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Operator: Good morning, and welcome to Harbour Energy 2025 Full Year Results. Today's presentation will be hosted by Linda Cook, CEO; Alexander Krane, CFO; and Nigel Hearne, COO. After the presentation, we will take your questions. Linda, please go ahead. Linda Cook: Great. Thank you, Dan. Good morning all, and welcome to our 2025 full year results call. I'm Linda Cook, the CEO of Harbour Energy. And as Dan said, joining me for the presentation today are Alexander Krane, our CFO; and Nigel Hearne, the Chief Operating Officer. Before we turn to results, I do want to first just acknowledge recent geopolitical events, which are driving extreme commodity price volatility and raising concerns over energy security. In some ways, similar to where we were just about the same time last year with Liberation Day upon us, governments and businesses around the world coming to grips with the impacts of a wide range of new tariffs and trade agreements. And of course, not that long ago, before that, we had the Russian invasion of Ukraine, a conflict that continues to this day and before that, a global pandemic, all in the last 5 to 6 years. These are all reminders that we live and make decisions within an uncertain and at times volatile global environment. In response, it's important in a business like ours that we balance the short term with the long term and that we remain focused on the things we can control, operational excellence, capital discipline, managing risk and creating value for our shareholders. So turning to the agenda. I'm going to start by taking you through the highlights from what was a very good year for Harbour Energy in 2025 and some changes to our portfolio. Nigel will then cover operations, including how we're driving performance. Alexander will follow with the financial results, 2026 guidance and the cash flow outlook for the near to midterm, all updated for our recent transactions and also an outline of our new distribution policy. And then it's back to me to wrap up, leaving plenty of time for questions. So turning to my first slide. Harbour has grown from 0 to more than 450,000 barrels per day over the last decade, driven by disciplined M&A and reinvesting in the acquired assets to add value. During that time, we repeatedly demonstrated our ability to identify and secure strategic transactions and after completion, to safely and successfully integrate the acquired businesses and organizations. While past acquisitions, including Wintershall Dea in 2024, we're focused on building scale and diversification. Our more recent ones have been targeted towards strengthening the portfolio, making it more resilient and enhancing longevity. Perhaps the best example is the acquisition of LLOG Exploration in the U.S. Gulf completed ahead of schedule just a few weeks ago. The LLOG assets, oil weighted and all under operational control, helped to secure Harbour's overall production at between 475,000 to 500,000 barrels per day to the end of the decade. And while overall production stays broadly stable, as you'll see later, replacing the declining U.K. volumes with growth in the U.S. with its attractive fiscal framework means that we'll see a significant increase over time in cash flow. So turning first to look back to 2025. As I said, another strong year for Harbour Energy operationally, financially and strategically. We achieved record production at 474,000 barrels per day. It was up more than 80% on the prior year. And with unit OpEx at $13 per barrel, our margins were strong. This, along with strong capital discipline and cost control, resulted in materially improved free cash flow and demonstrated our ability to navigate volatile commodity prices. We also had good momentum on our growth projects, including the transfer of operatorship of the major Zama development in Mexico from PEMEX, the national oil company to Harbour. And we continue to improve the overall quality of the portfolio through M&A. And let me just turn to that now. In December, we announced 3 transactions, each of which advances our strategy and strengthens our portfolio. First, we agreed the sale of our mature higher-cost Indonesian producing assets and the stalled Tuna development project for $215 million, improving our portfolio quality and accelerating value. We also announced the $170 million acquisition of Waldorf, a small U.K. producer that brings around $900 million of value through tax losses. In addition, we unlocked $350 million of trapped cash upon completion, more than covering the purchase price. Combining the benefits of Waldorf with the great work by our team in Aberdeen to reduce costs and improve efficiency means we've materially enhanced the resilience and free cash flow outlook of our business in the U.K. The proceeds from the Indonesia sale, along with the near-term cash flow uplift from Waldorf helped fund our entry into the U.S. Gulf through the acquisition of LLOG. As we said in the announcement at the time of this transaction, we're really excited about the addition of a strategic position in the U.S. deepwater. With LLOG, we get a high-quality growth portfolio in one of the most prolific oil and gas producing basins in the world, along with one of the best teams in the Gulf, and we're more than thrilled to have them join our Harbour team. So each transaction was strategic in its own way. And collectively, they have a material impact on the overall quality of our portfolio. So the next slide takes us to a snapshot of Harbour today, and I'll illustrate that point about the improved quality of the portfolio here. With the divestment of Vietnam in 2024, the announced sale of most of our Indonesia assets and our entry into the U.S., our geographic footprint is shrinking and the portfolio center of gravity is shifting to the West. We've divested from mature positions in Southeast Asia with declining production and high unit costs acquired 5 years ago through the Premier Oil transaction and added strategic positions in Norway, Mexico, Argentina and now the U.S., all with significant running room from a subsurface point of view, demonstrating, I think, that portfolio management is alive and well within Harbour. Like in the past, if we can't see a route to scale or the assets can't compete for capital in our portfolio, they become divestment targets. And with the LLOG acquisition, the bar to compete internally for capital has got that much higher. The outcome is a higher quality portfolio with higher margins and as Alexander will show, increasing free cash flow over time. He'll also talk about the new distribution policy details, which aim to strike a balance, enabling a sustainable dividend and resilient balance sheet across commodity price cycles while supporting investment in future production and enabling shareholders to benefit as that cash flow growth materializes or if like today, we have an unexpected spike in commodity prices. Turning to my last slide. I've mentioned our shrinking geographic footprint, meaning that today, we're focused on 5 key countries: Norway, the U.K., Argentina, Mexico and the U.S. As you can see, these account for 90% of our company, however you cut it: production, cash flow, reserves, resources. As Nigel will explain, each of these countries has its role to play in Harbour. And while together, they support flat production over the coming few years, the portfolio evolution continues, and that's hinted out in the bars on this page. While the U.K. is responsible for 1/3 of our production today, it represents only a bit over 10% of our combined reserves and resources. With Norway production expected to be flattish, the U.K. decline is replaced by investing in projects in the Americas: the U.S., Mexico and Argentina. And this, over time, has positive implications for after-tax margins and cash flow. So now over to Nigel, and he'll take you through each of these countries in more detail, followed by Alexander. A. Hearne: Good morning, and thank you, Linda. Today, our portfolio is more focused, competitive and resilient. Across the business, we're aligned on delivering against 4 key priorities to drive total shareholder return: operating safely and reliably, expanding our margins through cost and capital efficiency, converting our resources into reserves and into production profitably and competitively and growing our free cash flow sustainably. I will shortly take you through how each of our core business units is delivering against those priorities and how the actions we've taken over the past year has put us on a path to stronger, longer, higher quality cash generation. First and always first is safety. Nothing matters more than protecting our people, our assets and the communities in which we operate. We did see a slight increase in our recordable injury rate in 2025 as we expanded into new countries, but we continue to be a top performer in personal safety. In process safety, we delivered a reduction in Tier 1 and Tier 2 loss of containment events, but unfortunately, recorded one Tier 1 event in Mexico. Safety is an area we will never be satisfied. We actively promote the learnings from our incidents and are strengthening our focus on risk assessment, prevention and assurance activities. We've also delivered a step change reduction in our greenhouse gas emissions intensity, creating a more resilient portfolio. 2025 was a year of record production, delivering at the very top of our guidance. This reflects a full year's contribution from Wintershall Dea, but also a strong year of execution across our expanded portfolio. We brought new wells online and completed new projects ahead of schedule in Norway, the U.K. and Argentina. Reliability across our asset base continued to be high at greater than 90%. And we made structural improvements in our cost base with unit OpEx down 20%, driven by lower cost barrels from Wintershall Dea, actions taken in the U.K. to reduce our cost by 10%, our exit from the higher cost Vietnam volumes, and we captured early synergies as we leveraged our increased scale. Together, these actions improved our earnings and cash margins, strengthening our competitiveness and resilience. Turning to our core business units. As the second largest Norwegian gas exporter to Europe and Harbour's largest producer, our Norway business is central to our long-term cash flow. Our strong pipeline of infrastructure-led developments sustain profitable production into the next decade. At the end of 2025, we completed the Harbour operated Maria Phase 2 project, the first of 6 developments due online in the next 24 months. This project was delivered on time and within budget and is performing well. Our operated Dvalin North is on track for completion mid-2026. All subsea infrastructure was successfully installed in 2025 and development drilling is underway. We're also maturing our next set of projects, and we continue to explore. Earlier this week, we announced the Omega Sor discovery, where we have a 24.5% share. The estimated size of the discovery is between 25 million and 89 million barrels of oil equivalent of gross recoverable volumes, exceeding our pre-drill estimates and extending the Snorre field's lifetime beyond 2040. Our Norway business continues to exemplify our ability to profitably and efficiently turn resource, to reserves, to production. Despite continued fiscal headwinds, the U.K. delivered a strong performance in 2025. This was underpinned by high production efficiency and strong turnaround execution at our operated assets, structurally lowering our cost base. We shortened cycle times through near-field development and delivered best-in-class capital efficiency through the 2025 wells program. Joscelyn South was brought on stream in March, just 3 months after discovery. Strong subsurface performance at Talbot and successful intervention campaigns led to the J-Area producing at rates not seen for over a decade. We are now bringing that same level of focus and discipline to our U.K. decommissioning program. In addition, the Waldorf acquisition, as Linda said, once completed, will deliver meaningful financial synergies. As a result of these actions, we've materially strengthened the U.K.'s cash flow outlook. Now turning to the Americas. Argentina provides both low-cost and long-term production, underpinned by our significant reserves and resource position. Today, the majority of our production comes from the conventional CMA -1 license. Phoenix is a great example of the tieback opportunities that supports a stable, low-cost production from this asset. We hold over 700 million barrels of oil equivalent of 2C resources, primarily in the vast of Vaca Muerta shale play. We are progressing the unconventional oil license at San Roque with a 16-well program expected to start later this year. We are scaling up gas drilling at APE and our gas resource development will be optimized through our participation in the Southern Energy LNG project, where export permits and incentives are secured, 80% of the first vessel offtake is now contracted and the fabrication of the spur line and conversion of the second vessel is underway. First LNG production remains on track for the end of 2027. We continue to focus on drilling and completions efficiency as we increase the scale and pace of our Vaca Muerta development. Argentina is a cornerstone for future flexible and capital-efficient reserve replacement. Our newest core business unit, the Gulf of America, add scale and growth through to the end of the decade. It is a 100% operated oil-weighted portfolio centered around 3 deepwater hubs at Who Dat, Buckskin and Leon-Castille. Production is expected to double by 2028, supported by low breakeven drilling targets at our production hubs and ramp-up at Leon-Castille. Combined with the attractive fiscal terms, we are adding high-margin barrels that fuel free cash flow growth through to the end of the decade. And with more than 350 million barrels of oil equivalent of 2P reserves and 2C resources, plus 0.5 billion barrels of prospective resources and success in the recent bid round, we have lots of running room in this prolific oil and gas basin. Our team have a proven track record of profitably and competitively converting resource to production, ranking best-in-class among global peers when it comes to development cycle time. They're also responsible for 1/3 of all discoveries made in the Gulf since 2014. Over the next 3 years, we expect to allocate around $400 million a year with 10 to 15 wells planned. This includes development wells with internal rates of return in excess of 40% and low-risk infrastructure-led exploration wells with a short cycle time to production, if successful. The Gulf of America business unit is transformative and raises the bar for capital competition within Harbour. Finally, Mexico represents one of our most material long-term growth opportunities. Through the Zama and Kan shallow water hubs, we are building a scaled advantaged business with tieback potential. As newly appointed operator of Zama, we've submitted a simplified phased development plan designed to lower breakevens, improve returns and lower risk. At Kan in 2025, resource was upgraded by 50% to 150 million barrels of oil equivalent gross. Together, Zama and Kan have the potential to deliver reserves equivalent to more than 2 years of group production. As operator of both hubs, we have the opportunity to capture synergies across design, drilling and operations. Both projects are expected to enter FEED this year. Subject to partner alignment, securing FPSOs and regulatory approval, we're targeting both to be FID ready within an 18-month horizon and possibly one project as early as year-end. We also see additional upside through the alignment with our Gulf of America business unit, using key capabilities and talent that we now have to help successfully deliver Zama and Kan. Mexico builds long-life, high-margin oil exposure with strong operating control. So putting this all together, what does it mean for our CapEx and production outlook? We expect to spend $2 billion to $2.3 billion per year from 2027, which we believe is the right level given our portfolio and opportunity set. With over 3 billion barrels of oil equivalent of 2P reserves and resources, we will prioritize the most competitive projects, continuing to high-grade the portfolio. This level of investment allows us to sustain production between 475,000 and 500,000 barrels of oil equivalent per day through the end of the decade. During this period, operated CapEx rises to 60%, giving us more control over cost, schedule and performance. And while overall production remains stable, we are replacing the declining higher cost U.K. production with higher margin growth in the U.S. and over time, Mexico. We have a strong history of reserves replacement, and we expect that to continue. For 2026, we anticipate at least 150% reserves replacement, supported by the LLOG and Waldorf additions. Historically, we've grown reserves through M&A. Going forward, more will come organically from our large, diverse 2C resource base. The quality of our reserves also improves, more oil-weighted, more operated and increasingly positioned in lower cost, lower tax basins. In summary, we are and will continue to have a laser focus on operating safely, reliably and with discipline, expanding margins, lowering breakevens and improving capital efficiency, converting resources into production profitably and predictably and building a portfolio with scale, longevity and rising free cash flow. This is how we continue to strengthen Harbour. I will now hand over to Alexander for the financial review. Alexander Krane: Great. Thanks, Nigel. And again, good morning to everyone dialing in this morning. We've delivered another strong set of financial results, reflecting a full year's contribution from Wintershall Dea, excellent operational performance and strict capital discipline. As a result, we improved our operating margins. We generated $1.1 billion of free cash flow, beating our guidance for the year, and we reduced our net debt. At the end of last year, as Linda mentioned, we announced the Indonesia divestments and the U.K. Waldorf and U.S. LLOG acquisitions, materially improving our free cash flow outlook. We increased 2025 declared shareholder distributions to approximately $0.5 billion and also announced in December our intention to update our distribution policy, better aligning distributions to our cash flows. 2025 was marked by significant geopolitical and macroeconomic volatility, driving uncertainty in commodity markets. 2026 is proving no different. Recent events in the Middle East have pushed spot prices higher, but concerns around oversupply persists with the possibility of materially lower prices from here. Against this backdrop, Harbour is well positioned, particularly following the LLOG and Waldorf transactions. We have a large scale, diverse portfolio, including by product with 40% of our production exposed to Brent and 40% to European gas, a structurally lower cost base, greater operational control and investment-grade credit ratings, supported by our prudent financial policy. As a reminder, we hedge 2 years forward, targeting 50% of economic exposure in year 1 and 30% in year 2, targeting even split between swaps and collars. This protects around half of our downside exposure while preserving meaningful upside participation. And we continue to hedge through the recent volatility this week, securing attractively structured colors, especially for European gas. Turning now to the income statement. Thanks to the hedging results, we realized prices broadly in line with global benchmarks for oil despite slight grade differential on liquids and above benchmarks for our European gas. Revenue and adjusted EBITDAX increased by 65% and 77%, reflecting higher production and stronger gas realizations, partly offset by lower realized oil prices. Now as Nigel outlined, we lowered our unit operating cost by 22% to $12.8 per BOE despite the significantly weaker U.S. dollar. Net financial items reflected $0.5 billion of foreign exchange losses, partly offset by $0.2 billion of FX hedging gains. Profit before tax increased to $2.8 billion or $3.4 billion on an adjusted basis. While we reported a loss after tax of $0.2 billion, driven by a more than 100% effective tax rate, adjusted profit after tax increased to $0.6 billion, up over 60%. Adjustments reflected 3 main items: $0.4 billion of impairments, including as a result of license exits and write-offs in our Mexico, North Africa and CCS portfolios; $0.2 billion of intercompany FX losses; and $0.3 billion related to the U.K. EPL extension to 2030, the latter 2 already reported at our half year results. The adjusted effective tax rate was 82% compared to 106% reported, more in line with the 78% statutory tax rates we now have in Norway and the U.K. Turning to cash flow. During the period, we generated $7.3 billion of operating cash flow, invested $2.3 billion on total capital expenditure, and we paid $3.5 billion of cash taxes, substantially in the U.K. and Norway. This resulted in free cash flow generation of $1.1 billion, materially higher than in 2024 and significantly above what we expected at the outside of the year once normalizing for commodity prices. This increase was driven by strong operational execution and rigorous capital discipline. Now turning to net debt on the next slide. Net debt reduced over the year to $4.4 billion. This reflects strong free cash flow of $1.1 billion, of which approximately $0.5 billion was returned to shareholders with the balance going towards debt reduction. The impact of the weaker U.S. dollar, which increased the value of our pre-swap euro-denominated bonds by $0.6 billion was partially offset by net $0.4 billion increase in cash balances from the issuance and repayments of subordinated loans. Post period end in February 2026, we completed the $3.2 billion LLOG acquisition funded through a combination of $0.5 billion of equity and $2.7 billion of cash, including a $1 billion bridge facility and a $1 billion 3-year term loan with existing relationship banks and a few new banks joining our syndicate. Now as a result, net debt increased to $7.2 billion on completion. Having prefunded 2026 maturities through senior and hybrid bond issuances in 2025, we now have greater flexibility around the timing of the bridge takeout. Consistent with our approach on previous acquisitions, we aim to delever using cash flow to repay the term loan over the next 3 years. We have updated our 2026 guidance to reflect LLOG completion in February and the expected closing of the Waldorf and Indonesia transactions by end Q2. Production guidance is increased to between 475,000 and 500,000 BOE per day, while unit OpEx is expected to be slightly higher at approximately $14.5 per BOE with LLOG and Waldorf increasing near-term unit OpEx. Here, LLOG OpEx is expected to be $19 per BOE in 2026, then expected to decline to approximately $12 per BOE by 2030, primarily as a result of production increase impacting unit operating costs. Total CapEx is expected to increase to $2.2 billion to $2.4 billion, driven mainly by LLOG with also approximately $0.1 billion related to Waldorf. At $65 Brent and $11 European gas prices, we expect to generate approximately $0.6 billion of free cash flow, reflecting investment in the LLOG portfolio and Waldorf synergies starting in 2027. Post completion of the LLOG acquisition, we are now more sensitive to oil prices. A $5 per barrel move in the average oil price for the full year impacts free cash flow by some $170 million, while a $1 change in European gas prices impacts free cash flow by approximately $150 million. Forward curves are moving a bit this week. But if I use today's curves for the entire year, we would expect free cash flow to be closer to $1.4 billion. Now looking through to the end of the decade, we expect materially increasing free cash flow, driven by the continued transformation of our portfolio. Higher cost Southeast Asia exits and declining production in the U.K. are being replaced by higher-margin volumes, primarily in the U.S. Gulf alongside Norway and Argentina and over time, Mexico. We expect our effective tax rate to fall quite significantly, reflecting a strategic shift in profitable production towards lower tax jurisdictions. In the U.S. Gulf, a 23% tax rate and the ability to depreciate the log purchase price means we expect to pay very little tax there in the coming years. In parallel, we expect CapEx to reduce to around $2.0 billion to $2.3 billion from 2027, reflecting continued portfolio high grading and disciplined capital allocation. As a result, free cash flow is expected to increase to $1 billion in 2028, mainly supported by increasing production in the U.S. Gulf and significant financial synergies from the U.K. Waldorf acquisition from 2027. Beyond that, we see further cash flow margin upside towards the end of the decade, driven by continued growth in the U.S. Gulf and as our Mexican projects come on stream. Let's turn now to the shareholder distributions and our revised policy. We communicated our intention to update our distributions policy in December and believe that now is the right time to pivot, linking shareholder distributions directly to cash flows and strengthening our capital allocation framework across the commodity price cycles. In the past, we've returned on average around 40% of free cash flow to shareholders each year. We are now target returning 45% to 75% of annual free cash flows, including an initial base dividend of $0.161 per voting ordinary share equivalent to approximately $300 million. By tying distributions directly to our cash flows, the new policy builds in the opportunity for shareholders to benefit from the growing cash flow outlook I just showed and from periods of higher oil and gas prices like the ones we're experiencing today. So how will this work? Well, when leverage is above 1x, we expect the payout will be towards the lower end, enabling us to prioritize debt reduction. However, when leverage is below our target of 1x, we expect distributions to be at the upper end of the payout range. As such, our new policy supports a sustainable base dividend across the commodity price cycles and allows us to share the upside with our shareholders alongside near-term deleveraging and disciplined investment for future growth. In line with the new policy, the Board has proposed a final dividend of $0.0805 per share, equivalent to $150 million, representing a 45% free cash flow payout for 2025. For 2026, at $65 per barrel Brent and $11 per Mcf European gas, we'd expect to distribute $300 million to shareholders. Then just to illustrate the benefits of this updated policy. If we again use $75 per barrel and $14 Mcf for the full year, closer to today's forward curve, a 45% minimum payout would get us to around $600 million of distributions. My final slide is a reminder of our 3 capital allocation priorities, which we look to balance through the cycle. First, we remain committed to maintaining an investment-grade balance sheet. Following every major transaction, we have consistently prioritized debt reduction and with the additional leverage from recent transaction, we intend to do so again. Under our outlook price forecast by 2028, supported by stronger free cash flow, we'd expect to have repaid $1 billion of debt with leverage returning below our through-cycle target of less than 1x. We also aim to maintain a robust and diverse portfolio. By investing $2 billion to $2.3 billion per year, we expect to be able to deliver increasingly high-margin, cash-generative production through the end of the decade. And thirdly, we will continue to deliver attractive shareholder returns through the cycle. And as you heard today, at current forward prices, there is clear potential for significantly higher distributions this year. And over time, we expect to deliver material distribution growth in line with our growing free cash flow profile. So with that, thanks for everyone's attention, and I will hand you back to Linda for close. Linda Cook: Thanks, Alexander. So in summary, we've had an excellent year operationally, financially, strategically, and we've carried that momentum into 2026 with the completion of the LLOG acquisition and with production off to a good start. Our portfolio actions have transformed the outlook for Harbour, and we're seeing the benefits of our increased scale and resilience. And now the organic opportunity within the portfolio means we can sustain production and generate material and growing free cash flow to the end of this decade and possibly beyond. Looking ahead, our portfolio, our team and our track record give me confidence that we'll deliver against these capital allocation priorities, including maintaining the strong balance sheet and delivering competitive shareholder returns through the cycle. So it's now time for Q&A. Alexander, Nigel and I were joined by Alan Bruce, EVP of Tech Services, and we look forward to answering your questions. So now I'll hand it back to Dan. Operator: [Operator Instructions] Our first question comes from Lydia Rainforth of Barclays. Lydia Rainforth: I actually have 3 questions, if I could. I'm sorry for quite many, but there's a lot to go through. The first one was just on the cash return structure. Obviously, you said in the past, you've done a combination of buybacks plus dividends. And you've now gone with the base dividend. And then when you're looking at sort of why go for 100% base dividend? And when you're going forward, when you look at sort of where the current cash prices are, do you split it between a special dividend plus buyback just to give us an idea of how you're thinking about that? The second question was on the LLOG integration. I just wonder if you can just walk us through a little bit more of that, whether culturally how that works and how that -- you feel like that's going at the moment? And then the third one, is that just more of a how do we actually work today question. So obviously, we've got a lot of volatility. Just in terms of when you're seeing this level of volatility, how as Harbour do you react? Are there things -- the levers that you can pull in terms of additional production? Are you seeing conversations with customers? I'm just kind of working through what -- how you're actually seeing practical impacts of the current disruption? Linda Cook: Lydia, thanks for the 3 questions. I'll turn to Alexander first to just say a few words about how we think about buybacks in the context of our distribution policy. And then I'll take the last 2 about log and then the -- yes, how we deal with volatility. So Alexander? Alexander Krane: Yes. Thanks for the question, Lydia. Yes, I think when it comes to the distribution policy, we've tried to strike a good balance here between a base dividend that we're comfortable through the cycle and then what the added shareholder distributions are going to be on top. You've seen us in the past do quite a bit of share buybacks when we thought that was timely and a good thing to do. And going forward, it's probably going to be a mix of both higher dividend levels and share buybacks. And we and the Board will probably assess closer to time which of the 2 and what that mix is going to be. But I think for today, our point here is to set that base dividend level, the percentage of how do we think about sharing the extra free cash flow that we expect to see. And also how would you -- how do we balance this with debt levels. So hopefully, the guidance that we've provided today and what I talked through is helpful in that regard and gives a bit of insight into our thinking. But yes, it's probably going to be a mix of the 2. Linda Cook: Yes. Thanks, Alexander. I agree with that. I think it will just depend on the circumstances at the time, what's going on with commodity prices, our outlook for cash flow, et cetera, et cetera. So a bit hard to answer hypothetically, I think. Going to the other 2 questions. So LLOG integration, going really, really well, I think. And one of the reasons why I think we were successful landing this transaction was the fact that both sides saw what we believe will be and so far has proven to be true, a good cultural fit between their organization and ours. And that always helps make an integration go more smoothly, and we're just 3 weeks in and so far, so good. It's not that complex of an integration for us if we compare it to the Wintershall Dea transaction where we had, I don't know, 7 countries we were adding and multiple different onshore and offshore production, operated assets and nonoperated assets, dealing with works councils in Germany, et cetera, buying a single business unit, if you will, in a country where we don't currently have operations. So there's no overlap. We're not dealing with 2 different offices who's going to do what. This one from that standpoint is actually fairly straightforward. I was there a couple of weeks ago. We have staff there. This week, we call them ambassadors. It's part of our integration toolkit where we send people more experienced in Harbour to new locations, and they just sit there and answer questions for 2 or 3 weeks so that people say, how do I get X, Y or Z done, somebody can tell them who to call or where to look, et cetera. So all going really smoothly. The staff there seem excited to be part of Harbour and curious to see what's going to come next. Volatility. Well, never a dull moment in our industry, Lydia. It wasn't -- even as recent as last week, right, there were new reports coming out from experts trying to convince everyone that oil is headed to $50 per barrel. I know you weren't one of those, Lydia. So you were a bit of an outlier there, which we've always appreciated. But you know now here we are with oil, I don't know where it is right now, but $80. So I think it's just another proof point that we live in a volatile world and our sector, in particular, can be quite buffeted by that. And when that happens, we just have to focus on controlling what we can control. In terms of what we do this year, I mean, production this year, CapEx this year, these are things that have largely been decided months or even years ago or driven by decisions we've made in the past. So not a lot actually to do, in particular, with production this year. There are some knobs we can play on CapEx. But no one believes that the conflict is going to be long-lived or at least we can't assume that in our planning. And so what we have to assume is that at some point, prices come back to a more normal range. What is that? Who knows? But we're certainly not making any decisions today that assume prices are going to be $80 or higher for years to come. Operator: Our next question comes from Alejandra Magana of JPMorgan. Alejandra Magana: Excellent. As a follow-up to how you're responding to the Middle East developments, would you consider any changes to your hedging program to potentially accelerate your path to sub 1x leverage? Or does maintaining cash flow stability remain the priority? In your prepared remarks, you gave illustrative examples of what the cash flows could look like on today's forward curve, which were encouraging. So I'm curious how you're thinking about that trade-off today? And my second question is on your portfolio. You've discussed 5 core countries, which implies regions like Germany and North Africa could ultimately be candidates for disposals. How are you thinking about those assets today? What are market conditions like for potential divestments? And does your deleveraging time line assume any disposals? Or would these just simply accelerate the path? Linda Cook: Yes. Thanks, Alejandra. I'll turn to Alexander first to talk about hedging. I mean you know the phrase, never waste a crisis, kind of comes to mind. So I'll say a few words about that, and then I'll talk about divestments. Alexander Krane: Yes. Thanks for the question, Alejandra. Yes. So on hedging, I mean, the starting point is that we've I think, now for several years, had a fairly consistent hedging policy where we do try to get to 50% and then 35% hedged for the following year. Then what's developed over the last year or 2 is just how we think about the mix here. Instead of doing consistently swaps, we've transitioned into doing more and more of these collar structures. So trying to lock in a floor typically above what the rating agencies are using in their cash flows and then without giving away too much of the upside. So what are we doing today? Well, we are, as you would expect, actively engaged looking at sensible structures in today's environment as well. What has been quite unique is when you get this type of volatility, it impacts the pricing of color structures. So what we call the SKU on the put and the call. And one thing is on the crude side, where there's been, for us as producers, a positive SKU here, but also -- and more impactful is the skew here on natural gas. And what we've been doing this week is putting quite a bit of structures in place here on the gas side, not enormous amounts, but we're putting quite a bit of hedges in place where we saw the opportunity to lock in $15, $14 type dollar puts and then participating in the upsides, way up in mid-20s or so. So the skew on what we've seen here has been, how should I say, unusual and something we've been trying to benefit from. So yes, we remain very active monitoring this, but of course, not participating and doing way too much as you shouldn't do at the point risk point in time. But yes, those -- volatility impacts those type of opportunities, and we try to be awake and see what's possible to do there. Linda Cook: Thanks, Alexander. Now coming to your question, Alejandra, about divestments. So we do have active track record of portfolio management, and we expect that to continue. It's just a foundation or one of our keystones of our strategy. Given what we've announced today, we will have nearly exited Southeast Asia. That leaves, as you said, Europe and Americas as core, the bigger producers there at least. And then what's outside of that ring would be Germany and MENA. So a small position in Libya, also relatively small in Algeria and then in Egypt. And we have really good assets in those countries and fantastic teams that do amazing things and they generate positive cash flow for us. So today, certainly doing no harm and providing some benefit to the portfolio. But we look at the portfolio rather dispassionately and the criteria remain the same. If we can't get to scale in a country, we don't see -- if we're not at scale today and we don't see a profitable path to scale or if investments in the country are struggling to compete for capital, then it may be more valuable in someone else's hands, and we would consider divesting. And that remains the case. So what does that have to do with the forecast we presented today? The production forecast only really includes transactions that have been announced more or less. So there's none built into the forecast. That doesn't mean we won't continue active portfolio management, but there's none actually built into that. And in terms of proceeds, the free cash flow forecast that we give excludes divestment proceeds. But if there are some, I think what we -- the question was what we would do with them, and I think it just depends on the circumstances at the time. What's leverage -- as you said, what's leverage at the time we get those proceeds? What are oil and gas prices doing? What's our outlook for free cash flow at the time? And then depending on the circumstances and the amount of the proceeds, the Board will decide what the best use of those are and whether they go towards leverage or shareholder distributions or some other use. Thanks for the question, Alejandra. Operator: Our next question comes from Chris Wheaton of Stifel. Christopher Wheaton: Two questions, if I may. Firstly, can I come back to the point on 2027, 2030 CapEx. Guidance there of $2 billion to $2.3 billion at DD&A rates of $15, $16 a barrel. That doesn't suggest you're replacing all your production in that period of the late 2020s. And that then suggests to me that you're going to see decline post 2030, which is kind of in forecast already as you see Norway roll over. I just wondered why a CapEx number that low because that doesn't seem enough to sustain this business post 2030. And my second question was on G&A cost. The G&A cost now $470 million for 2025. Yes, there's $70 million odd of transaction costs in there, but it feels those restructuring costs are a feature of your business year-on-year. Comparing you to, example, for Woodside, that's a pretty similar number to Woodside, but Woodside is 25% bigger. What are you doing about controlling G&A costs? Because it feels like the business is getting more complex, not less, and G&A costs seem to be rising -- risen quite substantially. I was going to throw in a third question on windfall tax. But after this week chaos, I'm not going to bother. I think I'll stop there. Linda Cook: Thanks, Chris. Let me turn to Alexander to talk about the CapEx levels. I think what we did lay out was our projection around reserve replacement ratio over the coming years and our current forecast that includes that CapEx projection or range that you talked about and does support a reserve replacement ratio during that period of over 100%. So we feel good about that and flat production towards the end of the decade. But Alexander, do you want to say a bit more about that in G&A? Alexander Krane: Yes. No. Thanks, Chris. I was almost expecting a question on EPL. So I'm not going to say I'm disappointed, but we can take that offline. Yes. So on CapEx, I mean, the point today, Chris, is to show what this enlarged portfolio is now capable of doing. And how can we sustain production through the decade with these assets on hand. And also what you've seen from Nigel's bit is a very significant 2C basket as well. And there's also some exploration in here, which is, of course, not necessarily booked in any of these categories. And we'd expect to do exploration both in Norway and the U.S. Gulf. So I mean, again, we think this is sort of the right level of CapEx to keep production at these rates. And the point is here that we do think that we can high grade this and margins will increase over time as well with the new jurisdictions, with lower cash taxes coming there as well. So fairly flat production, but margins increasing, and that's what we expect, and that's why we are making the statements about free cash flow growing over time as well. Linda Cook: And on G&A, anything to add, Alexander? Alexander Krane: Yes. I mean I appreciate the comments around this and how G&A has been increasing. And there's obviously a few one-offs in terms of being acquisitive and going through all of this process that we are. So I think our target remains the same to get to $2 per BOE or hopefully lower. Yes, we have been and we will be hard at work to ensure that we're operating just as efficiently as we can, not having too much overhead or too much process and losing the agility that we think we still have in this company. So I mean that is the target, and we'll be hard at work to keep that under control and hopefully reduce that as well. Linda Cook: I would just add that the Wintershall Dea integration was a particularly complicated and therefore, expensive one to do and that we had a 12-month TSA in place that we were paying almost every month last year, at least 9 months last year. And so that's now gone away. And in fact, we're getting a bit of rebate on that because we had overpaid. So if we adjust last year's G&A for that, I think $30 million or something comes off of that, Chris, but that will be helping us this year. And as Alexander said, targeting to get to $2 per barrel by 2027. And believe me, there is pressure from at least one person in the organization to get there before then. And if we think about -- your comment about are we going to continue to see those kind of costs in our G&A, the Waldorf and the LLOG transactions are both very simple, as I already commented when it comes to an integration standpoint. Waldorf, we already have a U.K. BU. It's all nonoperated. So that's very little to be done there. And then in the U.K., as I commented earlier, a single country where there's no overlap with existing operations. So that's -- I wouldn't say plug and play, but relatively simple. And then there's still scope for all of this to come down as we continue to rationalize IT systems, and everything else over time. That doesn't happen overnight. And we're trying to be very thoughtful about does it really make sense to replace certain systems or to change operations in one country onto a system we might be using elsewhere? Does it make more sense to just keep it simple and build an interface between the 2. So we're doing that over time as it makes sense to, but should drive down costs over time. And then EPL, yes. Well, thanks for not asking the question. Thanks, Chris. Operator: Our next question comes from James Carmichael of Berenberg. James Carmichael: Just going back to the distribution policy in terms of the base dividend. I appreciate it feels quite far away given where commodity prices are at the moment. But if there was a period of weakness and free cash flow dipped below $400 million, let's say, does that $300 million sort of base still hold? Or would the sort of 75% be the ceiling so potentially go below that? Just on the U.S. quickly as well, I guess if we look at the production growth chart, there's a lot of focus on Who Dat, Buckskin and Leon-Castille, but the other bucket looks to be driving quite a bit of the production growth as well, maybe more than Who Dat and Buckskin combined. So maybe just wondering if you could give a bit of color on what's driving that or underlying in that other bucket? And then I probably seeing as we here probably will ask about the EPL, I'm afraid. So there's obviously been a lot of discussion headlines, et cetera, around that this week's statement didn't really provide any color, but then stories around the meeting, which I guess you guys were in yesterday. So just wondering what, if anything, you sort of can say around where you think the government's head is at your level of confidence that, that comes forward, et cetera. Linda Cook: Great. Thanks, James. I'll turn to Alexander to talk about kind of the sustainability of the $300 million in different price environments, then to Nigel to talk about other fields where the growth might be coming from in the U.S.? And then thank you for asking a question about the EPL, and I'll be happy to take that. So Alexander? Alexander Krane: Yes. No. Thanks, James. Yes, I mean the base dividend -- I mean, we set it at a level which we're comfortable and we think this will hold through the cycle. And we view that as an initial base dividend level. And when we're having -- again, back to Alejandra's question earlier, when we're having this type of volatility in markets, we do try to be mindful here of doing hedging, doing other things, which protects that as well. So trying to do hedging into future years to, yes, protect free cash flow there just to ensure we are above that minimum level as well. Linda Cook: Nigel? A. Hearne: Sorry, you didn't come off mute fast enough. Sorry about that. James, thanks for the question. Look, we have an active program. We're just working through right now potentially adding a second rig line in the Gulf of America. We clearly are focused on our existing hubs to grow production. There are other opportunities that you referred to in here are really around [indiscernible], which is 100% owned and then potentially beyond that post 2028 is really where we think to think about our short-cycle exploration program. But the other bucket you referred to on that chart is really driven by [indiscernible] production. Linda Cook: Great, James, and then the EPL. Well, Alexander had the honor of representing Harbour Energy at the meeting yesterday with the Chancellor. So after I answered, if he wants to add some color, we'll give him the chance to do that. But I guess we'd say we welcome the opportunity to engage with the Chancellor on the topic, and we welcome the statement from our office yesterday saying she'd like the EPL to come to an end and that she had hoped to announce it this week, but geopolitical events gotten the way, if you will. And certainly, there's a lot of overlapping interest and common ground between Harbour and the Chancellor's office and between industry in general and treasury. So investment, jobs, growth, all priorities for all of us. The problem is the current fiscal environment for the U.K. oil and gas sector supports none of those things and actually has led to the opposite over the past few years, lower investment, job reductions, falling domestic oil and gas production. That's meant more imports with higher emissions, lower energy security. And now we see that it's all come in another bad time with European gas storage levels well below 5-year lows and now 20% of the world's LNG disrupted -- LNG supplies disrupted. So we continue to believe in the potential of the U.K. North Sea. We certainly believe in our team in Aberdeen and have seen them do amazing things when it comes to recovering oil and gas in what can be a sometimes challenging environment. And we do hope to continue to work with the Chancellor now to make the removal of the EPL happen sooner rather than later, especially at this time when energy security is unfortunately back on the radar. Alexander Krane: Yes. Thanks for the question, James. And I mean, you know that we have been one of the vocal companies who said the EPL has very negative effect for the U.K. and how we think about energy policy and security here. We've spent quite a bit of resources in engaging with the U.K. government and helping us to get to a new regime in place, which was announced last year. Now this regime would not come into play until 2030. And again, we've been vocal in saying, well, why wait. If we have a future-proof fiscal system, why wait until 2030. We believe it's in the best interest of the sector here and the country, quite frankly, to implement this sooner. I mean we have been working quite a bit with the U.K. government, and we will, of course, continue to do that and support as best we can. And we do also think that the efforts now from the Chancellor's office do seem genuine, and we are hopeful to see some progress over here in hopefully, the not-too-distant future. Linda Cook: I think we have one more question maybe, Dan. Operator: Our last question comes from Matt Smith of Bank of America. Matthew Smith: I'd love to turn to projects a bit in LatAm in particular. So first of all, on Argentina, Vaca Muerta specifically, is there any update you could give us as to production performance versus expectations and the latest on licensing there as it relates to the oil and gas side. That would be interesting. And then second question, turning to Mexico and Zama specifically. Could you give us some more details on the latest development plan that you're working on, I guess, the overarching improvements versus the old. And I'm just wondering also how many phases we could be looking at to exploit the full Zama resource, please? Linda Cook: Great, Matt, and thanks for the questions, and it's nice to get questions from time to time about the project. So I'm going to turn this over to Nigel. A. Hearne: Matt, thanks for the question. So I'll start with Argentina. Our base production today is around 70,000 barrels a day. Bulk of that comes from our CMA-1 license. We completed a project early and ahead of schedule last year at Phoenix to plateau that production through to 2040, and we did actually extend the license. The real growth opportunities in our resource position is in the APE gas window, where we have about 22.5% equity and in the San Roque oil window. We did complete a successful pilot in the unconventional license to San Roque last week -- last year, and we've got a 16-well program started -- scheduled for the end of this year. We're working with our key stakeholders down there and our partners really to secure the unconventional oil license towards the end of the year. So once that -- once we have clarity there, we will be progressing that program with our partners. In APE, today, our production is around 20,000 barrels a day from 80 wells. I would say that we've got a significant number of well locations potentially to materially increase the resource. We're not going to drill for the sake of drill and grow production. It's about generating a margin. Today, the gas market has softened a little bit, and we've got less offtake and we've got more market penetration from associated gas. So that's one of the key reasons why we've invested in SESA. I think it gives us another avenue to secure a better gas price and give us options on pricing, which allows us to optimize and then underpin our development in APE. So as you know, the LNG project is an FID we took last year with several partners. That project is underway, and that will, I think, open up avenues to continue to develop our dry gas window. You asked a question around Zama and Kan, we have actually spent a lot of time focusing on what we want our business to look like in Mexico over time. It is about creating 2 advantaged hubs. We have actually taken some deepwater assets out of the portfolio, which we won't invest in and we will not be advancing those projects. So we're focused on Zama and Kan. We'd like to get both of those projects to FID ready over the next 12 to 18 months. The concepts are nearing completion, and we'll be entering FEED this year on both projects. We've reoptimized the Zama development for a phased development, which we'll see $1 billion to $2 billion investment in the first phase with potentially a small waterflood, but we're really finalizing that scope. So we'll see a phased development, small number of wells to generate some early production, and then we'll come back with a more second phase on Zama. Now we're operator, we have more control and are focused on really optimizing that design and that concept. And we'll know more as we get to FEED this year and have clarity around the FID and first oil timing sometime later this year, early next year. We're looking to secure FPSOs for both Kan and Zama. We have line of sight to narrowing the options on both of those. So it's an exciting time to be in Mexico. Both projects have matured a lot in the last 12 months. We're getting close to finalizing the concept for each. Optimizing our well locations as part of driving down our breakeven costs. We are focused not necessarily just on schedule, but just driving down our breakevens. These will be long-lived projects. We need to make sure they compete and compete over time. So a lot of focus on maturing the projects and on driving capital efficiency into both of them. We do see some synergies if we can run them somewhat in parallel where we can optimize rig schedule, service vessels, engineering support. So a lot to get worked through this year, but both projects are now getting clearer and clearer on their path forward. Linda Cook: Great. Thanks, Nigel. And thanks, everyone, for joining. We really appreciate the fact that you've spent some time with us today. And as I've said, I'm really proud of what the teams delivered last year, and it's good to see that we're off to a solid start for 2026. So thanks again for joining, and have a good rest of your day.
Operator: Greetings, ladies and gentlemen. Thank you for standing by. Welcome to the Global Water Resources, Inc. 2025 Year-end Conference Call. [Operator Instructions] I would like to remind everyone that this call is being recorded on March 5, 2026, at 1:00 p.m. Eastern Time. I would now like to turn the conference over to Kyle Upchurch, Controller. Please go ahead. Kyle Upchurch: Thank you, operator, and welcome, everyone. Thank you for joining us on today's call. Yesterday, we issued our 2025 year-end financial results by press release, a copy of which is available on our website at gwresources.com. Speaking today, we have Ron Fleming, President and Chief Executive Officer; Mike Liebman, Chief Financial Officer; and Chris Krygier, Chief Operating Officer. Ron will summarize the key operational events of the year. Mike will review the financial results for year-end, and Chris will review Arizona Corporation Commission activity. Ron, Mike and Chris will be available for questions at the end of today's call. Before we begin, I would like to remind you that certain information presented today may include forward-looking statements. Such statements reflect the company's current expectations, estimates, projections and assumptions regarding future events. These forward-looking statements involve a number of assumptions, risks, uncertainties, estimates and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements, which reflect management's views as of the date hereof and are not guarantees of future performance. For additional information regarding factors that may affect future results, please read the Risk Factors and MD&A sections of our periodic SEC filings. Additionally, certain non-GAAP measures may be included within today's call. For a reconciliation of those measures to the comparable GAAP measures, please see the tables included in yesterday's earnings release, which is available on our website. I will now turn the call over to Ron. Ron Fleming: Thank you, Kyle. Good morning, everyone, and thank you for joining us today. We are pleased to report the results for year-end 2025. First, before jumping to normal operating highlights, I would like to get straight to the main points on 2025. This year included many large and successful initiatives that will materially grow rate base. In fact, including 2024 and 2025, the test year and post test year for our Santa Cruz Water Company and Palo Verde Utilities Company rate case, we have increased the collective rate baseable assets of our company by $70 million or 59%. With respect to these initiatives, we've had a near record year for capital investments that were critical to complete within 2025. These investments span everything from recommissioning the previously mothballed water reclamation facility in Pinal County, south of the City of Maricopa, which is part of the system we refer to as our Southwest plant to our capital improvements to stay in front of our fast-growing communities and the acquisition of the City of Tucson water systems. All of these investments inure to long-term value creation and also benefit customers and communities we have the privilege to serve. However, these investments increased expenses across the board, including much larger depreciation and a onetime asset write-off related to the Southwest plant, which all impact income and earnings per share. This regulatory lag is an unfortunate part of the historical test year environment here in Arizona, but it is necessary to make investments upfront and seek recovery thereafter. Additionally, certain company expenses such as medical costs continue to grow at an unprecedented pace. As I've been saying for many quarters now, we need new rates to keep up with all the investment and inflation that has occurred in our utilities. Chris will discuss these rate cases and our regulatory activity later in the call. In the meantime, I want to make it clear. 2026 is about working hard to control expenses, and we have reduced the pace of capital investments. Now as a reminder of many other positive announcements from 2025 that underpin our goal of long-term value creation and our ability to deliver total returns to our shareholders in the years and decades to come. First, we announced that the Arizona Governor signed meaningful water legislation known as Ag-to-Urban, which became law in 2025. We believe this will result in many benefits that will be applicable for Global Water in our service areas, improving offer for sustainability while creating a new groundwater supply to support additional growth. Based on Global Water's established service areas created through buying and building utilities in the path of growth, our regional areas coincide with land that has considerable historical farming operations just outside densely populated Metro Phoenix. Thus, we believe the new law will drive even more growth to our service areas. Second, full funding of the highway 347 expansion connecting Interstate 10 and metro Phoenix to the City of Maricopa and the entire western part of Pinal County was approved in 2025. As the stakeholders had already begun engineering on certain long-term elements of the 13-mile road widening project, it is estimated that the construction will begin in summer 2026. This project should go a long way to ensure that the City of Maricopa continue to be one of the fastest-growing communities in the country, and it meets -- helps meet our population projections of growing nearly 90% by 2040. As evidence to the potential of this population projection, on July 1, 2025, the U.S. Census Bureau released its population projections from 2024 data. And the City of Maricopa was once again in the top 10 of the fastest-growing large municipalities in the country, coming in at #6. Even more telling was that population growth in 2024 was even stronger than 2023 as the city realized 7.4% growth compared to 7.1%. Below, I will discuss connection growth rates and permit growth rates that have begun to slow, but it is important to keep this population growth that I just discussed in mind, as it is now more closely correlates with consumption and revenue growth based on the amount of multifamily housing and commercial growth that is occurring. Finally, if you think about everything just mentioned from rate base accumulation to water and transportation that are the 2 fundamental elements of economic development, you can see that even more than ever, we have the foundation of sustainable growth for the years and decades to come. Now I'll provide a few operational highlights. Total active service connections increased 6.3% to 68,577 at December 31, 2025, from the 12 months prior. In 2025, we achieved a 3.2% total active service connection growth rate, excluding the recent acquisition of the 7 Tucson water systems. And specifically, we invested $67.3 million into infrastructure improvements in existing utilities to provide safe and reliable service. The majority of our investments in 2025 were post-test year projects in Santa Cruz Water Company and Palo Verde Utilities Company, our 2 largest utilities located in Pinal County and are included in our already filed 2024 test year rate application. Now I want to discuss organic customer growth and what is going on in our core utilities even further. The single-family dwelling unit market ended 2024 with approximately 27,156 building permits issued in the Phoenix greater metro area. In 2025, this market realized 21,815 building permits, and this did represent a nearly 20% decrease in 2024. In 2025, the Maricopa market realized 600 building permits, representing a 39% decrease from the same period in 2024. The 2025 permit data showing a bit of a pullback from the prior year is not surprising considering the uncertainty in the market today. While new permit activity has slowed in '25, growth in the Phoenix MSA, particularly in the City of Maricopa, is reflected in the company's 3.2% year-over-year organic increase in active connections. We believe the decline in permits is temporary, especially considering that mortgage rates continue to drop, and we remain well positioned to benefit from the anticipated long-term growth of the Phoenix MSA. I will now turn the call over to Mike for financial highlights. Michael Liebman: Thanks, Ron. Hello, everyone. Total revenue for 2025 was $55.8 million, which was up $3.1 million or 5.8% compared to 2024. The increase in revenue was primarily attributable to the City of Tucson acquisition in July 2025, organic growth in active water and wastewater connections and, higher rates in our Farmers and Sororal utilities compared to 2024. Operating expenses for 2025 increased approximately $5.3 million or 12.2% to $48.6 million compared to $43.3 million in 2024. Notable changes in operating expenses included depreciation, amortization and accretion expense increased $2.3 million for the year, the increase was substantially attributable to the additional depreciable fixed assets placed in service this year as a result of our increased capital investments and the commissioning of related projects, which are part of our current rate case. Operating and maintenance costs increased approximately $2 million for the year. The increase was primarily driven by 3 things: first, personnel costs as a result of the Tucson acquisition, medical expenses and filling a previously vacant position; second, utilities, chemicals and repairs due to higher purchased power, chemical costs and water treatment expense associated with increased consumption and newly operational plant; and third, higher contract services. G&A costs increased by approximately $1 million in 2025, primarily driven by higher medical costs, increased professional fees, largely from legal expenses associated with the Nikola bankruptcy, higher IT spending, increased insurance premiums and elevated municipal licensing fees tied to revenue growth. Now to discuss other expense. Other expense for 2025 was $3.2 million compared to $1.5 million in 2024. The increase in expense is primarily attributable to a loss on asset disposals of $1.3 million related to the recommissioning of our Southwest plant and lower income associated with our Buckeye growth premiums. Net income for 2025 was $3 million or $0.11 per diluted share as compared to $5.8 million or $0.24 per diluted share in '24. Adjusted net income, a non-GAAP measure, was $3.9 million or $0.14 per diluted share in '25 as compared to $6.3 million or $0.26 per diluted share in '24. Lastly, I'll discuss adjusted EBITDA, which adjusts for certain nonrecurring items such as onetime storm-related expenses and noncash items such as restricted stock expense and the loss on asset disposals for our Southwest plant. For 2025, adjusted EBITDA decreased 0.7% to $26.5 million from $26.7 million in the prior year. This concludes our update on the year-end 2025 financial results. I'll now pass the call to Chris to review our regulatory activity for the year. Christopher Krygier: Thank you, Mike, and hello, everyone. We accomplished a number of constructive developments on the regulatory agenda this year. First, in January 2025, we secured ACC approval to acquire the 7 public water utility systems from the City of Tucson, which we closed in July 2025. Second, in April 2025, the Arizona Corporation Commission approved approximately $1.1 million of new revenues for our Global Water Farmers utility. Finally, we continue progressing on our Global Water Santa Cruz and Global Water Palo Verde rate reviews. As Ron mentioned, we are squarely focused on securing rate relief for our significant capital investments and rising expenses. Since we last spoke in November, we filed testimony supporting a proposed revenue increase of approximately $4.3 million. Since that filing, the parties and the administrative law judge revised the case schedule to include additional ACC staff testimony being filed on April 15, 2026, and the hearing is now scheduled to begin in August of 2026. We are continuing to dialogue with our regulatory stakeholders on the case, and we will keep you apprised of additional updates on future calls. This concludes the update on regulatory activity for the year. I'll now pass the call back to Ron. Ron Fleming: Thank you, Chris. To close today, I just wanted to express how proud I am of our team. We took on a lot in 2025 and successfully executed on many fronts. But while these efforts have prepared us for 2026 and beyond, we still have more work to do. And despite many headwinds, we will continue to execute our growth plan and remain at the forefront of the water management industry, advancing our mission of achieving efficiency and consolidation. We truly believe that expanding our total water management platform and applying our expertise throughout our regional service areas and to new utilities will be beneficial to all stakeholders involved. We appreciate your investment in and support of us as we grow Global Water to address important utility, water resource and economic development matters along the Arizona Sun Corridor, allowing our communities to thrive. These highlights conclude our prepared remarks. Thank you. We are now available to answer any questions. Operator: [Operator Instructions] The first question comes from Zach Liggett from Desmond Liggett Wealth. Zach Liggett: I just had two. First of all, on the rate case, just given how kind of frustrating this has been, I'm curious if you guys have done an analysis and have looked at things that are within your control that you can do differently on future rate cases. So that's my first question. And then the second question is just related to AI, if there's any use cases you guys have identified that you can apply to the business and try to squeeze out some more operating efficiencies. Ron Fleming: Yes. Zach, it's Ron Fleming here. I'll go ahead and start on the rate case question, and then Chris and Mike, feel free to jump in. I just want to make it clear that to use your word, it's been a frustrating process. The primary element of this rate case is very unique, and it is the recommissioning of that Southwest plant assets. And for those of you that are new investors to the company, we invested in a new utility territory just South of the City of Maricopa prior to the Great Recession. So really in the years 2005, 2006, 2007. Ultimately, when 2008 hit, no customers showed up. And so we weren't able to actually fully commission and bring those utilities online and move them in the rates, which is clearly your normal process. Lots of things happened during the Great Recession, as I'm sure you can imagine that took a long time to work through. But most recently, growth did return there, kind of back in 2001. We started working with the developers there again. Growth has jumped from the City of Maricopa to this area, and it's growing actually pretty nicely now. But we had to recommission those assets and move them into rates. And so to be fair to the commission, this is a unique situation that's not often dealt with. And we certainly don't plan on replicating the situation again in future kind of normal business operations or rate cases. Christopher Krygier: Yes, Zach, this is Chris Krygier. What I would add to that is I absolutely agree on the uniqueness. I've been in the regulatory space for a long time in my career, and this is definitely one of the most unique situations that we've had to work through. But I'd tell you, big picture, you're always looking and taking lessons learned from every rate case, and we have continued to do that. But I'd also say we follow the pretty traditional playbook with a unique issue like this, meaning we've been talking to our regulatory stakeholders for a long time about it. We've been talking to our communities about it. And so really -- and talking to customers about it. So we'll continue all of those, but it is a unique issue, but we will get it there. Ron Fleming: Yes. And then happy to speak a little bit on the AI question as well. Ultimately, funny enough, we just got a presentation from our Vice President of IT and Security yesterday on it. And ultimately, there's going to be lots of use cases in our industry. The most obvious one that people benefit from right off the jump is in your call center, and your ability to provide better service to your customers and also, obviously, on our end, make it more efficient. So that's something we've started to implement at a level. But to take it outside of the call center and across our utility operations, because we're obviously very highly regulated and very highly automated, there's lots of security issues that we want to have in place before pushing it too far out into the organization. So those conversations are being had. We're not going faster, primarily because of the security considerations that we need to have in place. Zach Liggett: Makes sense. I appreciate the color there. And just a quick follow-up on the -- back on the rate case. If we get to the end of the year and it just doesn't go as you guys hope, do you have the ability to accelerate like a refiling and take another crack at it? Or like how does that process work? Christopher Krygier: Yes. Zach, we're -- this is Chris again. We are looking at all of those options and giving thought as to what that would look like. We don't have anything to announce at the moment, but I'd say we're evaluating all of those options and what would be the best court if we needed to pursue that. Ron Fleming: Yes. Thank you. And I'll make one more point on the top of that. It kind of builds off my comment earlier in my planned remarks about having moved $70 million of rate baseable assets into service. That means it is into service, so providing customers. So it is a matter in our view of when, not if, and we'll have that determined through this rate case on the win. So thank you. Operator: Seeing no further questions, I would like to turn the conference back over to Ron Fleming for any closing remarks. Ron Fleming: All right. Thank you, operator. Again, I just want to thank everybody for participating on the call and for your interest in Global Water Resources. We appreciate it and look forward to speaking with you again. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the ImmuCell Corporation Conference Call to discuss Unaudited Fourth Quarter and Full Year 2025 Financial Results. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference call over to Joe Diaz of Lytham Partners. Please go ahead. Joe Diaz: Thank you, Bailey, and good morning to all. As the conference call operator indicated, my name is Joe Diaz with Lytham Partners. We are the Investor Relations consulting firm for ImmuCell. I thank all of you for joining us today to discuss the unaudited financial results for the fourth quarter and the year ended December 31, 2025. Listeners are reminded and cautioned that statements made by management during the course of this call include forward-looking statements, which include any statement that refers to the future events or expected future results or predictions about the steps the company plan to take in the future. These statements are not guarantees of performance and are subject to risks and uncertainties that could cause actual results, outcomes or events to differ materially from those discussed today. Additional information regarding forward-looking statements and the risks and uncertainties that could impact future results, outcomes or events is available under the cautionary note regarding forward-looking statements or the safe harbor statement provided with the press release that the company filed last night, along with the company's other periodic filings with the SEC. Information discussed on today's call speaks only as of today, Thursday, March 5, 2026. The company undertakes no obligation to update any information discussed on today's call. Please note that references to certain non-GAAP financial measures may be made during today's call. With that said, let me turn the call over to Oliver Te Boekhorst, President and CEO of ImmuCell Corporation, for opening remarks. Oliver? P. F. Te Boekhorst: Thanks, Joe, and good morning, everyone. It's my pleasure to welcome you to today's discussion of ImmuCell's Full Year 2025 Results. 2025 was a very successful year for the company. In 2025, we hired a new management team. We increased manufacturing capacity to meet end customer demand and resolved a multiyear backorder situation. We pivoted to a strategy that is dedicated towards maximizing shareholder value from our highly successful First Defense franchise. We achieved total product sales of $27.6 million, and we earned $1.6 million of net operating profit, which was an improvement of $3.3 million compared to 2024, largely driven by significantly expanded gross margins. In our previous calls, including our special investor call on January 9, 2026, to discuss our full year revenue and our shift in strategy to focus on First Defense, we explained some of the drivers of our revenue performance and the rationale for our new strategy. In summary, we compete in a large growing market with a highly differentiated product portfolio that has a lot of runway for further growth domestically and internationally. And so we decided to double down on this successful First Defense franchise. Our results in 2025 give us confidence in this decision. I will review some of the drivers in more detail and share some of our market observations after Timothy Fiori, our Chief Financial Officer, completes a deeper review of the financials for the fourth quarter and full year 2025. I now turn the call over to him. Tim? Timothy Fiori: Thank you, Oliver. I'll start with a short recap of product sales results, which are unchanged from our January conference call. All the numbers I'll speak to are approximate and rounded. Product sales for the fourth quarter of 2025 came in at $7.6 million, a decrease of 1.6% as compared to the fourth quarter of 2024. The Q4 decline was so modest is noteworthy. As you will recall, our very strong sales in the fourth quarter of 2024 benefited from increased demand and catching up from a prior backorder situation. We had earlier warned that quarter-to-quarter comparisons for the last half of 2025 would be affected by this catch-up factor. That same dynamic will continue to impact growth rates in the first half of 2026, but I want to be clear that this does not impact 2026 operationally, we're shipping orders every day. Digging further into the details, domestic sales for Q4 grew 8.7% as compared to the fourth quarter of 2024 to $7 million, while international sales for Q4 declined a bit more than half to about $600,000 in the same period, mainly driven by order timing in Canada. It's important to note that international sales are only approximately 8% of total sales for Q4 2025. For the year as a whole, in 2025, we grew 4.3% as compared to 2024 to total product sales of $27.6 million. Similar to the quarterly results, we saw growth in domestic sales and a decrease in international sales, again, influenced by order timing from our Canadian distributor. In terms of product mix, we're pleased to see continued shift towards Tri-Shield, reflecting new customer acquisition and migration from our lower-priced Dual-Force products by some customers seeking the broadest protection available. We realized gross margin improvement in 2025 as compared to prior year. Gross margin as a percentage of product sales increased to 38% during Q4 of 2025 compared to 37% during Q4 of 2024. Notably, we achieved this improvement despite Q4 2025 gross margin being suppressed by noncash inventory write-downs. The full year results show the story more clearly. Gross margin increased to 41% during the full year 2025 compared to 30% during full year 2024. Gross margin improvement in 2025 was driven by increased manufacturing volumes and efficiencies as well as product price increases, partially offset by noncash inventory write-downs. As previously disclosed in our January conference call, we conducted a thorough review of fixed assets and inventories. As part of that review, we took a noncash write-down across Q3 and Q4 of 2025 of approximately $650,000, mainly consisting of work-in-process colostrum inventory. This noncash write-down is approximately 5.9% of Q4 2025 revenue and approximately 2.4% of full year 2025 revenue. We will continue to carefully monitor assets, including inventory as part of a rigorous and disciplined capital allocation process. Operating expenses increased to $3 million during Q4 of 2025 compared to $2.2 million during Q4 of 2024. Operating expenses increased to $9.8 million during the full year 2025 compared to $9.6 million during full year 2024. The increase in both period comparisons was primarily driven by increases in G&A, partially offset by reductions in product development expenses related to Re-Tain. Other expense increased to $2.8 million during Q4 of 2025 compared to $100,000 during Q4 of 2024. Other expense increased to $2.7 million during full year 2025 compared to $500,000 during full year 2024. The primary driver of both Q4 and full year 2025 increases came about as a result of our shift in strategy around Re-Tain. In December, we announced a shift away from Re-Tain manufacturing to allow us to focus more on our highly successful First Defense product line. In December, we took a noncash write-down impairment charge of $2.7 million for certain Re-Tain-related property, plant and equipment. This is $200,000 or so less than I discussed in the January conference call, which is attributable to a slight increase in our estimation of future salvage value. We continue to sharpen our overall assessment of the value of former Re-Tain assets that we plan to repurpose for use in First Defense manufacturing and our estimates of their net value are subject to change. We did have a onetime income from insurance proceeds of $427,000 in the first quarter of 2025, which provided a partial offset to the Re-Tain write-down in the full year view. I'll wrap up the income statement financials with some discussion of the improvements we've seen regarding 2025 net income and earnings per share as compared to prior year. Net loss of $1 million during 2025 represents a $1.1 million year-over-year improvement compared to 2024, even considering the significant impact of the previously mentioned $2.7 million Re-Tain write-down. The year-over-year improvement was driven by higher sales and increased gross margins. Basic net loss per share during 2025 was approximately $0.12 per share in contrast to a net loss of $0.26 per share during the prior year. Please note that we provided EBITDA figures in yesterday's earnings release. However, the EBITDA calculations do not adjust for the impact of write-downs for Re-Tain or inventory, which are obviously material to 2025 results. Lastly, operating income for 2025 was $1.6 million compared to an operating loss of $1.6 million in 2024, a year-over-year improvement of $3.3 million. To wrap up with financials, let me highlight a few key balance sheet items. We ended 2025 with $3.8 million of cash on hand. Working capital increased from $10.6 million at the end of 2024 to $13 million at the end of 2025, driven by higher finished goods inventory. As you may recall, we ended 2024 with near 0 finished goods. We will continue to closely monitor and manage cash and our other assets as we balance long-term investment with near-term operational needs. With that, I'll turn the call back to Oliver for some closing remarks. Oliver? P. F. Te Boekhorst: Thanks, Tim. Congratulations to the team for the excellent financial results in 2025. It was a challenging year for sure with a lot of change, but ImmuCell navigated it well, and we are ready to make 2026 a success. As promised, I will take a little time to review our strategic focus and share some market observations with you. ImmuCell competes in a very attractive, large and growing market for calf health solutions with our First Defense range of products. Calf's health is a dynamic market that has seen rapid and dramatic increases in the value of cats driven by dairy beef cross breeding and a contraction in the U.S. calverd, which has tightened calf supply relative to market demand. First Defense is a best-in-class preventative for calf scours, which is a condition that affects 14% to 15% of pre-weaning calves. That's approximately 5 million calves every year in the U.S. alone and is the leading cause of death in these pre-weaning calves. Scours represents up to $1 billion of economic burden in the U.S. due to treatment costs, performance losses and mortality. And U.S. farmers spend $90 million to $100 million per year on scours prevention products. Our customers, whether they are dairies raising their own calves, calf ranches that raise calfs for dairies or cow calf operations are all interested in preventing scours outbreaks and protecting these calves that are the highest risk animals on the farm. Calves are born immune incompetent. And in the first few weeks of their lives, they are particularly vulnerable to bacteria and viruses. Our product line protects against 3 common pathogens that cause scours, namely Bovine Coronavirus, E. coli and Rotavirus. First defense products are colostrum-derived and the only USDA-approved solutions for scours that aren't a vaccine and delivers 3 to 6x as many neutralizing antibodies against these pathogens than our primary vaccine competitor does. And being colostrum-derived, we provide these calves a lot of other bioactives to help them stay healthy, too. It should not come as a surprise that we are priced at approximately 2.5x competitive alternatives. These product characteristics have helped us win market share, increasing from 10% to 15% of treated calves in the U.S. in the past 8 years, and we capture approximately 29% of the spend in this growing category. Specifically in the U.S. in 2025, producers spent approximately $93 million on calves scours category. That's vaccines and our antibody products, which was 14% higher than in 2024. 