more towards not being entirely OE. Jim Dowling: Okay. Thanks. One last for me. How did China do last year versus the previous year? Matthew V. Crawford: China continues to be a good market for us. We have, I think, in a couple different ways. First, I think that we have really reshaped— I talk a lot about allocation of capital. While we have invested less money— we generate cash in China, and we generate cash exporting cash out of China— we have really focused on the businesses we have there that we can be successful with. So the products we sell there today, the service and the customer we service, are often sometimes Chinese companies, but in most cases, global companies are looking for global partnerships. So that gives us a little buffer from a competitive standpoint. It is a tough market to do business in, no mistake. But it is a growing market. It is a market in which we have accretive margins. And, again, it is not one that we are necessarily pulling back from, albeit more often we will see that as a jumping off point for Southeast Asia and other areas of even faster growth. Jim Dowling: Okay. Thank you. Operator: Our next questions come from the line of Steve Barger with KeyBanc Capital Markets. Please proceed with your questions. Jacob Moore: Hi. Thanks for letting me jump back in. I just wanted to ask about the other part of your strategy that I have not touched on yet, which is reshaping the portfolio. I know, Matt, you have talked about it a little bit already today, but I just wanted to ask you a little more directly. Is the current portfolio set of assets that you want to be in longer term? Matthew V. Crawford: I think we are constantly tweaking and thinking about where we want to allocate capital. I think that we made the big moves over the last couple years. And I think I have often said I really like the businesses we are in. Each of them, I think, has real opportunity for growth. And not only growth, but durable growth at accretive margins. Having said that, I think that we are not operating at the highest level across the board. So we will continue to fine tune that as we go forward. But, again, I think that from a revenue perspective, the core businesses we have are fantastic. Patrick W. Fogarty: Yeah, Jacob. We have discussed on prior calls, and I know Matt has highlighted, the allocation of capital strategy, that we are allocating capital to our best products, our highest margin businesses. And to the extent that there are businesses that are not going to get fed the same amount of capital, those are the businesses that we will make decisions on going forward. But right now, we are happy with where we are at. Jacob Moore: That is really good color. Thank you. And then just the last thing from us, and it is maybe one for each of you. Pat, what do you see as the variables or watch items that could drive upside or downside to your 2026 outlook? And for Matt, what programs, initiatives, or trends are you most excited about this year and why? Matthew V. Crawford: Those are some big questions, Jacob. So let me just comment and say I think that, as I mentioned earlier, we have a little better visibility this year going into the planning year. I would say, only half joking, that last year, pretty early in the year, the economic uncertainty and the specter of tariffs changed our ability to plan the business and made some of our business plans almost irrelevant by the end of the first quarter. So I think this year, a lot of the inventories that were really overbuilt or pre-bought or prebuilt at the beginning of last year, a lot of that inventory is cleared in some of our traditional markets. A lot of the transportation markets in particular. I am not talking auto. Some of the markets have been at historic lows. For example, the train market, and the track market. Some have been reasonably soft, the heavy-duty truck market. So there are a number of markets that we have some exposure to that have been sort of bumping along the bottom. So I think those businesses are in a position— those markets are in a position to stabilize, perhaps a little upside. That should allow us to benefit from some of the faster-growing areas of the business that Pat has recognized. What do I think the risk is? It is less, I think, on the customer side this year and more on the macro side. It is somewhat surprising to me that the markets, with the exception perhaps of the oil market, have been as calm as they have been. And most of our key customers have been insulated from that. But it is hard to imagine that an inflationary cycle that burns through this global economy, or here in the U.S., because of the ongoing war on two fronts, would not in some way impact our business. It may help on the aerospace and defense side, but it probably will create some challenges and some demand chaos as we saw last year. So those are a couple things we are thinking about. And that is one of the reasons we continue to invest well above our historic norms is because we want to be in a better position to respond to that kind of activity. Patrick W. Fogarty: Hey, Jacob. This is Pat. To answer the question directed at me, obviously higher production levels in the end markets that we serve will drive higher levels of profitability. But I think more importantly than that, and because our guidance reflects where we think the end markets are going to be, better throughput of our products through our plants— whether that be in our capital equipment business; the more we can push through the plant, the more efficiently we push new equipment orders through our plant— will drive profitability. The same is true in our manufacturing plants in Assembly Components. The more efficient we become, the better absorption we are able to obtain, and the higher levels of profitability will result. And so those are the two areas that we are focused on, and that will drive any upside that we might see in our 2026 guidance. Jacob Moore: Okay. Thank you very much. I know we had a lot for you today, so I really appreciate your help. Matthew V. Crawford: No. Great. Thank you. Operator: We have reached the end of our question-and-answer session. I will now hand the call back over to Matthew V. Crawford for any closing comments. Matthew V. Crawford: Great. Thanks, everyone. Appreciate your attention and your patience as we transform this business going forward. Thank you. Have a great day. Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.