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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.
Operator: Good afternoon. Thank you for attending the Owlet Q4 and Full Year 2025 Earnings Conference Call. My name is Matt, and I'll be the moderator for today's call. [Operator Instructions] I'd now like to pass the conference over to our host, Jay Gentzkow, Investor Relations. Jay, please go ahead. Jay Gentzkow: Good afternoon, everyone, and thank you for joining us. Earlier today, Owlet released financial results for the fourth quarter and full year ended December 31, 2025. I'm pleased to be joined today by Jonathan Harris, Owlet's President and CEO; and Amanda Twede Crawford, our CFO. Before we begin, please note that our financial results, press release and presentation slides referred to on this call are available under the Events and Presentations section of our Investor Relations website at investors.owletcare.com. This call is also being webcast live with a link at the same website. The webcast and accompanying slides will be available for replay for 12 months following this call. The content of today's call is the property of Owlet. It cannot be reproduced or transcribed without our prior consent. Before we begin, I'd like to refer you to our safe harbor disclaimer on Slide 3 of the presentation. Today's discussion will contain forward-looking statements based on the company's current views and expectations as of today's date. These statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, but are not limited to, those described in our most recent filings with the SEC and in the Risk Factors section of our annual report on Form 10-K as updated in the company's quarterly reports on Form 10-Q and other filings with the SEC. Please note that the company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. With that, it's my pleasure to turn the call over to Jonathan. Jonathan Harris: Thanks, Jay. Good afternoon, everyone, and thank you for joining. I'm excited to recap the significant progress we've been making as 2025 was the strongest year in Owlet's history, and we are positioned for continued outperformance in 2026. I'll begin on Slide #5. 2025 was truly a monumental and transformative year for Owlet, marked by significant growth and expanding our leadership and scale in pediatric health monitoring. The team achieved many milestones and accomplishments, and I'd like to highlight 3 of the most critical. First, the launch of our Owlet360 subscription service in January of last year proved to be a resounding success, fundamentally reshaping our relationship with our customers and our long-term business strategy. We're proud to announce that we have crossed 110,000 paying subscribers to begin March, a testament to the value and peace of mind our connected services provide to families. And we've recently launched our international subscription offering, opening new high-margin revenue streams and extending our ecosystem benefits across borders. The introduction of Owlet360 marked a major milestone in our evolution into a comprehensive pediatric data platform. By leveraging Owlet's massive data set of pediatric health, we're better able to deliver more advanced and personalized health and wellness information for our families. We're excited about the foundation we laid in 2025 for subscription and to capitalize on that momentum in 2026. Second, we launched our new Dream Sight camera in September last year, our next-generation video monitor. Dream Sight levels up our camera platform with greater reliability and security and future forward technologies, including onboard AI capabilities, all at a price point that makes sense. When paired with Dream Sock, it delivers a holistic view of a child's wellness that no other offering can match. We view the introduction of Dream Sight as an important strategic catalyst to expand our LTV as cameras remain in use past 3 years of age. We've seen outstanding momentum since Dream Sight launch, and we're thrilled to begin rolling out our new camera-specific subscription features in the coming quarters, yet another opportunity to increase subscriber growth. Third, in 2025, we achieved record annual revenue, gross margin and adjusted EBITDA, showcasing new heights of financial performance and operational efficiency despite the new tariffs. Last October, we simplified our capital structure via warrant exchange, followed by a successful offering to strengthen our balance sheet, support a path to cash flow independence and provide flexibility for opportunistic growth investment. Owlet's financial and operational health is stronger than ever, positioning us to well execute on our pediatric health growth opportunity and deliver long-term stakeholder value. Owlet's journey to date has been extraordinary, marked by innovation, strategic expansion and a relentless focus on our mission, reaching every baby. Our strategy is anchored in partnering with families during some of the most challenging but rewarding times in the parents journey. We are looking at a demographic of new parents, Gen Z and young millennials, where 60% of the women already own and rely on a connected wearable device. For them, biometric data isn't a novelty. It's a baseline expectation. Owlet is perfectly positioned to capture this audience by bridging the gap between the wearable tech they already use for themselves and the predictive care they want for their babies. Owlet is now a leading family wellness technology beyond just a monitor for parent calm. We use our product suite and massive pediatric data set to digitally translate safety, health, wellness and development patterns. This allows parents to make proactive, informed decisions and establishes a true biometric baseline for babies from night 1. With the rise of AI and advanced monitoring, Owlet's data and ability to deliver actionable insights will become increasingly valuable as children grow. From that larger vision, let' s zone into our fourth quarter 2025 performance on Slide 6. Owlet delivered another strong quarter to cap a record year. We achieved revenue of $26.6 million in Q4 2025, increasing 29.6% versus Q4 2024. Revenue strength was driven by broad-based growth across the Dream product suite and Owlet360 subscription. Q4 revenue concluded a record year for Owlet with total revenue of $105.7 million for 2025, 35.4% growth over 2024. Fourth quarter 2025 gross margins were 47.6%, including a 510 basis point impact from the cost of tariffs. Despite the tariff overhang, full year 2025 gross margins were also a record at 50.6%. Adjusted EBITDA was $0.1 million in Q4 compared to $0.5 million in the fourth quarter 2024. Tariff costs were the primary impact versus prior year's adjusted EBITDA. For full year 2025, adjusted EBITDA was another record for Owlet at $2 million, a $3.8 million improvement over 2024. The strength of our results in the fourth quarter and records across all key metrics for the full year 2025 underscore our confidence in strong performance and growth into 2026. Owlet is very well positioned as a company as we take last year's momentum and aim even higher in 2026. Turning to our strategic growth areas. Our strategy remains consistent from last year, and we have refreshed our priorities to reflect what is most critical in 2026. First, drive global adoption of Dream Sock. Second, expand the Owlet360 subscription platform; third, continue to grow the health care channels. Finally, launch the Owlet onCall Telehealth Platform. Beginning with our core business in the U.S., Dream Sock demand continues to be strong. Dream Sock and Duo demonstrated strong domestic year-over-year sell-through at 9% and 53%, respectively, driven by another strong holiday selling period. We observed an expected shift in sales of individual Dream Socks to the Duo package, which we're pleased to see as Duo represents an expanded LTV opportunity and increase for subscription, giving parents a holistic view of a child's wellness that no other offering can match. Strong customer satisfaction supports this growth as Dream Sock's NPS score to end Q4 was 77 and overall blended product NPS of 72. Registry trends continue to demonstrate Dream Sock is a priority for parents. Q4 showed a 23% increase in year-over-year Dream Sock additions across the registries we track, including Amazon, Babylist and Target. We also continue to gain market share at scale. According to Circana consumer Research and our own data, Owlet expanded our share of total dollars spent on baby monitors to 41% in Q4 2025, up 24% versus Q4 2024 and another record high for market share since we started tracking Circana data. The data also shows our overall category is growing with consumer spending on baby monitors in 2025 with the highest it's been in the last 5 years. Shifting to international. Q4 international revenue reached $3.9 million, closing a record year of $19.2 million, up 27% versus 2024. While Q4 revenue declined year-over-year, this was primarily due to transitioning Amazon U.K. to a direct import model. This operational shift moved the revenue recognition point from the collection to delivery, pushing a significant portion of U.K. sell-in revenue, our largest international market, from Q4 into Q1 2026. International sell-through remains strong with the U.K. up 58%, France up 41% and the Nordics up 80% versus Q4 2024. In Q4, we secured regulatory clearance for Dream Sock sales in India, a major step forward in our planned commercial launch in the first half of 2026. This market is massive with over 23 million annual births. The top 1% alone rivals the size of the United States or European opportunities. We are also pleased to announce that we have received regulatory approval for Dream Sock distribution in Israel, another exciting new sales channel. This gives us another layer of international growth as we plan to launch in the back half of 2026. Dream Sock is a universal product, now sold in 31 countries with 7 regulatory clearances. In 2026, with both India and Israel expected to be on board, we are focused on scaling our current geographies and consistently opening up new regulatory approved global sales channels as we ensure availability of Dream Sock to every corner of the globe. Turning to Owlet360. We continue to drive meaningful progress expanding the value of our subscription platform, which contributed to our fourth consecutive quarter of sequential growth across paying subscribers, MRR, attach rate and retention rate. January 28 marked our first full year since subscription launch and the reception from parents and the performance of the offering has exceeded our expectations. We're proud to report over 110,000 total paying subscribers to begin March. In Q4, we successfully launched Owlet360 in our first international markets, U.K., Ireland, Australia, New Zealand and South Africa. And we plan to continue rolling out subscription capabilities to the balance of our regulatory cleared countries in the coming quarters. As discussed last quarter, nearly all of our subscriber growth since launch has come from a focus around Dream Sock, and we see a significant opportunity to drive increased subscription adoption by layering differentiated camera-based features onto our latest AI-enabled camera platform, Dream Sight and Duo, to drive subscriber growth while extending customer LTV. For example, combining our proprietary biometric data from the Sock with computer vision from the camera to deliver increasingly personalized and proactive experiences for caregivers in upcoming feature releases. We are focusing intensely on integrating AI across all of our platforms, viewing it as a long-term investment to strengthen our competitive edge and better support parents. Our strategic partnership with webAI will accelerate the development of secure, specialized intelligence using our unique pediatric health data set. This enterprise-grade AI infrastructure aims to unlock value for personalized experience and better insights, which we believe will become increasingly differentiated as our data grows. We're excited about the future as we combine AI with our valuable pediatric data built on the foundation of Owlet 360. Turning to our third strategic growth area. We continue to make solid progress in growing Owlet's health care channels. In Q4, we sent our first Owlet monitors home from Children's Hospital of The King's Daughters officially launching this collaboration. Building on the success and foundation we established with CHKD, in the last few months, we have engaged 4 new hospital partnerships. Our work in establishing the consignment functionality and RPM integration with CHKD laid the groundwork to announce these next hospital collaborations soon. We're at various stages of integration and expect to share more information in the near term. We also continue to make important progress expanding our coverage network. We ended the year with 37 states on Medicaid reimbursement, up from 6 to end last year, and we now have 258 commercial insurance carriers, up from 105 from last year, now supporting over 90% of commercial U.S. births. And finally, our last strategic growth area, Owlet OnCall Telehealth. We believe the pediatric telehealth opportunity is a game changer. As we've detailed in the past, there are over $30 billion in pediatric health care costs every single year just in the U.S. and over 90% of those visits are treat in release. By leveraging real-time infant data from Dream Sock and Owlet 360 to provide more personalized actionable remote care, we believe we can make a meaningful impact, improving overall childhealth outcomes and reducing costs for families. We will launch the Owlet OnCall telehealth platform utilizing Dream Sock and Owlet360 to capitalize on this opportunity. This will enable parents to share health vitals, pulse rate, heart rate, oxygen saturation and the 30-day history from Dream Sock during a telehealth visit. This capability is expected to significantly enhance care quality and patient outcomes as traditional telehealth often relies on inadequate visual diagnosis without this crucial data. The first half of 2026 is the time to test, learn and expand on Owlet OnCall. We are still in the piloting stages for our telehealth offering as we want to get the experience right before a full launch scheduled later in the year in advance of the winter flu season. To wrap up, I want to thank and congratulate the Owlet team for a record 2025. I also want to thank our customers and investors for your confidence. The differentiation in our product platform and the leadership and expertise in pediatric health monitoring are a strong foundation to build from as we look to the future. We are laser-focused on sustaining our momentum and continuing to execute at a high level across our strategic growth areas. I'm confident this strategy will translate into long-term durable growth and value creation. Now I'll hand it over to Amanda to go over the financial highlights and our outlook for 2026. Amanda Crawford: Thanks, Jonathan, and thank you to everyone for joining. I also want to thank our employees for another successful quarter and for the terrific execution that delivered our record 2025 performance. I'll begin on Slide 12. Unless noted otherwise, I will be comparing fourth quarter 2025 to the fourth quarter of 2024. Financial results are preliminary prior to our 10-K filing. The fourth quarter was another strong quarter as the momentum continued for Owlet. Q4 revenue was $26.6 million, up 29.6% year-over-year. Revenue strength was driven by broad-based growth across the Dream product suite and Owlet360 subscription. Full year 2025 revenue was a record at $105.7 million, up 35.4% versus 2024, at the high end of our guidance range. Q4 gross margin was 47.6%, including a 510 basis point impact from the cost of tariffs. Full year 2025 gross margin was a record at 50.6%, exceeding the high end of our guidance. Tariff costs impacted our gross margin by 270 basis points for the full year 2025. Moving to the next slide. We have continued to maintain discipline with our operating expenses as we grow the business. Total operating expenses in the fourth quarter were $17.5 million versus $18.4 million in 2024, improving by $0.9 million. As a percentage of revenue, Q4 operating expenses were 66% compared to 90% in Q4 2024 as we continue to drive strong operating leverage. This has led to consistently strong operating efficiency as we manage investing operating expenses behind revenue growth. Our LTV to customer acquisition cost ratio of 4.4% remains low and is poised to improve as we layer on recurring revenues from subscription. From a revenue per full-time employee perspective, we're running a lean and efficient team at $1 million per average FTE. Q4 operating loss was $4.9 million compared to $7.4 million in the same period last year, improving $2.5 million. Net loss in the quarter was $9.2 million versus $9.1 million in the same period last year. Q4 adjusted EBITDA was $0.1 million compared to $0.5 million in Q4 2024. Tariff costs were the primary impact versus prior year. Full year 2025 adjusted EBITDA was a record for Owlet at $2 million and at the high end of our guidance expectations. 2025 adjusted EBITDA improved $3.8 million compared to 2024. Turning to our balance sheet. Cash and cash equivalents, excluding restricted cash as of quarter end December 31, 2025, were $35.5 million, up from $23.8 million in the third quarter 2025. With a portion of the proceeds from the equity offering in October, we paid down $12 million on our line of credit, decreasing to $7 million at the end of Q4. We had $10 million of undrawn availability on the line of credit at the end of Q4, increasing our total liquidity to $45.5 million as of December 31, 2025. The principal balance on our term loan was $7 million at the end of Q4 versus $7.5 million at the end of Q3. We began repayment on the term loan in November 2025, and we expect it to be paid off by January 2028. Shifting to our financial outlook on Slide 16. Following the most successful year in Owlet's history, our 2026 outlook is built on the scale and strength we established in 2025 and centered on continued execution on our strategic areas for growth. For the first quarter of 2026, we expect revenue in the range of $20 million to $21 million, gross margins of 50% to 52% and adjusted EBITDA of negative $2.5 million to negative $1.5 million. Reminder that the seasonality of the business positions the first quarter as consistently our lowest revenue contribution quarter. And also of note, when comparing Q1 '26 revenue to prior year Q1 '25, revenue was especially strong due to a heavy RSV and flu season. We also began investing post offering in Q4 and now in Q1 in additional R&D resources to drive software and services for our Owlet360 subscription and OnCall Telehealth. And for our full year 2026 outlook, we are expecting another record year of growth. For 2026, we expect revenue in the range of $126 million to $130 million, representing growth of 19% to 23% over 2025. Similar to prior years, we're expecting revenue contribution to be roughly 40% in the first half of 2026 and 60% in the back half as we observe our typical seasonality and as subscription revenue sequentially becomes a larger portion of revenue throughout 2026. For full year 2026, we expect gross margins in the range of 49% to 52% and adjusted EBITDA in the range of $3 million to $5 million, representing growth of 50% to 150% over 2025. There remains uncertainty surrounding the volatile tariff situation and the war in the Middle East. As a result, our 2026 guidance includes tariff cost impacts consistent with Q4 2025 at 510 basis points to our margin per quarter. With that, operator, can you please open up the call for questions? Operator: [Operator Instructions] First question is from the line of Andrew Brackmann with William Blair. Andrew Brackmann: Maybe we could start here on guidance. As I sort of look at the full year, it looks like you bracketed the Street sort of on key metrics. But for Q1, in particular, I think revenue was a bit below where the Street was. But also just as I look at sort of the percentage of the full year revenue expectation versus what we've seen in prior years, I think it's a little bit lower. So can you maybe just talk about why that is this year? And I guess, more importantly, can you just talk about your line of sight to that second half ramp that's sort of implied here? Amanda Crawford: Yes. Yes, that's a fair question, Andrew. And I wanted to provide some context for the Q1 guide. First, inherently, we've got seasonality in the business with Q1, which is historically the lightest revenue contributor. When we're looking at the year-over-year comparison, we're lapping an exceptionally strong Q1, which was driven by a heavy RSV and flu season. The other thing to look at is the current macro environment. We did observe some softness in consumer spending through the Q4 holiday period, whether it was influenced by the government shutdown or broader macroeconomic pressures, we have seen retailers respond by tightening their weeks of supply, which is reflected in the Q1 guide. Just to be clear, though, we are the leader in the category. The timing of when the revenue is going to hit within the quarters is coming up lighter in Q1. But fundamentally, we are in a strong competitive position, and this confidence is baked into the full year guide, which reflects the strong long-term demand that we're expecting. Andrew Brackmann: Okay. I appreciate all that color. And then, Jonathan, you talked about launching some generative AI insights here in the coming months. Can you maybe just talk a little bit more about that, give a little bit of color on what those offerings might look like? And then as you sort of think about increasing the stickiness to 360, how do those sort of play into that? Jonathan Harris: Yes. Yes. We see a massive opportunity to leverage AI to support and drive our evolution from a hardware company into a leading pediatric data platform. We see it a couple of different ways. We see product intelligence. We're evolving from a simple hardware monitoring to real-time personalized AI sleep coaching. AI Sleep Insight will convert static data into actionable daily plans for parents. We believe that this is also going to drive high-value subscription features in our audio and our vision, really driving the whole ecosystem across both the Sock and Dream Sight, our camera. Additionally, we're really driving and focused on AI-assisted engineering workflows to reduce turnaround times and across all functions of the business to streamline regulatory submissions to automate financial data entry to drive measurable productivity gains. And then we're in the early phases of our web AI partnership where we're really going to work on real-time actionable on the edge AI functionality that, again, is going to help parents with real-time data to help on their parenting journey. Operator: Next question is from the line of Jonah Kim with TD Cowen. Jungwon Kim: As it relates to the international expansion, when should we start to see some of the sell-in revenue for new markets there? And would love to hear any early learnings from the international subscription that you rolled out, how that progress has been and any early learnings there? And then just lastly, in terms of your guidance for the year, what is baked in, in terms of your expectation on the low end and high end? Just would like to get additional color on the expectations that you have embedded in your guide. Jonathan Harris: Great. I'll take the first half of that. So we expect further international expansion revenue to begin the first half of this year with rollout in the first half of these new markets. So we're very excited about that. We continue to see very strong sell-through success across our European markets and continue to grow. And we're still very, very early on our international subscription, but we are excited to drive that. Right now, it's only English-speaking countries, and we look to expand further European languages in the first half of this year as well. So very excited to see more subscription drive on a global basis. Amanda Crawford: All right. And then just regarding your question on what is baked into the low end and the high end. As far as revenue goes in our guidance, we have not baked in any like material contribution from our new countries or the telehealth opportunity. So we see that as upside in the guide. The high end versus the low end will depend on our hardware growth as well as the contribution from subscription. So within that range, the higher end would imply stronger growth in both of those areas. And then just from a cost of goods perspective, we said that in the remarks, but we are including tariffs that are consistent with what we saw in Q4. As everyone knows, the tariff situation remains volatile and is changing day-to-day. So depending on where those ultimately land, there can be a little bit of upside in the cost of goods as well. Operator: Next question is from the line of Owen Rickert with Northland Capital Markets. Owen Rickert: It looks like that OnCall Telehealth offering is launching in the back half of the year. I guess can you just walk us through the go-to-market strategy there? And more specifically, is this being positioned as a stand-alone paid tier? Is it a premium add-on to Owlet360? I it bundled into existing subscription plans? I guess, can you just give us more color on that offering? Jonathan Harris: Yes. I got that, Owen. Good to see you or hear you. So we began internally piloting a friends and family just recently, and we're continuing to grow that. So we're really flushing that out based on that real-world experience. And this will be an additional upsell, cross-sell, if you will, to Owlet360. It will be a separate platform. So we're really working on getting the experience right before launching in the second half of '26 and well ahead of the cold and flu season. So we're really excited and continue to build, and we're going to have this rolling out ahead of the second half of '26. Owen Rickert: Got it. And then second one for me. You surpassed 110,000 paying Owlet360 subscribers. How is the stickiness looking there monthly churn, how has that trended over the past few quarters? Jonathan Harris: Could you repeat the question? You were breaking up a little bit. Sorry. Owen Rickert: Yes, no problem. I was just asking about how it rates looking on Owlet360 monthly subscribers and maybe how that's trended over the past few quarters. Jonathan Harris: Yes. We continue to see Owlet360 grow. We'll be sharing more data on Owlet360 on our upcoming calls because we just hit our 1-year anniversary. But what we can share is the metrics are trending in all the right directions. We've had 4 consecutive quarter of sequential growth across paying subscribers, MRR attach rate and retention rate. We've also been tracking a cohort analysis that's showing retention continues to improve at a consistent basis. And this is also helping us identify a time period where there's opportunity to target rolling out specific features to improve retention even further. Great example of that is just adding the additional features that we're looking to launch on Dream Sight and really bring in both the Sock and the camera subscription and that holistic view for the parent. Operator: Next question is from the line of Ian Arndt with Lake Street Capital Markets. Ian Arndt: I'm on here for Ben. And I was just wondering how do you guys view international revenue longer term? There's statistics show that there's more babies born outside of the developed world, obviously. And just wondering where you guys kind of see international sales ending up as a percentage of revenue several years down the road... Jonathan Harris: No, no, go ahead, sorry. Ian Arndt: I was just going to add, if you had any thoughts on if there's a meaningful difference with the -- with adding subscription internationally or kind of what your thoughts are on that as well? Jonathan Harris: Yes. We continue to see this as a great opportunity. We have roughly 11% penetration in the U.S., meaning 11 out of 100 babies are actually wearing an Owlet sock. So we see that opportunity where in Europe, for example, we're closer to 3%. So if you just look at Europe, there's a tremendous amount of growth opportunity there. As we've mentioned before, there's 23 million babies born a year in India alone. So even if we look at the top strata, the top 1%, that -- just that top 1% is as large a market opportunity as both the United States and Europe. So we see that as a really strong opportunity, and they are English-speaking by and large, over there. So we're really excited to roll out more international subscription in various languages and provide the amazing success that we've seen on Owlet360 in the English-speaking countries and continue to expand and grow that. So we're going to continue to work on expanding and growing our adoption, both here in the U.S., in Europe and opening up new markets where we see strong opportunity and then layering on our subscription platform on top of that to drive a really nice high-margin reoccurring revenue stream. Ian Arndt: Okay. That's great. And then one more if you could comment on if there have been any additional follow-through from the FDA safety communication that went out last year? Jonathan Harris: Another good question. Yes, we have not heard anything further from that communication that went out in September of 2025. But there is quite a bit of turmoil going on within the FDA, but we have a really strong relationship with them, and we're continuing to dive in. Our market share continues to grow in the U.S. where that is most applicable. And we're over 41% of all dollars fit in the entire baby monitor category and feel really strong about our position with or without the FDA, and we're going to continue to drive, and that would be a really nice additional tailwind if and when the FDA actually do something. Operator: Currently no further questions registered. [Operator Instructions] There are no additional questions waiting at this time. So I'll pass the call back to Jonathan Harris for any closing remarks. Jonathan Harris: Thank you, operator, and thanks again to everyone for joining us and for your continued support. After a record-breaking year, our team is not taking the foot off the gas. We're entering 2026 ready to build on our performance and our massive long-term opportunity. Owlet is evolving into a comprehensive pediatric sleep, health and wellness platform. We are focused on executing this vision, which positions us as much more than just a baby monitor brand. Owlet is a sophisticated data platform designed to establish the gold standard for accurate infant biometric baselines from the very first night. Ultimately, Owlet is uniquely positioned to redefine modern parenting and become the essential wellness technology for families worldwide. Thank you again, and talk to you next quarter. Operator: That concludes the conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Good afternoon, and welcome to the ESS Tech Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] During today's call, we may make statements relating to our goals and objectives for future operations, financial and business trends, business prospects, future financial metrics, statements relating to timing for project, New Horizons, manufacturing and delivery, potential future orders from customers, potential future partnerships, our future manufacturing capacity and management's expectations for future performance that constitute forward-looking statements under federal securities laws. Any such forward-looking statements reflect management expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our SEC filings. Our actual results, performance or achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. On this call, we will also discuss financial measures derived from our financial statements that are not determined in accordance with U.S. GAAP, including adjusted EBITDA. A reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in our earnings release and investor presentation posted on our website today. A press release detailing these results was issued this afternoon and is available in the Investor Relations section of our company's website, investors.esesinc.com. Hosting today's call will be ESS' Chief Executive Officer, Drew Buckley; and Chief Financial Officer, Kate Suhadolnik. With that, I'll turn the call over to Mr. Buckley. Drew Buckley: Thank you, operator, and good afternoon, everyone. Today, we'll walk through 4 areas: a company overview; our FY '25 operational updates; our pipeline and go-forward strategy; and a financial review from Kate. Let's get started. ESS is a leading manufacturer of long-duration iron flow energy storage solutions traded on the New York Stock Exchange under the ticker GWH. Founded in 2011 with a mission to accelerate decarbonization safely and sustainably, ESS' iron flow technology uses iron, salt and water, some of the most abundant and easy-to-source materials on earth to store energy in a way that is safe, sustainable and built to last. Our flagship product is the Energy Base, a 10- to 22-hour long-duration energy storage system designed for applications where lithium-ion is too costly, too short in duration or simply not safe enough. The Energy Base is a non-containerized and open architecture system, purpose-built for utility-scale grids, hyperscaler data centers, industrial microgrids and defense installations. Unlike lithium-ion, our iron flow technology is designed to deliver unlimited cycling with 0 capacity degradation over a 25-year life. All of our products are manufactured right here in Wilsonville, Oregon, with over 98% domestic content, making ESS one of the only American-made, American-sourced long-duration storage solutions available today. We have scaled manufacturing capacity in place and a Tier 1 pipeline that includes Salt River Project, or SRP, Google and the U.S. Air Force. 