10% came from the increase in the number of calves using scours preventatives and the rest from price and product mix. And yet, about 55% of calves are still not getting any treatment for scours at all. So when you do the math, the total addressable market in the U.S. is more than $200 million. And internationally, the total addressable market is at least 5x as large. ImmuCell maintained approximately 15% share of treated animals in the U.S. in 2025, and we are pleased to report that we added more customers with new account volume more than offsetting normal account attrition in 2025 and that recurring customers increased their purchasing in 2025, driven by higher coverage rates and inventory normalization. We believe momentum accelerated in the fourth quarter. So we gained revenue share against the 3 largest animal health companies in the world during a time when we were supply constrained due to the manufacturing challenges. Now that we're addressing manufacturing capacity, we have a lot of confidence in future growth. In late December, we announced our strategy to focus on First Defense and pause investment in a subclinical mastitis product that the company had pursued for some time to allow us to focus on the scours market opportunity I just described and critically important, also on improving our manufacturing capabilities and capacity. To give you some background, we grew our manufacturing capacity from approximately 3 million units in 2023 when we were in a backorder situation to 4.1 million units in 2024 and 4.6 million units in 2025. This helps you understand the gross margin improvement that drove our bottom line results in 2025, although not all that margin improvement was driven by volume, a portion of that was efficiencies and product price increases also. In the past 3 months, we have completed an exhaustive analysis of our processes led by outside experts and key leadership inside the company, and we have identified over a dozen opportunities to further increase our capacity to between 5 million and 6 million units per year. Units don't match up exactly with revenue because of the different and changing price points of the products in our portfolio, so we will no longer communicate our capacity in terms of revenue. Having said that, we recently implemented medium- and long-term demand and supply planning, and the team is confident we can meet demand in 2026 and 2027 by implementing yield improvements, while we work on our next major capacity expansion. When we focused on First Defense at the end of December, this enabled us to really dive into these yield improvement opportunities, and we are also excited to repurpose assets previously deployed for our subclinical mastitis product to First Defense, and we are now devoting all our time and investments to expanding a successful existing product line. Finally, we previously announced that we are increasing our sales capacity, and I'm pleased to announce that we hired a senior international market development leader, added a new sales manager in the U.S. and are actively recruiting for a third commercial position. We will make additional territory hires based on continuous assessments of calf population density, adoption of calf level scours prevention solutions and demonstrated price acceptance within each region. In the meantime, I just returned from a very successful sales meeting last week, where we implemented a new standardized sales approach that will enable us to scale our commercial activities more efficiently. Our top priority at ImmuCell remains solid execution across the organization from sales to manufacturing and including all the support functions that make future profitable growth possible. With that said, we'd be happy to take your questions. Let's have the operator open up the lines. Operator: [Operator Instructions] Joe Diaz: Bailey, if I might interject here while the queue builds up, let me begin with a couple of questions for management. Oliver, 2025 certainly was a transformational year for ImmuCell. Looking ahead into '26 and '27, what are the biggest challenges ahead that you see for the company to achieve your goals? P. F. Te Boekhorst: Thank you, Joe, for that question. I see 2 types of challenges that we're addressing as a company. The first one is a planned increase in yield and followed by an increase in capacity through more major investments. So as I discussed, we believe that with the opportunities we identified in the last 3 months, we can increase our volume to between 5 million and 6 million units. And this is without making any major investments. This is through improved floor planning, some maintenance, some small additions to existing equipment and a whole series of activities that are planned for the year that will get us there. So capacity and making sure that we have the capacity to meet market demand is our first order of business. And at the same time, we are now stepping up our commercial activities. So whereas our commercial team has spent a lot of time in the past year to 2 years, managing allocations of products due to our back order situation, it is now proving to a proactive outreach to gain new customers. And so it's all about growth on the top line for the company. So those would be our 2 primary initiatives that we're focused on in the coming year. Joe Diaz: Will you be expecting any additional Re-Tain write-downs in 2026? Timothy Fiori: Joe, I'll take that one. We don't anticipate any large write-downs for the assets formerly associated with Re-Tain. We're evaluating the best way to roll out this larger capacity expansion project, medium term, using the former Re-Tain plan and the majority of the former Re-Tain assets. We have booked a modest salvage value, a couple of hundred thousand dollars associated with the assets that have been written down. And there's always a chance that we'll reevaluate a specific piece of equipment over time. But currently, we're really not seeing anything like that. Joe Diaz: As it relates to 2025 revenue, how much do you consider to be recurring? And is that something that will be the case in '26 and '27? P. F. Te Boekhorst: Thanks, Joe. I'll take that question. So the -- once customers are on our product, they see a fairly dramatic change or reduction in scours related to the antigens that our products protect against. And despite price increases and some supply constraints over the last few years, they've largely remained loyal to the company and to the product because of its impact on their operations. So we aren't at this time would have calculate things like churn to give you an exact answer around recurring revenue due to all the things that happened in back order situation. For example, if a customer couldn't get our product from one distributor, they would sign and ask another distributor for the product and that impacts the way that we can calculate churn. So that's just an example. So what I can say with my sales team's input, but also from my own personal visits to customers over the last 3, 4 months is a high degree of loyalty and a high degree of satisfaction with our products. Joe Diaz: Fantastic. Well, with that said, I think this will conclude the Q&A session. I want to thank all of you for participating in today's call. We look forward to talking with you again to review the results for the quarter ended March 31, 2026, during the week of May 11, 2026. Thanks again, and have a great day. Operator: Thank you for attending today's presentation. The conference has now concluded. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Credit Company Fiscal Quarter ended December 31, 2025 Results Conference Call. Today's call will be recorded. [Operator Instructions] It is now my pleasure to turn the floor over to Alaael-Deen Shilleh, Associate General Counsel. Please go ahead, sir. Alaael-Deen Shilleh: Thank you. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical in nature and involve risks and uncertainties detailed in our registration statement on Form N-2. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. The fund undertakes no obligation to update these forward-looking statements. Joining me today are Larry Penn, Chief Executive Officer of Ellington Credit Company; Greg Borenstein, Portfolio Manager; and Chris Smernoff, Chief Financial Officer. Our earnings conference call presentation is available on our website, ellingtoncredit.com. Today's call will track that presentation, and all statements and references to figures are qualified by the important notice in end notes at the back of the presentation. With that, I'll turn it over to Larry. Laurence Penn: Thanks, Alaael-Deen, and good morning, everyone. We appreciate your time and interest in Ellington Credit Company, which we often refer to by its New York Stock Exchange ticker, E-A-R-N or EARN. Please turn to Slide 3. The fourth calendar quarter was the most challenging market environment for CLO equity since mid-2022 and before that, since the COVID crisis. Thanks to our active and disciplined portfolio management strategy, Ellington Credit was able to limit fund losses to approximately 9% of NAV, once again outperforming the overall peer set. The CLO equity market was impacted by many of the same factors in the leveraged loan market, particularly elevated credit dispersion and ongoing coupon spread compression. Those same factors that dominated performance in prior quarters. Put simply, weaker credits underperformed, while stronger borrowers continue to refinance and reprice at tighter yield spreads. These factors continue to pressure leveraged loan prices and reduce excess interest across the vast majority of the CLO market. Together, these dynamics weighed heavily on CLO equity performance, leading to lower projected cash flows and weaker mark-to-market valuations with year-end technical selling further compounding the weakness. As estimated by Nomura Research, the median CLO equity return for the quarter was negative 9% and for the full year, negative 14%. For Ellington Credit, our relative up in credit bias and active trading strategy helped mitigate these headwinds. CLO mezzanine debt tranches, which have been a focus of our investment activity in recent months, proved more resilient and opportunistic trading contributed positively to results. As shown on Slide 3, yield spreads did widen on CLO debt tranches, but the move was much more contained than the dislocation seen in CLO equity. Last year, following our conversion to a CLO closed-end fund on April 1 and continuing through the fourth calendar quarter, we steadily increased our allocation to CLO mezzanine debt tranches, which we believed offered a compelling balance of yield and downside protection by virtue of their structural credit enhancement. Reflecting the strategic shift, approximately 70% of our CLO purchases during this 9-month period were mezzanine debt tranches. Meanwhile, we also identified select CLO equity opportunities in the secondary market while generally avoiding new issue CLO equity where pricing dynamics were mostly unattractive. In the fourth quarter, we also benefited as we did throughout much of last year from several mezzanine positions being redeemed at par that we had purchased at discounts, generating realized gains. Those redemptions, coupled with opportunistic trading, offset some of the portfolio growth from new mezzanine investment activity. Nevertheless, the proportion of debt in our CLO portfolio grew substantially, ending the year at just under 50%, up from roughly 1/3 at our April 1 conversion. Active trading once again played an important role in our relative outperformance. We executed 47 unique CLO trades during the quarter, excluding deal liquidations, and we actively managed our credit hedges. We redeployed our October interest payments and equity distributions into higher-quality deleveraging mezzanine debt positions while trimming higher dollar priced, longer spread duration mezzanine debt profiles where we saw less favorable risk reward. We also took advantage of notable spread concessions in the new issue debt market to add BB-rated tranches at significantly higher yields. On the equity side, we remain selective, steering clear of more levered and lower quality profiles. This active approach allowed us to mitigate downside pressure, harvest gains opportunistically and reposition the portfolio for better risk-adjusted returns. The real-time information that comes with this level of trading activity is especially valuable in these high volatility market environments. On Slide 6, you can see that we actually recorded positive realized gains in each subsector for the quarter. All that said, as previously reported in our monthly NAV updates, the magnitude of the market-wide decline in CLO equity valuations led to a drop in the fund's NAV and therefore, a net quarterly loss overall. Not all losses are created equal, however. While price declines emanating from underlying loan losses and from refinancing and repricings of premium loans are irreversible, a portion of the decline in our quarterly NAV was driven by credit spread widening rather than realized credit impairment or fundamental deterioration. As a result, a portion of these mark-to-market losses could reverse if and when market conditions normalize. Now please turn to Slide 10 for an overview of our credit hedges, which we increased significantly during the fourth quarter. With corporate credit spreads remaining tight relative to CLO spreads, we were able to add this protection efficiently and at attractive levels. As shown on Slide 10, we increased our credit hedge portfolio to roughly $175 million of high-yield CDX bond equivalents by year-end. That's approximately 90% of our NAV. So these hedges represent a very significant level of protection. Credit markets have had no shortage of headlines to digest from the collapses of Tricolor and First Brands to growing concern over software sector borrowers facing AI-driven disruption. In short, while the fourth quarter was challenging for CLOs broadly, our disciplined and active portfolio management cushion the impact, drove EARN's relative outperformance and positioned us to play offense in what we believe is an increasingly opportunity-rich investment environment as we move forward into 2026. I'll now turn it over to Chris to discuss the financial results in more detail. Chris? Christopher Smernoff: Thanks, Larry, and good morning, everyone. Please turn to Slide 4. For the fourth calendar quarter, we reported a GAAP net loss of $0.56 per share. On Slide 6, you can see a breakout of portfolio net income by CLO subsector. Significant mark-to-market losses on CLO equity drove our net loss for the quarter, while CLO mezzanine debt held up better by comparison. In the U.S. leveraged loan market, performance diverged sharply by credit quality during the quarter. Lower rated CCC loans came under significant pressure from elevated CLO reset and liquidation activity and rising defaults while premium priced loans continue to refinance at par. Against that backdrop, CLO debt spreads widened and CLO equity bore the brunt of the weakness as spread compression and credit deterioration among weaker loans drove simultaneous declines in both excess interest and underlying asset values. Higher quality seasoned mezzanine tranches proved more resilient. In Europe, the story was more nuanced as loans underperformed their U.S. counterparts, while CLO debt tranche spreads for the most part, held up better by comparison. Within our CLO mezzanine debt portfolio, net interest income and trading gains, together with the positive impact of deal calls on positions owned at discounts to par offset the majority of mark-to-market write-downs. Credit hedges were also a drag on results, reflecting strong performance in the broader credit and equity markets during the period. Net interest income declined by $0.02 sequentially to $0.21 per share for the quarter, driven by lower asset yields and portfolio turnover. The weighted average GAAP yield for the quarter on our CLO portfolio was 13.7%, down from 15.5% in the prior quarter. Slide 7 illustrates a modest sequential decline in the size of our overall CLO portfolio. During the quarter, we made new purchases totaling $66 million, 60% in CLO debt and 40% in CLO equity, and we sold $19 million of CLOs, consistent with our active trading approach. At December 31, CLO equity represented 52% of total CLO holdings, roughly unchanged from the prior quarter, while CLO -- while European CLO investments accounted for 12%, down from 14% at September 30. Slide 8 provides an overview of the corporate loans underlying our CLO investments. The collateral remains predominantly first lien floating rate leveraged loans, representing roughly 95% of the underlying assets. Our industry exposure is well diversified, led by technology, financial services and health care with no single sector exceeding 11%. Loan maturities are spread over several years with the largest concentrations in 2028 and 2031 and low concentrations of near-term maturities, producing a weighted average loan maturity of 4.3 years. Facility size is skewed towards larger borrowers with 44% in facilities over $1.5 billion and a weighted average size of $1.6 billion, which supports liquidity. Slide 9 provides further detail on our underlying loan collateral. Slide 10 presents a snapshot of our credit hedges as of year-end. As Larry noted, we further increased our corporate credit hedges during the quarter with that portfolio equal to roughly 90% of our net asset value as of December 31. We also maintained a foreign currency hedge portfolio to manage exposure from our European CLO investments. Turning to Slide 11. At December 31, our NAV was $5.19 per share and cash and cash equivalents totaled $24.3 million. Our net asset value based total return for the quarter was negative 9.1%. With that, I'll pass it over to Greg to discuss the CLO market environment, our portfolio positioning and our outlook. Greg? Gregory Borenstein: Thanks, Chris. It's a pleasure to speak with everyone today. Overall, calendar Q4 was challenging for junior CLO tranches, especially CLO equity. Many of the themes that weighed on CLO equity through 2025 continued and even accelerated in Q4, further hurting performance. While CLO mezzanine tranches also saw muted returns, they outperformed CLO equity and EARN's increased allocation to mezz benefited the fund and helped mitigate some losses. Further, the weakness in CLO equity was more pronounced in the new issue space than in the secondary market. And once again, EARN stayed away from participating in new issue equity transactions during the quarter. We've only participated in one new issue equity transaction in the 11 months following our conversion. Calendar Q4 was one of the most difficult quarters for CLO equity in recent memory. Continued dispersion weighed heavily on performance as fundamental issues in lower quality credits paired with continued coupon spread compression and better quality credits pressured both interest cash flows and NAV valuations. In addition, because CLO liabilities generally have longer non-call periods than the underlying loans, CLO managers had limited ability to refinance or reset debt tranches at lower financing costs. As a result, CLOs were largely unable to capture the benefit of lower rates at the liability level, which could otherwise have helped offset the effects of coupon spread compression on equity cash flows. That said, entering 2026, more than 40% of EARN's U.S. CLO portfolio consists of deals scheduled to exit their non-call periods before year-end. As these deals become refinanceable, liability refinancings and resets at tighter spreads could help mitigate the drag from coupon spread compression should the market conditions permit. In the fourth quarter, CLO new issue volumes were constrained by a weak arbitrage. And as noted, the fund continued to avoid new issue equity. There has increased attention on the impact of manager-controlled captive funds on new issue pricing dynamics. While that discussion has merit, we believe there are also significant structural and technical factors that warrant caution on new issue equity. We have seen more attractive opportunities in secondary trading, which continues to play to Ellington's strength as an active trader. The subordination levels and structural protections remain paramount in guarding against continued idiosyncratic and sector-specific credit issues. We continue to favor defensive CLO mezzanine positions, which greatly outperformed equity on the quarter. Mezzanine debt is far less vulnerable to coupon spread compression than equity. That said, following the recent drop in loan prices, only about 15% of the universe were priced above par as of the end of February. Prepayment risk on CLO equity has definitely abated. That 15% level is down from 57% coming into the year and marks the lowest level since last April's tariff shocks. Given our active trading approach and relative value framework, we continually reassess our mezz to equity weighting as the opportunity set evolves. In Europe, spreads widened less than on debt tranches relative to the U.S. You can see that on Slide 3, and we were able to monetize gains and rotate capital, reducing our overall European exposure as a result. While similar credit dispersion dynamics emerged during the fourth quarter, CLO equity in Europe avoided the same degree of spread compression seen in the U.S. So far in 2026, CLO equity and mezzanine to a lesser degree, has continued to underperform with weakness spreading into broader markets amid concerns around software and AI-related credits. More than ever, I believe that our active trading, focus on liquidity, disciplined risk management and use of tail hedges, we've earned well positioned to take advantage of dislocations and generate alpha through periods of volatility. Now back to Larry. Laurence Penn: Thanks, Greg. First, I'd like to step back from the quarterly results and reflect on the full 2025 calendar year because I think the bigger picture provides important context for where we stand today. 2025 was a transformative year for Ellington Credit. We completed our conversion to a CLO closed-end fund on April 1. And in the days that followed, we efficiently liquidated all remaining mortgage-related assets with minimal NAV impact despite all the market turmoil around the tariff announcements. Given all that volatility, we are particularly proud of how smoothly this went. It was a clean and well-executed transition that positioned us to focus exclusively on the CLO opportunity set going forward. Following conversion, we methodically built out our CLO portfolio, expanding it by nearly 50% to $370 million by calendar year-end and adding credit hedges in lockstep with that expansion. We executed 218 CLO trades during this 9-month period, comprising $272 million of purchases and $63 million of sales, excluding redemptions. Relative to other CLO-focused closed-end funds, we delivered both a meaningfully stronger and significantly less volatile earnings stream, a direct reflection of our disciplined and highly active approach to portfolio construction and risk management. Second, I'll turn to our activity so far in 2026. January and February continued to reflect more of the same difficult market dynamics. CLO equity remained under significant pressure with the underlying credit concerns outlined earlier continuing to weigh on sentiment. Meanwhile, mezzanine debt continued to hold up comparatively well. For January, I'm pleased to report that EARN once again outperformed its peer set, ending the month with an NAV per share of $5.04. February was an even tougher month for the sector, which we think has created many more opportunities. In terms of portfolio activity, our overall portfolio was smaller given the decline in NAV, but we've continued to add mezzanine debt positions, particularly in deleveraging BB tranches. We have also been active recently in exercising CLO call options, generating realized gains on debt tranches purchased at discounts to par. In addition, we've recently collapsed certain CLOs where we held discount positions, which has further strengthened the credit profile of our remaining portfolio and helped to build up liquidity in a highly volatile environment. While more than 3/4 of our purchases in 2026 have been mezzanine debt, we have also selectively increased our CLO equity holdings where we see compelling value, such as deals with mispriced call optionality where we believe the sell-off has been overdone and entry points are attractive. We have also been disciplined about maintaining very substantial credit hedges. Given the dispersion we've seen in the corporate credit market, our credit hedges haven't yet been able to offset the declines in CLO equity prices, but we continue to view them as an indispensable part of our portfolio management strategy. This is all the more true today given that overall yield spreads in the corporate credit markets continue to be relatively tight when viewed on a historical basis. Finally, looking ahead, we are focused on rebuilding net investment income and net asset value as we deploy capital into what is looking more and more like a distressed market. For more passive strategy, that environment only creates headwinds. For us, we see it as fertile ground, creating the kind of relative value and trading opportunities where active trading and disciplined risk management can add meaningful value. Furthermore, and as noted earlier, we continue to believe that a substantial portion of the recent price declines are reversible since they reflect yield spread widening rather than fundamental credit impairment. Equally importantly, we have yet to tap the capital markets as a closed-end fund issuer. We are exploring the potential issuance of long-term unsecured debt in the coming weeks, which will supply us with a significant additional dry powder at a potentially ideal time. We believe the current environment characterized by dislocations and expanding relative value opportunities is especially well suited to our active investing and trading approach, and we look forward to updating you on our progress next quarter. With that, let's open the floor to Q&A. Operator, please proceed. Operator: [Operator Instructions] Our first question will come from Crispin Love with Piper Sandler. Benjamin Graham: This is Ben Graham in for Crispin Love. You mentioned earlier that your portfolio is very diversified by industry and that no sector exceeds 11% exposure in your portfolio. And obviously, there's a lot of negative headline attention around software, et cetera. So I'm just wondering what your stance is on sentiment there. And then if there are any other sectors that you're particularly excited about. Laurence Penn: Go ahead, Greg. Gregory Borenstein: Sure. So I think the way we think about this, this is a lot of the benefit of CLOs. There's a lot of diversification by sector and then there's diversification by name. You see some headlines with what's going on maybe in areas of private credit. But in some of those vehicles, things can be pretty chunky. The same thing goes for certain areas of the middle market and private credit CLO market even. So if you're going to have large single name exposure, you just have much more idiosyncratic risk. We find this to be far harder to control. And so given our whole risk management framework and process, I think we generally feel more comfortable that as long as our portfolio is representative of the overall market, be it percentage of sectors, percentage of names, things like that. Overall, it just becomes more statistical for us to handle the risk in regards to views on specific sectors, there is certainly damage done in software, and the sector has sold off a lot. I think from the way that we look at the credits, the way that we speak to our managers who are looking at the credits, there's going to be winners and losers, which has been the story of a lot of things over the last year. And so in some cases, you might have names that have real warning signs and we should be concerned about and others may be pushed down in sympathy with managers reducing overall sector exposure. I don't think we have a strong view if loan prices are specifically weak or cheap on a name-by-name basis within the sector. I think it's just important to keep these exposures appropriately in line. Operator: Our next question will come from Jason Weaver with JonesTrading. Jason Weaver: First, I wonder if you could help us quantify the proportion of loans underlying the portfolio that are CCC rated or lower. Laurence Penn: Greg, do you happen to have that at your fingertips? Gregory Borenstein: I don't have it at my fingertips. But I think in general, a lot of these operate around 7.5% is a typical CCC bucket in the CLO. And I could get you an exact percentage at an underlying look. Obviously, the percentage exposure -- I'm getting some feedback on a deal basis. Because if we own, for example, a well-supported mezzanine tranche, if the deal has a certain amount of CCC exposure, we're not necessarily exposed as much as we are if we own an equity tranche. So but the CLO loan index, for example, is about 4.4%. And so considering our diversification that we were just talking about in terms of equity demand across a number of deals with underlying -- a lot of underlying loans underneath all these, I would guess that we're tracking not too far off from that 4.4% number you see in the CLO market in total. Laurence Penn: Sorry, I was just going to say we'll consider adding that to our monthly term sheet. Jason Weaver: Okay. And then turning back over to the -- I'm getting some feedback. Turning back to the credit hedges. I think in January, the update said you had trimmed the $175 million position a bit. But can you help us understand the amount of negative carry from those positions? At current levels of high yield, I see something like $0.04 a quarter, but maybe you executed those a lot tighter. Laurence Penn: Well, I think first, maybe, Greg, you can speak to the carry question. In terms of trimming the size of the credit portfolio, the loan portfolio also declined. Both declines are modest, 12/31 to 1/31, but it was a smaller credit hedge portfolio in lockstep with a slightly smaller loan portfolio. Greg, do you want to comment on the kind of the drag you're seeing from the credit hedges on a go-forward basis? Gregory Borenstein: Sure. I think overall, there's what we've experienced and then there's what we've had so far. I think if you look when you discuss what's going on this year, for example, it's been a pretty minimal drag just because you've actually -- at least year-to-date, some widening in high yield, right? Also, you have to remember that we really focus these hedges for larger drawdown scenarios. We're very mindful of the drag. And so I think the protection we have is much more in sort of these larger shocks, if you take a look at the holdings that we have in there versus what the drag is on a run rate. So I can get you the exact as of today because obviously, this number shifts around quite a bit depending upon where things widen into. But I would note that we've been very active in repositioning and rotating considering all this volatility. And we're mindful when we take a look at it, some of these shorts may be in a more liquid high-yield index. Some of these shorts may be in loan form as we've seen very specific loan issues there as well as on the out of the money side, different types of puts and payers. I think that overall, as I'm trying to give you an answer off a rough -- off the top of my head on this, you're seeing probably an overall drag which amounts to something to 1% to 2% of fund NAV per annum. So we think that considering the environment and the risk right now, it's a small or a very reasonable amount to pay for the type of protection we'll get if volatility or any sort of drawdown should really kind of persist throughout the year. Laurence Penn: Even 2% would be less than $0.01 a month, well worth it. Gregory Borenstein: We do, once again, to reiterate by keeping the protection focused more out-of-the-money options, it really does substantially reduce the cost to believe it's protected. To locally more heavily protect, I think the issues become, one, the cost obviously will weigh heavily. And then two, the basis risk, right? The issues that happen that you're exposed to in terms of really tail load names on the capital structure is not easily controllable when you talk about using more liquid indices, right? You would have seen, for example, loans underperform things like high yield or underperform anything in equities. And so we're also mindful around the accuracy and efficacy of the hedge we use, right? And there are a lot of different basis risks. And so we are mindful. Jason Weaver: Got it. That's helpful. And the sort of decomposition of it would be interesting to see. We're just looking at it from looking at high-yield CDX, and that's what you put as equivalents. But obviously, there's much more basis of using individual positions. So I appreciate the color. Laurence Penn: But it's not... Gregory Borenstein: All be published... Laurence Penn: Yes. It's not so much single name positions though. That's not what we're doing. It is more in broad-based CDX and similar instruments. Gregory Borenstein: It's a lot of -- to Larry's point, you'll see different types of indices, potentially ETFs, right? The CLO market, we own a large number of tranches backed by each one of these deals can be hundreds of loans. And so it really creates a lot of diversification, which allows us to be a little more statistical. By using indices as well, it allows us to similarly represent that, right? We're not here. It is not our strength to be making single name bets as we were saying. So unless we think there's an outsized exposure to a single name that exists for some reason and maybe we want to take on that. In general, we look to avoid single name bets on the long side and single name bets on the short side. But when you look at what we generally have, just to give you a set of what we generally use in our arsenal, CDX high-yield index out of the money IWM puts, loan ETF shorts, credit index tranches, loan ETF puts, right? I think it's just sort of all in that area of the market that we think offers different values in how we want to protect and some sort of mixture of those will pivot around and adjust based upon as our portfolio and our longs change, right, the way we see things and the way that we think that, that helps sort of protect and manage our risk. Operator: Our next question will come from Eric Hagen with BTIG. Eric Hagen: All right. So obviously, a lot of attention on redemptions for asset managers right now. The question is how much of a knock-on effect do you see between redemptions and conditions and spread widening in the CLO market? Laurence Penn: Greg? Gregory Borenstein: Well, I think that one thing to point to is maybe some redemptions you've seen in things like JAAA, right? That ETF will actually sort of move as flows come in and out, and it's more easily trackable. And so listen, I think the concerns around loans, concerns around where interest rates may go, right, has certainly led to what may drive that. Floating rate funds, there's other ETFs that I think have similar to JAAA, which is the big one in the space, have experienced a similar situation. I mean this is what we're sort of looking for as an active trader, it creates great opportunity for us with flows moving from A to B, lots of folks repositioning their portfolios. There's a lot of rotations even from some of these ETFs where it's not necessarily inflows, outflows, but maybe they're rotating, right? And as there's much more active market as price discovery settles in, it's really beneficial in terms of being able to actually actively trade to maneuver. So it's been something we've honestly look forward to. Eric Hagen: Okay. That's interesting. Next one is maybe more related kind of to the general mechanics in working through potential defaults and what the time line and the structure to work through those defaults looks like. Is it -- would you chalk it up to basically being like a binary outcome with respect to recovering potential proceeds? Or is the severity almost always 100% in the CLO market? Gregory Borenstein: No, no, no. Historically, if you were to take a look at leveraged loans, these recoveries are well above 0. I mean recoveries have been pushed down over time. I think that historically, I think there's a lot of data out on this. Maybe it was up around 70%. It's probably eased off of that a little bit. I think that -- sorry, if you take a look at CLOs, for example, if you look at -- we look at something called par burn, right, which is just what's the overall kind of loss of the deal just because now you have to be mindful that sometimes there's some loss that's not classified as a default. For example, if something is a distressed exchange, it's not a technical default, and there's generally some haircut. But if you look at CLOs with underlying leveraged loans, the average par burn or loss rate as we sort of see it from a pragmatic standpoint, is about 75 basis points annually, which helps to kind of translate to that. So when loans are defaulting, you are seeing real recoveries. Now it varies. Some certainly have been close to 0. Others have been much higher. And so those are all very deal specific, right? And this is where you get into do you have liability management exercises? How are the sponsors treating things? Are there in groups and out groups? I think overall, we try to be -- defaults and losses have picked up as I think we saw some of these issues. CLOs have seen a lot less than the private credit, right? These broadly syndicated loans that have real transparency on them that do price actively day-to-day, right? You generally know where most of these are in terms of bid and offer. But we are mindful of where losses could go to. They were elevated last year above historical averages. And as you see sector-specific concerns, I think that one reason we are mindful and tepid on increasing equity exposure is that if you're a first loss CLO, you are exposed directly to any defaults that may occur. So I don't know if that directly answers the question, but... Operator: That was our final question for today. We thank you for your participation in the Ellington Credit Company Fiscal Quarter ended December 31, 2025 Results Conference Call. You may now disconnect the line and have a great day.
Nicolaas Muller: Good morning to everyone. Welcome here to all those present, the investment community, our own Implats people and for everyone who's dialed in as well, welcome. Always an honor to represent a very talented Implats team. Extraordinary times that we are living in. We had a presentation from one of the consulting firms the other day, and it was very clear that we are going through a shift in global order. It's a new era that is being introduced. We're seeing changes in international relationships, institutions, NATO, trade paths are changing, supply chains are changing. The move from globalization to multipolarity is accelerating. We just recently this weekend seen a new event unfold in the Middle East. And so all of this creates a number of consequences, one of which is uncertainty in future supply, particularly in natural resources and in our case, critical minerals and metals. And critical can be defined in many ways. But one is, if it's used in critical industries like in Europe, the auto industry is a very important employer. It affects politics. And so without our metals, there is a risk for the industry. But then also our concentrated supply globally with 80% of the world's PGMs being produced from Southern Africa and the uniqueness of our metals, as has been said many times over the past. And so given these pressures and the uncertainty in supply chains, where will this metal come from in the past, there's a major topic of critical minerals and the hoarding of that, we've seen, as an example, the $12 billion evolve program announced by the U.S. We certainly are having similar discussions with other jurisdictions or representatives of industry in other jurisdictions where similar concerns are being echoed where there's an engagement to determine the extent to which relationships can be formed to provide security for long-term supply. In addition to that, we've seen the flow out of the U.S. dollar towards hard assets such as gold. We've seen record gold prices and other precious metals like platinum has now followed suit. So that has in part been the driving force behind the extraordinary rise of the PGM dollar prices. On top of that, if you look at the market fundamentals, we do see continual downward revisions in the EV penetration rates. We have witnessed in recent times a shift in priority in decarbonization in general, particularly in the U.S. But we have seen relaxation in terms of expectations of where the world wants to be in terms of, for instance, the percentage of fleet contribution of electric vehicles by certain dates 2030 and 2035. And so that has resulted in an increase in demand for our metals. We have seen an increase in demand from Chinese jewelry and certain industrial customers as well. On the other side, we do have certain supply risks being acknowledged by the market. We have not seen the historical levels of investment in future supply. I had occasion to sit with the four CEOs -- the other four CEOs of PGMs. And even in February, we were unanimous that it's not the right time to consider large-scale greenfield capital projects at this stage. And so if you look at the global order shift in world uncertainty combined with shifts in the fundamental markets that has given cause to the increase in -- sorry, on the wrong slide, metal prices. As a consequence of where -- of the nature of the major forces, it is our contention that the price support that we're currently seeing is not a short-term one. This is not as a consequence of Donald Trump. It's the Trump effect. It will outlast the current administration. It's not reliant on who wins the next election. It's uncertainty -- once you've asked these questions, those questions remain relevant and you have to organize your country, your region very differently for a generation to follow. So it is our belief that this current upswing in prices will remain longer than has been the case in the past where we saw relatively short summers following very long winters. And so if you look at our results, it's dominated by two major points. One, the production performance, both at mine operational level as well as in the processing division and what we sold, it's more or less in line broadly. I mean, as I said in the video, if you look at all of those numbers, it's like 0% or plus 1% is around about there. So that's the one thing. The business has been in good hands. We have navigated through this period in a very stable fashion. The one red flag that we need to be cautious of is the increase in operating costs. Our unit cost increased by 11%. There are reasons for that, that will be addressed by Meroonisha and our COO, but it is something that we have to be aware of. So I think cost management is something that we have to take into consideration and the operating cost specifically. And then, of course, the other dominant factor has been this 40% increase in the rand basket price. And if you look through all of the financials, the entire industry is looking a lot more attractive than what it did in the previous period. Given the fact that we are where we are in terms of metal prices and then increase in EBITDA and revenue and cash flow, it does provide us with a really important opportunity, and that is to change our strategic focus in the company. During the lean years, we are very defensive. We focus on cost control, capital management. We even go as far as organizing or reorganizing labor and even do things like portfolio reviews to understand or to have a strategy if there is a further decline in prices. So at the bottom, that talks about an inflection point. So if I look at where the company is positioned now, the focus is different. We now have the opportunity to focus on how to strengthen the company. And our opportunities, there's like a funnel of a pipeline of opportunities, starting off at the most basic level, Patrick and his team with the support of Meroonisha and the rest of the executive have already implemented through Board support a number of early action programs to initiate life extension projects. They've occurred at -- two Rivers, at Marula, at some of the shafts at Rustenburg. One of them has already been converted to a fully fledged capital application that was approved, and that's at 14 Shaft for roughly ZAR 1 billion. And that will provide us with life extension project. I am very confident that some of these other early works programs that were initiated will result in approval of additional capital. And based on Patrick's information, roughly, we will look at a 3-year extension to our current steady-state 3.5 million ounces per year production profile. Thereafter, we will require additional initiatives. So that's the one part. The second part is that we do believe that there is room for optimizing of the industry through various actions. One, there is the sharing of infrastructure. We are constrained at the moment with our processing capacity, and we have excess ounces. But in future, I mean we do see a declining production profile. So that will open up some processing capacity to share in the industry. And we do believe it's critically important for Southern Africa to protect local beneficiation of the metals. And so I think that the opportunity to do so will increase as we go forward. Then there are the normal cross-boundary opportunities that always exist. And I can think about a few, but let me just raise one. And I'm not -- please don't interpret this as me announcing any action. I'm just saying one of the areas that we have battled with in the industry is the Eastern Limb as an example. So if you reimagine what the Eastern Limb could look like if it's operating as a greater unit, I think you can share concentrator capacity with mining capacity, but it will provide you with better muscle to create a more attractive area to get skill better -- a better range of skills in the area and to do better at your socioeconomic contribution to increase the license to operate. So I think there is an opportunity. If I look at Zim, there are a number of emergent producers, GDI, Karo's and so on. So I think that there is an opportunity not only for Implats, but for the industry to reimagine how it operates and to optimize to increase further efficiencies as an industry. And I do think Implats is very well positioned. I mean, we are represented in all the major producing -- PGM producing areas other than Russia. So I mean, we are in South Africa, Western Limb, Northern Limb, Eastern Limb, as well as in the Great Dyke as well as North America. So I do think that we're very well positioned. We do have a good track record in constructive partnerships, toll arrangements, joint ventures. We have been operating in Africa where we focus on long-term strategic relationships. So that's something that we think is quite valuable in considering future options. And then I mean, we can ask more questions about it, but then there would be the questions about greenfields, the Waterberg and the big other thing. As I said earlier, we remain cautious about introducing major new ounces to the market at this point. So we do not expect to make any announcements about that soon. On that note, I would like to hand over to our esteemed COO, Mr. Patrick Morutlwa. Patrick Morutlwa: Thank you, Nico. Yes. Good morning, everyone. It's really a privilege for me to present our group results. And I'll start with safety, health and environment, which underpins everything we do in our group. So for the past 18 months, we have been implementing our 8-point safety plan. And I'm glad to say it is starting to deliver a step change in safety that we've actually envisaged. And this is seen in some of the milestones we've achieved for the period. Our mining and processing division for the first time for the period actually went fatal-free. Similarly, so Rustenburg, one of our biggest operations achieved 5 million without the free shift in the period. And also, if you look at our key risks: fall of ground, winches and machinery, we saw a 12% reduction in injuries, which is all symbolizing and strengthening of career controls in those areas. So while we are building on this momentum, we are equally humbled and also grounded because of the two losses of life we incurred, one in the period and one post the period. So we are reflecting, we are learning, and we will be taking these lessons to make sure that we implement no repeat solutions. So we don't repeat this type of incidents. On the environmental side, our ESG programs continue to receive global recognition. As you've seen in the video, for the fifth year running, we have been included in S&P's Sustainability Yearbook. And during all the same period, you have seen that we have not recorded any Level 3 to Level 5 environmental incident. So we operate sustainably because this is the way we express our values of care, respect and deliver. And lastly, on the health side, also our health programs continue to deliver positive results. Our HIV and TB prevalence are well below the national averages. So the next thing for us for health really is to focus on mental health and psychological health of our employees because healthy employees are engaged, they are safe, but they are also productive. Then moving over to production. We have actually delivered a steady and consistent production, which was really buoyed by second quarter, which was much stronger than the first half. So what you also see that this has happened despite three of our operations having some serious strategic shift. At Marula, we focus on development. At Canada, we continue with the high-grade strategy as previously communicated. And lastly, Rustenburg 3 of our shafts are nearing end of the economic life. So we had to deal with labor movement in those shafts. So going forward, in terms of processing, we also have seen strong performance. And this is also on the back of the work we have done. We have upgraded our BMR at Springs, and we have also done some design and maintenance work in Rustenburg furnaces. So you will see that for our BMR, we have actually a record milling and also for this period, Rustenburg smelter performed very well above budget. And as a result, we were able to release 20,000 ounces of excess inventory. Usually, our release is gravitated towards H2. But because of this good work, we are able to release 20,000 ounces. Our furnace 4 have gone down for maintenance way ahead of schedule. We should be able to restart now in April. And as a result, very confident to release 100,000 of excess inventory as promised at the start of the year. As Nico spoke about the cost, we were about 5.5% above the mine inflation. This was a decision to strategically invest in our infrastructure, particularly some conveyor belt in Zimplats and also improving our maintenance fleet across the group. This will set us well for the future to make sure that we can maintain the current production, but we also deliver into the future expectations. So as I stand here, I can safely say we will meet our guidance on production, on cost and capital for the year. Thank you very much, and I'll hand over to Meroonisha. Meroonisha Kerber: Thank you, Patrick. And I'm checking the time still good morning, everyone. So clearly, the steady operational performance that you've seen enabled us to fully benefit from the 40% improvement in pricing. Let me just get there. Okay. So you'll see EBITDA up at ZAR 18.1 billion, headline earnings, ZAR 9.3 billion. But I think what is noteworthy is that we did not have any unusual non-recurring items in our earnings for the period. As Patrick and Nico spoke about, given the improved pricing and profitability, we were allowed to reinvest in the business. So you'll see some of that in our unit costs, where we took the opportunity with the improved cash flow to spend more on infrastructure and maintenance. And of course, some of that contributed to the 11% increase that you've seen. If you -- and that is particularly at two of our biggest operations, our Rustenburg operations and Zimplats. If you look at free cash flow for the period, we generated significant -- there was a significant improvement from ZAR 600 million in the previous year, up to ZAR 7 billion. And this was driven largely by the improved profitability, but some of this was offset by the buildup in working capital. I think what's important to note is that at the end of the period, there was an additional tax payment that was due of ZAR 1.4 billion, and we made this payment in January, and it basically was a top-up to our provisional tax. If you recall, there was quite a steep increase in prices in the month of December. And clearly, we worked our forecast that were done in November that didn't fully take into consideration the rapid improvement in pricing. If you look at the balance sheet, we used the opportunity of the improved free cash flow to repay some debt. So we repaid about ZAR 800 million worth of debt, mostly at Zimplats, and our gross debt declined from ZAR 1.8 billion down to ZAR 1 billion. Another very important thing we did in the period was our group revolving credit facility was almost -- I think it would have expired now in February. So we took the opportunity to refinance it in quarter 2. And basically, we upsized it from the -- just under ZAR 8 billion to ZAR 14 billion, and we managed to do this on very competitive terms. The new revolving credit facility is valid for -- well, extends for 3 years, and we've got two -- the reason that I mentioned the RCF is we've made some changes to our disclosure on net cash. So in line with the new RCF, we amended the disclosure and definition of net cash to align to the RCF. What this meant is that, we now exclude the deferred revenue from the gold stream from the net cash balance, but also we are not now including the cash held at Zimplats in local currency in our cash balance. And that really is because of the fact that, that currency is not -- you cannot use it outside of Zimbabwe. So on this basis, our net cash got adjusted -- our net cash increased from ZAR 8.1 billion to ZAR 12.1 billion. And with the undrawn revolving credit facility of ZAR 14 billion, we closed the year with headroom of just -- liquidity headroom of just under ZAR 29 billion. I think before I go on to the next slide, I just want to point out a few things. If I look forward, I think the company is really well poised to take advantage of the favorable metal price environment. And there's a few factors that I would like to highlight. Firstly, you've seen sustained operational delivery, and I have no doubt that the team will continue to deliver into H2. We have got a track record of good cost discipline, and it is something that will receive focus. But that -- but I think our teams will deliver on keeping the cost tight. Our capital intensity has normalized, but we've got the ability and the capacity to further strengthen the business and invest in progressing our life of mine projects. And I think the other point, which is very important, is that we have expanded processing capacity and the excess inventory. And I don't think we must underestimate the flexibility this gives us to manage any operational challenges that we might have along the way, and it does support free cash flow generation. If I can then move on to capital allocation. So after repaying about ZAR 800 million worth of debt and making provision for the ZAR 1.4 billion tax payment, the Board declared a dividend of ZAR 4.10 per share or ZAR 3.7 billion. This represents a free cash -- sorry, a payout ratio of 60%, about 60% of adjusted free cash flow, which is double our minimum policy. And if you take into consideration the tax payment that was due, it's about 80% of the available free cash flow. As a result of, obviously, prior capital allocation decisions as well as completing a number of our strategic projects, there was limited capital that was allocated to growth and investment. I think what the capital allocation should demonstrate is that overall, we have maintained our disciplined and consistent approach to capital allocation, and we have prioritized returns to shareholders. Lastly, as Patrick has alluded to, we will obviously end with the market guidance. We're very pleased that we keep our guidance intact. And I believe given where the business is, we are well on track to deliver within this guidance. So with that, I'd like to hand over to Johan. Johan Theron: All right. Thanks to the team. Happy to take some questions as normal. I think let's start in the room. There will be some roving mics. We will pass that along. Just for the benefit of people that might not see on the screen or the camera, just start just to raise your name, just so that everybody knows who's asking the question. We've got a couple of hands up here. Chris, let's start there with you. Christopher Nicholson: It's Chris Nicholson from RMB Morgan Stanley. A couple of questions, if I may. So you've provided a fairly optimistic outlook on the pricing environment. Maybe a bit of a surprise that you didn't accelerate, maybe some of the capital projects to the same extent. So here you're doing some early work. Could you maybe give us further details specifically on Marula? Is this akin to what was previously known as Phase 2? And what type of mine life extension you're looking to get there? Similarly at Impala Rustenburg, 14 Shaft and some of the other extensions, how long are you looking to extend mine life by there? And then kind of linked to that, should we expect ZAR 9 billion of CapEx going forward? Is that a good level into these prices? And then just second question, again, optimistic price outlook. I think some might be slightly disappointed with the dividend. You've seen another 2 months of very strong prices since year-end. Just thought process as to why you need to hold too much cash on balance sheet again. Nicolaas Muller: Okay. I think, Pat, if you don't mind. The first question is about the life mine extension projects, the specifics and that's what they are going to cost and the expected life extension. Patrick Morutlwa: Yes. Let me start first with Rustenberg. As Nico said, we have already approved 14 Shaft extension. It is taking the existing decline into the 18 shaft area. It will give us 4 additional years, which will maintain the current production for another 4 years. It is about ZAR 877 million. The early capital was approved the last quarter, so work is continuing there. Then again, there, we have Rustenberg 20 shaft, where we're now taking 20 shaft into the Styldrift ground. So that work, we're still validating the feasibility study. It should be coming to the board somewhere in August. So I cannot share the numbers now, but it will also extend life approximately 5 to 6 years there. Then the last one is BRPM North shaft, is just taking the existing decline further. So that one, it will give us a much more long life, anything between 10 and 15 years. And again, there early capital approved, so we're executing the final capital numbers not yet finalized. Then moving over to Marula. Marula Phase 2 was closed given that at the time we executing that project, the price did climate. So as part of cost preservation, we did stop that. But now with the new prices, we have restarted the work, approved ZAR 40 million of early capital. So it's not going to be the same as Phase 2. So we're actually doing small chunks. So this project is now divided in four phases. Phase 1 is taking the 11 shaft 2 level down, and there will be a big chunk of capital to secure infrastructure then further chunks of capital to take both Driekop and Clapham down. So we have designed in such a way that we've got proper off ramps through the price plan, we should be able to stop. So the first phase, I spoke about should give us additional 5 to 6 years on top of the existing 6-year life left at Marula. So that's more or less high level on this project that we have undertaken. Nicolaas Muller: And Patrick, the ZAR 9 billion capital, is that a fair expectation or... Patrick Morutlwa: All right. Thank you for that. So you remember, we gave you between ZAR 8 billion and ZAR 9 billion. With this bolt-on project, you can add a maximum ZAR 2 billion. So I think it makes ZAR 10.5 billion, because we will start very slow and just ramp up a bit. But I don't see it going beyond ZAR 11 billion, really. Nicolaas Muller: Chris, I want to -- sorry, I just want to add -- actually, maybe repeat Patrick's words, but in a different form because you asked is it Phase 2? And he said, no. I think it is. But the application of how we get there is different. In fact, the first time we did, we had a ZAR 5.5 billion single project and we had agreed off-ramp points whereas this time, we are saying there's no single ZAR 5.5 billion project. There are going to be a sequence of smaller projects. And so we will have like a consolidated assessment for the entire thing, which will be based on the valuation, but the implementation will have to meet certain performance hurdles as we go along for the next phase to be implemented. So essentially, it's Phase 2 wrapping different color. Patrick Morutlwa: And if I may just add one thing. Nico earlier said that with this project, they will push the 3.5 million ounces back out another 3 years. In addition to that, the old profile within 10 years' time, if we did nothing, we're going to lose 50% of our production. Now this project have also helped to slow down the decline. So within the same 10 years, if we do all this project, we will only be dropping by 15%. So they do actually extend life and the angle of decline. Nicolaas Muller: And sorry, I'm again butting in. But I think Tim will kill us if we don't talk about Canada because I really think that there's an opportunity there. I mean, we have already extended the life to April '27. But the technical team at Impala Canada is working on a novel technology for us in the group, which is called dry tailings, which makes use of the filtered tailing plant, which enables you to essentially to dry out the tailings and place that on existing tailings dams as opposed to creating a new greenfield tailing dam, which requires new licensing and permits and so forth. I mean the capital expenditure is quite intense, but that will provide Canada with not an incremental 1 year time life, but that will enable us to take a longer position subject to the palladium price remaining at above $1,600 or something like that. And then we haven't quite spoken about Mimosa. I mean, there's a few things to resolve in Zim specifically, but there is still the opportunity to consider some form of North Hill extension to life at Mimosa, which currently we're not speaking to because it's not currently in the works. It's being evaluated and we've got a partner that we need to consult them on that and so forth. Meroonisha Kerber: Sorry, the question on the cash. So I think there were two parts to it. So the one was around why the ZAR 10 billion and the other one was about the cash that we've made since year-end. So let me address the second part of it first. I mean our policy, and we've consistently applied it is when we look at the dividend, it's on the cash that was made in the 6-month period. So you can -- if you look at the trajectory of the price, you'll see December, we had the rapid increase and then January, February, we've enjoyed these very, very high prices. Also, you've got to take into consideration we have contracts that -- a lot of contractual sales, and we've obviously got the lag in the contractual sales. So that increase in December only really will flow through mostly in the second half of the year. So to the extent that, that flows through in the second half, that will be part of the free cash flow for the second half and it becomes available for distribution per our capital allocation framework in the next 6 months. And maybe just to add to that point is that if you just look forward at our capital allocation, there's a little bit of work to be done on the balance sheet, not a lot of debt. So even if we want to do it, it's not going to take a lot of capital. There's -- Patrick and Nico have talked about our life of mine extensions, but there's no greenfield projects that we're looking at. So there should be a fair -- all of that profitability should be available for distribution in the at the year-end. The second question was really around the ZAR 10 billion and why the ZAR 10 billion. So I mean, it's like running your bank account. Nobody wants to run on an overdraft. So here, what we do is we look at -- so what is the liquidity that we need for the group. And remember, we've got entities in different jurisdictions at different currencies. And so the view that we have is that all of our operations should be able to pay -- settle its working capital and be able to operate for 1 month without resorting to borrowing of money. And so, that's how we get to the ZAR 10 billion. And you can imagine that there's timing differences between sales, et cetera. And with IRS, there are big payments that need to be made. So we need to be able to hold enough money in the required currencies in the required jurisdictions to be able to manage all of the timing. So that really is how we -- there's no other signs to how we get to the ZAR 10 billion. Gerhard Engelbrecht: Gerhard Engelbrecht, Absa. Chris has asked the questions. So I'm not going to flog that horse any longer. Can you maybe give us an idea of any near future furnace maintenance projects, shutdowns that you have on the cards? Johan Theron: Adele is here, if she wants to speak to that. Nicolaas Muller: That's a good idea. Where's Adele? If she's at the back, you can perhaps just pass her the mic. Johan Theron: Adele, come stand quickly here in front of me. Adelle Coetzee: Good afternoon. Thank you for that question. Yes, we have furnace maintenance, furnace scheduling going on as per our normal maintenance philosophies and structures. And obviously, to make sure that our infrastructure is sustainable going forward. As Patrick already mentioned, we have #4 furnace that is currently in rebuild that we hope to get power on that furnace very soon. Also on schedule as what was planned. We also will be having at our Zimplats operation in the coming year, not in the next 6 months, in our new year, we will be doing our end walls also as per our internal maintenance strategic plan. And then going forward, as everyone should be knowing by, should know by now, we are planning the rebuild of our future furnace. And we will commence with our rebuild, our new design in Rustenburg come July 2027. And that will be on the furnace #5. Hopefully, that is answering the questions. Thank you. Johan Theron: Adele, just to put a final point on it. It's fair to say that we're back to normal furnace maintenance. The interventions are all behind us now. Nicolaas Muller: Sorry, Johan, if I can just add, as I do, just one more point to that. Historically, if we went into furnace rebuilds, we would have accumulated additional stock. So, the historical work that has been done on expanding the smelter capacity as well as the 10% expansion of our base metal refinery results in current capacity that prevents the buildup of stock. That's why, I mean, we've only released 20,000 ounces of the committed, I think it was. Johan Theron: 110,000 ounces. Nicolaas Muller: Yes. 110,000 ounces. 110,000 ounces is what we committed to the market. I see that's changed to 100,000 ounces only. I think we are on track, notwithstanding the maintenance on the smelter to release 110,000 ounces for the year. I think that is quite newsworthy. And also, I mean, as Adele, you didn't mention on the -- sorry, I'm expanding. But in base metal refinery, we have achieved record milling rates again, which prevents us from having to build up stock in front of the BMR. So the investments that we've made over the past three or four years has really paid off. Sorry, Johan. Johan Theron: No, all good. One more question, Arnold. After Arnold, I will given opportunity on Chorus Call. So if you're on Chorus Call, you can queue yourselves along, and then we'll move to Chorus Call after Arnold's question. Arnold Van Graan: It's Arnold Van Graan from Nedbank. Just want to go back to your capital projects which you're doing in phases. Look, I welcome that because the last thing we want is everyone jumping in and just bringing on excess capacity. But my question is, how efficient is it doing these projects piecemeal as opposed to the big projects? And what I'm thinking about is further down the line where you then ultimately will have to in any way do the whole thing. My concern is that interim, it creates inefficiencies in the system. And we're already looking at your cost number. You alluded to that it's -- it's under pressure. So, yes, how do you manage that? What is different? Why did you previously want to do all of it in one go, and now you're doing it in phases other than the balance sheet impact? Nicolaas Muller: So firstly, you can also contribute. So, you are 100% correct. I mean, I was just saying if you have got a 5-year mining contract, you can do that once, if you do it, break it up into different parts, you've got slightly establishment costs and all of that. I mean, I think that there are ways to mitigate that to ensure that the different phases are dovetailed. But there are performance conditions to the continuation. And that's where -- I mean, we need to see an improved Marula. I mean, Marula even at current prices, if I look at the cash contribution of Marula, it is -- if I have to be honest, it's below expectation. And so we want to incentivize ourselves and the operation and the project by making sure that the financial valuation on which these things are premised is, in fact, met. And so I am 100% convinced with all of the additional face length that is being created and the improvements in the infrastructure, we are going to get to a stronger position of confidence with Marula. But at the moment, we think in spite of the potential cost inefficiencies, it is better for us to have a cautious approach to investing large sums of capital in the projects that really requires some improved operating performance and project execution performance. Patrick Morutlwa: Yes. I think the only thing I can add, Nico, is that, I mean, as you said, that we do the evaluation of this project, the whole project. But then we divide into critical milestone to open all reserves, but also that milestone #1 should be able to pay for milestone #2. But also, again, like I said earlier, these are off ramps. So should the price plummet, you have not committed cash and have a lot of unfinished bits and pieces, because that's exactly what caught us the last time. So we want to make sure that when the price plummets, we've actually delivered phase then that can take the mine further. So it's literally just make sure that we don't commit cash all over and when the price plan is, we have got a lot of unfinished bits and pieces. Johan Theron: As high as you can. Nicolaas Muller: Yes. And one small last consideration, Marula has the option if we can navigate through farm boundaries of extending laterally. So we have just not been successful in achieving those agreements to the extent that we can. That will be a far more efficient capital investment per ounce generated, so we are hoping that between now and final execution at some point that we have an opportunity to settle on some of that potential and that will then typically replace some of the deepening as an interim and shift Phase 2 later components further down the path. Johan Theron: Okay. I'm going to queue to Chorus Call. I can see there's one question on Chorus Call. So I'm going to hand over to the coordinator. Operator: Thank you. The question comes from Nkateko Mathonsi of Investec Bank. Nkateko Mathonsi: Good afternoon, and thank you for the opportunity to ask questions. You've spoken about life of mine extension, and I'm referring to Impala Rustenburg. But I also just want to get a bit of a confirmation as to how we should think about life of mine for some of the shafts that have a shorter life, and that's Shaft #1, Shaft #6, and E/F. I think the last time I asked this question, you said 1.5 years, but prices have increased. You probably are able to keep these shafts going for a bit longer. So, if you can give us a little bit of guidance around that, that would be helpful. My second question is very much on costs. We've seen you spend close to ZAR 1 billion on technology around winders. Are there other areas that you're looking to do something similar in order to improve your asset reliability? And what does it actually -- what are the implications for cost beyond FY '26? Then I also have a question for Nico, and this is regarding Zimplats. And if Alex is there, he can also answer. I just wanna your experience of operating in Zimbabwe during your tenure. From headline news, it would what I'm seeing is the risk is not necessarily declining there. And the latest news was the ban on unprocessed raw material does not seem to affect you guys, but somehow it looks like the risk continues to actually escalate. And then there's also the financial issues. So, if you can just comment in terms of how you are experiencing Zimplats at this point in time, how we should think about it going forward? So those are my three questions. Johan Theron: Thank you, Nkateko. Moses, can we pass a microphone to you specifically on 1 E&F, #6 Shaft, and your view of prices now? Can we just get a microphone to Moses, please? Moses Motlhageng: Thank you very much, Nkateko. This time I've got your surname correctly. Regarding 1 Shaft, when we remember in this current business plan, we've got one year for 1 Shaft, we've got one year for 6 Shaft, we've got two years for E&F. We are currently evaluating that. As it stands, it appear that 1 Shaft will have additional year, and then 6 Shaft will remain on one year, and E&F will also remain on 2 years. There's not much of a change with the current blocks or reserves that we've got. It looks like 6 Shaft will be out, E&F maybe 2 years, and 1 Shaft, 2 years. That's for the shorter life shafts. Perhaps Johan, I can also just jump on the capital that we are spending on our infrastructure. Nico spoke about spending a little bit more capital on the infrastructure. Yes, it's correct. When we look at the longer shafts or the growth shafts, we are looking at spending, I mean, upgrading all those winders to make sure that in the long term, they do sustain us even if the prices goes down. So there's about a capital of just over ZAR 800 million, that we want to spend it on our winder infrastructure. We see that as an opportunity, especially during this price commodity that we find ourselves at. Thanks. Nicolaas Muller: Let's just talk about Zim and the perceived risk with the jurisdiction. In my opening, I did talk about our presence in Africa in difficult jurisdictions. We believe that long-term partnerships are absolutely critical. And that has proven very successful for Implats throughout its 25-year presence in Zim right now. Funny enough, we've actually had worse times. I can remember there were times, Johan, prior to any of us joining, I mean, we had to pay employees in not in money, in groceries and so forth. And so, difficulty in Zimbabwe is not new to us. And what I will say is that we've got an extremely cooperative relationship between Implats, Zimplats, as well as government and the communities. I mean, just as an example, now for the second time that I'm aware of, during the difficult times, employees agreed to a salary reduction to accommodate the fall in price. That, I mean, that's the kind of relationship that we have. So having said that, the big issue at Zim is the uncertainty of policy and the shifts that happen from time to time, and that scares foreign direct investors quite a lot. So, if it's difficult, that's one thing. If you're never certain what the rules are gonna be in the next year, that is a different kettle of fish. And I do find that at the moment, for us, there is elevated risk. And so we have -- we are navigating through a process with the government to address that because our perception of risk has materially shifted upwards over the last year or 2 years. And in part, it's the change in policies, but it's also got to do with the retention of local currency that is owed to Zimplats in exchange for the foreign currency retention in terms of the foreign -- the policy of Zim. And so, in fact, Leanne and I just had this morning an extensive meeting with Alex. We are scheduled to meet with SA government as well as with the Zim government. I have to believe that a successful outcome will be achieved. It has always been achieved in the past. And I'm very confident that we will get to a similar position right now. So our posture will not necessarily change with immediate effect. Johan Theron: I don't see further questions on the Chorus Call, so I'm gonna go to the webcast. I'm also conscious of time. I'll try and group the ones that can be grouped all together. There's a question here from Adrian. I think we've dealt with the two first parts of his question. The second one hasn't come up, which is, can you give us some color on some of your customer order trends in the auto space and some of the other minor metals? So, I guess with all the volatility in prices, how does your customers engage and buy your metals? Sifiso, you're probably best positioned to talk to that. Any news hot off the press from our customer base? Sifiso Sibiya: Thank you. Thank you, and good afternoon, everyone. From our customer side, we've seen increased requirements in terms of all the metals. The higher list rates are actually making our customers require metal earlier than they would normally do. So, we've seen this during our H1 FY 2026, and the trend is still continuing. Nicolaas Muller: And sorry, Kirt, I'm not sure if you would like. Sifiso spoke to you about the existing customers. But the conversations that you have been engaged in during Indaba and recently, and perhaps how the focus of potential consumers of the metal, I spoke earlier about some of the relationship requirements or expectations or hopes. Kirthanya Pillay: Yes. I think what we are seeing more broadly than I think the normal customer ongoing relationships is an increased focus from the OEMs and the end users to secure supply as well as price certainty for the future. So it's very much the story that was playing out in the BEV space a few years ago, where there is a requirement to create longer term relationships than just the normal short-term fixed price contracts and potentially for the OEMs to move upstream and create these longer term partnerships with the actual suppliers and the miners of the metal on more attractive pricing. But largely to secure supply, particularly linked into this ongoing issue, as Nico mentioned, of a more multipolarized world and creating security for each of the regions in which these OEMs are operating in. Johan Theron: Thanks, Kirt. Interestingly enough, there's two people asking exactly the same question. Rene Hochreiter, and David Fraser, specifically to Nico, and now that you're reimagining what an Eastern Limb could look like, any thoughts on the Waterberg project and, you know, whether it's a different way of imagining it fitting into the world, specifically given its palladium dominance? Nicolaas Muller: No. Johan Theron: All right. We've dealt with that one. Nicolaas Muller: Yes. So I mean, the Waterberg project is in the Northern Limb. We are acutely aware that it has got a strong palladium bias, and that's probably the metal that we have got the least confidence in long term. I mean -- well, our palladium and rhodium. I mean, I do believe that there will be a place for the Waterberg project. We do not see that as imminent right now. Johan Theron: Perfect. And then I can probably conclude there and to all of the questions, and to the extent that we don't get to them, we will make sure we come back. I think there's two or three that again specifically asks about the dividend and given the metal prices, the good operating performance, was there any consideration of higher payouts or other ways of returning value to shareholders? That question is repeated by a couple of people online. So maybe, we have answered it, I think, but maybe in conclusion. Meroonisha Kerber: Just -- so, I think -- I mean, clearly if you look, if you look forward, are we gonna generate substantial cash? And I have spoken about allocations to balance sheet and growth, and investment are not gonna be significant. So with that, there are gonna be increasing returns to shareholders. At the time when we look at the returns, we do have options. The one is to do what we've done in the past, which is to provide a sort of a special dividend by increasing the payout ratio. But there is also the option to look at a combination of these special dividends and potentially share buybacks. I mean, we haven't undertaken one in the past, but I think at any point when we look at these surplus funds to return back to shareholders, we will have to look at what the most effective way to return value to shareholders at that point in time. Johan Theron: So with those great prospects, probably a good time to end. We're really, really looking forward to spending some time with you on the road. For the people in the room, please join us afterwards. There is some snacks available. The whole management team is here, so a good opportunity to ask those other questions that perhaps we didn't get to. And then for people on the webcast and Chorus Call, thank you for joining us. We should see most of you on the road over the next week or 2 weeks. And to the extent that you have any questions, please reach out to the team and we'll endeavor to answer it as quickly as possible. Thank you very much.
Nicolaas Muller: Good morning to everyone. Welcome here to all those present, the investment community, our own Implats people and for everyone who's dialed in as well, welcome. Always an honor to represent a very talented Implats team. Extraordinary times that we are living in. We had a presentation from one of the consulting firms the other day, and it was very clear that we are going through a shift in global order. It's a new era that is being introduced. We're seeing changes in international relationships, institutions, NATO, trade paths are changing, supply chains are changing. The move from globalization to multipolarity is accelerating. We just recently this weekend seen a new event unfold in the Middle East. And so all of this creates a number of consequences, one of which is uncertainty in future supply, particularly in natural resources and in our case, critical minerals and metals. And critical can be defined in many ways. But one is, if it's used in critical industries like in Europe, the auto industry is a very important employer. It affects politics. And so without our metals, there is a risk for the industry. But then also our concentrated supply globally with 80% of the world's PGMs being produced from Southern Africa and the uniqueness of our metals, as has been said many times over the past. And so given these pressures and the uncertainty in supply chains, where will this metal come from in the past, there's a major topic of critical minerals and the hoarding of that, we've seen, as an example, the $12 billion evolve program announced by the U.S. We certainly are having similar discussions with other jurisdictions or representatives of industry in other jurisdictions where similar concerns are being echoed where there's an engagement to determine the extent to which relationships can be formed to provide security for long-term supply. In addition to that, we've seen the flow out of the U.S. dollar towards hard assets such as gold. We've seen record gold prices and other precious metals like platinum has now followed suit. So that has in part been the driving force behind the extraordinary rise of the PGM dollar prices. On top of that, if you look at the market fundamentals, we do see continual downward revisions in the EV penetration rates. We have witnessed in recent times a shift in priority in decarbonization in general, particularly in the U.S. But we have seen relaxation in terms of expectations of where the world wants to be in terms of, for instance, the percentage of fleet contribution of electric vehicles by certain dates 2030 and 2035. And so that has resulted in an increase in demand for our metals. We have seen an increase in demand from Chinese jewelry and certain industrial customers as well. On the other side, we do have certain supply risks being acknowledged by the market. We have not seen the historical levels of investment in future supply. I had occasion to sit with the four CEOs -- the other four CEOs of PGMs. And even in February, we were unanimous that it's not the right time to consider large-scale greenfield capital projects at this stage. And so if you look at the global order shift in world uncertainty combined with shifts in the fundamental markets that has given cause to the increase in -- sorry, on the wrong slide, metal prices. As a consequence of where -- of the nature of the major forces, it is our contention that the price support that we're currently seeing is not a short-term one. This is not as a consequence of Donald Trump. It's the Trump effect. It will outlast the current administration. It's not reliant on who wins the next election. It's uncertainty -- once you've asked these questions, those questions remain relevant and you have to organize your country, your region very differently for a generation to follow. So it is our belief that this current upswing in prices will remain longer than has been the case in the past where we saw relatively short summers following very long winters. And so if you look at our results, it's dominated by two major points. One, the production performance, both at mine operational level as well as in the processing division and what we sold, it's more or less in line broadly. I mean, as I said in the video, if you look at all of those numbers, it's like 0% or plus 1% is around about there. So that's the one thing. The business has been in good hands. We have navigated through this period in a very stable fashion. The one red flag that we need to be cautious of is the increase in operating costs. Our unit cost increased by 11%. There are reasons for that, that will be addressed by Meroonisha and our COO, but it is something that we have to be aware of. So I think cost management is something that we have to take into consideration and the operating cost specifically. And then, of course, the other dominant factor has been this 40% increase in the rand basket price. And if you look through all of the financials, the entire industry is looking a lot more attractive than what it did in the previous period. Given the fact that we are where we are in terms of metal prices and then increase in EBITDA and revenue and cash flow, it does provide us with a really important opportunity, and that is to change our strategic focus in the company. During the lean years, we are very defensive. We focus on cost control, capital management. We even go as far as organizing or reorganizing labor and even do things like portfolio reviews to understand or to have a strategy if there is a further decline in prices. So at the bottom, that talks about an inflection point. So if I look at where the company is positioned now, the focus is different. We now have the opportunity to focus on how to strengthen the company. And our opportunities, there's like a funnel of a pipeline of opportunities, starting off at the most basic level, Patrick and his team with the support of Meroonisha and the rest of the executive have already implemented through Board support a number of early action programs to initiate life extension projects. They've occurred at -- two Rivers, at Marula, at some of the shafts at Rustenburg. One of them has already been converted to a fully fledged capital application that was approved, and that's at 14 Shaft for roughly ZAR 1 billion. And that will provide us with life extension project. I am very confident that some of these other early works programs that were initiated will result in approval of additional capital. And based on Patrick's information, roughly, we will look at a 3-year extension to our current steady-state 3.5 million ounces per year production profile. Thereafter, we will require additional initiatives. So that's the one part. The second part is that we do believe that there is room for optimizing of the industry through various actions. One, there is the sharing of infrastructure. We are constrained at the moment with our processing capacity, and we have excess ounces. But in future, I mean we do see a declining production profile. So that will open up some processing capacity to share in the industry. And we do believe it's critically important for Southern Africa to protect local beneficiation of the metals. And so I think that the opportunity to do so will increase as we go forward. Then there are the normal cross-boundary opportunities that always exist. And I can think about a few, but let me just raise one. And I'm not -- please don't interpret this as me announcing any action. I'm just saying one of the areas that we have battled with in the industry is the Eastern Limb as an example. So if you reimagine what the Eastern Limb could look like if it's operating as a greater unit, I think you can share concentrator capacity with mining capacity, but it will provide you with better muscle to create a more attractive area to get skill better -- a better range of skills in the area and to do better at your socioeconomic contribution to increase the license to operate. So I think there is an opportunity. If I look at Zim, there are a number of emergent producers, GDI, Karo's and so on. So I think that there is an opportunity not only for Implats, but for the industry to reimagine how it operates and to optimize to increase further efficiencies as an industry. And I do think Implats is very well positioned. I mean, we are represented in all the major producing -- PGM producing areas other than Russia. So I mean, we are in South Africa, Western Limb, Northern Limb, Eastern Limb, as well as in the Great Dyke as well as North America. So I do think that we're very well positioned. We do have a good track record in constructive partnerships, toll arrangements, joint ventures. We have been operating in Africa where we focus on long-term strategic relationships. So that's something that we think is quite valuable in considering future options. And then I mean, we can ask more questions about it, but then there would be the questions about greenfields, the Waterberg and the big other thing. As I said earlier, we remain cautious about introducing major new ounces to the market at this point. So we do not expect to make any announcements about that soon. On that note, I would like to hand over to our esteemed COO, Mr. Patrick Morutlwa. Patrick Morutlwa: Thank you, Nico. Yes. Good morning, everyone. It's really a privilege for me to present our group results. And I'll start with safety, health and environment, which underpins everything we do in our group. So for the past 18 months, we have been implementing our 8-point safety plan. And I'm glad to say it is starting to deliver a step change in safety that we've actually envisaged. And this is seen in some of the milestones we've achieved for the period. Our mining and processing division for the first time for the period actually went fatal-free. Similarly, so Rustenburg, one of our biggest operations achieved 5 million without the free shift in the period. And also, if you look at our key risks: fall of ground, winches and machinery, we saw a 12% reduction in injuries, which is all symbolizing and strengthening of career controls in those areas. So while we are building on this momentum, we are equally humbled and also grounded because of the two losses of life we incurred, one in the period and one post the period. So we are reflecting, we are learning, and we will be taking these lessons to make sure that we implement no repeat solutions. So we don't repeat this type of incidents. On the environmental side, our ESG programs continue to receive global recognition. As you've seen in the video, for the fifth year running, we have been included in S&P's Sustainability Yearbook. And during all the same period, you have seen that we have not recorded any Level 3 to Level 5 environmental incident. So we operate sustainably because this is the way we express our values of care, respect and deliver. And lastly, on the health side, also our health programs continue to deliver positive results. Our HIV and TB prevalence are well below the national averages. So the next thing for us for health really is to focus on mental health and psychological health of our employees because healthy employees are engaged, they are safe, but they are also productive. Then moving over to production. We have actually delivered a steady and consistent production, which was really buoyed by second quarter, which was much stronger than the first half. So what you also see that this has happened despite three of our operations having some serious strategic shift. At Marula, we focus on development. At Canada, we continue with the high-grade strategy as previously communicated. And lastly, Rustenburg 3 of our shafts are nearing end of the economic life. So we had to deal with labor movement in those shafts. So going forward, in terms of processing, we also have seen strong performance. And this is also on the back of the work we have done. We have upgraded our BMR at Springs, and we have also done some design and maintenance work in Rustenburg furnaces. So you will see that for our BMR, we have actually a record milling and also for this period, Rustenburg smelter performed very well above budget. And as a result, we were able to release 20,000 ounces of excess inventory. Usually, our release is gravitated towards H2. But because of this good work, we are able to release 20,000 ounces. Our furnace 4 have gone down for maintenance way ahead of schedule. We should be able to restart now in April. And as a result, very confident to release 100,000 of excess inventory as promised at the start of the year. As Nico spoke about the cost, we were about 5.5% above the mine inflation. This was a decision to strategically invest in our infrastructure, particularly some conveyor belt in Zimplats and also improving our maintenance fleet across the group. This will set us well for the future to make sure that we can maintain the current production, but we also deliver into the future expectations. So as I stand here, I can safely say we will meet our guidance on production, on cost and capital for the year. Thank you very much, and I'll hand over to Meroonisha. Meroonisha Kerber: Thank you, Patrick. And I'm checking the time still good morning, everyone. So clearly, the steady operational performance that you've seen enabled us to fully benefit from the 40% improvement in pricing. Let me just get there. Okay. So you'll see EBITDA up at ZAR 18.1 billion, headline earnings, ZAR 9.3 billion. But I think what is noteworthy is that we did not have any unusual non-recurring items in our earnings for the period. As Patrick and Nico spoke about, given the improved pricing and profitability, we were allowed to reinvest in the business. So you'll see some of that in our unit costs, where we took the opportunity with the improved cash flow to spend more on infrastructure and maintenance. And of course, some of that contributed to the 11% increase that you've seen. If you -- and that is particularly at two of our biggest operations, our Rustenburg operations and Zimplats. If you look at free cash flow for the period, we generated significant -- there was a significant improvement from ZAR 600 million in the previous year, up to ZAR 7 billion. And this was driven largely by the improved profitability, but some of this was offset by the buildup in working capital. I think what's important to note is that at the end of the period, there was an additional tax payment that was due of ZAR 1.4 billion, and we made this payment in January, and it basically was a top-up to our provisional tax. If you recall, there was quite a steep increase in prices in the month of December. And clearly, we worked our forecast that were done in November that didn't fully take into consideration the rapid improvement in pricing. If you look at the balance sheet, we used the opportunity of the improved free cash flow to repay some debt. So we repaid about ZAR 800 million worth of debt, mostly at Zimplats, and our gross debt declined from ZAR 1.8 billion down to ZAR 1 billion. Another very important thing we did in the period was our group revolving credit facility was almost -- I think it would have expired now in February. So we took the opportunity to refinance it in quarter 2. And basically, we upsized it from the -- just under ZAR 8 billion to ZAR 14 billion, and we managed to do this on very competitive terms. The new revolving credit facility is valid for -- well, extends for 3 years, and we've got two -- the reason that I mentioned the RCF is we've made some changes to our disclosure on net cash. So in line with the new RCF, we amended the disclosure and definition of net cash to align to the RCF. What this meant is that, we now exclude the deferred revenue from the gold stream from the net cash balance, but also we are not now including the cash held at Zimplats in local currency in our cash balance. And that really is because of the fact that, that currency is not -- you cannot use it outside of Zimbabwe. So on this basis, our net cash got adjusted -- our net cash increased from ZAR 8.1 billion to ZAR 12.1 billion. And with the undrawn revolving credit facility of ZAR 14 billion, we closed the year with headroom of just -- liquidity headroom of just under ZAR 29 billion. I think before I go on to the next slide, I just want to point out a few things. If I look forward, I think the company is really well poised to take advantage of the favorable metal price environment. And there's a few factors that I would like to highlight. Firstly, you've seen sustained operational delivery, and I have no doubt that the team will continue to deliver into H2. We have got a track record of good cost discipline, and it is something that will receive focus. But that -- but I think our teams will deliver on keeping the cost tight. Our capital intensity has normalized, but we've got the ability and the capacity to further strengthen the business and invest in progressing our life of mine projects. And I think the other point, which is very important, is that we have expanded processing capacity and the excess inventory. And I don't think we must underestimate the flexibility this gives us to manage any operational challenges that we might have along the way, and it does support free cash flow generation. If I can then move on to capital allocation. So after repaying about ZAR 800 million worth of debt and making provision for the ZAR 1.4 billion tax payment, the Board declared a dividend of ZAR 4.10 per share or ZAR 3.7 billion. This represents a free cash -- sorry, a payout ratio of 60%, about 60% of adjusted free cash flow, which is double our minimum policy. And if you take into consideration the tax payment that was due, it's about 80% of the available free cash flow. As a result of, obviously, prior capital allocation decisions as well as completing a number of our strategic projects, there was limited capital that was allocated to growth and investment. I think what the capital allocation should demonstrate is that overall, we have maintained our disciplined and consistent approach to capital allocation, and we have prioritized returns to shareholders. Lastly, as Patrick has alluded to, we will obviously end with the market guidance. We're very pleased that we keep our guidance intact. And I believe given where the business is, we are well on track to deliver within this guidance. So with that, I'd like to hand over to Johan. Johan Theron: All right. Thanks to the team. Happy to take some questions as normal. I think let's start in the room. There will be some roving mics. We will pass that along. Just for the benefit of people that might not see on the screen or the camera, just start just to raise your name, just so that everybody knows who's asking the question. We've got a couple of hands up here. Chris, let's start there with you. Christopher Nicholson: It's Chris Nicholson from RMB Morgan Stanley. A couple of questions, if I may. So you've provided a fairly optimistic outlook on the pricing environment. Maybe a bit of a surprise that you didn't accelerate, maybe some of the capital projects to the same extent. So here you're doing some early work. Could you maybe give us further details specifically on Marula? Is this akin to what was previously known as Phase 2? And what type of mine life extension you're looking to get there? Similarly at Impala Rustenburg, 14 Shaft and some of the other extensions, how long are you looking to extend mine life by there? And then kind of linked to that, should we expect ZAR 9 billion of CapEx going forward? Is that a good level into these prices? And then just second question, again, optimistic price outlook. I think some might be slightly disappointed with the dividend. You've seen another 2 months of very strong prices since year-end. Just thought process as to why you need to hold too much cash on balance sheet again. Nicolaas Muller: Okay. I think, Pat, if you don't mind. The first question is about the life mine extension projects, the specifics and that's what they are going to cost and the expected life extension. Patrick Morutlwa: Yes. Let me start first with Rustenberg. As Nico said, we have already approved 14 Shaft extension. It is taking the existing decline into the 18 shaft area. It will give us 4 additional years, which will maintain the current production for another 4 years. It is about ZAR 877 million. The early capital was approved the last quarter, so work is continuing there. Then again, there, we have Rustenberg 20 shaft, where we're now taking 20 shaft into the Styldrift ground. So that work, we're still validating the feasibility study. It should be coming to the board somewhere in August. So I cannot share the numbers now, but it will also extend life approximately 5 to 6 years there. Then the last one is BRPM North shaft, is just taking the existing decline further. So that one, it will give us a much more long life, anything between 10 and 15 years. And again, there early capital approved, so we're executing the final capital numbers not yet finalized. Then moving over to Marula. Marula Phase 2 was closed given that at the time we executing that project, the price did climate. So as part of cost preservation, we did stop that. But now with the new prices, we have restarted the work, approved ZAR 40 million of early capital. So it's not going to be the same as Phase 2. So we're actually doing small chunks. So this project is now divided in four phases. Phase 1 is taking the 11 shaft 2 level down, and there will be a big chunk of capital to secure infrastructure then further chunks of capital to take both Driekop and Clapham down. So we have designed in such a way that we've got proper off ramps through the price plan, we should be able to stop. So the first phase, I spoke about should give us additional 5 to 6 years on top of the existing 6-year life left at Marula. So that's more or less high level on this project that we have undertaken. Nicolaas Muller: And Patrick, the ZAR 9 billion capital, is that a fair expectation or... Patrick Morutlwa: All right. Thank you for that. So you remember, we gave you between ZAR 8 billion and ZAR 9 billion. With this bolt-on project, you can add a maximum ZAR 2 billion. So I think it makes ZAR 10.5 billion, because we will start very slow and just ramp up a bit. But I don't see it going beyond ZAR 11 billion, really. Nicolaas Muller: Chris, I want to -- sorry, I just want to add -- actually, maybe repeat Patrick's words, but in a different form because you asked is it Phase 2? And he said, no. I think it is. But the application of how we get there is different. In fact, the first time we did, we had a ZAR 5.5 billion single project and we had agreed off-ramp points whereas this time, we are saying there's no single ZAR 5.5 billion project. There are going to be a sequence of smaller projects. And so we will have like a consolidated assessment for the entire thing, which will be based on the valuation, but the implementation will have to meet certain performance hurdles as we go along for the next phase to be implemented. So essentially, it's Phase 2 wrapping different color. Patrick Morutlwa: And if I may just add one thing. Nico earlier said that with this project, they will push the 3.5 million ounces back out another 3 years. In addition to that, the old profile within 10 years' time, if we did nothing, we're going to lose 50% of our production. Now this project have also helped to slow down the decline. So within the same 10 years, if we do all this project, we will only be dropping by 15%. So they do actually extend life and the angle of decline. Nicolaas Muller: And sorry, I'm again butting in. But I think Tim will kill us if we don't talk about Canada because I really think that there's an opportunity there. I mean, we have already extended the life to April '27. But the technical team at Impala Canada is working on a novel technology for us in the group, which is called dry tailings, which makes use of the filtered tailing plant, which enables you to essentially to dry out the tailings and place that on existing tailings dams as opposed to creating a new greenfield tailing dam, which requires new licensing and permits and so forth. I mean the capital expenditure is quite intense, but that will provide Canada with not an incremental 1 year time life, but that will enable us to take a longer position subject to the palladium price remaining at above $1,600 or something like that. And then we haven't quite spoken about Mimosa. I mean, there's a few things to resolve in Zim specifically, but there is still the opportunity to consider some form of North Hill extension to life at Mimosa, which currently we're not speaking to because it's not currently in the works. It's being evaluated and we've got a partner that we need to consult them on that and so forth. Meroonisha Kerber: Sorry, the question on the cash. So I think there were two parts to it. So the one was around why the ZAR 10 billion and the other one was about the cash that we've made since year-end. So let me address the second part of it first. I mean our policy, and we've consistently applied it is when we look at the dividend, it's on the cash that was made in the 6-month period. So you can -- if you look at the trajectory of the price, you'll see December, we had the rapid increase and then January, February, we've enjoyed these very, very high prices. Also, you've got to take into consideration we have contracts that -- a lot of contractual sales, and we've obviously got the lag in the contractual sales. So that increase in December only really will flow through mostly in the second half of the year. So to the extent that, that flows through in the second half, that will be part of the free cash flow for the second half and it becomes available for distribution per our capital allocation framework in the next 6 months. And maybe just to add to that point is that if you just look forward at our capital allocation, there's a little bit of work to be done on the balance sheet, not a lot of debt. So even if we want to do it, it's not going to take a lot of capital. There's -- Patrick and Nico have talked about our life of mine extensions, but there's no greenfield projects that we're looking at. So there should be a fair -- all of that profitability should be available for distribution in the at the year-end. The second question was really around the ZAR 10 billion and why the ZAR 10 billion. So I mean, it's like running your bank account. Nobody wants to run on an overdraft. So here, what we do is we look at -- so what is the liquidity that we need for the group. And remember, we've got entities in different jurisdictions at different currencies. And so the view that we have is that all of our operations should be able to pay -- settle its working capital and be able to operate for 1 month without resorting to borrowing of money. And so, that's how we get to the ZAR 10 billion. And you can imagine that there's timing differences between sales, et cetera. And with IRS, there are big payments that need to be made. So we need to be able to hold enough money in the required currencies in the required jurisdictions to be able to manage all of the timing. So that really is how we -- there's no other signs to how we get to the ZAR 10 billion. Gerhard Engelbrecht: Gerhard Engelbrecht, Absa. Chris has asked the questions. So I'm not going to flog that horse any longer. Can you maybe give us an idea of any near future furnace maintenance projects, shutdowns that you have on the cards? Johan Theron: Adele is here, if she wants to speak to that. Nicolaas Muller: That's a good idea. Where's Adele? If she's at the back, you can perhaps just pass her the mic. Johan Theron: Adele, come stand quickly here in front of me. Adelle Coetzee: Good afternoon. Thank you for that question. Yes, we have furnace maintenance, furnace scheduling going on as per our normal maintenance philosophies and structures. And obviously, to make sure that our infrastructure is sustainable going forward. As Patrick already mentioned, we have #4 furnace that is currently in rebuild that we hope to get power on that furnace very soon. Also on schedule as what was planned. We also will be having at our Zimplats operation in the coming year, not in the next 6 months, in our new year, we will be doing our end walls also as per our internal maintenance strategic plan. And then going forward, as everyone should be knowing by, should know by now, we are planning the rebuild of our future furnace. And we will commence with our rebuild, our new design in Rustenburg come July 2027. And that will be on the furnace #5. Hopefully, that is answering the questions. Thank you. Johan Theron: Adele, just to put a final point on it. It's fair to say that we're back to normal furnace maintenance. The interventions are all behind us now. Nicolaas Muller: Sorry, Johan, if I can just add, as I do, just one more point to that. Historically, if we went into furnace rebuilds, we would have accumulated additional stock. So, the historical work that has been done on expanding the smelter capacity as well as the 10% expansion of our base metal refinery results in current capacity that prevents the buildup of stock. That's why, I mean, we've only released 20,000 ounces of the committed, I think it was. Johan Theron: 110,000 ounces. Nicolaas Muller: Yes. 110,000 ounces. 110,000 ounces is what we committed to the market. I see that's changed to 100,000 ounces only. I think we are on track, notwithstanding the maintenance on the smelter to release 110,000 ounces for the year. I think that is quite newsworthy. And also, I mean, as Adele, you didn't mention on the -- sorry, I'm expanding. But in base metal refinery, we have achieved record milling rates again, which prevents us from having to build up stock in front of the BMR. So the investments that we've made over the past three or four years has really paid off. Sorry, Johan. Johan Theron: No, all good. One more question, Arnold. After Arnold, I will given opportunity on Chorus Call. So if you're on Chorus Call, you can queue yourselves along, and then we'll move to Chorus Call after Arnold's question. Arnold Van Graan: It's Arnold Van Graan from Nedbank. Just want to go back to your capital projects which you're doing in phases. Look, I welcome that because the last thing we want is everyone jumping in and just bringing on excess capacity. But my question is, how efficient is it doing these projects piecemeal as opposed to the big projects? And what I'm thinking about is further down the line where you then ultimately will have to in any way do the whole thing. My concern is that interim, it creates inefficiencies in the system. And we're already looking at your cost number. You alluded to that it's -- it's under pressure. So, yes, how do you manage that? What is different? Why did you previously want to do all of it in one go, and now you're doing it in phases other than the balance sheet impact? Nicolaas Muller: So firstly, you can also contribute. So, you are 100% correct. I mean, I was just saying if you have got a 5-year mining contract, you can do that once, if you do it, break it up into different parts, you've got slightly establishment costs and all of that. I mean, I think that there are ways to mitigate that to ensure that the different phases are dovetailed. But there are performance conditions to the continuation. And that's where -- I mean, we need to see an improved Marula. I mean, Marula even at current prices, if I look at the cash contribution of Marula, it is -- if I have to be honest, it's below expectation. And so we want to incentivize ourselves and the operation and the project by making sure that the financial valuation on which these things are premised is, in fact, met. And so I am 100% convinced with all of the additional face length that is being created and the improvements in the infrastructure, we are going to get to a stronger position of confidence with Marula. But at the moment, we think in spite of the potential cost inefficiencies, it is better for us to have a cautious approach to investing large sums of capital in the projects that really requires some improved operating performance and project execution performance. Patrick Morutlwa: Yes. I think the only thing I can add, Nico, is that, I mean, as you said, that we do the evaluation of this project, the whole project. But then we divide into critical milestone to open all reserves, but also that milestone #1 should be able to pay for milestone #2. But also, again, like I said earlier, these are off ramps. So should the price plummet, you have not committed cash and have a lot of unfinished bits and pieces, because that's exactly what caught us the last time. So we want to make sure that when the price plummets, we've actually delivered phase then that can take the mine further. So it's literally just make sure that we don't commit cash all over and when the price plan is, we have got a lot of unfinished bits and pieces. Johan Theron: As high as you can. Nicolaas Muller: Yes. And one small last consideration, Marula has the option if we can navigate through farm boundaries of extending laterally. So we have just not been successful in achieving those agreements to the extent that we can. That will be a far more efficient capital investment per ounce generated, so we are hoping that between now and final execution at some point that we have an opportunity to settle on some of that potential and that will then typically replace some of the deepening as an interim and shift Phase 2 later components further down the path. Johan Theron: Okay. I'm going to queue to Chorus Call. I can see there's one question on Chorus Call. So I'm going to hand over to the coordinator. Operator: Thank you. The question comes from Nkateko Mathonsi of Investec Bank. Nkateko Mathonsi: Good afternoon, and thank you for the opportunity to ask questions. You've spoken about life of mine extension, and I'm referring to Impala Rustenburg. But I also just want to get a bit of a confirmation as to how we should think about life of mine for some of the shafts that have a shorter life, and that's Shaft #1, Shaft #6, and E/F. I think the last time I asked this question, you said 1.5 years, but prices have increased. You probably are able to keep these shafts going for a bit longer. So, if you can give us a little bit of guidance around that, that would be helpful. My second question is very much on costs. We've seen you spend close to ZAR 1 billion on technology around winders. Are there other areas that you're looking to do something similar in order to improve your asset reliability? And what does it actually -- what are the implications for cost beyond FY '26? Then I also have a question for Nico, and this is regarding Zimplats. And if Alex is there, he can also answer. I just wanna your experience of operating in Zimbabwe during your tenure. From headline news, it would what I'm seeing is the risk is not necessarily declining there. And the latest news was the ban on unprocessed raw material does not seem to affect you guys, but somehow it looks like the risk continues to actually escalate. And then there's also the financial issues. So, if you can just comment in terms of how you are experiencing Zimplats at this point in time, how we should think about it going forward? So those are my three questions. Johan Theron: Thank you, Nkateko. Moses, can we pass a microphone to you specifically on 1 E&F, #6 Shaft, and your view of prices now? Can we just get a microphone to Moses, please? Moses Motlhageng: Thank you very much, Nkateko. This time I've got your surname correctly. Regarding 1 Shaft, when we remember in this current business plan, we've got one year for 1 Shaft, we've got one year for 6 Shaft, we've got two years for E&F. We are currently evaluating that. As it stands, it appear that 1 Shaft will have additional year, and then 6 Shaft will remain on one year, and E&F will also remain on 2 years. There's not much of a change with the current blocks or reserves that we've got. It looks like 6 Shaft will be out, E&F maybe 2 years, and 1 Shaft, 2 years. That's for the shorter life shafts. Perhaps Johan, I can also just jump on the capital that we are spending on our infrastructure. Nico spoke about spending a little bit more capital on the infrastructure. Yes, it's correct. When we look at the longer shafts or the growth shafts, we are looking at spending, I mean, upgrading all those winders to make sure that in the long term, they do sustain us even if the prices goes down. So there's about a capital of just over ZAR 800 million, that we want to spend it on our winder infrastructure. We see that as an opportunity, especially during this price commodity that we find ourselves at. Thanks. Nicolaas Muller: Let's just talk about Zim and the perceived risk with the jurisdiction. In my opening, I did talk about our presence in Africa in difficult jurisdictions. We believe that long-term partnerships are absolutely critical. And that has proven very successful for Implats throughout its 25-year presence in Zim right now. Funny enough, we've actually had worse times. I can remember there were times, Johan, prior to any of us joining, I mean, we had to pay employees in not in money, in groceries and so forth. And so, difficulty in Zimbabwe is not new to us. And what I will say is that we've got an extremely cooperative relationship between Implats, Zimplats, as well as government and the communities. I mean, just as an example, now for the second time that I'm aware of, during the difficult times, employees agreed to a salary reduction to accommodate the fall in price. That, I mean, that's the kind of relationship that we have. So having said that, the big issue at Zim is the uncertainty of policy and the shifts that happen from time to time, and that scares foreign direct investors quite a lot. So, if it's difficult, that's one thing. If you're never certain what the rules are gonna be in the next year, that is a different kettle of fish. And I do find that at the moment, for us, there is elevated risk. And so we have -- we are navigating through a process with the government to address that because our perception of risk has materially shifted upwards over the last year or 2 years. And in part, it's the change in policies, but it's also got to do with the retention of local currency that is owed to Zimplats in exchange for the foreign currency retention in terms of the foreign -- the policy of Zim. And so, in fact, Leanne and I just had this morning an extensive meeting with Alex. We are scheduled to meet with SA government as well as with the Zim government. I have to believe that a successful outcome will be achieved. It has always been achieved in the past. And I'm very confident that we will get to a similar position right now. So our posture will not necessarily change with immediate effect. Johan Theron: I don't see further questions on the Chorus Call, so I'm gonna go to the webcast. I'm also conscious of time. I'll try and group the ones that can be grouped all together. There's a question here from Adrian. I think we've dealt with the two first parts of his question. The second one hasn't come up, which is, can you give us some color on some of your customer order trends in the auto space and some of the other minor metals? So, I guess with all the volatility in prices, how does your customers engage and buy your metals? Sifiso, you're probably best positioned to talk to that. Any news hot off the press from our customer base? Sifiso Sibiya: Thank you. Thank you, and good afternoon, everyone. From our customer side, we've seen increased requirements in terms of all the metals. The higher list rates are actually making our customers require metal earlier than they would normally do. So, we've seen this during our H1 FY 2026, and the trend is still continuing. Nicolaas Muller: And sorry, Kirt, I'm not sure if you would like. Sifiso spoke to you about the existing customers. But the conversations that you have been engaged in during Indaba and recently, and perhaps how the focus of potential consumers of the metal, I spoke earlier about some of the relationship requirements or expectations or hopes. Kirthanya Pillay: Yes. I think what we are seeing more broadly than I think the normal customer ongoing relationships is an increased focus from the OEMs and the end users to secure supply as well as price certainty for the future. So it's very much the story that was playing out in the BEV space a few years ago, where there is a requirement to create longer term relationships than just the normal short-term fixed price contracts and potentially for the OEMs to move upstream and create these longer term partnerships with the actual suppliers and the miners of the metal on more attractive pricing. But largely to secure supply, particularly linked into this ongoing issue, as Nico mentioned, of a more multipolarized world and creating security for each of the regions in which these OEMs are operating in. Johan Theron: Thanks, Kirt. Interestingly enough, there's two people asking exactly the same question. Rene Hochreiter, and David Fraser, specifically to Nico, and now that you're reimagining what an Eastern Limb could look like, any thoughts on the Waterberg project and, you know, whether it's a different way of imagining it fitting into the world, specifically given its palladium dominance? Nicolaas Muller: No. Johan Theron: All right. We've dealt with that one. Nicolaas Muller: Yes. So I mean, the Waterberg project is in the Northern Limb. We are acutely aware that it has got a strong palladium bias, and that's probably the metal that we have got the least confidence in long term. I mean -- well, our palladium and rhodium. I mean, I do believe that there will be a place for the Waterberg project. We do not see that as imminent right now. Johan Theron: Perfect. And then I can probably conclude there and to all of the questions, and to the extent that we don't get to them, we will make sure we come back. I think there's two or three that again specifically asks about the dividend and given the metal prices, the good operating performance, was there any consideration of higher payouts or other ways of returning value to shareholders? That question is repeated by a couple of people online. So maybe, we have answered it, I think, but maybe in conclusion. Meroonisha Kerber: Just -- so, I think -- I mean, clearly if you look, if you look forward, are we gonna generate substantial cash? And I have spoken about allocations to balance sheet and growth, and investment are not gonna be significant. So with that, there are gonna be increasing returns to shareholders. At the time when we look at the returns, we do have options. The one is to do what we've done in the past, which is to provide a sort of a special dividend by increasing the payout ratio. But there is also the option to look at a combination of these special dividends and potentially share buybacks. I mean, we haven't undertaken one in the past, but I think at any point when we look at these surplus funds to return back to shareholders, we will have to look at what the most effective way to return value to shareholders at that point in time. Johan Theron: So with those great prospects, probably a good time to end. We're really, really looking forward to spending some time with you on the road. For the people in the room, please join us afterwards. There is some snacks available. The whole management team is here, so a good opportunity to ask those other questions that perhaps we didn't get to. And then for people on the webcast and Chorus Call, thank you for joining us. We should see most of you on the road over the next week or 2 weeks. And to the extent that you have any questions, please reach out to the team and we'll endeavor to answer it as quickly as possible. Thank you very much.
Operator: Ladies and gentlemen, thank you for standing by for Autohome's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] If you have any objections, you may disconnect at this time. A live and archived webcast of this earnings conference call will be available on Autohome's IR website. It is now my pleasure to introduce your host, Sterling Song, Autohome's IR Director. Mr. Song, please go ahead. Sterling Song: [Interpreted] Thank you, operator. Hello, everyone, and welcome to Autohome's Fourth Quarter and Full Year 2025 Earnings Conference Call. Earlier today, Autohome distributed its earnings release, which can be found on the company's IR website at ir.autohome.com.cn. Joining me on today's call is our Chief Financial Officer, Ms. Craig Yan Zeng. Management will go through the prepared remarks first, which will be followed by a Q&A session where they will be available to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. Autohome doesn't undertake any obligation to update any forward-looking statements, except as required under applicable laws. Please also note that Autohome's earnings press release and this conference call include discussions of certain unaudited non-GAAP financial measures. A reconciliation of non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release. I will now turn the call over to Autohome's Chief Financial Officer, Mr. Craig Yan Zeng, for opening remarks. Craig, please go ahead. Yan Zeng: [Interpreted] Thank you, Sterling. Hello, everyone. This is Craig Zeng. Thank you for joining our earnings conference call today. 2025 was a pivotal year in our evolution, transforming from an automotive information platform into an automotive service ecosystem. Facing a dynamic industry landscape, our focus was on driving 2 core initiatives. On the content front, we continue to strengthen the development of high-quality content while enhancing our creator ecosystem and expanding new media distribution capabilities. On the service front, we accelerated the development of fully integrated online to offline services to create a more efficient and convenient end-to-end automotive service ecosystem for users and industry partners. Throughout this transformation, we are using AI as a core engine to drive product innovation and optimize operations and have already achieved substantial progress across multiple business areas. On the user side, by continuously optimizing and iterating our platform tools, we've effectively reduced decision-making costs and significantly enhanced the overall user experience. Taking new energy vehicles as an example, we've launched features such as optional configuration selection and vehicle comparison list further enriching the car selection tool set to help users make faster purchasing decisions. Moreover, by building a traffic alliance and expanding service categories, Autohome now covers a broader range of user scenarios, enabling us to better meet diverse user needs. Our O2O integration initiatives are key to reshaping the automotive consumption process. Throughout 2025, we organized over 5,000 offline automotive exhibition and group purchase events nationwide and collaborated across industries with user-oriented culture IPs such as esports and music festivals. These efforts went beyond the traditional car purchasing model by reaching a broader consumer base and ultimately integrating car-viewing, selection, test-driving and repurchasing and purchasing into an immersive experience. Specifically, within the development of our transaction service ecosystem, we launched the Autohome Mall in the second half of last year, providing users with a smoother digital car purchasing experience. Currently, this business, though still in its initial phase has achieved stable operations and is demonstrating positive momentum, which make us even more confident in the growth prospects of our transactions segment in the coming year. Behind every product and service upgrade, integration and real-world deployment is a strong foundation powered by data and AI technology. In 2025, we introduced our proprietary Cangjie Large Language Model and Tianshu Intelligence Service Platform, integrating Autohome's 2 decades of industry data and service experience with cutting-edge algorithms. This integration helps our ecosystem partners accelerate their smart transformation. Meanwhile, Autohome's full product portfolio has been comprehensively upgraded with AI-powered capabilities from AI smart assistant that supports users throughout the entire car selection and purchase process to AIGC technology that generates and distributes marketing content across platforms and further to AI-driven intelligent advertising placement covering the entire advertising chain and more. So we are advancing Autohome's shift from a traffic gateway into an intelligent engine that improves efficiency across the entire ecosystem. Specifically, over the past year, we continue to make progress in our content ecosystem, strengthening our professional influence and expanding our reach across new media channels. For instance, during the Guangzhou Auto Show last November, we integrated our event coverage with a creator conference centered on the theme of utility-driven coverage. We produced a marathon live stream spanning 2 days and 23 hours. Content was closely tied to real-world user scenarios and the results were distributed simultaneously across 6 major new media platforms, achieving a multidimensional scenario-based content broadcast. In addition, in the fourth quarter, we launched Autohome Wanxiang, a comprehensive one-stop content marketing platform for the automotive industry by building creator matrix centered on 5 key pillars: industry experts, technology, racing, outdoor lifestyle and global markets. We provide automakers with a one-stop automotive content service covering articles, videos, live streaming and more. This allows us to meet the diverse and various marketing needs of automakers. As of the end of 2025, the platform has attracted over 2,500 premier creators from Autohome and various new media channels. At the same time, we achieved significant results in building our MCN system. Autohome Media MCN now covers over 500 high-quality KOLs and KOCs across diverse fields, and our new media platforms have cumulatively reached over 100 million users. According to QuestMobile, Autohome's average mobile DAUs in December 2025 were 77.51 million, remaining stable year-over-year. In the new energy vehicle sector, following a successful pilot in late September 2025, Autohome Mall was officially launched in the fourth quarter, continuously advancing our transaction service upgrade, unlocking resources across the industry chain to expand vehicle offerings and optimize the car purchasing experience for users. Offline, we are focused on low-tier cities by establishing a franchise network, filling gaps in OEMs channel coverage. Autohome Mall's one-stop shopping trading and service ecosystem is still in the exploratory and refinement phase has already secured partners with 23 mainstream automotive brands. Looking ahead, we will continue to refine the automotive transaction ecosystem and work with partners across the entire industry value chain to advance the automotive industry's digital and online transformation. For the full year 2025, Autohome's NEV-related revenues, including the new retail business maintained steady growth, increasing by 30.2% year-over-year. On digitalization, we completed a series of AI-driven upgrades to our products in 2025. Early in the year, the Autohome launched an AI-powered intelligent assistant built on DeepSeek and Autohome's proprietary data, significantly enhancing the Q&A experience in the automotive vertical. In April, we introduced an intelligent used car purchasing assistant that addresses pain points in transaction matching and the purchase decision-making for nonstandard used cars. As a result, we now have achieved full AI assistant coverage across both new car and user scenarios, maintaining industry-leading quality response rates for user Q&A. For partners, we used our unique data resources and industry analytics models to upgrade our digital product line across the entire value chain from marketing outreach to potential customer acquisition to sales conversion and to aftersales services. This has enabled end-to-end efficiency improvements across the process for our clients. To date, we have served over 50 automotive brands. In our Used Car business, we continue to advance the development of a standardized service system. For vehicle pricing, our AI Vehicle Inspector has been successfully deployed across multiple third-party platforms. It allows users to obtain registration services through various inputs, including license plate images and vehicle registrations, while also providing in-depth and analysis of marketing pricing trends. Its pricing accuracy and the user adoption rate both rank among the highest in the industry. On the vehicle supply side, we partnered with 9 authoritative inspection agencies to establish the Vehicle Certification Alliance. Over the year, we completed standardized inspections for more than 500,000 vehicles, offering professional and reliable quality assurance for transactions on our platform and effectively reducing trust-related costs during the transaction process. Overall, in 2025, we remain committed to a user-centric approach, continuously improving the user experience through rich diverse and high-quality content as well as intelligent tools. We also achieved key breakthroughs in the practical application of AI and in building an integrated online to offline transaction ecosystem. Moving forward, we remain committed to improving the user experience, continuously enhancing our service and transaction ecosystem and driving the high-quality and sustainable development of Autohome. With that, let me briefly walk you through the key financials for the fourth quarter and the full year of 2025. Please note that I will reference RMB only in my discussion today, unless otherwise stated. Net revenues for the fourth quarter were RMB 1.46 billion. To break it down further, media services revenues were RMB 334 million. Lead generation services revenue were RMB 68 million. And online marketplace and others revenues contributed RMB 408 million. Cost of revenues in the fourth quarter was RMB 319 million compared to RMB 428 million in the fourth quarter of 2024. Gross margin in the fourth quarter was 78.2% compared to 76% in the same period of 2024. Turning to operating expenses. Sales and marketing expenses in the fourth quarter were RMB 739 million compared to RMB 718 million in the fourth quarter of 2024. Product and development expenses were RMB 258 million compared to RMB 328 million in the same period of 2024. General and administrative expenses were RMB 115 million compared to RMB 131 million during the same period of 2024. Overall, we delivered an operating profit of RMB 92 million in the fourth quarter compared to RMB 232 million for the same period of 2024. Adjusted net income attributable to Autohome was RMB 304 million in the first quarter compared to RMB 487 million in the corresponding period of 2024. Non-GAAP basic and diluted earnings per share in the fourth quarter were both RMB 0.65 compared to RMB 1 for both in the corresponding period of 2024. Non-GAAP basic and diluted earnings per ADS in the fourth quarter were RMB 2.60 and RMB 2.59, respectively, compared to RMB 4.02 and RMB 3.99 respectively, in the corresponding period of 2024. Next, I will briefly summarize our full year 2025 results. Total revenues were RMB 6.45 billion, of which media services revenues were RMB 1.15 billion, lead generation services revenues were RMB 2.71 billion and online marketplace and others revenues were RMB 2.59 billion, representing an increase of 8.8% year-over-year. In addition, we delivered an adjusted net income attributable to Autohome of RMB 1.61 billion with an adjusted net margin of 24.9%. As of December 31, 2025, our balance sheet remains robust. Cash, cash equivalents, short-term investments and long-term financial products totaled RMB 21.36 billion. We generated net operating cash flow of RMB 0.89 billion in 2025. On September 4, 2024, our Board of Directors authorized a share repurchase program under which we are committed to repurchase up to USD 200 million of Autohome's ADS for a period not to exceed 12 months thereafter. On August 14, 2025, the Board approved an extension of the program through December 31, 2025. Under this program, we have repurchased approximately 7.12 million ADS for a total cost of approximately USD 185 million. I'm also pleased to announce that on March 5, 2026, our Board of Directors authorized a new share repurchase program under which we may repurchase up to USD 200 million of Autohome's ADS over the next 18 months. This reflects our strong confidence in our business prospects and the long-term development as well as our consistent commitment to continuously creating and delivering value to our shareholders. So that concludes our financial summary. We are now ready to open up the Q&A session. Operator, please open the line for the Q&A. Operator: [Operator Instructions] Our first question comes from the line of Thomas Chong of Jefferies. Thomas Chong: [Interpreted] My first question is about can management provide more color about your thoughts about the auto industry outlook? My second question is about capital return. We know there are updates on buyback, how should we think about the dividends? Sterling Song: [Interpreted] First, let me share with you some recent market developments and future trends. First, we believe the total vehicle sales in 2026 is expected to increase slightly or modestly with the overall industry profitability still remain under pressure. On the policy side, the purchase tax incentives for NEVs are gradually being phased out. And at the same time, the few new subsidy policy has shifted from a fixed subsidy to a variable subsidy. On the market side, both the China Passenger Car Association, that is CPCA and the China Association of Automobile Manufacturers, CAAM, both of them projected that this year, China's total auto sales will only increase slightly by 1% year-over-year, which is the lowest in the past few years. So we believe the competition in the auto market will shift from the price war to value war. And meanwhile, overall, in the auto sector profitability still remains under pressure. And the profit margin last year for the auto sector is only 4.1%, down from 4.3% compared with the previous year. And so the overall sector is entered into a year of very low profit. So next step, we believe the technological innovation and intelligentization should be the key themes for the competition for auto sector in the next stage. So for ourselves, for Autohome, we believe this represents a rare opportunity to leverage our integrated O2O business model to connect the entire vehicle purchasing life cycle for users. At the same time, we can also help OEMs to acquire more incremental customers and drive additional sales to helping them to capture greater market shares in an increasingly competitive and more mature market environment. Just now, we announced the Board of Directors authorized a new share repurchase program. And also on the cash dividends, we firmly remain committed to distributing no less than RMB 1.5 billion in total in the cash dividend for the full year. And so we can ensure consistent, reliable cash dividends to our shareholders. So over the long run, we have committed to building a comprehensive shareholder return framework centered on sustained dividend plus share repurchase, striving to deliver predictable and sustainable returns to all our shareholders. So in the future, we will continue to uphold the long-term, stable and proactive shareholder return policy. We sincerely appreciate all our shareholders for their long-term strong and continued support to the company. Operator: Our next question comes from [indiscernible] from CICC. Unknown Analyst: [Interpreted] After Haier became the major shareholder, how has the company's business plan been updated? And what's the potential for future collaboration? And my second question is what are the expansion plan for offline stores? Sterling Song: [Interpreted] After Haier becoming our new controlling shareholder, we don't have material change in our overall strategic direction. First, we are strengthening the development of user first, and we are more focused on the user experience as the top priority. Second, as we just mentioned, we will transform from information platform to a transaction platform. So we set up the Autohome Mall, which was established last year. And third, with the continuous upgrade of AI capabilities, which will bring us more -- help us more in our future operation. So in the long run, our target is to -- we will transform from information platform into a one-stop transaction ecosystem platform. And in terms of synergies with Haier, we will leverage Haier's strength in channels, supply chain management and service networks to further optimize our integrated O2O new retail model. We will explore a low-cost, high efficiency and experience-driven channel sales approach to drive our business upgrade from a transaction matchmaking model to a full chain service model. And ultimately, our goal is to provide more convenient, more transparent and trustworthy car purchasing experience covering the entire [process] from the vehicle searching, selecting to purchasing, using and replacing. For the offline stores, we will continue to expand our primary franchise model. So our focus should be covering more cities from Tier 3 to Tier 5 low-tier cities to help OEMs to strengthen their channel networks and find them -- to try to help them to find more incremental users and addressing the OEMs pain points, for example, insufficient channel coverage in low-tier markets, et cetera. Operator: Our next question comes from the line of Richie Sun from HSBC. Ritchie Sun: [Interpreted] Firstly, regarding the NEV business, can you share what will we bring to the partners in 2026? And what are the key indicators we should look for to assess the development progress? Secondly, in terms of the rapid development for AI agents, we are seeing there's some impact to some industry and platforms. So how does management assess the impact of AI agent towards auto verticals? And what would Autohome do to address this risk? And what are the progress made in the AI applications? And finally, in terms of the dealer side, the dealer's related revenue has been falling. So when do management think this decline will actually stop? Sterling Song: [Interpreted] Thank you for your questions. First, let me answer your question about what value can we -- can our NEV transaction business bring to our partners. As I just mentioned, the transaction business was launched in the second half of last year. And this year, we'll continue to further explore this business model. So for EVs, what we provide is far beyond the advertising and lead generation businesses. So we are now delivering a complete end-to-end solution that covers from car searching to transaction conversion process. So this approach differentiates Autohome from other platforms in the market. In terms of metrics to monitor for this progress is quite simple. First is the number of brands, how many brands want to cooperate with us, want to grow our platform. For offline, the metrics should be focused more on the coverage of the channel works. Besides, in addition, transaction volume is another key metric. We are -- what we are looking now to validate this business model and we target to increase the scale of this model gradually. For the how to assess the AI agents impact on the auto media vertical, first from the interaction model level, AI agents are more and more becoming the new hub connecting users and services with conversational interaction replacing the traditional models. And the second is more from the service side, service level. This is just what we just mentioned, we are transitioning to more transaction model, transaction platform. So for Autohome, our response has 2 points. First is, we try to build an Autohome AI agent for the auto sector, for the auto industry, and we try to enhance the 2C user experience. So what we are doing is we try to enable the agent to deliver a complete one-stop personalized concept style service across the entire auto life cycle. So we are -- what we are doing is we try to make AI a trusted intelligent companion throughout the car purchasing to ownership life cycle. The second point is we try to establish an AI-based intelligent service network, which can connect the automakers, dealers, financial institutions and others, stakeholders, et cetera, so to enable the direct service delivery and collaborate ecosystem value creation, and we try to balance the 2C experience and 2B conversion efficiency. From the very beginning, Autohome focus on the AI, and we have made a lot of progress. For example, we developed a proprietary auto vertical large language model, which is called Cangjie. It ranks first in the auto knowledge evaluation among Chinese large models. And for the C-end users, AI pioneered conversational assistant covering the full life cycle of car searching, selection, purchasing and using so we can achieve industry-leading performance evaluation and significantly enhance the users. And in this way, we can shorten the user decision-making cycles. And for the B-end customers, we also leverage AI to make more new content, provide one-stop AIGC capabilities and intelligent operational services. And we will focus on the dealers' business conditions. Last year, our dealerships suffered severe losses. So their survival conditions worsened. And even we find new vehicle prices fell below the prices for used cars. From our data statistics, it showed over 70% of the dealers nationwide in China were in loss-making. Because of the tough environment, some dealers have exited the dealership network last year, which is the most difficult in the last few years. So based on our own data and statistics, at the end of last year, the total number of dealers declined by approximately 5% year-over-year. So under such environment, the decrease in dealer groups budget was anticipated by us already. So this year, our renewal for our dealership member of product has been completed. So the coverage still remains at a solid level. And this year, next -- for the next step, we will work with our dealer customers together to try to find solutions, and we want to get a win-win situation for both sides. So as we just mentioned, we will work with dealer clients together, for example, work on more digital products, increase their traffic, increase their conversion rate and other auto business as well, try to help them to increase their [indiscernible] to help the dealers' operations, and we try to decrease any negative impact on their operations. The above is my answer to your questions. Thank you. Operator: There are no further questions at this time. I'll turn the call back over to management for closing remarks. Sterling Song: [Interpreted] Thank you, everyone. Thank you very much for joining us today. We appreciate your continued support and look forward to updating you on our next quarter's conference call in a few months' time. In the meantime, please feel free to contact us if you have any further questions or comments. Thank you. Goodbye. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Hello, everyone. Thank you for joining us, and welcome to the Q4 2025 SandRidge Energy Conference Call. [Operator Instructions] I will now hand the call over to Scott Prestridge, Senior Vice President of Finance and Strategy. Please go ahead. Scott Prestridge: Thank you, and welcome, everyone. With me today are Grayson Pranin, our CEO; Jonathan Frates, our CFO; Brandon Brown, our CAO; as well as Dean Parrish, our COO. We would like to remind you that today's call contains forward-looking statements and assumptions, which are subject to risks and uncertainties, and actual results may differ materially from those projected in these forward-looking statements. These statements are not guarantees of future performance, and our actual results may differ materially due to known and unknown risks and uncertainties as discussed in greater detail in our earnings release in our SEC filings. We may also refer to adjusted EBITDA and adjusted G&A and other non-GAAP financial measures. Reconciliations of these measures can be found on our website. With that, I'll turn the call over to Grayson. Grayson Pranin: Thank you, and good afternoon. I'm pleased to report on a strong quarter and the year for the company. Production averaged 18.5 MBoe per day during the full year, an increase of 12% on a Boe basis and 32% on oil versus 2024, benefited by our operated development program in the Cherokee Play and production for the fourth quarter averaged 19.5 MBoe per day. Before getting into this and other highlights, I will turn things over to Jonathan for details on financial results. Jonathan Frates: Thank you, Grayson. Compared to the third quarter of 2025, the company continued to see higher natural gas prices, partially offset by lower WTI. We continue to grow production, generating revenues of approximately $156 million for the year, which represents a 25% increase compared to 2024. Adjusted EBITDA was roughly $25 million in the quarter and $101 million (sic) [ $101.1 million ] for the year compared to $24 million and $69 million in the prior year period. As always, we continue to manage the business within cash flow while growing production and utilizing our NOLs to shield us from federal income taxes. At the end of the quarter, cash, including restricted cash, was approximately $112 million (sic) [ $112.3 million ], which represents over $3 per common share outstanding. The company paid $4.4 million in dividends during the quarter, which includes $0.6 million of dividends paid in shares under our Dividend Reinvestment Plan, including special dividends, SandRidge has now paid $4.60 per share in dividends since the beginning of 2023. On March 3, 2026, the Board of Directors declared a $0.12 per share dividend payable on March 31 to shareholders of record on March 20, 2026. Shareholders may elect to receive cash or additional shares of common stock through the company's noted Dividend Reinvestment Plan. During the year, the company repurchased approximately 600,000 or $6.4 million worth of common shares at a weighted average price of $10.72 per share. Our share repurchase program remains in place with $68.3 million remaining authorized. Capital expenditures during the quarter were approximately $18 million, including drilling and completions and new leasehold acquisitions. The company has no debt outstanding and continues to fund all capital expenditures and capital returns with cash flows from operations. Commodity price realization for the quarter before considering the impact of hedges were $57.56 per barrel of oil, $2.20 per Mcf of gas, and $14.92 per barrel of NGL. This compares to third quarter realizations of $65.23 per barrel of oil, $1.71 per Mcf of gas, and $15.61 per barrel of NGL. Our commitment to cost discipline continues to result with adjusted G&A for the quarter of approximately $2.7 million or $1.53 per Boe and $10.2 million or $1.50 per Boe for the full year. This compares to $2.4 million or $1.39 per Boe and $9.3 million or $1.54 per Boe in the same period last year. Net income was $21.6 million for the quarter or $0.59 per diluted share, and adjusted net income was $12.5 million or $0.34 per diluted share. This compares to $17.6 million or $0.47 per share and $12.7 million or $0.34 per share, respectively, during the same period last year. Net income for the full year was $70.2 million or $1.90 per diluted share and adjusted net income was $54.7 million or $1.48 per share. The company generated adjusted operating cash flow of approximately $108 million for the year compared to $77 million in 2024 and despite the ramp-up in our capital program, free cash flow before acquisitions of roughly $44 million compared to $48 million last year. Lastly, our production is hedged with a combination of swaps and collars representing approximately 23% of the midpoint of our 2026 guidance. This includes approximately 37% of natural gas production and 27% of oil production. These hedges will help secure a portion of our cash flows and support our drilling program through the rest of the year. We continue to monitor the market and we'll take advantage of further opportunities to lock in favorable prices as volatility continues. Before shifting to our outlook, we should note that our earnings release and 10-K will provide further details on our financial and operational performance during the quarter. Now I will turn it over to Dean for an update on operations. Dean Parrish: Thank you, Jonathan. Let's start with a brief review of a very successful year in 2025, then discuss recent results in 2026 drilling and completions. Average production in 2025 was 18.5 MBoe per day, which was 4% above the midpoint of guidance. This was driven by strong well results on new wells in the Cherokee Play as well as continued focus of our operations team on optimizing base production. Total capital spend for the year, including leasehold, was $76.2 million, which falls in line with midpoint of guidance A rigorous bidding process focused on driving drilling and completion costs down in the Cherokee Play and low artificial lift failure rates from previous years of improvements kept us on budget. Lease operating expenses for the year were $36.2 million or 14% below the low point of guidance. That includes $4.3 million but nonrecurring, noncash adjustments of operating accruals that benefited LOE. Excluding those, LOE still came in below the low point, driven by the team's focus on reducing expense mark overs, LOE efficiencies implemented on recent acquisitions and utility costs. During the year, the company successfully completed and brought 6 wells online from our operated one-rig Cherokee drilling program. We recently brought online well 7 and 8 in the program and are drilling the 9. We are pleased with the results of the first 6 operated wells which had a per well average peak 30-day production rate of approximately 2,000 Boe per day, made up of 44% oil. Moving to our 2026 capital program. We plan to drill 10 operated Cherokee wells with one-rig this year and complete 8 wells. The remaining 2 completions are anticipated to carry over to next year. A majority of the remaining wells in our development program this year directly offset proven or in progress wells in the area. These new wells and the results in the area give further confidence in reservoir quality and expectations in the area. Gross well costs vary by depth, but are estimated to be between approximately $9 million to $11 million. We intend to spend between $76 million and $97 million in our 2026 capital program, which is made up of $62 million to $80 million in drilling and completions activity and between $14 million and $17 million in capital markovers, production optimization and selective leasing in the Cherokee Play. Our high-grade leasing is focused to further bolster our interest, consolidate our position, and extend development into future years. With that, I will turn things back over to Grayson. Grayson Pranin: Thank you, Dean. I'd like to look back at 2025 for a moment. 12 months ago, we initiated our operated development program in the Cherokee, which, among other factors, has contributed to reaching a multiyear high with production averaging 19.5 BOE per day in the fourth quarter. In addition, something for which we are very proud, we set a new record of over 4 years without a recordable safety incident. I'm very proud of our team for these accomplishments and other value-adding contributions this year. They stood up the Cherokee development program from scratch, have implemented several cost efficiency initiatives, and have done all this while championing safety, resulting in 0 incidents. In addition, these achievements were done with a lean, but very engaged and experienced staff which have proven to be capable operators with peer-leading operating and administrative cost efficiencies. Given the promising initial results achieved in 2025 and the attractive returns for these Cherokee wells, we plan to continue our Cherokee development with one-rig throughout 2026. As we look forward to developing these high-return assets, we anticipate growing oil production volumes another approximately 20% this year. In addition, we plan to sustain our ground game by opportunistically securing new leases at attractive metrics to further increase our interest in wells that we plan to operate or that will further extend our development option. We're hopeful that our approximately 24,000 net acres in the Cherokee Play as well as our continued leasing efforts will translate to a meaningful multiyear runway as we look beyond 2026. Our operated Cherokee wells have a robust return with breakevens for our planned wells down at $35 WTI. Our baseline economics were set earlier this year and recent increases in commodity price would only enhance these returns. In addition, while these returns are durable and the program is attractive in a range of commodity environments. Our team will continue to be diligent about prioritizing full-cycle returns, monitoring reasonable reinvestment rates and when needed, exercise drill schedule flexibility to make prudent adjustments to our development plans in different economic environments. Also, we do not have significant near-term leasehold expirations and have the flexibility to defer these projects if needed for a period of time. I'd like to pause here to highlight the optionality we have across our asset base, coupled with the strength of our balance sheet, which sets us up to leverage commodity price cycles. The combination of our oil-weighted and Cherokee gas-weighted legacy assets as well as a robust net cash position give us a multifaceted options to maneuver and take advantage of different commodity cycles. Put simply, we have a strong balance sheet and a versatile kit bag, which makes the company more resilient, better poised to maneuver and adjust to matter the commodity environment. I will now revisit the company's advantages. Our asset base is focused in the Mid-Continent region with a PDP well set that provides meaningful cash flow, which does not require any routine flaring of produced gas. These well-understood assets are almost fully held by production along history, shallowing and diversified production profile and double-digit reserve life. Our incumbent assets include more than 1,000 miles each of owned and operated SWD and electric infrastructure over our footprint. This substantial owned and integrated infrastructure helps de-risk individual well profitability for a majority of our legacy producing wells down to roughly $40 WTI and $2 Henry Hub. Our assets continue to yield free cash flow. This cash generation potential provides several paths to increase shareholder value realization and is benefited by a low G&A burden. Sandridge's value proposition is materially derisked from a financial perspective by our strengthened balance sheet, including negative net leverage, financial flexibility, and an advantaged tax position. Further, the company is not subject to MVCs or other significant off-balance sheet financial commitment. We have bolstered our inventory to provide further organic growth opportunities in incremental oil diversification with low breakevens in the high-graded areas. Finally, it is worth highlighting that we take our ESG commitment seriously and have implemented disciplined processes around this. Not only do we continue to operate our existing assets extremely efficiently and execute on our Cherokee development in an efficient manner but we do so in a prudent and safe manner. Shifting to strategy. We remain committed to growing the value of our business in a safe, responsible, efficient manner while prudently allocating capital to high-return growth projects. We will also evaluate merger and acquisition opportunities in a disciplined manner, consideration of our balance sheet and commitment to our capital return program. This strategy has 5 points: one, maximize the value of our incumbent Mid-Con PDP assets by extending and flattening our production profile with high rate of return production optimization projects as well as continuously pressing on operating and administrative costs. Two, exercise capital stewardship and invest in projects and opportunities that have high risk-adjusted fully burdened rate of return while being mindful and prudently targeting reasonable reinvestment rates that sustain our cash flow and prioritize a regular way dividend. An important part of this organic growth strategy is further progressing our Cherokee development and economically growing our production levels while providing further oil diversification. However, we will continue to exercise capital stewardship and maintain flexibility to respond to changes in commodity prices, costs, macroeconomic and other factors. Three, maintain optionality to execute on value-accretive merger and acquisition opportunities that could bring synergies, leverage the company's core competencies, complements its portfolio's assets further utilized approximately $1.6 billion of federal net operating losses or otherwise yield attractive returns for its shareholders. Fourth, as we generate cash, we will continue to work with our Board to assess path to maximize shareholder value to include investment and strategic opportunities, advancement of our return of capital program and other uses. Our regular way quarterly dividend is an important aspect of our capital return program, which we plan to prioritize in capital allocation along with opportunistic share repurchases. The final staple is to uphold our ESG responsibilities. Now shifting to administrative expenses, I will turn things over to Brandon. Brandon Brown: Thank you, Grayson. As we approach the conclusion of our prepared remarks, I will point out our fourth quarter adjusted G&A of $2.7 million or $1.53 per Boe continues to compare favorably to our peers. The continued efficiency of our organization reflects our core value to remain cost disciplined as well as prior initiatives, which have tailored our organization be fit for purpose. We will maintain our efficiency and low-cost operation mindset and continue to balance the weighting of field versus corporate personnel to reflect where we create value. Outsourcing necessary but for [indiscernible] and less core functions such as operations accounting, land administration, IT, tax and HR has allowed us to operate with total personnel of just over 100 people while retaining key technical skill sets that have both the experience and institutional knowledge of our business. In summary, at the end of the fourth quarter, the company had approximately $112 million in cash and cash equivalents, which represents over $3 per share of our common stock outstanding and inventory of high rate of return, low breakeven projects, low overhead, top-tier adjusted G&A, no debt, negative leverage, a flattening production profile, double-digit reserve life and approximately $1.6 billion of federal NOLs. This concludes our prepared remarks. Thank you for your time today. We will now open the call to questions. Operator: [Operator Instructions] Your first question comes from Christopher Dowd of Third Avenue Management. Christopher Dowd: Your 2026 production guidance of 6.4 million to 7.7 million Boe and CapEx of $76 million to $97 million. has got a bit of a range to it, for the benefit of everyone on the call, could you just give a little more context on what scenarios might lead to the higher and lower end of that guidance? And then I've got a follow-up. Grayson Pranin: Sure. Yes. Thank you for the interest and the questions. Things that we're watching for that range is timing is a big part of it. So right now, we're planning on drilling 10 wells and completing 8, if the timing of the shift due to the availability of crews or weather or anything like that, that could shift wells later in the year or into next year potentially that could affect the range as well as working interest. A lot of the wells that we're developing this year, their pooling hasn't been finalized in Oklahoma, as you pool the well and sometimes you can achieve higher working interest through that pooling process. And so while we budgeted for some potential net increases, additional could -- add additional capital, but it also adds additional production with that as well. And so we tend to like to make sure that we're budgeting at appropriate achievable levels. And so we're not accounting for all of that potential upside that could occur through the normal planning and development process throughout the year. Christopher Dowd: Very helpful. And then just as my follow-up question, can you comment on how you're viewing what seems to be a fairly supportive spot market today relative to how that might influence your hedging positions going forward? I know you mentioned, I think, about 23% hedged today. But how should we think about the opportunity to kind of lock in more certainty on the cash flows going forward? Grayson Pranin: Sure. No, it's a great question, one that we're watching literally by the mid year even as we're on the call now, I'm going to say a few words and then hand this off to our CFO, Jonathan Frates, to say more. But I think a big piece of this is, one, we do not have the debt, so we don't have any bank-mandated hedging requirements. Maybe we're not required to hedge in the down side and could be more opportunistic in nature. It has -- prices have increased this year. We've just -- we've done that and taken in additional options. You can probably see a lot of speculation in the marketplace on where oil prices could go to. So we're mindful to layer in additional contracts. We want to do so that we also have some opportunities for the potential upside. And with that, I'll hand things over to Jonathan. Jonathan Frates: Yes. I think you said it well, Grayson. We're very opportunistic with this program. I'll point out that majority of these oil hedges came very recently. So if you look at the balance of the year, I know I mentioned in the commentary that we had up 27% of guided production hedged on the oil side, but that -- due to the fact that we put a lot of these very recently, and we're 2 months into the year. The balance is going to look a little higher than that, which you can calculate based on your own estimates. But we're very optimistic as these prices continue to rise up. We're watching it every day, and we'll layer on more as the year goes on, assuming things continue in this direction. Operator: [Operator Instructions] Your next question comes from the line of Sergey Pigarev of Freedom Broker. Sergey Pigarev: I think everyone had this question on guidance, '26 with production and CapEx. And so actually, I want to ask about the guidance too, I say that you have this higher range of price differentials guidance for NGLs. And actually in Q4, we were a bit surprised because of actually higher differentials that we expected for Q4 yes, so do you see some temporary things here or it's like something structural, and we will see higher differentials from here. Grayson Pranin: Sure, Sergey. I appreciate your question. As we obviously, there's different differential depending on the commodity. I think if you look at oil, that's been relatively tight, I think you may be referencing gas. As we talk to gas and we've talked about this directionally, as we benefit from higher commodity prices and when compared to the Henry Hub benchmark, the fixed deducts within our gas stream are reduced, so you kind of have an expanded realization. So if you look into an environment where we have $4 gas, you'll see us towards the higher end of our guidance range. If you're looking at $2 gas, it's going to be near that lower range, and that's why we provided that range of 50% to 70% to try to accommodate different gas environment. I think if you look at the whole year, we're really close to that center of 60%, and we're averaging that -- I think that average just over $3 for a benchmark perspective. Relative to Q4, in particular, you had a widening of a regional basis, a lot of our gas is sold through Panhandle Eastern and [ NGL PL ] markets. I think that is localized and temporal. I think as we look in structurally, we're wanting to make sure that we're selling as much gas as we can at higher commodity prices because that's when we see the highest realization. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to the TriSalus Life Sciences Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Jeremy Feffer, Investor Relations. Please go ahead. Jeremy Feffer: Thank you, operator, and thank you all for participating in today's call. Joining me today from TriSalus Life Sciences are Mary Szela, President and Chief Executive Officer; David Patience, Chief Financial Officer; and Dr. Richard Marshak, Medical Director. Ms. Szela will provide an overview of the company's first quarter results and strategy for the balance of the year, and then David will review the financial results for the quarter in detail. Following their prepared remarks, Dr. Marshak will join the call to help address questions from covering analysts. Earlier this afternoon, TriSalus released its financial results for the quarter and year ended December 31, 2025. A copy of this press release is available on TriSalus' website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995. Any statements contained in this call other than the statements of historical fact are forward-looking statements. All forward-looking statements, including, without limitation, statements relating to our sales and operating trends, business and hiring prospects, financial and revenue expectations and future product development and approvals are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties, including the impact of macroeconomic conditions and global events that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors sections of our Forms 10-Q and 10-K on file with the SEC and available on EDGAR and in our other reports filed periodically with the SEC. TriSalus disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements with new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 5, 2026. And with that, I'll turn the call over to Mary. Mary Szela: Thank you, Jeremy, and good afternoon, everyone. Thank you for joining us for a review of our 2025 fourth quarter and year-end financial results. I'll begin with a high-level review of our results for the quarter and the year, recap some of the highlights from recent weeks. And then provide an overview of our longer-term strategy and expectations for 2026 and beyond. David will follow my remarks with a more in-depth review of our financial and operational results for the reporting periods. And we'll be happy to open up the call for your questions. Let's begin. I'm pleased to report that our results for both the fourth quarter and the full year were strong. Fourth quarter revenues were $13.2 million, and full year revenues were $45.2 million, representing a 60% and 53% increase, respectively, over the prior year periods. Importantly, we achieved our revenue growth guidance for the 2025 fiscal year. Our strong commercial performance for the year was driven by consistent execution of our commercial strategy, and our expansion of our TriNav product suite and proprietary PEDD platform across a broad range of indications beyond the liver. In recent weeks, we took significant steps to strengthen both our Board and our balance sheet. In February, we announced the appointment of Veteran Health care Investor, Michael Stansky to our Board of Directors. Michael has a strong track record as an investor and board member across the health care landscape with deep experience in capital markets, governance and value creation. We believe he will be a meaningful asset to TriSalus as we continue to execute on our growth objectives. Also in February, we announced the completion of a public offering through which we raised $46 million in gross proceeds from fundamental health care investors. The financing was more than 2x oversubscribed and was supported by experienced health care investors who share in our conviction in the long-term value of the PEDD platform. Importantly, these investors understand that building a category-defining company requires disciplined investment in commercial infrastructure, clinical evidence and product innovation. This capital enables us to lean into our strategic priorities from a position of strength. Our primary strategic priority is to expand our sales and commercial infrastructure which we initiated at the beginning of the year to more effectively drive adoption and long-term success across our portfolio. Second, we are investing aggressively in foundational clinical studies to further demonstrate and validate the value of pressure enabled drug delivery, PEDD. These studies are critical to reinforcing the clinical and economic differentiation of our PEDD platform and will fuel continued growth in 2027 and beyond. And third, we're continuing to enhance and evolve our PEDD technology. to strengthen physician adoption and utilization, not only in liver embolization, but also across our expanding set of new applications. The success of the upside financing and the quality of investors brought into the company through the process are highly validating of our strategy and the growth opportunities before us. Based on our performance in 2025 and our visibility entering 2026, we are reaffirming our revenue guidance of $60 million to $62 million. As is typical for emerging growth companies investing ahead of a steep adoption curve, expanding our commercial footprint requires upfront hiring, onboarding, training and current territory realignment, which will influence revenue cadence in the first half of the year to be approximately 40% and revenue in the back half of the year to be approximately 60%. We believe the significant investment in the sales force virtually doubling our commercial footprint positions us for meaningful stronger productivity exiting 2026 and beyond. The revenue cadence will build meaningfully throughout the year as the realignment is completed. TriNav Advance has launched and the increasing productivity of the significantly expanded sales organization progress. Importantly, this cadence should not be interpreted as a change in underlying demand trends. We continue to see strong physician engagement, utilization and interest in the PEDD platform. The first half weighting is instead a function of timing, specifically the onboarding, training and territory development associated with our commercial expansion as well as the expected timing of new product contribution. We made a conscious decision to lean into these investments early in the year. deploying growth capital to expand our sales infrastructure and accelerate clinical and commercial initiatives affects near-term revenue phasing modestly, but it meaningfully enhances our growth trajectory exiting 2026 and positions us for sustained acceleration beyond our long-range plan. Now turning now to our commercial strategy. We've assembled a comprehensive PEDD portfolio that enables interventional radiologists to address virtually every vascular anatomy that they encounter. With a complete solution set, Physicians now can confidently standardize on PEDD across a broader range of cases, increasing utilization with existing accounts and accelerating adoption in new ones. At the beginning of 2025, we had 2 core commercial products. As we move into 2026, our portfolio will expand to 7 differentiated offerings across the embolization spectrum. This portfolio depth enhances the productivity of our sales organization by allowing each representative to drive more procedures per account, reduce selling complexity and position TriSalus as a single-source partner rather than a point solution provider to fully leverage this opportunity is why we're expanding our sales resources now and why we pursued the growth capital to increase our market coverage, improve our cell penetration and scale the commercial execution in a disciplined, high-return manner. Over the course of 2025, we launched TriNav LV, TriGuide and TriNav FLX, each addressing a particular vascular anatomy challenge that the interventional radiologist encounters. The TriNav FLX improves trackability and access to torturous anatomy. Tortures anatomy is commonly found in tougher to treat complex patients. During our fourth quarter, we launched the TriNav XP infusion system which was engineered specifically for compatibility with larger embolic particles, a more flexible distal tip for improved trackability in multiple linked and vessel sizes. These features were also important to use in low bar liver procedures, mapping our simulation procedures and for application in uterine artery embolization, market reception of TriNav XP thus far has been outstanding. The KOLs we surveyed highlight the exceptional trackability, enhanced visualization for precise targeting and improved procedural efficiency. As I mentioned, our next expansion of the TriNav product suite will be trying to have advance, which we anticipate launching in the first half of 2026. TriNav have Advance is an important addition to our embolization portfolio. This device is designed to facilitate selective therapy delivery to small distal vessels via a standard microcatheter, but still allow for PEDD to enhance therapeutic delivery to the tumor and protect against off-target delivery. The ability for an interventional radiologist to still use the microcatheter of their preference, but also benefit from improved delivery opens up a significant market opportunity for the use of PEDD. We are currently awaiting 510(k) clearance and plan to conduct a rapid market evaluation before fully launching in the second half of the year. With the launch of TriNav Advance, we'll have a complete portfolio of products that support all aspects of liver embolization procedures, which alone represents a total addressable market of approximately $480 million. Additionally, this portfolio of embolization devices supports embolization procedures in thyroid uterine artery embolization, genicular artery embolization or GAE, along with other embolization procedures, collectively representing USD 2.3 billion addressable market. The commercial adoption of the platform was bolstered earlier in 2025 by the introduction of the Centers for Medicare and Medicaid Services, CMS HCPCS code C8004. This code expanded coverage to include simulation or mapping procedures using TriNav, enabling interventional radiologists to utilize TriNav for other treatment planning and delivery using radio embolization. As a result, the reimbursable use of our technology within the radio embolization market has effectively doubled, supporting the broader adoption we are observing. Now interventional radiologists are able to use TriNav across a full spectrum of radio embolization care. Early feedback from key accounts and users highlights the clinical and economic advantages of the expanded reimbursement which we expect to continue driving adoption throughout 2026. In December, we hosted a second in a series of Key Opinion Leader event focused on our platform's potential and new clinical applications. The event featured Dr. Juan Camacho of Florida State University, discuss the unmet need in treatment landscape for multinodular goiter thyroid disease. In 2026, we intend to continue this program further to educate stakeholders on the advantages of the TriNav platform for our multiple indications. They're only continues in our PROTECT registry, a multicenter initiative, evaluating PEDD for patients with thyroid nodules or orders who are not candidates for surgery, radioidine or ablation. This study is designed to assess disease-related quality of life, thyroid function and outcomes following PEDD-based thyroid artery embolization. Preliminary results published in the Journal of the Endocrine Society were highly encouraging, showing 100% technical and clinical success, no neurovascular complications, mild and transient discomfort in 81% of patients all resolved within 2 weeks a 73% reduction in thyroid size and normalization of thyroid function and 71% of participants. These findings reinforce the promise of this minimally invasive alternative to thyroidectomy. In 2025, we also initiated a pilot registry in GAE. This is an emerging field, which offers a novel minimally invasive approach to pain management and mobility preservation for patients with knee osteoarthritis. GAE has the potential to delay or avoid total knee arthroplasty in select patients. In parallel, we're preparing to launch a clinical trial registry evaluating GAE as a treatment option for knee osteoarthritis, a condition affecting more than 30 million adults in the United States. This study aims to determine whether GAE can effectively reduce pain and delay the need for knee replacement surgery. Now turning to our nelitolimod program. Last year, we communicated our intention to release updated clinical data in the fourth quarter of 2025. We did not meet that time line, and I want to address that directly. As the PERIO-03 study progressed towards completion, it became clear that the most responsible and strategically valuable approach would be to consolidate data across all 3 PERIO Phase I studies into a comprehensive update rather than releasing partial data sets sequentially. In addition, we evaluated the potential inclusion of emerging data from an ongoing investigator-initiated study to provide a more complete view of the program's clinical potential. Final database lock and report preparation for PERIO-03 tend to beyond our original expectations, and as a result, we elected to delay disclosure to ensure that data package is thorough, internally validated and passioned appropriately for potential partners. We now anticipate releasing a consolidated clinical update in the second half of 2026. Importantly, this timing shift is not driven by safety concerns, efficacy signals or changes in our strategic priorities. All 3 PERIO Phase I dose escalation studies are complete. Enrollment in PERIO-03 has concluded and clinical study reports are in preparation. The decision to delay reflects our commitment to presenting a complete and cohesive data set that we believe will better support partnership discussions and maximize long-term value. As previously discussed, we have substantially reduced internal development spending related to nelitolimod following study completion. This allows us to preserve the program's optionality while maintaining capital discipline and focusing our resources on the near-term growth opportunities within our PEDD platform. We continue to advance partnership discussions and to support ongoing investigator-initiated studies. Before turning the call over to David, for a review of our financial results, I want to reiterate that TriSalus remains focused on executing on our near-term milestones, including achieving our 2026 annual revenue in the range of $60 million to $62 million, with growth weighted towards the second half of the year, launching TriNav Advance in the first half of 2026, publishing HEOR data on trip use in complex liver patients, delivering differentiated clinical data across the liver, UAE, TAE and GAE indications. As we look ahead to the balance of 2026, our strategy is fully funded, we're executing on our commitments of the recently raised growth capital and are confident in the commercial opportunities before us. We believe TriSalus-PEDD technology represents a transformative opportunity with substantial long-term value across a wide range of solid tumors and interventional treatment approaches. With that, I'll turn the call over to David. David Patience: Thank you, Mary, and good afternoon, everyone. As Mary mentioned earlier, our results for both the fourth quarter and 2025 fiscal year were strong. Turning first to our results for the quarter. revenue was $13.2 million, representing a 60% year-over-year increase over the $8.3 million recorded in the prior period. Gross margin for the quarter was 87% and compared to 85% in the prior year period. The increase in gross margin for the quarter was driven by improving manufacturing efficiency associated with our newly launched products. Research and development expenses were $2.6 million compared to approximately $3 million in the fourth quarter of 2024. The decrease was largely attributable to the completion of the enrollment and closure of our PERIO clinical studies for nelitolimod, as Mary alluded to earlier. Sales and marketing expenses were approximately $8 million compared to $7 million in the prior year period. The increase was primarily due the higher performance-based compensation, reflecting our strong commercial execution. General and administrative expenses were $4.2 million, down from $4.6 million in the prior year period. The reduction is primarily due to improving operational efficiency and tighter cost discipline related to corporate overhead. Net operating loss for the quarter was $3.3 million compared to $7.6 million in the prior year period. The decrease was primarily driven by increases in revenue and margin contribution for the quarter. Adjusted EBITDA loss for the quarter was approximately $950,000, an improvement versus adjusted EBITDA loss of $5.7 million in the prior year period. Turning to the results for the full year. revenue all from the TriNav system was $45 million for the year ended December 31, 2025, an increase of 53% compared to the same period in 2024. We revenue growth was primarily driven by increased TriNav units sold within liver-directed therapies. Gross profit increased by $12.9 million for the year ended December 31, 2025, as compared to the year ended December 31, 2024, while gross margin decreased from 86% and to 85% year-over-year. The increase in gross profit was primarily driven by the increase in TriNav units sold while the year-over-year decline in gross margin was primarily driven by lower manufacturing efficiencies associated with our newly launched product throughout the second and third quarters, a dynamic in which we improved in the fourth quarter. Research and development expenses decreased by $2.7 million for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The decrease was primarily due to the closeout of clinical trial expenses related to nelitolimod. Sales and marketing expenses increased by $2.9 million for the year ended December 31, 2025. The as compared to the year ended December 31, 2024. The increase was primarily due to an increase in performance-related compensation, driven by the increase in sales during the year ended December 31, 2025, compared to the prior year period. General and administrative expenses increased by $3.5 million for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The increase was primarily due to a onetime charge during the third quarter relating to $1.6 million of accelerated noncash stock-based compensation vesting along with the revision of approximately $700,000 of certain patent related expenses from R&D to general and administrative expenses. Operating losses were $26.9 million compared to operating losses of $36.2 million for the same period in the prior year. The decrease was primarily driven by the increase in revenue, and strong margin contribution, highlighting our strong operating leverage. The basic and diluted loss per share was $1.84 compared to $1.31 for the same period in 2024. We increase was primarily due to the conversion of preferred stock to common stock. As of December 31, 2025, cash and cash equivalents totaled $20.4 million. As previously discussed, in February, we raised $46 million in gross proceeds via a public offering we concluded with fundamental health care investors. With that, operator, we are ready to open the line for questions. Operator: [Operator Instructions] And our first question will come from the line of Frank Takkinen with Lake Street Capital Markets. Frank Takkinen: Great. Congrats on finish to the year. I was hoping to start with one on kind of components to growth in 2026. More specifically, how should we think about kind of contribution from liver versus non-liver, Obviously, liver has been the primary growth driver up until recently, and there's obviously a lot of exciting developments occurring in some of the non-liver areas. So curious if you could kind of talk through how much growth contribution could come from some of the non-liver areas? And then as an extension to that, just talk through maybe some of the clinical development you're going to pursue in some of the non-liver areas. Mary Szela: Sure. Frank, are you good to hear everybody. So this year, in 2026, it will still be the majority of our top line revenue will be associated with liver. But we hope to, in the second half, see some meaningful progress on the new applications, and that's really tied to data release. As you know, we have in thyroid, we have over 10 clinical sites that are enrolling patients, and we'll have some data released in the second half. We'll have data releases beginning at SIR around uterine fibroid and then data releases on both other new applications in the latter part of the year. So that's when we'll start to see some uptake in those indications. Frank Takkinen: Got it. That's helpful. And then for my second one, I was hoping to talk a little bit more about EBITDA. A lot of progress made to get the EBITDA that you produced in Q4. Obviously, a lot of exciting things to invest in and new capital on the balance sheet. How should we balance kind of your growth cadence in that EBITDA pathway as you build the foundation for growth. David Patience: Thanks, Frank. This is David. I'll take that one. At this time, we're not providing specific timing or guidance and cash flow breakeven our adjusted EBITDA breakeven as we're just at the early stages of investing in our commercial expansion. We're very focused and excited about the investments that we're making because they're intended to really position us to scale the company in a very meaningful way. And so we're very focused on investing to fit the organization for procedural volume. We anticipate essentially providing more visibility later in the year. It's just a little early for us to give that guidance right now. Operator: And that will come from the line of John Young with Canaccord. Unknown Analyst: Mary. I wanted to start first on the strategy set with the increased financial flexibility. You spoke a lot about the accelerated investment in the commercial footprint. Just more color details there might be helpful. What will the sales organization structure look like after these investments would round -- I heard you say doubling of reps. So would 120 reps be right exiting 2026. And maybe some color on have they all been hired and when and perhaps are you doing like a junior rep, or a senior rep pairing or anything like that would be helpful. Mary Szela: Sure. Tom, it's good to hear you place as well. We're not providing any details on the numbers of reps and clinicians right now, but we are meaningfully doubling the size of the commercial organization and that includes adding a layer of management in just because what was happening with our sales organization, just the ratio of repo manager is getting too high. And that was limiting our opportunities. So we added in a layer of management. We also have expanded into significant more coverage, geographic coverage and we also targeted areas where we really believe some of the new applications are going to add substantial growth. So this is a pretty significant organizational upgrade and change across the organization. I think it's going to meaningfully drive acceleration in sales at the beginning in the second half of the year and forward. And your concept of kind of a junior rep, senior reps, what we found that rely has worked for us is, we have this peering of a clinical specialist with a representative. And what that allows us to do is if a rep pursues a new account and they garner position you as interest, the rep will begin to work with the physician and then the clinical specialist will come in and work in the case with the physician until we get comfortable and we can do it independently. So -- and many of those clinical specialists have become reps. So I guess, in a way, it could be kind of a junior senior rep. But we feel that type of approach allows us to have a lot of depth clinically with the representative. And maybe I'd even have Dr. Marshak talk about that because he's been pretty instrumental with us in terms of how do we define the right architecture for our product. Now that we have a new portfolio the expertise of the rep and the clinical specialist is going to be quite deep in terms of helping the physicians choose the right product for whatever type of vascular situation in that physician may encounter. So Dr. Marshak, do you want to jump in and provide some color on that? I don't know if we can hear you, Dr. Marshall. You're still on mute. Dr. Marshak, you're still unused. So I apologize, he was on and then all of a sudden, he's gone. But he's been very instrumental in helping us design this. The portfolio that we have it's quite broad, and it allows us to address virtually every situation. And that's why we feel like the clinical specialists and the rep is a better model for us right now. Unknown Analyst: Great. And then, David, maybe for the 2026 guidance, it sounds like most of this is predicated on continued use in liver, how much mapping growth is factored into that guidance as you annualize this either the code being rolled out, do you still expect continued mapping growth? And just maybe just walk us through that. David Patience: Yes. No, thank you, and great question. And I thank you again for your help with us achieving a mapping and simulation code yet again. As we look at it, we think XP can make a meaningful impact on our mapping. The larger new interior diameter is going to be extremely helpful. And then with that, we think we can meaningfully bring up growth within XP as well. And then with Advance, which is still pending FDA clearance, we think that could be even more meaningful from an imaging and mapping perspective as well. And so not only we're confident we can grow it just with some studies that will be releasing concorded studies in the first part of the year, but XP in advance will also make a meaningful impact in the growth there as well. Mary Szela: Yes, John, one of the things that we found with Advance and as you know, this is where physicians still gets the benefit of pressure enabled drug delivery, but they can use their own microcatheter. Some of the feedback that we've heard from physicians is it actually allows them to even be more trackable. And the way that we've designed the technology, the visualization is just the per. So we think the thing have advance is going to meaningfully help us in mapping because this is where they really want to interrogate the vascular structure and make sure they don't have any feeder vessels, and they really want to get a lot of clarity around what they're encountering and what they want to deliver the dose on. So between those 2 products as well as TriNav, we now feel once we get advanced EFT cleared, we'll have a portfolio that can penetrate mapping in a very meaningful way. Richard Marshak: Mary, it's Dr. Marshall. I'd like to add that the -- TriNav Advance is going to allow us to capture cases that were previously capturable with TriNav because we can get into much smaller arteries, those are cases that we're going to be able to add to our portfolio that weren't there in 2025. Operator: [Operator Instructions] One moment for our next question. That will come from the line of Justin Walsh with Jones Trading. Justin Walsh: Can you provide any commentary on use patterns for your TriNav product portfolio? Just wondering if you see the same positions and accounts wanting access to the full portfolio to allow clinical flexibility or if some users focus on their favorite TriNav product and don't necessarily order the others? Mary Szela: Yes. Dr. Marshall, do you want to jump in and then I'll comment after you. It's [indiscernible]. Richard Marshak: It is. One trend that we have seen is when users get their hands on our finance Flex, which is a much more flexible tip that has enhanced trackability meaning we can get it into smaller arteries, easier or around turns easier. We've seen a trend where some or some users say, "I want that for every case. And then we still have other sites where they like the different opportunities with different catheters. So yes, it's varied. Justin Walsh: Got it. And maybe one follow-up. You talked a little bit about the kind of expectations on non-liver growth in the near term. I'm just wondering what your thoughts are on kind of the medium long-term opportunities for TriNav in liver versus non-liver if you think it will be more challenging to grow some of these uses than others? And just some thoughts on that longer-term picture. Mary Szela: Yes. So the liver still is going to be a very significant component of our sales for next year and throughout the long-range plan. today, we ran roughly about 10% share. So we have enormous opportunity to penetrate that. And one of the things that we talked about in my opening comments was that we have physicians come to us in the latter part of last year. And this was really one of the reasons why they pushed us and why we went to go pursue the growth capital is we had leading KOLs come to us and say, now it's the time for you to really do those foundational studies to prove the superiority of your technology versus the microcatheter. So we're going to be doing foundational studies in the liver, both with TheraSphere and the SIR tech product to prove how our technology and liver embolization is superior. And we think that's going to be a very important driver of long-term liver penetration. Now in regard to the new applications, each one is a little bit different. So it's hard to put them out collectively. But I think it's going to be driven by the data. This year, you're going to see more publications on the thyroid. I mean this is a thyroid embolization. This is an opportunity that we think just makes sense for the patient in many dimensions. It's an easier procedure for the patient. It preserves fibroid function. It prevents them when we have in taking long-term thyroid medications. It's less costly. So depending on the value proposition, each of these are very significant opportunities that we want to pursue. And I think one of the things that we're starting to see, and I'll let Marshak talk about it is, if the physician begins to use the technology in the liver, we do see them starting to use the technology for other applications. In fact, that's where all these new applications came from. These were physicians who used our product, innovated it in a different procedure and then team to us to collaborate with us on how to develop that further. So Dr. Marshak do you want to make any further comments on that? Richard Marshak: No, I think that captured it. The one thing I'll add is there is a lot of excitement around thyroid at realization. There continues to be. And this is a market that we're building. It's an unmet need for a lot of patients who don't have other options. So I do see that right now, that's a growth that's potentially exploding in 2026. Uterine realization is something that our XP is designed for. That's a market that already exists, and we're seeing adoption with that. And I think that's going to continue to grow. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mary Szela for any closing remarks. Mary Szela: Well, just thank you again. Thank you for the phenomenal questions and all the interest in trials appliances I really appreciate it. Thank you. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the AerSale Corp. Q4 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jackie Carlon, Senior Vice President of Marketing. Jacqueline Carlon: Good afternoon. I'd like to welcome everyone to AerSale's Fourth Quarter and Full Year 2025 Earnings Call. Conducting the call today are Nick Finazzo, Chief Executive Officer; and Martin Garmendia, Chief Financial Officer. Before we discuss this quarter's results, we want to remind you that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements within the meaning of the federal securities laws, including statements regarding our current expectations for the business and our financial performance. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results. Important factors that could cause actual results to differ materially from forward-looking statements are discussed in the Risk Factors section of the company's annual report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission, SEC, to be filed on March 9, 2026, and its other filings with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those indicated by the forward-looking statements on this call. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of those non-GAAP metrics to the nearest GAAP metric can be found in the earnings presentation materials made available on the Investors section of the AerSale website at ir.aersale.com. With that, I'll turn the call over to Nick Finazzo. Nicolas Finazzo: Thank you, Jackie. Good afternoon, everyone, and thank you for joining us today. I'll begin with an overview of our fourth quarter and full year 2025 results, highlight key operational developments, and then discuss our priorities for 2026 before turning the call over to Martin to review the numbers in greater detail. We finished 2025 on a strong note. Our fourth quarter adjusted EBITDA increased $2.2 million or 17.1% to $15.2 million, compared to $13 million in the fourth quarter of 2024. Fourth quarter revenue was $90.9 million, a 4% decrease from the prior year period. Excluding flight equipment sales, which tend to be volatile quarter-to-quarter, fourth quarter revenue actually increased 9.8%, reflecting continued growth across our component MROs, USM and leasing. Sales of our Engineered Solutions product, AerSafe, also increased as operators began upgrades in advance of a Federal Aviation Administration 2026 compliance deadline for a Fuel Quantity Indication System Airworthiness Directive related to fuel tank safety systems. You'll hear me refer to this as the FQISAD. This overall growth has improved profitability and provides more consistency in our quarter-over-quarter performance. This also led to improvement in our adjusted EBITDA, supported by stronger operating performance and the continued benefits of the efficiency initiatives we implemented in early 2025. For the full year, we generated $335.3 million in total revenue, a decrease of $9.8 million, or 2.8% year-over-year, primarily due to fewer flight equipment sales. Excluding flight equipment sales, full year revenue increased 18.7%, driven by stronger USM demand, higher average lease rates and asset yields and robust growth in sales at our component MROs and of AerSafe products. Full year adjusted EBITDA also increased $12.8 million to $46.1 million, up 38.2% year-over-year, reflecting higher volumes, favorable mix and margin and cost benefits from our efficiency program. During the fourth quarter of 2025, we acquired $15.4 million of feedstock, bringing full year acquisitions to $99.6 million. While the feedstock environment remains constrained, we have been steadfast in our disciplined acquisition pricing and believe opportunities will improve as OEM production normalizes. Our win rate in the quarter was 4.8% versus 17.2% in the fourth quarter of 2024. We disclosed this number to provide investors with a measure of how conservative we are when buying feedstock in a hypercompetitive environment, although a quarter-over-quarter comparison may not fully reflect this discipline. Year-over-year, our win rate was 6% in 2025 versus 8.6% in 2024. Regarding our Boeing 757 passenger to freighter converted aircraft, we ended 2025 with 2 on lease and 5 aircraft we converted remaining in inventory. We are actively engaged in discussions with potential customers. Increased demand for cargo and the FAA's recent grounding of the MD11 freighter fleet continue to make us bullish. We'll deploy all our 757 freighters in 2026, with two of these aircraft under letters of intent at year-end. During 2025, we made several strategic adjustments across our on-airport MRO facilities. In Goodyear, we transitioned from an expiring contract to new business at higher rates resulting in improved profitability. In Roswell, we shifted our focus to storage and end-of-life fleet activities, largely offsetting lost heavy check margin. Our on-airport MRO expansion project in Millington, Tennessee is now fully operational and productive with heavy check work that began in December, following the award of a multiyear maintenance agreement with a regional airline, positioning the facility to significantly contribute to profitability in 2026. Regarding our component MRO facility expansion initiatives, we moved into our new 90,000 square foot aerostructures facility in January 2026. With existing customer approvals and more underway, we expect aerostructure's volumes to ramp up throughout 2026. Our pneumatic expansion project is also progressing with all construction now complete, and we expect this additional capability will come online by the end of the first quarter. As these 3 expansion initiatives begin to contribute in 2026, we remain confident in their revenue potential. While we previously communicated an incremental annualized opportunity of approximately $50 million, updated assessments indicate that the full capacity potential is likely to exceed that original estimate. As we ramp up in 2026, we will provide an update on the progress of these projects as contributions from this additional capacity and capability are realized. We're also proud to announce that our landing gear shop received FAA approval to overhaul Boeing 737 MAX and 787 landing gear, which supplements our existing authority to overhaul gear for 737 Classic and NG Series 757, 767 and the Airbus A320 series of aircraft. This expansion to include MRO for new technology flight equipment allows us to better support our expanding customer base as mid-technology flight equipment is eventually replaced. Looking ahead to 2026, we're mitigating earnings volatility by growing the more recurring and predictable parts of our business. These initiatives include filling capacity at all our on-airport MRO facilities, growing USM sales, generating significant additional component MRO revenue with our available expanded capacity and new capabilities, increasing the number of assets deployed in our lease pool, and continued strength in AerSafe revenue as the FAA's November 2026 deadline to comply with the FQISAD comes due. Finally, we remain committed to the success of our revolutionary Enhanced Flight Vision System AerAware, by marketing this to select interested customers, both commercial and governmental. Concurrently, we are taking steps to educate our U.S. regulators and the agencies responsible for the safety of our air transportation system on how the unique features of AerAware will improve safety and provide economic efficiency to the industry. On the cost side, the enhanced efficiency programs we implemented last year have allowed us to streamline workflow at each facility with a goal to better match facility scheduling with volume while opening available capacity at other facilities to maximize profitability. Taken together, we expect 2026 to be another growth year for AerSale on both the top and bottom lines. Our strong balance sheet will support increased USM sales and leasing, thereby providing improving recurring revenue from our Asset Management segment. Customer expansion, increased capacity and efficiency initiatives have put us in a position with all our MROs to see significant incremental revenue progression quarter-over-quarter. I want to conclude by thanking our employees for their dedication and hard work in meeting our growth initiatives in 2025 and our investors for their continued support as we work on maturing the business and reducing volatility. We look forward to updating you on our progress throughout 2026. With that, I'll turn the call over to our Chief Financial Officer, Martin Garmendia. Martin Garmendia: Thanks, Nick, and good afternoon, everyone. I'll walk through some additional details on our fourth quarter and full year financial results, then touch on cash flow and liquidity and close with our outlook for 2026. Fourth quarter revenue was $90.9 million, which includes $20.9 million of flight equipment sales consisting of 4 engines. This compares to $94.7 million in the fourth quarter of last year, which included $31 million of flight equipment sales consisting of 6 engines. As we note each quarter, flight equipment sales can vary meaningfully from period to period. As a result, we believe performance is best assessed over time with a focus on feedstock acquisition, monetization of those investments and profitability trends. Fourth quarter revenue for Asset Management declined approximately 11.1% year-over-year to $56.9 million due to fewer flight equipment sales. Excluding flight equipment sales, revenue increased 9.1%, driven by continued strength in USM and an expanded lease pool. For the full year, asset management revenue was $211.6 million, down 1.8% year-over-year. Excluding flight equipment sales, segment revenue increased 47.3%, supported by strong inventory levels and demand that allowed us to grow our USM and leasing activity. Turning to TechOps. Fourth quarter revenue increased 10.7% to $34 million, driven by higher sales in our aerostructures and landing gear MROs as we have been successful in winning new contracts. A focus on higher-margin opportunities and the efficiency measures taken in early 2025, allowed us to further improve our profitability and set the foundation to grow our on-airport MROs beyond historical levels and with a greater profit profile in 2026 and beyond. TechOps was also strengthened by strong demand from our component MROs and continued momentum in AerSafe products as customers prepare for the 2026 compliance deadline. For the full year, TechOps revenues declined 4.5% to $123.7 million, primarily due to lower on-airport MRO activity. However, improved mix and efficiency initiatives improved gross margin for the year to 25.6%, compared to 16.6% in the prior year period, due to favorable mix and benefits of the efficiency measures taken in early 2025. Selling, general and administrative expenses for the year were $90 million, including $4.9 million of noncash equity-based compensation compared to $94.2 million last year, which included $4.3 million of noncash equity compensation. The decrease was primarily driven by lower payroll-related expenses, which also benefited from the efficiency measures taken in 2025. Income from operations was $15.8 million for the full year of 2025, compared to $9.7 million in the prior year. On an adjusted basis, net income for the year was $15.8 million compared to adjusted net income of $9.5 million last year. Adjusted diluted earnings per share for the year was $0.33 compared to adjusted diluted earnings per share of $0.18 in 2024. Adjusted EBITDA for the year was $46.1 million compared to $33.4 million in the prior year period, which benefited from a higher margin product mix as well as improved overall margins and lower expenses. Year-to-date cash used in operating activities was $23 million, primarily related to feedstock acquisitions as we continue to make strategic investments to grow the Asset Management segment. We ended the year with $71.6 million of total liquidity, including $4.4 million in cash and $67.2 million of revolver availability on our $180 million asset-backed revolver, which can be expanded to an additional $200 million -- sorry, to an additional $20 million. This available liquidity and our strong inventory position provide us with the fuel to continue to grow our business into 2026. Looking ahead, as we shift our emphasis away from trading and toward expanding the more recurring core elements of our business, we expect both full year revenue and profitability to increase relative to 2025. We anticipate steady incremental improvements as new revenue streams ramp up and their efficiency initiatives continue to gain traction. With that, operator, we're ready to take questions. Operator: [Operator Instructions] Our first question comes from Michael Ciarmoli with Truist. Michael Ciarmoli: I guess, Nick or Martin, do you have a sort of a goal in mind of kind of how much material feedstock you think you can buy? I know you're being pretty conservative, and it's still a tight market out there. Just trying to get a sense of what do you think you can close and out of -- and maybe the other part, out of what you have on hand right now? Do you think you can move all of that product this year? Nicolas Finazzo: As far as feedstock -- this is Nick speaking. Thanks for the question, Mike. As far as feedstock purchases, we anticipate a lower level of feedstock purchases this year than we did last year. And why is that? The market is just hypercompetitive at this point. The pricing that we see, the reason that I mentioned the -- our win rate not that it's materially different from last year, it's just under 10%, which means that we lose 9 out of 10 deals that we bid on, not to mention the hundreds of deals that we don't bid on at all because we just don't think we would be competitive. And because of the extreme competition in the market for, I candidly believe less informed people who don't understand how difficult it is to make money buying used flight equipment, and then parting it out, and then finding a way to extract value out of it that we see people buying stuff at prices. And I've said this many quarters in a row at prices that are well beyond what we believe we can make in total margin based on what they have to pay for to win the deal. So we will continue to be disciplined on our buy side. And look, I've been doing this for a long time. This isn't the first company I've been with or that have been -- that I founded that buys -- that has bought in the aftermarket. And in my prior experience, lots of money moves into the space. uneducated investors don't know what they're buying, don't know how to properly monetize it. They spend too much money, and then eventually, they go away. And so we have to remain disciplined because overpaying kills companies. So as far as what do we think we could do this year? We think we could do -- if last year, we did $100 million. We don't think we'll do $100 million this year, but it could happen. And as far as monetizing the existing inventory that we have, I may defer a little bit of that to Martin, but we have ample inventory to continue to grow our business without buying as much as we did last year. I mean, I don't know, Martin, if you want to add any more color to that. Martin Garmendia: Yes. No, absolutely. I was going to say we're coming into starting 2026, with about $364 million of inventory, and that includes about -- almost roughly $150 million that's ready to be deployed in the USM channels as well as almost $118 million that's still in whole assets that we can put as USM or continue to grow our leasing portfolio. So on a positive, even as we're being very prudent as we always have been in deploying capital, we have more than enough to continue our growth trajectory, and that will increase our liquidity position. So when the opportunities are right, we'll continue to deploy capital. Michael Ciarmoli: Okay. Okay. Got it. That's really helpful. And then just on that growth trajectory. I think, the press release mentioned some of the storage revenues may have been benefiting from GTF. If I think about kind of GTF revenues and as that normalizes, and then you've got the AerSafe '26 deadline, which we kind of always see this dynamic across various end markets and industries. That probably is going to create a big uptick this year, but then maybe backfilling that. Should we think about GTF normalization, maybe AerSafe, kind of how you backfill that, maybe some of the new capacity coming online? And I guess, I'm thinking into '27, too, as maybe those trends normalize a bit with the GTF and AerSafe. Is that maybe the right way to think about it? . Nicolas Finazzo: Well, not 100% sure I got your question, but with regard to the GTF situation, we don't see that normalizing in '26 because we're hearing that before track and get the engines back to the aircraft that is going to drag into '27. So the opportunity for us isn't so much in the GTF storage as it is in returning the aircraft that have been parked now for several years, and returning those to service those aircraft require heavy checks. And we have -- I don't know how many, 70, 80 airplanes sitting in Goodyear and Roswell. So we've got -- we have got a lot of GTF-powered airplane sitting in our facility in Goodyear and Roswell. The Goodyear ones are going to require a return to service if they're not parted out, believe it or not. We are seeing the part out of brand new -- or relatively brand-new several-year-old A320Neos. But the opportunity for us is really yet to come. It's not through storing these airplanes and pulling engines off and putting engines on, it's that is helping. And at this point, because of the volume of it, it kind of reminds me of the COVID situation where we had 500 airplanes parked. And although you wouldn't think you make much money doing storage, you're removing engines, putting engines on, putting airplanes into storage, taking airplanes out of storage, and then prepping them for the next lessee. With that number of airplanes in one facility, that really creates a capacity issue, not so much a demand issue. So the demand is there. We see that, that will continue through '26 and '27 as we begin doing return to service work on the aircraft that are parked and are getting engines that are coming back from Pratt. Now -- the other part of your question was? Martin Garmendia: Just AerAware, does that create a big headwind next year as everybody preps for the deadline later this year? Nicolas Finazzo: With regard to -- it's AerSafe actually, with regards to AerSafe, the greatest amount of sales are going to happen this year. I mean, we have a backlog that already exceeds last year, sales for all of last year, and then we're still in the first quarter. As we -- it doesn't mean that it goes away altogether, but it will be significantly diminished. Now, it's not that we're sitting around waiting to sell these, and then we have nothing else to sell. We are working on other engineered products and STCs that airlines have asked us about to say, "Hey, can you make this product for us? Can you help us resolve this technical issue?" So we are -- our engineering group is working on airline demand for engineering products or engineered products that they need to keep their fleet flying because they're not getting -- it's not getting properly addressed by the OEMs that are producing those components. . So that is an active business that we are pursuing now, which will help us with our customers. Not to mention that we continue to look for opportunities to deploy our AerAware product not just across the 737, but we're talking across multiple other platforms, including 757 and even ATR 72. Operator: And I'm not showing any further questions at this time. I would now like to turn the call back over to Nick Finazzo for any closing remarks. . Nicolas Finazzo: Okay. Thank you, Ben. Thanks again. So as we've explained and mentioned the last quarter, even with just a few whole asset trades, no AerAware sales and no incremental revenue from our facility expansion projects in the fourth quarter. Our operating margins have continued to grow. I believe this validates our unique multidimensional and fully integrated business model. And as our businesses continue to develop will put us in an excellent position to achieve substantial growth in the years ahead. As always, I want to thank Mike Ciarmoli for his questions, which I believe provides additional insight into our business model and progress to date. I very much appreciate your interest in listening to our call today and look forward to bringing you up to date during our next earnings call. I wish you all a good evening. Thank you. Operator: This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Myers 2025 Fourth Quarter and Full Year Results Call. [Operator Instructions] I will now hand the conference over to Meghan Beringer, Senior Director of Investor Relations. Meghan, please go ahead. Meghan Beringer: Thank you. Good morning, everyone, and welcome to Myers Fourth Quarter 2025 Earnings Review. Joining me today are Aaron Schapper, President and Chief Executive Officer; and Sam Rutty, Executive Vice President and Chief Financial Officer. After the prepared remarks, we will host a question-and-answer session. Earlier this morning, we issued a press release outlining our fourth quarter financial results. In addition, a presentation to accompany today's prepared remarks has been posted. Those documents are available on the Investor Relations section of our website at myersindustries.com. This call is being webcast live on our website and will be archived along with the transcript of the call shortly after this event. Now please turn to Slide 3 of the presentation for our safe harbor disclosures. I would like to remind you that we may make some forward-looking statements during this call. These comments are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and involve risks, uncertainties and other factors, which may cause results to differ materially from those expressed or implied in these statements. Further, information concerning these risks, uncertainties and other factors is set forth in the company's periodic SEC filings. Also, please be advised that certain non-GAAP financial measures such as adjusted gross profit, adjusted operating income, adjusted EBITDA and adjusted earnings per share may be discussed on this call. Now please turn to Slide 4 of our presentation as I turn the call over to Aaron. Aaron Schapper: Thank you, Meghan. Good morning, everyone, and thank you for joining us. I will begin today's call with a review of our fourth quarter, then I will review full year 2025, which was a clear inflection point in Myers' history with both the Focus transformation program and the significant decision to sell Myers Tire Supply. Overall, we believe these actions will unlock substantial value, enhancing the company's long-term growth profile. Following my comments, Sam will provide a detailed review of fourth quarter and full year financials and our outlook for the year. Turning to Slide 5. Fourth quarter sales were essentially flat year-over-year. Excluding the impact from our decision to exit low-margin products with the idling of 2 rotational molding facilities, sales would have been up 3% as infrastructure, industrial and food and beverage growth was partially offset by soft consumer and vehicle demand. We expanded margins in the fourth quarter, demonstrating our ability to improve profitability as we grow the business in high-margin applications and align our operating footprint with customer needs. Both gross and operating margins improved with adjusted operating margins expanding 230 basis points. SG&A was lower as we are benefiting from our focused transformation objectives. As a result, fourth quarter adjusted EPS improved 63% year-over-year. Looking at full year 2025, Material Handling sales increased while distribution demand declined. With Material Handling, growth in industrial and infrastructure markets was offset by lower consumer and vehicle demand. We achieved higher profitability with operating and net income increasing on both a reported and adjusted basis. We're encouraged by the improved earnings as it demonstrates the ability of our team to control what we can control and achieve good results in a challenging demand environment. In addition to improved earnings, we increased cash flow in 2025 with free cash flow up 23%, further strengthening our balance sheet. We invested in growth, reduced debt and returned cash to shareholders, all while increasing our cash balance. This is a testament to the performance of our team and gives me confidence that we are well on our way to achieving our long-term strategic goals. It has been 1 year since my first earnings call as CEO. While I had only been in the role for about 3 months, that initial period confirmed for me the great team and potential at Myers. I was confident that we could create a company that delivers consistent and reliable results by building on our strong foundation. We launched a focused transformation to energize our team and accelerate our progress. After meeting and engaging with our leadership team and many employees, I knew we were up for the challenge. Over the last year, we have taken actions to improve business performance and drive shareholder value. It's still early days, and we have a lot of work to do, but I'm encouraged by the progress we have made. In our first year, our Focus transformation program was formed around 4 objectives shown on Slide 6. Our first objective was to establish a culture of execution and accountability to drive performance. We revised our core values, adding a focus on delivering results and continuous improvement. We aligned our incentive plans to drive business unit performance and create accountability across the organization to ensure we generate long-term shareholder value. We emphasized lean principles to drive clear and efficient processes. These actions are helping us to build a culture that consistently outperforms. Second was to create clear strategies to improve the profitability of our entire portfolio. We engaged with a broad group of employees, including our executive management team to dive deep into each of our businesses, understand their value propositions and create action plans. We developed strategic plans and implemented KPIs to drive organic growth, expand margins, track progress and create accountability. One significant outcome of this activity was the completion of a strategic review of MTS, resulting in the decision to sell the business. Once complete, this will result in a portfolio that is focused on growth platforms that drive improved margin profiles. Our third objective was to deliver consistent and reliable results across the organization by effectively controlling what we can control. In 2025, we delivered annualized cost savings of $20 million, primarily in SG&A, structurally reducing expenses while also optimizing organizational efficiency. We exited low-margin products and idled 2 of our 9 rotational molding facilities to improve utilization and reduce costs. We formalized and launched a strategic deployment tool to drive disciplined planning and empower businesses to convert long-term goals into annual objectives. This tool is being implemented across all levels of the organization, and we are beginning to see results. Finally, we have deployed a disciplined capital allocation framework, allowing us to invest in growth while returning cash to shareholders. We grew free cash flow 23% through improved earnings and prudent cash management, providing additional flexibility to fund our organic investments. We continue to invest in growth, targeting CapEx of 3% of sales, focusing on high-growth opportunities with superior returns, and we returned $23 million to the shareholders to enhance their total return. Sam will expand on our capital allocation framework later in the call. To summarize, in 2025, we moved Myers forward with purpose and urgency, made significant progress on our transformation and deliver results with a continuous improvement mindset, providing a strong catalyst for 2026. Looking ahead, I would now like to discuss how focused transformation approach is shifting in 2026 as our strategy evolves as shown on Slide 7. One thing that remains the same is our resolve and commitment to achieve real transformation. We are continuing our deliberate process to create a transformed organization focused on delivering consistent and reliable, profitable growth. To do this, we are shifting our priorities to reflect the progress and evolution of our strategy. With this new approach, we have established 3 strategic priorities or focus areas that will guide us in 2026. Within each focus area, we have identified transformation objectives to drive performance. Our first priority is to focus on our core markets and the customer value we deliver. We will invest to gain a deeper understanding of our markets and customers, informing our value proposition and positioning us to lead in our categories. This knowledge is gained through commercial excellence skills that strengthen customer relationships and deepen market insight. We are simplifying our portfolio to intentionally focus on serving prioritized markets that align with our competitive advantages as we provide products that protect. Our second priority is to focus on instilling operational excellence and cost leadership across the organization to drive a culture of high performance. We delivered measurable progress against this priority last year. For 2026, we want to make sure that we do not lose ground by standardizing the improvements we made in workflows. We want to work smarter and ensure our processes are repeatable year after year. When needed, we will make changes to refine our organizational structure and optimize our operating footprint. Last year, we put this into practice with the idling of facilities and changes in the organization to ensure that we have the right talent. The culture of continuous improvement will continue to be fostered across the organization. Our third priority is to focus on investments that maximize profitable growth. This is a disciplined capital allocation approach to invest in growth platforms where returns are highest. As we align with markets where we add the greatest value, we can invest in innovation and pursue business development activities that enhance and strengthen our ability to provide differentiated solutions for our customers' challenges. We believe that these focus areas and the related transformation objectives will drive desired strategic outcomes such as deliver revenue growth, EBITDA margin expansion, free cash flow conversion and the acceleration of Myers to a company that achieves world-class performance. This is all built upon our foundational set of core values that dictate how we operate and what unites us. At this time, I'll turn the call over to Sam for a review of our financial results. Samantha Rutty: Thank you, Aaron, and good morning, everyone. Let me start by reviewing our fourth quarter and full year results and then wrap up with the outlook by end market for the year. Please turn to Slide 9. Fourth quarter net sales were $204 million, essentially flat year-over-year due to our decision to exit low-margin products with the idling of 2 rotational molding facilities. Excluding this, sales would have been up 3%. Adjusted gross margin increased 140 basis points to 33.6% due to favorable mix and higher volume, partially offset by unfavorable price. Adjusted operating margin improved 230 basis points to 11% as SG&A was lower year-over-year, driven by focused transformation savings. As Aaron mentioned, we achieved $20 million in annualized cost savings, primarily in SG&A, improving our margins in 2025 and positioning us well for 2026. Going forward, we will continue to focus on cost reductions and operating efficiencies to drive sustainable improvement in profitability. Turning to segment results on Slide 10. Material Handling net sales decreased $0.4 million. Excluding the impact of idling our rotational molding facilities, sales increased 3.4%. By end market, food and beverage, infrastructure and industrial growth was offset by soft consumer and vehicle demand. Adjusted EBITDA margin was 25.6%, expanding 290 basis points with the benefit of our focused transformation savings plus improved mix and higher volume, partially offset by unfavorable pricing. Distribution net sales increased 0.9% and adjusted EBITDA margin improved 160 basis points. Turning to Slide 11. Full year 2025 net sales was $825.7 million, down 1.3% year-over-year. Excluding the impact from idling our 2 rotational molding facilities, sales decreased 0.6%. Material Handling growth was offset by distribution softness. Within Material Handling, sales in Industrial and Infrastructure increased while consumer and vehicle sales were lower. Adjusted gross margin increased 30 basis points to 33.7% due to lower material costs, favorable cost productivity and favorable mix. Adjusted operating margin improved 30 basis points to 10.3% due to benefits from our focused transformation program. Turning to Slide 12. Fourth quarter operating cash flow was $22.6 million and CapEx was $3.6 million, resulting in free cash flow of $18.9 million. For the full year, free cash flow improved 23% to $67.2 million. We reduced net debt by $44.2 million in 2025, resulting in net leverage ratio of 2.4x within our target ratio of 1.5x to 2.5x. We plan to further reduce debt in 2026, bringing our net leverage ratio closer to the midpoint of our target range. We ended the year with a cash balance of $45.1 million and total liquidity at $289.8 million, providing us with ample flexibility to support our capital allocation priorities. Working capital as a percentage of sales increased slightly, primarily due to higher receivables from infrastructure project delivery timing, partially offset by lower inventory. We continue to focus on working capital management as a priority. Please turn to Slide 13. Our capital allocation framework balances investing in growth while returning cash to shareholders. In 2025, we spent $19.6 million in CapEx, approximately 2.4% of sales. In 2026, we expect to be close to our target of 3% of sales as we continue to invest in organic growth platforms. We are also open to opportunistic acquisitions with a disciplined approach to support our growth platforms, now that our leverage ratio is within our target range. We returned $23 million to shareholders in 2025 through the combination of dividends and share repurchases. Returning cash to shareholders is an important element of our objective to create value for our shareholders. Turning to Slide 14. We are providing our market outlook for 2026. Due to the planned divestiture of MTS, we are not providing an outlook for automotive aftermarket. Related to that, MTS is expected to qualify for discontinued operations accounting treatment beginning in the first quarter. We still see both risks and opportunities for our end markets as we continue to monitor geopolitical conditions, including energy markets, tariffs or other factors that may influence demand trends. Also, our market outlook excludes the impact from exiting low-margin products and idling 2 rotational molding facilities in Alliance, Ohio that occurred in Q4. This represents approximately $5 million in revenue per quarter, primarily industrial and consumer markets with a favorable impact to earnings. Let me review our expectations by market. For industrial, we expect moderate growth as we are seeing modest recovery in manufacturing capital expenditure trends from our industrial customers. Militaries around the world are replenishing their inventories and demand for military products continues to increase. In Infrastructure, strong ongoing spend for large construction and utility projects supported by conversion from wood to composite matting should continue to drive strong growth. The current backlog for matting products is now the largest in the history of this business, giving us confidence in our 2026 outlook. We expect the vehicle end market to be stable overall with mixed demand indicators. For RV and marine, we expect flat sales as consumer sentiment is stabilizing. For commercial vehicles, we expect recovery starting in the second half of 2026. For automotive OEMs, the volume of new and updated vehicle program launches over the next 12 to 18 months is expected to drive demand for new component packaging. In consumer, we now anticipate sales to be stable. Strong winter storms across most of the U.S. at the start of 2026 created a sharp increase in demand for fuel containers. While this event drove demand in Q1, it is still early to determine full year storm impact. However, we are planning for the average of 3 landed storms in the Continental U.S. this year. Our food and beverage end market is forecasted to be slightly down for the year, reflecting the agricultural market position at the low end of its cycle. I would now like to turn the call back to Aaron for some closing comments before we take your questions. Aaron? Aaron Schapper: Thank you, Sam. In closing, I'm pleased with the meaningful progress we are making on our focused transformation to become a company that consistently delivers reliable financial results. There is still room for improvement, but our overall trajectory is encouraging. Margins are improving and cash flow is increasing as we begin to see early benefits from focused transformation. Supporting this is our capital allocation framework that balances investment in growth and returning cash to shareholders to create sustainable value. And as we invest, grow and simplify our portfolio, we are aligning our operations with markets that are growing and offer higher returns as we deliver products that protect. With that, I'd like to turn the call over to the operator for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Christian Zyla with KeyBanc Capital Markets. Christian Zyla: Congratulations on the quarter and the full year. My first question is on broader end market sentiment. Industrial production has been strong for the last 14 months. PMI has been strong to start 2026 and sentiment on the industrial side seems to be improving after a few years of weakness. With your opening remarks, it sounds like you're seeing something similar. I know your outlook is moderate growth for your industrial bucket, but can you help break that down between the subcategories like Akro-Mils, Buckhorn sector, et cetera? Just kind of what you're seeing across those lines. Aaron Schapper: Sure. Yes. So in general, if you look at the PMI, it's a broad spectrum, right, across manufacturing here in the U.S. So yes, that helps, right? So if you're looking at some of our products that specifically supply to those larger industrials such as Akro-Mils, then yes, that tracks closely. So as you see that strength, it does translate over. Then there's other product lines that are a little more specific to the end markets in those industries, automotive and what Buckhorn will do for automotive. There's also then if you look at the -- basically construction and a lot of utility and kind of data center mega build-outs, those track strongly to what we do with our ground protection product at Signature. So although PMI gives us kind of a broad based scope, you kind of look at -- we look at each of the end markets and say, okay, well, how is the construction industry, data centers, utility, kind of the AI investing of infrastructure pulls along Signature. Automotive pulls along Buckhorn. Agriculture will pull along of seed box business. And right now, agriculture is still at a cyclical low [indiscernible]. And so those are kind of -- that's where you get some of that mix. So the moderate growth story is there, but you have to look into some of the end markets to understand what our application is in those end markets. Sam, do you have anything to add? Samantha Rutty: Yes. Yes, overall, I think you made the right comments there. I mean, obviously, militaries as well, as we commented earlier in the pre-read is a big driver as well on the industrial side. Aaron Schapper: Yes. I think, Christian, we've talked about that. And obviously, with new geopolitical issues coming out, it's becoming -- I think it has been an important focal point for the last year. It certainly will continue to do so. So as we look at militaries that are looking to rearm and make sure that they have the stockpiles they need to go the distance in any conflict. Christian Zyla: Yes. Got it. That actually goes nicely into my next question. I remember at the Investor Day a few years ago, your team highlighted U.S. qualification for your defense products along with NATO orders. Are you selling to the U.S. Dow now? And are you anticipating or seeing a pickup in demand from your programs given just what's unfortunately happening across the world? It just seems like your product is a great complement of consumables in the end market. So just any broad thoughts there and kind of how you see that shaping up through the year and maybe how you size that full business? Aaron Schapper: Yes. So if we look at kind of the arc of that business, really we split it into kind of 2 sides. So one, we do sell directly to the U.S. military, and that's kind of one of our customer sets. And the other one is the NATO customer set, which is going to obviously be more European-based and more internationally based. So we sell to both sides on that. NATO has made it a more of a strategic priority to have a supply chain that's independent -- more independent of the U.S. in the past. And so as a result, that's given a great opportunity for us. As you know, we have Canadian operations that dovetail well with the needs of NATO. And then we also have operations here in the U.S. for injection molding to meet the needs of the U.S. government. So what we plan on doing is we use both our supply chain in both Canada and the U.S., and we're looking for opportunities globally. As NATO grows, we want to grow with that business. So we're always happy to look for those opportunities internationally. For us, look, the product dovetails very well with what's needed. As you know, we focus on the ammunition side. So as they bring up these complex weapon systems, the ammunition was really shown during the conflict in Europe between Ukraine and Russian war, how quickly ammunitions go -- get consumed in a near-peer conflict. So as a result, that's really helped drive not only business for the last year, business this year, but also real solid plans on growth in the future and making sure -- so from our side, on the Myers side, we just want to make sure that our capital follows those growth vectors and that we make sure that we have great organic growth opportunities, and we have the capital spent to service our customer as they grow. So we're bullish on that business in the future, and we remain confident that we'll do well, and we're positioned well in the future. Christian Zyla: That's great. If I could sneak one last one in. Just a very nice result in Material Handling margins really for the full year, given the changes that you've made throughout 2025. Was there anything unusual in the fourth quarter and then assuming volume absorption benefits and maybe some uptick in your end markets and volume absorption, just given all the changes you've made with your capacity, is there any reason why this new 18% level can't be the new baseline? Just kind of like puts and takes there. Samantha Rutty: Yes. I mean, yes, a really great quarter for Material Handling. A lot of what we've been doing around focused transformation. I mean, we've talked a lot about the idling of the roto facilities, right? But that was when we started to see the real benefit of those actions there. But as said, we're not done around focused transformation. There is more to be done. There's a lot of focus on continuous improvement broadly across our businesses. And so I would say good mix helped some in Q4. That's always a factor, right? We're seeing, as Aaron mentioned, good strong backlog around our matting products as well as some of the good tailwinds at the end of the year, even, I would say, a slight pickup in the fourth quarter for volumes on the roto side as well, which helped after our restructuring activities. And obviously, we continue to see the impact of our SG&A reductions as well, which helped a lot as well, and that continue as we've made that structural change in our cost base. So there's no reason to suggest that it wouldn't continue, although obviously, with recent activities in the world, we'll be continuing to look at risk and material costs as we think about resin prices and things like that, we'll have to continue to adapt. Operator: [Operator Instructions] Your next question comes from the line of Bill Dezellem with Tieton Capital Management. William Dezellem: Congratulations on meeting your $20 million cost reduction goal in '25. How much of that $20 million is going to be incremental to '26 because you did not have it all as of January 1, '25? Samantha Rutty: Yes. I mean there will be some incremental. We've obviously got things that was a factor of some of those savings were within our distribution business and obviously, dependent upon the sale of that business, it's going to impact how much of that carries forward within the RemainCo. But again, as we mentioned, we're not done, and we'll continue to look for more opportunities within Material Handling and build upon those in 2026. William Dezellem: And Sam, would you please put some numbers behind both that incremental that flows through in '26 and the additional target that you're looking at for this year? Samantha Rutty: I don't think we're at a place that we can talk about a specific target for 2026. And we've got actions and work to do depending upon the timing of that sale as we -- as that business splits off. Operator: There are no further questions at this time. I will now turn the call back to Meghan Beringer for closing remarks. Meghan Beringer: Thank you for joining us today. If you'd like to continue the conversation, my contact information can be found on the final slide of this presentation. We look forward to staying in touch. With that, we'll conclude the call. Have a good day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to Evogene's Fourth Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, March 5, 2026. Before we begin, I would like to caution that certain statements made during this earnings conference call by Evogene's management will constitute forward-looking statements that relate to future events. This presentation contains forward-looking statements relating to future events and Evogene Ltd., the company may from time to time, make other statements regarding our outlook or expectations for future financial or operating results and/or other matters regarding or affecting us that are considered forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995, the PSLRA and other securities laws as amended. Statements that are not statements of historical fact may be deemed to forward-looking statements. Such forward-looking statements may be identified by the use of such words as believe, expect, anticipate, should, plan, estimate, intend and potential or words of similar meaning. We are using forward-looking statements in this presentation when we discuss our value drivers, commercialization efforts and timing, product development and launches, estimate market sizes and milestones, pipeline as well as our capabilities and technology. Such statements are based on current expectations, estimates, projections and assumptions, describe opinions about future events, involve certain risks and uncertainties, which are difficult to predict and are not guarantees of future performance. Readers are cautioned that certain important factors may affect the company's actual results and could cause such results to differ materially from any forward-looking statements that may be made in this presentation. Therefore, actual future results, performance or achievements and trends in the future may differ materially from what is expressed or implied by such forward-looking statements due to a variety of factors, many of which are beyond our control, including, without limitation, the aftermath of the recent war between Israel and each of the terrorist groups, Hamas and Hezbollah, Iran and other regional terrorist groups supported by Iran and any destabilizations in Israel, neighboring territories or the Middle East region and those described in greater detail in Evogene's annual report on Form 20-F and in other information Evogene files and furnished with the Israel Securities Authority and the U.S. Securities and Exchange Commission, including those factors under the heading Risk Factors. Except as required by applicable security laws, we disclaim any obligation or commitment to update any information contained in this presentation or to publicly release the results of any revisions to any statements that may be made to reflect future events or developments or changes in expectations, estimates, projections and assumptions. The information contained herein does not constitute a prospectus or other offering document nor does it constitute or form part of any invitation or offer to sell or any solicitation of any invitation or offer to purchase or subscribe for any securities of Evogene or the company nor shall the information or any part of it or the fact of its distribution from the basis of or be relied on in connection with any action, contract, commitment or relating thereto or the securities of Evogene or the company. The trademarks include herein are the property of the owners thereof and are used for reference purposes only. Such use should not be construed as an endorsement of our product or services. With us on the line will be Ofer Haviv, President and CEO of Evogene and Yaron Eldad, CFO of Evogene. Now I will turn the call over to Ofer Haviv. Mr. Haviv, please go ahead. Ofer Haviv: Thank you for joining Evogene's Fourth Quarter and Annual 2025 Analyst Call. In today's call, I would like to focus on the significant progress Evogene has made over the past year and to outline the strategic transformation we initiated to position the company for long-term value creation. Following my remarks, our CFO, Yaron Eldad, will present the financial results, and we will then open the call for questions. During 2025, following a comprehensive review of our technology, markets and capital allocation, we made deliberate choice to sharpen our focus and execution. This transformation was guided by a strong objective to direct Evogene resources where we believe we can create the greatest sustainable value. Today, our mission is clear and focused. to design novel, highly potent small molecules optimized across multiple parameters for drug development and ag chemicals by utilizing ChemPass AI, our computational generative AI engine. For this purpose, we implemented 2 core strategic decisions. First, we focused our technology development on a single computational engine, ChemPass AI. Second, we streamlined our business activities to concentrate exclusively on 2 high-impact markets where ChemPass AI offers strong differentiation, human health centered on small molecule drugs and agriculture focused on novel ag chemicals. These decisions led to determined actions across the company. We dedicated our computational capabilities to ChemPass AI, discontinued noncore activities, divested misaligned assets, resized the organization and established a business development team aligned with our refined strategy. I would like to elaborate on ChemPass AI and emphasize its competitive advantage for small molecules generation. ChemPass AI is designed to generate novel, highly active molecules while meeting the complex parameters required to meaningfully increase the probability of downstream development success. ChemPass AI competitive advantage lies in the powerful combination of the following 2 capabilities. The first, generating novel molecules based on vast chemical territories and the second, ensuring they meet demanding multiple parameters requirement from day 1. Our platform goes far beyond the chemical space the industry traditionally explores. Based on 38 billion molecules universe, ChemPass AI foundation model navigates vast diverse chemical domains that others simply cannot access. This enables us to design truly original molecular structures with strong biological potential and highly defensible intellectual property, opening the door to breakthrough products and new IP landscape. At the same time, precision is built into every molecules we create. Our AI engine simultaneously optimize a wide range of critical chemical, biological and physical parameters, tailoring each compound to the exact constraints and success criteria of the specific target product. The result is not just innovations, but synthesizable active molecules engineered from the outset to meet real development requirements, dramatically increasing the probability of real-world commercial success. This differentiation is supported by proprietary technological advancements developed by our internal team, guided by world-class scientific advisers and reinforced through multiple collaborations with leading technology companies, including Google Cloud with whom we are currently engaged in our second collaboration. Our first announced collaboration with Google Cloud was successfully completed in mid-2025 with a first-in-class foundation model for the generation of novel molecular product candidates optimized for multiple parameters by processing a database of 38 billion structures. We tripled our benchmarks for accuracy, delivering 90% design precision. Building on this, we were pleased to announce our second collaboration with Google Cloud initiated this February. We are now integrating advanced AI agents into ChemPass AI using Google Cloud Vertex AI to decrease manual errors and automate complex scientific workflows, aiming to improve our novel small molecule candidate probability of development success. This move towards autonomous discovery is key to advancing and scaling our capabilities for the support of future partnerships across the pharma and agriculture industries. To summarize the uniqueness of Evogene's offering, our product candidate combines 3 powerful capabilities: novel molecules generated based on vast and diverse chemical space, simultaneous optimizations for multiparameters requirements from the outset, highly potent molecules optimized through targeted experimental validation. We don't just design novel chemistry. We generate novel chemistry that performs. ChemPass AI is built on fully integrated partnership-driven workflow, forming our business model expressed in collaboration and in-house development towards proprietary product candidate. Our partners are engaged at every stage from joint strategic review through rigorous experimental validation and collaborative evaluation. Each project is custom designed to align precisely with each specific scientific and strategic objectives. I view this collaborative structure as a key strategic advantage for us, both in enhancing the likelihood of advancing proprietary candidate molecules with the highest potential to become successful products and in positioning Evogene as a true development partner, enabling participation in the product's future revenue stream. That brings me to this slide, demonstrating the implementation of our business model, summarizing Evogene's current achievements of which I'm very proud. In human health, we are advancing multiple partnered drug discovery programs with biotechnology companies and academic institutions. In this partnership, ChemPass AI is driving discovery and optimization of candidates that are progressing into testing with our partners. To date, we have publicly disclosed 4 such collaborations, and we expect such activity to scale with additional collaborations. These achievements were made within a very short time frame of several months, and we aim to present similar advancement during the remainder of 2026 and beyond. You are invited to visit Evogene's website and review our company's presentation for additional details on each of these collaborations. In agriculture, our subsidiary, AgPlenus, continues to apply ChemPass AI to development of novel herbicides and fungicides. The maturity and robustness of the platform are reflected through our strategic collaboration with Bayer and Corteva alongside a differentiated internal pipeline. We expect continued growth through the expansion of those collaborations and the formation of new partnerships. In our future quarterly analyst call, I expect to go deeper into these business engagements and update on new ones. To complete my part in today's call, I would like to send a clear message. The generation of proprietary small molecule product candidates is our mission. With ChemPass AI, our well-differentiated generative AI engine, disciplined capital allocation focused on high potential markets and a strong strategic partnerships, we believe Evogene is now positioned on a defined more focused path towards sustainable value creation. Our business aim for short and midterm is to become the partner of choice for small molecule discovery and optimization with pharma and big biotech companies for drug development and with multinational agriculture companies for ag chemical development. For the long term, Evogene aims to develop its own product pipeline, benefiting from the competitive edge of our proprietary technology. This is Evogene, combining cutting-edge AI with deep scientific expertise to generate real-world innovation. Thank you for your time and attention. With this, I conclude my part and will now hand the call to our CFO, Yaron Eldad, to present the financial results. Yaron Eldad: As part of the company's updated strategic plan, management implemented an organizational realignment and cost reduction initiatives. The effects of these measures are reflected in the significant decrease in operating expenses net, which declined to approximately $13.8 million for the year ended 2025 compared to approximately $22 million in 2024. The impact is also evident in the fourth quarter results with total operating expenses net of approximately $3.2 million compared to approximately $4.3 million in the corresponding period of 2024. The company expects this reduced expense level to be sustained in future periods. In 2025, Lavie Bio Ltd, a subsidiary of Evogene Ltd focused on agriculture biologicals, completed the sale of the majority of its operations to ICL. As a result of this transaction, Lavie Bio no longer maintains employees and its operation expense level has decreased significantly. Lavie Bio anticipates distributing the majority of its remaining cash to its shareholders, including Evogene during 2026. During 2025, as part of the company's updated strategic plan, we scaled down Biomica's operations and research and development activities and reduced its personnel to a minimal level. In early 2026, Biomica entered into a license agreement with Lishan Pharmaceuticals for its lead oncology candidate, BMC128. Following this transaction, Biomica does not expect to conduct further material operational activities and anticipates distributing the majority of its remaining cash to its shareholders, including Evogene. With respect to AgPlenus, we integrated AgPlenus, our ag chemical subsidiary into the core operations of Evogene with the objective of maximizing the value of our ChemPass AI platform for the development of novel ag chemical products. In alignment with the company's updated organizational structure, AgPlenus was resized and streamlined to reflect the revised operating model. During 2025, due to a significant decline in demand for castor seeds, Casterra AG ceased its operations in Kenya, reduced its headcount and overall expense level and is currently focusing its activities on the Brazilian market. As a result of these developments, Casterra recorded an impairment of approximately $2.2 million related to its seed inventory. This impairment is presented within cost of sales in the consolidated financial statements in a separate line item. In February 2026, Evogene entered into a warrant inducement agreement with an existing investor, providing the immediate exercise in full of its August 2024 Series A and Series B warrants, resulting in gross proceeds to the company of approximately $3.4 million before deducting placement agent fees and other offering expenses. In consideration for such exercise, the investor will receive in a private placement, new unregistered Series A1 and Series B1 warrants to purchase up to an aggregate of 5,076,924 ordinary shares. The new warrants are exercisable immediately at an exercise price of $1.25 per ordinary share. Cash position. As of December 31, 2025, Evogene held consolidated cash, cash equivalents and short-term bank deposits of approximately $13 million. The consolidated cash usage during the fourth quarter of 2025 was approximately $3 million. Excluding Lavie Bio and Biomica, Evogene and its other subsidiaries used approximately $2.4 million in cash during the fourth quarter of 2025. Revenues for 2025 totaled approximately $3.9 million compared to approximately $5.6 million in the same period the previous year, reflecting a decrease of approximately $1.7 million. The decrease was primarily driven by lower revenue recognized from AgPlenus' activity, which included onetime payment during the first quarter of 2024 and revenues recognized from the collaboration agreement with Corteva that was completed during 2024. Revenues for the fourth quarter of 2025 were approximately $0.3 million, a decrease compared to approximately $1.5 million in the same period last year. The decrease was mainly due to reduced seed sales generated by Casterra during the fourth quarter of 2025. Cost of revenues for the year ending 2025 was approximately $4.1 million compared to approximately $2.4 million in the previous year. The increase was primarily attributable to an inventory impairment of approximately $2.2 million recorded by Casterra