2025 was a year of deliberate transformation. The headline is straightforward. ESS has executed on restructuring, made meaningful commercial progress and significantly strengthened our balance sheet. Let me walk through the key milestones. On the commercial side, we were awarded a $9.9 million contract from Concurrent Technologies Corporation and the U.S. Air Force Research Laboratory for a long-duration energy storage system to be deployed at U.S. Clear Space Force Station in Alaska. This is a landmark win. It demonstrates that American-made iron flow storage is ready for mission-critical defense applications. We also announced Project New Horizon, a 5-megawatt, 50-megawatt hour system to be installed at SRP's Copper Crossing Energy and Research Center in Florence, Arizona. Google has been confirmed as an offtaker and will provide cost sharing and multiyear operational testing. Manufacturing is expected to begin this year in 2026 with delivery targeted for December 2027. This is a transformational partnership, a major Southwest utility backed by one of the world's largest energy loads with significant sustainability and resiliency goals. On the leadership front, we made important changes. Kelly Goodman transitioned to the role of Chief Strategy Officer and General Counsel; and Kate Suhadolnik was appointed as our permanent CFO. In February of 2026, we acquired the intellectual property and assets of VoltStorage, a pioneer in iron salt battery technology. This acquisition deepens our technological moat and adds meaningful patent coverage in the long-duration iron flow space in addition to highly valued human capital. VoltStorage gives us a further platform to continue building the strength of our leadership team. We appointed Randall Selesky, former Chief Commercial Officer of VoltStorage as our new Chief Commercial Officer. Chief Operating Officer, Jigish Trivedi, will be departing ESS. We want to thank Mr. Trivedi for his contributions during his tenure, including his leadership during our strategic pivot to Energy base, and we wish him well in his future endeavors. Brian Lisiecki, our current Chief Information Officer, will serve as Interim Chief Operating Officer while we conduct a formal search process. On the balance sheet, we closed a $40 million financing transaction with Yorkville Advisors, launched an ATM equity offering program, raising approximately $8.6 million in gross proceeds and to date, have repaid approximately $28.5 million or 95% of the first $30 million tranche under the Yorkville promissory note. In January 2026, we closed a $15 million registered direct offering priced at a premium to the market. And as of March 1, we have drawn the second $10 million tranche under the Yorkville promissory note. We continue to see a large and growing long-duration energy storage market opportunity. Demand from AI data centers alone is projected to increase 165% by 2030, and the grid will need to deploy 8 terawatt hours of long-duration storage by 2040 to meet clean energy targets. We have the right team in place and the right technology to execute on our near and midterm objectives. With that, I'll turn it over to Kate to walk through the financials. Kate Suhadolnik: Thank you, Drew. I'm pleased to be speaking with you today as ESS' CFO. Revenue for the full year 2025 was $1.6 million, down from $6.3 million in 2024. As Drew noted, this reflects the deliberate transition away from legacy product lines, the Energy Warehouse and Energy Center as we refocus on the Energy Base. Revenue recognized during the year included deliveries of legacy units primarily to related parties, engineering services and extended warranty revenue, partially offset by the wind down of active contracts for legacy business activities in connection with the shift to the Energy Base product offering. Gross loss for the year was $27.7 million, an improvement of 39% compared to a loss of $45.4 million in 2024. Total operating expenses decreased 33% year-over-year to $29.7 million, down from $44.4 million. This reduction reflects the organizational reset we undertook. Research and development expenses declined $3.5 million. Sales and marketing declined $5.3 million and G&A declined $5.9 million as we reduced personnel costs and streamlined operations. We made the smallest cut to R&D to prioritize investment in our product development. Net loss for the full year was $63.4 million compared to $86.2 million in 2024, an improvement of 26%. Adjusted EBITDA improved 38% [indiscernible] of $44.3 million from a loss of $71.3 million in 2024. The [ trajectory ] [indiscernible] costs are coming down meaningfully. And as revenue ramps with the energy base in 2027 and beyond, we believe we are on the path to positive EBITDA. Compared with the prior year, we significantly improved adjusted EBITDA by $27 million. That improvement reflects the significant cost reduction work being done across every line of the business. The quality of those reductions is important. They are structural, not temporary, and they carry forward directly into the Energy Base cost profile. Turning to the balance sheet and liquidity. As of December 31, 2025, we had $14.5 million in unrestricted cash and cash equivalents and $7.5 million in other liquid assets for a combined liquidity position of $22 million. Accounts receivable was essentially 0 and inventory was $0.1 million, consistent with the wind down of legacy product lines. Subsequent to year-end, in January 2026, we closed a $15 million registered direct offering priced at a premium to the market. During 2025, we completed the $40 million Yorkville financing, receiving $30 million immediately and drawing on the second $10 million tranche in February 2026. We raised approximately $8.6 million through our ATM and have repaid approximately $28.5 million or 95% of the first $30 million tranche under the Yorkville promissory note as of March 1, 2026. We will continue strengthening the balance sheet and managing expenses so that we can execute our strategic priorities over the near and long term. With that, I'll turn the call back over to Drew. Drew Buckley: Thank you, Kate. Let me leave you with 3 takeaways from today's call. First, our commercial momentum is real and building. Google is confirmed as an offtaker on Project New Horizon and the $9.9 million CTC and Air Force contract is underway. These are not promises. They are signed agreements with sophisticated counterparties. Second, our financial performance is improving across key metrics. Adjusted EBITDA improved 38% year-over-year, while operating expenses were down 33%. The organizational reset we undertook in 2025 is showing up in the numbers, and those savings are structural. Third, the team and technology are in place to execute. We have a permanent CEO, a permanent CFO, a new Chief Commercial Officer with deep iron flow experience and several other experienced senior employees joining the team and a strengthened IP portfolio following the VoltStorage acquisition. The Energy Base is the right product for the market, and we are ready to deliver. We look forward to updating you on our progress. And with that, we will now open for questions. Operator? Operator: [Operator Instructions] The first question comes from Justin Clare with ROTH Capital Partners. Justin Clare: So I wanted to first start off here. I was [ looking ] in the press release, it indicates that you're anticipating delivery for kind of the 3 key projects that you have in -- to start in 2027. So just considering the time line, how should we think about the outlook for the ramp-up in revenues associated with those projects? Could we see any revenue in 2026? Or is it more likely a contribution in 2027? And then just should we anticipate any legacy unit sales in 2026? Drew Buckley: Justin, it's Drew. Thanks for the question. Yes, so our focus for 2026 will be commercializing the new product, the Energy Base so that we can deliver for Tier 1 customers that have signed up to take delivery in '27 and '28. Those customers alone represent revenues and megawatts installed that are multiples higher than the company has achieved on a cumulative basis since listing in 2021. So it's a really big deal for us, and we're really excited about it. The pipeline to look at that for a second, it remains quite exciting. But we're going to take a pragmatic approach in 2026 to ensure that when we start shipping Energy Base, it's a product of the highest quality. So I would expect 2027 and 2028 when you see most of those revenues to come in. Justin Clare: Got you. Okay. That's helpful. And then just on the Salt River project, wondering if you could provide an update on how you're thinking about the ownership structure there. Are you intending to retain ownership of that project? And then I think there's a 10-year energy storage agreement there. So I think the completion date is December 2027. So then would we anticipate recurring revenue starting in the 2028 time frame for that one? Drew Buckley: Yes. I think we're still in the planning phase for that and deciding how we want to -- so the agreement in and of itself is a PPA agreement for 10 years, like you said. I think we're exploring avenues on how we want to complete that project overall from a sort of financial and structural perspective. So we've got a few ideas. Nothing that I can update you on concrete for now. But as it stands, the contract is a 10-year PPA. So we would start recognizing revenues in 2028 on that. And we're looking at potential different options that we can take to make it more of an equipment sale versus just a PPA. But more we can update on you with that as we get closer. Justin Clare: Got it. Okay. Okay. And then associated with that project, how should we think about the potential for follow-on deployments? Would we need to see kind of the completion of the pilot project along with some operational data before you might see a follow-on? Or is there a potential for something to move faster than that? Drew Buckley: Yes. So there's a follow-on potential project with SRP of a much larger size. I can't comment on their -- the way that they're going to go about the RFP and the entire process for that. But our hope is to have that project operational and have some really good data by the middle of 2028 and to have the data, good data by the middle of 2028 to be clear to put it in, in the end of 2027 as of right now. And we think that's a good time line to have it open for any follow-on opportunities. And again, that goes back to the idea of focusing on the pilot right now, making sure that we execute well and the technology is -- and the product is of the highest quality to set ourselves up for success for this pilot. And then we think the future opportunities around that are really significant. And so what I could say is that with that execution, we think we'll be in a good spot to be in the process for that follow-on project. Justin Clare: Got it. Okay. And then so maybe just one more here, shifting gears to the liquidity. I wondering if you could just speak to plans to potentially repay the second tranche of the promissory notes or plans to use the ATM or contemplate an additional capital raise here? How do you feel about the balance sheet and the strategy going forward? Drew Buckley: Yes, absolutely. Our financial runway has significantly improved since our last conference call in November. The funds we've raised put the balance sheet in a much healthier position here. And we do have further capital needs, to your point, to support our plans in 2027 and beyond. But with the current cash we have on the balance sheet, there's no real rush and we're trying to be much more thoughtful and strategic about how we're thinking about raising capital into the future. As you mentioned, we do have the ATM in place, but I wouldn't say that we're looking to tap that immediately. What we want to do overall is be very thoughtful and strategic about how we access capital into the future. And we feel like we have a pretty good handle on things and a good runway for now. Operator: [Operator Instructions] There are no other questions registered at this time. So I'll pass it back over to Drew Buckley for any additional remarks. Drew Buckley: Thanks, operator, and thank you all for joining us today. We're building something important at ESS, technology that the world genuinely needs, manufactured in America with a team that is focused and fully aligned on execution. The commercial wins we've already seen in early 2026 give me confidence in what this year will bring. And we look forward to sharing more on our developing story at the upcoming 38th Annual ROTH Conference on March 22 to 24 in Dana Point, California. And if we're unable to address any of your questions today, please reach out to Chris Tyson at MZ Group. His contact details are on the back of today's presentation, and he will be happy to follow up. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Good afternoon. This is Chorus Call. Welcome to the financial results presentation of the financial results as of 31st December 2025. [Operator Instructions] And now the Chairman and Chief Executive Officer, Dr. Nicola Cecconato, is going to give his address. Nicola Cecconato: Thank you. Welcome. I'll give you the consolidated results as of 31st December 2025 and the comparison with consolidated results as of 31st December 2024. The slide illustrates on Page 2, the group's corporate structure as of 31st December 2025. During 2025, the group completed a number of significant extraordinary transactions that changed the scope of its consolidated assets and equity investments held. On 9 May, 2025, Ascopiave acquired 9.8% of the share capital of Ascopiave becoming the sole shareholder. In December 2024, Ascopiave exercised put option on 25% of the share capital of Estenergy and the transfer of the shares took place on June 24, 2025. On July 2025, the transaction for the acquisition from the A2A Group of 100% of AP Reti Gas North S.r.l., a newly formed company, and the transfer of certain business units previously owned by Unareti S.p.A. and LD Reti S.r.l. became effective. The company is active in the gas distribution business in the provinces of Bergamo, Brescia, Cremona, Lodi, and Pavia. On October 2025, Ascopiave S.p.A. transferred to Hera S.p.A. 3% stake its held in Hera Comm S.p.A. On 22 November, 2025, the transaction for the acquisition from Sime Partecipazioni S.p.A. of 100% of the share capital of Societa Impianti Metano S.r.l. [indiscernible]. Active in the gas distribution business in 40 towns in Lombardy, Emilia-Romagna, Piedmont became effective. Changes in the consolidation perimeter and transfer of shareholdings. It should be noted that the company, AP RETI GAS has been consolidated on the 1st July 2025 and the consolidated economic results in 2025 refer to the second half of the year. On 24 June, 2025, the 25% stake in Estenergy was sold. In the financial year 2024, the company's results were consolidated using the equity method until 30 September, 2024, the date of the earliest accounting close prior to the exercise of the put option on the shareholding. In the income statement as at 31st December 2025, dividends received from the company were recognized as financial income and the gain from the sale of equity investments was recognized as well. On October 2025, the 3% stake in Hera Comm was sold. Consolidated income statement for the year 2025. In the 2025 financial year, the group realized revenues of EUR 244.3 million, achieving EBITDA of EUR 154.4 million and EBIT of EUR 92 million. The net balance of financial income and expenses was positive at EUR 11.3 million, an improvement of EUR 21.5 million compared to 2024. This change is mainly explained by higher dividends paid by investee companies in particular by the dividend amounting to EUR 22 million distributed by Estenergy S.p.A. prior to the sale of shares. The portion of the result of companies consolidated using the equity method is negative and equal to minus EUR 0.3 million and refers to the results achieved by the subsidiary, Cogeide S.p.A. in the year 2024 net of the write-down made to adjust the investment to its recoverable value. Compared to the previous year, the item shows a negative change of EUR 8.2 million in the 2024 income statement [indiscernible] realized by Estenergy Group with the recognized for the group share until 30 September, 2024. While there was no recognition in the 2025 financial year. Consolidated balance sheet as of 31 December, 2025 as compared to December 2024, the group has invested capital of EUR 1.247 billion invested in capital stock. EUR 184.2 million in tangible fixed assets, EUR 1.017 billion intangible assets, EUR 66.5 million from the value minority interest has [indiscernible] EUR 22.3 million. [indiscernible] EUR 26.5 million from other fixed assets. Then there was negative balance of working capital items and provisions EUR 87.8 million. The intangible fixed assets shown under asset equal EUR 1.317 billion, mainly consists of gas distribution networks and plants owned by the group, EUR 1.175.8 billion, of which EUR 247.8 million is attributable to AP Reti Gas North S.r.l. [indiscernible] Group and goodwill recognized following business combination. Property, plant and equipment consisting of real estate and the value of renewable energy productive plants. It should be noted that during the fourth quarter of the 2024 financial year, Ascopiave S.p.A. exercised the put option in the remaining shares of the associate Estenergy S.p.A. and consequently from the 1 October, 2024, the revenue of equity investments recognized as of 31 September, 2024 was reclassified [indiscernible]. The sales was completed on 24 June, 2025. Shareholders' equity as of 31 December, 2025 amounted to EUR 912.4 million, an increase of EUR 64.6 million compared to 31 December, 2024. The net financial position was EUR 614.2 million, an increase of EUR 226.6 million compared to the end of 2024. The debt-equity ratio is 0.67. Operating data, gas and renewable energies distribution, as of 31 December, 2025, the group's distribution company has managed approximately 1.468 billion users, an increase 68% compared to 31 December, 2024 of which approximately 599,000 related to the company AP Reti Gas North [indiscernible] during 2025. In 2025 financial [indiscernible] AP Reti Gas North into the scope of consolidation as of 1 July, 2025, we distributed 19 million cubic meters in the second half of 2025. The group has 29 hydro power, wind power plants with an installed capacity of 84.1 megawatts. In the 2025 financial year, electricity production amounted to 187.3 gigawatts, a decrease of 30.3 gigawatts, minus 14% compared to the same period of the previous financial year, the latter being characterized by significant rainfall. Evolution of distribution, veritable [indiscernible] revenues and current revenues. Revenues EUR 244.3 million recording an increase of EUR 39.4 million determined by enlargement of the consolidation perimeter by EUR 48.9 million, increased of EUR 10.9 million in gas distribution tariff revenues, the decrease of EUR 5.5 million in revenues from the sale of electricity generated from renewable sources, the decrease of EUR 11.7 million in revenues from energy efficient certificate. The decrease in other revenues of EUR 3.2 million. Gas distribution tariff revenues amounted to EUR 189.8 million and further increase of EUR 50.3 million compared to the previous year. [indiscernible] EUR 39.5 million with expansion of the consolidation perimeter on a like-for-like basis and EUR 10.9 million of which 8.6 million due to the revision of 2020-2024 tariff operating costs envisaged by ARERA Resolution 87/2025. Revenues from the products of energy from renewable sources amounted to EUR 22.6 million, decreased by EUR 5.5 million. Decrease is mainly explained by the lower volume of energy produced. Operating profit, other operating expenses. Operating income amounted to EUR 92 million, showed an increase of EUR 40.3 million due to the enlargement of the scope of consolidation, EUR 13.9 million; increase of EUR 10.9 million in gas distribution tariff revenues, decrease in revenue from the sale of electricity generated from renewable sources, EUR 5.5 million. The decrease in amortization and depreciation, EUR 0.2 million, capital gains of EUR 26.4 million related to the sale of 25% stake in Estenergy, an increase in net operating expenses of EUR 5.5 million. Net operating expenses EUR 84.6 million increased by EUR 20.5 million due to the change in falling revenue and cost items. Enlargement of the scope of consolidation EUR 15 million. Low concession fees two towns, EUR 1.4 million. Higher personnel costs, EUR 1.7 million; higher consulting costs, EUR 3.8 million, of which total EUR 2 million related to the acquisition of AP Reti Gas North. Low compensation to directors and statutory auditors, EUR 0.4 million. Lower gas meter reading costs, EUR 0.5 million. Higher non-recurring cist EUR 2.1 million. Other changes with a negative impact, EUR 0.2 million. Number of Employes and personnel cost. As of 31 December, 2025, the group had 733 employees on the payroll, an increase of 238 compared to 31 December, 2024. This increase is mainly explained by the consolidation of AP Reti Gas North, which have 230 employees as of 31 December, 2025 and AP Reti Gas Next Grids with 17 employees. The overall EUR 23.9 personnel cost increased by EUR 5.8 million driven by enlargement of consolidation perimeter of EUR 4.1 million, EUR 0.4 million increase in capitalized labor cost, EUR 2.1 million increase in current personnel cost mainly due to higher cost of incentive plans and ordinary salary increases during March, the contractual increases provided by national labor contracts and in part individual recognition. Captain Expenditures. Investments in tangible and intangible assets realized during the year amounted to EUR 93.7 million increased by EUR 12.6 million. Investments made by the company in AP Reti Gas North consolidated 1 July, 2025 amount to EUR 4.3 million. Most of the technical investments on the like-for-like basis related to the [indiscernible] and modernization of gas distribution network and plants amounted to EUR 41.9 million, of which EUR 16.3 million in connections, EUR 22.5 million in network expansions [indiscernible] and EUR 2.1 million in reduction plans. Investments in metering equipment amounted to EUR 11.9 million. Investment in the renewable energy sector amounted to EUR 21.1 million, mainly related to costs incurred for the maintenance and expansion of hydroelectric plant EUR 3.5 million, for the construction of photovoltaic plants EUR 7.2 million, and for the construction of other green energy plant EUR 10 million. Other investments amounted to EUR 6.5 million, related investments in land and buildings EUR 2.3 million; hardware and software EUR 2.7 million; company vehicles, EUR 0.9 million; and infrastructure, EUR 0.5 million. Net financial position and cash flow. The net financial position, effective 31 December, 2025 EUR 614.2 million, an increase of EUR 226 million compared to 31 December, 2024. During the year, cash flow generated financial resources of EUR 97.9 million. Net investment in tangible and intangible assets resulted in cash outflows of EUR 93.8 million. Net working capital management generated resources of EUR 9.5 million. The group collected dividends of EUR 27.4 million from subsidiaries, not consolidated on a line-by-line basis. Shareholders' equity resulted in cash outflows of EUR 32.5 million and the distribution of dividends to shareholders. Acquisition of [indiscernible] resulted in cash outflows of EUR 518.2 million of which EUR 456.8 million for the acquisition of the AP Reti Gas North and EUR 46 million for AP Reti Gas Next Grids. The sale of equity investment generated [indiscernible] of which EUR 204.1 million from the sale of equity investments in Estenergy and EUR 54.8 million from the sale Hera Comm. The purchase of equity investments resulted in cash outflows of EUR 472.2 million. The realization of equity investments generated resources of EUR 234.1 million. Financial debt as of 31 December, 2025 amounted to EUR 577.1 million [indiscernible] 49% variable rate and the weighted average cost of debt in the year 3.11%. Before [indiscernible] the Board of Directors of Ascopiave in consideration of the results of the year and the solidity of the group's equity and financial structure will propose at the Shareholders' Meeting, the distribution of a dividend of EUR 0.16 per share, for a total of EUR 34.6 million, an amount calculated on the basis of the shares in circulation and the closing date of the financial year. If approved at the shareholders' Meeting, the dividend will be paid in May 2026 with ex-dividend date on 08 May 2026. I have finished the presentation, now the Q&A session is going to start. Thank you. Operator: [Operator Instructions] First question from Alessandro Di Vito, Mediobanca. Alessandro Di Vito: The first question is relating to the field. Other operators in the field have forecasted an acceleration of optimistic forecast for the year. Do you take part in any tender in the year? The second question is about the increase in revenues due to the positive optimistic forecast. The third and last question if can you give us some guidance on the trends that you expect for 2026. Nicola Cecconato: I'm going to answer some of your questions. [indiscernible] answers to questions will be more specific. On the gas tenders, sure, we also have received, from the contracting stations we have received news that there could be gas tenders during the year. The premises are good. So what you say, what you have read is indeed true as in the past, it has been blocked, but the gas tenders, there will be this year, tenders have already been published. So since we are interested in taking part in some of the tenders, we cannot give you all the information, it is confidential. In the industrial plans, we have already stated that Ascopiave would take part in some of the tenders. We have indicated in [indiscernible] the plan as to what our policy is going to be in 2026. So once the tenders are officially published, then you will know as well the [indiscernible] and what our policies will be, what evaluations will be. For example, in the strategic plan, we have already stated what our policies will be in 2027-2028. So you know more or less are the perimeter of our [indiscernible]. We are ready to take part if they are officially opened. And if there are growth drivers that [indiscernible] the opportunities, relating to the impact on [indiscernible] I'm going to give you a very quick evaluation. [indiscernible] based on the results, the amount we expect to pay between EUR 1.6 million - EUR 1.8 million. Relating to the prospect 2026, we will publish -- we will give some guidance. We will give you some guidance, some tangible guidance, but for that, we need the official publication of tenders. So already in our press release, we have given -- in our strategic planned press release, we have already issued the policies of what our policy will be and the framework within which we will operate. So since we have acquired some new assets, so we also have to take that into consideration. So next year, there could be an increase surely in our turnover, in our revenues. Some of our assets that we have acquired from [indiscernible] will be perfected. We are going to work on it to enhance the performance of these assets. Obviously, we have also to consider what antitrust dictates to us. But what we need to do, our goal is only to increase our performance in the gas sector. That's for sure. This is one of the goals of the year 2026 that we have set for ourselves. Once we have - we will be [indiscernible] so the result of 2026 can surely be an improvement of what we have achieved, what we have accomplished in the year 2025. So EUR 8.6 million is the tariff balance that we have achieved, that we have also managed to get from Estenergy. And -- so the dividends have to be taken into considerations. The dividends have been extremely generous this year as you must have seen from EUR 22 million of dividends as you have seen from our press release. So these components [indiscernible] to be taken into consideration. So anyway, whatever we do, we do it bearing in mind the stability of the regulatory framework. This is the forecast, these are the numbers that we can provide you in order that you can make your own guess on our 2026 performance. Operator: [Operator Instructions] The next question is a follow-up from Alessandro Di Vito, Mediobanca. Alessandro Di Vito: An additional question from me. So what do you expect for the year 2027 if France is excluded from the RAB basis? Nicola Cecconato: We haven't made any simulation on this. There is a trend that tax rates are going to increase. So sincerely, we cannot give you any tangible guidance on this. But there is no constant figure that we can give you. There will surely be consequences from the cost level, dividend. Anyway, the regulatory framework is still standing. So we just hope there will be no adverse effect. So I hope [indiscernible] is going to take into consideration that there is a new situation that has emerged. But as of today, we don't know and we haven't made any simulation. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions. So thank you very much for your participation and see you at the next call. Thanks a lot. This is a Chorus Call. The conference is over. Thank you. You can disconnect your phone.