during the fourth quarter of 2025, mainly due to its decision to cease its operations in Kenya as noted above. Cost of revenues for the fourth quarter of 2025 was $2.3 million compared to $0.7 million in the fourth quarter of the previous year. The increase in quarterly cost of revenues was mainly driven by the same inventory impairment of Casterra as noted above. R&D expenses net of nonrefundable grants for the year 2025 were approximately $8 million, a decrease of approximately $4.5 million compared to $12.5 million in the year 2024. The decrease was primarily due to reduced R&D expenses in Biomica, Casterra and AgPlenus. In the fourth quarter of 2025, R&D expenses were approximately $1.8 million, down from approximately $2.7 million in the same period of 2024. This decrease is mainly attributed to decreased expenses in Biomica. Sales and marketing expenses for the year 2025 were approximately $1.5 million, a decrease of approximately $0.5 million compared to approximately $2 million in the same period last year. The decrease was mainly due to reductions in Evogene and Biomica's personnel costs. Sales and marketing expenses for the fourth quarter of 2025 and 2024 were approximately $0.3 million and $0.4 million, respectively. General and administrative expenses for the year 2025 decreased to approximately $4.3 million from approximately $7 million in the same period last year. This decrease is mainly attributable to expenses recorded during the year 2024 related to a provision for doubtful debt for one of Casterra's seed suppliers as well as transaction costs associated with Evogene's fundraising in August 2024. Additional decrease is attributable to a reduction in Biomica's activity and personnel costs during 2025. General and administrative expenses for the fourth quarter of 2025 decreased to approximately $0.9 million compared to approximately $1.3 million in the same period of the previous year. primarily due to decreased expenses in Evogene and Biomica, as mentioned above. Operating loss for 2025 was approximately $14 million, a significant decrease from approximately $18.8 million in the same period of the previous year, mainly due to decreased operating expenses, partially offset by the decreased revenues, as mentioned above, and the higher cost of revenues, mainly due to an inventory impairment of approximately $2.2 million recorded by Casterra in the fourth quarter of 2025. The operating loss for the fourth quarter of 2025 was approximately $5.2 million, an increase from approximately $3.5 million in the same period of the previous year primarily due to the decreased revenues and increased cost of revenues mentioned above, partially offset by decreased operating expenses. Financing income net for the year 2025 was approximately $0.6 million compared to approximately $4 million in the previous year. The decrease in financing income net was mainly associated with accounting treatment of prefunded warrants and warrants issued in August 2024 fundraising. As a result, during the 12 months of 2025, the company recorded financial income net related to prefunded warrants and warrants of approximately $458,000 as compared to a financial income of approximately $3.4 million in the same period of 2024. Financing expenses net for the fourth quarter of 2025 were approximately $0.2 million compared to financing income net of approximately $4.5 million in the same period of the previous year. The decrease in financing income is mainly associated with accounting treatment of prefunded warrants and warrants issued in the August 2024 fundraising as mentioned above. Income from discontinued operations net for the 12 months of 2025 was approximately $5.7 million compared to a loss of approximately $3.2 million in the same period of 2024. For the fourth quarter of 2025, loss from discontinued operations net was approximately $16,000 compared to a loss of approximately $1 million in the fourth quarter of the previous year. These amounts primarily reflect the financial results of Lavie Bio's operations as well as expenses related to the development and maintenance of MicroBoost AI for Ag, which are presented as a single line item in the consolidated statements of profit and loss. Following the sale of the majority of Lavie Bio's assets as well as Evogene's MicroBoost AI for Ag to ICL, the company recognized a gain on sale of approximately $6.4 million which is also included in the income from discontinued operations net for the year of 2025. All prior period amounts have been reclassified to confirm to this presentation. Net loss for the 12 months of 2025 was approximately $7.8 million compared to approximately $18.1 million in the same period last year. The $10.3 million decrease in net loss was primarily due to decreased operating expenses and an income derived from discontinued operations due to the asset sale to ICL net, partially offset by reduced revenues, higher cost of revenues and a decreased financing income net. The net loss for the fourth quarter of 2025 was approximately $5.4 million compared to net loss of approximately $5,000 in the same period last year. This increase in net loss was primarily due to decreased financial income, decreased revenues and increased cost of revenues, partially offset by decreased operating expenses as mentioned above. Operator? Operator: [Operator Instructions] There is a siren in Israel. We will be back in a few minutes. Thank you for standing by. The first question, can you speak to the terms of the BMC128 license agreement with Lishan Pharmaceuticals? Ofer Haviv: This is Ofer. Sorry for asking you to wait. It's not a regular time here in Israel, we are -- everybody that participated in the call is in the same place at Evogene Office. With respect to this question, what I can disclose is that the agreement with Lishan includes a milestone payment, which is expected based on advancing the BMC128 in the pipeline or if there will be any commercial transaction that will generate value for Lishan so we will participate in this amount. And of course, revenue sharing from revenue the end product will generate. So this is what we can disclose. And in pharma, the numbers will be quite significant. So when this [indiscernible], it could be significant for Evogene. It could be quite significant for Biomica and Evogene as a major shareholders in Biomica is expected to benefit from it. We can move to the next question. Operator: Can you speak to the magnitude of cash potentially coming in from Lavie Bio and Biomica. To summarize, can you highlight investor catalysts over the coming 12 months? Ofer Haviv: So with respect to the cash expected from Biomica and Lavie Bio. So we disclosed the financial terms of the acquisition of the majority of Lavie Bio -- and MicroBoost and to ICL and what we have expected is that the cash that Evogene will have after this dividend distribution will satisfy our need for at least mid next year, maybe even more. But the current operation, the expectation is that even without additional financial transaction, we have sufficient cash for a little bit more than 1.5 years. And with respect to the catalyst that might took place -- so I think that I tried to describe it in my part. So you can envision 3 type of catalysts. The first one, additional technology collaboration with companies such as Google. What I can share is that we are talking with some other company in the same size like Google, where we are looking for a different opportunity to work together and leverage their assets and knowledge to the where we acted. And each time that such a thing happen, it really pushed the limitation that we are addressing with our technology to further and further. So this is quite important. And of course, it the attention of potential partners because it increased the evidence that what we are offering is something very unique if all of this mega, mega company is working with us. So this is one type of catalyst. The second type of catalyst is additional collaboration agreement with pharma companies or with biotech companies where we are going to use ChemPass AI to identify small molecules which bind to the protein of interest addressing multi actor criteria, novel chemical structure and with high potency. The first set of collaboration that we engaged with small biotech companies and institution. Now we are targeting for more and bigger type of tech companies. And we are also expecting that at least some of those transactions will inject cash to the company to Evogene even in the early stage to cover our expenses. So this is the first type of catalyst that you can think of. And the second type of catalyst you can think of. And the third is, again, collaboration agreement, but this time with other chemical companies -- we are talking with some companies in this field. The industry in the last few years didn't have a positive performance the market. And this has had a negative effect on their willingness and appetite to enter into a collaboration. But things start to change now and understanding that there is a clear need for innovation increase. And also I think that the performance that AgPlenus achieved in the last year, hopefully will help us to engage in some collaboration agreements with potential partners in this industry. So to summarize, 3 type of catalyst technology collaboration with companies like Google and others, then collaboration with midsized biotech and pharma companies and collaboration with other chemical companies. This is the main catalyst I'm expecting to share coming from the core business of Evogene as we see today -- we also have some other activities such as Casterra and some other legacy activity. But I prefer not to refer to them today because it's very important for me to make sure that it's very clear that what is the strategic avenue Evogene decided to go through and we truly believe this represent the highest potential for our shareholders for the next few years. Operator: There are no further questions at this time. Mr. Haviv, would you like to make a concluding statement? Ofer Haviv: Yes. I would like to thank everybody to participate in today's conference call. We are here in Evogene committed to achieve our targets I can assure you that all of Evogene employees are working from home or even coming to our offices. And I'm looking forward to continue to update you and share with you additional great announcement like in the last quarter. Thank you. Operator: Thank you. This concludes Evogene's Fourth Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Stephanie Luyten: Good morning. Thank you for joining us as we present Elia Group's Full Year Figures and have a look at what 2026 will bring for the Group. I'm joined today with our CEO, Bernard Gustin; and Marco Nix. Bernard Gustin: Good morning. Stephanie Luyten: Good morning, both. Before we start, please take a moment to review the on-screen disclaimer. It contains some important information you should take note of. And as always, the slides will be and the script will be published on our live stream afterwards. Bernard, I'll let you kick off. Bernard Gustin: Thank you, Stephanie. I want to start by saying how proud I am of what we've achieved this year. Three achievements stand out. First, we secured financing for significant growth and reestablished market trust. When I took on this role, there were questions about our capacity to fund ambitious growth and deliver on our promises. Addressing this was my main focus. And I'm pleased to say that we are back on track. Second, we delivered operationally investing EUR 5.2 billion in CapEx this year, more than triple our historical annual average. And third, we are attracting exceptional talent. Despite challenges, people want to join us because they see Elia Group as a place to make a real difference and help build the energy infrastructure of the future. That tells me we have the right people and the right vision. Stephanie Luyten: Thank you, Bernard. Before Marco takes us through the financials, let's have a look together at the major highlights that defined the year. [Presentation] Bernard Gustin: Well, 2025 was indeed a year marked by major milestones, collective achievements and moments that shaped who we are and where we are heading. When it comes to project execution, 2025 was a year of real tangible progress. In Belgium, we continued to advance on several strategic infrastructure projects that form the backbone of the country's future electricity system. Ventilus and the Boucle du Hainaut, both critical missing links in connecting large volumes of offshore wind and reinforcing Belgium's North-South transmission corridor progressed through key regulatory and construction milestones. These projects are essential for integrating the Princess Elisabeth zone, strengthening system reliability and ensuring Belgium can transport renewable energy efficiently across the country. BRABO III also entered its final stretch, further reinforcing the Antwerp region and enhancing cross-border capacity with the Netherlands. The construction of the Princess Elisabeth Island also continued to advance steadily. The installation of the concrete caisson made solid progress with 11 of the 23 caisson already installed at the sea. And the remaining units are ready for deployment as soon as weather conditions allow it. This brings Belgium another step closer to achieving its decarbonization targets. And in Germany, we also saw real progress. On SuedOstLink+, one of the country's most important North-South transmission corridors with permitting moving ahead and technical preparation advancing, the project is now getting much closer to implementation. At the same time, offshore progress stayed on track. We successfully completed the cable laying for Ostwind 3, the link for the next wave of wind projects at the German Baltic Sea, securing future capacity to integrate more renewable energy. And on Bornholm Energy Island, Germany and Denmark signed a landmark agreement for 3 gigawatts of offshore wind connected through new hybrid grid links to both countries. It's a major step forward future toward future cross-border offshore grids in the Baltic Sea and support Germany's vision for a more meshed and resilient offshore system. We also put 2 new high-voltage lines into service, each over 100 kilometers, boosting our transmission capacity and strengthening stability across key parts of the German grid. So overall, it was a year of strong delivery with our teams moving forward the strategic projects, but at the same time, congestion is becoming more visible. As more renewables connect to the system, and that's a good thing, our consumption patterns also evolve and that is putting pressure on our grid. And this isn't just a Belgian or a German challenge, it's a European one. Our recent study on storage shows just how quickly the landscape is changing. Storage and batteries, in particular, will be a cornerstone of the future system. But equally important is the question, how, where and when storage operates. Today, the current wave of connection request isn't always a healthy growth. We are seeing a huge number of speculative projects across Europe. In Germany alone, TSOs are facing requests equivalent to the load of 100 million households. That's not sustainable. It strains the grid, dodge the queue and delays more mature investments that society actually needs. This is why we advocate for a new approach. We need to prioritize system relevant mature projects and move away from a first come, first serve logic that is now being exploited and risk driving up cost for all consumers. This is where the EU grid package helps set the direction. It supports anticipatory investment and clearer rules so that flexibility, renewables and storage can work together as aligned pillars of a sustainable, affordable and secure system. Marco Nix: And another key factor for our long-term investment needs is the right regulatory frameworks. Based on what we know so far about the German regulation, we welcome BSR's ambition and its recognition that the full package matters for investors. However, the draft framework still does not provide the balanced and internationally competitive returns needed to attract the level of capital required for the grid expansion. Key adjustments are still necessary, particularly on return on equity level, debt cost coverage, OpEx predictability and the effectiveness of the incentive schemes to ensure the framework truly supports the unprecedented investment effort ahead. We remain committed to constructive dialogue to help shape the final determination that safeguards investments capability and supports Germany's long-term energy goals. To speak about 50Hertz goals, we will now share a short video from the CEO of 50Hertz, Stefan Kapferer, on the progress made and the milestones still ahead of us. Stefan Kapferer: With a new focus on resilience of the energy infrastructure and affordability of energy transition, it became clear in 2025 that an overarching responsibility for the electricity system is urgently needed. This can only be delivered by companies like Elia Group with 2 national TSOs, ETB in Belgium and 50Hertz in Germany. In 2026, 50Hertz will once again invest a record high amount of money in additional grid infrastructure, substations and new connections for consumers, EUR 5.1 billion. So affordability of the energy transition will be key. We have to harvest efficiency potential, and we have to take care that only those projects are included in the next grid expansion development plan, which are really needed to make the energy transition happen. And to finance these challenges, the current review of the regulatory framework in Germany has to deliver an internationally competitive return on equity to guarantee that the engagement of the investors will be the same also in the upcoming years. Stephanie Luyten: 2026 will be a year in which significant regulatory developments and grid planning milestones emerge in both our countries, giving us much more clarity on the investment landscape and its associated returns. To build on that, I'd like to turn to the CEO of Frederic Dunon. He will walk us through the challenges and opportunities shaping our next steps. Frederic Dunon: Discussions will begin on our regulatory framework for the period '28, '31. Two major objectives are at stake. First, to ensure that market parties have the right incentives to allow safe and efficient system development and operation. And second, to ensure that Elia has a financial and human means to realize the plans approved by the authorities. The design of our '27, '37 federal development plan will be at the center of attention of our authorities. Indeed, it will define the boundaries of possible futures in terms of energy, industrial and economical policies. Whereas development plans were seen in the past as an administrative process, it is now well understood that they are the foundation of our major society for the coming decades. Stephanie Luyten: Now that we've looked at Belgium and Germany, let's shift to what's happening internationally. As you know, we took a minority investment in energyRe Giga at the end of 2023 with a clear understanding that this is a long development cycle model and that progress would not be linear. Since then, the U.S. environment has evolved. At federal level, the current administration has created uncertainty for offshore wind with slower permitting and approvals while at the same time, many states continue to actively push for grid expansion. In parallel, the U.S. power system is facing rapidly rising electricity demand driven by electrification and data centers, which reinforces the structural need for additional transmission capacity. Last year, we also saw the acceleration of the phaseout of the wind and solar tax credits. This puts pressure on the developers to bring the projects forward and required adjustments in project structures and portfolios across the sector. Against this backdrop, we have taken a disciplined approach, prioritizing value protection over speed. As a result, contributions from energyRe Giga to the Group results will come later than initially expected, but we remain supportive of the investment and of its long-term strategic rationale. As we already flagged at our Q3 results, Clean Path New York faced a setback. For SOO Green, the picture is more positive. Permitting is close to completion and land acquisition is largely secured. Finally, the offshore project, Leading Light Wind is, as you know, currently on hold under the present federal administration. Translated in financials, this means the group recognizes an impairment on its U.S. assets of EUR 99.1 million. This consists of 2 elements. On the one hand, a EUR 70.8 million write-off on the energyRe Giga portfolio, an additional provision of EUR 28.3 million, reflecting the group's remaining commitment to invest USD 150 million to reach its 35.1% ownership stake. Let me remind you that this impairment is a noncash and reflects a prudent reassessment of, on the one hand, value and timing, and it's not at all a change in our discipline or our financial strength. Our exposure remains well controlled. Our commitments are fully manageable within our balance sheet, and we retain flexibility on the pace of future capital deployment. Marco Nix: Thank you, Stephanie. Let me now elaborate on some of the headline figures for '25. We delivered strong progress across all fronts in 2025. Our 5-year CapEx plan remains fairly on track. We invested EUR 5.2 billion, EUR 1.4 billion in Belgium and EUR 3.8 billion in Germany. As a result, our regulatory asset base expanded to EUR 22.6 billion. Our hiring drive in '25 was also a success. We welcomed again more than 760 new employees, strengthening our operational capabilities and supporting the growth objectives we laid out during the Capital Markets Day. On the operational side, system performance remained outstanding. Grid reliability reached 99.9% in Belgium and 99.8% in Germany, positioning our TSOs among the most reliable grid operators in Europe. These figures highlight our continued focus on operational excellence and the effectiveness of our investments in technology, infrastructure and talent. In terms of financial results, the group delivered a strong performance with net profit attributable to Elia Group shareholders of EUR 556.6 million. This corresponds to an adjusted return on equity of 7.3% and earnings per share of EUR 5.51 per share. As shown on the slide, we indeed had a busy year on funding as well. We proactively secured the funding needed to support our strategic priorities in Belgium and Germany. We executed a well-diversified financing program across entities and instruments, reflecting the greater flexibility we have embedded into our funding strategy. A key focus early in the year was strengthening the balance sheet. We completed a EUR 2.2 billion equity package, which reinforced our capital base, broadened our strategic partnerships and provided significant financial flexibility. On the debt side, we raised EUR 3.6 billion in green financing through loans and bonds and both Elia and Eurogrid issued their first EU-labeled green bonds, an important milestone that broadened again our investor base and reinforced the central role of sustainable finance within our capital structure. At the start of the year, Standard & Poor's reaffirmed the credit ratings of all entities. We also strengthened liquidity, bringing the total available funds at year-end at EUR 11.9 billion, which underpins our prudent risk profile and supports our investment-grade ratings. Overall, the group's investment plan is backed by a robust financial framework designed to maintain its current ratings, ensuring continued strong access to capital markets and providing funding flexibility. Finally, the group is progressing on the various options of the funding toolkit as outlined to the market. Elia Group delivered strong operational and financial results reflected in a sharp increase in adjusted net profit. These figures excludes material one-offs and reflects the group's underlying performance. Adjusted net profit rose by 39.8% to EUR 716.5 million, driven by CapEx execution, higher equity remuneration and solid operations. Additionally, the third segment benefited from the first time of a tax benefit linked to the application of tax consolidation in Belgium. Germany remained the largest contributor, delivering just over 60% of the group adjusted result. Belgium added around 38%, while nonregulated activities and Nemo Link contributed EUR 5 million, including EUR 33.4 million in one-off adjustments, the reported net profit reached EUR 683 million. After noncontrolling interest and hybrid costs, net profit attributable to Elia Group shareholders increased by 32% to EUR 556.6 million. On this slide, we show that the reported figures include several nonrecurring items, both in Germany and in the nonregulated activities. We adjust for those to show the underlying performance. Starting with Germany, the reported net profit includes a EUR 46.5 million deferred tax impact. This relates to the revaluation of deferred taxes following the planned reduction in the German federal corporate tax rate from 15% down to 10% between the years '28 to '32. Turning to the third segment. There are 2 main adjusted items. As said by Stephanie, the U.S. impairment amounting to EUR 99.1 million negatively. On the positive side, the tax consolidation had a positive impact due to the application of the Belgium tax consolidation mechanism and linked to the tax periods prior to '25. It is there of a one-off effect, not reflected of a recurring tax benefit. After adjusting for all these items, adjusted net profit amounts to EUR 716.5 million at Group level. Stephanie Luyten: The RAB remains the core driver of the group's regulated remuneration. Supported by the execution of our investment program, Elia Group's RAB increased by 22.5% year-on-year, reaching EUR 22.6 billion at the end of '25, up from EUR 18.5 billion in 2024. This increase reflects the acceleration of major infrastructure projects in both Belgium and Germany that are critical to integrating growing volumes of renewable generation, reinforcing cross-border capacity and strengthening the overall system resilience. These investments ensure we can deliver the energy transition at the lowest societal costs, while contributing to Europe's long-term energy autonomy. When we look ahead, we expect an average annual RAB growth of over 20% for the period '24 to 2028, supported by around EUR 21.6 billion of cumulative CapEx over the next 3 years. As we have invested EUR 5.2 billion across our Belgium and German grids, the impact on our funding metrics remains well under control. Net financial debt increased by around EUR 1 billion, bringing the total to EUR 14.1 billion. This limited increase reflects the successful capital increase and the fact that a large share of our investment was funded through operating cash flows. Our average cost of debt rose slightly to 2.9%, and the portfolio remains very well protected from interest rate volatility with 98% of our debt held at fixed rates. Finally, our credit profile remains solid. Standard & Poor's reaffirmed our BBB rating with a stable outlook, underscoring the resilience of our financial structure and the strength of our funding strategy. Marco Nix: As this concludes the group overview, let me guide you through into the segments, starting with Belgium. In '25, adjusted net profit rose by 27% to EUR 272 million. This was mainly driven by a EUR 30 million increase in fair remuneration, reflecting continued RAB growth, higher equity and improved risk-free rate to 3.2% Incentives were up slightly by EUR 1.1 million. Beyond the regulatory result, the outcomes was also influenced by IFRS restatements. These were mainly driven by higher capitalized borrowing costs from the larger portfolio of assets under construction as well as tariff compensation for the costs linked to the capital increase. This compensation is recorded as equity under IFRS, but these costs are fully passed through to the tariffs under the embedded debt principle. In total, the Belgium segment delivered a return on equity of 6.2% for the year. For Germany, the adjusted net profit rose to EUR 439 million, up 42%. This strong performance is the result of several key factors. First, asset growth continues to be the biggest driver of the result, combined with imputed depreciation and cost of debt coverage. This was further supported by a slight increase in the allowed equity remuneration on new investments, reaching 5.7% for the year. On the cost side, the onshore OpEx outperformance declined slightly by EUR 3 million. The inflation index-based year revenues helped to offset most of the operational cost increases, associated with our expanding activity footprint. At the same time, a number of offsetting effects also incurred. Depreciation increased as several major projects were successfully commissioned and brought online. Financial costs rose due to the higher interest expenses from debt financing. This was balanced by capitalized interest during construction, which increased and interest income from a prefinancing agreement. After including a one-off deferred tax revaluation gain of EUR 46.5 million, net profit reached EUR 485 million. Considering the adjusted net profit, 50Hertz achieved a total return on equity of 11.1% for the year. Finally, the nonregulated activities and Nemo Link segment delivered an adjusted net profit of EUR 5.3 million in '25. This performance was mainly driven by the application of group contributions for the '25 financial year, which contributed EUR 24.7 million to the result. This reflects the Belgian tax consolidation mechanism that allows to utilize a tax loss at the group level and Eurogrid International. The positive impact followed a legislative change adopted at year-end, which removed the discriminatory treatment previously applicable when combining the group contribution regime with the dividend received deduction regime. This positive effect was partly offset by several factors, mainly higher holding company costs, a lower contribution of our consultancy business, EGI. Finally, Nemo Link contributed slightly less to the result. After taking into account net adjusted items, the net loss amounts to minus EUR 74.5 million. Stephanie Luyten: Before we move to the final part of the presentation, our financial guidance for 2026, I'd like to briefly touch on the group's dividend policy. Elia Group proposes a dividend of EUR 2.05 per share. This dividend proposal will be submitted for approval at the Annual General Meeting and is expected to be paid in June 2026. Marco Nix: Ending with the outlook for '26, Elia Group expects a net profit at Elia Group share in the range between EUR 690 million and EUR 740 million. In Belgium, we plan to invest around EUR 1.7 billion, delivering an adjusted net profit between EUR 290 million and EUR 320 million. While in Germany, we plan to invest around EUR 5.1 billion and an adjusted net result in the range of EUR 585 million and EUR 625 million. The nonregulated and Nemo Link segment is expected to report an adjusted loss of minus EUR 10 million to EUR 30 million. Bernard Gustin: Well, thank you, Stephanie. Thank you, Marco. Before we move into our Q&A session, let me share some closing remarks with you. Earlier this year, the Hamburg North Sea Summit highlighted the urgency of building an integrated offshore grid with European TSOs presenting a joint framework for hybrid interconnections and shared cost models capable of enabling up to 1,000 terawatt hour of clean energy by 2050. At the same time, the Hamburg declaration committed key North Sea countries to delivering 100 gigawatts of joint offshore wind projects, underscoring that system security and sovereignty will increase, increasingly depend on collaborative offshore development rather than isolated national solutions. Complementing this, Mrs. von der Leyen, underscored at the recent Antwerp Industry Summit that Europe's continued dependence on fossil fuels exposes industry to volatile price swings and highlighted the urgent need to reduce this exposure by accelerating the shift towards stable homegrown clean energy sources. The current war in the Middle East underlines once again how vulnerable Europe remains to external shocks. Strengthening and interconnecting the European grid is, therefore, essential, not only to expand access to affordable clean electricity, but also to reinforce Europe's energy sovereignty and reduce dependence on increasingly unstable fossil fuel supply. In this context, Elia Group stands out as the only international electricity transmission group in Europe, combining a multi-country footprint, deep operational presence in both the North and Baltic Seas and a public-private capital structure capable of aligning public anchors with long-term private investors behind strategic and critical infrastructure. This combination is exceptionally unique in our sector and precisely what Europe needs in these troubled times. Our leadership is most visible in our flagship hybrid interconnector portfolio, the first of its kind in Europe and the foundation of tomorrow's meshed offshore grid. Kriegers, yes, thinks and acts on European scale. Together with Energnet, they already have put the world's first hybrid interconnector Kriegers Flak into operation. Furthermore, together with Denmark, they will realize Bornholm Energy Island, unlocking large-scale offshore wind in the Baltic Sea and connect through hybrid HVDC links. And in Belgium, Princess Elisabeth Island and Nautilus could form one of Europe's earliest true hybrid offshore hubs, pulling up to 3.5 gigawatt of offshore wind, while interconnecting Belgium and the U.K. HansaLink, a key project of our entity WindGrid, expands this logic across new cross-border corridors, drawing private capital into offshore infrastructure at scale. And with Nemo Link operating reliably for years, we have already proven our capability to deliver, operate and maintain complex interconnectors safely and efficiently. This portfolio is unmatched in Europe. No other player combines so many hybrid assets across the 2 strategic European sea basins under one group, not as concept, but as concrete investable projects that show how offshore wind and interconnection can be planned, financed and built together. Thank you for your attention. Stephanie, I think we are now ready to move to the Q&A section. Stephanie Luyten: Yes. Thank you, Bernard. And in the meantime, Yannick Dekoninck, our Head of Corporate Finance, has also joined us. Stephanie Luyten: So let's turn to the screen. I see that our first question comes from UBS, Wanda. Wierzbicka Serwinowska: Congratulations on the results and the CapEx delivery because there were some concerns last year if you will deliver. The first question -- I mean, 2 questions to Marco. The first one is on the capitalized cost at the net income level. I mean, what was it in 2025 for 50Hertz because I couldn't see it disclosed. And what is embedded in your 2026 guidance? And also, if you could give us any rough guidance on the capitalized cost until 2028, that would be much appreciated. It's a very hard to model item. And the second question is on the S&P. As you said, back in September, S&P confirmed the rating, but they also said that the Elia Group consolidated business risk has marginally increased. And they raised the FFO to net debt threshold by 100 bps. And they also assume that your CapEx post-2029 will moderate. So does a higher FFO to net debt requirement worry you when thinking about CapEx plan or funding beyond 2028? Marco Nix: Maybe start with the technical question then on the capitalized borrowing costs. It's indeed something we are mindful of in the figures of '25, which are subject to disclosure finally, with the annual accounts at year-end, there's a part close to EUR 90 million considered in the German figures. So what is a noncash result contribution. So -- and that puts a little bit 11% into a certain perspective as, of course, this is being included in the 11% guidance. For the future growth, it's indeed linked to some degree with the investments to be taken. However, it's not linear simply as we try to limit the impact to some degree, and it's being connected to a relatively short period between 2 milestones of the projects, where I must admit that that's a little bit hard to model in the future. But I assume on one hand, that the IFRS standard is subject of a change, which might help us then in the future to limit that impact. However, it will grow. And as a rule of thumb, potentially, it's good to look into the investments in the year being taken compared with the previous year, how it will be growing in the year '26. Wierzbicka Serwinowska: So what should we -- what is embedded in your guidance because your guidance for 50Hertz was running much, much above consensus? Marco Nix: In the guidance of 50Hertz, it's a similar area, so between EUR 90 million and EUR 100 million. So that's currently what we have embedded there. Bernard Gustin: And then... Marco Nix: So then on the FFO to net debt. So currently, after the capital raise, we feel rather comfortable, in particular, with an eye on the liquidity position the group currently has. So therefore, we are not in a rush. Of course, we are looking into the horizon beyond '29. But as we stated, it's subject of the new CapEx plan, which is still under development as both the grid development plan in Germany and the federal development plan in Belgium is still under construction, if you want to say it like this. And as this is the underlying combined with the regulation of our future capacity in funding and of course, in remuneration, that is a necessary input for our funding plans. And of course, the rating will play a significant role in there as, of course, we don't expect that the growth will stop and taking that into perspective, there's a solid investment-grade position being needed to fund the investments in the future as well. Stephanie Luyten: Thank you, Wanda. Let's go to the next question. I believe it's from Bank of America, Julius. Julius Nickelsen: I have 2. The first one is on German regulation. So in the draft methodology that came out in December, I think the BNetzA for now ruled out the concept of a return on equity adder. But I believe since then, you've and the other TSO have provided some evidence why there should be an adder. So if you have any update, do you still believe that this could come in the final methodology? Any update on the reception that would be quite useful. And then the second question is a little bit more high level. But if I look out to like beyond the summer and towards the end of the year. Correct me if I'm wrong, but I think at that point in time, you should have the new Belgium returns, the final methodology in Germany and a good idea on the grid development plan in both countries. Could there be a point in time where you will upgrade the market -- update the market on your investment plan and maybe roll forward to 2030 with the new CMD? It would be useful to know. Marco Nix: Maybe starting from the last question and then developing to the other ones. Our expectation will be more towards year-end or beginning of next year to have that clarity as there are some specific aspect that you name a few of them in the regulation, but on the CapEx plan as well. To name a few, in Germany, that will be the total amount and the sequence of the offshore grid connections, which will play a big role in our CapEx program, or the question on overhead lines versus cabling in the big DC corridors. And that will, of course, change significantly the means being needed to realize that CapEx program. And this debate, to be fair, is still open. So there, we do not see really a landing zone for the time being. A little bit the same in Belgium with the Princess Elisabeth Island and the DC components or the interconnector there. Even though government will potentially take a position then in the second quarter, you do see kind of delay in that decision-making as this was originally being foreseen in March. So therefore, likely that it's more towards the end of the year where we have that kind of clarity. So on the point you mentioned in regards to the framework, in the conference, BNetzA hosted, they stated a little bit that they are not convinced yet on an adder to the return on equity. That's still a subject of a discussion, at least they opened the door for, and we provided some evidence that this is being needed. But it's fair to say there's an ongoing discussion on that one. What is, first of all, a positive sign that the door has not been closed. But so far, it's not being drafted in any adjustment of the determination of the return rates for the future. Stephanie Luyten: Thank you, Julius. Are there any other questions? I do not see -- Temi. Good morning, Temi, please go ahead. We have you here with us. Temitope Sulaiman: Congrats also on the results presentation this morning. I've got a couple of questions, but I'll keep it to 2. One is just clarity on your 2026 net debt expectations. If you can provide an update on that, that would be very helpful. Clarity on the Belgian regulatory time lines in terms of the consultations, but also the final determinations. And then finally, it seems that you've had strong operational delivery in Belgium and Germany, '24, '25, '26, you've raised the guidance above consensus expectations. And I'm just wondering whether you might consider revisiting your '24 to '28 guidance in terms of returns and when maybe you might consider that? Yannick Dekoninck: Maybe net debt, I will take. So on net debt for '26, we expect to land with the CapEx that we have announced at a net debt of around EUR 19.5 billion. So that's what we are targeting for in '26. Marco Nix: On Belgium regulation, there's a relatively straightforward path being published. So there will be a public consultation on 14th of April, if I'm not -- 17th or mid of April. Bernard Gustin: [indiscernible] Marco Nix: Mid of April. So happy to invite you to comment on that one once it is being out there and a final determination in the course of quarter 2. So end of half year, there is likely a robust visibility how the scheme will look like. Stephanie Luyten: And in terms of guidance? Marco Nix: Guidance, I think we still stick to the guidance which we have given as the growth is still intact with the double-digit percentage growth on the EPS and on the net results to the shareholders and around, as you have seen in the past, the 20% growth on the RAB. So that's quite consistent to each other, even though the guidance for '26 seems to be a little bit higher than the expectation, if you make it linear, but that comes from some of the aspects, which are not that fully linearized as we try to optimize the results, of course, as we can. And in connection with commissioning, for instance, we might have one or the other year an outliner and '26 seems to be one of them as a couple of significant investments come to commissioning, which gives us a favor in particular, in Germany. Stephanie Luyten: The next question will come from Piotr from Citibank. Piotr Dzieciolowski: I have a couple of questions. So the first one I wanted to ask you about this financial result in 50Hertz. So in your disclosures, you also point out apart from increased capitalized interest, you point out to accrued interest from the developer of an offshore platform of EUR 28 million, plus EUR 10 million from discounting effects on long-term provisions. So just wanted to understand, can you please explain on this first item what it really means? And is there any change on these numbers between '25 and '26? So I'm trying to get a bridge between '25 and '26 financial item. Is it just capitalized interest going up and these things disappear? Or how shall we think about these items? And second question, I wanted to ask you about your actual performance. So in your Slide 20, sorry, Slide 19, you said that the net income of ETB increased by EUR 1 million because of incentives. I was under impression that the incentives should grow in line with RAB with the size of the business, but it doesn't seem so. So can you please tell us how do you assume the incentives increment between the '25, '26? And likewise, you don't disclose incentives for the 50Hertz. I think there are some outperformance. So can you also say like operationally, do you improve -- or do you keep like a size of outperformance in line with the business growing with RAB growing or that basically the incentives and outperformance becomes bigger -- smaller relative to the size of RAB and so on. So these were 2 questions. Marco Nix: Okay. Maybe taking the first one on the wind farm contract, which we closed. So there's a nearshore wind farm at the German coast, which is being connected by 50Hertz in an AC technology. And for efficiency reasons, we agreed on to share the platform with the wind farm developer so that not both needs to have a platform being erected, what saves costs for both sides. And it's more or less a 50-50 split there. As the wind farm developer pushed back for some of the costs to some degree, and we had a relatively long-lasting negotiations on that one. We finally agreed on that the funding costs, the financing costs of this chunk, which is related to the final agreement, and which will be borne by the wind farm operator are being out of the regulatory sphere. So that's something the 50Hertz and Elia Group can keep finally. And the number you referred to is the accumulated interest income over the periods once we started that construction. So the effect itself will remain, but the order of magnitude will potentially go down as this is a kind of loan agreement, which is related on one hand to the size and the second to the scheme where there's some flexibility on the wind farm operator side once they are paying us, then, of course, the interest connected to the outstanding exposure will be lower in one of the years. And as this wind farm will likely be -- the connection of the wind farm will likely be finished in '26 and the wind farm operator will potentially commission its assets then beginning of '27, despite the fact that there's a 15 years period on that contract, there might be some changes over time in the payment scheme as the flexibility is on the wind farm operator. So that's a little bit long explanation. It's relatively complex matter, but likely that there will be an interest income over a certain period of time with different kind of order of magnitude. Bernard Gustin: Okay. And maybe, Piotr, on your question on the incentives in Belgium, it's indeed correct that they increased by EUR 1 million compared to last year. And it's indeed correct that they are, to a certain extent, correlated with the RAB, but as well, they are -- they have in the regulation a maximum amount that you can have on certain incentives. So that's one element. And some of the incentives are a bit, I would say, binary between 0 to 1. If you remember last year, we had a cable issue linked to the availability of the MOG in '24. So we had no incentive at that year. This year, we have a full incentive, a full maximum amount. So that gives a little bit why you don't see exactly that linear evolution on the incentives. Nevertheless, I think we had a solid operational results where incentives remain quite important to the overall result in Belgium. Stephanie Luyten: Let's now turn to Deutsche Bank, Olly. Olly Jeffery: Two questions from my side, please, like everyone else. So the first one just is on CapEx. Now I appreciate that you need to wait for the grid development plans to give a precise view on future CapEx for '29 onwards, and that's more likely to impact presumably CapEx in the 2030s. Are you able to give kind of a high-level view in Germany of kind of the broad level of increase you think might be likely given that most of the changes to the grid development plan are probably going to impact in the 2030s. Any insight you can give there would be helpful. And then secondly, just on funding the plan from '29 and onwards. I know obviously, you don't want to be precise about this. But could you say, is there a credible scenario where you think you might be able to fund CapEx in '29 and 2030 without the need for equity using the rest of your equity toolkit with the hybrids and opening up the capital structure of some of the TSOs potentially? Any views on that would be great. Bernard Gustin: Taking the first one, it's still, as we said, a little bit too premature to lay out a number. So if you take the total volume, which is currently as a price tag being seen on a total grid development plan in Germany, you can compare the EUR 320 billion, which was the number in the last grid development plan, which the EUR 340 billion, which is currently the number connected to the most likely scenario. It's not chosen yet, but that gives a little bit the view that likely the outcome will be rather the same with an eye on EUR 345 billion in terms of euros. However, there will be a kind of different allocation on that one. And that what makes it that's hard for the time being really to say the CapEx is further growing or going down at a certain point of time. As, of course, only part of the EUR 340 billion are connected then to 50Hertz to the Elia Group. So as a rule of thumb, it was 20% all the time. But the spread over 20 years is a difference than the spread over 10 years. So that's -- I mean, that's the simple math. And as the former government was quite in a rush to complete or to set very ambitious targets, which partially have been out of reality, the current government is more pragmatic in that view, and that's a little bit what still the debate is on. Stephanie Luyten: And on the funding? Marco Nix: On the funding, I mean, we have full flexibility now. So that's currently what we are going to execute. That's all our options are valid. We are working on further optionalities as well. But please, as we don't have the CapEx numbers currently in place, we do not want to give guess how we are continuing to fund the growth in the future at this moment. Stephanie Luyten: Nor do we have the regulatory framework set in place? Bernard Gustin: Yes, it's a bit early... Stephanie Luyten: So I think it would be a bit too early. But thank you for the questions. I see the next questions will come from ODDO, Thijs. Thijs Berkelder: A couple of questions. Do you still require probably an additional EUR 2 billion of equity? And can you confirm that you still aim to raise this via in principle, EUR 4 billion of hybrids? Second question is on your Energy Island and the DC connectivity there as well as for the U.K. connector. The HVDC cost price was too high. Any reason in your view why HVDC pricing now should be lower? And third is on the North Sea offshore wind projects targeting 15 gigawatts installations by 2031. What can we expect as impact for your CapEx from that plant compared to what we currently are installing on the North Sea? Marco Nix: Yes. Maybe starting with the first one. Our toolkits provide us flexibility, and we stated that it can be both hybrid -- the hybrid capacity potentially being sufficient at this point of time, while another option is to open the capital on one of the subsidiaries and/or finding structural solutions to help us funding the growth. And that's still something we are closely monitoring. And there's a couple of key elements to be considered and criteria's in the decision-making, once is timing. Another one is, of course, cost of capital. Third one is execution to name a few of them. And as we have a strong liquidity position and of course, the credit rating is comfortable as well. So we are carefully looking for the best solutions there. And once this is being decided, it can be both extremes. So both elements of the toolkit would gives us the credit in total, so it has the potential. However, it could be a combination as well depending on the point of time where we make the decision. Bernard Gustin: On the Princess Elisabeth Island, I would say that, first, it was the right decision to postpone the project because, as you know, at the time, we were really in a very heated market on the HVDC component. However, the teams have been working on updated design. We have also some very good discussion between U.K. and Belgium on how to best share the cost and the benefits of the project. And I hope that in the coming weeks, months, we can come with a solution that fits with the original objectives, while being more reasonable from a cost point of view. We see that the HVDC technology remains an expensive technology, but we also see that the heat that we had a few months ago is a little bit lower. On your North Sea approach, which actually the Princess Elisabeth Island is a subpart of. As I explained in my conclusion, I think we are really, as Elia Group extremely well positioned being the only transmission group having a portfolio of assets already in our base today. But of different nature because we have the Belgian port on the North Sea. We have the projects on the Baltic Sea with Windanker's. But we have also with our subsidiary, WindGrid, a project called HansaLink. And the advantage, of course, of this setup is that it's a setup where you can also use financial players who can help the financing of the project. So I'm not going to preempt on the decision of Europe. I think, by the way, we see with what's happening now in the Middle East that it's high time that we reduce our dependency on gas and that offshore wind in the North and the Baltic Sea is a critical element in there. We will see how Europe will evolve in -- and the grid package already goes that direction, but how they translate that into a series of projects. But I think what's interesting is that Elia by its strategic geographic positioning, by its current portfolio of projects, but also by its setup where we can leverage financing capital at different levels is very well placed to play a role in there. And already in our current portfolio of projects and in our current asset base, we have projects on both seas in the North and in the Baltic Sea. Stephanie Luyten: Are there -- yes. I see the next question coming. Unknown Analyst: And also from my side, compliments for the good results and outlook, of course. Yes, on the -- I'm still going to try on the North Sea, and thank you for the answers so far. But looking at the ambitions and with the involvement of TSOs as well in these kind of framework ambitions that were published, a step-up to 15 gigawatts already in 2031 and for a number of years, even a decade. And now looking at your CapEx approaching EUR 7 billion. So let's say, connecting all these gigawatts already upfront or preparing for that upfront and for a number of years to come. Is it fair to say that, yes, maybe previous assumptions on EUR 7 billion being the higher end of forward CapEx. Is that something that we need to reassess to a larger number, higher number? That's my first question. And the second one is on CapEx, and it's a great achievement that, of course, you met the expectation after the -- I think the questions that were raised at the midyear presentation. What should we expect for 2026? Will it be a more balanced picture of the EUR 6.8 billion or also 1/3, 2/3, maybe some guidance there. Bernard Gustin: I will take the first one and let the team go for the second one. I think the guidance remains the same. So we are on EUR 7 billion CapEx because we are talking on a series of projects that we know. Then we will have to see how the developments happen, and we will be looking at it as you do. And according to the developments, of course, Elia Group wants to position itself on these developments. But I think then there will be also another way at looking at it. And I think from the European standpoint, from the political standpoint, we will have also to think of the tools to make sure that we can reach those developments without having always a direct impact on the balance sheet of the TSOs. And that's where I say with some of our tools like WindGrid and so, we are very well placed to test those type of model. We will also have to see what Europe does in terms of SAF funding and other conditions. So just to say, within the current framework, we are in the current guidance, and there is no reason to change. Of course, we remain attentive and opportunist of what it would develop. But I think then there would be other ways of looking at the thing and not directly in the CapEx of a TSO, which will be one of the topic to manage if we want to reach this great ambition, but also needed ambition when you see the situation of Europe. Marco Nix: And maybe to complement, we published recently a paper then which could be a way forward in the future to fund in particular the far offshore wind farm developments and the connection to that one mainly via hybrid interconnectors, where we are facing several constraints to go ahead there, and that could be an element with the so-called WSPV concept, which helps both on one hand to unlock a little bit resistance in one or the other countries. And secondly, combine the forces with giving some securities by public authorities like European investment banks, for instance, and combining with private capital to fund that in the future, as Bernard rightly said, it's questionable whether all TSO can absorb simply these big request of capital in the future. In regards to our CapEx program, it's likely that you will do see a heavy loaded second half year again as this is, on one hand, a little bit in nature as during the summer, most of the construction is being made. And then, of course, we usually account for the progress once a certain milestone has been reached, and that's likely more in autumn than in spring. And the second one is that at least in Germany, gives us a favor to have that backloaded profile. As usually, you get remunerated for the average of the year while -- for the capital cost as well. While, of course, the later you will have it, the bigger the gain could be. And that's something which we have seen in the results as well as, in particular, the difference between the real funding costs and the funding costs, which are being embedded in the grid fees gives us a favor to some degree and contributes to results, too. Stephanie Luyten: And let's go to Wim from KBC. Wim Hoste: Yes. I hope you can hear me. Stephanie Luyten: Very well. Marco Nix: Yes. Wim Hoste: All right. Also congrats from me. Lots of questions have been asked. I just want to throw in some add-ons. If I want to come back to the financing, the equity raise potential, and I understand regulatory framework has to be put in place. Can you give an idea, suppose that if you want to do something like an ABB like in '24, EUR 0.5 billion, if that's possible, what you need to do, whether you would need to have some kind of Board's agreement first, if that's a possibility simply because the share price has rallied quite a lot. It's more than doubled since the last capital raise. So how you feel about that? Then smaller questions on the dividend. I think in the past, you said that, that would go in line with inflation. I think it stays more flat now. Is that also the outlook for the future? I completely would agree that would make sense as well. And then lastly, more like a general question and something that we've seen in the U.S. where the government has asked big tech to -- yes, basically pay via some kind of taxes to upgrade the grid because obviously, we know that, that demands a lot of investments to accommodate all the hyperscale investments. So just your view, is that something that could be possible in Europe? Obviously, things move a little bit slower. But if there's anything that you can say just in order to kind of divert the pressure that we have seen and the pushback from industry and consumers on -- yes, obviously, offloading a lot of the investments via the energy prices. So those are my 3 questions. Stephanie Luyten: Maybe I can tackle the dividends, if you like. We indeed gave a dividend or proposing a dividend of EUR 2.05. But what you need to take is as a basis is actually the EUR 2 because when we did the capital increase, we actually restated the dividend. And if we were to increase the dividend on a restated basis, it would be close to EUR 2, but we did not want to pay less than last year dividend. So we have increased it slightly. That has been our rationale for the EUR 2.05. Marco Nix: And we do see that as a strong signal that the investment in the Elia Group is a value-accretive one and the dividend payment is one of the elements there. So that gives some certainty that our growth path is intact. Stephanie Luyten: Regarding the ABB, what do we need to have in place for that? First of all, yes, we will have to have an authorized capital in order to do such a transaction. But we -- as Marco already highlighted today, we are not looking to use any nondilutive -- we are looking to use nondilutive options. And I think there, we have enough flexibility. The way forward would be towards the future to bring back unauthorized capital, put that in place, and that are the first steps that we need to take. Bernard Gustin: And on the U.S., well, first of all, it reminds us of the potential in the U.S. We have a little bit of a setback at the moment, but we are convinced that over the long run, we know the situation of the grid in the U.S. It's certainly not at level with the AI ambition that the U.S. has and the battle of AI will pass via a strong grid. So I think it's good that we are positioned in there. It will take a little bit more longer than expected, but I'm convinced that the potential is the same because the grid becomes a critical asset in every region of the world that want to electrify. The debate, of course, is who needs to pay, and we see the investments that the hyperscalers are doing and all things relative, the investment in the grids are indeed a fraction of the investments they are generally doing. So the idea to make them contribute is a political decision where it will be difficult for me to take a position, but it's clear that we've seen in our countries that the development of AI and data centers is representing a certain burden on the net, burden on the consumption. And I think at some point, there are 2 positions that need to be taken. The first one is what do we want in terms of industrial development and where do we give the priorities in terms of segments, AI, data centers versus general industry. And then how do we make sure that the general consumer is not hampered by a consumption that is not responsible for. So I think I don't know what is the exact recipe, but the direction is certainly a direction to investigate. Marco Nix: And maybe to complement on that one, on one hand, there are multiple congestions on all these connection requests. So funding is one. So in Germany, for instance, the consumers are not paying for the direct connection. It's indeed then the applicant. On the other side, we do see that the grid is heavily loaded and simply that makes a congestion in connecting a new device to the grid. So as this is something we need to be careful of as well to protect our people in doing the works there. And last but not least, it's not all the time that visible how mature the project is. And our lead time, it's fair to say, are still longer than the ones from this developer. And as they want to go in a staged process usually with extending the devices which are consuming them at the stage, but we are designing the -- yes, the connection only once. So that's all the time a little bit mismatch in the planning horizon. That's something which we need to work on commonly to make sure that we do see how mature the project is that we can give some access being granted and we can rely on that one as well as, of course, we want to prevent that we invest in an area where nothing is going to happen. As we honestly have seen in Germany with the ship industry as Intel canceled the big factory in an area of Magdeburg, and then the TSO was forced to bring down the commitments in that area. However, the land has been already being acquired. So that's a mismatch, which we need to be careful on as, of course, we need to protect then the final consumer, as Bernard rightly says, that we are not socializing cost of the industry, yes. That's a little bit what we are in. Bernard Gustin: But it's clear that AI needs the grid, but the grid also needs AI. And we will also -- and we are really developing an AI strategy and developing -- we are already using a lot of AI, but we want to accelerate there because AI is also a way to solve some of the bottleneck issues that we have today. So it's really a very close relationship, both ends. Stephanie Luyten: Let's now move to Juan from Kepler. Juan Rodriguez: I have 2, which are more of a follow-up, if I may. The first one is on guidance. Can you please confirm that you have no additional hybrids included on your 2026 guidance? And on guidance as well, what is the targeted return on equity that you have on Belgium and Germany within the guidance that you've given, especially on Germany as is substantially above expectations? And the second one is on the U.S. impairments. What are your expectations now in terms of the timing and size of the expected earnings contribution that you expect in the region going forward? If you can give us more clarity on that, that will be helpful. Marco Nix: You take the hybrid? Yannick Dekoninck: I think in the guidance that we have given is a guidance that takes into consideration multiple options that we have in the funding toolkit. So we do not exclude -- to be clear, we do not exclude a hybrid issuance, but the guidance that we have published this morning takes into consideration multiple options. Now in terms of return on equity, as you know, we are not guiding specifically on the return on equity for a specific year. We have guided on the return on equity over the period, over the regulatory period, both in Germany and Belgium. So that's still something that we are targeting for, knowing that you could have certain variability year-over-year due to important one-off effects like we had this year. That's also why we have been very clear on what that one-off effect was in Germany. Marco Nix: So to remind you, the average guidance which we have given was between 7% and 8% in Belgium, while in Germany, it was 8% to 10%. Stephanie Luyten: Yes. And on the impairment? Bernard Gustin: Did we miss one? Stephanie Luyten: Yes. I think on the U.S. impairment on the timing, when we could expect a positive contribution, but that one is a little early to say today because there's still a lot of uncertainty on when those projects and how and when they will materialize, but that's more towards the end of the decade, I would say. Bernard Gustin: Yes. And it's clear that, as you know, we have 3 projects, the project on Clean Path, New York, which is a line in New York, didn't pass some regulatory approval, what we call a priority transmission project, but it doesn't take away that New York needs an extra transmission line. And so we will use the assets to participate to further project development. So there, we believe we are rather facing a delay. You know the uncertainty that exists today in the U.S. about the offshore and things can turn very quickly one way or the other. So our strategy there is to secure the assets that we have in place. We have already the leasing rights on this project, that's Leading Light Wind. And on SOO Green there for the moment, that's a project that, as Stephanie explained in the presentation, continues on its path of the different regulatory hurdles. And so there, for the moment, there is no reason to review the project. So as you say, we are rather delaying in time. But as I said to your colleague just earlier, I'm convinced that the fundamentals stay and at some point, somebody will see that these projects are heavily needed. Marco Nix: So in the '26 guidance, there's no positive contribution being expected to make that clear. Stephanie Luyten: Thank you, Juan. Let's now turn to Alberto from Exane. Alberto de Antonio Gardeta: Congratulations for the results. A couple of follow-ups from my side. The first one is regarding the German regulation. Maybe if you could -- based on the like already published consultation papers, if you could quantify what are your expectations in terms of ROE and WACC based on the current consultation papers and what else is needed? So maybe if you could give us some guidance of what will be your expected level of returns in order to get the competitive returns that you need for being competitive in the equity markets? And the second one will be regarding the potential update to the market, the potential Capital Market Day. You have said that maybe by the end of the year or beginning of 2027. When do you know that we will have more visibility if this is happening or if we can consider as confirmed or it's still pending? Stephanie Luyten: I think maybe I'll start on the Capital Markets Day. That's still very much pending. As Marco clearly said, there are still a lot of moving factors. We don't yet have clarity in Germany. And also in Germany, the final elements will only be defined somewhere in 2027. So that's why we cannot fix to a date somewhere in the future. So next to that, we also have grid development planning that is ongoing in Belgium, in Germany. Those time lines aren't super fixed neither. So this will be something, I think, towards the end of the year, we will have more clarity on. So I do not expect us to really do a CMD still this year. Marco Nix: So to come to the German regulation, if you really look into the paper, even though it's heavy reading, I would say, it's for the time being, for our perception, more a description of a structural approach while the ingredients are not being flagged yet. And even though a WACC model could be something comparable, but the big debate on the cost of debt coverage is not finished yet. So that's still ongoing, but a rating adjustment is being made, which kind of reference rate is being used. These elements are still pending. That's why it's a little bit too early really to say what the outcome could look like, and we previously discussed equity or return adder for the TSOs, what is still in the discussion, which is not in yet. So I would say we are not there yet with that what we assume BSR could deploy. However, our clear target is not being worse than today. And if you take the return on equity, which we disclosed and take off all the accounting items, there's still a return rate above 8.4%, which is, if you want to name it, a kind of cash return. And as BSR already said, the total package matters, that's something we are requesting, and that's something which we are targeting to get out of it. Which elements shall we put in place. There, we have some openness. So if there's an incentive being put in place, which gives us an order of magnitude lending there, we are fine with it as well. We are happy to get challenged in terms of our operations. But so far, it's not really clear. So therefore, we are hesitating to give a guidance what it could give for the time being. Stephanie Luyten: Thank you, Alberto. Let's now -- I see Olly, you have some further follow-up questions? Can you hear us, Olly? Olly Jeffery: Yes. Just one follow-up question, please. Going back to the discussion on the capitalized interest within the guidance for '26 at 50Hertz. Is that -- which is noncash. Is there anything else within that '26 guide 50Hertz that is noncash in addition to the capitalized interest that we should know about? Or is that the only item? Marco Nix: I wouldn't say it material. There is -- now we come a little bit in great territory as we assume commissioning, which gives us a full depreciation in the revenues, there's a cash connected to that one, while the depreciation is lower, the real depreciation, which we are recording in that year. So for us, it's a cash item, which contributes to the results as well. While the capitalized borrowing cost is a noncash item as this is reverted later stage. So -- and therefore, I would keep it on that one, knowing that, of course, the example which I raised could give us a favor in the results of next year as well. And as I said, if you only linearize that, the result would look a little bit outstanding compared to that linearization in line with the CapEx, which you otherwise would compute. Yannick Dekoninck: And maybe if I can complement it, Marco, for those that have been following us for a couple of years, you see that we also have sometimes discounting of interconnecting provisions or interconnected income. As you know, you -- sometimes have spike in the forward rates that has an impact on those long-term provisions. That's not something that we estimate or take into account in the guidance as such, but that's always something that can happen. We were confronted with that a little bit at the end of Q4 of this year, where the interest rates started to move up. But that's not something that we can -- that we have a control on. That's not something that we can steer. So there, we have a neutral approach. But in the actuals, of course, that can have an impact. Olly Jeffery: And what was the impact of that in the '25 results from that movement at the end of Q4? Yannick Dekoninck: I think at the end of Q4, we had a net impact of EUR 22 million that was coming from this discounting of provisions. Stephanie Luyten: Thank you, Olly. If there are no further questions, let's wrap up today's presentation. First of all, a big thank you to all the teams who have contributed. Thank you, Bernard, Marco, Yannick. Marco Nix: Thank you, Stephanie. Stephanie Luyten: And thank you for joining us today. Have a nice day, and see you soon.
Operator: Good afternoon. Thank you for attending the GoPro Fourth Quarter and Fiscal Year 2025 Earnings Call. My name is Cameron, and I'll be your moderator for today. [Operator Instructions]. I would now like to pass the conference over to your host, Robin Stoecker, Director of Corporate Communications with GoPro. You may proceed. Robin Stoecker: Thank you, Cameron. Good afternoon, and welcome to GoPro's Fourth Quarter and Full Year 2025 Earnings Conference Call. With me today are GoPro's CEO, Nicholas Woodman; and CFO and COO, Brian McGee. Today's agenda will include brief commentary from Nick and Brian, followed by Q&A. For detailed information about our fourth quarter and full year 2025 performance as well as outlook, please read our Q4 and full year 2025 earnings press release and management commentary we posted to the Investor Relations section of GoPro's website. Before I pass the call to Nick, I'd like to remind everybody that our remarks today may include forward-looking statements. Forward-looking statements and all other statements that are not historical facts, are not guarantees of future performance and are subject to a number of risks and uncertainties, which may cause actual results to differ materially. Additionally, any forward-looking statements made today are based on assumptions as of today. This means that results could change at any time, and we do not undertake any obligation to update these statements as a result of new information or future events. To better understand the risks and uncertainties that could cause actual results to differ from our commentary, we refer you to our most recent annual report on Form 10-K for the year ended December 31, 2024, which is on file with the Securities and Exchange Commission and other reports that we may file from time to time with the SEC. Today, we may discuss gross margin, operating expense, net profit and loss, adjusted EBITDA as well as basic and diluted net profit and loss per share in accordance with GAAP and on a non-GAAP basis. A reconciliation of GAAP to non-GAAP operating expenses can be found in the press release that was issued this afternoon, which is posted on the Investor Relations section of our website. Unless otherwise noted, all income statement-related numbers that are discussed in the management commentary and remarks made today other than revenue are non-GAAP. Now I'll turn the call over to GoPro's Founder and CEO, Nicholas Woodman. Nicholas Woodman: As Robin mentioned, Brian and I will share brief remarks before going into Q&A, and I want to encourage all on the call to read the detailed management commentary we posted on our Investor Relations website. I'd like to begin by congratulating Brian McGee, GoPro's current EVP, CFO and COO, on his appointment to the role of President and COO. In his expanded role as President, Brian will further strengthen company-wide alignment and execution, enabling cross-functional teams to move faster and more cohesively towards our strategic goals. Brian is a very talented and passionate operator with a collaborative approach to problem solving and strategy development. I'm very excited for what GoPro can accomplish with Brian in his new role. I'm also pleased to share that Brian Tratt, GoPro's current VP of Finance, will serve as our CFO. Brian Tratt has served as an integral part of GoPro's finance team for 13 years and has earned the respect and trust of the entire GoPro organization. I'm excited for him to bring his deep understanding of our business and his fresh perspectives to the CFO role, leading our accounting and finance teams. These leadership changes will become effective on March 17. In 2025, we broadened our hardware and software offerings, delivering on the first stage of our mission to diversify our business and expand our TAM. During the year, we launched our new 360 camera, MAX2, delivering the only true 8K video resolution in the consumer 360 camera category, featuring durable twist and go replaceable lenses, trademark GoPro durability and versatility and the new ecosystem of sixteen 360-centric accessories. We also launched our new LIT HERO camera, an ultra-compact lightweight, rugged action and lifestyle camera that has the widest field-of-view lens in its class and an integrated light, enabling captivating photos and video in even no-light, pitch black scenarios. And we launched our new professional-grade gimbal, Fluid Pro AI, a best-in-class multi-camera AI subject tracking gimbal that's compatible with GoPro cameras, smartphones and point and shoot cameras weighing up to 400 grams. In addition, we launched a steady cadence of new software functionality, including new 360 content editing features such as AI-powered subject tracking and cloud-based 360 editing via our Quik mobile app. Additionally, we launched a GoPro Reframe plug-in for da Vinci Resolve, low light denoise enhancements in the GoPro Player desktop app and Apple Projected Media Profile support for the highest fidelity video playback in Apple Vision Pro. And in Q4, we made progress on several strategic initiatives, including GoPro's AI training program and development of our tech-enabled motorcycle helmet with our partner and leading Italian motorcycle helmet brand, AGV. We're pleased to share a meaningful update on our AI training program. We're now working with select AI partners, providing them access to authentic, high-quality GoPro content contributed by U.S. subscribers who opted in to monetize their GoPro cloud-based content for AI model training. We plan to recognize revenue from the program in Q1. And later this year, we'll make our first monetary payouts to participating GoPro subscribers whose content was selected. The program creates value for all stakeholders. All partners gain real-world video to train their models, participating GoPro subscribers earn money through a revenue share and GoPro benefits from a new scalable high-margin revenue stream. Since launching the program in Q3 2025, we've seen strong subscriber enthusiasm with more than 500,000 hours of diverse high-quality video content submitted to date and steady growth as we continue expanding the program to more subscribers globally. We expect to close further agreements with additional third-party licensing partners throughout 2026. Shifting gears, we continue to advance on our tech-enabled motorcycle helmet program, developed jointly in partnership with AGV. Together, GoPro and AGV are leveraging each other's design, engineering and brand strengths to deliver significant innovations that enhance safety, performance and enjoyment for motorcyclists, all wrapped into a helmet design that is simply stunning in every regard. We look forward to providing investors with more substantial updates on this program later this year, and we plan to publicly share a few product teasers in the near future. So stay tuned for that. Turning to recent developments. On February 26, the U.S. International Trade Commission reaffirmed our design patent rights by issuing exclusion and cease-and-desist orders against Insta360, blocking their infringing products from the U.S. market. This decision, combined with the Patent Trial and Appeal Board's rulings last year upholding multiple patents covering our HyperSmooth technology, validates what we've always known. GoPro is built on original innovation. Our patent portfolio now exceeds 1,500 U.S. patents, and we will continue to defend against competitors who choose to copy rather than create. Our commitment to innovation has driven many advancements in digital imaging from the world's far and away best in-camera video stabilization, HyperSmooth, to industry-leading image quality, resolutions and frame rates, best-in-class wide-angle field-of views and more, all in rugged and versatile small form factor cameras. Our custom GP2 processor played an important role in many of these innovations and helped power our flagship cameras to market-leading positions. At the same time, GoPro imposed a few constraints that limited how far we could push our cameras in certain areas of performance, specifically power efficiency, thermal performance and low light use cases. Most notably, GP2's low light constraint hampered GoPro's ability to compete in the fast-growing premium low light capable camera category, a market segment we estimate to have been approximately 2 million to 2.5 million units annually in 2025. Enter GP3, GoPro's soon-to-be-released next-generation processor, which is designed to deliver industry-leading power efficiency, run times and thermal performance, along with best-in-class low-light performance not yet seen in a small form factor cameras or even many professional cameras. As we announced earlier this week, our new exclusive GP3 processor represents the most significant advancement in processing power and image quality in GoPro's history. Whereas GP2 was a 12-nanometer SoC, GP3 is a 5-nanometer SoC that delivers more than 2x the pixel processing power of GP2, resulting in industry-leading resolutions and frame rates that go far beyond what the competition is capable of. GP3 also features a dedicated AI NPU that enables significant gains in low-light image quality when combined with low light image sensors and industry-leading power efficiency and thermal performance that significantly outperforms the competition. To quantify how efficient -- and far ahead, GP3 is in our own internal testing, we are seeing camera run times ranging from 40% to 90% longer than the competition and similarly impressive thermal performance advantages over the competition in addition to demonstrably better image quality. To say that we're fired up about GP3 and the new GP3-based cameras we're launching in Q2 would be an understatement. We expect GP3 to serve as a pivotal growth catalyst for GoPro, setting new performance benchmarks for the digital imaging industry as a whole, enabling GoPro to lead in our existing core markets and gain meaningful share in new, professional product categories, including the quickly growing low-light camera segment, beginning this Q2. I encourage you to visit the news section of GoPro.com to check out several jaw-dropping images captured with one of our soon-to-be-released GP3 cameras. I think you'll agree with me that GoPro is about to enable a new dimension of performance and capability. Operationally speaking, despite ongoing macroeconomic pressures facing the consumer electronics sector, including tariffs and rising memory costs and supply constraints, we are working towards strengthening our operating profile, as Brian will outline, while also advancing our next product cycle with meaningful technological enhancements. We believe we are at the start of a new era of technological and performance leadership for GoPro. With a clear opportunity to grow revenue and operating income as Brian will share in his remarks. We are highly motivated by what's ahead for GoPro and want to thank our employees, suppliers, retail and distribution partners and our shareholders for your support. We're very excited for what's to come. Now I'll turn the call over to Brian. Brian McGee: Thanks, Nick. Fiscal 2025 improved substantially over 2024 in a number of key areas, including operating expense reductions of $93 million, flat gross margins of 34%, despite a $20 million impact due to IEEPA tariffs, inventory reduction of 35% all culminating in an improvement in cash flow from operations of $104 million. In the fourth quarter of 2025, revenue was $202 million versus our guidance of $220 million, plus or minus $5 million, and we generated positive adjusted EBITDA of $1 million. Cash flow from operations was positive, again, for the third quarter in a row at $16 million, a $41 million improvement year-over-year. Sell-through was at the midpoint of guidance at 625,000 camera units, which resulted in a 30,000 unit decrease in channel inventory. Looking back on the year, notable financial performance highlights include revenue from our retail channel was $482 million or 74% of revenue compared to 75% of 2024 revenue. Revenue from GoPro.com channel, which includes subscription and service revenue was $170 million or 26% of revenue compared to 25% of 2024 revenue. Subscription and service revenue was flat year-over-year at $106 million or 16% of revenue. 2025 street ASP was $357, an 8% improvement year-over-year. Gross margin was 33.8% compared to 34.1% in the prior year despite negative impacts related to IEEPA tariffs of approximately $20 million incurred in 2025. Operating expenses reduced $93 million from $354 million to $261 million, a 26% decrease year-over-year. GAAP and non-GAAP loss per share was $0.59 and $0.30, respectively, compared to prior year loss per share of $2.82 and $2.42, respectively. 2024 GAAP and non-GAAP loss per share were impacted by $1.93 per share due to the establishment of a $295 million tax valuation allowance that was recorded in 2024. Adjusted EBITDA was $29 million -- negative $29 million, compared to negative $72 million in the prior year. Cash flow used in operations was $21 million compared to cash used in operations of $125 million in 2024, a $104 million improvement. Turning to 2026. Our outlook is prefaced by highlighted uncertainty that exists due to volatility in tariff rates, memory pricing, memory availability, consumer confidence, competition, component supply chain and global economic uncertainty. To provide color on our expectations and priorities for the year, we expect revenue to grow in 2026 to a range of $750 million to $800 million or nearly 20%, growth at the midpoint based on our existing lineup of products, the introduction of several new products starting in Q2 and additional AI content licensing this year. We expect subscription and service revenue to grow approximately 10% due to improvements in ARPU growth of 10% and improvements in attach rates and retention rates, which is slightly offset by subscribers projected to be down 7% year-over-year to $2.2 million. We expect operating expenses to be in the range of $220 million to $230 million, down from $261 million in 2025 or a 14% reduction. The anticipated decrease is primarily due to a reduction in litigation expenses, our prior restructuring actions, which resulted in reduced employee-related costs in 2025 and a continued strong focus on expense management. The cumulative effect of our planned actions is expected to result in a reduced operating expense range in 2027 of between $200 million and $210 million. We expect memory price increases, both DRAM and NAND, to impact margin by approximately 500 basis points year-over-year. We expect to have enough memory to meet our unit and revenue goals for 2026. Today, we announced a $50 million financing, of which we closed $25 million. In addition, we amended loan covenants for ABL and debt agreements, the details of which can be found in the 8-K we filed concurrent with today's earnings. We expect our liquidity position to be adequate and we expect to end 2026 with approximately $50 million, plus or minus $5 million in cash, along with an additional $35 million available under our ABL facility and $25 million available under our recent financing agreement. We expect adjusted EBITDA to be in the range of $10 million to $20 million in 2026, an improvement from losses of $29 million in 2025 and $72 million in 2024. Relative to our prior outlook of trailing 12-month adjusted EBITDA of $40 million for 2026, it's worth noting that memory pricing impacted the trailing $40 million EBITDA by $40 million for a total impact of nearly $60 million in 2026. In closing, we believe our strategy is working. We are in the midst of an exciting innovation cycle with the launch of leading products, continued AI content licensing and other services expected over the next several years that we believe will bolster our market position while expanding our TAM. We expect to continue operating expense reduction initiatives in 2026 that we initiated in 2024 to mitigate memory cost increases. We believe we will restore revenue growth and deliver adjusted EBITDA in the range of $10 million to $20 million in 2026. Operator, we're now ready to take questions. Operator: [Operator Instructions]. The first question comes from the line of Erik Woodring with Morgan Stanley. Well, there are currently no questions registered at this time. [Operator Instructions]. Once again, there are currently no questions registered so as a brief reminder. [Operator Instructions]. There are no questions waiting at this time. I would now like to pass the conference back to the management team for any closing remarks. Nicholas Woodman: Thank you, operator, and thanks, everybody, for joining today's call. As we shared, we are excited for the year ahead and particularly for this Q2 and the launch of our new GP3-based cameras that we believe will mark a new era of technical and performance leadership for GoPro, which we believe will ultimately result in revenue and profit growth for the company. Be sure to stay tuned to our social channels for product teases and more as we approach the launch of our new products. Thanks again, everyone. This is Team GoPro signing off. Operator: That concludes today's call, and thank you for your participation, and enjoy the rest of your day.
Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco Wholesale Corporation Fiscal Second Quarter 2026 Conference Call. [Operator Instructions] I would now like to turn the conference over to Gary Millerchip, Chief Financial Officer. You may begin. Gary Millerchip: Good afternoon, everyone, and thank you for joining us for Costco's Second Quarter 2026 Earnings Call. In addition to covering our second quarter financial results today, we will also review our February sales results. I'd like to start by reminding you that these discussions will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results and our performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call, as well as other risks identified from time to time in the company's public statements and reports filed with the SEC. Forward-looking statements speak only as of the date they are made, and the company does not undertake to update these statements, except as required by law. Comparable sales and comparable sales excluding impacts from changes in gasoline prices and foreign exchange are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP. Before we dive into our results, I'm delighted to say that Ron Vachris is once again joining me for today's call. I'll now hand over to Ron for some opening comments. Ron Vachris: Thank you, Gary. Good afternoon, everyone, and thank you for joining us today. I'll make a few brief comments about some key business priorities before turning it back over to Gary. Let me start by addressing tariffs, as I know this topic is of great interest to our members and our shareholders. The future impact of tariffs remains extremely fluid as the recently eliminated IEEPA tariffs have now been replaced with new global tariffs for at least the next 150 days. Our buyers continue to act with great agility and urgency, always with the goal of reducing the impact of tariff on prices for our members. We believe our expertise in buying and our limited SKU count model puts us in a position to manage this as well as anyone. Our strategies include moving the country of production when that makes sense, consolidating buying efforts globally to lower the cost of goods, leaning in on Kirkland Signature, where we have the most control of the supply chain and sourcing more items domestically. Let's move to regarding IEEPA tariff refunds. It is not yet clear what the process will be, what refunds, if any, will be received and when this will happen. Throughout the past year, we've taken action to reduce the impact of tariffs. In many cases, we didn't pass the full cost on to our members. The complexity of the tariffs implemented over the past year, including layering of different tariffs on top of each other and multiple changes in rates throughout the year, also made it challenging to track the exact impact to an individual item sold. As we've done in the past, when legal challenges have recovered charges passed on in some form to our members, our commitment will be to find the best way to return this value to our members through lower prices and better values. We'll be transparent in how we plan to do this, if and when we receive any refunds. At Costco, we always want to be the first to lower prices and the last to raise them. During the second quarter, we lowered prices on key items such as eggs, cheese, coffee and some paper products as we saw lower inflation in these commodities. We will continue to be a pricing authority and as some tariffs have been reduced, we are lowering prices on affected items such as certain textiles, bedding and cookware SKUs. Turning to our growth priorities. As I shared last quarter, our real estate and operations teams are focused on increasing our pipeline of new warehouses, both domestically and internationally. Since our last call, we opened 4 warehouses, including 1 relocation in the U.S., 1 net new U.S. location and 2 additional Canadian business centers. This brings our total warehouse count to 924 warehouses worldwide. We currently expect to have 28 net new openings in fiscal year '26 and are targeting 30-plus new openings per year in the coming years. In digital, we continue to make strides with our road map to deliver a more seamless experience for members in warehouse and online. In the warehouses, we're achieving meaningful improvements in the speed of checkout, employee productivity, both as a result of our mobile wallet enhancements, pharmacy pay ahead and the rollout of employee pre-scan technology. We're also piloting automated pay stations that will allow members to pay for their pre-scanned orders seamlessly with an average transaction time of around 8 seconds. Early results show this is improving the flow of traffic, and we've received great member feedback. On our digital sites, we continue to roll out new personalization capabilities, which are resonating well with our members and are starting to have measurable impact on e-commerce sales growth. As consumers embrace AI and their shopping habits, we believe our commitments to providing the best value on great quality items can make Costco a beneficiary of these shifts. We're working closely with the leading AI companies to ensure our values will be visible to existing and potential future Costco members as they engage with these tools. With that, I'll turn it back over to Gary to discuss the results for the quarter, and I'll jump back on during Q&A to field some questions. Gary Millerchip: Thanks, Ron. In today's press release, we reported operating results for the second quarter of fiscal year 2026 for 12 weeks ending February 15. As usual, we published a slide deck under Events and Presentations on our investor website with supplemental information to support today's press release. Net income for the second quarter came in at $2.035 billion or $4.58 per diluted share, up nearly 14% from $1.788 billion or $4.02 per diluted share in the second quarter last year. Net sales for the second quarter were $68.24 billion, an increase of 9.1% from $62.53 billion in Q2 2025. Comparable sales were up 7.4% or 6.7% adjusted for gas price deflation and FX. Excluding gas sales entirely and adjusting for the impact of foreign exchange, comparable sales were up 7.4%. Digitally-enabled comparable sales were up 22.6% or 21.7% adjusted for FX. Our segment breakout of comparable sales is disclosed in both our earnings release and the supplemental slide deck. In terms of Q2 comp sales metrics, FX positively impacted sales by approximately 1.4%, while gas price deflation negatively impacted sales by approximately 0.7%. Traffic or shopping frequency increased 3.1% worldwide. Our average transaction or ticket was up 4.2% worldwide and 3.5% excluding gas price deflation and changes in FX. Moving down the income statement to membership fee income. We reported membership fee income of $1.355 billion, an increase of $162 million or 13.6% year-over-year. Adjusting for FX, the increase was 12.2%. The September 2024 U.S. and Canada membership fee increase accounted for about 1/3 of our membership income growth. Excluding the membership fee increase and FX, membership income grew 7.5% year-over-year. This was driven by continued growth in our membership base and upgrades to executive memberships. At Q2 end, we had 40.4 million paid executive memberships, up 9.5% versus last year. We ended the quarter with 82.1 million total paid members, up 4.8% versus last year and 147.2 million cardholders, up 4.7% year-over-year. In terms of renewal rates, at Q2 end, our U.S. and Canada renewal rate was 92.1%, down 10 basis points from last quarter; and the worldwide rate came in at 89.7%, unchanged from last quarter. The slight decline in the U.S. and Canada renewal rate was due to the factors we have discussed in prior quarters and reflects new online members growing as a percentage of our total base and renewing at a slightly lower rate than warehouse sign-ups. We continue to focus on increasing the renewal rate of these new online members through targeted digital communications and retention strategies. And those efforts partially offset the negative effect of the increased penetration of online sign-ups. Turning to gross margin. Our reported rate was higher year-over-year by 17 basis points and higher 11 basis points without gas deflation, coming in at 11.02% compared to 10.85% last year. Core was lower by 3 basis points and lower by 7 basis points excluding gas deflation. In terms of core margins on their own sales, our core-on-core margins were higher by 22 basis points. The increase in core-on-core margins was broad-based with nonfood, food and sundries and fresh all higher year-over-year. The difference between reported core margins and core-on-core margins was driven by mix changes as well as higher 2% executive rewards and lower income from our co-brand credit card program compared to last year. Ancillary and other businesses gross margin was higher by 19 basis points or 17 basis points excluding gas deflation. This was driven by higher gas profitability and strong growth in pharmacy. LIFO negatively impacted the gross margin rate by 4 basis points. We had a $12 million LIFO charge in Q2 this year compared to a $12 million credit in Q2 last year. This quarter's gross margin rate also included a nonrecurring legal settlement, which had a positive impact of 5 basis points. Moving on to SG&A. Our reported SG&A rate was higher or worse year-over-year by 13 basis points and higher or worse by 8 basis points without gas deflation, coming in at 9.19% compared to last year's 9.06%. The operations component of SG&A was higher or worse by 2 basis points, but better or lower by 2 basis points excluding the impact of gas deflation. Our operators once again did a great job improving productivity and capturing efficiency benefits from the technology investments we've recently implemented. These productivity improvements fully offset last year's wage investments and any impact of extended operating hours. Central was higher or worse by 4 basis points and higher by 3 basis points excluding the impact of gas deflation. This quarter's SG&A also included an increase in general liability reserves to reflect higher expected future costs for prior year claims not yet settled. This negatively impacted the rate by 6 basis points. Below the operating income line, interest expense was $33 million versus $36 million last year. Interest income was $140 million versus $109 million last year, driven by higher cash balances; and FX and other was an $8 million benefit this year versus a $33 million benefit last year, largely due to changes in FX. In terms of income taxes, our tax rate in Q2 was 25.2% compared to 26.2% in Q2 last year. Turning now to some key items of note in the quarter. Capital expenditure in Q2 was $1.29 billion. We estimate CapEx for the full year will be approximately $6.5 billion as we continue to invest in building a larger pipeline of new warehouses, remodeling our existing warehouses to drive continued growth in high-volume buildings, expanding our depot network to support operations and enhancing the member digital experience. In terms of merchandising highlights, the Lunar New Year celebration this year showcased our merchants global buying expertise. We were able to introduce many exciting new items for our members that help drive growth across fresh, foods and sundries and nonfood categories in the U.S. and our international markets. Some of the best sellers included items ranging from duck and quail eggs, Year of the Horse-inspired gold jewelry and bullion and Shine Muscat grapes. We also had a very successful Valentine's Day. In fact, laid out stem-to-stem, the roses we sold in the U.S. for Valentine's Day this year would have stretched all the way from Seattle to New York City and back again. Fresh comparable sales were up low double digits in the quarter, led by meat and bakery. In meat, we saw strong growth in both premium cuts of beef and lower-cost proteins such as ground beef and poultry. In bakery, we continue to see success with the launch of exciting new items like the chocolate hazelnut mini beignets and a variety of seasonal pastries and cookies. Nonfood comp sales were up high single digits in Q2. Top-performing departments were gold and jewelry, tires, majors, health and beauty and small electrics. Unique items continue to play an important role in creating excitement for our members in nonfoods. And our second quarter sales included a $150,000 emerald-cut 5.8 carat diamond ring, a $20,000 Babe Ruth autograph baseball and nearly 200 luxury Whisper golf carts at an average price of approximately $9,000. In food and sundries, comps grew mid-single digits, led by candy and packaged foods. While egg price deflation is expected to continue to be a headwind to sales in food and sundries for the foreseeable future, we're seeing significant unit and market share growth in eggs because of our strong value proposition. Overall inflation decreased slightly in Q2 as we saw lower inflation in foods and sundries and fresh, led by deflation in produce, eggs and dairy. This was partially offset by slightly higher inflation in nonfoods. The supply chain was also relatively stable in Q2, and our merchants feel good about our current inventory position heading into the spring. That said, as we look at the rest of the fiscal year, the situation in the Middle East could impact fuel costs and shipping schedules if there is instability in the region for a sustained period of time. Kirkland Signature remains a top focus to deliver great value for our members with KS items typically offering 15% to 20% value compared to the national brand alternative with equal or better quality. In Q2, we launched approximately 30 new KS items, including crispy wings, blackened salmon and various apparel items. As Ron mentioned earlier, our goal is to be the first to lower prices where we see opportunities to do so. And a few examples this quarter included KS Butter from $13.89 at the end of Q1 to $8.49 at the end of Q2, 12-count KS Organic Coconut Water from $12.79 to $10.99, KS Organic Seaweed from $10.99 to $9.99, and 2-liter KS Italian extra virgin olive oil from $29.99 to $24.99. Within ancillary businesses, pharmacy and food court experienced double-digit comparable sales growth, and optical and hearing had high single-digit growth. Gas comps were negative mid-single digits, driven by mid- to high single digit price deflation, partially offset by gallon growth. Turning to digital. Site traffic in the quarter was up 32% and app traffic was up 45%. Sales of pharmacy, gold and jewelry, toys, tires, small electrics, special events and housewares, all grew double digits year-over-year. And our same-day delivery service offered through Instacart, Uber Eats and DoorDash continue to grow at a faster pace than our overall digital sales. The enhancements we are making to deliver a more personalized digital experience for our members are starting to create measurable impacts. In Q2, our personalized product recommendation carousels drove over $470 million of e-commerce sales, and our newly modernized product display pages are driving incremental sales on our dot-com site as well as increased traffic to our same-day sites. We have a clear road map for future digital enhancements and believe these will allow us to continue to grow digitally-enabled sales at a faster pace than overall sales. Finally, a brief update on our February sales results for the 4 weeks ended this past Sunday, March 1. Net sales for the month came in at $21.69 billion, an increase of 9.5% from $19.81 billion last year. Comparable sales were as follows: the U.S. was up 5.2% or 6% adjusted for gas deflation and FX; Canada was up 12.8% or 9.3% adjusted for gas deflation and FX; Other International was up 17.9% or 10.9% adjusted for gas deflation and FX. And this resulted in total company comp sales of plus 7.9% or plus 7% adjusted for gas deflation and FX. Digitally-enabled sales were up 21.8% or 20.8% adjusted for FX. Total company comparable sales for the month, excluding all gas sales and the impact of foreign exchange, was 7.8%. As a reminder, Lunar and Chinese New Year occurred on February 17, 19 days later this year. This shift positively impacted February Other International and total company sales by approximately 4% and 0.5%, respectively. Our comp traffic or frequency for February was up 3% worldwide and 1.5% in the U.S. Foreign currencies year-over-year relative to the U.S. dollar positively impacted total and comparable sales as follows: Canada by approximately 5%, Other International by approximately 8% and total company by approximately 1.7%. Gas price deflation negatively impacted total reported comp sales by approximately 85 basis points. The average worldwide selling price per gallon was down 7.5% versus last year. Worldwide, the average transaction was up 4.8%, which includes the impacts from gas deflation and FX. Excluding gas deflation and FX, average transaction was up 3.9%. In terms of regional and merchandising categories, the general highlights were as follows: U.S. regions with the strongest comparable sales were the Midwest, Northwest and Southeast. Other International in local currencies, we saw the strongest results in China, Taiwan and Korea. The negative impact of cannibalization was approximately 60 basis points for the total company. Moving to merchandise highlights. The following comparable sales results by category for the month excludes the positive impact of foreign exchange. Food and sundries were positive mid-single digits. Better performing departments included candy, food and frozen foods. Fresh foods were positive low double digits. Better performing departments included meat and bakery. Nonfoods were positive mid-single digits. Better performing departments included jewelry, majors and small appliances. Ancillary business sales were up mid- to high single digits. Pharmacy, food court and optical were the top performers. Gas was down low to mid-single digits, driven by price per gallon changes year-over-year. In terms of upcoming releases, we will announce our March sales results for the 5 weeks ending Sunday, April 5; on Wednesday, April 8, after market close. That concludes our prepared remarks, and we'll now open the line up for questions. Operator: [Operator Instructions] And our first question comes from the line of Chris Horvers with JPMorgan. Christopher Horvers: So a bit of a near-term question here. There's been a lot of noise in January and February on the weather, whether there was a net benefit to January. One of your competitors talked about a headwind into February because of the weather. Could you reconcile how the weather dynamics affected the first 2 months of the year? And then similarly, gold has been very spiked into the beginning of January, has pulled back a little bit here in February. So how are you thinking about how that impacted the business in those 2 months? And how do you think about that, how that could play out for the rest of the year? Gary Millerchip: Chris, thanks for the questions. Maybe on the first part of the question, on the weather, I think, our general view is that it certainly created some volatility during the first 2 months of the year, but we wouldn't really call anything out. I don't think that we would say we think there's a major sort of impact when you look at the total sales results that we posted in January and February. I think the one thing that I probably would mention is that our traffic visits were a little bit lighter in the U.S. in February. The thing that we think may have caused that to look a little bit lighter was because of the weather we had in the Northeast, in particular, we have 55 warehouses that were closed for a full day and then took a couple of days for the local communities to get back up to sort of speed. So I don't know that we call out when you look at the actual total sales that there was anything there that we'd want to call out, but I do think there might have been some impact on visits when you look at the sort of year-over-year growth there in the February results. But beyond that, I don't think there's anything that we would say that you should -- we'd look at in our results and say it was a major impact that should be adjusted for. And then I think more broadly -- I'll maybe just answer it in general terms. You mentioned the question around gold. I think as we look at the overall state of the consumer and our members and how they're shopping, I think it really is, generally big picture, a continuation of the trends that we've seen over the last few quarters where, for sure, members are very focused on quality and value and newness and exciting new items are very important. But when you deliver on those things, we're seeing members are willing to and have the capacity to spend. And I think the fact that our buyers continue to find new and exciting items have resulted in our overall sales results each month when you strip out the noise around calendar shifts and strip out the noise around sort of short-term blips when there's questions around port strikes and tariffs. Overall, our results have been very consistent in that 6% to 7%. So I really wouldn't say there's anything, certainly, changes in different items because as we've adjusted assortment to reflect whether it's tariffs or different member preferences, but overall, very consistent in terms of the results that we've seen. Operator: And our next question comes from the line of Michael Lasser with UBS. Michael Lasser: Ron, you highlighted several innovations that you are currently implementing or testing to improve the member experience as well as increasing the efficiency of the business. Did you size the potential savings from things like prepaying your card or line breaking from your associates? And then as part of that, to what degree will you take those savings, reinvest it back in areas like the store wages, store labor and/or price? And are you starting to see any diminishing returns on the investments that historically Costco has been making and have proven to be quite fruitful? Ron Vachris: You're very welcome. The digital enhancements we're making both online and in the warehouse have all been very beneficial for us. In the warehouse, as you use the example of the pharmacy, our pharmacy business is very strong. Traffic has been significantly up, and the adoption of the new digital enhancements have really allowed us to maintain the staffing we have in place and then handle this new growth of volume we're seeing. It's improving the member experience and it's making the throughput much better, be it the pharmacy app that we've developed or the pay ahead that we have in our warehouses. So it is really -- it's very accretive to us handling this new volume and being efficient as we do that. So we do see some good tailwinds behind that as that moves forward. As far as investing in the business, seeing the same values in that, no, we feel that we still get the same return from our members as we continue to invest in the business out there. And the members are responding very nicely to it, both with traffic and with sales that we see as well. So we feel good that we will continue to reinvest. That's what we do, both in employees and in pricing and in the business overall and expansion, as Gary mentioned and I mentioned in the earlier talk that we just had. And we're not only expanding buildings, we're relocating and we're also upgrading the insides of a lot of our older warehouses too. So we continue to put the money back into the company to drive top line sales and grow our business globally. Operator: And our next question comes from the line of Chuck Grom with Gordon Haskett. Charles Grom: Inventory levels continue to be very well managed. Curious as you look ahead to the spring and summer, are you making any notable changes to the assortment akin to some of the changes you made last fall? And then with rising gas prices in the near term, can you just remind us historically the crossover traffic that you typically see into the club on like-for-like hours? Ron Vachris: Sure. As far as mix goes, going into the spring and summer, we feel we're going back a little more traditional than we've seen last year. The supply chain has balanced out a little bit more. We feel good about the sourcing moves that we've made. So we feel, as far as timing goes, selection, SKU counts, we're back on track again with where we were at the year prior. So I feel good about the lineup that we have. We feel good about production. Shipments until the most recent undertakings have really been -- everything has been on time and moving through very well. So we haven't seen any disruptions from the Middle East in our regular merchandise flow, but we're watching that very cautiously, and we're staying on top of that. So we feel good about the spring and summer. And then as we forecast out into the fall, we feel we're in a good place. As far as gas, I'll let Gary answer that. Gary Millerchip: Yes. Thanks, Ron. Chuck, on gas, generally speaking, we see about half of members that will shop at the gas station will also cross shop at the warehouse. And obviously, as Ron mentioned, early days to know what the impact longer term might be from events in the Middle East at the moment. But generally speaking, if gas prices start to increase, then we tend to see our value position resonates better with members just because, obviously, we want to be the pricing authority on gas. And so when prices are higher, that will tend to cause members to maybe take the extra mile that it might be involved to get to the gas station because of the incremental value they see there. But obviously, we'll have to see what happens with gas prices over the coming months there. Operator: And our next question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: I have 2 unrelated questions. First, the competitive openings are stepping up this year. I imagine there's maybe some membership impact in nearby openings from competitors. Is there anything above and beyond? And then the second part is if a customer speaks to an LLM, how do you show up or how do you want to show up? And are you seeing any opportunities to convert members? Ron Vachris: You're welcome. As far as the new openings coming up, it won't have a negative effect on our membership. We won't see those big swells of new markets that we would see when you go into an existing building. So it balances that out. It really drives our sales with frequency and visits. As we relieve a high-volume warehouse, those tend to build back very quickly. And so we may not see the traditional number of new members, but frequency of members and those type of things start really ramping up in those markets as we see. So we don't see a negative effect, but we don't see the big tailwind we saw with new sign-ups as we would in the new market as well. And for the LLM, I'll take a shot at that. The biggest thing we feel with our quality and our value is we want to show up everywhere we can and everywhere we can. And we want to make sure that Costco is surfacing with all these partners that we feel very confident with our values and our prices. If we're coming up on all these searches, we're going to [ fare ] very well with those. So I don't know if you want to add anything to that, Gary. Gary Millerchip: Well, the only thing, Ron, maybe just to come back to your first answer, I didn't know if, Simeon, your question was when competitors are opening warehouses too. And I guess I would say that really, we don't see any meaningful impact on our membership base or membership growth when we feel we operate today very effectively across the U.S., competing against very different operators. And we tend to focus on being our own toughest competitor, finding ways of how can we lower prices and continue to deliver more value. And so generally speaking, there's nothing I would call out that we see an impact to our membership base when we're competing against different operators in each market. Operator: And our next question comes from the line of John Heinbockel with Guggenheim. John Heinbockel: Ron, 2 maybe international questions, but can you talk about -- so Canada AUVs is now approaching $300 million. Thoughts -- and you're still growing, right? So thoughts on shopability capacity in those clubs, and I know you're opening business centers. So thoughts on that. And then secondly, I think you're going to open 3 outside of international, outside of Canada this year. What does the pipeline look like in '27 and '28, because I think you do want to ramp that up much higher than it is today? Ron Vachris: Okay. Yes. As far as Canada goes, we have 114 buildings now, and we have had some very good success with infilling, and even opened up a couple of new markets in the recent 2 years. Our volume per location is quite high in that market. We have done several things. The technology that we've done in the U.S., we're using in Canada as well. We've recently expanded operating hours in all of our Canadian buildings to help offset some of the traffic increases. So we feel that we've got a very good path of expansion in Canada over the next 5 years, and we feel good that we'll be able to maintain a good, high average volume per location and continue to infill with some great incremental sales there as well. Internationally, yes, they take a little bit longer, a little bit longer before we bring these to fruition as opposed to being in North America. But we feel very good about the future from '27 on in our international markets as we continue to see performance both in Asia and Europe to be very strong. And so we look forward to some good growth expansion. We feel a good balance as we've had in the past, with a good portion of our locations being outside North America and an equal amount being here domestically as well. Operator: And our next question comes from the line of Kate McShane with Goldman Sachs. Katharine McShane: I wondered if I could tack on to the real estate question and just ask about the fact that you noted some new opportunities in real estate are allowing you to enter into markets that you didn't think you could enter into previously. How should we think about this longer term? And how it will influence maybe the number of units you open in a year domestically? Ron Vachris: Okay. Well, we're not changing the model, but we are being a little more creative with the use of things like parking decks. I know it's been announced what we're doing in Los Angeles with the residents above our locations. So we are getting a little more creative. If we want to get into some of these inner cities, you're not going to find 25 acres available for us to go into. So how can we infill in some of these very strong markets like Los Angeles, New York, different places with a unique model for Costco that is going to allow us to continue to expand? We've done a lot of these things in the past. We've proven out the models in Asia, and we've got some very unique business models, and also in Europe as well, that have served us very well. So it's not new to the company. It's a little newer to the U.S. But we feel very good about how we can be efficient, we can maintain the Costco experience in all of these warehouses. But being a little bit -- a little more creative than a standard 25-acre site with 800 parks and 1 level of parking decks out there as well. So that's where we're seeing a lot of the openness to the opportunities to partner with others and get into markets that could have been otherwise tough to get into. Gary Millerchip: And Kate, I think that's kind of allowing us to be able to have more confidence in that plan to achieve that 30 warehouse a year goal that we talked about in the last couple of earnings calls. And when we talk about 30 a year, we look at sort of generally a 5- to 10-year time horizon for warehouses. And we feel like that, that 30 sort of target a year is there to be achieved for that sort of time horizon. And that's the goal that we're working towards as we look at the plan. And roughly just over half of those, we think, would be in the U.S. and just under half would be in the rest of the world, if you include Mexico, Canada, Asia, Europe, Australia and New Zealand in that broader Rest of the World category. Operator: And our next question comes from the line of Edward Kelly with Wells Fargo. Edward Kelly: I was hoping that you could expand on core-on-core margins in the quarter and then maybe how we should be thinking about the back half? The compare seems a little bit tougher there, but just thoughts on how we should be thinking about that would be great. Gary Millerchip: Yes. Thanks, Ed. I'll take a step back overall on gross margin. We were pleased with the quarter overall in gross margin. As you heard us say that the overall result was -- if you adjust for gas deflation, was up 11 basis points, but we had a gain for a nonrecurring legal settlement in there for 6 basis points. So overall, we look at it as being up by 5 basis points in the quarter and being able to achieve that growth when we were also lowering prices for members and managing the impact of tariffs. I think the team did a really good job of being able to stay the course in making sure we're delivering more value while also being able to deliver a good financial outcome for our shareholders. On the core-on-core, specifically, side of it, as you heard us say, we were up 22 basis points. I wouldn't say there's one particular sort of driver of that. It's similar to the themes we shared the last couple of quarters. I think during Q2, in particular, partly would have had some benefit when you look at -- we've said I know in prior discussions that when we see prices coming down, as we saw in some of the deflationary items, often that's a time that's helpful to us because we can lead the sort of the world down with lower prices for our members. But because we turn the inventory so quickly, we also tend to get some financial benefit in there. And then we're continuing to work on supply chain efficiencies and Kirkland Signature penetration continues to improve. So there's a number of different sort of factors, I would say, that help with that. At the same time, as you heard us say, there were some offsets in core because we paid higher 2% rewards. We were lapping some higher income in the credit card program. There is some mix shift as well because our pharmacy business is growing and our e-commerce businesses are both growing at a faster pace than our core sales. So they kind of dilute some of the impact when you look at the total core margin growth. And I share all that context because I think from our perspective, when you think about looking forward, the rate is going to fluctuate and the different elements are going to fluctuate quarter-to-quarter, and we tend to not get too fixated on one individual element of the margin. Our goal is to run the business holistically for the long term. And my comment earlier about some slight improvement in the gross margin rate while lowering prices and continuing to manage the business effectively is how we tend to think about delivering value for, first of all, our members, and in turn, that resulting in members and shareholders. So when you look at the trajectory, I think, I would focus less on one individual metric. I think where I would come back to is if you look at the quarter overall, we were up about 6 basis points. If you look at the last 12 to 24 months, generally, our gross margin has been stable and has grown slightly, and there's been puts and takes with core-on-core and the other elements that I mentioned, but our focus is really on running the business for the long term and making sure we're delivering value for members. But we do think through some of the efficiencies that we create, we can -- we are slightly expanding margin, but it's only slightly because, as Ron mentioned, really where we see meaningful benefit. We're reinvesting in the member to make sure that we're driving top line sales. Operator: And our next question comes from the line of Rupesh Parikh with Oppenheimer. Rupesh Parikh: So just going back to membership growth, so it's sub-5% this quarter. So if you could maybe walk through some of the dynamics at play. And then as you look at your same club membership growth rates, just how those are trending versus your expectations? Gary Millerchip: Yes. Thanks, Rupesh. Yes, maybe again, just taking a step back, big picture. We were pleased with the membership results for the quarter. We saw -- I think you heard us say in the prepared remarks, 7.5% growth in membership fee income if you adjust out the fee increase in FX, so underlying some really strong member loyalty and member fee income growth during the quarter. The bigger part of that was the 9% growth in upgrades, which I think shows that the impact of the $10 Instacart credit that we're offering each month for online shopping and the extended hours and some of the other benefits that we've added are resonating with our members and increasing the level of upgrades. You mentioned the overall paid membership was a driver of that, too, was up about 4.8% during the quarter. As you said, Rupesh, it's a little bit lower than it's been over the last year or so. The last couple of quarters have been around that 5% mark. I think there's really 3 things that I would call out there. One is that we have seen over the last year or so, less new warehouse openings in sort of genuinely new markets. And generally speaking, when we open in Japan or China, there's a dramatic increase and spike in the number of new members. So they certainly help to inflate the overall membership growth. And we really haven't had a meaningful number of those in the last year or so. So that's having an impact on slowing down the rate of growth. Secondly, I'd say we are cycling some strong new member sign-ups a year ago. So we're having some impact of the -- as we cycle those, and still seeing strong member sign-ups, but certainly, we're sort of lapping some higher growth that we saw this time last year. And then I think, I'd also probably say, if you look at the long-term growth rate, as I mentioned, certainly, we've had growth at a higher rate when there have been times where we've had those large new warehouse openings with inflated new members and we've had peaks at certain times where we've seen higher member sign-ups. If you look at our long-term growth rate, it really is in more of that 5% growth range in terms of new members. So I think it's kind of maybe resting more closer to where the long-term growth rate has been. And we think there's still plenty of opportunities to keep growing the membership base, whether it's through adding new benefits as we did some of those this year, whether it's existing warehouses continuing to mature and growing their membership base, as I mentioned earlier, improving the renewal rates as we're making good progress in those as well. And then in our international markets, we tend to be -- while we have a large member base per warehouse, the executive membership base tends to be lower penetrated in those areas as well. So we think there's lots of opportunity for continued growth, but I think those would be the 3 points that I would call out as being the main drivers of us at a slightly lower rate year-over-year than we've been in the quarters prior to the last 2. Operator: And our next question comes from the line of David Bellinger with Mizuho. David Bellinger: Thanks for the questions. It's on renewal rates. The U.S. down about 10 basis points, worldwide flat. So is this the real bottom here? Given the way you calculate renewal rates, do you have a certain time line or time frame in mind when you can see this data set start to improve and move back up again? And then separately, we've noticed some in-warehouse activity, maybe given out a free item when you sign your membership up for auto renew. Can you talk about the uptake for that program and how that's helping renewal rate as well? Gary Millerchip: Sure. Yes. As you mentioned, we called out a few quarters ago that we were seeing a slight decline in the overall membership renewal rate and you characterized it very, very well, which is as we've started to see a meaningful increase over recent years in the member -- in the number of digital members signing up, they do generally renew at a slightly lower rate. And so as they've been building as a percentage of the total base, it's been a real positive for us in terms of adding younger new members and helping with total revenue growth and some of the comments I made about the membership growth, responding to Rupesh's question earlier. But it has had an impact. When you blend those into the total mix of members, it does bring down slightly the overall renewal rate. When we called that out 2 or 3 quarters ago, we said we probably have a few more quarters where we'd expect to see a continuation of a slight decline in the renewal rate because there is that sort of math where those numbers are feeding into the overall renewal calculation. It does bring down the average. I think we're pleased to see that the global rate actually was flat during this quarter and the U.S. rate was only down 10 basis points, as you mentioned. So I think it shows that we're making some good progress with the impact that we thought would happen through the maturation of those online members coming into the overall number, but also with some of the initiatives that we've been driving around contacting and engaging with those new digital members through digital communications, through retention strategies. And if we'd have just played out the impact we would have expected without any of that activity, it would have been a higher decline just with the math of the number of digital members that we're feeding into the overall renewal rate calculation. So we are seeing and showing some impact of the benefit of those programs. The auto renewal is something we've been focused on for some time. We believe as more members have grown over time, there's a real benefit in helping the member from a convenience point of view, having auto renew. And of course, it helps us with membership renewal rates as well. So that's something we've been -- we've had as a program for a while now, and there are certain times where we'll raise the awareness of it in the warehouse for our employees to have a talking point with a promotion of some sort as well. So overall, I think we feel that we're seeing what we expected with the change in the renewal rate. It has slowed down. As we called out before, we may slow a few more quarters where it's kind of reaching that maturation point, but we are very focused on those retention programs and have been pleased with the way that's adjusted the trajectory, and we'll be targeting for that to continue. Operator: And our next question comes from the line of Greg Melich with Evercore ISI. Gregory Melich: I wanted to follow up on inflation. You mentioned how, I believe, it was a little bit less this quarter than the prior quarter. And I'm just curious how much less. If we look at that ticket up 3.4% in the U.S., could we say that inflation was maybe 100 bps of it down from 150 or maybe just sort of frame it? Gary Millerchip: Sure. Yes. Thanks, Greg. On inflation, in general, you heard it exactly right that we did see -- we've been talking about low to mid-single-digit inflation. It was slower in the second quarter, trending towards sort of low single digits, I guess. Now I'll caveat that with that was Q2. Obviously, the world has changed a little bit since we gave that update, and so we'll have to see how things play out with the situation in the Middle East. But certainly, as we look at what happened during the second quarter for us, fresh and food and sundries really drove the lower inflation overall. Ron mentioned it, but we've seen deflation in produce, eggs, butter, cheese, some of these commodities. And they have a meaningful impact, as you might imagine, on food and sundries in particular. We do still see some areas of the business that are inflationary. Beef remains fairly inflationary. And candy is still seeing -- I think, still seeing some of the flow-through that we've seen historically and some of the commodity impacts there as well. But net-net, fresh and food and sundry would have been lower in Q2 than they were in Q1. We saw a little bit of increased inflation in nonfoods, again, modest, I would say, and it wasn't a big impact as you heard us talk about the LIFO impact. So it's still low single-digit inflation in nonfoods, and that would be a little bit of sort of flowing through of tariffs in a couple of areas; and gold, of course, was inflationary during the quarter as well. So overall, sort of tying it to your question about basket, I think it kind of depends on how you define the impact of inflation. We tend to look at it, are there more items in the basket, which would be the units, and they're certainly growing. And then we break down or we'd look at inflation as being 2 components. One would be the price part that I just mentioned, and the other part will be mix changes, so has the item changed in the basket or has the size of the item changed in the basket? And we really don't kind of necessarily pull those apart. But directionally to your point, the inflation as in the actual price increases would only have been a fraction of the total, and the mix changes and the increasing units would have been a meaningful part of the growth as well. Gregory Melich: Got it. Gold bars are helping the mix. Gary Millerchip: It's broader than gold bars, but I think certainly, gold bars have been a great example for us actually of where -- it's one of those examples where it's certainly been a tailwind to the business, but the amount of interest it drives around the brand and the traffic it drives to our websites and some of the cross-selling it drives there, I think it's been a nice surprise of, yes, it's been a great way to deliver value for members, but it's actually, I think, helped elevate other parts of our business, too, by raising more awareness of the things we have to offer online, for example. Operator: And our next question comes from the line of Oliver Chen with TD Cowen. Oliver Chen: On the digital advertising frontier, there's a lot of great opportunity ahead. I'd love your thoughts on what the road map looks like there as well as marketplaces. And then as you zoom out on AI, you're having a lot of great success so far. AI is a technology that involves a lot of different partners, but you've had so much internal excellence. Like what are your thoughts on balancing that development and innovation around AI? And as you look forward, do you have an idea, will it impact pricing, supply chain, merchandising or membership engagement more or less or probably all of the above? But would love your earlier views on where it might be most impactful. Gary Millerchip: Yes. Thanks, Oliver. I'll just try and canter through those relatively quickly. On advertising, I think, we've shared before, as I think you know, that we have a meaningful amount of dollars that we generate from sort of media revenue today, and that is growing double digits. We have over -- I think it's now 1,000 of our suppliers that participate in and engaging with us through placement or sort of being able to provide promotional opportunities for them. From a retail media perspective, we think of that as being somewhat of a new opportunity around how do we get into -- sort of connecting to more of those marketing dollars that our vendors and suppliers are spending. Our first priority is really to build the capabilities internally around delivering more personalized relevant communication to our members. And you heard me mention in the prepared remarks, we're starting to see a few nice examples now where as we build in more of that relevant communication for our members, we're seeing them really respond in a positive way in driving either visits or items in the basket. So really encouraged by that. I'd say we're still in the early innings with retail media because while we've been doing that, we're definitely testing and doing some programs with our suppliers on things like digital TV and targeted MVM amplifications, but they're really kind of the early learning stages. And I think as we continue to build that personalization capability, we will -- we think we'll see some additional benefit really throwing through in advertising. I will sort of caveat as always with our expectation of ourselves is that we'll reinvest the vast majority of that to really deliver more value for the member and drive more top line sales as we do with everything that we do. On the marketplace, I think for us, it's really -- it's been a case of where are there places that we can find services and value that offers more value to our members? We've seen, I think, some really good progress on things like installation services and new values that we can offer around, whether it's garden furniture or garden fixtures and windows, and some of these areas where we see opportunities to really bring unique value to our member with great partners who deliver great quality and value. So there's certainly focus there. And then I would broaden it to some of the services that we offer. As you think about things like Costco Travel and think about some of the additional services that we're offering to members that again, are unique ways in which we can deliver value, and we've been finding a lot of success in really deepening loyalty with members there and growing those elements. That's kind of probably the biggest part of as we think about sort of the marketplace concept of where we think the value can resonate with our members. On AI, I think, for us, it's really we look at it through the lens of -- we think we have a clear view of how we can deliver value for our members and how we support our employees. And so our focus with AI in general is where can it make us better at who we are? We're not really trying to chase things that aren't core to Costco. We think that's been key to what allowed us to navigate previous technology and digital sort of evolutions in the marketplace. And we're really focused on where are the places that we think AI can make us better for our members, can deliver more value for our members, can help our employees be more productive so that we can pay them better and we can deliver more value for our members. So really, that's our overall philosophical approach there. But still early days, but encouraged by the work we've been doing. Operator: And our next question comes from the line of Scot Ciccarelli with Truist Securities. Scot Ciccarelli: I know it's only been about 2 years or so, but the last time you had this much cash on the balance sheet, you did pay out a special dividend. So is that something we could see in the next few quarters? And I guess, on a related front, just given how quickly cash is now building for you, could we see payouts on a more frequent basis than maybe what we've seen in the past? Gary Millerchip: Thanks, Scot. Yes, I wouldn't say our financial strategy has really changed significantly as we think about cash. Our first priority, of course, is always to invest in the business. And as you've seen, we've been investing more capital in the last couple of years to support Ron's priorities that he shared earlier around ensuring we've got the strong pipeline of new warehouses, ensuring that we're investing in our existing warehouses to improve the member experience and support the tremendous growth that we've seen in those warehouses. We're investing in depots and expanding the network there, not only to support our warehouses, but also support the e-commerce growth that we're seeing. And we're investing in digital. And we think there's plenty of opportunities to continue to invest, and we feel good about the returns we can generate from those investments. I think you're right, we are seeing strong cash flow build up. The great thing about our model is it generates significant free cash flow. And even with the investments we're making, we're seeing continued growth in that cash. Our general priorities are, subject to Board approval, we want to continue to grow the regular dividend because we think that's a core sort of fundamental part of demonstrating our confidence in the future growth of the company. And we continue to sort of buy back stock to avoid dilution from executive stock grants. But when we do all those things in the way we have in the past, typically, we still generate excess cash and we're building a stronger cash balance on our balance sheet today. And we do think, with our valuation, the special dividend is probably the most effective way to return excess cash because it keeps flexibility if we want to invest more in capital expenditure in the future as well. What I'd say on special dividend is while our cash balances are back to the levels that they were pre the last special dividend, I think, it's important to remember that to achieve a similar yield to last time when our stock was at $660, the cash would need to be greater. And so we'll continue to review the question of special dividend with our Board, but there are no plans that we could share at this time around a plan for special dividend. Operator: And our next question comes from the line of Kelly Bania with BMO Capital Markets. Kelly Bania: I wanted to ask first, if you could just talk about the pharmacy category. A lot of moving pieces being called out by some of your competitors there with the maximum fair pricing. And just curious how and if that impacts you, it doesn't look like it, but maybe would just want to confirm how you see that going forward. And then just bigger picture, wanted to follow up on the media question and the advertising. And I was curious if you would maybe size up that more specifically. I think, Gary, you said a meaningful amount. But just curious how that looks today or even if not specific on how it is, just maybe relative to where it could be over time. Any color there? Gary Millerchip: Sure. Thanks, Kelly. On the pharmacy side of things, yes, we've had tremendous success with our pharmacy business. I think you've heard us say on a couple of the previous earnings calls that the team is really focused on how do we make sure that we're delivering not just the great value that we always promise to our members, but improving the member experience too. So we've added some new AI tools to improve our in-stock positions on pharmacy, and we've also made some digital enhancements to make it easier for the member to check out at the pharmacy to speed up the experience there as well. So we've seen strong growth in pharmacy. And you may have heard me say in the prepared remarks that the pharmacy business grew at a faster pace than our total sales, which was part of the sort of reason for the disconnect between the core-on-core margin improvement and the core margin overall. I would say we will have a small impact as a result of the change with Medicare and the pricing of the drugs involved there, but nothing that I would call out to think about as a material headwind for us in terms of our top line sales results as we see it today. And I think on retail media, I think really -- we do think it's a significant opportunity, Kelly. But the reason we don't really size it is that it really comes back to my final point that there's tremendous opportunity for us to capture more value, we think, and to help our suppliers actually improve the return on their ad spend. But our focus will be very much on how do we use those dollars to deliver more value back to the member and drive top line sales. So sizing it for us would be more how much value can we create for the member and drive greater investment in our members in the value that we offer. And you would see it more in our top line growth as we're able to achieve that growth versus it being sort of a major change in our margin profile, I would say. Operator: And our final question comes from the line of Zhihan Ma with Bernstein. Zhihan Ma: I wanted to ask about the international expansion side, specifically China, where growth seems to have stalled a bit recently, where I'm sure you're facing some pretty strong local competition and Sam's competition as well. Curious how you think about your business model fitting in a market which is highly e-commerce driven, and what learnings you can gain there that can be applied to the rest of the business as well? Ron Vachris: Thank you. I wouldn't say it was stalled. It was more by design. The way we have opened up the first warehouse is very customary to what we've done when we've gone into every other country. We get in, we open up some warehouses, we learn about the culture, we learn about doing business in that country. And then we're on a good, steady growth pattern from there. We see great opportunities in China as we did before we went into the country. We're very pleased with our business and how we're growing. We feel we can compete with anybody in the country as we do internationally. So I see good things coming for us in China, but it will be customary to our normal growth as we have done that around the world, as we've built out Japan and Korea and Europe the same customary way that Costco grows in these new countries. So we're happy with China, it's growing nicely, and there's more to come in the future for sure. Operator: And ladies and gentlemen, this concludes our question-and-answer session as well as today's call. We thank you for your participation, and you may now disconnect.