Operator: Greetings, and welcome to the Full House Resorts Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] It is now my pleasure to introduce your host, Adam Campbell. Thank you. You may begin. Adam Campbell: Thank you, and good afternoon, everyone. Welcome to our fourth quarter earnings call. As always, before we begin, we remind you that today's conference call may contain forward-looking statements that we're making under the safe harbor provision of federal security laws. I would also like to remind you that the company's actual results could differ materially from the anticipated results in these forward-looking statements. Please see today's press release under the caption forward-looking statements for the discussion of risks that may affect our results. Also, we may reference -- we may make reference to non-GAAP measures such as adjusted EBITDA. For a reconciliation of those measures, please see our website as well as previous press releases that we issued. Lastly, we are also broadcasting this conference at fullhouseresorts.com, where you can find today's earnings release as well as our SEC filings. And with that said, we're ready to go Lewis. Lewis Fanger: Well, good afternoon, everyone. It was a very good fourth quarter, but the comparisons versus last year aren't very straightforward. So we'll take you through those really quick. Revenues rose to $75.4 million, up from $73 million in the fourth quarter of 2024. Keep in mind that the fourth quarter of 2024 included $1.5 million of revenue from Stockman's, which was sold in April of 2025. So revenue growth on an apples-to-apples basis was 5.6%. Adjusted EBITDA in the fourth quarter of 2025 rose to $10.7 million. Adjusted EBITDA for the fourth quarter of 2024 was $10.4 million. That included quite a bit of noise, including the benefit of a $1.2 million recovery settlement and the reversal of about $0.5 million of accruals at corporate. Those 2 figures increased the fourth quarter of 2024's adjusted EBITDA by $1.7 million. Backing those 2 items out of the prior year's fourth quarter, the increase was about 23%. At American Place, our temporary casino continues to show significant growth. Revenues increased by 11% to $32 million in the fourth quarter of 2025. Adjusted property EBITDA rose 29% to $8.7 million. For the full year, revenues and adjusted property EBITDA rose to $124 million and $34.3 million, increases of 13% and 17%, respectively. Interestingly, the pace of growth actually increased as the year progressed. We fully expect adjusted property EBITDA at American Place to continue to climb in 2026 and the year is off to a good start. We have long said that the temporary American Place facility on its own should eventually be able to achieve about $50 million of run rate EBITDA and that it's much larger permanent facility should be able to earn double that amount or about $100 million. We continue to believe that our market remains under-penetrated. Some quick facts. Our permanent casino will not only be nicer, but in terms of square footage, it will be about twice the size of our temporary. We are the closest casino to more than 1 million people. We are located in one of the wealthiest counties in the entire country. Our closest casino competitor is 45 minutes to the south and they make $0.5 billion a year in gaming revenue. Our second-closest casino competitor is about an hour to the north, and they make more than $400 million a year in gaming revenue. And we're sandwiched not just midway between those 2 very successful casinos, but also between 2 of the major north-south traffic arteries in Northern Chicagoland. Those facts, combined with our 3 years of operating experience in the market are what gives us so much conviction in what we think American Place can achieve in the long term. Turning to Chamonix. For the first time in recent memory, we have a fully formed management team. That began with a new General Manager in March of 2025, new Directors of Marketing and Group Sales in July and August of 2025, the promotion of a talented pastry chef to lead the food and beverage department in January of 2026, a new Finance Director last month and a new Assistant General Manager this week. Here's an interesting stat to look at. If you look at just the second half of 2025 under the new management team and compare it to the second half of 2024, revenues increased by $1.2 million or about 5%. Adjusted property EBITDA in those 6 months jumped by $4.2 million. The new team is making great strides and we believe our Colorado operations will be a significant positive contributor to adjusted EBITDA in 2026. Specifically for the fourth quarter of 2025, we had a small, adjusted property EBITDA loss in the seasonally weaker winter season, but that was a significant improvement versus the much larger loss in the fourth quarter of 2024. After several quarters focusing on the cost side, the new team has redoubled its marketing and awareness efforts. If you look at any of our marketing collateral, it has been completely reenergized after transitioning to a new marketing agency during the fourth quarter of 2025. In January and February of 2026, we had a modest amount of construction disruption as we replaced the carpet and installed new ceilings in Bronco Billy's. The incremental spend was extremely modest in the low 6 figures, but the result was outsized. It used to be quite jarring to walk from Chamonix into the Bronco Billy's Casino. Today, while Chamonix is certainly more elevated, the 2 casinos now complement each other quite nicely. We also just opened our Mexican restaurant at Bronco Billy's with an inspired new menu as we prepare to head into the busy summer season. Looking at our database, we've been especially focused on driving loyalty and growth in the top 2 segments of our database. For the first 2 months of 2026, our top segment has seen unique guest counts increase by almost 20% and the total number of visits from that segment is up 36%. For the segment under that, unique guests are up 12%, and total visits are up 24%. Awareness is expanding and loyalty is expanding, which both bode well in our efforts to continue growing revenue and improve profitability. Regarding our group business at Chamonix, that continues to pick up steam. At this point, we have a couple of thousand room nights on the books, with a couple of thousand more that are close to commitment or with decent prospects. As we mentioned last quarter, our ideal group size is between 100 and 150 attendees. Within 500 miles of us, we estimate that there are up to 4,000 conferences that fit that profile. Groups of this size tend to book years ahead of time. When we have a fully ramped group business in a couple of years, we think it will consist of about 55 events per year or about 1 per week. That is the key to improving our midweek occupancy. Among our smaller properties, Silver Slipper and Rising Star declined slightly for the quarter. Similar to Chamonix, we've upgraded most of the management team at Silver Slipper, and they are gearing up for growth in 2026. Grand Lodge, which is a pretty small part of the company at this point, continues to be adversely affected by renovation disruption at the Hyatt Lake Tahoe that houses our casino. The Hyatt Resort will be beautiful when that renovation is complete. But in the meantime, we're trying to manage through the disruption. That includes proactive efforts to find new casino guests in advance of completion of the renovated amenities in 2027. On the balance sheet side, we had about $51 million of liquidity at the end of the quarter, including the undrawn portion of our revolver and we're about to enter that part of the year where we generate meaningful cash flow. We amended our revolving credit facility a few days ago. That was a simple amendment to extend the maturity date of our revolver to August 15, 2027. And we've said this several times, but our Illinois operations alone pay for the interest expense on our current debt. And of course, Illinois continues to ramp, as does Colorado. Lastly, an update on our continuing progress for our permanent American Place Casino. In real time, our architects are putting the finishing touches on our foundation drawings. Those drawings should be done imminently. With those drawings in hand, we'll be able to officially break ground on the casino's foundations. We expect that to occur sometime in the coming weeks. The foundation work does not take a lot of money, but it does take several months to complete. By getting it done now, we can accelerate our time line to construct the permanent facility. Meanwhile, we are making good progress with respect to the financing of the American Place facility. We have received several proposals for the construction of the permanent facility at attractive rates, including proposals that fully fund its construction without the issuance of equity. We're not quite able to provide details just yet, but we hope to do so in the next several weeks. As we have noted previously, we are currently allowed to operate our temporary casino until August of 2027. In conjunction with our anticipated financing, a bill was recently introduced into the Illinois legislature to extend that operations stay by 18 months. Typically, items in the legislature don't get voted on until the end of the session, so we expect it to pass in April or May. Passage of the bill will allow us to transition smoothly from the temporary casino in [ 18 to 20 months ]. Bally's has a similar bill in front of the legislature for the same reason. I covered a lot there, Dan. What did I forget? Daniel Lee: I don't know. I think you got it all. And we'll get to questions. So if we forgot something, it will almost certainly come out in the questions. Lewis Fanger: Very true. Operator: [Operator Instructions] Our first question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Ryan Sigdahl: I want to start with Chamonix, though, for the first question. So appreciate the improvement kind of on a full year basis, especially on the cost side. If I look at revenue, 19% growth in the first half of the year. Year-over-year, 7%. In Q3, 2%. In Q4, flipped to a loss. I get the seasonal aspect of that. But I guess, just walk through, I guess, what's going on there specifically just given kind of a decel from a trend standpoint and considering it's still very subscale or early stage in its maturity? Daniel Lee: Ryan, if you recall, last year, when we reported the third quarter, we pretty bluntly said we had run some marketing programs in I think it was principally September of 2024, which were non-economical. In other words, we induced people to come down, gave them free rooms and they didn't gamble, and it actually cost us at the bottom line quite a bit. But it did puff up the top line. Then in the fourth quarter, we had a big grand opening party, and it was a very expensive party to have, we had Jay Leno, et cetera, et cetera. And remember, looking around and realizing that the people who were there were the same people we'd always had when it was a golden opportunity to try to get new customers and people down from Denver and so on. And it was about that time, I realized that we had the wrong management team, and we had to make a bunch of changes. And we have now. But the prior year numbers were kind of artificially inflated by inefficient marketing in those 2 quarters. And -- but now we have a new advertising agency, we have a Chief Marketing Officer here. We have new marketing people at the property. They've been getting organized and all that stuff is coming into play now, and Lewis gave you some of those numbers. And so I think you'll see revenue growth pick up going forward. But the reason it looks like such a small year-over-year growth was the promotional stuff we did last year that kind of boosted revenue but not income. Ryan Sigdahl: Quick follow-up on that, and then I do have another question. Have you seen any re-acceleration thus far in Q1 of '26? Daniel Lee: We have with the caveat that it was pretty torn up back in January. We renovated the west part of Bronco Billy's and putting down the carpet and ceilings. And frankly, I was surprised it didn't have more disruption than it did because we are showing better revenue numbers. I think if we hadn't had that disruption, we'd be doing even better than that. I mean at the end of the day, this is one of those where you open it, it's not performing as well as you thought it would. And you start looking at it and saying, first, did we make a mistake? And I've gone back several times now and gone through the numbers again of how many people live in Colorado Springs, Denver and competition and everything else, and I'm absolutely convinced we did not make a mistake. And in fact, I can underline that by the fact that Monarch's EBDIT (sic) [ EBITDA ] for the year was $199 million. Now they only have 2 casinos. They don't break out the one from the other. But the smaller one, which is in Reno made $40 million to $50 million a year for a long time before they opened in Black Hawk. And so Black Hawk has only been around 3 years, I think, in their portfolio. So they must be making significantly north of $100 million a year in Black Hawk. And it's a good property and frankly, a well-managed company, and they opened far more smoothly than we did. And I look at it and say, well, they're there with 500 rooms, we are equivalent in quality, we have 300 rooms. There are aspects of ours that are nicer than theirs. Now they are an hour from Denver, we're an hour from Colorado Springs, but from Southern Denver, we're about equal distance. But they also have significant competitors there. I mean they not only make a lot of money, but so does Ameristar, the Horseshoe and the Lodge and then there's a bunch of smaller ones. There's a lot less competition in Cripple Creek and the competitors are not anywhere near as good as the quality of ours. So I think we are in the right place. I think we've built the right product. I think fixing up Bronco Billy's makes it quite a bit nice. So we didn't spend a whole lot of money, but it really made a pretty big difference, just changing the carpet and drop -- putting in a drop ceiling. And now we have the right management team all put together, and there's a lot of blocking and tackling that we need to do. I mean there's simple stuff like the housekeeping department there cleans 9 rooms a day. At our other properties, they clean 14 rooms a day. 9 rooms a day is pretty ridiculous. We have a new Assistant GM, who has a strong background in hospitality, and that's one of the first tasks, he'll try to figure out. And we do it through an outside company and we probably need to adjust that. And that factors in all the way down because if you're only cleaning 9 rooms a day, the cost to turn a room is like $50 or $60 when it should be $30 or $35. In other words, the cost of renting a room that would otherwise sit empty, when I say the cost of turning a room. So that factors into who you're willing to comp a room for. And if we can get the cost of turning the room down, then we could be a little more generous with who we comp rooms for. And so there's a lot of blocking and tackling, which we are doing. We had a Mexican restaurant, for example, that had terrible food, to be honest. And it's been closed for about 6 months. We promoted a very talented chef to be the food and beverage manager, and it was kind of funny to persuade him to take the job because he was hesitant. He came back and said, I really want to promote some people and then get rid of some deadwood. And I said, well, that's exactly why I want you to take the job. I too want to promote good people and get rid of deadwood. And so he stepped up and the quality of the food in the reopened Mexican restaurant is 10x what it used to be. And it was just last weekend it opened. And that's important going into the summer. So there's a lot of little blocking and tackling that we are doing at that property. And if you get into the minutia, just about every parameter is trending the right way. No, I wish it were trending faster, but at least it's going the right way. And I'm convinced it will eventually be a very significant profit generator for us. And even this year, it will be significant, but significant like 10% to 15%, and it might be significantly above that next year and then the year after. I mean we built the rate property. We're there for the long haul. And it's a little more -- it's a different marketing task than we have at American Place. At American Place, we are in the middle of 1 million people, they drive by us all the time, but we're in a strong structure. And so it looks like where the Department of Motor Vehicle store salt for the winter. I mean it has absolutely no curb appeal, but a lot of people driving by. And if you go up to Colorado Springs, we have fantastic curb appeal. The building looks fantastic, but nobody is just driving by. So we have to persuade people from Colorado Springs to drive up there. It's just under an hour, but to come up and see it. And once they do come up and see it, we get very good repeat visitation and that's how you build the business, but it doesn't happen overnight. Lewis Fanger: Yes. I mean the most promising thing that we're seeing behind the scenes is that those upper segments, which this property was built for. And when I say upper segments, I don't mean someone that's gambling $10,000 a day. I'm talking about someone that might go in and gamble a couple of hundred dollars a day. That is a very ripe customer that's an abundance that is our biggest group. It's a customer that's finding the building now for the first time. And as I kind of hinted at, or said actually, didn't hint that, in my opening comments, that group is where we're seeing significant growth in loyalty. Daniel Lee: In my experience, I remember Beau Rivage in Mississippi opened slowly. They went through the same sort of things. And then eventually, it found its stride, and it's led Mississippi now for 20 years. Similar in Las Vegas, Luxor opened slowly and then found its stride, and it's been very successful for a long time now and so on. And thinking back, there's things we should have been smarter about. We should have hired a sales [Technical Difficulty] while we were under construction. We didn't. But we're fixing those things now. So... Ryan Sigdahl: Well worth the visit, I can personally attest to that. For my second question, and maybe I'll try and ask this in a shorter way. Indiana bill, it originally included a fair value payment to you guys if you were not the winning bid for relocation. Now it appears like it's just a new license that you can apply for. Just give us an update there on the future of Rising Sun? If you guys are interested kind of under the current structure. Daniel Lee: Listen, this is a long process and a rapidly evolving one. I mean that bill get changed many times in the last week that it was in the legislature. We'll continue to watch it and see. We make money in Rising Sun. We always have, not a lot of money, but we make money. We're the ones who said to the state, we think we -- the state would be much better off if it relocated to an urban center. When they legalized casinos along the Ohio River, you didn't have casinos in Ohio and Kentucky and you do now. And so the original locations where they legalized were the wrong locations, and the independent study that the legislature called for that was done underneath the Gaming Commission said exactly that, that there would be significantly higher revenues to the state with the casino in Indianapolis and in Fort Wayne. Now they chose to widen it out. It's not just Fort Wayne. It's 3 different counties. They're all going to have a referendum in November. I think it's going to be a challenging referendum because the way they did it, there's 3 different counties that are going to have a referendum. And let's say, all 3 pass it then the Gaming Commission is supposed to choose from the 3 and then run a process to figure out a development. So you actually have like it would be problematic for us or anyone else to try to fund the pro side of any county. And yet there's very clearly well-funded opposition. Just look at the website, savefw.com. It's clearly well-funded by somebody. And I'm guessing it's an Indian tribe in Southern Michigan or something along those lines, somebody who might be hurt by this. So you're going to have 3 referendums where the opposition is probably well funded. And the pro side probably isn't. And so will it pass or not? I don't know. I think normally, these things do pass because it produces jobs and tax revenues and so on. But the way the legislature has set this up, and I think it's inadvertent, but I think the way they've set it up, those are going to be very challenging referendums. And we will watch the process and see what happens. And legislature meets again next year. We know where it meets. Meanwhile, we continue to make money in Rising Sun. And we will continue to do that are good for our shareholders as well as good for the state. And that's about it. Operator: Our next question comes from the line of David Bain with Texas Capital Bank. David Bain: Great. First, congratulations on the progress on the American Place financing. I understand you're not giving a ton of detail, but one, I think you reiterated no equity will be sold. And I'm sure you looked at multiple options from whatever asset sales to high yield to REITs as the financing environment involved. If you could help us process that, balancing your thoughts as you went through that process, that could be very helpful for us. And then does that financing come in tandem or include the refinancing or extension of the existing debt? Daniel Lee: David, as I'm sure you'll appreciate, when you're going through one of these processes, you reach out for a lot of people and you find people who are most interested in working with us. And then there's a point where you say, okay, fine, we want you to invest in the due diligence to start working on the legal documents and we will keep it confidential. And I would argue that's about where we are. And until we have a real deal to announce, I really can't go into any of the details, but we are pretty comfortable that we are going to have a deal that will allow us to be open there in 2 years. And we've always said that we're not going to issue equity at anywhere close to these prices, and we're confident that we could get there. But anything further than that, I can't tell you yet. I wish I could, David. Obviously, it's an all-encompassing. I mean it's -- it does involve refinancing the existing bonds. Lewis Fanger: Yes. We're looking at an all-encompassing solution. And I think the only thing to add to what Dan said is, again, not only no equity, but also, we view the financing cost is attractive as well. So we're excited to give you more details. I guess I wish we could. Just can't quite yet. Daniel Lee: Attractive. I think, I would say, acceptable. Attractive would be 5%. We're not 5%, right? But it's also not 15%. And I think it's acceptable. And just on refinancing the existing bonds, they mature in February '28. They become a current liability on February '27. So you pretty much have to refinance them. I think anybody would look at it and say, of course, you have to do that. And so -- but we're -- we've had some really good proposals and we've kind of zeroed in on one formula that we think works and we're trying to nail that down. David Bain: And then I guess my other question, I got to keep you here. I guess I would go with the Chamonix. You gave some encouraging data points on penetration. I think the last call, you mentioned 15% of Colorado Springs visits Colorado -- Cripple Creek once a year, something you intended to tackle. It sounds like the biggest feeder lever. If you could speak to some of the progress specific to the penetration of that market? I know you have a marketing group, but anything, whether it be buses or new forms of advertising and anything that we can look for in terms of impact that's been fruitful so far would be helpful. Daniel Lee: Yes. Well, you mentioned buses. We've looked at buses. We've looked at working with the one company that's in Cripple Creek. We've looked at working with other bus companies. We've even looked at buying our own buses. But at the end of the day, that's not one of the bigger levers. Most people drive themselves, and that's true even in the markets like Atlantic City that traditionally has had a lot of busing, the bus customers still drive themselves. And so -- but there's -- it's a very complicated algorithm because at the same time, we're trying to figure out how to attack these different markets. The whole world of advertising is changing, right? And so like far more people watch TV shows now through YouTube than on the networks. And ultimately, that's good because we can target it. Like we don't have to be buying ads for all of the Denver metropolitan area. We can target those who live on the south side, which is closer to us. We're much less likely to get somebody from Fort Collins because they're quite a bit closer to Black Hawk than to us. But Castle Rock is pretty much equal distance. And so it's about targeting the people in Castle Rock. And then if you can go further and target those people who might have a proclivity to gamble, and so we're getting -- we've hired a bunch of good people who have experience in this and a new advertising agency that is experienced in this to try to make our dollars be most efficient in different markets. Now in Colorado Springs, you can be in more general advertising, right, because anybody in Colorado Springs is a potential customer. And whereas in Denver, if you bought a Denver-wide ad, probably the people who live on the north side of Denver, half the people whose eyeballs you're paying for are less -- not likely to come to us. Whereas in Colorado Springs, everybody is a potential customer. So there's a lot of that parsing and trying to understand it. And even like trying to reduce direct mail we send and trying to do more e-mails, because it's so much more cost effective. Like we don't send any direct mail anymore out of American Place, and we want to get to that point in Chamonix. And so David, honestly, I've got a chief marketing guy who could spend all afternoon answering this question for you. But I guess from our point of view, it's like we've hired people who we think are very confident in this area, and they are working on it full time, and we're seeing some results, and we're confident we're going to get there. Lewis Fanger: Yes. I mean, look, the penetration in the Colorado Springs is creeping up. The percentage coming out of Denver is still an extremely high number. And ultimately, I think those are -- that's a good setup because I think as more and more people that are closer to us experience our brand, we're finding out they're enjoying it. And -- but to have the reach as far as Denver was never in the original model. It was always viewed as overflow. And so to the extent that, that number continues to flourish, it's all to the better as well. So we're set up well. Daniel Lee: And there's some other little blocking and tackling, like Cripple Creek is in the middle of some of the best fly-fishing in the world. I mean there's fantastic fly-fishing around it. And there's fly-fishing guides, fly-fishing camps and everything. So it's like, okay, we need to have a high roller weekend where everybody gets to go fly-fishing, and we have a fly-fishing tournament and people will gamble in the evening. And in the same way the hotels in Las Vegas have golf tournaments. The fly-fishing around Las Vegas isn't so good. So you have golf tournaments, right? And there's no golf, of course, in Cripple Creek, so we can have fly-fishing tournaments, right? And so there's a lot of stuff like that, that we're looking at. And frankly, for a fly-fishing tournament in, say, July, we can get gamblers to fly in from Texas for that. I mean there are nonstop flights from Dallas and Houston into Colorado Springs. It's a pretty easy trip actually. And so for the right high roller, now we have to find the high roller in Dallas who likes to fly-fish. But there are ways to find those people. Operator: Our next question comes from the line of Jordan Bender with Citizens. Jordan Bender: I think you kind of characterized Chamonix as -- the investment thesis there was to focus more on the higher end customer, the luxury customer. Is there a point maybe this year where if you're not starting to see the revenue start to tick up, that you could start to shift some of your focus into that middle or lower end given that the cost structure is fully baked? Lewis Fanger: And apologies. My -- I didn't mean for you to think that we're not focused on the other tiers. We certainly are. I'm looking at my list for January and February, and I'll tell you, we had meaningful growth across every segment. The most growth is in that top tier, but down the line, we're seeing pretty meaningful growth. If you think of the product that we have, it's certainly -- if you bring an upper tier customer into town, they are extremely likely to go to us and only us. If you bring in a lower tier customer, you have the potential and likelihood of sharing that customer around another place or 2. So all things to keep in mind. But ultimately, we've got half of the room product in town. And so long as we see people adding to the bottom line, we will market to them. What naturally happens in these processes is kind of year 1, year 2, you focus on getting customers in general and finding customers that are additive to the bottom line. And fast forward a year after that, then you start cycling and you say, all right, this customer used to get a Friday, free Friday room. Now he does not. Now we've got more customers in the database. We know what people spend. That person doesn't want a Friday room, but they might get a Wednesday room. And so -- and then a year after that, you continue to cycle that database and just optimize it. So we're early in the optimization process, and we're kind of taking people up and down the line. Jordan Bender: And then just switching to Silver Slipper. It's a property that, I guess, we don't really talk about all that much on these calls anymore. But just curious how you view maybe the '26 outlook there? And then just in general, how does that property maybe fit into the overall portfolio as we move forward? Daniel Lee: Year-over-year, the EBDIT (sic) [ EBITDA ] there was about -- it was off a little bit, almost flat. And it was -- in '24, it's a bit above 12%, and then '25, it was a bit below 12%. It should be in the high teens. I mean if you look at the margins, it did $70 million of revenue, and if you take $70 million and apply a normal regional gaming margin, you'd be in the high teens, maybe even in the low 20s. And so we've made quite a few management changes there as well, including a new GM and a new food and beverage manager, a new table games manager, a new HR Director, new Finance Director and whereas it had the same management team since it opened 15 years ago. And so we've made a lot of changes in the past year. And the intent is to get it up to the sort of income it should be having. Now we're not ignoring revenue either, but this is a pretty saturated market. The people in this part of the country gamble more per capita than most areas, and it's not a particularly wealthy region. So I think the upside will be being more efficient on stuff, and we'll get some revenue upside as well. It's a good property. It's kind of a cash cow for us, but it's a cash cow that should make a little more money than it's making. And I think we'll get there in 2026. Lewis Fanger: Not to the high teens in 2026, but I think... Daniel Lee: I'd be disappointed if we don't get to 15%, but -- that's not 19%, but 19% is not out of the question. When you look at what you should be bringing to the bottom line with $70 million of revenue and in a state where the gaming taxes aren't particularly high. And we're on the same page. Operator: Our next question comes from the line of Chad Beynon with Macquarie Asset Management. Chad Beynon: Wanted to ask about your Sports Wagering business supporting over around $7 million of EBITDA this year. I guess talking about a cash cow, that's certainly a good one with pretty high margins there. Can you talk about how that contract looks, if there's any risk to that in '26 or if we should continue to assume the same amount for the year? Daniel Lee: Most of that is with Circa in Illinois, and I think they're pretty happy with what they have. They also operate the sportsbook in the temporary casino and well in the permanent. Illinois has a big population and a limited number of licenses. So that's by far the most valuable license we have. Now we have other licenses that are available. And one of them was markets who paid us upfront for several years. So there's an amortization of deferred revenue which is why you get a little bigger than $5 million. We did do a little change that got approved by the Gaming Commission last week. We've had a sportsbook in the Grand Lodge Casino up at Tahoe for many years. And it was pretty small and the guys were -- it was leased to an outside operator. And the guys who were running it never really did much, right? And it was pretty insignificant for us. And there's a new start-up company that came to us and said, hey, we'd like to take that over and put some money in and try to make it something meaningful. And it's not material to the whole company, but they're paying us significantly more rent than we were getting. And perhaps more importantly, they're paying attention to it better. So it's one of those -- not material to the company as a whole, but I think it's a step in the right direction of changing that to a different operator. We tend not to operate these ourselves because we're not diverse enough to spread the risk. In other words, I think we have a sportsbook at the Silver Slipper, if the Saints get into the Super Bowl, our customers are all going to be betting on the Saints and we won't have bets on the other side. And so it's better to leave it to somebody who's in that business, and we tend to just get license fees for it. Lewis Fanger: If you're thinking about what the number should be on an ongoing basis because there's always -- there has been a lot of noise in that line over the last year or 2. The right number for EBITDA is roughly 6 -- it's like $5.9 million if you're assuming the minimums on the existing contracts. Daniel Lee: No, there's always risk. I mean if Circa decides to cancel and leave the business, there's some limitations in the contract on their ability to do that. But it's not like a treasury bond, I mean it could happen. Lewis Fanger: Yes. I will say, though, Circa is -- more than most companies, Circa has sports in their DNA. They love that sportsbook in Illinois, you'll see that they really -- I mean look, I'm looking at Adam as I say this. I think there's still the patch on the Chicago hockey team, the Blackhawks. And so they continue to fully embrace the sports side. I'd be surprised if there are any changes anytime soon there. Daniel Lee: And frankly, the permanent casino has a sportsbook that's kind of modeled after the one at Durango Station, and that should be good for both us and Circa. Chad Beynon: And then Lewis, yes, looking forward to some of the financing details, hopefully in the next couple -- in the next several weeks. You talked about an 18- to 24-month construction period for the permanent. If that deal is executed and you do decide to kind of push forward on some of the heavier lifting, heavier spending parts of the project, I mean, will there be a meaningful amount of CapEx in '26? Maybe some of that comes in the fourth quarter? Or is it safe to assume that a lot of the permanent spending, kind of the real outflows will come in '27? Just any parameters around that would be helpful. Daniel Lee: Most of it's '27. Lewis Fanger: '27, yes. Daniel Lee: I mean some may even spill into '28. Some of the construction payments are made in arrears, for example. Lewis Fanger: A big portion will be made in arrears, yes. Daniel Lee: But how much is -- falls in this year depends a lot on exactly when we get going. The foundation isn't a big number, but it does take time. So you literally have a guy moving a bulldozer around and then they dig trenches and pour some concrete, which is the foundations for the building that will go up. If you had the pause after doing that, like let's say, the debt markets just weren't cooperating and we had to pause for several months, it's okay. The concrete doesn't go bad. It's still there, right? And you can come back and finish. Now hopefully, we don't have to. Hopefully, we have the financing arranged. And so by the time we're done with the foundations, we can move into the other stuff. But you don't really want to go into the heavier spending until you know you have the money to finish it. And so we're willing to start on the foundation so that we can speed up the opening date and that we can fund with our existing resources, while we try to nail down the financing. Lewis Fanger: I will say that we talk about -- Dan and I talked about this at lunch day. We talk about an 18- to 24-month build. But one thing to keep in mind is the build itself is on the simpler side. In terms of -- there's nothing subterranean, there's no parking garages. It's kind of a basic -- no high-rise exactly. It's a basic 2-story building. And it's the basic rectangular building. On the inside, the fit-out is quite fanciful, but in terms of getting that actual structure up and close and then starting work on the inside, it's relatively -- it's one of the easier pads that we've seen in our lifetimes. And so... Daniel Lee: Actually, only a small part of it is 2-story. Most of it's 1-story. Lewis Fanger: Exactly right. So we talk about 18 to 24 months, but it's -- we'll keep you in the loop, but we feel good -- it is an easier project to build as maybe the right thing to say. Daniel Lee: We'll go as fast as we can, but we don't want to incur a lot of overtime. Operator: Our next question comes from the line of John DeCree with CBRE. John DeCree: Just one from me on Waukegan. I think if I'm not mistaken, just kind of hit the 3-year anniversary couple of weeks ago and 11% growth in the fourth quarter, so still growing double digits. I know you talked a little bit about it in your prepared remarks, but I don't know, Lewis or Dan, if you could give us a little bit more insight as to kind of what's driving the growth there? Is it bigger database? Are you still growing the database? Or is it more spend per the existing database? I'm guessing that double-digit growth, it's probably a little bit of both. But 3 years in still growing double digits is pretty great. So if you could give us a little more color on what's going on there, that would be helpful. Daniel Lee: Well, actually, I want to give credit to the team we have there. I mean where we kind of stubbed our toe in Colorado and had to put together a new team. We had a great team from day 1 in Illinois and that they've just every month, every quarter, figured out a way to increase our penetration, increase our -- not only our number of customers, but the satisfaction levels of the customers. We have the only casino in the whole region that made the list of the Chicago Tribune's best employers. I mean they list, I think, 50 employers and who are the best employers in the region, there's 50 of them. And 2 years in a row now, we've been the only casino on that list. And that trades into very low turnover, which helps. I mean -- and so the team has done a very good job and every month, they're trying to figure out, okay, how do we do better? How do we do better? And had we had an equivalent team in Colorado, we would be much better in Colorado. And people matter. And we've had a great team in Illinois. And now we also have the right demographics. I mean we're the closest casino to 1 million people. We are easy to see. While the outside of the building looks like Department of Motor Vehicles storage place, once you're inside, it feels like a real casino. And even though we did it without spending a lot of money, when you go in, people are like, wow, we didn't expect this. It's wonderful. And so I think we have the right product and the right market. Year, I mean, it was very fast, but equally important, we had the right team, and they've done a great job. Lewis Fanger: And I think to answer to, it's a little bit of both, John. It's -- the database in terms of adding new names to it, it continues to grow at a pace meaningfully similar to what it was 3, 6, 9 months ago. It really hasn't slowed down in terms of the number of people that go into that database. We've crossed 121,000 names or closing in on 125,000 names in the database and not showing signs of slowing down. So -- but it's a little of both. Daniel Lee: And we've done it without hurting the competition. I mean most of it is increased gambling by people in Lake County, which is what we expected. And I guess I should also give a tip of the hat to Alex who forecasted that this is exactly what would happen, and he's been right. Operator: Thank you. We have reached the end of the question-and-answer session. I would like to turn the floor back over to President and Chief Financial Officer, Lewis Fanger, for closing remarks. Lewis Fanger: I'll turn it over to Dan. Any last words? Daniel Lee: No. Listen, it's been kind of a challenging year fixing Colorado while we try to figure out how to finance the permanent American Place. But I think we now have the team in place, and this stuff is trending the right way in Colorado, and I think we're on the cusp of having the financing arranged for American Place. So it doesn't happen overnight. I mean I think the financing would be in place in May or June, which is approximately when we would also have the extension that we mentioned and the legislature. But hopefully, by the time we're having this call for the next quarter, we have a lot more concrete stuff we can talk about. So thank you very much, everybody. Operator: This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Good afternoon, everyone, and welcome to the Atea Pharmaceuticals' Fourth Quarter 2025 Financial Results and Business Update Conference Call. [Operator Instructions] I would now like to turn the call over to Jonae Barnes, Senior Vice President of Investor Relations and Corporate Communications at Atea Pharmaceuticals. Ms. Barnes, please proceed. Jonae Barnes: Great. Thank you, operator. Good afternoon, everyone, and welcome to Atea Pharmaceuticals' Fourth Quarter and Full Year 2025 Financial Results and Business Update Conference Call. Earlier today, we issued a press release, which outlines the topics we plan to discuss. You can access the press release as well as the slides that we'll be reviewing today by going to the Investors section of our website at ir.ateapharma.com. With me today from Atea are our Chief Executive Officer and Founder; Dr. Jean-Pierre Sommadossi; Chief Development Officer, Dr. Janet Hammond; Chief Commercial Officer, John Vavricka; Chief Medical Officer; Dr. Arantxa Horga; and Chief Financial Officer and Executive Vice President of Legal, Andrea Corcoran, who will be available for the Q&A portion of today's call. Before we begin the call and as outlined on Slide 2, I would like to remind you that today's discussion will contain forward-looking statements that involve risks and uncertainties. These risks and uncertainties are outlined in today's press release and in the company's recent filings with the Securities and Exchange Commission, which we encourage you to read. Our actual results may differ materially from what is discussed on today's call. With that, I'll now turn the call over to Jean-Pierre. Jean-Pierre Sommadossi: Thank you, Jonae. Good afternoon, everyone, and thank you for joining us. I will begin on Slide 3. I am pleased to report that we have made substantial clinical progress in the last year, advancing our global Phase III program evaluating the regimen of bemnifosbuvir and ruzasvir for the treatment of HCV infections. Due to the rigorous execution of our two pivotal Phase III trials, C-FORWARD and C-BEYOND, we expect top line readout this year for both trials. We also presented several dataset reinforcing the potential best-in-class profile of our regimen at the EASL Congress in 2025 and the Liver Meeting 2025, the Annual Meeting of AASLD. Janet will discuss highlights from these presentations. We convened two panel discussions with key opinion leaders that underscore the need for a new optimized HCV regimen to address treatment paradigm shifts, including the test-and-treat model of care and how our regimen is uniquely positioned to address the current needs of patients and prescribers and expand the market in the U.S. In November, we announced the expansion of our antiviral hepatitis pipeline to address a major unmet medical need for immunocompromised patients living with chronic hepatitis E infection, a liver disease for which there is currently no approved therapy available. If left untreated, it can rapidly progress to cirrhosis within 3 to 5 years. In vitro and in vivo results presented last month at CROI 2026 and at the JPMorgan Healthcare Conference in January support our lead product candidate, AT-587 as a potential first-in-class inhibitor against HEV infection. I will review this exciting program later in the presentation. Moving to Slide 4. I'm pleased to report that our global Phase III HCV program is on track. In December, we completed enrollment for our North American trial, C-BEYOND, with over 880 patients, and we expect to complete enrolling C-FORWARD, our trial outside of North America, by midyear. We anticipate top line results for C-BEYOND midyear and for C-FORWARD by year-end. Following our selection of AT-587 as the lead product candidate in our HEV program, we initiated IND and CTA-enabling studies and anticipate initiating a first-in-human study midyear. Importantly, with $301.8 million of cash, cash equivalents and marketable securities as of December 31, 2025, we are in a strong financial position to execute and complete our Phase III HCV program and advance our new HEV development program. We anticipate our cash runway will extend through 2027. With that, I will now turn the call over to Janet to review the profile of our regimen. Janet Hammond: Thanks, Jean-Pierre. Moving to Slide 6. Hepatitis C remains a significant global health care crisis with an increasing incidence of infections despite the availability of direct-acting antivirals for the past decade. Currently, in the United States, out of the reported 160,000 new chronic infections, only 85,000 patients are treated annually. In 2015, there were approximately 2.5 million people infected in the United States. Today, that number has nearly doubled to approximately 4 million. The unrelenting high rate of new chronic hepatitis C infections, which continues to outpace the number of patients being treated, underscores the need for a new differentiated and optimized therapy. In the map shown on the right, you can see that most countries worldwide, including the United States, are not on track to achieve the World Health Organization's goal of the elimination of hepatitis C by 2030. In fact, current estimates suggest we may not even achieve this goal by 2050. Let's not forget that hepatitis C is the primary cause of liver cancer in the United States, the incidence of which is projected to increase by over 50% within the next 5 years from approximately 850,000 cases in 2025 to 1.4 million people. On Slide 7, we are conducting the first global head-to-head active controlled Phase III trials in our program for hepatitis C, comparing our regimen against the current standard of care, sofosbuvir and velpatasvir, which are marketed as Epclusa. Results support our regimen as a potential best-in-class treatment option for patients infected with HCV with a differentiated profile featuring a highly potent combination with a short treatment duration, low risk for drug-drug interactions and convenience with no food effect. We continue to build out our dataset and recent results demonstrated a low risk for drug-drug interactions with proton pump inhibitors, which are taken by an estimated 35% of hepatitis C infected patients. Moving to Slide 8. We presented several datasets supporting the potential best-in-class profile of the regimen of bemnifosbuvir and ruzasvir last year at the EASL Congress and then at the Liver Meeting. Results from the Phase II study in 275 patients demonstrated the 8-week regimen of BEM-ruzasvir achieved 98% SVR12 in the per-protocol treatment-adherent population and a 95% SVR12 in the efficacy-evaluable population. Additional results demonstrated that the regimen has a high barrier to resistance. The regimen has a low risk for drug-drug interactions, including with proton pump inhibitors, H2 blockers and also standard HIV therapy. There is no need for dose adjustment of bemnifosbuvir in patients with hepatic or renal impairment. The regimen can be taken with or without food. In addition, recently generated data show that in addition to inhibiting HCV RNA replication through chain termination, bemnifosbuvir also inhibits assembly and secretion of new hepatitis C virions, further explaining its high antiviral potency. With that, I'll now turn the call over to Arantxa to provide an update on our Phase III program for hepatitis C. Arantxa? Maria Horga: Thank you, Janet. On Slide 10, C-BEYOND enrolled patients in the U.S. and Canada, and C-FORWARD is enrolling patients in 17 countries outside of North America. Combined, we expect to enroll more than 1,760 patients in our Phase III program. Both trials are open-label, randomized 1:1 against the active comparator and stratified by cirrhosis status, genotype and including patients co-infected with HIV. In patients without cirrhosis, treatment duration is 8 weeks with bemnifosbuvir-ruzasvir and 12 weeks with the standard of care. Patients with compensated cirrhosis receive 12 weeks of treatment with either regimen. The primary endpoint for both studies is sustained viral response or cure 24 weeks after treatment initiation. Slide 11 shows the geographic footprint of our global Phase III program with approximately 120 clinical sites in the U.S. and Canada for C-BEYOND, and another 120 clinical sites in 17 countries outside of North America for C-FORWARD. As J.P. mentioned earlier, C-BEYOND patient enrollment was completed in December with more than 180 patients, and we anticipate top line results midyear. C-FORWARD has a broader global geographic and genotypic footprint, and we expect to complete enrollment midyear and to report top line results by year-end. On Slide 12, let's review the Phase III endpoints, patient population and data analysis for our global Phase III program. In C-BEYOND, the primary endpoint will be analyzed in a modified intent-to-treat population as preferred by the U.S. FDA. The analysis will include patients that have been randomized and dosed regardless of drug adherence or lost to follow-up. The statistical analysis will be based on an imputation model with success or failure depending on PCR value, whether negative or not, prior to patient treatment discontinuation. A key secondary endpoint will include the SVR rate of the per-protocol population. In C-FORWARD, the per-protocol population will be analyzed as the primary endpoint as preferred by the EMA. And the SVR rate will only include patients who are at least 80% adherent as measured by pill count and have an SVR assessment at week 24. A key secondary endpoint will include the SVR rate for a modified intent-to-treat population. The same methods for assessing non-inferiority will be conducted in both Phase III studies on both patient populations. The Phase III studies are powered 90% with 5% non-inferiority margin with expected rates approximating 95% in an mITT population. Using these two approaches in a post-hoc analysis of the Phase II results, the SVR rate was 95% in an mITT population and 98% in the per-protocol population. I will now hand the call over to John Vavricka, our Chief Commercial Officer. John? John Vavricka: Thank you, Arantxa. Moving on to Slide 14. As discussed earlier in the call, the rate of newly reported HCV infections in the U.S. is outpacing treatment. Out of approximately 160,000 new HCV infections, only 85,000 patients are treated annually for a total of approximately $1.3 billion in net sales in the U.S. We have consistently heard from health care providers that the test-and-treat model of care, which allows for HCV testing, diagnosis and treatment at the point of care can reduce the barriers to prompt initiation of therapy that exists today. The test-and-treat model of care has gained broad support, including by the CDC and continues to gain momentum through recent bipartisan efforts to advance HCV elimination in the U.S. Key opinion leaders also [ certainly ] can play a critical role in HCV elimination efforts and agree that a treatment optimized to work seamlessly with this model is still needed. Slide 15. While we are advancing our global Phase III trials, we are also preparing for a commercial product launch. Our commercial package will include a blister card for convenience and adherence with a simple 4-week dosing package. The drug product has a low cost of goods relative to net price. And based on our current projections, we anticipate achieving profitability relatively shortly post-launch. From a commercial standpoint, the U.S. HCV prescriber base is highly concentrated with approximately 6,000 prescribers writing 80% of the DAA prescriptions, making it optimal for efficient commercialization using a focused specialty sales force. We anticipate a commercial sales force of around 75 people, which includes the sales team and medical science liaisons. Let's move on to Slide 16. Using our Phase II results, IQVIA conducted an independent quantitative market research study with 153 U.S. high prescribers. These physicians indicated that they would likely prescribe the BEM-RZR regimen to approximately half of their patients, and the results were similar for all patients regardless of their cirrhosis status. Our market research also showed that U.S. payers responded favorably about the potential to include BEM-RZR in the formulary based on the regimen's profile. I'll now hand the call back to Jean-Pierre to review the HEV program. Jean-Pierre Sommadossi: Thank you, John. Let's now move to Slide 18. Hepatitis E virus or HEV is in an acute and a chronic liver disease. In developing countries, genotype 1 and 2 are most prevalent and the virus is transmitted primarily through contaminated water and mostly cause epidemics of acute self-limiting viral hepatitis. In developed countries, genotype 3 is predominantly transmitted primarily through contaminated food such as undercooked meat. This can cause chronic hepatitis in immunocompromised patients and can progress to cirrhosis within 3 to 5 years, which is much far more aggressive than what is seen with hepatitis C or hepatitis B. With no approved therapies for HEV, there is a significant unmet need for a treatment option. Moving to Slide 19. In recent years, with the increasing number of patients who are immunocompromised, which include solid organ transplant recipients, hematopoietic stem cell transplant recipients, patients with hematologic malignancies such as multiple myeloma, there have been a growing incidence of chronic HEV infection in U.S. and Europe. In the absence of any approved therapies for HEV, the standard of care includes reducing immunosuppression and/or ribavirin administration, which both presents challenges. On Slide 20, each year in the U.S. and Europe, about 3% of approximately 450,000 patients who have these underlying medical conditions are at risk to develop chronic HEV. We estimate that the unmet need for this patient population represents a market opportunity between $750 million to $1 billion per year. And obviously, this will follow on orphan designation. On Slide 21, let's now review data supporting the selection of AT-587, our lead product candidate, a potential first-in-class direct-acting antiviral treatment option for chronic HEV. As you see on this slide, in vitro and in vivo activity of bemnifosbuvir was shown against hepatitis C. However, the more potent in vitro activity of AT-587, combined with the positive PK data, which we'll discuss next, led us to select AT-587 as a lead product candidate. The in vitro data on this slide shows the potent nanomolar antiviral activity of AT-587 against HEV genotype 3 and to remain also active against clinical ribavirin resistance-associated substitutions or RAS. As noted earlier, ribavirin is off-label for the treatment -- is used off-label for the treatment of HEV. On Slide 22, we observed that the in vivo single-dose PK studies in rats and monkeys, AT-587 achieved high plasma concentration of the active triphosphate metabolite surrogate, which were comparable to those obtained with bemnifosbuvir. On Slide 23, of particular importance, we also demonstrated that AT-587 efficiently converted to its active triphosphate metabolite in human hepatocytes, which is the site of viral replication in HEV infection. To date, AT-587 has a clean preclinical safety profile, positioning this product candidate as a first-in-class direct-acting antiviral for chronic HEV. I will now turn the call over to Andrea to discuss Atea financials. Andrea Corcoran: Thanks, Jean-Pierre. As Jonae mentioned in her introductory remarks, earlier today, we issued a press release containing our financial results for the fourth quarter and full year 2025. The statement of operations and balance sheet are on Slides 25 and 26. We are pleased to report that our cash and investments were $301.8 million at December 31, 2025. The funds expended in 2025 were principally directed to the advancement of our HCV Phase III program, evaluating the combination regimen of bemnifosbuvir and ruzasvir and to discovery efforts leading to the nomination in January 2026 of AT-587 as the lead product candidate for the treatment of HEV. In 2025, we also returned $25 million to our stockholders through a share repurchase program. Each of these investments and use of funds reflects our steadfast commitment to drive value for our stockholders. For R&D expenses quarter-over-quarter and year-over-year, there was an increase in 2025 compared to 2024. The net increase in 2025 was principally driven by an increase in external spend for our HCV Phase III clinical development, offset by a decrease in 2025 in external spend for our COVID-19 clinical development and lower internal expenses, primarily related to a decrease in stock-based compensation expense and lower payroll and payroll-related expenses. For G&A expenses quarter-over-quarter and year-over-year, expenses decreased. The net decrease was primarily related to lower stock-based compensation expense, partially offset by increased professional fees. For 2026, we intend to maintain our rigorous financial discipline while remaining laser-focused on execution and value-creating advancement of our HCV and HEV product candidates. As we complete our Phase III clinical trials, prepare to submit our regulatory filings and engage in prelaunch activities, including the manufacturing of commercial launch supply, the substantial majority of our spending in 2026 will be focused on the advancement of our HCV program. With the resources in hand as of the end of the year, we expect to realize value-creating milestones for both programs and project our cash runway to extend through 2027. I'll now hand the call back to Jean-Pierre for closing remarks. Jean-Pierre Sommadossi: Thank you, Andrea. On Slide 27, in closing, 2026 will be a pivotal year for Atea. We are on track to deliver top line Phase III results from C-BEYOND midyear. These results will be followed by the top line results from C-FORWARD by the end of this year. We believe that the target profile of our regimen featuring high efficacy, short treatment duration, low risk of drug-drug interaction, convenience with no food effect will uniquely position us to address the need of today's patients and seamlessly fit in the test-and-treat model of care, which has the potential to bring us closer to the ultimate goal of HCV eradication. Our HEV program represent a strategic expansion of our antiviral pipeline and address a major unmet need in a highly vulnerable patient population for which there is no approved treatment available. We anticipate initiating a first-in-human study midyear with a proof of concept by the end of the year and possible to advance to a Phase II/III trial in the second half of 2027. With that, I will turn the call back over to the operator. Operator: [Operator Instructions] The first question will come from Maxwell Skor with Morgan Stanley. Selena Zhang: This is Selena on for Max. Having achieved your enrollment target for the cirrhotic population for C-BEYOND, does that increase your confidence in hitting your target in C-FORWARD? Jean-Pierre Sommadossi: Arantxa? Maria Horga: We are going to achieve our target overall for the program, both in C-BEYOND and C-FORWARD. The cirrhotic enrollment has not been an issue. Operator: The next question will come from Jonathan Miller with Evercore ISI. Jonathan Miller: As we look forward to a commercial launch in HCV, I guess I'll focus there. Can you talk a little bit about how the commercial landscape is currently organized in terms of contracting? Are there centralized groups that you're going to have to convince to switch over from legacy systems? How is pricing in the commercial universe currently going to evolve as we've seen the legacy regimens get put under significant pricing pressure. So can you talk a little bit about how the commercial landscape has evolved over the past 6, 9 months and how well you're positioned to deal with those changes? Jean-Pierre Sommadossi: Great question, Jon. John? John Vavricka: Sure. So as you know, that the market for -- the distribution market for specialty -- for DAAs is a specialty market. And there are three segments pretty much, commercial, Medicare and Medicaid. All of those current distribution pathways are known and are fully utilized. And we're currently looking at all of those relative to the three segments as well as relative to the payers. So it's a known quantity where we will have to be. We actually have conducted preliminary research with the payers and obviously seeing the profile, it is of interest to them. And it was stated that they would be eager to include it in formulary. As far as for pricing goes, the pricing, it's relatively stable. Year-over-year, Mavyret pricing went up a little bit, but Epclusa pricing -- net pricing did go down. But overall, for the past at least 2 or 3 years, the pricing has been -- the relative overall net pricing has been relatively stable and their market shares are getting pretty close to a 50-50 with the favoring Epclusa. Does that answer your question? Jonathan Miller: Yes, it does. Operator: The next question will come from Andy Hsieh with William Blair. Tsan-Yu Hsieh: So looking at the primary endpoint of C-BEYOND based on the -- modified to intent-to-treat population, am I thinking about this correctly that based on this analysis plan, you can actually really expand the effect size because you can basically magnify a regimen that actually can have flexibility into missing doses and given the more potency profile compared to the standard of care. So that's part number one. And part number two is in a scenario where you can actually show material clinical benefit over the standard of care, say, maybe with a statistical perspective, John, based on your market analysis, how would that change some of the physician response in terms of their excitement or potential market uptake? Jean-Pierre Sommadossi: Good questions, Andy. Arantxa, do you want to try the first one? Maria Horga: Yes. Andy, so the mITT, as you know, is everybody that gets a dose. So there will be a range there from people that will get 1 dose or maybe 5 days of dosing to people who will be almost done with the full picture, so with all the doses. So I think it will be interesting to see how it pans out, what's the minimum, I guess. But right now, we're really aiming for an 8-week regimen. We can do sub-analysis in the future. Jean-Pierre Sommadossi: John? John Vavricka: Yes. We're actually very excited because when we look at the market research that has been done just with the Phase II data, bearing in mind that these physicians had 10 years' experience with two DAAs, and showing them a profile and which as we talked about, the short duration, low likelihood of drug-drug interactions and the convenience of with or without food, just seeing that profile for the first time, they saw it being used in approximately 50% of their patients regardless of their cirrhosis status. So the profile right now stands very, very well. So your question about if there was some kind of a more favorable response in terms of BEM-RZR, obviously, that would play into their likelihood to prescribe BEM-RZR. But we're also very conscious that we play in the specialty arena. And in that specialty arena, obviously, the distribution of market share tends to balance itself out to make sure that the market is preserved over time. Jean-Pierre Sommadossi: Just to add, Andy, it's clear from the KOL and the prescribers that #1 key important feature is the treatment duration. So treatment duration definitely will be on the shortest with Mavyret. But then after when you evaluate all the, I would say, complex aspects with patients with polymedication, we feel that the prescriber will really highly favor our regimen. And then we'll see -- we'll have to wait, the clinical data in terms of all the type of side effects with fatigue and nausea and headache that have been reported. So let's not forget that this is the first head-to-head. There is a lot of world-type studies. But as a controlled randomized clinical study, this is the first one. And let's see what we are going to learn. Tsan-Yu Hsieh: Great. And maybe a quick housekeeping item. Just from an R&D perspective, it seems like there is a one-time Merck license agreement. Can you talk about that just so we have a better sense of kind of going forward, what the... Jean-Pierre Sommadossi: Okay. Sure. Andrea? Andrea Corcoran: So yes, Andy, we have in-licensed ruzasvir, which is the combination product with bemnifosbuvir in the HCV product candidate. We are paying milestones, and we will pay royalties to Merck on successful commercialization. The next milestone will be due when we submit the NDA and the NDA is approved. And we believe that's in 2027. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jean-Pierre Sommadossi for any closing remarks. Jean-Pierre Sommadossi: Thank you all for joining our fourth quarter 2025 and full year earnings conference call, and thank you for your continued support. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, and thank you for waiting. Welcome to Rumo's Fourth Quarter 2025 Earnings Presentation. [Operator Instructions] This presentation is being recorded and simultaneous translation is available by clicking on the interpretation button. [Operator Instructions]. Before proceeding, we would like to reiterate that forward-looking statements are based on Rumo's Executive Board's beliefs and assumptions and information currently available to the company. These statements involve risks and uncertainties as they relate to future events and depend on circumstances that may or may not materialize. We recommend that you refer to the disclaimer on the second page of the presentation. Now I'll turn the conference over to Mr. Felipe Saraiva, Rumo's Head of Investor Relations. Mr. Saraiva, you may begin the presentation. Felipe Saraiva: Good afternoon, everyone, and thank you for joining Rumo's earnings conference call for the fourth quarter of 2025. Let me start with the highlights on Slide 3 of the presentation. We closed the quarter with transported volume of 22.9 billion RTK, the all-time high performance in the fourth Q. For the full year, volume increased 5% as a result of structural gains in capacity and operational efficiency. The combination of higher volumes and disciplined execution with lower costs and expenses allowed us to maintain resilient margins. I would like to highlight the 11% nominal reduction in unit fixed costs. showing better productivity levels. Adjusted EBITDA reached BRL 1.8 billion in the quarter, an increase of 8% year-over-year. Investments were BRL 1.5 billion in the quarter, in line with our planning for the period. Financial leverage at the end of the quarter was 1.9x the net debt to adjusted EBITDA ratio, stable compared to the previous one. Moving to Page 4, I will present our market share in the quarter. Our market share remained at consistent levels, reaching 48% in Mato Grosso, 36% in Goias and 65% at the Port of Santos. It's important to note that the fourth quarter had an exceptionally high comparison base for market share. In the fourth quarter last year, export volumes were unusually low, which temporarily increased our market share in that period since we booked our capacity at the beginning of the season. Throughout 2025, we observed a normalization of the market dynamics with market share returning to more normalized levels since the second quarter of the year. Now moving to Page 5, I will share more details about this market dynamic in the Santos corridor, which is our main market. Let me start by reminding that the railway capacity is shared between the Goias and Mato Grosso markets, functioning as a system of communicating vessels. Grain exports in these markets increased compared to 2024, although still below the peak observed in 2023. In this scenario, we expanded our market share compared to 2023, supported by the efficient use of our capacity. I would like to highlight the operational flexibility of the railway with the simultaneous transportation of soybean, corn and soybean meal throughout almost the entire second half of the year, maximizing the use of our assets. In the soybean complex, we recorded volume growth and market share gains compared to the 2023 [ co-crop ]. In corn, the record production was more directed to the domestic market with higher carryover inventories at the end of the season. The railway remains the dominant transportation mode at the Port of Santos, reinforcing our key role in the transportation of agricultural commodities from the Midwest of the country. Moving to Page 6 with the operational indicators. We increased volumes in the Northern operation by 14%, which means more trains running throughout our system. Even so, we maintained stability in our main operational indicators, including transit time and dwell time at the Port of Santos. Regarding energy efficiency, we reduced fuel consumption by 2% with good performance in both the Northern and Southern operations. On Slide 7, I present the operational results and volumes. In the Northern operation, I would like to highlight the strong performance in grains with the simultaneous transportation of the 3 commodities and growth in almost all commercial portfolios. In the Southern operation, we also delivered a quarter of growth with highlights in the agricultural commodities portfolio. Moving to Page 8. Let's look at the highlights for revenues and tariffs. In the fourth Q, we continued the commercial adjustment that started in the second quarter of the year. It's important to remember that the 2024 comparison base reflected a scenario with higher expectations for the corn market, which did not materialize over the last 2 seasons. In this context, transportation prices are now reflecting more closely the actual dynamics and seasonality for our markets. I would like to reinforce our commercial strategy of maximizing value through the efficient use of our capacity. On Page 9, I present the quarterly EBITDA. EBITDA increased 8% in the quarter, reaching BRL 1.8 billion. In the Northern operation, the better performance in fixed costs and expenses in addition to tax-related benefits of roughly BRL 80 million helped to support stable results even in an environment of adjusted prices. In the Southern operation, the higher transported volumes offset the lower average prices during the quarter. In addition, we had tax benefits of roughly BRL 44 million, which also contributed to the quarterly performance. Moving to Page 10, we present the financial results and net income. Net financial expenses in the quarter were BRL 721 million, mainly reflecting a higher net debt base and interest rates. Even so, we delivered adjusted net income of BRL 441 million in the quarter and BRL 2.1 billion in 2025, both growing year-over-year. On Slide 11, we move to debt and leverage. The net debt at the end of the quarter was BRL 15.5 billion, reflecting the cash generation during the period. The financial leverage ratio was 1.9x, the same level as the previous quarter. Our liquidity position remains strong with BRL 7.5 billion in cash position at the year-end and a well-distributed debt maturity profile. As presented in the chart on the right, we have no significant maturities in 2026 and 2027. Additionally, we have BRL 2.7 billion in committed credit lines that remain undrawn. On Page 12, we present investments in the quarter. We invested BRL 1.5 billion in the quarter with BRL 490 million in recurring maintenance and BRL 973 million in expansion. At the Ferrovia do Mato Grosso project, we have accumulated roughly BRL 4 billion in investments since the beginning of the construction, with 80% of physical progress at the end of the year. Now let's move to Page 13 with an update on the soybean market. In the state of Mato Grosso, production is estimated at 52 million tons. Harvesting is progressing normally in the region, slightly above the historical average. Exports from the state are expected to be slightly higher than the last year with an estimated 33 million tons exported. Moving now to Page 14 with the corn outlook. Corn production in the state of Mato Grosso is expected to remain at a high level, close to 60 million tons. The expansion of planted area by roughly 400,000 hectares supports strong agricultural production levels in the state. The corn Safrinha seeding pace is also slightly faster than the historical average. Exports from the state are estimated at roughly 24 million tons with strong production levels offsetting the increase in domestic demand. This concludes my presentation, and we are now available for the Q&A session. Thank you. Operator: Joining us today are Mr. Pedro Palma, Mr. Guilherme Machado and Mr. Felipe Saraiva. Before we begin the Q&A session, Mr. Pedro Palma would like to say a few words. Please go ahead, Mr. Palma. Pedro Palma: Thank you. Good afternoon. Thanks for joining us on Rumo's earnings release call. I'd like to start by reiterating that 2025 was a solid execution year in our operation. We have proven our ability to break records and show our resilience and flexibility to navigate through different market scenarios. As Saraiva said, for instance, we had to operate products such as soybean, corn and soybean meal simultaneously during the second semester. We also made significant progress in our efficiency agenda, both energy efficiency, proving the value of rail engineering and the use of technology that have allowed us to use 135 cars in the North operation improving the whole logistics network and reducing fixed costs and unit SG&A, showing our discipline in reducing company costs and also improving structures and processes. These are inherent values to our culture, and they will continue to be strengthened looking forward. According to our plan, we also made all the planned investments for the year. I'd like to highlight the progress in Phase 1 of the Mato Grosso Railway as we announced in the material we shared with you yesterday. So 80% physical execution halfway through the year and on track for what we had mentioned. The main challenge in the year, and this is no secret to you, was the market environment. We had to do some tactical price repositioning, especially in the grains market, and we concluded that repositioning now this quarter in 2025. To remind you of what happened in the tariff scenario and providing a bit more detail on the North system, we increased prices by approximately 70% between '22 and '24. When we started '25, in the first quarter, we realized that we were too expensive compared to other logistics alternatives. So we had to do some pricing repositioning to adjust our pricing level to market levels to make sure that we could continue to be the best, most suitable competitive solution to be the first choice in logistics for the clients and markets where we operate. We're confident that now we are at a more suitable pricing level. We're working on our value creation -- long-term value creation agenda at the company using our available capacity intelligently. And we also believe in the positive structural side of our market. Rumo is a single logistic platform because of the position of our railway and our terminals, and we operate in the best markets such as Mato Grosso and Goias, where there's growing demand and Rumo has the ability to lead in logistics solutions to meet that demand. One point I'd like to mention is safety, which continues to be a nonnegotiable value to us. In 2025, we restructured all of our safety and security process management. We reduced our incident frequency rate by 40%, both with lost time and no lost time and safe operations are productive operations. We still have some work to do. For instance, the rail security, there have been some events. You may have seen it in the media in the second half of the year. We did have a couple of events that led to a rail incident frequency above what we had expected. But rest assured that all of the events have been analyzed in depth and all the lessons learned have been brought in-house and there was nothing structural in common among all those incidents, but each one of them was a lesson learned that will make us more resilient, more safer and more secure. As I said, safety and security is not a priority. It is a value that we will always continue to pursue. And as for the bottom line, I'd like to reiterate how solid our balance sheet is. We have been efficient in raising funds in the financial market. We raised close to BRL 4 billion in new funding lines, reimbursed credit lines or undrawn credit lines, which ensures financial instruments at a very competitive cost and with a long-term maturity profile. So that will allow us to manage any turbulences with peace of mind. So the company is concluding the year with a very solid balance sheet, relevant operating indicators, very liquid cash position and a great position in terms of investments execution profile. Looking forward, before we move on to the Q&A session, you've seen our volume results in January and February. We started off the year with solid volumes in both operations, both North and South, which makes me excited and confident with regards to the plan we'll be executing on in 2026. And absolutely sure that the company is ready to continue with its agenda to execute and profit from the investments that are being made. Now let's move on to the most interesting part of the presentation, the Q&A. Myself, Guilherme and Felipe are here to take your questions. Have a great afternoon. Operator: [Operator Instructions] First question is from Mr. Lucas Marquiori from BTG Pactual. Please go ahead, Mr. Marquiori. Lucas Marquiori: Based on your disclosure and your comment on the pricing repositioning, Pedro, I understand that you've concluded the tariff repositioning process. So what exactly does that mean now going into this new year? What kind of tariff competitive process are you considering for the Q1 or first half of the year? We've seen road transportation now coming to life, especially at the beginning of the year. So I'd like to understand what your commercial dynamics will be in terms of tariff repositioning that you mentioned for Q1 and Q2 so that we can model it. Pedro Palma: Lucas, thanks for the question. This is Pedro. I'll take your question. Well, we concluded repositioning in this last quarter because we had reached the execution and pricing level that would attract the volumes we expect. So what does that mean for 2026? Let me try and explain. In Q1, obviously, you know that there will be a price reduction compared to the first Q '25 because we started repositioning in Q2 '25. So the comparison basis with Q1 last year is not a great comparison basis. And we said that before because we were clearly outside the right pricing level according to market levels. Now to be specific in terms of what we expect to show in Q1 '26, there will be a price reduction compared to the amounts we were operating with in Q1 '25, that will be just over 10%. So obviously, that will depend on the execution. We are contracted, and that's another point. We are contracted for the whole of Q1 and practically Q2. But in our execution, there is a mix of regions, mix of clients, mix of products that may affect the end price level. But the pricing level that you will see when we publish our -- when we post our results for Q1 will be roughly a 10% reduction compared to Q1 '25. Now moving on to Q2 and consistent with what I said that we started repositioning in Q2 then things, prices should become more stable, which goes to my point, that's when we'll conclude the pricing repositioning process. So all the price changes that we did in '25 were enough to balance our competitive positioning, both -- so I'm not expecting any great pricing variation in terms of Q2 last year. And we have also been able to contract prices for Q1 that are very healthy. Obviously, there was some carryover to the beginning of '26 at the end of the year, but it was the risk of contracting the discussion with our clients in a very healthy environment. And it was all very natural. Also looking at Q2, Lucas, obviously, the second half of the year actually. As you know, those dynamics will depend on the corn dynamics. Corn tends to be a more uncertain crop. So obviously, that means a bit more -- a bit less contracting from clients. So for the second half of the year, we still have relevant volumes to be sold, but we are at a comfortable level for the second half of the year. And in terms of pricing, they are balanced with our prices in 2025, once again, reiterating, and that's why I made that statement. I consider the repricing to be concluded not only because we had reached the right price, but because contracts are coming at the pace that we believe is consistent with what we expect in order to execute on our plans. So the first half of the year is solid. We've made good contracts on track with the prices that we had planned and at price levels that we believe to be suitable for the second half. Everything we've already sold has been sold for the right prices, in line with what we executed on in 2025. And the continuation of the sales process will depend on time the sale dynamics, what happens in the market and our crop projections and our competitive positioning in the logistics market. Operator: Next question is from Mr. Andre Ferreira from Bradesco BBI. Andre Ferreira: Pedro, Guilherme. Thank you for providing us with more on that second question. In terms of CapEx. Could you tell us what the CapEx for 2026 might be and how it will be distributed across your main projects? And what are your expectations for the second phase of the Mato Grosso expansion? Guilherme Lelis Machado: Andre, thanks for the question. This is Guilherme. For 2026, we'll continue with our investment portfolio at the level we had planned. Obviously, the company has been watching market movements in terms of cash generation and cash consumption. We did make an adjustment, and it means that the CapEx level we will be executing in 2026 will be less than the 2025 CapEx, but higher than the 2024 CapEx. So it will be between those 2. And obviously, we'll continue executing on the company's main projects. As we had been saying to you, this will be an important year for us. We'll conclude the Mato Grosso Rail Phase 1. We're going to conclude the main milestones on the tracks and the terminal. We'll also continue with our investment programs in maintenance, which is roughly BRL 2 billion. We're also investing in rolling stock to meet the volume increases that will take place in our operation and -- we also have some investments in our operation as a whole, which includes the construction work schedule in the Paulista network, investing in Fips around the Port of Santos. These are all very important continue to increase productivity in our operations. So as I said, our CapEx this year will be less than last year's, but we won't lose traction in our projects. Let me just say that at that CapEx level, I'm sharing with you now, will include the conclusion of the first phase of Mato Grosso. We haven't planned anything for Phase 2 of the Mato Grosso rail yet. That's under discussion. The company is looking into it, but we don't foresee any investments in the second phase yet because we're still assessing the project. but we are keeping to our schedule. We do have flexibility in that contract, and we are complying with all the metrics in the project. Operator: The next question is from Mr. Guilherme Mendes from JPMorgan. Guilherme Mendes: Pedro, Guilherme, Saraiva. The first question about the contract phase in the first half of the year is very clear. Now in order to understand things in the context of the conflicts in the Middle East, we know that, that's an important region for the demand of Brazilian corn and fertilizer imports. Now this conflict started a few days ago. Have you noticed any change in the pace of contracts for the second half of the year? And maybe looking at the future, how much do you think this conflict might impact on the volume to be contracted for the second half of the year? Pedro Palma: Thanks for the question Guilherme. This is Pedro. Let me answer your question. First of all, the Middle East in terms of operational continuity and supplies is not relevant. So it doesn't mean any relevant risk to our rail. So I just wanted to reiterate that we're not concerned about that. As you put very well, Iran's relevance more specifically in the Middle East, the Brazilian agricultural market finds it relevant in terms of corn export as a destination for the second half of the year. It is relevant. Iran is for the Brazilian corn. It does vary from year-to-year. Last year, they bought a lot, 9.5 million tonnes. The year before, it was 5 million tonnes. So corn has a very capitalized, very fragmented market by nature, which is different to soybean. China is the main client of the Brazilian agricultural soybean. Corn is more capitalized. But Iran is a relevant destination for corn exports. But again, it's a relevant player for exports in the second half of the year. So to be very transparent, my crystal ball is as good as yours. So we're going to have to monitor things to understand how long this conflict will last, what kind of an impact it will have. Looking at current data, historical data, I wouldn't say that it won't cause any relevant problems to Brazilian agriculture, but we'll have to monitor the situation. Obviously, ourselves and the whole market will be monitoring it. As you said, Middle East also supplies some fertilizers to Brazil. And those global logistics networks, they end up changing when those impacts happen. The resilience in global commodities is considerable. You can have an impact on the cost of commodities on prices, but markets that need that product will find a way to meet their needs. So to us, we believe the company's figures will materialize. But obviously, it is a relevant conflict, and we'll continue to monitor it. But right now, we don't believe it's going to be a major problem. We're not terribly concerned about what's happening there and its impact on the company. Operator: Next question is from Mr. Gabriel Rezende from Itau BBA. Gabriel Rezende: Pedro, Guilherme, Felipe. I have a follow-up question about geopolitics, but it's more about fuels. It's clear that Petrobras' pricing practices parity are quite detached now if there is a price adjustment on internal fuels, what do you think is going to happen? If fuel prices go up, do you think there will be more pressure on the margin considering the company is contracted for Q1, but will you consider more take or pay for the second half of the year? How do you see that dynamics? Do you think it could be a net positive for the company? And will it help offset the effect you just mentioned on fertilizers and corn exports. Felipe Saraiva: Gabriel, this is Felipe. Thank you for your question. The impact on Rumo will be mainly diesel. That's the first point we should clarify. We need to look price fluctuations in oil tend to affect diesel prices. So how does pricing dynamics work for Rumo? All volume margins that we have with our clients, both to transport general cargo or grain transportation have a protection mechanism. So we can pass on any fluctuations in the price of fuel. So for the whole volume that's been contracted, we are not exposed. We have a natural hedging mechanism that protects the company's margin in terms of passing on the price. Obviously, that will depend on market conditions. If fuels become more expensive, then rail becomes more competitive because the energy efficiency is better than other corridors that depend on road transportation. If it's not clear, let me know, and I'll try and rephrase my explanation, but that's how we see the fuel dynamics. Operator: The next question is from Mr. Rafael Simonetti from UBS BB. Rafael Simonetti: Pedro, Guilherme, Saraiva. It's about working capital. Now looking at 2025, there was a significant variation compared to 2025. Could you please comment on the main factors that explain that? And also what we can expect for 2026. Guilherme Lelis Machado: Rafael, this is Guilherme. Well, from quarter-to-quarter, there's always some phasing -- sometimes they haven't materialized or they are materializing in terms of cash conversion. And there are many topics, but if I focus on, one, the activation of some extemporaneous tax credits that we had over the year. And the monetization dynamics wasn't exactly as it's passed on to the results. So suppliers, clients dynamics are predictable. We know how they work. It's all very healthy. And there are some specific elements that took place that led to that mismatch, but nothing concerning or nothing that changes the dynamics of our working capital dynamics? Operator: The next question is from Mr. Bruno Amorim from Goldman Sachs. Bruno Amorim: I have a follow-up question about the Mato Grosso extension, please. Over the year, how can the extension contribute with volume? Do you think it can make a relevant volume contribution over the year? And for the next years, how are you going to ramp up the use of that capacity? In terms of Mato Grosso. If you're not going to invest in Mato Grosso Phase 2, and you were going to spend about BRL 2 billion a year on the expansion, then there should be a BRL 1 billion reduction in this year's CapEx compared to last year. I know that there are many moving parts, but -- your CapEx is pointing to a CapEx that's closer to BRL 6 billion than BRL 5 billion. And if we take away BRL 1 billion from last year's CapEx, it will be closer to BRL 5 million. So if you can help us reconcile those points. Maybe there's another project that's ramping up this year. Unknown Executive: Bruno, thanks for the question. As for the first part of your question, yes, the beginning of operations of Phase 1 will happen in Q3. Then we'll have the commissioning phase, the beginning of operations. We'll do it gradually, and we'll be very careful about it. We'll begin to move some volume at the BR70 terminal more consistently in Q4. And the main thing is that the company's current capacity would already be enough to move all that volume that will transport in 2026, which will be more than 90 billion RTK in terms of where we want our operation to be. So the terminal will make its contribution. However, it won't bring any substantial additional capacity. So the portfolio we have right now would be enough for the volume. Now as of 2027, yes, there will be more of an inflow to that terminal, and it will grow as the market grows. Let's not forget, there are 10 million tons, and we want to fill up that capacity. And the volume of our operation should be at the same level as the market grows. Now in terms of our investments, yes, we will continue to make major investments in the company to conclude Mato Grosso Phase 1, that will be roughly BRL 1 billion. approximately. And as I said previously, we'll continue with our plan to make recurring investments in maintenance that will be BRL 2 billion. And there is an increase in investments in rolling stock that's considerable. Over the last few years, we have been increasing our asset pool, but in structures that weren't necessarily the direct use of company funds. We did establish partnerships with clients. We will now resume investments in rolling stock using company capital. Now also to pay for the Paulista Network program, we'll also need to increase investments. So it's not a straightforward math. In our investments mix, there are also increases in other investments in the portfolio that have placed us in that position between '24 and '25. Operator: The next question is from Mr. Rogerio Araujo from Bank of America. Rogério Araújo: Now still on your tariff repositioning dynamics. If I could ask a couple of follow-up questions. First, if you hadn't repositioned your prices, would those volumes have left through other corridors, or would it have stayed in Mato Grosso? Second question, could you talk about Rumo's rail gap compared to other transportation mode alternatives, other corridors? And also what kind of freight price floors can we consider. What would be a level that would make the company comfortable to believe that you've reached the right level. Felipe Saraiva: Rogerio, this is Saraiva. Thank you for your question. It's hard for the company to try and work out in hindsight what would have happened, what would have happened if we had positioned it this way or that way. I can tell you what we did do, what we looked into and what variables we took into account. We started 2025 with the company more expensive than other companies in Mato Grosso and around Mato Grosso. We are more expensive than other logistics solutions. So as we said, we repositioned it by roughly 10% as of Q2. Once we repositioned the prices, our market share level normalized, and that's the indicator that the company prices are now level with market levels. If prices were below -- too far below the competition, then that market share might have been much bigger than it was. So the way we look at it and what we estimate for -- from the competition and what we want in terms of market share for the company suggests that we are at an average competitive level in terms of origins in Mato Grosso. Now for 2026, looking at the first half of the year, it suggests that our price is competitive, and they were good for the clients that decided to use rail transportation. If there's any need to change tactics, the company is always open. We are consistently monitoring the market to position rail transportation competitively. That is the priority. We need to make sure that we are occupying our capacity efficiently and always fitting it with the market reality. If there are capture opportunities in the market, we'll capture them like we did last year. If we need to reposition again, we'll keep an eye out for that. That's it, if you'd like anymore explaintions, we'll be here. Rogério Araújo: That's very clear. Operator: The next question is from Mr. Daniel Gasparete from Itau BBA. Daniel Gasparete: I have a follow-up question to Pedro's comments. I just want to double-check the number. Did you say 10%, a little bit less than 10% for Q1. So I just want to double-check that. And then I'd like to talk about the West Network. How are discussions going? And the last one, if I may, is a bit more qualitative. How are you thinking in terms of commercial policies? Saraiva's comments were very clear. And based on what Pedro said, last year, the company had higher prices than other modes of transportation. So how are you thinking about your prices prospectively to protect yourselves from movements like that in the future? Or is it just a price sake, that's the reality of life, and you need to optimize what you can in terms of cost? Unknown Executive: Thank you for your questions, Daniel. Now I'm going to answer your question about the West Network. Now to be transparent, we've been saying this to the market, and we've been discussing it with the government. And the natural way forward would be to return the asset to the granting authority. That is a concession that we have been aware that hasn't been operating at the right level. We reconditioned the last operation we had in the West Network. Right now, that operation has basically been interrupted. There are no volumes being transported. The last contract has terminated with the last remaining client. We're not allocating any funds to that operation. So the next natural step will be to continue to talk to the government to formally return the asset. And we are doing our best to move diligently in that process. There are no news, nothing new to share with you, and this should happen this year. And the contract will end halfway through the year. So we're not allocating any funds to that network. We won't be allocating any funds as of the second half because the operation has been suspended. So we'll now just formally return the asset to the granting authority. Pedro Palma: This is Pedro now, Andre. I'll take your question about the commercial policies. Just to clarify my comment just over 10% price reduction in Q1 2026 compared to Q1 2025. I'm talking about the North operation consolidated yield specifically, which is the most relevant piece of data in our balance sheet. So that's it. The RTK in North operation in Q1 '26 compared to Q1 '25. In terms of our commercial policy, Daniel, to be very candid with you. I used the expression tactical readjustment, tactical positioning because our strategy hasn't changed. We haven't changed our commercial policy. Our policy has always been and continues to be the most competitive logistics solution or competitive in markets where we choose to operate to ensure that we can use our capacity efficiently and intelligently. That allows us to be the player with the lowest cost to serve with the best capacity and the most resilience in the system, connecting Brazil's main export corridor, which is the Port of Santos. So we'll maximize value creation in that structure is key. What we did in 2025 and when we say that in Q1, our price was wrong, that was actually -- just to go back a bit, we came from a crop failure in 2024. So the information about the right price for 2025 that we knew was going to be a year where there would be good product supply for exports, but it was uncertain. Nobody knew. The market didn't know. We didn't know exactly what the pricing level would be for logistics in Mato Grosso and what level it would become stable in 2025. So Q1 was necessary to find out what the new logistics price would be. As we found out what this new pricing level would be, we've made the adjustments -- there were complexities, but we have been doing it throughout the year. In 2025, we had very healthy volumes. We delivered very consolidated volumes because the only adjustments we made were to the prices. Now the level of uncertainty is much less than it was in Q1 '25. Obviously, things can change. I always reiterate, we can never forget that we work with agricultural commodities that are part of our business. That's why we like to keep a high liquidity position and focus on execution, discipline and being very strict when we use company funds. That's why we need to have an agenda to optimize our costs, looking at unit costs to make sure that we have healthy margin levels regardless of what can happen in the commodities environment, which is where we operate. So we can't give you a guarantee of an absolute price level or absolute crop level. What we can guarantee is that our company is increasingly more solid, disciplined and strict when it comes to everyday expenses so that regardless of what happens, we will be the benchmark player, and we will be able to navigate whatever happens. Thank you. Have a great afternoon. Operator: The Q&A session is now concluded. We would like to hand the floor back to Mr. Guilherme Machado for his closing remarks. Guilherme Lelis Machado: I'd like to conclude the call by thank you all for joining us. And to reiterate, we're very confident about 2026, as you saw in our opening remarks. We had a very solid execution in January and February in terms of volume. We'll begin the year practically with the first half of the year fully contracted, focusing on operating those volumes. And we know that the operations back when there's pressure on our system. We do best when we have demand, and that's when we can optimize our system. We also mentioned that at the end of Q1, we'll have more visibility in terms of prices are going, as Pedro reiterated more than once. We should have a little bit less than 10% reduction. And as of the next quarters, pricing levels will be more compatible with the repositioning that we started in 2025. It's reasonable to believe that we'll have more stable prices over the year. We'll monitor market dynamics. There should be a lot of information available at the beginning of the year. And for volumes that haven't been contracted, we will continue to follow our strategy and look out for any opportunities. We aim to increase transported volumes within our system capacity over 90 billion RTK. We'll continue to comply with our investment portfolio and company contracts and concluding Phase 1 of the Mato Grosso Rail, we are absolutely confident that we will be delivering that project in Q3 2026. We have been working on liability management and liquidity in 2025, and that has made us feel sure that we are liquid and our leverage level is consistent with our business profile and our ability to navigate any volatilities this year, maybe due to election or anything else that might happen. That's it. The company is ready to operate efficiently, cost efficiency, whether they be fixed or variable and executing on our investment portfolio. Thank you once again for joining, and I'll see you again during the call for Q1 2026 or some other time. Thank you. Operator: This concludes Rumo's earnings release video conference. Thank you for joining us, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Greetings. Welcome to a.k.a. Brands Holding Corp.'s Fourth Quarter and Fiscal 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Emily Schwartz, Head of Investor Relations. Thank you, and you may begin. Emily Schwartz: Good afternoon. Thank you for joining a.k.a. Brands to discuss our fourth quarter and fiscal 2025 results released this afternoon, which can be found on our website at ir.aka-brands.com. With me on the call today is Ciaran Long, Chief Executive Officer; and Kevin Grant, Chief Financial Officer. Before we get started, I'd like to remind you of the company's safe harbor language. Management may make forward-looking statements, which refer to expectations, projections and other characterizations of future events, including guidance and underlying assumptions. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed. For a further discussion of risks related to our business, please see our filings with the SEC. Please note, we assume no obligation to update any such forward-looking statements. This call will also contain non-GAAP financial measures such as adjusted EBITDA, adjusted EBITDA margin and constant currency net sales. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the release furnished to the SEC and available on our website. With that, I'll turn the call over to Ciaran. Ciaran Long: Good afternoon, everyone. Thanks for joining us today to discuss our fourth quarter and full year 2025 results. I'm pleased to report that we delivered another year of growth, reflecting the continued strength of our brands and the power of our business model. Despite a dynamic environment, we executed on our strategic priorities, strengthened our foundation and entered 2026 positioned for accelerated growth and expanding margins. I want to thank our teams across the business for their focus and disciplined execution throughout the year. Their commitment and hard work were central to the progress we made and the momentum we carry into the year ahead. Let me start with a few highlights from the year. For the full year, we grew net sales 4.4% to $600 million, marking another consecutive year of growth. Our U.S. region, which remains our largest and fastest-growing market, delivered net sales growth of 7% to $394 million. On a 2-year stack, the U.S. is up 25%, further reinforcing our conviction in our U.S. expansion plans, and the U.S. now makes up 66% of the business. Princess Polly continued to deliver strong performance throughout the year, generating double-digit net sales growth and advancing its omnichannel expansion strategy. The brand opened 7 new stores in the U.S. in 2025 and launched its first location in Australia in the fourth quarter, ending the year with 14 stores globally. Wholesale continued to perform well across the portfolio, with our partnership at Nordstrom exceeding expectations with both Princess Polly and Petal & Pup delivering strong results. We also strengthened the leadership team, operations and go-to-market strategy within our streetwear brands. These actions improved merchandising discipline and inventory productivity, positioning Culture Kings and mnml for accelerated growth and stronger margin contribution in 2026. And importantly, we exited the year with inventory down 10% year-over-year, reflecting our continued disciplined approach to inventory management as we improve turns and transition our streetwear business to the test and repeat merchandising approach. In 2025, we also completed an important structural transformation of our supply chain. As discussed in prior quarters, given the rapidly evolving macro environment, we accelerated the diversification of our sourcing strategy to enhance long-term flexibility and resilience. That work is now substantially complete with approximately 50% of our U.S. sourcing from outside of China, in line with our targets, along with our ability to quickly move to different regions as necessary moving forward. Our test and repeat merchandising model and short lead times, while core to our agility and inventory efficiency, meant we couldn't prebuy inventory ahead of our elevated tariffs implemented in 2025. Despite the margin headwinds faced throughout the year as we source product at the higher tariff rates, we delivered 30 basis points of gross margin expansion to 57.3% for the year. We estimate that the tariff headwinds offset by our mitigation efforts negatively impacted fiscal 2025 gross margins by approximately 100 basis points. Looking ahead, we're better positioned to adapt quickly to any future trade policy changes while maintaining our competitive advantages in speed and inventory efficiency. The progress we've made over the past 2 years provides a strong foundation as we look ahead towards 2026 and beyond. In 2024, we stabilized the business and returned to growth. In 2025, we built on that momentum by growing the top line, strengthening our supply chain, expanding our omnichannel presence and continuing to invest in our brands. And as we enter 2026, we have improved operational discipline, stronger inventory health and a clear path to accelerating growth and expanding margins. I'm confident the momentum in our business is picking up with first quarter-to-date net sales growth of mid-single digits, driven by growth in our U.S. online channels. Our 2026 strategy remains focused on 3 core priorities: first, attracting and retaining customers through our direct-to-consumer channels with exclusive trend-driven merchandising and innovative marketing; second, expanding brand awareness and our total addressable market through physical retail and strategic wholesale partnerships; and third, we remain committed to streamlining our operations and strengthening our financial foundation. As part of this, we are actively embedding AI across the organization to enhance the customer experience and drive operational excellence. Our portfolio model and flexible asset-light technology stack enables us to rapidly test and refine solutions at the brand level, scale what works and unlock value across the entire platform. We're already seeing measurable impact in product imagery, marketing productivity and inventory and markdown optimization. These capabilities are already improving conversion, sharpening creative execution and enabling smarter, faster, data-driven decision-making across the business. We expect AI to be a meaningful driver of margin expansion in the coming years, and we're scaling these initiatives with discipline and speed. With that, I'll share highlights from each of our brands and the growth drivers for the coming year. Starting with Princess Polly, our largest brand, which comprises more than half of the portfolio. Princess Polly continues to resonate with next-generation customers through its trend-driven merchandising, authentic customer connections and disciplined social-first marketing approach. And I'm confident that there's tremendous runway ahead for continued global growth. As mentioned, in 2025, Princess Polly delivered double-digit net sales growth, driven by the success in both its direct-to-consumer business and its omnichannel expansion. The team continues to execute its test and repeat model with discipline, delivering consistent weekly newness that supports strong full price sell-through. Importantly, the improvements we made to our supply chain position the brand to operate with stronger in-stock levels and capture demand more efficiently in 2026. From a marketing standpoint, Princess Polly continues to meet its customers where they are, maintaining a presence across more than 20 social and digital platforms, complemented by in-store events and broader brand initiatives. TikTok remains an important demand generation channel. And in 2025, the brand increased its focus on TikTok Live, creator collaborations and search-driven discovery, driving stronger engagement and efficient customer acquisition. Beyond this online performance, Princess Polly continued to expand its retail footprint with results exceeding expectations from both a financial and brand awareness perspective. Princess Polly successfully opened 7 new stores in the U.S. in 2025, ending the year with a total of 13 stores in the U.S. And as mentioned, the brand opened its first store in Australia in Bondi Beach, Sydney in December. The Bondi store has been very well received and reinforces our confidence that Princess Polly's omnichannel strategy resonates well globally. Princess Polly's wholesale business also continued to perform well in the fourth quarter, further expanding brand reach and reinforcing our strategy of meeting customers wherever they choose to shop. Princess Polly will continue to expand and optimize its TikTok Shop and wholesale partnerships, ensuring strong brand presentation across key retail partners. Looking at 2026, Princess Polly has a clear runway for sustained global growth, supported by several strategic initiatives. The brand will continue to fuel e-commerce growth by refining its test and repeat strategy and reinforcing brand and product storytelling. Princess Polly will deliver consistent newness, focusing on proven best-selling party styles while also expanding its casual and basic categories to increase share of wallet. From a marketing perspective, the brand will prioritize influencer-led content and product storytelling across social platforms to drive engagement and full price demand. Princess Polly will continue expanding its U.S. retail footprint with 8 new store leases fully executed and additional locations expected to be announced throughout the year. As shared in our related press release today, store openings in the second half of 2026 include Houston and Frisco in Texas, Orlando, Florida; and Adena, Minnesota, and locations in Jacksonville and Boca Raton in Florida, Nashville, Tennessee; Charlotte, North Carolina planned for early 2027. While the existing fleet continues to meet our profitability and payback expectations, driving solid 4-wall profitability, each new opening provides an opportunity to further refine execution and enhance store productivity. And lastly, Princess Polly is beginning to lay the foundation for international growth to broaden reach and expand its global presence. Later this month, in partnership with a third-party logistics provider, Princess Polly would unlock distribution in the U.K., improving customer lead times and enhancing the overall experience in the region. This establishes the operational foundation for moderate growth in the U.K. in 2026 with further expansion in the coming years. Turning now to our other women's brand, Petal & Pup. The brand continues to resonate with its core customer through a curated assortment of trend-forward feminine occasion-driven styles at accessible price points. In 2025, Petal & Pup delivered solid performance, supported by continued strength in dresses and eventwear, while broadening its assortment to capture more everyday demand and repeat purchases. Brands growing wholesale presence, particularly at Nordstrom, exceeded expectations. Petal & Pup has established a meaningful presence within Nordstrom trend section across all categories, with particular strength in dresses and more casual styles, expanding brand awareness and introducing new customers to the brand. In the fourth quarter, Petal & Pup successfully launched on the rental platform, Nuuly, Nykaa Fashion in India and Australian department store, David Jones, with strong initial results out of the gates and plans to further expand on each of these platforms are already underway. Looking ahead to 2026, the focus remains on deepening product differentiation and strengthening brand equity. Petal & Pup will continue to expand its range with a clear emphasis on outfitting its core customer across every aspect of our life. This includes a stronger push in casual wear and elevated separates, particularly tops and knitwear to complement the brand's established strength in dresses. By building a more balanced and versatile assortment, the brand aims to drive increased repeat rate over time. This strategy will be underpinned by a continued commitment to enhance quality, compelling price points, effortless outfitting and trend-led perspective. Petal & Pup is also elevating its brand storytelling and community engagement, shifting beyond purely product-led campaigns towards more cohesive and authentic brand narratives. The recent refresh of its branding, website and visual identity supports this evolution alongside the launch of an evergreen brand campaign across social channels and key out-of-home placements this month. Omnichannel and international expansion also remains a key growth driver for Petal & Pup. In addition to continued expansion with Nordstrom, newly and existing partners, Petal & Pup will launch with Dillard's, Von Maur and select independent boutiques in 2026, further extending its reach and awareness in the U.S. market. I'm confident that Petal & Pup is well positioned for continued growth in 2026 as it strengthens its assortment and expands its reach. Turning now to our streetwear brands. Culture Kings remains one of the most distinctive experiential retail concepts in the market, blending global streetwear, music, sports and culture into a highly immersive customer experience. In 2025, the focus was on strengthening the fundamentals of the business in both the U.S. and Australia to position the brand for accelerated growth in 2026 and beyond. Culture Kings' exclusively designed in-house brands are a key differentiator and central to its growth strategy. In 2025, the company intensified its focus on this portfolio, including brands such as mnml, Loiter, 73 Studio, Carre, Saint Morta and American Thrift by evolving its merchandising approach, relaunching priority brands and elevating product quality. Investments in Loiter drove double-digit revenue and gross profit dollar growth in 2025, validating the strategy. Building on that momentum, 73 Studio and American Thrift were relaunched in the fourth quarter with a refined design direction and stronger go-to-market execution. Early sell-through and improved new style velocity from the refreshed brands has been encouraging, reinforcing confidence in the owned brand strategy heading into 2026. Owned brand penetration is expected to continue expanding, supported by faster product cycles, tighter assortment and a clear brand point of view. This more focused product strategy is designed to drive stronger full price sell-through and support margin expansion in the year ahead. In addition to the in-house brands, Culture Kings continues to enhance its third-party assortment from leading national headwear and footwear brands such as New Era, ASICS, Adidas and more to complete the streetwear outfit. Beyond its online channel, Culture Kings retail footprint and retailertainment ethos remains central to the model. The stores, including the Las Vegas flagship and 9 locations across Australia and New Zealand, serve as meaningful revenue drivers and powerful marketing engines. Each location delivers a differentiated and immersive experience that builds loyalty, drives customer acquisition and reinforces the brand authority in streetwear. In the fourth quarter, the team relocated the Brisbane store into a newly renovated 5,000 square foot format designed to serve as a more productive and repeatable model. While the store retains high-impact features such as the hot wall and hot basketball court, the format is being tested as a prototype for future U.S. expansion. Early results have been encouraging, and the learnings from Brisbane will directly inform the next phase of U.S. store growth. We're actively pursuing a location for the second U.S. store and we'll provide updates on future calls. Looking ahead to 2026, I'm confident that Culture Kings is set up for success with operational improvements in the rearview, a healthier inventory position, strong and accelerating performance at its in-house brands and more stores on the horizon. I'm encouraged by the progress and excited for the future. Before I turn it over to Kevin, I want to again express my gratitude to our incredible team. The past year acquired agility, resilience and an unwavering focus on execution. Our teams across all functions rose to the challenge, successfully navigating the supply chain transformation while continuing to deliver compelling products and experiences to our customers. I'm confident that we have the right operational foundation, the right team and the right strategic priorities to drive accelerating growth in 2026 and beyond. With that, I'll turn it over to Kevin. Kevin Grant: Thanks, Ciaran. Turning to our financial results for the fourth quarter. Net sales increased 3.1% to $164 million, in line with our guidance. As we noted on our third quarter call, due to the accelerated supply chain transition, we entered October with meaningful out-of-stock positions in key best-selling styles, which limited sales in the early part of the quarter, but inventory levels stabilized as we moved through the quarter, and we ramped up our marketing engine to regain sales momentum. Net sales in Australia were also in line with expectations, increasing 1.6% to $58.1 million. As Ciaran mentioned, we entered 2026 with strong momentum with first quarter to-date net sales growth in the mid-single digits. As a reminder, as we continue expanding across channels, the shape of the P&L will continue to evolve, though we expect overall margin dollars to increase as we pursue the growth opportunity ahead of us. Total orders were $2.2 million, up 6.4% year-over-year. Trailing 12-month active customers, excluding wholesale, were 4.18 million compared to 4.07 million a year ago. And average order value was $76, down 2.6% year-over-year. Turning to our profitability metrics. Gross margin declined 30 basis points to 55.6% compared to 55.9% last year, reflecting the impact of the out-of-stocks and best sellers in October, partially offset by a higher mix of retail stores. Selling expenses were $51 million or 31% of net sales, reflecting the retail footprint expansion and onetime fulfillment charges. Marketing expense was $20.5 million or 12.5% of net sales. General and administrative expenses were $30.3 million or 18.5% of net sales. G&A expenses increased year-over-year primarily due to charges for a nonrecurring legal matter as well as an increase in headcount to support our channel expansion strategy. And we delivered adjusted EBITDA of $2.5 million or 1.5% of net sales. For the full year, net sales increased 4.4% to $600 million, in line with our expectations and compared to $574.7 million a year ago. On a constant currency basis, net sales increased 5%. Adjusted EBITDA for the year was $19.7 million or 3.3% of net sales compared to $23.3 million or 4.1% of net sales a year ago as tariffs and inventory disruptions pressured results. As Ciaran mentioned, the tariff headwinds, partially offset by our mitigation efforts, negatively impacted margin by approximately 100 basis points. Turning to the balance sheet. We ended the year with $20.3 million in cash and cash equivalents compared to $24.2 million at the end of the fourth quarter of 2024. Debt at the end of the quarter was $111.1 million compared to $111.7 million at the end of the fourth quarter of 2024. As a reminder, we successfully refinanced our debt in October and extended the maturity to 2028. As Ciaran mentioned, we're really pleased with the progress we've made improving the quality and quantity of our inventory. We ended the quarter with $86.2 million in inventory, down 10% compared to $95.8 million at the end of the fourth quarter of 2024. Turning now to our outlook. We are entering 2026 with momentum and a stronger operating foundation. Our outlook is based on the tariff rates in place exiting 2025 and does not include the impact of any potential refunds as a result of the Supreme Court's decision to overturn the IEEPA tariffs. For fiscal 2026, we expect net sales to be between $625 million to $635 million, representing growth of 4.2% to 5.8%. We expect adjusted EBITDA of between $27 million and $29 million. For modeling purposes, we anticipate fiscal 2026 stock-based compensation of approximately $6.5 million to $7 million, depreciation and amortization expense of roughly $20 million to $21 million, interest and other expense of approximately $16 million to $18 million an effective tax rate of negative 10%, CapEx between $18 million to $20 million and weighted average diluted share count of approximately 11 million. For the first quarter, as mentioned, quarter-to-date net sales growth is tracking mid-single digits with strength on our online channels in the U.S. As a reminder, in March of last year, Princess Polly and Petal & Pup launched across all Nordstrom stores, creating a more challenging wholesale comparison as we progress through the quarter. For the first quarter, we expect net sales to be between $130 million and $132 million, reflecting a low single-digit growth rate. For modeling purposes, for Q2 through Q4, we expect high single-digit growth on a 2-year stack. Due to the timing of tariff impacts, adjusted EBITDA comparisons will be more challenging in the first quarter before normalizing in the second quarter. We expect adjusted EBITDA between $1.5 million and $2 million in the first quarter. For modeling purposes, for Q2 and Q3, we expect an EBITDA margin expansion of about 100 basis points and a larger expansion in Q4 compared to the same period last year. In closing, entering 2026, the business is operating from a position of greater strength. The progress we made in 2025 across supply chain diversification, inventory discipline and omnichannel expansion has positioned the business to accelerate growth and improve profitability in the year ahead. As a result, we believe 2026 represents an inflection point for the company with clear drivers to support top line growth and margin expansion. With that, we'll open the call for questions. Operator: [Operator Instructions] Our first question comes from Ryan Meyers with Lake Street Capital. Ryan Meyers: First off, just thinking about the EBITDA guide for 2026, obviously, a pretty significant step up here from what you guys reported in 2025. Can you just walk us through kind of the key drivers of that? Is most of that coming from the gross margin side? Are we seeing any operating expense leverage? And then are there any lower nonrecurring costs? Just kind of bridge that gap for us would be helpful. Kevin Grant: Yes. Thanks, Ryan, for the question. Yes, we're coming out of the quarter with good momentum. That strong performance for the year, over 4% growth, 5% on a constant currency basis. We've mentioned we've seen mid-single-digit growth so far in Q1. The guide for the year on the top line is that sort of mid-single digits. And then from a profit perspective, we mentioned EBITDA, we expect over the entire year about 120 basis points of EBITDA expansion. I would say the bulk of that, Ryan, comes from gross margin. We mentioned the headwind of 100 basis points in gross margin in FY '25. So we'll be moving past that in the year. We're finishing inventory in a really strong position, down 10% year-over-year and down 10% sequentially. So we're feeling great about that. We'll have some channel mix impact in the gross margin as well. The balance of the EBITDA improvement will come across the rest of the operating expense lines. As mentioned, we'll continue to see the shape of the P&L move, as the channels change shape of the P&L. But overall, I feel really good about that guidance. And then on the nonrecurring charges, no, not really anything of note for the guide for FY '26. Ryan Meyers: Okay. Got it. And then just switching to the retail business. Can you guys tell us what percentage of the revenue mix now does come from retail? Obviously, pretty significant store openings in 2025, expected again here in 2026. Is that starting to become a more meaningful percentage of the overall revenue mix? And then how should we think about the growth of the stores or the revenue growth at the stores relative to the direct-to-consumer business? Is the growth outpacing that there? Just any more details on that as it's becoming a larger portion of the business? Ciaran Long: Yes, Ryan, this is Ciaran. We are really happy with the store performance. And I think for us, seeing really good productivity on a square foot in the Princess Polly stores also really strong 4-wall profitability and I think really feel good about the opportunity that we have to continue to lean into stores. We've now 13 open in the U.S., which is great progress. As we mentioned, signed 8 more leases. And I would say kind of 4 to 5 of them will open in FY '26. So we're going to continue to lean into the opportunity that we have at the stores. I think tremendous growth. It's also great for us bringing in new customers. We're also seeing a nice halo effect from the online business or to the online business from the stores. So I think just kind of more and more ahead of us. Operator: The next question comes from the line of Dana Telsey with Telsey Group. Dana Telsey: As you think about the Princess Polly business and the opening of the 8 stores, how do you envision the business retail versus wholesale, your direct online? What do you want the complexion to look like? And can you talk about what the gross margin differential is between? Ciaran Long: Yes. Sure, Dana. Look, I think there is tremendous opportunity. And just as a reminder, Princess Polly is about half the revenue for the group at the moment, 13 stores open, also a great presence in Nordstrom across all Nordstrom doors in the U.S., just like the Petal & Pup brand has and seeing really good response rate really across all of the channels for new and existing customers. I think, look, from a long-term perspective, we're going to continue to grow the online business. We think we are -- still have a lot of opportunity there. But obviously, from a wholesale and stores perspective, we are extremely early. I think as it relates to those, I would see the more focus from the Polly team is on opening stores and building out that store footprint. I would say on the Petal team, they're more focused on the wholesale opportunity in front of them. And we mentioned a few of the new partners that they have this year and coming in 2026. From a margin perspective, I would say, look, it's all -- they're all profitable channels. They're all bringing new customers. We do see gross margins a little bit higher in the stores than online as the stores are a little bit less promotional at this stage. Obviously, gross margins lower in the wholesale channel, but very limited selling expenses, marketing in those channels as well. So kind of on a contribution profit basis, pretty similar across the mall and really gives us confidence to kind of our ability to push into the mall and that they'll all be margin accretive. Dana Telsey: Got it. And just lastly, the shaping of the year, how are you thinking of the cadence of top line and adjusted EBITDA given the lapping of tariffs and the supply chain transition that you had? Kevin Grant: Yes, Dana. So from a top line perspective, we've talked about that sort of mid-single-digit growth for the full year and the guide for FY '26. As you alluded to, there's definitely a lot of disruption with the tariffs and supply chain issues in FY '25 that sort of disrupts our normal cadence. So that's why we're guiding from a top line perspective the growth from Q2 through Q4 on a 2-year stack, it's sort of that high single-digit perspective. We mentioned EBITDA over the balance of the year expanding about 120 basis points with that really picking up in Q2. So Q2 and Q3 look very similar and will be about 100 basis points higher than FY '25 with a little bit of a larger impact in Q4. Operator: The next question comes from the line of Eric Beder with SCC Research. Eric Beder: Can you talk a little bit -- I know a little bit about the inventories here. So that's a really nice number, down 10%. I'm assuming given the tariffs and the SKU count, that's down even more. Is that something that -- what we should be thinking about that going forward for this year given the kind of ups and downs in the tariffs last year? Ciaran Long: Yes, Eric, I think really good to see kind of inventory down 10% and doing that in a period where we're growing the overall business up 4.4% for the year and in a period when such progress on diversifying our sourcing last year as well. I would say a big driver of that change in inventory is just the progress we've made at the Culture Kings business and moving them on to test and repeat. It's a slow build to change that and kind of such a transformational difference for the group. But I think the leadership team that's been in there now for 12 months and longer have just made huge progress, and that's a big driver of the inventory change. Look, I think philosophically, we always want to have lower inventory growth and sales growth, and that's how we're looking to go through this year. Eric Beder: Okay. And Australia and New Zealand, 4 quarters of growth here. Is this market back? And how can you leverage that even more now that pretty much the inventories have been cleaned up and some of the other positives have rolled through there? Ciaran Long: Yes. It is great to see 4 quarters in a row of growth in the Australia region. And I think, look, Petal & Pup and Princess Polly have been doing well there because they have been on that test and repeat model. I think now that Culture Kings is and the new leadership and kind of ways of working that the team has there, we're really seeing progress there. We're seeing real improvements in productivity for new products and new SKUs that we're bringing in. So I think back to growth there is great. Also, as we talked about, we opened -- we relocated a store in Brisbane for Culture Kings down at a 5,000 square foot kind of size. It's a new model that we can -- testing there, we can do that quickly and then leverage the rollout in the U.S. I think for us, we are expecting moderate growth in Australia, but I think glad that it's back to growth and will be consistently there. Eric Beder: And just a follow up on that. What is the average size of the Culture Kings stores outside of the Brisbane store in Australia and New Zealand? Ciaran Long: Yes. Traditionally, they were more in that kind of 80,000 square foot size. And as a reminder, the Vegas store in the U.S. bigger again. So for us, really figuring out as we look to scale in the U.S., how do we retain those key aspects of the retail payment that is just core to Culture Kings, sets it apart from anybody else out there and is really the opportunity for us to show off the great 1P brands that we have in that business. So look, we're fortunate that you can test a bit quicker down in Australia from the store side and also being the off-season there does give us a good view into what should be best sellers in the U.S. going forward. Operator: Our last question comes from Ashley Owens with KeyBanc Capital Markets. Ashley Owens: So maybe to start, and correct me if I'm wrong, but I believe I heard that the 1Q quarter-to-date growth has been mid-single digits. Could you just provide more detail as to what's shaping the key assumptions driving deceleration from current trends in the quarter and maybe from a brand perspective, where that moderation is coming from? Or if this is just general conservatism built in? Kevin Grant: Ashley, yes, good observation. Yes, we've seen strong mid-single-digit growth so far in the quarter, and that's largely coming from the U.S. online business, which is great to see. Just as a reminder, we launched in all the Nordstrom doors for both Polly and Petal in March of '25. And that's what's driving kind of that more difficult comp as we move through the quarter and kind of explains where we're guided for Q1. Ashley Owens: Okay. That's super helpful. And then maybe just to follow up, thinking about some of the other drivers of growth in 2026, how we should break this down or balance between order growth and AOV as the primary drivers. I know AOV was declining in through the first half of the year, and then we're also lapping really strong order volume in 2Q and then a little bit in 3Q as well. So just any insight there would be helpful. Kevin Grant: Yes, for sure. From a -- we're pleased really to see in the year that growth in our active customers as well as that strong growth in orders. Q4 order growth was over 6%, and that's really what drove the top line performance. Listen, like with our evolving channel mix, we're going to see some up and down in the AOV, and we've got channels like wholesale will drive the AOV up. We've got other channels like TikTok and new categories that will drive the opposite. We've modeled AOV flat for FY '26 with the top line growth really coming from growth in orders. Operator: Ladies and gentlemen, this now concludes our question-and-answer session and does conclude today's conference as well. Thank you for your participation. Please disconnect your lines, and have a wonderful day.