Operator: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the fourth quarter ended December 31, 2025. Joining us today are Clarus Corporation's Executive Chairman, Warren Kanders; CFO, Mike Yates; President of Black Diamond Equipment, Neil Fiske; and the company's External Director of Investor Relations, Matt Berkowitz. [Operator Instructions] Before we go further, I would like to turn the call over to Mr. Berkowitz as he reads the company's safe harbor statement within the meaning of Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Matt, please go ahead. Matthew Berkowitz: Thank you. Before we begin, I'd like to remind everyone that during today's call, we'll be making several forward-looking statements, and we will make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to potential risks and uncertainties that could cause the actual results of operations or financial conditions of Clarus Corporation to differ materially from those expressed or implied by the forward-looking statements. More information on potential factors that could affect the company's operating and financial results is included from time to time in the company's public reports filed with the SEC. I'd like to remind everyone this call will be available for replay starting at 7:00 p.m. Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release as well as on the company's website at claruscorp.com. Now I'd like to turn the call over to Clarus' Executive Chairman, Warren Kanders. Warren Kanders: Good afternoon, and thank you for joining Clarus' earnings call to review our results for the fourth quarter and full year. I am joined today by our Chief Financial Officer, Mike Yates, who will cover our Q4 results, including Adventure segment performance as well as Neil Fiske, who will discuss our Outdoor segment. In 2025, we remained focused on positioning Clarus for sustainable growth over the long term, prioritizing our most profitable products and styles in the Outdoor segment and executing incremental operational progress in the Adventure segment. Our financial results reflect a challenging market, characterized by weaker consumer demand, tariff impact, supply chain disruptions and broader macro headwinds. As you will hear from Neil, during the fourth quarter, we experienced the most unfavorable seasonal conditions in 50 years in key ski destinations in the United States. Against this backdrop, we continue to advance our overall strategic plan to simplify our businesses to drive share gains as market conditions normalize. Across both segments, we implemented targeting cost-outs and tariff countermeasures that will enhance profitability on an annualized basis and set the stage for long-term value creation. At Outdoor, we have fundamentally reshaped the business over the last 2 years, simplifying the portfolio, exiting low-margin categories and rationalizing SKUs while upgrading leadership and reallocating investment toward higher growth areas. At the same time, we have meaningfully reduced our cost structure, modernized our systems and sourcing capabilities, and expanded product margins by more than 300 basis points before factoring in the impact of tariffs. Together, these actions have positioned the business to operate more efficiently and profitably moving forward. I would also like to highlight the continued success of the Black Diamond apparel line, which saw sales growth of 10% in the fourth quarter despite unusually adverse seasonal conditions in both the U.S. West and Europe. We see very strong momentum in key businesses unit heading into 2026. Turning to Adventure. Our results continue to be affected by market pressures. Q4 gross profit was impacted by several onetime and external factors that Mike will discuss in greater detail. While 2025 was a challenging year for the segment, we have taken corrective action to position the business for a stronger, more innovative future. Importantly, as we discussed last quarter, we identified the pricing in several of our markets, particularly Australia, had not kept pace with inflation or our cost base, contributing to market -- margin erosion, and we have moved forward with price increases across all brands and markets effective Q1 2026. We continue to believe that Adventure is only beginning to tap into significant growth opportunities around the world, and we have begun to see green shoots, particularly in Europe and Japan, where the steps we have taken to improve service levels and shortened lead times have helped to accelerate growth and drive new customer wins. Additionally, our commitment to fitting more vehicles led to a record number of new fitments delivered in 2025, strengthening our competitive positioning supporting future revenue growth. There is certainly more work to be done, but we have been pleased with the continued progress on our strategic initiatives at Adventure. Overall, Clarus is far better positioned today to navigate uncertainty and market weakness than we were a year ago. Supported by a debt-free balance sheet and a streamlined organizational structure, we will continue to advance our multiyear growth plans while maintaining a disciplined approach to capital allocation and a clear focus on maximizing shareholder value. With that, thank you for being with us today, and I will turn the call over to Neil. McNeil Fiske: Thanks, Warren. Turning to Slide 6. I will review the Outdoor segment's Q4 performance and our expectations heading into the remainder of 2026. Overall, Q4 came in somewhat softer than our expectations due primarily to adverse seasonal conditions affecting our ski segment that Warren mentioned. That said, our more focused, simplified business showed growth and resilience in our core go-forward priority categories. The aggressive reshaping of Black Diamond over the last 3 years has allowed us to weather a year of tremendous disruption, tariff impact, supply challenges and macro headwinds. It's worth putting that multiyear effort in perspective. Since 2023, we've dramatically simplified and narrowed our focus, exited low-margin, underperforming categories, PIEPS, bindings, JetForce, to name a few. Rationalized styles and SKUs reduced headcount versus the 2023 baseline by 38% in total and 30%, excluding changes in manufacturing. We've upgraded key leadership positions, reallocated headcount and investment to support apparel growth. We've set up Black Diamond Asia sourcing and product development, launched a new e-comm platform and supporting martech stack, launched a new S&OP system to support better supply/demand alignment, modernized our ERP in EU with a new North American ERP and process. We've substantially improved the quality of inventory, concentrating our mix into high-volume A styles while reducing markdown exposure and the level of discontinued merchandise. We've moved BD to a more full-priced lower discount model, and we've engineered more than 300 basis points of improvement in product margin pre-tariff through line simplification, new product introductions, mix management, sourcing and supply chain improvements. In short, we are leaner, more focused, more agile and more competitive. The core of the business is strong. Thanks to the hard work of our teams over the last few years, we've set the stage for sustainable, profitable growth and operating margin expansion in the years ahead. Now let's turn to Q4 results. As with my last update, I'll address tariffs and currency at the top of my remarks and exclude the PIEPS brand, which we divested in Q3 and year-over-year comparisons. First, tariffs. In early May, we initiated the first phase of our tariff mitigation plan, which included raising prices, negotiating vendor concessions, air freighting products where necessary and accelerating our exit out of China. By moving quickly and decisively, we were able to offset about half of the impact of tariffs in 2025. We estimate that the net unrecovered impact from tariffs and duties for the year was approximately $3.4 million to adjusted EBITDA. As we roll forward into 2026, we've now offset nearly 75% of the tariff impact as best we can estimate today, leaving a $2.8 million unrecovered gap in this coming fiscal year. Over time, we believe we can reduce that gap still further through pricing, sourcing, new product introductions and value engineering. In the event that we are able to recover tariffs as a result of the recent Supreme Court decision, Black Diamond would receive approximately $6.5 million for the reciprocal IEEPA tariffs we paid in 2025. Note that the most punitive tariffs on our business, the 50% Section 232 tariffs on steel and aluminum, are not covered by the Supreme Court decision and remain in effect. And of course, the IEEPA tariffs have largely been replaced by new ones under a different claim authority. Now let me address currency. As noted last quarter, while we benefited from the translation of the higher euro to the dollar, we incurred significant losses on FX contracts in 2025. These losses, which amounted to a $2.2 million EBITDA swing year-over-year flowed through and suppressed product margins. We've now rolled off these contracts and expect a run rate pickup of $1.6 million in EBITDA in 2026 at the current exchange rate. Turning to operating results. Revenue for the quarter was down 2.1% to prior year, down 2.9% in constant currency, excluding FX contracts. The largest drag on the top line was our ski business unit, which was down 30% to prior period due to a combination of our rotation out of low-margin categories like bindings, beacons and airbags, and the most unfavorable seasonal conditions in 50 years in ski -- in key ski destinations in the U.S. Moreover, while our ski apparel line started strong through October and November, the growth trend tapered in December with the unusually poor conditions in both the U.S. West and Europe. Still, apparel for the quarter was up 10% compared to Q4 2024, and we continue to see very strong momentum in that business into 2026. Meanwhile, our mountain and climb business units were both up for the quarter, 0.4% and 4.3%, respectively. Taken together, these 3 categories of apparel, mountain and climb grew 3.7% in Q4, accounting for 86% of our sales in the quarter and 90% for the full year. This is where our simplification strategy is paying off, and we expect this strategy to drive profitable growth at BD in the future. By channel and region, North America wholesale, excluding FX contracts, was down 10.4% due to planned exits in the ski category and somewhat softer replenishment orders in December. North America digital D2C was down 0.8% compared to the fourth quarter of last year, which was a significant improvement in the run rate from previous quarters. Europe wholesale, excluding FX contracts was up 12.1% in U.S. dollars and 3.2% on a constant currency basis. Europe digital D2C, which is a relatively small part of the region's revenue at 7.3% of total sales, was down 29.9% or 36% in constant currency. Our international distributor channel was up 19.3% for the quarter. In 2024, we realigned our deliveries to better suit the needs of our international market. That means our year-over-year results are now comparable in timing. I'd also like to highlight results of our design for the deep winter catalog, which far exceeded our expectations and validated an important new part of our marketing mix. We had taken a break from marketing via the catalog this -- and this past winter success gives us confidence, and we expect to continue with the catalog marketing program going forward. Turning to gross margin. Q4 gross margin rate declined 280 basis points versus prior period due to the impact of unrecovered tariffs and FX contracts as well as write-downs for exiting inventory. Breaking that down, tariffs had a 390 basis point impact in the quarter while FX contracts accounted for another 240 basis points of drag and inventory exits cost 80 basis points. Stripping out these noncomp factors, our comparable underlying gross margin showed a 450 basis point improvement, reflecting the progress we've made in simplifying the line and focusing on higher-margin sales and categories. This helped reduce the impact of what would have otherwise been a 730 basis point decline in margin. Operating expenses, excluding restructuring and legal costs from both periods, were essentially flat year-over-year. Adjusted EBITDA came in at $2 million for the quarter, down $2.1 million to prior period with unrecovered tariffs and loss on FX contracts amounting to a $2.4 million drag on earnings versus the prior year period. Adjustments to EBITDA reflect the latest phase of our restructuring efforts, which have been designed to help offset the higher cost of tariffs and trade in this environment. These actions occurred in Q4 in January of 2026 and include continued streamlining of our organization and overall headcount, completing the exits of PIEPS, JetForce and binding businesses, exiting our 3PL in Canada, initiating a project to restructure our logistics and fulfillment operations in Europe, closing additional Black Diamond stores and slimming down our athlete roster. For Q4, these actions resulted in approximately $0.9 million of restructuring charges. We also expect to incur another $1.5 million in 2026, which will be reflected in our Q1 results. We do not anticipate any further restructuring at this point yet remain mindful of the dynamic and changing macro environment. Finally, inventory ended the year at $64.9 million. On the surface, that looks like a significant increase versus last year's ending position, excluding PIEPS at $53.5 million. However, the biggest factor in the increase was a change of inventory recognition from Delivered at Place, or DAP, to recognition at FOB shipment this year, meaning our in-transit inventory on the books appear much larger this year than last. This $7.9 million -- this is $7.9 million of the difference to prior year and is strictly a matter of timing. The 2 other factors raising this year's number are tariffs and currency, which together inflate the value of inventory approximately $5 million. We've made great progress in improving the quality and composition of the inventory over the last few years and enter 2026 in good shape. In closing, I will again thank our teams around the world for their incredible perseverance, creativity and drive in the face of this turbulent, often chaotic and unpredictable global environment. With that, I'll turn it over to our CFO, Mike Yates. Michael J. Yates: Thank you, Neil, and good afternoon, everyone. On today's call, I'll provide some brief comments on the Adventure segment, and then we'll conclude with a summary of our Q4 financial results followed by the Q&A session. Let's take a closer look at Adventure. Q4 revenue declined $2.1 million year-over-year or 10.4%, driven primarily by reduced demand from 2 OEM customers compared to the prior year quarter. Also contributing were weaknesses in the U.S. bike market and customer transitions in our home markets of Australia and New Zealand. Offsetting this pressure, our European expansion continues to gain traction. The new 3PL warehouse we opened in the Netherlands has improved service levels and shortened lead times, enabling accelerated growth in new customer wins in Sweden, Norway, the U.K., Spain and Eastern Europe. We also expanded our international distribution footprint, adding a new partner in Japan and multiple partners serving key off-road markets in Africa. In our home markets of Australia and New Zealand, we secured a chain-wide placement of Rhino-Rack product with a large retail customer across all 300 locations in Australia and New Zealand. This partnership is expected to become a top 5 customer in 2026. In North America, strengthened relationships with rack specialty retailers and upgraded point-of-sale displays have driven new placements for Rhino-Rack and RockyMounts, filling product and price gaps not addressed by competitors. While we continue to set ourselves up to grow the right way, fourth quarter gross profit in addition to being pressured by lower sales volume was impacted by several onetime and external factors including a significant inventory reserve write-down adjustment of $3.4 million relating to excess and old inventory, including some old packaging for in-house assembled goods. We also incurred higher customer rebates in the fourth quarter and higher impacts from U.S. tariffs. Corrective actions are underway. Specifically, the group has implemented price increases on fast turning RockyMounts SKUs in November, is renegotiating unfavorable customer contracts in our home markets of Australia and New Zealand and has now executed price increases across all brands and markets effective Q1 of 2026. These important actions position the business to restore margin performance moving forward. Operationally, we are streamlining our footprint to reduce costs and overhead and improve scalability at Adventure. In the fourth quarter, we closed the high-cost Wellington, New Zealand facility and transitioned to a 3PL in [ Auckland ] that is closer to customers and will better support growth. We also closed Brendale in Queensland on March 1, 2026, consolidating the former MAXTRAX operations into our Eastern Creek headquarters. What this means is we've combined MAXTRAX and Rhino-Rack businesses under one roof. Product development remains a core focus. Our investment in vehicle fitments delivered a record year in 2025 with more new vehicle fits completed than in any of the prior 10 years. This strengthens our competitive position and supports future revenue growth. Beyond fits, we expect multiple new innovations and product platforms will be launching in the next 18 months. With that, now let me turn to the consolidated results and detailed review of the segment financial review. I'm on Slide 8. Fourth quarter sales were $65.4 million compared to $71.4 million in the fourth quarter of the prior year. The 8% decrease in total sales was due to softness in the North American wholesale market at Outdoor, lower global D2C revenues and lower PIEPS revenues due to its disposal in July of 2025, and significantly reduced global demand from 2 OEM customers in a challenging wholesale market in Australia and Rhino-Rack in the Adventure segment. The decrease in the Adventure segment was partially offset by increased contributions from the acquisition of RockyMounts. The consolidated gross margin rate in the fourth quarter was 27.7% compared to 33.4% in Q4 of 2024. Gross margin was impacted by higher inventory reserves at both segments, $3.4 million and $0.5 million, respectively, at Adventure and Outdoor. The $0.5 million Outdoor addressed slow moving obsolete inventory. The $3.4 million, as I mentioned, also dealt with slow moving in old obsolete inventory at Adventure. Tariffs impacted gross margin at both segments. Lower volumes at the Outdoor segment due to the sales PIEPS along with unfavorable foreign currency impact at the Outdoor segment were a drag on margins. These decreases were partially offset by favorable product mix and lower PFAS inventory reserves at the Outdoor segment compared to 2024. Consolidated adjusted gross margin, reflecting PFAS-related and other inventory reserves and inventory fair value adjustments as a result of purchase accounting, was 33.6% for the quarter compared to 38% in the year ago quarter. I want to note that actual gross margin includes significant headwinds from tariffs and FX and inventory reserves in the quarter. That's a key point to make sure everyone understands as they look at our financials here for the quarter. Outdoor's actual gross margins for Q4 2025 was 32.3% compared to 35.2% in Q4 of 2024. The significant efforts at Outdoor under Neil's leadership to improve our gross margins are being realized as he outlined earlier, but these improvements were completely wiped out in Q4 2025 due to tariffs and FX, which were approximately a 630 basis point headwind in the current quarter compared to last year. Adventure's actual gross margins for Q4 2025 were 16.0% and compared to 28.9% in Q4 2024. Actual Q4 2025 gross margins include the $3.4 million of inventory reserves I mentioned earlier. Excluding this inventory reserve, our gross margin at Adventure for Q4 2025 would have been 34.5%. With this inventory reserve, we believe we've taken a significant step in improving the quality of our inventory at Adventure. Fourth quarter consolidated selling, general and administrative expenses were $25.5 million compared to $27.8 million or down 8% versus the same year ago quarter. The decrease was primarily due to lower employee-related costs, lower costs from PIEPS due to the divestiture and other expense reduction initiatives to manage costs across the segments and at corporate. Adjusted EBITDA in the fourth quarter was $1.2 million or an adjusted EBITDA margin of 1.8%. Our adjusted EBITDA is adjusted for restructuring charges, transaction costs, stock compensation expense, contingent consideration benefits and other inventory reserves. Additionally, as noted in prior quarters, beginning in the first quarter of 2024, we adjusted legal costs associated with the Section 16(b) litigation and the Consumer Product Safety Commission, DOJ investigation known as the CPSC and DOJ matter. These legal costs were $1.2 million in the fourth quarter of 2025 and $4.7 million in total for the full year 2025. The fourth quarter adjusted EBITDA by segment was $300,000 at Adventure and $2 million at Outdoor. Adjusted corporate costs were $1.2 million in the fourth quarter. Let me shift over to liquidity and the balance sheet. Free cash flow, defined as net cash provided by operating activities less capital expenditures for the fourth quarter of 2025, was $11.6 million compared to $14.4 million for the 3 months ended December 31, 2024. This strong cash flow generation was expected and is consistent with our historical practice, the decrease versus the prior year due to the timing of the inventory receipts at Outdoor that Neil walked us through. Total debt at December 31, 2025, was 0. At December 31, 2025, cash and cash equivalents were $36.7 million compared to $45.4 million at December 31, 2024. The $36.7 million balance is consistent with the expectations I shared last quarter that our consolidated cash balance would be in the range of $35 million to $40 million by the end of the year. Let me move on to our outlook. I'm on Slide 9. In 2026, we expect full year sales to range between $255 million and $265 million and adjusted EBITDA to be in the range of $9 million to $11 million or an adjusted EBITDA margin of 3.8% at the midpoint of the revenue and adjusted EBITDA. We have tried to take a reasonable approach to guidance, and we have a decent understanding of our revenue. The key for us this year will be improving gross margins. We have our SG&A costs under control, but to achieve our guided adjusted EBITDA, we need to hit our gross margin targets. We are initiating our 2026 segment guidance as follows: Adventure, $80 million for the full year; and Outdoor, $180 million of sales for the full year 2026. This totals of $260 million is the midpoint of the consolidated sales guide range I gave above. Adjusted corporate costs should be around $8 million or $2 million per quarter. We expect capital expenditures to range between $6 million and $7 million for the full year and free cash flow to range between $3 million and $4 million for the full year 2026. First quarter sales are expected to be between $60 million and $62 million, and I want to reiterate, our outlook does not include any expense for the ongoing litigation, specifically relating to Section 16(b) matters, the CPSC matter or the DOJ investigation. With that, let me give an update on legal. I'd like to provide an update on the outstanding Section 16(b) securities litigation matters that the company is pursuing as well as an update on the open matter with the CPSC and DOJ. We continue to proceed in our lawsuit against HAP Trading, LLC; and Mr. Harsh A. Padia for disgorgement of short-swing profits under the securities laws. In early 2025, the District Court granted summary judgment in favor of the defendants. We filed a timely appeal, and an oral argument was held on February 12, 2026, before the Second Circuit Court of Appeals in New York City. The court has invited the SEC to file an amicus brief within 60 days or by April 17, 2026. By March 10, 2026, the SEC is to advise the court if it does not intend to submit a brief; and if it does, the parties have 21 days to respond to it. We also filed a lawsuit against Caption Management and its related entities and controlling persons. On February 24, 2026, we entered into a settlement agreement with Caption to resolve the company's claims. And on March 2, 2026, Caption paid the company an undisclosed sum in exchange for, among other things, mutual releases and dismissal of the claims with prejudice. With respect to the open matters with the CPSC and DOJ, in late 2024, the company was notified by the CPSC that the unresolved matters involved in binds against Black Diamond have been referred to the Department of Justice. To date, the DOJ has not pursued a civil lawsuit regarding this matter. However, in early 2025, the DOJ served the company and Black Diamond with grand jury subpoenas in connection with a criminal investigation, requesting categories of documents related to Black Diamond's avalanche beacon. We have cooperated with the DOJ in responding to its discovery request and have produced substantially all of the documents requested. The DOJ has sent letters to John Walbrecht, Black Diamond's former President; and Rick Vance, Black Diamond's former Director of Quality, advising them that they are targets in its investigation. And the DOJ has also served subpoenas for grand jury testimony on a current and a former employee of Black Diamond. In conclusion, we see Clarus today is a far better position to drive sustainable profitable growth supported by simplified and narrowed business focus as well as a strong balance sheet with 0 debt. We look forward to taking the next steps in our transformation in 2026 and delivering significant long-term value for Clarus shareholders. At this point, operator, we're ready to take questions. Operator: [Operator Instructions] And our first question comes from the line of Matt Koranda of ROTH Capital. Matt Koranda: Just wanted to hear a little bit more about the pricing actions that you guys took, I guess, at the end of the year and then in January. So maybe just between breaking them out between Outdoor and Adventure, could you just talk about sort of the magnitude of pricing that was taken and how that impacts the outlook for growth for '26 between the 2 segments? Michael J. Yates: Certainly. Neil, you want to talk about BD, and I'll cover Adventure? McNeil Fiske: Yes. Sure. Thanks for the question. So maybe give you a sense of the magnitude on the pricing actions we've taken at Black Diamond, really, with the goal, of course, of offsetting the impact of tariffs. If you look at the gross impact of tariffs on the Black Diamond business, it would be about $11 million to $12 million a year impact on margin and earnings. With pricing and with some sourcing work that we've done, we're able to offset all but $2.8 million of that, so something around 75%, 80%. And so I think you can assume that there's about $7 million to $8 million of pricing that we've taken in the Black Diamond business in order to offset tariffs. Obviously, that's not the whole amount. We didn't get all the way back to $11 million, but we pushed it as far as we thought we could push it relative to what competitors were doing and what we thought the consumer would accept in this environment. And then over time, our goal is to continue with smaller price adjustments, product line reengineering, remixing to close that remaining $2.8 million gap, but about a $7 million to $8 million overall price increase. Matt Koranda: Okay. That's helpful. Before Mike answers the Adventure, I guess, just clarify, the $7 million to $8 million, was that taken in 2 tranches? Because you mentioned some May actions from '25. I just want to make sure I understand the impact of '26 and how that feeds into sort of the growth outlook for -- especially for Outdoor. McNeil Fiske: Yes. Thanks. Good clarifying question. That's the result of both sets of actions. We've now taken the initial price ups we took in May and then the ones we took at the beginning of 2026. It's both of those. Matt Koranda: Okay. Should we think half and half in terms of impact? Or any breakout, I guess, between those 2 actions that were taken? McNeil Fiske: I don't think I have an accurate estimate off hand of this split. Yes, we hope to get back to you on that soon. Matt Koranda: Let me take it offline. Yes. Okay. That's fair. And then Mike, go ahead on Adventure. Michael J. Yates: Yes. So Matt, at Adventure, we took price specifically at RockyMounts back in November from my prepared remarks. That's a nice bump, probably around 5% price increase there. And then here in the first quarter across the Rhino-Rack business, we took price up as well pretty much on the primary, Pioneer, the platform, racks, our primary categories that we sell. All in, I think we would expect to get about $2 million to $3 million of price this year. Matt Koranda: Got it. Okay. All right. Very clear. That helps. Michael J. Yates: We are fighting volume. The market's challenging as we've talked about and as some of our competitors have reported. Matt Koranda: Yes. Okay. Understood. And it seems like embedded in the expectation for '26, especially as it pertains to Adventure, is a pickup in growth and unit volume as the year moves on. I guess, just maybe what are the components that you're assuming there that give you confidence in that return to growth? Michael J. Yates: Yes. No. So it's volume. It's price, and then there's an FX tailwind as well. It's really -- it's -- some of that volume should recover in the Australian -- in the home market but also through some of the expansion I talk about, right? We have some growth in Europe and elsewhere specifically when you think about the bike business here in North America and some of the other things I mentioned in Japan and so forth. So that's where it comes from, is a combination of all 3 of those things. Matt Koranda: Okay. Got it. And then maybe just any commentary from you guys on how we plan to use the balance sheet this year? Obviously, you're in a much better position from a cash perspective, no debt. Access to capital, I assume, is solid. Are you finding anything in the funnel in terms of M&A that's interesting? It's just a really dynamic time in the markets, I guess, and maybe there's more stuff shaking loose, but I'd love to hear your perspective or maybe Warren's on there. Warren Kanders: Yes. I think, yes, that's a good question. For right now, I think we're really focused internally on our 2 respective businesses and making sure they're well positioned for the future and that we can grow those businesses. So I think we're just going to sit on our cash for the first half of the year. Operator: Our next question comes from the line of Anna Glaessgen of B. Riley Securities. Anna Glaessgen: I'd like to start on the category breakdown within Black Diamond. You used to disclose the breakdown between mountain, climb, ski in the Ks. It's been a while. I think by the prepared remarks have implied that ski was roughly 10% of the business. Was that accurate? And is that the right number going forward to expect? Or should we expect some compression as we fully lap the exit of bindings, et cetera? Michael J. Yates: Well, I think what we talked about here, and Neil can follow up, but we talked about 86% of our revenue coming from apparel, climb and mountain, right? And that's a direct results of our simplification strategy leaning into our best products that are our most profitable products and that are core to our business. So skis is -- we're not disclosing those categories in the 10-K. We just filed it. But we're really focused on those 3 categories going forward. And that's where the growth's going to come from, and that's what we're focused on, Anna. Anna Glaessgen: Got it. I guess... McNeil Fiske: Yes, and... Michael J. Yates: Go ahead. Go ahead, Neil. McNeil Fiske: I could add just a little bit of this, appreciating, Mike, you don't want to break out specifically the categories themselves yet. But basically, mountain, climb and apparel for the year were 90% of our sales. Ski is less than 10% because we also have a little footwear segment in there that we don't normally talk about. It's primarily focused on rock shoes. So ski is less than 10%, and we expect that to drop by a couple more percentage points on the mix as we complete the rotation out of PIEPS and JetForce and bindings. So I think if you think about the go-forward business, mountain, climb and apparel, it will get pretty close to 93%, 94%, 95% of the business going forward. That's helpful. Anna Glaessgen: Got it. Yes, that's really helpful. And then shifting to broader market expectations. Understand you've talked about but it continues to be a challenging environment. But just wondering general tone you're hearing from retailers and expectations for sell-in versus sell-through. Should we expect those to be more aligned? Or are there still pockets of destocking that you expect in this year? McNeil Fiske: Do you want me to take that, Mike? Michael J. Yates: Yes, go ahead, Neil. You can talk about... McNeil Fiske: Yes, I can certainly speak to Outdoor on that and Mike can comment on Adventure. I would say it's really hard to read. I don't think there's a clear trend or a clear pattern that's yet emerged, and the only constant is change, as they say. And so I think we're just in that environment. As a result, I would say retailers are being cautious and maybe keeping their powder dry in terms of where they spend their money, deferring open-to-buy decisions into the latest possible moment, trying to keep a little bit more of their open-to-buy in the at-once versus the preseason category. And I think particularly with the winter that we had this year in the Mountain West that in that particular segment, the retailers, I think, will probably be a little bit more conservative next year. But for the most part, we're pretty happy with our order book for 2026 and how it's holding up and very happy with the strength of our wholesale relationships from the big accounts like [ REC ] and MEC to a very much revitalized and rebuilt specialty business for us. I think our wholesale relationships are the strongest they've been in more than 5 years. So I think that will keep us in good stead this year. Operator: Our next question comes from the line of Laurent Vasilescu of BNP Paribas. Lipeiwen Yang: This is Leah on Laurent. Just following up on the overall trend, can you talk about the recent trends in the Outdoor segment particularly? Like what are you seeing in terms of consumer demand and also channel inventories? McNeil Fiske: So I can -- do you want me to take that, Mike? Michael J. Yates: Please. McNeil Fiske: Well, sorry, let me be clear on the channel inventory. I think we're through the kind of heavy days of the destocking trend that came in the post-COVID correction. And now I'd say, for retailers, it's more fine-tuning and ongoing rebalancing of their inventory in normal course. So I don't see any kind of major overhang right now, at least from the Black Diamond business as we see it in retail. And that gives us some good confidence for where we are in our inventory and where our retail partners are in their inventory in the year ahead. And I would say trends in our business, apparel has the most momentum right now. It's up 10% in Q4. It was up 25% in Q3. We expect it to be up again double digits in 2026. We have seen mountain, our big mountain category, which includes trekking poles, lighting, gloves and some of our real power categories return to growth in 2026 and even a little bit in Q4. And interestingly, we're seeing a bit of a rebound in climb right now. I'm not sure I'd call that a trend yet, but what I would say is if you take those 3 big business units together, mountain, climb and apparel, they grew in the fourth quarter. We're seeing that they'll grow again in 2026. Operator: Our next question comes from the line of Alex Sturnieks of Lake Street Capital Markets. Alex Sturnieks: You got Alex on for Mark Smith today. First one for me, looking at the RockyMounts contribution in the quarter, could you just talk about how that business is performing so far? How meaningful do you expect it to become within that Adventure segment over time? Michael J. Yates: Well, it is meaningful. It's an excellent product. It's specifically here in the North American market. It did about $5 million, a little more than $5.5 million, I think, of revenue here in 2025. We continue to expect that growth. And I mentioned the point of sale. We've made some investments in point-of-sale marketing that's been specific to the RockyMounts business. That's out at our bike shop distributors, the wholesalers that we work with. So we're excited about that. I think it's a good business. It's a great product, and we expect that to drive -- be part of our growth story going forward. Alex Sturnieks: Okay. That's great. And then last one for me. You've highlighted encouraging traction in Europe following the opening of the Netherlands warehouse. Could you expand on how meaningful Europe has become for the Adventure segment? And then how do you see that opportunity developing going forward? Michael J. Yates: So what the warehouse in the Netherlands is giving us the opportunity to do is just expand our footprint and serve some of our smaller customers, right? Our bigger customers in Europe who are -- who've been our legacy customers, they would -- they're still taking inventory from our business in Australia. They're ordering a full container, right, and it's shipping. The warehouse in Netherlands is allowing us to fulfill orders that are smaller than a full shipping container, and that's where you see growth in Spain, growth in the Nordic region, growth throughout Europe, where we weren't penetrating at all in the past. So I'd say that's going to be about $1 million this year of incremental revenue for the Adventure business. Operator: I'm showing no further questions at this time. I will now turn it back to Mike Yates for closing remarks. Thank you for participating in today's conference. This does conclude the program. You may now disconnect. Michael J. Yates: I'm sorry I was muted. Thank you, everyone. I want to thank everyone for attending the call this afternoon and your continued support and interest in Clarus. We look forward to updating you on our results again next quarter. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good afternoon, and welcome to AudioEye's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining us for today's call are AudioEye CEO; Mr. David Moradi; and CFO, Ms. Kelly Georgevich. Following their remarks, we will open the call for questions from the company's publishing analysts. I'd like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at www.audioeye.com. Before I turn the call over to AudioEye's Chief Executive Officer, the company would like to remind all participants that statements made by AudioEye management during the course of this conference call that are not historical facts are considered to be forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, confident, will and other similar statements of expectation identify forward-looking statements. These statements are predictions, projections or other statements about future events, and are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in today's press release and the comments made during this conference call and in the Risk Factors section of the company's annual report on Form 10-K, its quarterly reports on Form 10-Q and in its other reports and filings with the Securities and Exchange Commission. Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's beliefs only as of the date hereof. AudioEye does not undertake any duty to update or correct any forward-looking statements. Further, management's remarks today will include certain non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's earnings release or otherwise posted in the Investor Relations section of the website at www.audioeye.com. Now I'd like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. Sir, please proceed. David Moradi: Thank you, operator, and good afternoon, everyone. I'm pleased to report our results for 2025, highlighted by our 40th consecutive quarter of record revenue growth, a remarkable achievement. We are not aware of any other SaaS company in the public markets, which have grown sequentially for 40 straight quarters or more. In addition to 40 sequential quarters of revenue growth, we also demonstrated strong operating cash flow in recent years. In 2025, adjusted EBITDA grew by approximately 35% to a record $9.1 million with a record margin of 22%. For the full year 2025, AudioEye achieved record revenue which was even more impressive given that our performance includes our previously noted accelerated customer migrations last year. I'm happy to report that the integration of these acquired customers is now substantially complete, which should drive meaningful ARR acceleration in 2026 with business momentum in the U.S. and EU. In 2026, we expect adjusted EBITDA to grow by at least 30%, implying adjusted EBITDA of at least $11.8 million for the year. Looking at a couple of quarters ahead, we expect to generate a run rate adjusted EBITDA of $15 million by year-end, driven by AI efficiency across our products and operations. This implies an accelerating rate of cash flow growth into 2027, potentially higher than the 30% we are guiding for this year. As we survey today's technology landscape, while AI coding has been top of mind in 2026, the tangible impacts on people with disabilities are largely being overlooked. AI is accelerating how businesses build digital experiences, but it is also accelerating the pace at which accessibility failures compound. Since LLM's draw data that is not accessible to begin with, digital accessibility on the Internet is not improving and may even be getting worse. With this backdrop, we are seeing increased rates of litigation utilizing AI to detect accessibility issues. We believe 2026 will be the highest year of digital accessibility lawsuit on record. Yesterday, we released our next-generation platform to address these market needs. The next-gen platform unifies AI detection, expert audits and custom fixes in a single platform that delivers unmatched transparency, ease of use and 3 to 4 times of legal protection and other solutions. The platform also utilizes years of proprietary data from detecting and fixing accessibility issues across hundreds of thousands of sites and billions of unique visits. Additionally, we are unaware of any other accessibility solution that delivers custom fixes directly within the platform, which gives customers a complete picture of their accessibility compliance. Other solutions may make claims of custom fixes, but cannot back them up. In prior years, on these conference calls, we called out similar claims from the same vendors that automation couldn't fix 100% of accessibility issues, which proved accurate. The next-gen platform use our proprietary data engine to power its results. In February, an independent study conducted by audience found that AudioEye detected between 89% and 253% more WCAG issues than competitive products. AudioEye was the only solution that identified issues at all WCAG levels, including single A, AA, AAA across every website analyzed. Combining our proprietary data set, with newly released agentic models, creates opportunities to solve digital accessibility in ways that were not possible before. Our pace of innovation, which is leveraging our proprietary data is rapidly accelerating, and we look forward to sharing more updates with you soon. As we enter 2026, we see meaningful opportunities ahead. The EAA is expanding the market globally. The DOJ rule under Title II is increasing regulatory requirements. Record litigation is driving demand. And businesses increasingly recognize that accessibility is not just about compliance, it's about reaching the broadest possible audience, including AI agents that scan a website's accessibility tree instead of the [indiscernible]. Based on our momentum and the market dynamics we're seeing, we are providing the following guidance for 2026: For the first quarter of 2026, we expect revenue of between $10.5 million to $10.6 million, adjusted EBITDA of $2.2 million to $2.3 million and adjusted EPS of $0.17 to $0.18. We typically see lower cash flow in the first quarter as we pay social security taxes and legal and administrative fees associated with the proxy. And this year, we are attending an industry event during the quarter. For the full year 2026, we expect revenue of between $43 million and $44.5 million, and we expect the rate of ARR growth to outpace the rate of revenue growth as we focus less on nonrecurring revenue. We expect adjusted EBITDA will grow by at least 30%, reaching $11.8 million representing a 27% margin at the revenue midpoint. I'll now turn the call over to AudioEye's CFO, Kelly, to review our results in detail. Kelly? Kelly Georgevich: Thank you, David, and good afternoon, everyone. Revenue again reached record levels with Q4 2025 revenue at $10.5 million, an 8% increase from Q4 2024 and a 10% annualized increase sequentially from Q3 2025. On a full year basis, our revenue grew 15% to $40.3 million from $35.2 million in 2024. Breaking this down by channel, our partner and marketplace channel includes all revenue from our SMB-focused marketplace products and revenues from partners who deploy these same products for their SMB customers. For the fourth quarter of 2025, this channel grew 8% year-over-year and represented approximately 59% of ARR. For the full year 2025, this channel's revenue grew 10% from $20.2 million in 2024 to $22.2 million. We continue to see expansion of existing customers and new partners engaging with AudioEye contributing to this channel's group. AudioEye's enterprise channel consists of our larger customers and organizations, including those with non-platform custom websites who generally engage directly with AudioEye sales personnel for pricing and solutions. In Q4 2025, the enterprise channel grew 8% from the comparable period of the prior year. And for the full year 2025, it grew 21% to $18.1 million from $15 million. This growth was driven in part by our expansion into the EU in 2025, which we expect to continue to grow in future periods. The enterprise channel represents approximately 41% of ARR as of December 31, 2025. Annual recurring revenue, or ARR, at the end of the fourth quarter of 2025 was $40 million, a 9% increase over ARR at the end of the fourth quarter of 2024 and an increase of $1.3 million sequentially. Gross profit for the fourth quarter was $8.3 million or approximately 79% of revenue compared to $7.8 million or 80% of revenue in Q4 of 2024. For the full year 2025, our gross margin was approximately 78% with gross profit increasing from $27.9 million in 2024 to $31.6 million in 2025. Going forward, we will be reporting adjusted gross margin, a SaaS industry non-GAAP metric that provides insights in the underlying profitability of our core operations by excluding stock-based compensation and depreciation and amortization included in our cost of revenue. Adjusted gross margin was 85% in Q4 2025 compared to 86% in the prior comparable period. Adjusted gross margin was 84% for the full year 2025 compared to 85% in the prior year comparable period. Even with an 8% increase in revenue, operating expenses in the fourth quarter of 2025 remain consistent with the same quarter last year. On a full year basis, with revenue increasing 15% over the prior year, operating expenses increased 7% or approximately $2 million to $33.4 million, driven primarily by increases in sales and marketing expense. Increase in items such as stock compensation expense, depreciation and amortization and litigation expense were mostly offset by savings in noncash valuation adjustments to liabilities and lower business combination expenses year-over-year. Our total R&D spend in Q4 was approximately $1.6 million, with approximately $450,000 reflected the software development costs in the investing section of the cash flow statement, a decrease from $1.8 million in the fourth quarter of 2024. Total R&D spend was around 15% in Q4 2025 revenue versus 18% in Q4 2024. For the full year, R&D spend was 16% of 2025 revenue versus 19% in 2024 and 29% for 2023, demonstrating our continued progress in operating leverage. Net loss in the fourth quarter of 2025 was $1.1 million or $0.08 per share compared to a net loss of $1.5 million or $0.12 per share in the same year ago period. On a full year basis, net loss for 2025 was $3.1 million or $0.25 per share compared to a net loss of $4.3 million or $0.36 per share in 2024, an improvement of $1.2 million. In the fourth quarter of 2025, we achieved adjusted EBITDA of approximately $2.8 million or $0.22 per share compared to an adjusted EBITDA of $2.3 million or $0.18 per share in the same year ago period. On a full year basis, we produced adjusted EBITDA of approximately $9.1 million or $0.72 per share compared to $6.7 million or $0.55 per share in 2024. This 35% increase in adjusted EBITDA was driven by $5.1 million of revenue growth, a $3.9 million increase in adjusted gross profit and approximately $1 million in savings in adjusted R&D and G&A expenses, partially offset by additional investments in sales and marketing. In the fourth quarter, we repurchased approximately $1 million worth of shares. During the full year 2025, we repurchased approximately $4.6 million worth of shares. The successful refinancing of our debt facility with Western Alliance Bank in Q1 2025 strengthened our balance sheet and reduce our interest expense, positioning us for continued growth with greater financial flexibility. Our balance sheet remains well capitalized with $5.3 million in cash as of December 31, 2025, and an additional $6.6 million in debt facilities available. As of December 31, 2025, our net debt, defined as total debt less cash was $8.1 million, and our net debt to adjusted EBITDA ratio was approximately 0.7x. In the fourth quarter, we generated $2.3 million of free cash flow, calculated as adjusted EBITDA of $2.8 million less $500,000 of software development costs, an improvement of $400,000 from the fourth quarter of 2024. For the full year 2025, adjusted free cash flow was $7.2 million versus $4.9 million in 2024. With that, I'll turn the call back to the operator to open the line for questions. Operator? Operator: [Operator Instructions] Our first question today is coming from Joshua Reilly from Needham & Company. Joshua Reilly: All right. Great. Maybe just starting off, just kind of on the platform updates here. A big piece of what you've done historically is the custom human fixes combined with the automated fixes. And I guess I'm just curious, how much human involvement do you see going forward in the custom fixes relative to what AI can do and how that might drive greater automation in the platform and efficiencies for you. David Moradi: Yes, the tools aren't really that good at accessible content because the internet wasn't coded with accessibility in mind. And as you know, the amount of sites and content are exploding on the Internet. We're seeing an all-time high in litigation. We think lawyers are using AI to the tech issues and draft all these complaints with more websites even to choose from. So I'm not sure when it's going to get there. It's very far away from that now. It's actually getting worse. And the problem hasn't been solved in 25 years. The issue is when you push code, even if the code was coded with accessibility, someone else touches it and it's not accessible anymore. And this is especially true for sites like e-com that are constantly changing. So it's very far off to answer your question in my opinion. Joshua Reilly: Got it. And then -- so along with that, how does the changes you made to the platform along with that concept that you do need to keep the human involvement going, maybe further your differentiation versus some of the competitors. David Moradi: No one has it right in the platform for the custom fixes. So that's the difference and we're using more and more agents with that as well to streamline it further. Joshua Reilly: Got you. Okay. That's helpful. And then if we look at the initial revenue guidance for 2026, maybe you can just kind of help us understand what are the puts and takes investors should be considering including visibility to that revenue guidance relative to the ARR exit rate of about $40 million for Q4 and kind of the growth trends that you saw in 2025 relative to what you're assuming in 2026. David Moradi: Yes. We're being pretty conservative. The major factor is we expect less nonrecurring revenue as we focus more on ARR and some of the acquired customers initially have nonrecurring revenue that we phased out. Kelly can get into this, what this means from a financial standpoint, but we're very bullish about the opportunities in front of us more than ever. We're in a unique position with massive amounts of data from 10 years of these custom and automated fixes and seen all these edge cases over the years. It's a treasure trove of information to drive the agents in the future. But I'll let Kelly answer the rest of that question. Kelly Georgevich: Yes. Just getting into a little bit further. If you look at the guidance for the year, it implies revenue growth of nearly 10%, and that's assuming lower nonrecurring revenue. We do anticipate higher ARR growth in this, so kind of low to mid-teens on the ARR side. Nonrecurring is a small percent of our revenue, about 5% overall, but we're aiming to reduce this even further to focus on ARR this year, and that's impacting that guidance somewhat. Operator: Next question is from George Sutton from Craig-Hallum. George Sutton: So relative to EAA. I'm just wondering if you could give us an update on the investments you're making there, some of the opportunities that you're seeing, for example, we have been seeing some hires in Netherlands as an example. But I know you've signed some nice partners. Just any update on Europe and sort of the opportunity you're seeing there? David Moradi: Yes, sure. As expected, the EU tends to move a bit slower than the U.S. It's a bit bureaucratic, as you know. GDPR took a while to force and then the adoption followed over the next few years, but we are seeing pipeline building nicely, big deals in the pipeline, closed the big one in the fourth quarter and we expect to continue ramping up the EU as the year goes on. But if enforcement happens, which it will at some point, all bets are off. Demand is going to ramp very, very quickly. George Sutton: Got you. And just as my follow-up on the AI side, I was intrigued by your thought that the failures are more pronounced when AI is involved relative to disability. You mentioned internet wasn't necessarily built with disability involved, and I'm going to assume AI hasn't been either. Can you just walk through what would potential partnerships be relative to AI. Could you ultimately be partnering with some of the LLMs, for example, or folks that are building out agents? Just curious your thoughts there. David Moradi: No, we have very unique data. You can do a lot with that. I don't want to give away strategies on this call, but this data unlocks a lot of potential. Those with data own the gold. Operator: Our next question is coming from Zach Cummins from B. Riley. Zach Cummins: David, can you give us an update on potentially a ramp-up in enforcement on the DOJ Title II side. I mean we have the initial compliance date that's coming up here in a little over a month. So just curious, any update on that and progress you're seeing with some of your major partners on the federal side. David Moradi: Yes, the DOJ's requirements are going to go into effect next month, as you said. We haven't heard anything to the contrary. We continue to see momentum on the reseller and even direct channels from states. We're seeing strong momentum from both partners, Finalsite, CivicPlus, and I think there's a huge opportunity to unlock those and really penetrate the customer bases over the next 2, 3 years. Zach Cummins: Understood. And one follow-up question is for Kelly. How should we be thinking about gross margin on, I guess, an adjusted basis now that you're giving out that metric? I know a little bit of a headwind as you did the final migration work with some of those customers to the new platform. But how are you thinking about gross margin as we go through 2026? Kelly Georgevich: Yes. The gross margin and adjusted gross margin, I think we expect to see relatively consistent to what we've seen. So on a gross margin basis, kind of mid- to high 70s as we pay for more AI compute, but we could see higher margins over the next couple of quarters and then adjusted gross margin, we did want to introduce because I think a lot of other SaaS companies use it, and it just is a little bit lucky with stock compensation and depreciation and amortization in there. But I think we expect both to kind of be at similar levels and with opportunities to see further growth in both of those different levers. Zach Cummins: Best of luck with the rest of the quarter. Operator: [Operator Instructions] Our next question is coming from Richard Baldry from ROTH Capital Partners. Richard Baldry: Not sure if I missed this, but the 8,000 customer adds looks to me like the strongest in about 2 years. Sort of curious what do you think the drivers were under -- underneath that, whether they look sustainable or extensible heading forward? David Moradi: Yes. That was a large reseller in the EU, the deal we signed in the fourth quarter that made up a lot of that. We're still in the early innings in the EU, as you know and expect to see a lot more momentum. Richard Baldry: And then if I look at the spending side, the G&A and R&D has been basically flattish for about 2 years, but the sales and marketing has been rising. So could you maybe talk about how you view your current level of sales productivity, how much more do you think you want to invest in that going ahead in fiscal '26 in particular? Kelly Georgevich: Yes. We're always pretty strategic with investments in sales and marketing. I think we'll continue to invest in sales and marketing as long as we keep seeing that ROI, and we do expect to continue to invest in the EU as well. David Moradi: And we're looking for 30% growth in cash flow this year. So tons of leverage dropping to the bottom line. Operator: Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. David Moradi: I'd like to thank our employees, customers and investors for their support. We look forward to providing an update on the next quarter. Thank you. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, everybody, and welcome to Smith & Wesson Brands, Inc. Third Quarter Fiscal 2026 Financial Release and Conference Call. This call is being recorded. At this time, I would like to turn the call over to Kevin Maxwell, Smith & Wesson's General Counsel, who will give us some information about today's call. Thank you. You may begin. Kevin Maxwell: Thank you, and good afternoon. Our comments today may contain forward-looking statements. Our use of the words anticipate, project, estimate, expect, intend, believe and other similar expressions are intended to identify forward-looking statements. Forward-looking statements may also include statements on topics such as our product development, strategies, market share, demand, consumer preferences, inventory conditions for our products, growth opportunities and trends and industry conditions in general. Forward-looking statements represent our current judgment of the future and are subject to risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by our statements today. These risks and uncertainties are described in our SEC filings, which are available on our website, along with a replay of today's call. We have no obligation to update forward-looking statements. We reference certain non-GAAP financial results. Reconciliations of GAAP financial measures to non-GAAP financial measures can be found in our SEC filings and in today's earnings press release, each of which is available on our website. Also, when we reference EPS, we are always referencing fully diluted EPS and any reference to EBITDA to adjusted EBITDA. Before I hand the call over to our speakers, I would like to remind you that when we discuss NICS results, we are referring to adjusted NICS, a metric published by the National Shooting Sports Foundation based on FBI NICS data. Adjusted NICS removes those background checks conducted for purposes other than firearms purchases. Adjusted NICS is generally considered the best available proxy for consumer firearm demand at the retail counter. Because we transfer firearms only to law enforcement agencies and federally licensed distributors and retailers and not to end consumers, NICS generally does not directly correlate to our shipments or market share in any given time period, we believe, mostly due to inventory levels in the channel. Joining us on today's call are Mark Smith, our President and CEO; and Deana McPherson, our CFO. With that, I will turn the call over to Mark. Mark Smith: Thank you, Kevin, and thanks, everyone, for joining us today. We are very pleased with our third quarter results, which demonstrated continued market share growth while simultaneously maintaining resiliency in our pricing power and profitability. This is a direct function of the entire team's discipline in staying focused and executing against our long-term strategy. The strength of the iconic Smith & Wesson brand, along with our laser focus on innovating to keep ahead of market trends. Once again drove impressive average selling prices in the quarter, which, together with increased unit shipments delivered not only solid top line performance, but also translated into both strong profit margins and balance sheet performance. Our Q3 performance exceeded our expectations across the board. Net sales increased over 17% year-over-year to nearly $136 million. EBITDAS of $16.8 million was up nearly 21% and adjusted EPS was $0.08 compared with $0.03 in the prior year period. Importantly, we also delivered another quarter of significant growth in operating cash flow, which is up more than $30 million year-over-year. We believe our purposeful deployment of capital will allow us to continue consistently delivering long-term value for our stockholders. Looking at our performance by category. Our handgun results were exceptional. Our unit shipments of handgun into the sporting goods channel were up 28%, while mix was down 2.2%. With distributor inventory weeks of supply remained flat during the period, this indicates significant market share growth. This outstanding performance was driven by several factors, including strong demand for our newer products, a favorable shift in product mix towards higher price models, robust consumer demand and the benefit of a modest 2% to 3% price increase that we implemented late in the quarter on January 1. Notably, we saw this growth across our entire semi-auto pistol line, indicating that the hard work that the team has been putting in on marketing messaging, targeted promotions and new product development execution across the line is paying dividends. Performance in long guns was consistent with our strategic positioning in the market, and we are pleased with our performance in the categories where we actively compete. For the quarter, our long gun shipments into the sporting good channel were down 25%, while overall mix was down 5.6%. However, we believe this was largely due to channel fill in the prior year period of several new caliber introductions on our higher-end 1854 lever-action rifle products, combined with the relative outperformance in the industry, of the hunting segment versus the self-defense segment, where our product line is more heavily weighted. Diving a little deeper into innovation. New products represented 44% of handgun shipments and 28% of long gun shipments during the quarter. In handguns, while we continue to have success with the BODYGUARD platform, as I just mentioned, the growth we experienced in Q3 was across the entire line of our semi-auto pistols, where we introduced several new models outside the subcompact space, most of which are positioned at higher price points. Once again, I'm incredibly proud of our award-winning product management, engineering, design and production teams who consistently deliver products that resonate with consumers while meeting their expectations of world-class quality and reliability associated with our legendary brand. Driven by this mix NICS shift, and as I mentioned earlier, we were again pleased to continue seeing strong overall average selling prices in the hanging category. with ASPs up 5.2% versus a year ago to over $419 and also above Q2 levels. On the long gun side, ASPs were also strong at $535 although down about 11% versus a year ago. Similarly, NICS was the primary driver here, as I just mentioned, with the year-ago period, including the channel fill of higher-priced new product introduction from the 1854 rifles. For both categories, the strength of the Smith & Wesson brand and our ability to ensure our product assortment is aligned to market trends continues to allow us to maintain healthy pricing and profitability while only participating selectively in promotions. Turning now to our balance sheet. We continue to make significant progress reducing our debt and further strengthening our financial position. We ended Q3 with $75 million in debt versus $90 million at the end of Q2, and we paid down an additional $20 million subsequent to the end of Q3. We were pleased with our internal inventory position of $175 million which was down $23 million versus last Q3, resulting in excellent cash generation in the period of over $20 million. I'd like to once again commend the team for their hard work on our disciplined process for aligning production to sales expectations across the product portfolio, which drove these results. And we're also very pleased with our distributor inventory levels, which remained flat in terms of weeks of supply, maintaining at approximately 9 weeks throughout the quarter, right in line with our target. With our strong sales in the period, this indicates solid sell-through of our products at the retail counter. Before I turn the call over to Deana, I want to touch on a couple of additional points. First, we attended the annual industry SHOT Show in Las Vegas at the end of the quarter, where we were very pleased with customer feedback on our performance, product portfolio and forward strategy. This feedback, combined with our recent results and strong outlook for the remainder of the fiscal year, which Deana will cover in a moment, indicates we are winning in the marketplace. And looking forward, we will continue to be laser-focused on execution across the business and sustaining these gains. Next, the Smith & Western Academy, which launched just 6 months ago, along with our focus on the professional channel is already exceeding our expectations. Thanks to the hard work of our Academy staff and law enforcement sales team and the ongoing success of our purpose-built, rugged and reliable duty weapons, we are not only growing in the consumer channel, but also gaining significant momentum on the law enforcement side. You may have seen that we were awarded a number of large agency orders recently. And as a matter of fact, have shipped to nearly 1,000 separate federal, state and local law enforcement agencies just within the past 18 months. With a strong sales pipeline and growing momentum, we're very pleased with the results to date and beyond proud and humble to be trusted by these men and women with the tools they need to come home safe to their families every day as they put themselves in harm's way to protect and serve our country and our communities. In summary, momentum is strong and building, and our brand and product assortment are driving continued healthy profitability, and we remain confident in the direction and trajectory of our business against the backdrop of a healthy and stable market. We continue to lead with a proven innovation strategy that consistently resonates with consumers backed by the powerful Smith & Wesson brand, along with our commitment to operational excellence and maintaining a strong balance sheet we are well positioned to continue winning in the marketplace and delivering long-term value to our stockholders. As always, I want to thank our entire team of talented Smith & Wesson employees for their tireless dedication and putting their skills to work each and every day to make us successful. With that, I'll turn the call over to Deana to cover the financials. Deana McPherson: Thanks, Mark. Please note that all comparisons are between the third quarter of fiscal 2026 and the third quarter of fiscal 2025, unless stated otherwise. Net sales for our third quarter of $135.7 million were $19.8 million or 17.1% above the prior year on the strength of our new handgun products. During the quarter, distributor inventory in terms of actual units increased by approximately 20% over the end of the prior quarter, but only by about 4% compared with the end of January 2025 with weeks of supply remaining steady at approximately 9 weeks. We believe, based on feedback from our customers, that strong demand for our products will continue in the coming months. Handgun ASPs were up slightly versus Q2 levels due to continued strong demand for certain premium products, but offset by the strength of certain of our lower-priced products. Long gun ASPs decreased by about 11% due to lower overall volume of certain of our higher-priced products, driven by channel fill for new products in the prior year, as Mark covered earlier. Gross margin of 26.2% was up 210 basis points over the prior year on increased production volume combined with lower promotion costs and lower federal excise taxes partially offset by a 160 basis point negative impact from tariffs. Having focused on driving inventory levels down over the last 12 months, we are now turning our focus to increasing production to meet market demand which should continue to have a positive impact on margins. Operating expenses of $28.9 million were $5.7 million higher than the prior year due primarily to a $2.3 million gain on the sale of real estate that was reported last year. Increased profit related and stock-based compensation expense contributed to the remaining increase. Higher revenue and related margin resulted in net income of $3.8 million compared with $2.1 million in the prior year period. GAAP earnings per share in the third quarter was $0.08 compared with $0.05 a year ago. On a non-GAAP basis, earnings per share was $0.08 compared with $0.03 a year ago. Cash generated from operations during the third quarter was $20.5 million compared with cash used from operations of $9.8 million in the prior year quarter. This was due primarily to lower inventory, which decreased $7.9 million during this quarter versus an increase of $2.9 million in the prior year quarter. We spent $3.6 million in capital projects in the third quarter compared with $6.3 million a year ago. We expect our capital spending for the year to be between $25 million and $30 million. We paid $5.8 million in dividends and ended the quarter with $23.5 million in cash and investments and $75 million in borrowings on our line of credit. Subsequent to the end of the quarter, we repaid $20 million on our line, bringing our outstanding borrowings down to $55 million. Finally, our Board has authorized our $0.13 quarterly dividend to be paid to stockholders of record on March 19, with payments to be made on April 2. Looking forward to the fourth quarter, we believe the strength of our brand, product assortment and new product offerings are helping us drive growth and take share in an otherwise stable market. Therefore, we expect our fourth quarter sales will be up 10% to 12% over Q4 2025 sales, with a small reduction in channel inventory as distributors begin to plan for the slower summer months. With 8 additional operating days compared with Q3 and an increase in production to meet demand, we expect Q4 gross margin to increase by several percentage points over Q3 and a point or 2 over last year's fourth quarter. Operating expenses in Q4 will likely be about 10% higher than last year's fourth quarter due to increases in research and development costs, stock compensation, profit sharing and other profit related costs. Additionally, we expect continued healthy cash generation during the fourth quarter. Our effective tax rate is expected to be approximately 29%. With that, operator, can we please open the call to questions from our analysts? Operator: [Operator Instructions] Our first question is from Mark Smith with Lake Street Capital. Mark Smith: I want to ask first about kind of recent pricing changes. Can you talk about any price that's been taken, whether that's been across the board? And anything that you can quantify?. Mark Smith: Sure, Mark. The price increase we put in was effective January 1, as I covered in the prepared remarks. And it was largely across the board. It was -- there were some categories that took a little bit steeper increase and some categories took a little bit, little bit less so just really driven on market demand and our position within each category. But overall, across the board, it was pretty close to 3%. Mark Smith: Okay. Any feedback for as you look at distributors? Or as you think about kind of consumers on that, does it seem like that's gone through well? Or has there been any pushback on the pricing? Mark Smith: No, it's no pushback whatsoever. As you may recall, it's been a little bit since we've taken a price increase and really has gone through smoothly, no impact whatsoever. And I think as you saw from the results, an uptick in demand throughout the quarter. So... Mark Smith: Perfect. And I want to look at just handgun sales, really strong results there, especially as we think about new products. I'm curious, without giving out too much competitive details here, anything that you can expand on, on what's kind of helped drive some of that strength. I'm curious like colorways, some of your ported options? Are these things that have helped or is just having the right product for consumers right now? Mark Smith: Yes. You know we've had great success with BODYGUARD over the last -- really the last couple of years. That category, we kind of own it. On the -- we've done a lot of work and that strategy, I talked about a lot, long-range strategy is let's make sure we're refreshing the entire product line. And I think we're starting to see the results of that. And it's really just it's across the board. It's all of what you just talked about Mark. And obviously, we're not going to give too much detail for the reason you just covered. It's looking at the market trends and having a team that really understands the industry and what is trending out there, where do we need to make some updates and changes. And making those changes, and we've been really happy with the results that are coming out with that. And now that polymer pistol line across the board is really starting to gain a lot of profitable share. And obviously, as we start to move now into one of the -- out of the subcompact into the compact and full-size markets, that's obviously at the higher end of the pricing hierarchy and that is really helping ASPs and the momentum continues. Mark Smith: Perfect. And then just similar question shifting over to long guns. I'm curious, anything that you guys can do today to kind of drive more strength in that long gun market. And I realize there's some things in the comparable that make it this quarter tough. But as we think about the hunting category. Is there interest in entering there? Is there more maybe on SBRs or anything that you can do to drive more long gun business?. Mark Smith: Yes, the SBRs, as you're well aware, the tax changes that occurred on January 1 are helping a little bit there in that category. But at the end of the day, as I covered in the prepared remarks, it really is, it's one is the difficult comp versus last year as we were introducing kind of the last couple of calibers and the lever action rifle, which obviously are at the very high end of our pricing hiearchy on long guns, but also that our product portfolio is kind of more weighted towards that self-defense market and the hunting market, obviously, we're in it with the 1854 and very pleased with the performance there. But there's -- I'll just leave it at this, is there's a lot of white space there for us and we're always looking at long-term opportunities. Mark Smith: Perfect. And I think the last one for me. You called it out a bit in your commentary, just the law enforcement opportunity and improving sales there. I'm curious, just where you're at in that process? It seems like that's a big market and maybe just scratching the surface. Is that something that is a big focus and where you think you can really move the needle on revenue as there's more drive in law enforcement. And then similarly, I'm curious as we think about maybe international within military, if there are similar opportunities. Mark Smith: Yes, it's definitely a focus area as I think you've been around long enough now you know that's a much longer sales cycle than on the consumer side. So what I'm pleased about is the pipeline that we have even with the strong results this quarter, we've got a pretty healthy pipeline coming up behind it. And that is a direct result of all of the intangibles of the academy and being able to service that law enforcement customer in a more meaningful way, purpose-built products, changes to the product, there's innovation happening there as well. And that expands beyond just domestic law enforcement, it moves into federal agencies. state, local and federal and then outside into foreign militaries as well. So a lot of good things happening in that space. Still does remain kind of a smaller section of our business right now, but a lot of momentum there and a pretty healthy pipeline coming up behind it. Operator: Our next question is from Rommel Dionisio with Aegis Capital. Rommel please check for line is muted. I believe he was having some technical difficulties. We do not have any further questions at this time. I would like to turn the conference back over to Mark for closing remarks. Mark Smith: Thank you, operator, and thanks, everyone, for joining us today and your interest in Smith & Wesson. We look forward to speaking with you all again next quarter. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good afternoon, ladies and gentlemen. I would like to welcome everyone to The Gap Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to introduce your host, Whitney Notaro, Head of Investor Relations. Whitney Notaro: Good afternoon, everyone. Welcome to Gap Inc.'s Fourth Quarter Fiscal 2025 Earnings Conference Call. Before we begin, I'd like to remind you that the information made available on this conference call contains forward-looking statements that are subject to risks that could cause our actual results to be materially different. For information on factors that could cause our actual results to differ materially from any forward-looking statements, please refer to the cautionary statements contained in our latest earnings release, the risk factors described in the company's annual report on Form 10-K filed with the Securities and Exchange Commission on March 18, 2025, quarterly reports on Form 10-Q filed with the Securities and Exchange Commission on May 30, 2025, August 29, 2025, and November 26, 2025, and other filings with the Securities and Exchange Commission, all of which are available on gapinc.com. These forward-looking statements are based on information as of today, March 5, 2026, and we assume no obligation to publicly update or revise our forward-looking statements. Our latest earnings release and the accompanying materials available on gapinc.com also include descriptions and where available, reconciliations of financial measures not consistent with generally accepted accounting principles. All market share data referenced today will be from Circana's U.S. apparel consumer service for the 12 months ending January 2026, unless otherwise stated. Joining me on the call today are Chief Executive Officer, Richard Dickson; and Chief Financial Officer, Katrina O'Connell. With that, I'll turn the call over to Richard. Richard Dickson: Thanks, Whitney, and good afternoon, everyone. I am pleased to report that we delivered another successful fourth quarter, in line with our expectations and marking another year of meaningful progress for Gap Inc. In the quarter, we achieved comparable sales of 3%, our eighth consecutive quarter of positive comps, while once again winning across all income cohorts. We continue to do what we said we were going to do, underscoring the growing resilience, durability and potential of our portfolio. Reflecting on the full year, 2025 continued to demonstrate our ability to perform while we transform even in a highly dynamic environment as we execute our strategic priorities and deliver consistent performance while fixing the fundamentals. Through the disciplined execution of our brand reinvigoration playbook, we are building a clear track record of reliable growth, proving our 3 largest brands can deliver quarter after quarter. Gap Inc. achieved its second consecutive year of top line growth. Full year net sales grew 2% at the high end of our outlook, fueled by comparable sales of 3%, building on last year's 1% net sales growth and 3% comp. Our playbook continues to fuel our portfolio with Gap brand delivering its third consecutive year of positive comp sales and both Old Navy and Banana Republic reporting their second consecutive year of positive comp sales. We delivered one of our highest gross margins in the last 25 years and generated $1.1 billion in full year operating income, a clear reflection of the strength of our platform and the financial and operational rigor embedded across the organization. Disciplined execution throughout the year further strengthened our balance sheet, enabling us to end 2025 with a cash balance of $3 billion, our highest in nearly 2 decades. Based on our strong financial position and confidence in our continued progress, the Board recently approved an increase in our first quarter dividend and a new $1 billion share repurchase authorization. I am proud of the resilience this team has shown and what we have achieved together. This performance gives me confidence as we continue to move forward. That confidence is rooted in something deeper than any single quarter or year. Since 1969, when the Fishers opened a single store to bridge a generation gap, Gap Inc. has proven that purpose and profit can coexist, taking pride in doing what's right for our company, our customers and our communities and building brands that matter. It's that legacy of bridging gaps and leading with purpose that brings us to today. We have a unique opportunity with the legal settlement received to pledge a $50 million charitable donation to a combination of the Gap Foundation and our donor-advised fund. This marks a true legacy moment, honoring a heritage rooted in shared humanity and ensuring that our commitment to create a better world endures for generations to come. On today's call, I'll discuss our fourth quarter performance by brand and share how we're thinking about 2026 in the context of our strategy. Then Katrina will walk you through our detailed financial results and outlook, after which we will open the call for questions. Starting with Old Navy. As we execute on our reinvigoration playbook, Old Navy is becoming a proven growth engine with consistency and scale that drives meaningful value. Fourth quarter comp sales grew 3%, building on last year's 3% comp growth and reflecting the brand's fifth consecutive quarter of positive comps. Old Navy ranks as a top 3 brand in 9 of the 10 largest apparel categories and gained share in all 5 of the largest categories on a rolling 12 basis. Old Navy continues to win at the intersection of great product, quality and price. The brand's focused pursuit of leadership in active, denim and kids and baby drove strong performance across each of these categories as the brand continued to innovate and excite our customers. Both active and denim continue to grow share and the strong execution of our Disney partnership has positioned Old Navy as Disney's #1 apparel brand direct-to-consumer partner in the United States. The brand has also continued to evolve its media mix model to meet consumers where they are, growing its presence on social media platforms and significantly increasing creator volume with over 15,000 creators in the fourth quarter, almost 3x the number of creators last year. Looking ahead, we believe Old Navy is well positioned, and we're confident in the brand's ability to deliver consistently largely in line with its performance over the past 2 years. Now let's turn to Gap. Gap's momentum accelerated meaningfully in the fourth quarter, delivering comp sales up 7% on top of last year's 7% comp growth, marking its ninth consecutive quarter of positive comps. Returning to its powerful heritage, the brand is once again bridging the generation gap, continuing to attract Gen Z while growing its core customer. And that multigenerational appeal is showing up in the results. Gap at its best is a true original, a pop culture brand that celebrates individuality united through music, genres and collaborations that bridge generations and cultures. We're leaning into that heritage with intention from red carpet moments, most recently dressing Leon Thomas for the Grammys and Claire Danes for the Golden Globes, to co-hosting a star-studded Super Bowl event in San Francisco to spotlighting emerging artists from Tyla and Troye Sivan to KATSEYE and Siena Spiro. Gap is showing up in culture in ways that are authentic and relevant. In the fourth quarter, the team executed our playbook with Fluency, which was demonstrated through their Give Your Gifts Holiday Campaign and culturally relevant collaborations, supported by a highly evolved media mix. We saw particular strength in key categories like fleece, including logo, denim and sleepwear. As brand relevance has increased, we're also proving elasticity. This was our second quarter of meaningfully pulling back discounting driven by on-trend product and strong brand heat. With a focus on elevating the customer shopping experience, new store models continue to outperform the fleet, giving us confidence in the opportunity to accelerate these formats in 2026. I'm proud to say that Gap, our namesake brand of 56 years, is firmly back in growth mode. Banana Republic delivered a 4% comp, building on a 4% comp last year with sharper merchandising and execution. Banana Republic has returned to its roots as a storytelling brand expressed through the lens of the modern explorer. You could see that story coming to life more cohesively and comprehensively through our assortments, merchandising and how we show up in culture and consumers have taken notice. There's greater synergy between men's and women's with head-to-toe wardrobing guided by a clear style guide and design language that's informing design, presentation and storytelling. Leather, suede, cashmere and texture, all synonymous with Banana Republic's design language are reinforcing the brand's distinctive point of view. This is a great example of the differentiation of our portfolio coming alive, and we look forward to getting even sharper with more precision, more narrative-led merchandising and a dialed-up fashion quotient that underscores Banana Republic's unique brand DNA. Shifting to Athleta. While Athleta remains a work in progress, we took decisive action in the second half of 2025, appointing Maggie Gauger to lead its reinvigoration. The active category remains strategically important and resilient. Even amid disruption, customers continue to make fashion choices that are active oriented. Within that landscape, Athleta holds a meaningful position as the #5 women's active brand with distinction as a women's-only brand rooted in quality, performance and design intent exclusively for her. And while Athleta sales trend has been disappointing, we've accumulated critical learnings and are acting on them with intention. We are re-architecting the assortment, building key items into enduring franchises and reorganizing the brand around consumer insights. Maggie is going deep with the team, even meeting with Athleta's founder to reconnect the brand to its original purpose and establish clarity and alignment around the brand's identity. With the strength of our portfolio and our proven playbook, 2026 will be about positioning the brand for sustainable growth in the years ahead. Progress will take time, but I am confident we are attracting the right talent to rebuild Athleta. In 2025, the power of our portfolio became clear as our playbook successfully delivered consistent growth across our 3 largest brands. This was reflected in the metrics that matter, the strength of our product and in the cultural narratives that are resonating with consumers. Moving at the speed of culture takes focus and discipline, and we're working together with clarity and conviction to continue to advance our strategy. As we've shared, we've been very purposeful in the sequential order of our transformation. Over the last 2 years, we have focused on fixing the fundamentals, maintaining financial and operational rigor, reinvigorating our brands, strengthening our platform and energizing our culture. The meaningful progress we've made across these strategic priorities has enabled us to consistently perform while we transform, strengthening our financial model and driving shareholder value. As we move into the next phase of our transformation, building momentum, our primary focus will be growing our core apparel business through continuous improvement, driven by disciplined execution with better product, marketing and storytelling. In parallel, we will be building on the strength of our apparel business by thoughtfully seeding growth accelerators and new capabilities. We are beginning with expansions into adjacent lifestyle categories such as beauty and accessories, 2 categories that are underdeveloped in our portfolio but are meaningful to our consumers and sizable in the industry. We will also continue advancing our Fashiontainment platform and technology capabilities, all with the intent to build scale, relevance and revenue over time. Let me take a moment to share more about each of these, starting with beauty. As discussed in the past, beauty is one of the fastest-growing, most resilient retail categories in the U.S., and our customer insights reinforce strong engagement. Our research suggests that for other fashion apparel businesses that have entered the beauty space, beauty makes up anywhere from 5% to 20% of their business. We believe this is a good indicator of the category's potential in our business over the longer term. In 2025, we introduced the consumer to our expanded beauty assortment at Old Navy and are making refinements based on our customer feedback. In 2026, we'll be deepening this engagement with consumers and look forward to reintroducing a fragrance assortment at Gap this summer. Turning to accessories. Our accessory category performed well in 2025, reinforcing our confidence in this expansion. According to Euromonitor, this category has a $15 billion total addressable market. And today, Gap Inc. represents just 1% of the market share. Consumers are looking for us to be more pronounced in accessories and we see an exciting opportunity to become a destination for wardrobing. We look forward to launching an expanded accessory line for holiday. We believe the beauty and accessory categories have the added benefit of serving as margin and traffic drivers that strengthen our brands, deepen customer connection and build lasting loyalty. We have appointed proven industry experts to lead each of these areas with focus and discipline. Our Fashiontainment platform is another area we will be focusing on in 2026. Today's customers aren't just buying apparel. They're buying brands that tell stories and drive cultural conversations. As we continue to build our brands, we see entertainment as a powerful growth lever. Last month, Pam Kaufman joined Gap Inc. as Chief Entertainment Officer, adding focused leadership, expertise and relationships across entertainment and licensing. The Fashiontainment platform we're building is about amplifying and scaling what is already working, expanding licensing, strengthening strategic partnerships and aligning our assortments more intentionally with the entertainment calendar. One capability we believe can be better monetized is our loyalty program. Gap Inc. has one of the largest programs in U.S. apparel retail with nearly 40 million active members. Last week, we launched Encore, our newly reimagined loyalty program, setting a new standard for loyalty in the apparel space. Encore brings our Fashiontainment platform to life by turning purchases into experiences that give members access to fashion, entertainment and the moments they care about across our portfolio of brands. It represents a shift from a traditional points-based loyalty program to a broader engagement platform. By bringing fashion, entertainment and access together, we are building momentum, deepening relationships and creating long-term value across our portfolio. Technology is another platform capability where we see opportunity, especially with AI. Our AI strategy is focused on 3 areas: enable, optimize and reinvent. Enable is about enterprise-wide adoption, equipping our teams with AI tools that improve day-to-day productivity, streamline workflows and build AI fluency across the organization. Optimize focuses on high-impact process improvements to drive efficiency, accuracy and speed. Reinvent is about reimagining our customer, product and enterprise journeys end-to-end. We are focusing on areas where AI can meaningfully reduce customer friction, increase predictability across product to market and unlock productivity within the enterprise. As we close the first chapter of our transformation and step into the next, we do so with a brand portfolio that is consistently growing, healthy gross margins, disciplined expense management, sustained bottom line performance and strong cash on hand. Looking ahead, we have a focused, energized team that believes in the future we're building. Our aspirations remain high, and we're positioned to deliver. I'm excited about the opportunity ahead and confident in our ability to capture it. I'll now turn the call to Katrina for a closer look at our financials. Katrina O'Connell: Thank you, Richard, and thanks, everyone, for joining us this afternoon. Execution of our strategic priorities continues to drive results, and 2025 was a strong year of financial performance. We grew net sales 2%, gaining market share for the year as we demonstrated relevance to customers of all income levels. It's exciting to see our playbook driving the second consecutive year of top line growth, fueled by positive comp sales across our largest brands, Old Navy, Gap and Banana Republic. The rigor we've developed is delivering reliable profit performance with another historically high gross margin of 40.8%, operating profit of $1.1 billion and an operating margin of 7.3%. These results reflect improved AURs as we capitalize on the growing strength of our brands, combined with SG&A leverage as we continued to optimize our cost structure. Tariff impacts were significant. However, our mitigation strategies have effectively managed these pressures. Our focus on cost optimization and inventory management drove robust cash generation, ending the year with $3 billion in cash, cash equivalents and short-term investments. In 2025, we generated $1.3 billion in net operating cash and $823 million in free cash flow. Our strong balance sheet allowed us to invest in high-returning projects while returning over $400 million to our shareholders through dividends and share repurchases. I'm incredibly proud of what this team has accomplished, and our performance gives us confidence in the 2026 outlook we provided today, which reflects another year of sales growth in addition to operating margin expansion. Before discussing the detailed results