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Rumble Inc.'s Q4 2025 Earnings Call -- Conference Call. [Operator Instructions]. This call is being recorded on March 5, 2026. I would now like to turn the conference over to Shannon Devine, Investor Relations for Rumble. Please go ahead. Shannon Devine: Thank you, operator. I'm here today with Chris Pavlovski, Founder, Chairman and CEO of Rumble; and Brandon Alexandroff, CFO. A press release detailing our fourth quarter and full year 2025 results was released today and available on our Investor Relations website. Before we begin the formal presentation, I would like to remind everyone that statements made on this call may include predictions, estimates or other information that might be considered forward-looking. All forward-looking statements are made only as of the date of this call and should be considered in conjunction with the company's cautionary statements in our earnings release and the factors included in our filings with the SEC. Future company updates will be available via press release and the company's identified social media channels. I will now turn the call over to Rumble's Founder, Chairman and CEO, Chris Pavlovski. Christopher Pavlovski: Good afternoon, everyone, and thank you for joining us. 2025 was a year where my team went heads down building and expanding the Rumble product, building out our sales operation and putting together assets that would transform Rumble into an impactful player in cloud. I'm happy to say we've successfully executed on these initiatives. As we enter 2026, we have reached a critical inflection point and Rumble is now primed for a new era of aggressive growth. I'm going to start with 3 Rumble video product initiatives that have been completed and a growth update. First, we addressed user feedback to make the platform more resilient. Our design, interface, stability and features are now far more competitive with YouTube and even exceeding in specific areas. Second, launching Rumble Wallet with Tether to become the first major platform to allow tipping in Bitcoin, USD Tether and Tether Gold was another key initiative that we brought to the public in the first week of 2026. By leveraging Tether's stablecoin technology, we now have a solution for creators to bypass the friction and predatory fees of traditional payment rails. Third, Rumble Shorts. After carefully listening to our community, we introduced Rumble Shorts to deliver better user discovery of content. Rumble Shorts are short vertical videos that play in a continuous swipeable feed, which introduces a fast, engaging way to watch and interact. Users can easily consume shorts from their favorite content creators, discover new ones and send tips through Rumble Wallet, which fuels platform growth and enables monetization. After being in a nonelection year and moving into a midterm election year, early signs are showing that growth is back. In Q4, MAUs are up quarter-over-quarter, driven primarily by international growth. And more recently, less than 10 days ago, Rumble hit a new all-time high of concurrent streamers on the platform. Dan Bongino is back as of February, and Asmongold, a top Twitch streamer, expressed that he is going to be joining Rumble. But it doesn't end there. After only a month since the launch of Rumble Shorts on the web and only a little more than a week or 2 on Android and iOS, the results are staggering. Rumble Shorts has been delivering records. And to quantify that, as of this past weekend, it broke the 1 million unique video views milestone in a single day, up from 669,000 only 1 week prior. It's still very early, but our teams are blown away with the success we've seen so far. We plan to market Rumble Shorts heavily given the stickiness and early response from our core audience. Now on to sales. Regarding our sales organization, as we have mentioned many times, prior to the 2024 election, brand sales faced significant headwinds. Since the '24 election, some of those headwinds have shifted into distinct tailwinds as we captured several brands, including Netflix, Morgan and Morgan, Perplexity, Crypto.com, and most recently, we've added Paramount, Amazon Prime and Fox Nation. To capture this opportunity, we appointed Greg Sherrill as President of Sales, who has had senior leadership positions at Magnite, AT&T and Comcast. Greg has already made strides in repositioning Rumble within the advertising ecosystem, improving our product as we seek to build meaningful integrations across demand-side platforms and supply side platforms and building a professionalized sales operation capable of converting our massive reach into high-value brand partnerships. While we work through the product development cycles, partnership and sales pipelines, we expect to see the returns in the back half of '26 and primarily into 2027. In the meantime, our content teams have been working diligently to capitalize on our recently announced $50 million per year advertising deal with Tether over the next 2 years. The strategy is simple: use the $100 million commitment as the advertising anchor to bring in incremental major influencers and podcasters to the platform. It's an incredible opportunity for the company, and we have been laying the foundation in recent months to capture this revenue opportunity. We expect this to materially ramp in the second and third quarter. The excitement for Rumble as a video platform and the sales infrastructure being put into place is at the highest we've seen it. Growth is back and the platform has never been more ready to capture the moment as we move into the midterm election year. Now let's talk about cloud, which is equally as exciting, but even more transformative. We continue to expect that our acquisition of Northern Data will close in the second quarter of this year, and we are as excited as ever about this transaction. Specifically, earlier today, Northern Data announced they are on pace for roughly 85% GPU utilization by the end of February 2026, which is an incredible accomplishment. This utilization represents the incredibly strong demand in the market. Since finalizing the definitive agreement on November 10, 2025, we have met with several GPU-as-a-Service customers and presented the industrial logic for the acquisition. The reception has been quite positive, not only from a variety of such customers, but also key strategic suppliers in the GPU ecosystem. These market participants see significant value in Rumble's Northern Data acquisition and have expressed keen interest in Rumble delivering Blackwell generation GPUs. Furthermore, many of these customers and suppliers have expressed the desire to begin working together as soon as possible. The pace and size of this growing pipeline, including strong Blackwell demand has been extremely encouraging. The pipeline in Northern Data's improved utilization demonstrates the level of growing GPU-as-a-Service demand, and Rumble couldn't be better positioned to serve it. As I said when we announced we're going public, Rumble's ambition was to compete with YouTube, Google Ads and all the hyperscalers. With the addition of Rumble Shorts, we can now add TikTok to the list. Every day our team continues to build is 1 day closer to realizing that vision. As we move through 2026, I think it's important to contextualize the hand we have. Midterm elections are around the corner, and our video platform is in the best state it's ever been to capture the potential audience growth. Second, our sales team is energized by a favorable ad market. Third, we expect Tether's advertising commitment to materially start to ramp in the second and third quarter. Fourth, we expect our acquisition of Northern Data to close in the second quarter of 2026, which we strongly believe will be transformative and redefine our revenue profile. Fifth, as detailed in Northern Data's announcement earlier today, Northern Data is nearing 85% GPU utilization, evidencing extremely, extremely high GPU demand. Sixth, multiple customers and suppliers have expressed interest in working together on GPU-as-a-Service opportunities as soon as possible. And seventh, Rumble Shorts is on absolute fire. I have to say it's never been more exciting to be at the helm of this company, and I cannot wait to see what this company looks like later in the year. Unknown Executive: I will now take you through our fourth quarter and full year 2025 financials at a very high level before turning the call over to the operator for Q&A. For the full year 2025, we reported revenues of $100.6 million, an increase of 5% compared to $95.5 million in 2024. Our first time achieving this $100 million milestone. For the fourth quarter, we reported revenues of $27.1 million, a sequential increase of 9% from $24.8 million in the third quarter of 2025 and a year-over-year decrease of $3.2 million, of which $2.8 million was attributable to a decrease in audience monetization revenues and $0.4 million to lower other initiatives revenues. The fourth quarter year-over-year decrease in audience monetization revenues was driven by a $5.5 million reduction in advertising, tipping and platform hosting fees, partially offset by a $2.7 million increase in subscription and licensing fees. The decrease in other initiatives revenues was due to a $0.5 million reduction in advertising inventory monetized by our publisher network, partially offset by a $0.1 million increase in cloud services. ARPU increased to $0.46 for the fourth quarter, up 2% sequentially from the third quarter of 2025, a continued positive indicator of our monetization progress. Average global MAUs reached 52 million for the quarter, an 11% sequential increase from Q3, driven primarily by our initial investment in international expansion. Cost of services in the fourth quarter decreased 26% year-over-year to $25.6 million, primarily from an $8.8 million reduction in programming and content expenses. For the full year, cost of services decreased by $31.1 million to $107.4 million, primarily from a $33.9 million reduction in programming and content expenses, offset by an increase in other cost of services of $2.8 million. Adjusted EBITDA loss for the fourth quarter was $16 million compared to a loss of $13.4 million in the fourth quarter of 2024. For the full year of 2025, adjusted EBITDA loss improved to $74.3 million compared to a loss of $92.1 million in '24, an improvement of $17.8 million, primarily driven by the reduction in programming and content expenses and revenue growth. You will see in our financial statements a net loss for the fourth quarter of $32.7 million, which compares to a net loss of $236.8 million in the fourth quarter of 2024. I want to note that the prior year figure included $184.7 million in the change in fair value of derivative liability related to the Tether strategic investment. We ended the quarter with total liquidity of $256.4 million, including $237.9 million in cash and cash equivalents and $18.5 million in Bitcoin holdings. Our Bitcoin holdings are carried at fair value and remeasured each quarter. For the full year, net cash used in operating activities was $70.4 million, an improvement from $87 million in 2024. As Chris described, we entered 2026 with momentum across video, advertising and cloud. The Tether advertising commitment, the build-out of our sales operation under Greg Sherrill and the pending Northern Data acquisition all represent meaningful catalysts for revenue growth. We have the liquidity, the strategy and the team to capitalize on each of them. That concludes my prepared remarks. Before I turn the call over to the operator, I invite you all to join Chris this afternoon at 6:30 p.m. Eastern Time in an exclusive post-earnings interview with Matt Kohrs to be streamed live on the Matt Kohrs Rumble channel. That concludes my prepared remarks. Operator, we're now ready to open the line for questions. Operator: [Operator Instructions]. Our question comes from Thomas Forte, Maxim Group. Thomas Forte: Great. So first off, Chris and Brandon, congrats on the broad-based momentum. I have 3 questions. I'll go one at a time. The first question I had is, how is the addition of Greg Sherrill as your first President of Sales for Rumble Advertising expected to change your go-to-market strategy? Christopher Pavlovski: Tom, this is Chris. Thanks for the question. So traditionally, Rumble prior to the 2024 election was not pursuing brand dollars for various different reasons, mostly because we are boycotted and weren't able to work with a lot of the agencies prior to the 2024 election. That has completely changed post 2024 election. So the environment is much different. And as I stated earlier, a lot of brands have started to work with us that I previously mentioned. And the idea with Greg now is to finally go on the offense to those agencies and start bringing the ad dollars not by taking phone calls, but by going and being proactive and going to the top and the largest agencies in the world and getting those ad dollars into the Rumble advertising center, both for video, for our publishers, for eventually our new Rumble Shorts product, et cetera. So the strategy going forward is it's going to be very much on the offense, and it's going to be going and getting net new ad dollars from big brands. Thomas Forte: Excellent. And then you sort of teased my second question there. So how might a new content type such as Rumble Shorts serve as a catalyst for advertising revenue? Christopher Pavlovski: So in this stage right now, in this quarter and in the next quarter, we're going to keep advertising off Rumble Shorts and really kind of just press as hard as we can on the growth and see how far we can push that. Obviously, we're seeing some pretty amazing internal results that I already went through. But coming later in the year in Q3 and Q4, my teams have already kind of developed what that is going to look like and how we're going to start inserting that. We're looking at taking a very similar approach to Instagram and TikTok in terms of integrating ads that will all come through RAC and maybe we might use some other partners to help us with that. But in the very short term, we're going to just kind of keep the ad load off until we get into the third quarter and kind of evaluate there. The last thing we want to do is kind of hinder this growth that we're seeing. So we're going to push that as high as we can and see where that takes us before integrating the ads. But the ad is definitely a component that is very important. We're going to need to monetize for the creators, and that is going to be something that we must do. I see us doing that by the end of the year. Thomas Forte: Excellent. And then last one for me. So can you briefly explain how your current relationship with content creator and former Deputy Director, FBI, Dan Bongino, is similar to and different from your prior relationship before you left the platform to join the FBI. Christopher Pavlovski: Yes. So I can't get into the specifics of agreements, but I will say that prior to him going to the FBI, he brought his content onto the platform, and that was his choice. Post FBI, we now have his content exclusively, the video podcast exclusively on the platform. That's as much as I could say without getting into the details, but it is -- the video podcast is exclusive to Rumble as it stands right now, and it was not contractually exclusive prior to that. Operator: Our next question comes from Jason Helfstein from Oppenheimer. Jason Helfstein: Definitely always keeping it interesting, not boring. I'll ask 3 and then I'll jump back in the queue and then follow up. So first, I think you made a point that engagement kind of benefited from international. And so if you would strip that out, like the ARPU would have actually increased more on a quarter-to-quarter basis. I don't know if there's more color you can give us there. Christopher Pavlovski: Jason, this is Chris. So yes, we saw some -- we saw international growth. We've obviously been pushing the international in the last quarter by launching a bunch of new languages. Our monetization in the international markets is very negligible, very low in comparison to the U.S. market. So if you were to look at it on a U.S. basis, then yes, I would say that would be correct. But at this point right now, we're kind of still testing the international markets. And whether or not we peel that out and kind of look at ARPU in different countries, it remains to be seen, but we just kind of want to see what really sticks internationally and what works internationally. And then obviously, what markets are going to be easiest for us to monetize internationally and then kind of go from there before we peel out those ARPUs with different countries. Jason Helfstein: Okay. And then on Northern Data, what still needs to happen for the close in the second quarter? Just take us through what's left in the process. Christopher Pavlovski: So at this point right now, we're on track to close in the second quarter. It's -- that's kind of been the schedule since the very start. So everything is running on schedule and on track to close for the second quarter. Obviously, there's -- we still got to go through the tendering process, et cetera. And that's all on schedule to close up by the end of the second quarter. Jason Helfstein: Okay. So like literally like outside of some like, I don't know, procedural or document or something, like is there any way at which any Northern Data shareholders could block the transaction at this point by not tendering? Christopher Pavlovski: No, not that, no. Jason Helfstein: Okay. And then I guess, congrats on the positive gross profit in the quarter. It looks like the minimum guarantees were down like another $1 million-ish sequentially. I mean, Brandon, do you see the pattern that pattern of like lower minimum guarantees continuing into '26? Or do you plan to reinvest the [ Tether Ed ] commitments into like more content and kind of almost like start again with the minimum guarantees? Brandon Alexandroff: Yes. If you kind of take a step back to where we were a year ago, we talked about kind of reducing those minimum guarantees and moving materially towards breakeven. But with the Tether investment and the opportunity we have there with the Tether contracts, I think we said we're going to kind of hit the gas again and start investing again. So I think you'll see some of those investments continue to grow over 2026. And -- but at the same time, we've learned a lot from a lot of those contracts. And we would like to and we plan on moving more towards having profitable agreements. So you'll see continued increase in cost, but we expect the revenue to be increasing at the same time. Operator: Our next question comes from Rohit Kulkarni from ROTH Capital Markets. Rohit Kulkarni: A couple of big picture ones. One on just the drivers behind kind of the advertising sales growth, maybe break down ARPU versus audience growth. What are the next 2 to 3 quarters given the org that you have and the new ad units and new ad surfaces. Maybe just break down how are you thinking about the algorithm behind ad sales growth? Would love to get your thoughts. And then I have a couple of follow-ups. Christopher Pavlovski: Thanks, Rohit, for the question. So when it comes to ad sales, we're anticipating that Greg and his team will start to ramp up later in 2026. Obviously, the ad sales cycle is -- can range from like 6 months to a year with the big brands. You got to get to the upfront, then you got to get your bookings, the RFPs, place the orders in and then get them out the door. So we see that as like a 6-month to a year cycle with the big brands for any kind of meaningful spend. Obviously, with RAC, we have a significant amount of inventory to monetize. So we're very ready on the technology deployment side of the ad sales. And on the sales front, Greg just recently started in the last -- I believe, in January. So he's only been on the ground for a couple of months. So it's been a lot of initial meetings. And then once those initial meetings conclude, he goes into basically getting the bookings and then we go from there. But I see this all kind of materializing in late '26 and then primarily in 2027. But like you mentioned, we do have some other upcoming ad units like with Rumble Shorts later in the year, there is possibility that this can make an impact in the '26 here in Q3 and Q4 as well. Rohit Kulkarni: Okay. And then I guess to the extent -- just on the AI cloud and Northern Data, to the extent you can provide any more color on like how should we think about just the return on investment and kind of how much CapEx do you feel you would need to do over the next kind of 12 months, 24 months? And how do you keep up with a space that is increasingly fragmented and probably getting very competitive? Christopher Pavlovski: Yes. So this is actually a great question. What we've seen in the last couple of months is the demand is unbelievable in this space. The demand for GPUs, even for the H100s and definitely for the Blackwells, the GB300s, it's off the charts from our perspective. And as Northern Data continues to get their utilization up and as you saw, around 85% by the end of this quarter, we're really in a position where we're going to have to invest and really grow this business. And obviously, that is the intent here is to grow it and grow it rapidly. So we're meeting with a lot of customers. The way in which we want to execute on that is we want to secure the contracts in hand from these customers and then go out and purchase the GPUs. So that way, everything is set up in a very good way for the company in a way that will provide us really good returns. So we're out there meeting these customers as we speak every day, and we're really kind of setting up the future here for when this transaction closes. And also, even if it happens prior to the transaction, Rumble Cloud will -- is very open to doing deals prior to the transaction closing as well because we do have the capital on hand and these investments look to have really good returns. So we're very keen on moving as quickly as possible, potentially with some of the clients we've already met with. Rohit Kulkarni: Okay. Great. And one specific one on the AI cloud, if you could. Is there a specific kind of amount of megawatts or number of GPUs that you feel you could scale up to by end of this year or in 12 months after the transaction closes, that's the metric that investors would love to track? Christopher Pavlovski: That's more of a Northern Data question. But what I can say is that there is capacity to scale immediately in some of their data centers with the GB300s, and that is something that we're very much looking into. There's an immediate scaling that we could do with the current data center set that they have. And then obviously, they have other sites like Maysville that require development and have a lot of megawatts potential there. But yes, there is immediate capability to scale with some of their current sites. Operator: We have a follow-up question from Jason Helfstein, Oppenheimer. Jason Helfstein: Like 2 more. So on the $150 million that Tether has committed to spend for data center usage, how are you thinking about prioritizing them? So is it like if you have more demand than you can fulfill with the $150 million, do you -- does Tether get prioritized lower for outside clients or they get prioritized first or TBD? Just any color there. Christopher Pavlovski: Thanks, Jason. So yes, we're going to treat Tether like any other customer, any other paying customer with their demand and the commitment that they have, we're going to have to obviously expand and provide them and invest and provide what we are committed to providing them. And obviously, depending on their needs and the way they scale, we'll accommodate that as well. But our -- my philosophy here is that, obviously, there's a lot of demand in this AI space. There's a lot of people that want to make commitments and pay for H100s or Blackwells and whatnot. We're here to just kind of step on the gas pedal and really grow this business. That's the intent. That's why we're acquiring Northern Data. And we obviously have a lot of potential customers even outside of Tether, and we're looking at all of them, and we want to service as many as we possibly can. And obviously, Tether is one that we definitely want to service as well. Jason Helfstein: And then just on your comments about like the Browns, the Dolphins, the Buccaneers, the NFL you've been signing up, I mean, we can kind of see what the other initiatives line in the model as far as revenue. I mean, it doesn't look like at least so far, any of these teams have been meaningful to revenue. I guess like when they scale up, it's almost like, I guess, like placehold it like is it like, okay, each team -- are these like a few hundred thousand dollars, $0.5 million just kind of when I look at it, right, like other initiatives has revenues gone down by $400,000 from the beginning of the year to the end. Obviously, some clients have moved in, some moved out. But I guess, like how big, for example, could like this NFL business be just as an example? Christopher Pavlovski: Well, I can't speak to specific contracts and deals on our current cloud side. But the way we look at sports as a category is that they're very kind of new in the cloud space. They're really just starting to use video in terms of like keeping all that data and analyzing all that data for plays. And we see this as a pool that will grow quite significantly in the later years to come as they continue to keep more content in the cloud and scale with us and do more things. So that's just like one segment. For us, it's -- we're looking at all different segments, not just NFL teams, but we're looking in various different other areas as well. But yes, in terms of sports, we do see like long-term potential there to grow them. Operator: Ladies and gentlemen, there are no further questions at this time, and this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to the Lineage Cell Therapeutics Third (sic) [ Fourth ] Quarter 2025 Conference Call. [Operator Instructions] An audio webcast of this call is available on the Investors section of Lineage's website at www.lineagecell.com. This call is subject to copyright and is the property of Lineage. And recordings, reproductions or transmission of this call without the expressed written consent of Lineage are strictly prohibited. As a reminder, today's call is being recorded. I would now like to introduce your host for today's call, Ioana Hone, Head of Investor Relations at Lineage. Ms. Hone, please go ahead. Ioana Hone: Thank you, Jamie. Good afternoon, and thank you for joining us. A press release reporting our fourth quarter and full year 2025 financial results was issued earlier today, March 5, 2026, and can be found on the Investors section of our website. Please note that today's remarks and responses to your questions reflect management's views as of today only and will contain forward-looking statements within the meaning of federal securities laws. Statements made during this discussion that are not statements of historical fact should be considered forward-looking statements, which are subject to significant risks and uncertainties. The company's actual results or performance may differ materially from the expectations indicated by such forward-looking statements. For a discussion of certain factors that could cause the company's results or performance to differ, we refer you to the forward-looking statements section in today's press release and in the company's SEC filings, including its most recent annual report on Form 10-K filed today. We caution you not to place undue reliance on any forward-looking statements, which speak only as of today and are qualified by the cautionary statements and risk factors described in our SEC filings. With us today are Brian Culley, our Chief Executive Officer; and Jill Howe, our Chief Financial Officer. I'll now hand the call over to Brian. Brian Culley: Thank you, Ioana, and good afternoon, everyone. We appreciate you taking the time to join us on the call today. We have a great call planned highlighted by recent warrant exercises that further extend our runway and a positive result for our initial go/no-go development milestone in our islet cell research initiative. I want to start by reminding everyone that we have a significant number of employees who live and work in Israel. And while our manufacturing facility is not located near a metropolitan center, some of our staff do commute from larger cities. Their safety is our top priority, and we are, of course, monitoring the situation. To date and as expected, a few employees and employee spouses have been called into military service, which is similar to what we've experienced and successfully navigated in 2023. We cannot know what the future holds, but thanks to the incredible dedication of the team we've hired, our operations are continuing, and we expect things will continue to progress. Thank you also for the many messages of concern and support I've received from our colleagues and shareholders alike. Moving ahead, as many of you know, cell therapy has revolutionized oncology saving lives and creating tremendous shareholder value. But the use of cell therapy in oncology is maturing, while the application of cell therapy the fields outside of cancer remains in the early stages. For this reason, we are focused on delivering the next wave of innovation and value creation in this emerging branch of medicine. We'll begin with the exciting results seen from our lead program in geographic atrophy as a testimonial to what cell therapy is capable of. And as that program matures, we have begun turning our focus to how we can apply our manufacturing success and the lessons we have learned from the OpRegen program to evaluate other medical conditions that also arise from the loss of critical cellular function. Our focus on replacing cells that have become dysfunctional or destroyed may fundamentally reshape many treatment and recovery paradigms. And based on our conviction that the OpRegen program has the potential to drive future value, we believe we are uniquely positioned to capitalize on opportunities to develop other kinds of mature differentiated cells for patients, which, in our view, could lead to clinical outcomes currently beyond the reach of conventional approaches. Our work was productive last year, highlighted by us achieving the first milestone under our Roche and Genentech alliance, entering into a funded research collaboration for preclinical development of ReSonance, which is our first internally developed product candidate, and more recently, the launch of our new islet cell research initiative, something which I will provide an update on later in the call. But first, I want to discuss 2 developments in particular from last year that reinforce our confidence in the company's long-term outlook and which helped shape our plans for 2026. First, after relying on just 7 clinical sites for more than 2 years, Roche and Genentech have somewhat suddenly opened 10 new clinical sites in the GAlette study in the past 9 months, including one announced earlier this week at Duke Eye Center. While we don't have any guidance to share on the timing of any additional trials or data disclosures, we view this surge of site openings as a