for the quarter and the year, it's important to note that changes in global tariff rates in 2025 had a substantial impact on our profits. Specifically, tariffs influenced our fiscal year's gross and operating margins by approximately 120 basis points and affected our fourth quarter gross and operating margins by approximately 200 basis points. Despite these pressures, our reported results today include these factors, showcasing our strong underlying performance, thanks to the effective execution of our strategic priorities. Now let's turn to our fourth quarter results. I'm pleased with our performance, which included a solid holiday season, underscoring the increasing resonance of our brands with consumers. Fourth quarter net sales of $4.2 billion increased 2% year-over-year with comparable sales up 3%, marking our eighth consecutive quarter of positive comps. Results were in line with our plans despite disruption from expansive store closures due to extreme weather at the end of January. By brand, Old Navy net sales were $2.3 billion, up 3% versus last year, with comparable sales up 3%, building on last year's 3% comp growth. The brand's price value equation is resonating with consumers as Old Navy continues to win with strategic categories and across a wide range of income levels. Turning to Gap brand. Net sales of $1.1 billion were up an impressive 8% versus last year, and comparable sales were up 7%. This was on top of last year's 7% comp growth, demonstrating Gap's momentum as it continues to expand its customer base across generations. Banana Republic net sales of $549 million were up 1% year-over-year with comparable sales up 4%. The brand delivered its third consecutive quarter of comp growth, reflecting progress in product elevation and sharper marketing and merchandising. Athleta net sales of $354 million decreased 11% versus last year and comparable sales were down 10%. We remain focused on rebuilding the brand for the long term. Let's continue to the balance of the P&L. Gross margin of 38.1% declined 80 basis points. Lower discounting resulted in another quarter of AUR growth, driven by the consumers' response to our relevant product and storytelling. Compared to last year, merchandise margins were down 90 basis points due to the net impact of tariffs. ROD leveraged 10 basis points in the quarter. SG&A increased to $1.4 billion, primarily due to the quarterly timing of incentive compensation in addition to strategic investments. SG&A as a percentage of net sales was 32.7%, deleveraging 10 basis points versus last year. Fourth quarter operating margin of 5.4% was down 80 basis points compared to last year, primarily due to the approximately 200 basis point headwind from tariffs. Earnings per share in the quarter were $0.45 versus last year's earnings per share of $0.54. Now let's turn to our full year 2025 results. Net sales of $15.4 billion increased 2% year-over-year at the high end of the guidance range we provided with comparable sales up 3%. Our playbook is working and drove strong results across our 3 largest brands, with Old Navy comp sales up 3%, Gap up 6% and Banana Republic up 3%. Comp sales for Athleta were down 9%. Gross margin of 40.8% declined 50 basis points versus last year. Merchandise margin was down 80 basis points due to the impact of tariffs and ROD leveraged 30 basis points. SG&A was $5.2 billion. As a percentage of net sales, SG&A was 33.5%, leveraging 40 basis points versus last year. We achieved our targeted cost efficiencies in 2025 as we rigorously managed our core expenses to fund inflation and begin our investments in growth accelerators. Fiscal 2025 operating income was $1.1 billion, resulting in an operating margin of 7.3%. The 10 basis point decline in operating margin versus last year was due to the estimated 120 basis point impact of tariffs, implying roughly 110 basis points of underlying margin expansion versus last year's 7.4%. Earnings per share for the year were $2.13, down 3% versus last year's EPS of $2.20. Now turning to the balance sheet and cash flow. End of quarter inventory levels were up 7% year-over-year, primarily attributable to increases in tariff-related costs. Our disciplined inventory management resulted in units down year-over-year, and we believe we ended the year with the right inventory composition going into fiscal 2026. We expect our inventory buys in the year ahead to be in line with our principle of unit purchases positioned modestly below sales. As I highlighted earlier, we ended the year with cash, cash equivalents and short-term investments of $3 billion, an increase of over $400 million compared to last year. Full year net cash from operating activities was $1.3 billion, and we generated free cash flow of $823 million for the year. Capital expenditures were $470 million. With regard to returning cash to shareholders during the year, we paid $247 million to shareholders in the form of dividends. Additionally, we repurchased 7 million shares for $155 million, achieving our 2025 goal of offsetting dilution. Before I move on, I want to thank our teams for their hard work and diligence this past year. Our 2025 results reflect significant progress in our transformation journey with the execution of our strategic priorities, driving 2 years of impressive results. We are moving forward from a position of strength, and we'll continue to operate with the same rigor in 2026. Looking ahead, we are energized by our strong business results, which underpin a confident outlook for 2026. Our strong performance at Old Navy, Gap and Banana Republic is expected to drive another year of net sales growth. At the same time, we are committed to rebuilding Athleta for sustainable long-term success. With our brands becoming increasingly relevant to consumers and our stringent inventory management practices, we anticipate continuous improvement in average unit retails, supporting robust gross margins aligned with historically high levels. Successfully navigating the challenges of a second year of tariff dynamics, we are poised to not only maintain but improve our financial health. Our strategy for 2026 includes generating further cost savings by increasing efficiencies in our core operations, enabling us to combat inflationary pressures while reallocating resources into strategic growth investments. This approach is designed to deliver a third consecutive year of profitable sales growth and robust cash flow generation, enabling us to continue capital investments and enhance shareholder returns. I want to note that our guidance today reflects tariff rates under the IEEPA regime and therefore, does not contemplate the recently announced Supreme Court ruling and subsequent Section 122 announcement. These recent events were not contemplated in our original plans for fiscal year 2026. If the Section 122 tariffs stay in place for the year or expire in July, we do believe there could be an incremental benefit to our current plans. With many scenarios still being debated, we are awaiting more clarity before changing our plans. At this time, we expect any benefit to Q1 to be minimal based on the timing of receipts. In the meantime, our teams are continuing to leverage the extensive tariff mitigation strategies we've built out over the past year, which sets us up for the annualization of last year's tariffs to be net neutral to 2026 full year operating income as previously disclosed. As noted in today's earnings press release, our outlook excludes the net estimated gain related to a legal settlement in the first quarter as well as the pledged charitable donation of approximately $50 million to a combination of the Gap Foundation and our donor-advised fund, which we are pleased to make as we look to advance our purpose. Both are included in our reported EPS guidance for fiscal year 2026. As I take you through the details of our 2026 outlook, I'll spend some time unpacking the factors that shape the year as there is some nuance to the quarterly cadence related to the timing of tariffs and investments. Let's jump into the full year. Starting with revenue, we expect net sales growth of approximately 2% to 3% year-over-year. While there are a range of outcomes for each of our brands, we expect continued comp sales growth across our 3 largest brands and negative mid-to-high single-digit sales declines for Athleta in the first half of the year, and the team is hard at work on the second half. Turning to gross margin. We are proud of the underlying gross margin performance achieved in 2025 and expect gross margins to be flat to up slightly year-over-year in 2026 compared to 40.8% last year. This includes a balanced plan of realizing higher AURs through better sell-throughs and lower discounting as well as implementing adjusted sourcing strategies as we offset the tariff impact that annualizes in the base this year. Regarding tariffs specifically, the net tariff impact is expected to be neutral on the full year. Our sourcing strategies build sequentially through the year, resulting in an approximately 150 basis point headwind to the first half gross margin that turns to an approximately 150 basis point tailwind in the second half of the year. Specific to the first half, we expect a 200 basis point headwind to Q1, which improves to approximately a 100 basis point headwind in Q2. Separately, as we conclude our multiyear program of rationalizing our store footprint and begin to reaccelerate our capital expenditures, we expect ROD as a percentage to sales to deleverage slightly. Moving on to SG&A. We expect adjusted SG&A as a percentage of sales to be roughly flat year-over-year. Our focus is on further improving our cost structure, aiming to achieve around $150 million in incremental savings by enhancing efficiency and effectiveness in 2026. These savings will help us manage inflation and reinvest in more valuable initiatives such as expanding into new categories and capabilities like beauty, accessories, Fashiontainment and technology, as Richard mentioned. We initiated our growth accelerator investments in 2025, particularly in the latter half of the year. These will continue into 2026, initially causing some SG&A deleverage in the first half. However, we anticipate SG&A to leverage in the second half as we lap the higher spend in the back half of last year. Taking this all into consideration, we expect an adjusted operating margin of about 7.3% to 7.5% for the full year. Interest income is expected to be approximately $10 million to $15 million, and we expect a tax rate of approximately 27%. Reported EPS is expected to be $2.71 to $2.86, which includes an estimated $0.51 benefit related to a legal settlement in the first quarter, net of the $50 million charitable donation. We expect an adjusted EPS of $2.20 to $2.35, representing growth of 4% to 10% year-over-year. Our healthy balance sheet supports our balanced capital allocation framework with the primary goal of enhancing long-term shareholder value. The framework remains as follows: our first priority is investing in the business through high-returning capital investments. In 2026, we expect to invest approximately $650 million, which relates primarily to our investments in stores, technology and supply chain. Second, we believe in paying an attractive dividend that grows with net income growth. In alignment with that principle, we recently announced that the Board raised the first quarter dividend by approximately 6% to $0.175 per share. And our third priority is focused on share repurchases. Previously, we aimed to simply offset dilution. We are now committed to executing a repurchase program with a goal of driving slight accretion. On that note, the Board has approved a new $1 billion share repurchase authorization that we expect to utilize to meet this goal. Now let me turn to our outlook for first quarter of fiscal 2026. The quarter is off to a good start, and our outlook contemplates our quarter-to-date performance. We expect net sales in Q1 to be up 1% to 2% year-over-year. This includes an approximately 150 basis point spread where comp outpaces net sales largely related to lapping last year's benefit from our credit card agreement, which continues into Q2, but does not impact the back half of the year. We expect first quarter gross margin to be down about 150 to 200 basis points compared to last year's gross margin of 41.8%, including an estimated 200 basis points of net tariff impact. This implies an underlying gross margin of flat to up 50 basis points. And we are planning for adjusted SG&A as a percentage of net sales to be about 35%, which reflects the timing of the growth investments I spoke to earlier. Reflecting on 2025, I'm proud of our accomplishments. Our consistent execution over the past 2 years has laid a solid foundation, driving our confidence as we advance in our transformative journey. As we transition into 2026, we're excited to amplify our core strengths while fostering new opportunities through strategic growth accelerators and innovative capabilities. Our balance sheet is giving us the ability to invest purposely in our business and accelerate cash returns to shareholders. With demonstrated progress and an exciting road map ahead, we are building a high-performing company that stays focused on delivering sustainable, profitable growth and long-term value for our shareholders. With that, we'll open the line for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Mark Altschwager with Baird. Mark Altschwager: Richard, you outlined several growth accelerators with beauty, accessories, fashiontainment, technology. Can you talk about how you're balancing investments to maintain momentum in the core while also seeding growth in these new areas? And how much can these accelerators move the needle in 2026 from a revenue perspective? Richard Dickson: Thank you for that question. Thanks for the question, Mark. First off, it's important to note we delivered a successful fourth quarter, marking another year of meaningful progress for the company. We achieved our second consecutive year of top line growth, and that's the eighth consecutive quarter of positive comparable sales. Now these are really important to acknowledge as we sort of zoom out and look at our transformation road map, which has 3 phases. The first phase was fixing the fundamentals. We're now moving into building momentum, and the third phase is accelerating growth. So over the past 2 years, during our fixing the fundamentals phase, the meaningful progress that we've made across our strategic priorities has really enabled us to consistently perform while we've been transforming, strengthening our financial model and essentially driving shareholder value. It's this performance that's giving me the confidence as we continue to move forward, and that means moving forward into the next phase of our transformation that we call building momentum. Now in this next phase, our primary focus is going to be growing our core apparel business. We've got to do it through continuous improvement. That means driven by disciplined execution, better product, better marketing, better storytelling, better in-store execution. Now in parallel to that, we're going to be thoughtfully seeding our growth accelerators, which you mentioned, and by the way, new capabilities. The first, which we've talked about is expanding our presence in lifestyle categories such as beauty and accessories. Now these are 2 underdeveloped categories in our portfolio that are meaningful to our consumers, but are also sizable in the industry. Second, we're rebuilding our fashion payment platform, and we're advancing our technology capabilities. Now when you combine the context of continuous improvement of our core business, delivering low to mid-single-digit growth with the accelerators, which begin to scale in 2027 and beyond, it really creates an exciting growth proposition. We are obviously very excited about where we are right now, and we'll look to provide updates on how this will evolve, not only from our business perspective, but the economic model in the long term. But overall, the aspirations remain very high, and I'm looking forward to all we can accomplish. And maybe Katrina has more to say on the balance of the question. Katrina O'Connell: Yes. I mean, Mark, I'm happy to talk about how we're thinking about the investments. This is really an exciting time for the company as we're balancing the rigor that we've put into the business that's driving real value with the growth opportunities that are really important to the long-term success of the company. So our guidance today reflect what we think is a very balanced approach where we're continuously improving the cost structure of the company. As I said, we're aiming to drive an incremental $150 million in savings and then we're looking to really repurpose those into making investments in these seed categories that Richard just talked about like beauty, fashiontainment, accessories and technology. And as a result, we think our outlook that we presented today has SG&A as a rate of sales flat year-over-year. I would say this is what it means to be a high-performing company that strives for continuous improvement. And maybe the last thing I'll add, Richard said, this is really early days. We're seeding. We're doing a lot of work to get teams in place and begin to get these in front of customers. But I think the bigger portion of these will start to deliver in '27 and beyond. Richard Dickson: Thanks, Mark. Mark Altschwager: A quick follow-up for Katrina on gross margin. Just with respect to the Q1 guide, you don't seem to be incorporating much in terms of offsets to the 200 basis point tariff headwind, whereas you have been able to offset much of that headwind through the back half of 2025. So I was hoping you could just walk us through some of the other gross margin puts and takes there. Katrina O'Connell: Sure, sure. Yes. Thanks, Mark. So for gross margin, as you say, in Q4, margin decreased 80 basis points year-over-year, and that was inclusive of a 200 basis point tariff impact, which implies that the underlying gross margin was much stronger. That was driven by AUR growth and our customer really responding to our product and our storytelling, which led to lower discounting and ultimately contributed to very strong underlying gross margin expansion. In addition to that, we saw ROD leverage in the quarter of about 10 basis points as a result of higher sales. As we move into Q1, I would say there are 2 things. We gave a guide of margin down 150 to 200 basis points. The outlook does include the net tariff impact of about 200 basis points, so very similar to Q4. I think you heard me say on the call, and we previewed this last time, our sourcing strategies are going to build sequentially throughout the year. So the 200 basis point impact in Q1 becomes about 100 in Q2 and actually flips to a tailwind, all net neutral on the full year. So there's a little bit of a cadencing of the tariff. And then maybe the two other things I'll call attention to in Q1 are that promotions right now are assumed to be relatively flat year-over-year, whereas we did see improvement in Q4. So we'll see. We're taking a balanced approach. And then maybe lastly, we saw leverage on ROD in Q4. And I think you heard in my prepared remarks, we'll see slight deleverage in Q1 on ROD. Operator: Your next question comes from the line of Matthew Boss with JPMorgan. Matthew Boss: So Richard, on the inflection at the Gap brand to growth mode that you cited, what do you see as the next leg or opportunity to accelerate market share in the next strategic phase? And then, Katrina, just to confirm, your 1% to 2% revenue growth forecast for the first quarter, so that embeds a 150 basis point headwind from the credit card adjustment. So underlying revenue growth would be 2.5% to 3.5% is actually an acceleration from 2.1% in the fourth quarter. Can you just break down the areas of underlying sequential acceleration that you're seeing in embedding and maybe elaborate on the strong start to the quarter at the Gap and Old Navy? Richard Dickson: Okay. Matthew, thanks for the question. I'll take the first part, and then Katrina will take the second. First off, thank you for calling out the Gap brand. It has been really exciting to see Gap, of course, our namesake brand, building on the success quarter after quarter. So to your point, we've already begun to comp the comp. I mean, achieving an impressive 7% comp on top of last year's 7%. The fourth quarter also marked the brand's ninth consecutive quarter of positive comps. So when you look at the last 2 years, Gap has consistently gained market share. Now it's through compelling product assortments, better marketing and in-store execution. And it's results like this that also increase our multigenerational appeal. We've seen growth across all income cohorts with more high-income customers choosing Gap. We've had strength in key categories like fleece, including logo. Denim has been outstanding. And of course, sleepwear drove the performance in the fourth quarter. And as brand relevance has increased, we've also meaningfully pulled back on discounting. I also want to add, it was really exciting to see the brand gain share in denim in 2025. We've increased our ranking to #6. Now that's up from #10 just 2 years ago. And overall, the brand's momentum is giving us the confidence to also accelerate the rollouts of our new store formats in the years ahead, which will also continue to just excite consumers. So all in all, Gap is firmly back in the cultural conversation as a true pop culture brand. Its product resonance is showing up on the red carpets to surprising collaborations, and I can guarantee you there's a lot more exciting moments to come in 2026. Katrina O'Connell: And then, Matt, as it relates to Q1 revenue, so yes, the guide was 1% to 2% revenue growth. And then as you say, we have about 150 basis point headwind that makes comps outpace total revenue. And so the implied comp guide is 2.5% to 3.5% for the quarter. The way I think about it is the midpoint of that at 3% is roughly in line with the 3% we just delivered in Q4. So largely a continuation of the trends in the business. As it relates to Q1 quarter-to-date, as I shared, the quarter-to-date comp is off to a good start, and that's built into the outlook that we provided today. This time of year, there's always weather dynamics at play in all this stuff, but we are largely trending in line with the guidance we just gave. And then as I think about the brands in the quarter, I guess to be helpful, I would say this. Old Navy, as Richard said, is proving to be a reliable growth brand and 2 years of delivering positive 3 comps. So we'll see where the quarters land, but I see them as a very consistent driver of value. Gap is firmly in growth mode. And Banana has 3 quarters of comp, and we're really excited to see BR deliver. And then as I said in my remarks, Athleta, we are expecting negative mid-to-high single-digit sales declines in the first half of the year, and the team is really working on the second half. Operator: Your next question comes from the line of Simeon Siegel with Guggenheim. Simeon Siegel: Richard, any color you can share on store sales by brand, how you're thinking about that going forward? I guess, basically, I'm curious if you think the culturally powerful campaigns you guys are running should bring more people into the stores next year. And I guess whether that's even something you're targeting or whether you're channel agnostic. And then I'd be curious to hear -- the beauty sounds really exciting. Curious to hear the learnings and the refinements that you were mentioning about Old Navy Beauty given that comment and whether you think this becomes a visitation driver or more of a UPT add-on. Richard Dickson: Sure. Simeon, thanks for the question. Let me start by saying fashion is entertainment. And today's customers are not just buying apparel, although, of course, our product has to meet and exceed their expectations, but they're buying into brands that tell compelling stories and drive cultural conversation. And as we continue to build our brands, we see this intersection of fashion and entertainment, our Fashiontainment platform as a powerful growth lever. The creative assets that you've been seeing and that we've been developing across our brands have evolved to specifically drive relevance and increase engagement. We've been leveraging music, art, dance, film. These are all forms of entertainment. And whether it's a music video with KATSEYE or a fashion show during the NBA All-Star weekend, these are great examples of Fashiontainment. We're serious about it. We appointed Pam Kaufman as our Chief Entertainment Officer, to lead our Fashiontainment platform as we take it to the next level. We're going to be adding incredible expertise, essentially extending our iconic IP into more experiences and product opportunities that drive relevance and revenue. These campaigns, as you call out, they're designed to drive interest. And the more interesting we become, the more exciting it becomes for consumers and the more traffic we drive each year to our omnichannel experiences. As we look at some of the ways that we think about stores, this is a really important way for consumers to experience our brands. They bring product and storytelling and service to life in ways that digital can't. And I would say we're now at a very pivotal point. The fleet is well positioned. We've been testing new formats and experiences, Gap Flatiron, Chestnut Street here in San Francisco, Banana Republic Soho. Given Gap's brand momentum, we have the confidence to start to accelerate the rollouts of our new store formats in the year ahead, which we believe will also really excite consumers. You asked about beauty. So this is also a really exciting extension. Beauty is one of the fastest-growing, most resilient retail categories in the U.S. and our consumer insights reinforce, strong demand across other fashion apparel retailers with the beauty offering, the category represents anywhere from between 5% to 20% of their sales, highlighting the meaningful potential that this category can represent within our core business over time. It's also important to recognize we have been in this category. We just have an underdeveloped beauty business. And based on the insights that we've learned, we have a lot of potential in this category. So in 2025, we announced our plans for strategic expansion into the category with a phased approach, starting with Old Navy in the fourth quarter, and Gap will be relaunching its fragrance later this year. The beauty collection was piloted in 150 stores in the fourth quarter. We had some select offering in dedicated shop-in-shops. The pilot validated strong consumer interest, confirmed that beauty really enhances the engagement, it's basket building and it's exciting our customers. And you'll hear a lot more about it as we move forward. Operator: Your next question comes from the line of Brooke Roach with Goldman Sachs. Brooke Roach: Richard, Katrina, can you speak to the AUR versus unit growth trends that you're seeing at the Old Navy banner in fourth quarter and your expectations for net pricing growth at Old Navy for 2026? Additionally, Richard, I would be very curious to see if there's any apparel category initiatives that you have in place at that brand that could shift the Old Navy brand further into growth mode in 2026? Katrina O'Connell: Brooke, maybe I'll start off. I won't speak probably specifically to Old Navy, but I'll certainly talk at the corporate level. For both fourth quarter and fiscal year 2025, we saw average unit retail growth, which reflected the consumers continuing to respond to our product and our value and our storytelling. In addition to that, both for fourth quarter and the full year, units were flat to up slightly, and we also saw traffic positive. So exciting to see winning on all of those metrics. Maybe as I talk a little bit more broadly about pricing, we approach pricing as we always do. We consider all the various inputs while maintaining most importantly, the overall value proposition for our consumers. I think we know that we're doing this well as we evaluate the consumers' response to our value equation, which is showing up in 8 consecutive quarters of positive comp sales, continuing to gain share and winning across all income cohorts. So our ability to grow AUR in Q4 and for the full year really gives us confidence that our strategies are working. As I look into 2026, the AUR growth that's embedded in our 2026 plan is roughly in line with how we've been delivering in 2025. So it reflects a balanced plan of realizing higher AURs through better sell-throughs and lower discounting. Richard Dickson: And Brooke, I'll talk a little bit about the question related to the categories and potential growth accelerators. But first, I just want to reiterate, we delivered another strong quarter for Old Navy. And importantly, this has been consistent share gains over the last 2 years. It's a great reflection of the brand's strength and reliability. And we continue to win at the intersection of great product, quality and price, and we're winning across all income cohorts. Now even more specifically, we called out a couple of years ago that we were going to focus on category leadership in certain categories, denim, active and kids and baby. And these have really been driving the strength of the brand. In both denim and active, Old Navy gained share for the second year in a row. We rank as the #3 denim player in the country and the #5 in active. The broad-based selection and relevant denim offerings are really establishing Old Navy as a denim destination, and we believe that we've got a lot more room to grow. Our innovation and price value are really enabling Old Navy to win in the active space, which is already an enormous business, the #5 player in the space and growing share and outpacing the rest of the brand. And you're going to see a lot more excitement from us in this category going forward. And Kids and Baby. Old Navy continues to be the brand leader in kids and baby. We rank as the #2 brand in the country. I think I've shared our partnership with Disney is such a great partnership, but we recently became Disney's #1 apparel direct-to-consumer partner in the U.S. So from a licensing and strategic partnership perspective, there is enormous opportunity for us to continue to go after in relation to the kids and baby market using entertainment and entertainment properties as a lever. We are very well positioned to deliver the consistent performance that you've been seeing, building on the strength demonstrated over the past 2 years. And I think it's a very reliable brand with an aspiration to accelerate our growth longer term. We'll focus on these categories that I mentioned, but by no means are those the only categories that we intend on growing. Operator: Your next question comes from the line of Dana Telsey with Telsey Group. Dana Telsey: One of the interesting things is that with the return to growth this year, the commentary that it will be flat net store closures versus last year, I believe it was just over 30. And you mentioned in the CapEx investments, technology seem to be more front and center than stores. How are you thinking of the store portfolio and growth and the CapEx investments? And how does it differ by brand? Richard Dickson: Thanks, Dana. I'll start, and then Katrina can fill in a little bit. And as I mentioned before, stores are such an important way for our customers to experience our brands. Obviously, they bring great products, storytelling and service to life. It is an omnichannel experience as we connect the digital dialogue with our in-store dialogue. With a company like ours operating a fleet of nearly 2,500 stores, we are always optimizing our retail footprint. We're closing underperforming stores, as you know. We're repositioning some locations that are more relevant to our customers, and we're always evaluating new store openings. To your point, you know this well, we've closed over 350 stores that were unprofitable over the last few years. Last year in full year '25, we had approximately 35 net closures across our portfolio. And we expect net closures to be flat in fiscal '26. The majority, by the way, of those closures were at Banana Republic. Again, as I mentioned before, we're really at a pivotal moment now. Our fleet is really well positioned. We've been experiencing new formats and new experiences with our brands, particularly Gap and Flatiron and Chestnut and a variety of other locations, great success that is giving us the confidence that now we could accelerate these rollouts of new store formats in the year ahead, which we believe will continue to excite our customers and also essentially grow our business. As we've evaluated the store performances that we have tested new formats, we've really got confidence in the revenue and relevance and the strong returns they're driving. We're very much focused on the experience for our customers. And I do believe we're at a really exciting point again, in our transformation of fixing a lot of the fundamentals and now moving into continuous improvement to build momentum and celebrate these stores and new store formats. I'll turn it over to Katrina for the rest. Katrina O'Connell: Yes. And Dana, as it relates to capital, we are looking to increase capital expenditures this year. We're expecting to spend about $650 million this year. As you say, the big areas where we are spending capital are around technology on our stores, as Richard just said, and then also on our supply chain. The increase in capital year-over-year really is much more related to our stores and technology increases. And the store increases are very much related to a lot of these experiential things that we're starting to accelerate where the tech investments are really ratcheting up in some of these new capabilities that are AI-driven as well as RFID. So hopefully, that helps as we think about capital this year. Operator: That concludes our question-and-answer session. I will now turn the call back over to Richard Dickson for closing remarks. Richard Dickson: Thank you, operator. As we close the first chapter of our transformation and step into the next, we do so with a brand portfolio that is consistently growing, healthy gross margins, disciplined expense management, sustained bottom line performance and strong cash on hand. Looking ahead, we have a focused, energized team that believes in the future that we're building. Our aspirations remain high. We're positioned to deliver, and I'm excited about the opportunity ahead and confident in our ability to capture it. I want to thank our entire organization and all our partners for all of their efforts this quarter and throughout the year, and we look forward to our next call. Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Greetings, and welcome to the Guidewire Second Quarter Fiscal 2026 Financial Results Conference Call. As a reminder, this call is being recorded and will be posted on our Investor Relations page later today. I would now like to turn the call over to Alex Hughes, Vice President of Investor Relations. Thank you, Alex. You may begin. Alex Hughes: Thank you, Grace. Hello, everyone. With me today is Mike Rosenbaum, Chief Executive Officer; Jeff Cooper, Chief Financial Officer; as well as John Mullen, President, who will be available for the Q&A portion of today's call. Complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-K furnished to the SEC, both of which are available on the Investor Relations section of our website. Starting this quarter and moving forward, we have also posted a quarterly earnings deck on the IR section of our website. Today's call is being recorded, and a replay will be available following its conclusion. Statements today include forward-looking ones regarding our financial results, products, customer demand, operations, the impact of local, national and geopolitical events on our business and other matters. These statements are subject to risks, uncertainties, and assumptions are based on management's current expectations as of today and should not be relied upon as representing our views as of any subsequent date. Please refer to the press release and the risk factors and documents we file with the SEC, including our most recent annual report on Form 10-K and our prior and forthcoming quarterly reports on Form 10-Q filed and to be filed with the SEC for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. We will also refer to certain non-GAAP financial measures to provide additional information to investors. All commentary on margins, profitability and expenses are on a non-GAAP basis, unless stated otherwise. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Reconciliations and additional data are also posted at the end of the quarterly earnings deck on our IR website. And with that, I'll now turn the call over to Mike. Mike Rosenbaum: Good afternoon, and thanks, everyone, for joining us today. Q2 was another strong quarter with ARR growing 22%. We continue to see momentum and demand increasing and the results across the board this quarter reflect what we believe makes Guidewire a uniquely durable business. Before I go into the details, I want to take a step back and provide my perspective on the position Guidewire occupies in our industry, the role we play inside an insurance company and why that combination creates long-term durability even in periods of technology disruption and change. Guidewire is the stand-alone leader in delivering mission-critical core systems for the P&C insurance industry. We are now a SaaS company, but understanding what our solutions actually do inside an insurance company is essential to understanding our durability. Insurance is a highly regulated trust-based industry that evolves deliberately and depends on precision, resilience, compliance and accuracy at scale. Guidewire sits at the center of that environment as the operational backbone of the insurer, embedded across the core operating functions of underwriting, claims, finance and regulatory reporting. Our platform supports the complex financial and regulatory framework that underpins the industry, establishing reserves, tracking premiums collected and claims paid and enabling a highly regulated structure that spans hundreds of integrated systems, millions of insureds and trillions of dollars in transactions. At the transactional level, we serve as the system of record for risk when a policy is written, when a loss occurs, when a claim is filed and paid. Those commitments and outcomes are executed through Guidewire. And today, we don't simply provide that software. We operate it as a continuously improving secure, reliable and scalable cloud platform that strengthens over time. The complexity of replacing a core system in the insurance industry means deal cycles and implementation projects are almost always measured in years and require deep partnership. Success on a Guidewire project is the single most important KPI in our company. And you will often hear me say that there is nothing we won't do to ensure a customer is successful with Guidewire. That culture of customer success has produced gross ARR retention rates of over 99% for our InsuranceSuite and InsuranceNow customers. The trust we have earned serving some of the largest and most trusted insurance companies such as State Farm, Liberty Mutual, Zurich, AXA, Aviva, Travelers and USAA reflects decades of deep domain expertise, best-in-class enterprise security and deep productization of complex regulatory requirements. And while we focus on serving this Tier 1 and Tier 2 segment of the market, we can also support smaller insurers. In Q2, for example, we had wins at customers that reflected over $15 billion in direct written premium and under $50 million in direct written premium. It is also important to understand how we price our service. We sell recurring subscriptions to our cloud products and price them as a percentage of the direct written premium managed on Guidewire. We have never been a seat-based model. We align our pricing to the economic value we deliver to an insurer, the premium flowing through their business and not the number of users accessing the system. As insurers grow premium, expand lines of business and modernize their operations and become more efficient, our growth aligns directly with that value creation. There has obviously been a significant discussion across the market about the pace of generative AI advancement and its implications for the overall software category. What we are seeing in practice at Guidewire is increased demand for InsuranceSuite and InsuranceNow. The potential for generative AI in insurance is clear, and this is increasing the urgency for insurers to modernize legacy systems. This is because legacy mainframes were not designed for real-time data access, automation or AI-driven workflows. AI depends on clean data, trusted transactions and reliable systems of record. Generative AI will help us accelerate the value we deliver to our customers. We'll help our customers deploy agents that improve the service they provide to their customers, and it will also help us deploy and configure Guidewire faster and more efficiently. All of this AI-driven potential is increasing the momentum in our business. Q2 results illustrate this clearly. We closed another 15 InsuranceSuite Cloud deals and 2 InsuranceNow deals. And importantly, we are seeing insurers increase their commitment to Guidewire, both in terms of larger, fully ramped ARR outcomes and longer-duration contracts. The deal activity in the quarter included 3 new customer wins and healthy migrations and expansions. On the net new side, we signed one of Canada's largest private insurers who will be modernizing their legacy claims administration system to ClaimCenter. Our dialogue with this insurer dates back to 2008, so we are thrilled to start this program. This deal reflects a little over $8 billion in direct written premium, representing our largest new customer win in the quarter. Large customers are also choosing to expand and consolidate on our platform. Two of these customers will see their ARR grow to over $20 million during the committed period. And now let me turn to some notable deals in the quarter. Aviva U.K., the largest insurer in the United Kingdom, has entered into a long-term agreement with us, committing to move all of its Guidewire estate, including business acquired from DLG in 2025 to the Guidewire Cloud Platform. Aviva recognized that to focus on innovating, serving their customers well and driving material future growth for their business, they needed a modern cloud-based core platform. Similarly, Tokio Marine North America is preparing to migrate major elements of 3 U.S. carrier businesses and has expanded significantly above its previous baseline as it commits to more growth on Guidewire. And Donegal Insurance Group has selected Guidewire Cloud as the next step in its core system modernization strategy, migrating from on-premise InsuranceSuite to the Guidewire Cloud Platform. In addition, Donegal has aligned its strategic AI initiatives with Guidewire's rapidly evolving AI roadmap. Initial collaboration efforts focus on advancing claims capabilities, including intelligent first notice of loss and AI-powered agentic claims handling, which will be seamlessly integrated into ClaimCenter. Large customers are also building on their successful cloud deployments to add other lines of business and significantly step up their direct written premium commitments. For example, a top 20 commercial insurer extended ClaimCenter to more commercial and specialty lines for greater scale and efficiency, significantly increasing its DWP commitment as it works to consolidate the collection of legacy core systems that they currently support. And in Q2, we had another win at Zurich Germany, which is a direct result of the partnership and strategic framework agreement we have with Zurich. We have also worked hard recently to widen the breadth of our core offerings to address more of the insurance life cycle. With the addition of PricingCenter, we have an ability to uniquely address the growing demand for pricing and rating agility in insurance markets. I am encouraged by the high customer engagement for this new integrated offering and pleased to have closed our first PricingCenter deal in the second quarter. We've also worked over a long period of time to embed intelligence into our Guidewire Cloud Platform and InsuranceSuite applications, and it's great to see strong adoption momentum in our data and analytics portfolio. In the second quarter, we closed 25 deals that included one or more of our data and analytics offerings. Our new embedded AI solution, ProNavigator, also got off to an incredible start with 9 deals in the second quarter. Notable deals included Aviva Canada and Gore Mutual who want to leverage this agentic assistant to deliver answers, suggestions and ultimately, actions embedded right in our core UI. ProNavigator leverages InsuranceSuite data and insurance standard operating procedures to increase employee efficiency and minimize claims leakage. These results reflect demand not only for core modernization, but for the expanding application portfolio that surrounds it. Momentum in the quarter was phenomenal. And as I said previously, led to ARR growth of 22% Growth in fully ramped ARR continues to outpace reported ARR growth as it has over the past 3 fiscal years, and we expect that to continue this year. We are seeing larger deals and longer deal terms, reinforcing the durability of our platform and the strategic commitments customers are making. Broadly speaking, AI for us is immensely beneficial and driving an acceleration in our business. It's helping create demand for core system modernization. It's helping us accelerate our development velocity. It's helping us accelerate our implementation velocity and will accelerate everything that customers and partners do with Guidewire. We will incorporate AI-powered agents powered by ProNavigator into our applications and continue to support an open approach to the incredible ecosystem of partners building solutions in and around Guidewire. Guidewire is an indispensable part of a highly regulated global industry. We operate a mission-critical infrastructure with premium aligned pricing, core renewal rates above 99% and a culture built around customer success. That combination has produced 25 years of durability and predictability, and we believe it positions us well for decades to come. With that, I'll turn it over to Jeff to walk through the financial details and our updated outlook. Jeffrey Cooper: Thanks, Mike. Q2 was another tremendous quarter. We surpassed the high end of all of our financial outlook targets, and we are raising our full year targets across the board. Given the market backdrop, we thought it would be helpful to give a few incremental one-time disclosures to help investors understand the durability of our model. First, ARR ended at $1.121 billion and grew 22% year-over-year or 21% on a constant currency basis. Additionally, fully ramped ARR ended Q2 at $1.42 billion and fully ramped ARR growth continues to outpace ARR growth. Our market experience has taught us that we can maximize customer alignment and lifetime value by negotiating ramped subscription fees over a multiyear period. We quantify the impact of these ramps in our metric fully ramped ARR, which only quantifies the first 5 years of a contract. We typically disclose this metric annually, but thought it would be helpful to remind investors of the power of this dynamic this quarter. Second, we continue to see customers lean into longer-duration contracts and larger commitments. This shows up in a number of metrics. For example, the average contract term over the last 12 months for new InsuranceSuite deals is over 6 years if you look at the weighted average duration weighted by fully ramped ARR. We have seen this metric increase over the last 18 months as larger customers push for longer contractual commitments. As a reminder, our standard contract duration for new cloud arrangements is 5 years. This dynamic is further evidenced by RPO growth. RPO finished the quarter at $3.5 billion, representing 63% year-over-year growth. We generally do not talk too much about RPO because we tend to focus on the powerful recurring elements of our model, such as ARR and fully ramped ARR. But in the current environment, we do think RPO is a helpful reminder of the durability of the business. Third, large customers are one of our fastest-growing cohorts. We have seen customers with more than $5 million in fully ramped ARR grow from 35 in 2021 to 96 at the end of Q2. It is gratifying to see the largest insurers trust Guidewire to manage their mission-critical operations at an accelerating pace. Finally, as Mike noted, we see renewal rates at all-time highs. On a trailing 12-month basis, InsuranceSuite ARR retention, including all downsell activity was over 99%. More interestingly, I went back 5 years and I reviewed every customer churn event involving more than $1 million of ARR. It was easy to do because there's a very small number of these. Those churn events fall into three categories: First, customers that experienced financial distress or exited the line of business where they use Guidewire; second, a single instance where an acquisition drove churn; and third, a contract we terminated following our decision to exit Russia after the invasion of Ukraine. Importantly, over the last 5 years, we have not seen a single InsuranceSuite customer with more than $1 million of ARR choose to replace Guidewire with another system, except where that change was effectively mandated by an acquirer. Again, we thought it would be helpful to provide some of these incremental disclosures this quarter given the backdrop. Now let me turn to the results. Total revenue was $359 million, up 24% year-over-year and above the high end of our outlook. Subscription and support revenue finished Q2 at $237 million, reflecting 33% year-over-year growth and our continued InsuranceSuite Cloud momentum. Services revenue finished at $62 million, up 30% year-over-year and ahead of our expectations on strong demand for Guidewire-led services programs. This number includes an increase in field engineering activities delivered through our professional services organization. Now let me turn to profitability for the second quarter, which we will discuss on a non-GAAP basis. Gross profit was $243 million, representing 28% year-over-year growth. Overall gross margin was 68%. Subscription and support gross margin was 75% compared to 69% a year ago and continues to track well ahead of our expectations. Services gross margin was 9% compared to 6% a year ago. We finished Q2 with operating profit of $87 million. This finished ahead of our outlook as both gross profit was higher than expectations and operating expenses finished lower than expectations. We ended the quarter with over $1.35 billion in cash, cash equivalents and investments. Operating cash flow ended the quarter at $112 million. We repurchased $148 million of Guidewire shares in the quarter, and we obtained a new $500 million share repurchase authorization a few days before moving into our quiet period. We have $490 million remaining on this authorization, and we currently expect to complete this repurchase program before the end of our fiscal year. Now let me go through our updated outlook for fiscal year 2026. Starting with top line, given our performance in the first half and our continued healthy pipeline, we are raising our ARR outlook to $1.229 billion to $1.237 billion, which reflects growth of 18% to 19% year-over-year. For total revenue, we now expect between $1.438 billion and $1.448 billion. The midpoint of our revenue growth outlook is 20%, up from 17% growth assumed in our prior outlook. We expect between $962 million and $966 million in subscription and support revenue. This $16 million increase in our guide at its midpoint is attributed to the subscription line and is due to stronger-than-expected first half bookings, healthy direct written premium true-up activity, strong attach of new products and a robust pipeline in the back half of the year. We now expect services revenue to be approximately $255 million given the better-than-expected services revenue in the first half, our higher utilization rate and an uptick in demand for Guidewire-led key programs. Additionally, we are leaning into some field engineering programs where our services personnel are helping customers utilize Guidewire Cloud Platform and leverage newer agentic capabilities to solve business problems. This is an important motion as proximity to the customer has always been a strategic asset for us. Turning to margins. We are increasing our expectations for subscription and support gross margin to be approximately 74% for the year. We expect services gross margins to be approximately 13%. Overall gross margins are now expected to be 67% for the full year as higher subscription and support gross margins improve the overall gross margin. We are also lifting our outlook for operating income. We expect GAAP operating income of between $100 million and $110 million and non-GAAP operating income of between $293 million and $303 million for the fiscal year. This updated profitability outlook recognizes the higher revenue outlook and is partially offset by higher expenses as a result of increasing our annual bonus accrual due to expected outperformance on key financial metrics. We expect stock-based compensation to be approximately $185 million, representing 15% year-over-year growth. We are adjusting our expectations for cash flow from operations for the year to be between $360 million and $375 million. Our CapEx expectations for the year are between $30 million and $35 million, including approximately $18 million in capitalized software development costs. Turning to our outlook for Q3. We expect ARR to finish between $1.144 billion and $1.150 billion. As a reminder, the timing of ARR landing from backlog is more heavily weighted towards Q4 than Q3 this year. Our outlook for total revenue is between $352 million and $358 million. We expect subscription and support revenue to be between $239 million and $243 million and services revenue of approximately $60 million. We expect subscription and support margins of approximately 74%, services margins to be around 12% and total gross margins around 67%. Our outlook for non-GAAP operating income is between $59 million and $65 million. In summary, we had a tremendous Q2. Alex, you can now open the call for questions. Alex Hughes: Our first question is going to come from Adam Hotchkiss at Goldman Sachs. Adam Hotchkiss: I guess to start, Mike, I appreciate all the clarity on the core continuing to accelerate, but it would be great to understand how you think about what Guidewire's position in the broader AI stack looks like over the medium term. We hear a lot about competition outside of the core from forward deployed engineer models and disruptors deploying LLMs on insured data. So just maybe clear up for folks Guidewire's strategy as it relates to owning AI versus enabling AI and then how that impacts your revenue opportunity. Mike Rosenbaum: Great question. I appreciate it. And I would definitely say that it would be quite a bold statement for us to say we're going to own AI in the insurance industry. What we're going to own in the insurance industry is core systems that I am very confident in. We see that momentum, and we see that insurance companies need to modernize. They need these core stacks to work effectively. There's plenty of insurance companies that need Guidewire to own the outcome with respect to AI capabilities. But running an open model where we see other companies that are going to use other components from other AI technologies in and with Guidewire, it's absolutely part of the medium-term outlook. And I think that this is really very, very important to understand. I have had numerous conversations with Tier 1 CTOs and CIOs in our customer base over the past couple of months. And every single one of them stress to me that they expect there to be a mix of how they deploy these solutions in their environments. At the smaller companies and at the smaller divisions, more of this will come from Guidewire; at the larger companies, some of it will come from Guidewire and some of it will come from partners. This is going to -- this is an incredible time in technology. And I absolutely want to stress that where we are one of one, I think, is in the perspective that we're going to be the most trusted, scalable, reliable core system that you can do anything you want with respect to AI and Guidewire. Now like how do we -- how does -- what you say, what parts of this do we want to do very well and maybe someday own, I'll give you a little bit more detail. We're super excited about the momentum we have achieved with ProNavigator in the very first quarter that it's really been part of the company. We highlighted the deal activity. We highlighted the deal activity at pretty significant real customers that are deploying ProNavigator as a mechanism to deploy artificial intelligence-powered solutions directly to the place where people are using the systems. So we can provide this context from what they're accessing inside of Guidewire. We compare it with standard operating procedures and the recommendations that they would make to those end users, and we can use an LLM to serve that to the end user in a way that's helpful, in a way that like makes that person an expert, and we love the momentum that we've achieved there. As we said in the prepared remarks, we are seeing demand for and doing a lot of let's call it, forward-deployed services where we are working with our core customers to look at what's possible with respect to Guidewire technologies and these large language models that are available now and can be applied to insurance outcomes. We're super, super excited about this. But I would definitely stress like the two characteristics or maybe three characteristics of my answer. Number one, we're the right choice for core systems. There's no doubt about that. Number two, we will do more with AI and ProNavigator is a great example. We will do more with our services organization and technologies that come from Guidewire, but we will definitely be part of what I think will ultimately be a relatively complicated enterprise architecture that will be established at each insurance company based on their strategies and their goals. And no matter what, we will be open and we will provide a platform that gives our customers choice. Hopefully, that gives you a sense, Adam, of how we're thinking about this. Adam Hotchkiss: Okay. That's great, Mike. Really, really helpful. I wanted to then pivot to the core. I know we've talked about 25% or so of premium flowing through Guidewire today. And it feels like AI is may be moving customers into the cloud more quickly if your fully ramped ARR is accelerating off of the 22% in fiscal '25. So what's your updated view on the pace that premium moves into cloud and where Guidewire's penetration ultimately gets to over the medium term? Mike Rosenbaum: Thanks for the question. I would say it's definitely improving. And as you heard us talk about with respect to the results so far this year, the results in the quarter, the visibility that we see into the back half of the year, both for new business and expansions and specifically larger deals at large Tier 1 and Tier 2 insurance companies. This is just extremely positive for our business. that's what gives us the confidence to be able to update our outlook. How that relates exactly to the percentage points of global DWP that flow through Guidewire, it's very difficult for us to say or project that. I don't really run the business that way. We look at it more from a net new ARR and net new fully ramped ARR perspective and the specific workloads, the specific lines of business that exist at each of our customers in each of the geographies that we support. And then we look at it in the end of the year, and we report that out, obviously, kind of at a yearly basis, how we've done. But certainly, it's increasing. And certainly, we see demand increasing. And I think demand is increasing because of the potential that everyone sees in generative AI. They see what they can do. Like I think you guys have all heard me say this before. What's so startling, what's so special about this technology is every single person that wants to can see how powerful it is because we can all use it in our consumer lives. Like we can all touch it, we can feel it, we can ask it questions. And then you can just immediately see, "Oh, wow, I can use this in my company." But you can only use it in your company if you're running on a modernized core system. If you're running on a core system from Guidewire with APIs that you need, with the MCP servers you need, with the partnerships that you need, that's what really unlocks this, and that's what's driving the momentum in the business. That's what created the quarter that we saw. That's what's giving us the confidence to raise the guidance for the year. Alex Hughes: Our next question comes from Ken Wong of Oppenheimer. Hoi-Fung Wong: Fantastic. Very clear, very assertive statements on the AI front today, Mike. I think those were fantastic. I won't belabor the point too much since I'm sure my peers will. I wanted to maybe focus on new products. You mentioned good customer feedback on PricingCenter. You signed your first deal. Would love to get some early comments in terms of what you're seeing in those engagement, in those conversations. And then any update on whether or not there's some traction on the underwriting side? Mike Rosenbaum: Yes. Thank you very much for the question. So PricingCenter is super interesting because what we're seeing is people really leaning in and wanting to engage with us to talk about what's the vision and specifically, how is it going to be integrated into PolicyCenter. So for a Guidewire customer that's running PolicyCenter, there's just this obvious connection between the product model, the way that we define the product model and how that relates to what the actuaries are going to use to be able to create the products that they need, how it connects to our data platform and to be able to provide the data they need, to create the models they need, to stay current, to compete, to adjust to what's going on in the market. There's a lot of engagement there. This is a deal cycle that's kind of long, though, right? This is a thoroughly researched, thoroughly studied. Sometimes there's a POC associated with these deals. And so it's kind of more similar to our core sales process where, hopefully, as we said, we closed one deal that was like more than 10 years. Hopefully, those deals won't last 10 years. But it is something that's going to take us a little while to build. We were excited to get that first deal done, but we're also excited about the amount of pipeline and the amount of engagement that we're creating for PricingCenter and for us to start to participate in this segment of the market. It's very, very exciting. And then you asked about underwriting. Like on the underwriting side, we're still in the process of working with a small subset of customers that have expressed interest in really developing with them a solution that maps to what is really just honestly a very, very fast-evolving approach to agentic underwriting, let's call it, is what exactly does that need to do with respect to receiving submissions from brokers and how do we map that to risk appetites, and then how do we ultimately map that to PolicyCenter. Lots of excitement and engagement in the market around this. We're excited about the product. And I expect over the next couple of quarters to be able to start to get this into production with a couple of customers and learning fast and evolving from there. Hoi-Fung Wong: Fantastic. Really appreciate the color. And then, Jeff, just a quick question on the true-up comment, I think you mentioned still seeing some tailwinds from true-up activity. I think we on the outside probably worried a little too much that as DWP normalizes, you really wouldn't see any of that activity anymore. Help us kind of walk through the mechanics of kind of how that continues to be a tailwind for the business. Jeffrey Cooper: Yes. Thanks, Ken. Yes, we did see healthier true-up activity than we initially expected going into the quarter. That was a little bit of a tailwind in Q2. I think as we think about the remainder of this year, it's generally aligned with how we've talked about this over the last few quarters. We saw a very healthy backdrop coming out of the kind of high inflationary period that is tempering a bit, but we continue to see this activity. And the way it works is customers have premium baselines in their contract. And it's always been part of our model that as customers grow, they pass those baselines and then we have the right to effect a true-up order. It's not uncommon for some customers to buy a bit more premium than they initially need. So it may take and in certain cases, a few years to see a true-up order after an initial purchase. But we see pretty regular volume of this. We have enough of this in our model now that we can be pretty precise in our predictions. And this year, we do still expect it to temper a little bit off of the highs that we experienced a few years ago, but saw a bit of a tailwind in Q2 and the back half of the year looks pretty much aligned with how we expected it. Alex Hughes: Our next question comes from Rishi Jaluria from RBC. Rishi Jaluria: All right. Wonderful. Maybe I want to first start by following up on kind of the earlier question around perceived competition from AI. We've obviously seen both OpenAI and Anthropic announced kind of deals with some of the leading insurers. But at least on first glance, it seems like it's very much complementary and maybe even potentially additive to what Guidewire core and even some of the add-ons are doing. So I want to maybe understand how are you thinking about your ability to partner and work with the large LLM vendors and ultimately just drive greater customer success within the insurance industry? And then I've got a follow-up. Mike Rosenbaum: Super, super question. We absolutely see this as additive and helpful for Guidewire overall and the acceleration in the company. We have always run a very open approach to our products and to our ecosystem. We've always invited multiple parties to the ecosystem because we cannot and do not imagine that we're going to do everything for every insurance company everywhere in the world. Now obviously, Anthropic and OpenAI have this access to this incredible technology that has obviously changed and will continue to change the world. But we don't imagine that the work that they're doing is targeted at the deep, deep specific complexities associated with operating a core system in the insurance industry. And we think that leveraging the capabilities that these tools provide these LLMs or even these like desktop applications that sit on top of their LLMs, they're going to be most beneficial when connected to well-structured insurance processes running on modern core systems from Guidewire. And so we're very, very open to working with these companies. We're very open to working with our customers who have partnered with these companies around solutions that connect them to Guidewire. And like I said -- in the script, I said it a second ago, we see this as net beneficial to Guidewire because what you're going to be able to do with the Guidewire core system that's deployed, your operations are modernized, your operations have these connection points that these systems need. This is going to allow these companies to accelerate. This is going to allow these companies to become more efficient. And so we don't see this as competitive. We see this as additive to the overall demand in the industry for what we can provide. I think Rishi, John wants to say something here. John Mullen: Yes, I'll just add a quick point. There's -- tied to your question in all of that context is the fact that insurance carriers and leaders of insurance companies are under a tremendous amount of pressure to drive pace themselves. So the ability to differentiate in the market that they compete in and sustain differentiation is under a tremendous amount of pressure right now. So the ability to work more proximate with them, solve problems with them and increase pace of innovation on top of the service and also increase speed to value in the way that they get to that first cloud implementation and consume products and services that we deploy, and also, to Mike's point, have the open architecture where they can do things over the top of that at the pace that they want to and need to stay differentiated is really driving a conversation with these carriers and leaders in insurance companies that get us every day closer to them, and that's what I'm most excited about is continuing to drive that proximity. Rishi Jaluria: All right. Really helpful. Maybe just a quick follow-up. As we think about your kind of own internal AI development, your own kind of ability to bring AI to your customers, recognize you're dealing with a highly regulated industry where it could take a while to get that meaningful adoption. But the question I'd like to ask is, as you think about -- a lot of the focus is on efficiency, but do you see an opportunity to maybe even drive better revenue outcome and ultimately better customer outcomes for the insurers, leveraging AI? And what would that look like with your current roadmap? Mike Rosenbaum: Sorry, I want to make sure I understand. You mean better revenue outcomes for our customers? Rishi Jaluria: Well, specifically that the insurers can generate better revenue outcomes, right, whether it's being able to have better quotes or service more customers and ultimately, the end people being insured get net benefits as a result. Mike Rosenbaum: 1,000%, yes, okay? The insurance industry is an incredibly complicated thing, right, if you zoom out. It is structurally been sort of hamstrung by the amount of unstructured information and data that needs to be managed in order to effectively and efficiently conduct the art of insurance. And large language models attack this directly. They address this directly. So you can underwrite more efficiently, which means that you can look at more risk. You can evaluate more risk more quickly. You can manage claims, the input of the submission of documents and the conversations that you have to have with all the multiple parties can be analyzed more effectively. And so it's like those two examples are sort of like tiny little bits of why the underwriting process is going to become more effective and the claims management process is going to become more effective. And I think ultimately, the insurance industry, the insurance machine is going to become more efficient, which is beneficial to insurance companies and to the broader society and our economies. Like the insurance industry with generative AI, and I think this is why everyone is so excited about focusing on these kinds of partnerships with these big insurance companies is there is a significant potential to improve its efficiency overall, which, like I said, it will be -- I don't want to say revenue, but I would just say like the efficiency of these companies is going to improve. And we're excited to be a part of that, driving that and making that possible along with a lot of other companies, along with Anthropic, along with OpenAI, like there's going to be a lot of people that are focused on helping the insurance industry do this. Like John said, our customers are excited about the potentials here because for so long, you're sort of limited to the technology capabilities at hand. And now you have this new tool that understands natural language and can be taught to do things like underwriting and claims. It's really significant. So basically, 1,000%, yes. John Mullen: I'll just hit on the daisy chain of kind of product strategy because one part of your question was product strategy. So on top of the core operating system, if you think about the pressure points, our customers need pricing agility, therefore, PricingCenter. That's why we take that step. Product speed to market is the next thing in that daisy chain that drives competitive differentiation for them, therefore, advanced product designer. And broker efficiency and effectiveness is the thing that's probably up for the most amount of transformation and disruption and enablement given LLMs and the models available and therefore, UnderwritingCenter. So it ties very closely. The investments we're making in the product strategy ties very closely to those things that are driving differentiation for our customers that sit on top of the core processing environment. So the fact that the core processing environment has an opportunity to continue to gain market share by line of business specificity and geographic specificity because of the rate at which we can deploy products and the components that we're putting out over the top of it, I think, are really good proof points for our strategic resilience inside of our customers. Alex Hughes: Next up is Joe Vruwink from Baird. Joseph Vruwink: Great to hear about the urgency to modernize. I maybe wanted to ask about the pace around that modernization. And there's been a lot recently even COBOL got its time in the sun a few weeks ago on maybe AI tooling, making it easier to translate. I don't think necessarily the translation of COBOL is the challenging part, but I want to get your take on just modernization timelines more broadly and whether Guidewire has the ability to maybe accelerate time to value because of their AI usage. Mike Rosenbaum: Yes. I'll give you a quick take on this, and I think John is probably going to want to add some -- his perspective on it. Yes, we're definitely working hard to ensure that our teams that are working on these migrations, both from on-prem Guidewire to cloud, but also the modernization projects are more and more efficient. And we're starting to see the early results of this in the actual projects. There's like a whole litany of different steps that are involved in one of these programs, and many of them can be enhanced and potentially even completely automated with generative AI. And so reducing that time line, increasing the pace of that, therefore, reducing the cost of those programs also helps us make an argument about modernization now. This is definitely an exciting component of the story at Guidewire. I would caution, though, that there is a certain amount of, hey, this is running on legacy code and this is running on a system that we can't support anymore. So this like one-for-one translate into something that's more supportable. I think that's an okay step. But it really doesn't get to what is very often a major important part of the modernization, which is rethinking your business process, rethinking your products, rethinking your approach to doing business, which is often part of a modernization. And that's what you really need to engage with companies like Guidewire and our ecosystem of SIs to really help companies work through that and get to a system that's modern, but also an operation, a business workflow, a set of new standards that really kind of set the company up for their go-forward operating model. So it's more than just the conversion of the code, but it's really the modernization of all of the activities inside of an insurance company. John Mullen: Yes, I'll add the -- if we think about where we were maybe 2 quarters ago, and you got to think -- we have to think about this as the investments that Guidewire is making in our professional services team and multiplied by the investments that the SIs are making in their teams. And if we go back 2 quarters, there was a lot of investigation, a lot of discovery, a lot of proofs of concept, a very wide funnel of activity. That is starting to narrow over the last 2 quarters. We're starting to see some green shoots of some really impressive kind of percentage reductions of time to value. And the next step for us is to really continue to increase the velocity of those proofs of concept and early test cases to be rolled out as standard operating procedures in these programs. But there's an important additional step, which is rationalizing that with the SIs because I think, certainly, I've been in conversation with all of our SI partners. And there's no world where we want to be competing tool-based in what it takes to drive speed to value on cloud. So we'll be doing some rationalization with them and making sure that the tools are consumable by the customer base. Joseph Vruwink: That's great. And then, Jeff, one for you. I appreciate the midyear disclosure on fully ramped ARR. I'd have to imagine there's seasonality in that number, just given the deal volumes in 4Q creating some second-half weightedness. Can you maybe frame how much of a given year's net new fully ramped ARR happens in the first half versus the second half? Jeffrey Cooper: Yes. I think there's -- obviously, you guys understand our business. You know that our seasonality is 4Q weighted. 2Q historically is our second strongest quarter, and we saw a very strong 2Q for us, and that flowed through to some healthy additions on the fully ramped side. But you'll have to wait until Q4 to get full gratification on that question. So -- and we'll certainly talk about it in the fourth quarter call. Alex Hughes: Our next question comes from Parker Lane at Stifel. J. Lane: Jeff, I appreciate the disclosure on ARR retention rates and the commentary on how a few million dollar-plus churn events you've had in recent years. Looking at the remainder of this year and more importantly, maybe your midterm targets, what sort of assumptions do you make or cushion do you bake in around ARR churn? Do you anticipate that things remain relatively consistent with historical trends? Or are you accounting for some incremental conservatism there? Jeffrey Cooper: Yes. I appreciate the question. And given our business, this is an area of strength of ours. We -- the assumptions are as we go bottoms up in every single account and have really good visibility into any sort of potential downsell risk that exists in our accounts. And the team flags all of those throughout the year. Usually, when we start the year, we have a good read. And so we kind of do that. And we try to be pretty conservative and cast a wide net on kind of how we think about potential downsell events. And then we usually end up performing better than some of those -- that wide net that we initially cast. But this is not kind of a top-down model assumption exercise for us. This is a very bottoms-up, customer-by-customer, account-by-account exercise for us. J. Lane: Got it. And one quick one on ProNavigator. I believe last quarter, you said you were expecting $4 million of ARR and $2 million of revenue, 9 deals in the quarter. How is that trending relative to those expectations that you outlined last quarter around? Jeffrey Cooper: Trending positive to those expectations. I mean I was not expecting 9 deals in the first quarter. So we're thrilled with that progress. And we can think about how we will disclose that moving forward. But you should think about it as right now trending ahead of expectations. Alex Hughes: Our next question comes from Michael Turrin at Wells Fargo. Michael Turrin: I wanted to spend some time on the commentary on duration increasing. It certainly seems positive in terms of willingness of customers to commit to Guidewire. Maybe just speak more to what's leading to that longer duration. Are you finding core replacements show up as a prerequisite for some of the kind of longer-term AI-focused initiatives insurers might be looking at? Or what drives that? And as a small second part, Jeff, you referenced the backdrop is why you're giving some of the incremental disclosures, which we definitely appreciate. Is that just the software market backdrop you're referencing because your results seem generally unfazed here. So maybe just help frame why the incremental disclosures for us as well. Jeffrey Cooper: So on the first question, yes, this is 100% just because of the software market backdrop. And we felt that in that backdrop, some of the durability elements of our business were being missed. And so we thought it was a good time to lean into some of these disclosures that provide a bit more durability. I think Mike will probably jump in here. But on the contract duration, we always engage -- have always engaged in longer-duration contracts. There was a period of time when we transitioned to ASC 606, where we actually forced shorter contracts on our customers. And as we move to the cloud, our standard has been 5 years. In the early part of the cloud, if you look at duration, it was a little bit lower than 5 years. We saw testing the waters, wanting to explore smaller deals and see how it goes. And now with the maturity of the platform, kind of where we are on this cloud transition side of things, we have seen that willingness to lean in and make longer commitments, that trend has increased. And then if you look at the largest customers, in particular, the ones that are making really big bets on Guidewire, often that impulse is to move even beyond our standard 5-year terms and pursue a longer engagement. And we've seen that activity kind of more recently over the last 18 months increase. Mike Rosenbaum: Nothing to add. I think you got it exactly right, Jeff. Alex Hughes: Alex Sklar from Raymond James. Alexander Sklar: Mike or John, following up on Ken's question on PricingCenter and ProNav and some of the early success there. Can you just reframe how you expect the adoption curve to trend and sales cycles you've seen based on what you've seen to date? Were these particular deals in the pipeline prior to the acquisitions? And maybe, Jeff, how did those initial deals look like in terms of uplift on ARR? John Mullen: So I'll hit the -- I'll go on the first part and then Jeff can pick up the second. If I think about the ProNavigator deals, the adoption curve in claims, we're seeing the pipeline that's accelerated there has really been as that team came into the fold. And I just should say, while I'm on this call, I couldn't be happier with how that team has joined. The culture fit is great. The energy is exceptional. But as we think about our ClaimCenter customers that are on cloud, the receptivity to have the right conversations and start laying down tracks for what that looks like is what's really driving the acceleration there. There are conversations in underwriting as it pertains to ProNavigator, but the acceleration is really coming in the claims space. The PricingCenter piece, Mike mentioned a little bit earlier, which has a lot to do with those that are PolicyCenter customers and the integration of PricingCenter into PolicyCenter is something that drives a tremendous amount of value and a tremendous amount of appetite right now for the conversations. There are a lot of proof points. It is a big decision. Every one of these customers has some variation of pricing and rating inside their environment, whether it's ours or somebody else's. And so really testing the waters on that and pushing through some proofs of concept is important. But those customers that are driving pricing -- that are driving policy admin solutions that sit on Guidewire are really very interested in proving these things out and looking at potentially large and long-term commitments. There is going to be a lot of work to do to make PricingCenter fit all regions, all lines of business. So that's going to be something that we look at a lot of investment in over the next quarters as we go forward. Jeffrey Cooper: Yes. And on the ARR side, we haven't spoken too much on this topic other than to think about PricingCenter as a pretty meaningful ASP product. It's a little bit of a longer sales cycle. These are big investments that customers will make in that product. So we expect that pipeline to kind of build and transact a little bit slower, but be more meaningful and impactful. On the ProNavigator side, those are smaller price points at this point in time. But at this point in time, that tool or that product is primarily looking at standard operating procedures of an insurer. And it is our expectation to evolve that into other content areas that would increase the value of that product over time. So I think the price points that we're seeing today are nice starting points and when we should expect to grow those over time. Alexander Sklar: Jeff, maybe just a quick follow-up on Joe's fully ramped ARR question for you. I appreciate some of the unknowns around seasonality given the larger Tier 1 customer base. But in the first half of this year, was there anything in the fully ramped result outsized contributor either in terms of steeper ramps or larger migrations that kind of is abnormal for a first half for you? Jeffrey Cooper: It was an abnormal first half for us just in the fact that we -- the volume that we saw, some of the large deal volume that we saw was very, very exciting. We hope to continue to build on that. So I wouldn't say there was anything unnatural, but we are continuing to see the momentum build. There are a number of -- in the first half deals that were longer than even the 5 years. And so there's even some backlog that is kind of off of that fully ramped ARR metric. And all of this is just kind of continued momentum that we're seeing in the business. Last year, signing Liberty Mutual was a big event for us. And so that creates a somewhat difficult compare. But as we look at the pipeline for the remainder of this year, we have a lot of really interesting activity out there. So it's always hard to predict exactly when those larger deals will come in, but we're thrilled with the pace and we're thrilled with the traction, and we're thrilled with the pipeline. Alex Hughes: Our next question goes to Allan Verkhovski at BTIG. Allan M. Verkhovski: Mike, given the speed and innovation of what's possible from a coding perspective with AI, you've gone through a lot of investments over the years. You talked about demand for deployed services. Where are you making changes or leaning in more as it relates to your product roadmap? And how are you further adjusting it, if at all, your expected developer count growth over, call it, a multiyear basis? Mike Rosenbaum: Great question. So we're in the process, as you could probably imagine, of rolling out agentic development tools, call it, a harness that works effectively for Guidewire developers. And I should say for the folks in our professional services organization, the folks in our SI ecosystem and all the customer developers, we fully expect that these agentic development tools will be leveraged by our devs and everybody that touches Guidewire from a software development perspective. And -- for sure, we see this increasing pace over time for what we can deliver. We're a little bit early days to that approach, but the anecdotal feedback from the sort of first movers and the people that have really put their hands on these tools and figured out how to use them effectively is extremely positive and gives me a lot of confidence that the development velocity at Guidewire over time will increase, right? So then that brings up logical questions that like I had that you are asking me right now, which is, okay, well, what's our long-term backlog look like? And what are the ideas and things that we need to be putting into this product over time with this increased capacity? We've been in the process for the past few months is just reevaluating those roadmaps based on the assumption that possibly we will see this or likely we will see the throughput increase. I'm excited about the potential to increase this throughput. It's like a side benefit of all of the work we've done to move our customer base to our cloud. It's like now we have this -- we have a vehicle in the cloud-based installed base and the three releases we're doing every year to take the new functionality that we're building and put it in and get it into our customers' hands. It's like this incredible, I don't know, circumstance that this lines up, right, when we've got more than half of our customer base move to cloud. And I think that also provides another reason for the on-prem customers to think about accelerating their time lines to cloud. But the roadmap pretty vast, pretty long. You say, hey, I'm very confident in our position in the market today, but do we have a big BillingCenter roadmap? Yes. Do we have a big PolicyCenter and ClaimCenter roadmap? Yes. Are there a whole bunch of things that we could do to make the products better, to make the products easier to install and easier to configure and easier to integrate to other systems. There is so much more that we can do. And I wouldn't -- so I wouldn't say it's infinite, but I'm very confident that we have a product roadmap around the existing product portfolio that is very sufficient and is going to continue to deliver value to our customers now at a faster pace, but for years to come. And so the question about are we thinking about this from a -- are we thinking about generative AI from a software development perspective? Is it an efficiency play? Or is it a value play? Right now, I'm very much thinking about it as a value play. I think that we can take the developers that we have that know Guidewire, right? They know the technology stack and the cloud technology stack at Guidewire, and they know the insurance industry and they know what to do and we can accelerate. This is going to create more value for Guidewire, and it's going to help us continue the pace or maybe hopefully accelerate the pace that we've established with cloud. And so that's how I'm thinking about it in the short to medium term. Allan M. Verkhovski: Perfect. That's really insightful, Mike. And then, Jeff, just as a quick one for you. Can you just stack rank the areas of outperformance in the quarter as it relates to the ARR beat? Jeffrey Cooper: Yes, it's a good question. I mean I think in general, as I build my ARR model, there are the key elements that I need to see come to fruition. One is new deals in the quarter that then translated to ARR. The next is how much ARR is going to come off of the backlog. And the third is how much attrition events occurred. And we have really good visibility into the ARR that comes off of the backlog. We have really good visibility into those attrition events. And so those both performed largely in line with expectations. And then -- so then it's the new sales activity that we executed and delivered in the quarter is what drove that outperformance. A little bit of that we kind of called out was also some -- a bit higher true-up activity, but most of it was just the deal volume in the quarter, and then how that deal volume translated into year 1 ARR. Now within that, I think we saw a very healthy mix of kind of new customer wins, migrations, expansions into new areas within existing customers. And so that new sales momentum was pretty broad-based. John Mullen: The other dimension to look at is geographical. So geographical line of business. So good spread across personal lines and commercial lines, which we're happy that continues to be a nice balance for us. The team in Europe continues to drive really solid activity and influence in the market showing up every day in the culture and the business of the countries that make up Europe and the U.K. And then our Asia Pac business continues. We were in Sydney last week with a lot of customers, and I'll just go back to the ProNavigator question. The receptivity, so many of those customers have -- are in the process of or already on cloud. Therefore, their appetite for consumption is just really -- it's a really powerful conversation. And so the Asia Pacific team continues to drive, I think, really solid market activity as we build out that leadership team, and we're really seeing that connection get stronger every quarter. Alex Hughes: Okay. Great. We have time for a couple of more questions here. Next is Aaron Kimson from Citizens. Aaron Kimson: First one, there are about 90 Tier 1 P&C insurers today. Guidewire has 96 customers with fully ramped ARR greater than $5 million. How should we think about how many of your customers exceeding $5 million in fully ramped ARR today are Tier 1s? And how far down that TAM pyramid on Slide 5, do you actually have $5 million-plus FR ARR customers today? Jeffrey Cooper: Yes. I mean, I'll be honest, I haven't actually sliced it that particular way, but it is not -- it's very reasonable for us to have a number of Tier 2 and even Tier 3 customers that can cross that threshold. So that opportunity to see customers cross over that threshold is maybe broader than you might think. Aaron Kimson: Okay. That's helpful. Yes. And then, Mike, you mentioned strength with the analytics products. In F 3Q '25, you made your first Industry Intel sale within ClaimCenter. Can you provide an update on what you're seeing with Industry Intel, both from the standpoint of developing and validating models for more types of lines? And then also what John and team are seeing on the distribution side with Industry Intel? Mike Rosenbaum: Yes. We continue to make solid progress there. It's a process for -- and it's a little bit of a -- it's not a straightforward software development process. There's a little bit of have an idea about what we might be able to predict, go make sure that we can pull the data sets and clean the data sets and test whether or not there's appropriate signal that's in the data set and then validate that. And so there's a little -- it's a little bit more R&D and research than straightforward software engineering. But we continue to make great progress and steadily building momentum with that team. And so we're very, very happy. I would say we didn't call it out specifically, but sales momentum in the quarter continues to track as expected for the objectives on that team. And I'm very, very happy with that. So it's steadily building, and we continue to be happy with the progress. John Mullen: Yes, I'll just add from a market coverage and distribution standpoint, the ability to demonstrate what that team has built has really crystallized quite a bit over the last couple of quarters. So it really helps in the deal motion. The other side of it is we continue to invest in our account management motion. And when these -- when the Industry Intel deals aren't necessarily tied to a large deal event, we're getting much better at navigating the right buyers inside of our existing customers and now with the demonstrability of those assets to have the right conversations to trigger a much more healthy pipeline activity into existing customers. Alex Hughes: Our last question comes from Faith Brunner at William Blair. Faith Brunner: I know there's a lot of commentary on the pipeline in the back half of the year. But just wanted to touch on maybe how should we think about the different products flowing through the funnel as customers increasingly want to land larger with longer duration. Has there been any shift to the conversations you guys are having or typical sales cycle timelines as people seem to be more eager to standardize on the platform? Mike Rosenbaum: It's an interesting question. I would say, and I'd love for John to comment on this is what we're seeing that's driving the outperformance is more like broad-based larger deals across the board rather than any sort of product mix shift that you might be thinking about. We're just getting basically much more established and establishing much more confidence in this platform as the logical long-term home for core system operations at insurance companies. The AI story, like we talked about, is driving some urgency there and bringing this to the table. But I would really say like the improvement is about larger, longer-term deals rather than product mix shift. We still -- obviously, we called it out. We still see the product mix shift, but like that's not what -- it's really core system, larger core system wins and commitments that's driving the improved momentum. Anything to add, John? John Mullen: Time and stage is the same as it was, but we're starting now as we build out our portfolio, some of our portfolio will have a very different stage aging profile than the core processing space. Mike Rosenbaum: Okay. Well, thanks, everybody. It was obviously a great quarter. We're incredibly excited about it and look forward to talking to you all over the next few weeks and months. Otherwise, we'll see you at the end of Q3. John Mullen: Thank you.