favorable sign because this activity could support preparations for later-stage trials. And as I've shared on prior calls, there are other actions and readouts that have occurred in the past year that similarly suggest positive forward progress of OpRegen could be underway. The second item we enjoyed last year were the enhancements and milestones we hit with our manufacturing platform, AlloSCOPE. AlloSCOPE purposefully stands for Allogeneic, Scalable, Consistent, Off-the-shelf, Pluripotent Cell Engineering. This acronym highlights the key elements of our core technology. Many of you are familiar with the challenges of autologous cell therapy, such as its high manufacturing cost and donor variability. But with AlloSCOPE, we address those challenges by using the same source cell line for all patients built on a platform we believe is capable of scaling into millions of doses and trillions of cells. This is something that has long been aspired to or sometimes even promised by the field of allogeneic cell therapy. But to our knowledge, very few companies, possibly none, have actually shown that they can perform a large-scale pluripotent cell production process in a GMP setting and use that resulting material in an FDA-cleared clinical trial. But here at Lineage, we successfully established a GMP master cell bank from which we established a GMP working cell bank and generated product that has been used in the clinic. And because the hundreds of vials, which comprise those banks are identical, we are confident that we can successfully repeat the process as many times as needed. We believe this achievement provides credible evidence that the AlloSCOPE cell banking system we built is capable of generating millions of vials of our product candidate. This is no small achievement because it's easy to say you plan to rely on the self-renewing capability of pluripotent cells to generate Phase I trial material. But with complex biologics like cell therapies, the process is the product. So if your early clinical process isn't capable of satisfying commercial scale, then you're developing product candidate that won't be able to supply the market. This is an essential but often overlooked aspect of cell therapy product development and requires certain investments and commitments to occur in the early stages. As a company with many years of experience in this field, we have had the time to make these investments. This also explains why we embrace the mantra of better from the beginning. We strive to only initiate programs that have a clear line of sight to commercial scale and other critical product features. And from these 2 significant developments, specifically, the evidence supporting OpRegen's potential advancement by Genentech, along with the successful demonstration of commercially viable pluripotent cell production, we have developed the conviction to apply our platform to the furtherance of developing other cell-based products with the potential to treat various diseases and conditions. I will say a few things about our recent and planned pipeline development later in the call. But first, I want to briefly review the status of our lead programs, OpRegen for dry AMD with geographic atrophy, OPC1 for spinal cord injury and ReSonance for hearing loss. OpRegen is the most advanced program in our pipeline and serves as a critical case study for our approach to cell transplantation. Dry AMD with GA is an increasingly established indication but suffers from underwhelming treatment options. Initial reports from our Phase I/IIa clinical study included improved anatomy, halting of atrophic progression and improved vision in patients with dry AMD and were unprecedented at the time. And from Roche and Genentech's additional analysis of our Phase I/IIa data, it has been observed in a single dose of OpRegen cells can provide visual improvement lasting for at least 3 years among patients who received the cells at the target location. This is an exceptionally promising finding because dry AMD is a condition that has not been shown to self resolve and only leads to worsening vision. Equally importantly, 3 independent groups pursuing RPE transplants have recently reported short-term outcomes similar to ours, providing further evidence in support of this novel mechanism. Although data remains forthcoming from GAlette, Roche and Genentech's ongoing Phase IIa study, it is encouraging to see that our partners have continued to expand the retinal communities exposure and experience with OpRegen. As a reminder, GAlette is a surgical optimization study designed for approximately 60 patients. This study has been running for 3 years and is an open-label study for which all primary and secondary outcome measures are captured in 90 days. So we infer that Roche has collected and reviewed long-term data from patients treated in that trial, which we expect has informed their recent site expansion decisions. Specifically, after adding only a single site in 2024, Genentech suddenly increased its pace and opened 9 new clinical sites in 2025, bringing this study to a total of 17 unique locations, including the new site just added last week. In addition, Genentech previously acquired novel and proprietary surgical delivery devices from a competitor and sought and received RMAT designation for OpRegen. We believe these are all positive indicators that support our expectation of Roche and Genentech's continued advancement of the OpRegen program. And in December, Lineage received its first $5 million payment from the achievement of a development milestone, highlighting our contribution to this process. When you aggregate these and other publicly available actions, we believe they point to a positive future. And while OpRegen reflects a new technology, we believe we have a set of attributes including scalable manufacturing, proprietary delivery tools, long-term safety and efficacy data and a world-class partnership that adds abundant clinical insights and commercial capabilities. For these reasons and others, I hope you'll appreciate why we are so bullish on the potential for OpRegen to capture the multibillion and still largely unaddressed GA market. And also, while we are taking steps to try to recreate this promise with other cell types. Moving to our next cell type, oligodendrocyte progenitors, we are developing OPC1 an off-the-shelf cell transplant designed to increase mobility for people who suffered from a spinal cord injury. OPC1 has been administered in 2 Phase I/IIa -- excuse me, Phase I/II safety trials in sub-acute patients and the long-term safety and efficacy data we have collected so far is both promising and worthy of further investigation. We currently are enrolling patients in the DOSED study, the third clinical study of OPC1, which is evaluating the safety and novel -- of a novel and proprietary system to deliver ourselves to the area of injury without stopping patient ventilation. In addition to testing the safety and performance of the new device, we also will be collecting functional assessments on all patients, giving us the opportunity to investigate any signals of efficacy that may arise. This is important because last year, we treated our first ever chronic SCI patient. That was an important milestone because chronic injuries represent an additional and larger potential addressable population for this experimental therapy. And unlike subacute patients, many chronic patients have reached a functional plateau, making any physical improvement easier to detect and rely upon. DOSED is an open-label study and that first participant, I mentioned recently had their 6-month safety follow-up visit with no significant safety events reported following treatment. Equally important, the device performed as planned, which provides significant derisking of the device that we plan to employ in a larger trial. Last month, we expanded DOSED to the Greater Los Angeles area by opening our second clinical site at the Rancho Research Institute in conjunction with Rancho Los Amigos National Rehab Center. Jill and I have the pleasure of hosting Dr. Charles Liu, the principal investigator and his team for dinner a few weeks ago, and we are extremely excited to have their group involved with the OPC1 program. Moving next to ReSonance. This is an auditory neuronal cell transplant being developed to treat hearing loss and also marks our first internally developed program. One of our goals during 2025 was to strike deals which partly or completely funded existing product candidates. We accomplished this goal through the partnership we announced with William Demant Invest, which is expected to fund all planned preclinical development for the ANP1 program up to the IND stage. ReSonance was an important test for our business model because it demonstrated that we could conceive of and successfully manufacture a completely new cell-based product candidate on our AlloSCOPE platform in a rapid and efficient way. With a modest investment, we were able to generate new intellectual property and advanced ReSonance into preclinical testing within one year. This early data was sufficient to establish a partnership with a world-leading hearing health care company, which also brought us access to specialized technology, auditory experience and a network of hearing health leaders. We believe this collaboration was an important demonstration of the speed, efficiency and return on investment that the AlloSCOPE platform can provide and evidence of our ability to replicate our OpRegen collaboration success with another cell transplant program. I next will spend just a moment on AlloSCOPE to provide context to my upcoming remarks about our new islet cell initiative. AlloSCOPE describes a platform on which we can bank and scale pluripotent cells to great numbers before differentiating those cells into discrete types of cells of the human body. It delivers what we consider to be the table stakes necessary to create a commercially successful allogeneic cell therapy, and it is being applied by us across multiple programs and cell lines. AlloSCOPE is a proprietary differentiation and production platform on which our cell-based products are derived from a single initial cell line, conferring consistent, cost-effective and scalable production. These features should enable us to support the production of millions of doses of a consistent and cost-effective cell-based product. Using AlloSCOPE, we have successfully completed a cGMP production run from our 2-tiered cell banking system for 2 of our product candidates, one of which has been utilized in the clinic. This achievement is notable because it demonstrates our ability to scale a process with the purity, potency and regulatory quality required to support clinical use, a standard, which we believe sits beyond the reach of many companies and which can become a valuable differentiator for Lineage. With that background provided, I'll remind you that the human body is comprised of about 200 discrete cell types. And because pluripotent cells can become any of those 200 cell types, we have many choices about where to deploy our resources into the development of additional potential product candidates. When thinking about where we might generate the greatest value from our process development and directed differentiation expertise, we recently announced a new research initiative in Type 1 diabetes and specifically, an opportunity we saw to address a major obstacle to a successful Type 1 diabetes cell transplant treatment. We've been getting a lot of questions about our entry into this space. So I'm going to take your time today to walk you through our plans in some detail. The headline is that we met our initial internal go/no-go development milestone, which means we will continue to our next phase of internal development. Now I need to explain why that's important. We already know that islet cell transplants can work. Dozens of patients are functionally cured each year using islet cells from cadavers, meaning they can regulate -- patients can regulate their blood sugar without proactive and daily disease management. However, a major unsolved problem is supply. Cadavers cannot support a commercially viable source of islet cells. Immunosuppression, patient eligibility and hypoimmunity are all additional hurdles that need to be overcome, but we believe the elephant in the room is that we know of no company that can make islets at the scale required for a commercial product. And we believe the greatest value in the islet cell transplant space will accrue to whoever solves that scale problem. The explanation for this gap is that the required dose of islet cells may be as high as 1 billion cells per patient, but mature islets do not expand readily in culture. Meanwhile, our calculations indicate that commercial viability begins in the range of thousands of doses per batch, implying that commercially relevant processes will have to be done on the scale of at least an 80-liter bioreactor. But carrying out a differentiation process in an 80-liter vessel requires feeding that vessel with billions of undifferentiated stem cells, which retain their full flurry potency capability and their genetic stability. And that is the problem. Conventional 3D expansion introduces excessive passaging, risking loss of control and genetic aberrations but generating billions of cells required from conventional 2D approaches, demands in practical surface areas and high aseptic risk. There is unavoidable conflict and trade-off between having reproducible control and scale. Our strategy has 2 aspects. The first is to use the AlloSCOPE platform to combine the control advantages of 2D culture with the volumetric efficiency of 3D systems or what we refer to as 5D engineering. And I'm proud to report today for the first time that we have actually achieved this milestone and reduced it to practice multiple times at 0.5 liter scale, successfully reaching our first go/no-go decision point with this initiative. We're now evaluating whether we can translate this capability to the next step up into a multi leader vessel. Demonstrating reproducible performance at an even larger scale is the next step on the path to feeding 80-liter bioreactors of scale, which should be capable of producing thousands of therapeutic doses of islet cells per run. Importantly, this work is all being done pre-differentiation, which means this stage of development is not dependent on finalizing our immune suppression strategies. The second important aspect of our strategy is that we are looking to tackle the bioreactor feeding problem first. We are inverting the traditional development paradigm by focusing on the scale-up of undifferentiated cells, first, because once you've shown that you can actually produce your material at scale, we believe the risk profile for the rest of the islet cells project changes materially. That's because we already know that islet can be an effective intervention and have been shown by multiple groups to be successful in preclinical and clinical settings. Similarly, editing strategies and differentiation protocols already exist and provide risk-reducing information in those areas. And we may be able to leverage that information if our scale initiative is successful. But no one yet has shown that they can scale islets. We think it's far more prudent to focus first on the unresolved scale problem rather than performing years of expensive studies and deferring the issue of scale for later. Our strategy doesn't fit easily onto a bumper sticker. But if we wanted to print one, it might say better from the beginning. That is how I describe our development philosophy. We enter fields only when we can see the entire path from cell banking through commercial delivery. We look to identify clear go/no-go decision points along the way and we strive to include improvements or solutions to existing methods, processes, delivery or to the cells themselves in order to have the best overall product profile. I'll conclude by saying that our platform generates assets which share certain essential traits in common, so that each dollar we spend on innovation may apply across multiple programs. While each product candidate is, of course, intended for a different condition and each cell line behaves in a unique manner, the early steps of banking, process development, control purity and scale have somewhat common features in the way we apply them, which allows us to expand the scope of our pipeline without losing the focus required to succeed in each indication, and uses our capital in an efficient way. I hope that it helps explain our exciting business update. And with that, I'll turn things over to Jill for a review of our financials. Jill Howe: Thanks, Brian. Before presenting our financial results, I want to address some points that may have caught your attention. The reported net loss for the full year is approximately $45 million higher than in 2024, this increase is mainly due to noncash charges linked to our rising stock price over the year, which resulted in higher warrant liability. Additionally, we incurred a noncash charge relating to an asset we acquired in 2019, which we elected to no longer develop. You may have also noticed that the reported cost for -- OpRegen costs are higher this year. This is due to a standard accounting treatment applied when recording the expense associated with our downstream obligations after we received the first milestone from Roche and Genentech. If you look at the expenses without this cost, the OpRegen developmental expenses were lower year-over-year. As of December 31, 2025, our overall cash position was $55.8 million, which together with the approximate $5.4 million in proceeds from warrants exercised this March is expected to support our planned operations into Q2 of 2028. This is a significantly higher runway than we guided to during our last call, with the biggest contributors being the $21 million in gross proceeds received from an ATM block trade in November, the warrant exercise of $5.4 million this week along with the achievement of the first $5 million milestone under our Roche collaboration. This revised guidance also does not take into account any other potential sources of funding, including additional milestone payments we are eligible for under our Roche collaboration, or any additional partnerships, which we may elect to enter into in the future. Separately, a large additional source of potential capital is the approximately $32 million remaining of underlying warrants priced at $0.91 per share, which is below our current trading price and which gets accelerated if Roche or Genentech publicly disclosed their intent to advance OpRegen into a clinical trial with the comparator arm. Now I will review our fourth quarter and full year results. Total revenues for the fourth quarter were approximately $6.6 million, a net increase of $3.7 million as compared to the same period in 2024. The increase was primarily driven by higher collaboration revenue recognized under our collaboration and license agreement with Roche, following the achievement of the first milestone, along with the new research collaboration agreement with WDI. Total operating expenses for the fourth quarter were $13.2 million, an increase of $5.2 million as compared to the same period in 2024. R&D expenses for the fourth quarter were $8.2 million, an increase of $4.8 million as compared to the same period in 2024. The net increase was primarily driven by $2.1 million for our OpRegen program expenses and $2.7 million for our preclinical and other undisclosed programs. G&A expenses for the fourth quarter were approximately $4.8 million, an increase of $0.4 million as compared to the same period in 2024. The net increase was primarily driven by personnel costs. Loss from operations for the fourth quarter was $6.5 million, an increase of $1.4 million as compared to the same period in 2024. Other income expenses for the fourth quarter reflected other income of $2.2 million compared to other income of approximately $1.9 million for the same period in 2024. The net increase is primarily driven by exchange rate fluctuations related to Lineage's international subsidiaries. No warrant-related financing transaction costs incurred as compared to the prior year's quarter, and this was partially offset by the noncash quarterly fair value remeasurement expenses of the warrant liabilities. The net income loss attributable to Lineage for the 3 months ended December 31 with a net income of $0.9 million or $0.04 per share compared to a net loss of $3.3 million or $0.02 per share for the same period in 2024. Next, I'll spend a few minutes reviewing the full year operating results. Total revenues for the year were $14.6 million, an increase of $5.1 million as compared to the same period in 2024. This increase was primarily driven by higher collaboration revenue recognized under the Roche agreement following the achievement of the first milestone along with new research collaboration agreement with WDI. Total operating expenses for the full year were $51.2 million, an increase of $20.2 million as compared to the same period in 2024. This increase is primarily driven by $14.8 million of expenses recognized during the year for the loss on impairment of the intangible asset related to the VAC platform. R&D expenses for the full year were $17.7 million, an increase of approximately $5.2 million as compared to the same period in 2024. The increase is primarily driven by $1.6 million for our OpRegen program, $0.7 million increase for ANP1 program and $0.2 million for our OPC1 program and $2.8 million for our preclinical programs and other undisclosed programs. G&A expenses for the full year were $18.5 million, an increase of approximately $0.3 million as compared to the same period in 2024. The net increase was primarily driven by $0.2 million in personnel costs and $0.1 million for services provided by third parties. Loss from operations for the full year was $36.6 million, an increase of $15.1 million as compared to the same period in 2024. Other income expenses for the full year reflected other expenses of $32 million compared to other income of $2.9 million for the same period in 2024. The net change of $34.9 million was largely attributable to the noncash fair value measurement expense of the warrant liabilities of $37.9 million, primarily due to an increase in our share price as compared to the prior year period. This increase in expense was partially offset by exchange rate fluctuations related to Lineage's international subsidiaries and lower warrant-related transaction costs incurred as compared to the prior year in connection with the November 2024 financing. The net loss attributable to Lineage for the year ended December 31, 2025, was $63.5 million or $0.28 per share compared to a net loss of $18.6 million or $0.09 per share for 2024. The difference was primarily driven by the noncash fair value remeasurement of the warrant liabilities and the loss on impairment expense related to a 2019 acquisition. Our financial results continue to reflect our ongoing dedication to responsible fiscal management, and we remain focused on balancing our cost of capital with the investments we make to grow and strengthen our pipeline. Let me hand the call back to Brian for concluding remarks. Brian Culley: Thanks, Jill. I'll quickly summarize by repeating 2 key themes. First, we continue to remain confident in the potential for OpRegen to drive positive clinical outcomes in dry AMD and we're encouraged by our partner signs of commitment to the program. We also believe the independent evidence generated by others RPE cell transplant trials supports and elevates our replace and restore philosophy. Second, we're preparing for a successful future by making new investments in our cell transplant platform and using our recent manufacturing innovations as a foundation from which additional pipeline programs can be advanced either by a funded partnerships or independently. We believe our approach offers powerful optionality, which we consider essential for a company at our stage of growth and development. We appreciate your support and belief in our vision. With that operator, we are prepared to take analyst questions. Operator: [Operator Instructions] Your first question comes from the line of Joe Pantginis with H.C. Wainwright. Joseph Pantginis: Actually, Brian, I have 3 questions, a strategic one, a technical one and probably a question you can't answer. So first, on the strategic question, I mean, you have many ongoing programs now with specific cell types, and you also have this broader AlloSCOPE program with pluripotent cells ready to go. How do you look to potentially translate, say, over the longer term with regard to business development strategy around all your various options? Brian Culley: Thank you, Joe, for the first of those 3 questions. Again, excellent business development team. Clearly, I can point to the Roche and Genentech transaction. I can point to the Demant deal. And of course, these are just things that you've seen. It is normal and common for us to have other interactions, maybe deals that could come together but don't for various reasons. So they're a reliable and productive group. What we can do, what we have the opportunity to do is to take the AlloSCOPE platform and apply it in different ways to generate a basket of assets. And then we can make some decisions that are good for the company in terms of partnering or retaining. We don't have a particular objective to launch any of the products we manufacture, although that's certainly not off the table either. We are really being mindful of our cost of capital, the spending, the risk and our own capability to make decisions about what and whether to partner and what time, assuming that there is an appropriate economic arrangement to be struck at all. So I think the way to maximize the value of the platform that we have developed is in part to generate new assets that can be partnered fairly early and to use some of that capital to offset our needs to rely on traditional capital markets and through that mix of creating assets that are funded by others as well as adding programs and taking them a little bit further. I think we may be solving to optimize for the best return on invested capital that we can with the technology that we have developed here at Lineage. Joseph Pantginis: That's extremely helpful. And then I guess my technical question is without giving away the secret sauce here. For the islet cell component that you're working on here, what would you consider to be the rate-limiting step or steps with regard to moving beyond the 0.5 liter scale? Brian Culley: That's an excellent question and the very nature of the exploratory work is that we do not know. So we cannot predict the linearity of going from half liter to multi liter to ultimately up in the neighborhood of 80-liter or 300 liters. There are incredible new technologies that are available that help companies with this work, but it's very difficult to say. I would say this, though, I do think going from 0 to a 0.5 liter was a much larger achievement than what I expect going from a 0.5 liter to 2, 3, 4 liters will be. And the reason for that is that it hadn't been done before and as I explained earlier on the call, it's very hard to get the control that you want from a 2D process and apply it into the scale of a 3D process. So to be clear about one thing here, AlloSCOPE describes our basic platform, our banking or manufacturing. AlloSCOPE 5.0 is the application where we're essentially tricking cells to think that they're being grown in a 2D environment while actually putting them in a 3D environment. So quite simply 2 plus 3 equals 5, perhaps the additional dimensions are scale and cost in that situation. But I think what's really exciting about the next step is that if you do have control in the lower mid-leader scale, you really could begin to have discussions about pooling that output and feeding maybe an 80-liter reactor or it could give you some insights and confidence about the linearity as you scale. Not every cell line is going to be amenable and can adapt to these larger scales and perhaps some of the technologies don't fit well depending on the cell type that you plan to differentiate. So it's very much unexplored territory, which is why I wanted to spend a lot of time talking about it today. Joseph Pantginis: Very helpful. And then I think we're essentially done because I think the next one is unanswerable, as I said. But with regard to the GAlette study, I'm sure you get questions on this all the time. But is there any visibility or anecdotes you could provide with regard to the types of deliveries that Roche might be testing or methods? Brian Culley: There have been some presentations at conferences where images of different devices have been provided. I don't know in every case whether those presentations have been made available to the public online or are they exclusive to the registrants of these conferences. But what I would say as a general matter is that the 2 big chunky approaches are to deliver [ transvitreally ] through the front of the eye or via a suprachoroidal approach, which is going around the eye and accessing the subretinal space from below. They have trade-offs. I won't go through all of the trade-offs right now, but that is just one basic way of looking at delivery to the subretinal space. Within that, there, of course, are more refined approaches regarding the kinds of needles or the methods that one uses. But if you were to pull up or request from us the 2025 CTS desk -- slide deck, I think some examples of some of the technologies that Genentech acquired are available. But this is an important reminder. This is not -- the study that they're doing is a surgical optimization study. So they're going to be looking at different cohorts of patients and evaluating what works well. So they may try some things that don't go well and abandon those, and that's appropriate. They may find some things that seem to go well and want to push the envelope, and that's also appropriate. In fact, desirable. But this is not a responder analysis. So there -- it's not some number out of 60 is a success threshold. We know that you get the best results if the cells go to the subretinal space. So of course, it is obvious and appropriate to try and simplify that as much as you can before moving into and committing to larger trials. So we're hopeful that everything that has happened is an indication that, that work is going well. I think if that work we're going clearly poorly, they've had abundant time to abandon this initiative, but we also remain confident that our partners know best how to find the right level of risk and reward moving as quickly as they can while not jeopardizing their leadership position in the space. Operator: Our next question comes from the line of Jack Allen with Baird. Jack Allen: Congrats to the team on all the progress made over the course of 2025. Looking forward to a productive 2026. Just 2 quick questions from my end. The first one is on the OPC1 program. I was hoping if you could provide some more color on the timing of the functional measures? And anything you can also add as it relates to the baseline characteristics of that first participant in the study there being a chronic participant. I'm curious as it relates to their baseline functionality. And then secondly, on OpRegen. I know you guys have presented 3-year data in the spring of 2025. I'm curious if 4-year data could be on the docket as it's been great to see the continued durability response as it relates to OpRegen. Brian Culley: Thank you, Jack. I will ask your second question of our partner. I do not know their plans for 4-year data. But obviously we are excited by the fact that the benefits that we're seeing in year one did continue into year 2 and year 3, which mechanistically makes sense for a transplant that is not rejected. We think that's a great sign, especially because the untreated eye in the same patient continues to lose letters of vision. So the delta, the clinical benefit and the confidence in that benefit only seems to get better with each passing year. With respect to OPC1, we do -- I do want to remind everyone that the OPC1 study is a safety and performance study of a device. So it is not an efficacy design. So we have a more limited set of function measurements that we are collecting. But we are collecting things like an E-ISNCSCI exam and quality of life measures, SCIM is one of the tools that we've -- one of the assessment tools that we've employed in this trial. So we collect baseline data or screening data prior to the cells being administered and then we have some early functional assessments probably too early to see anything. So these are functional assessments that occur in the first 90 days. They provide some reinforcement or reliability about your baseline measures and ensure that the patient isn't experiencing any decline. And then we wait until a year in most cases because we aren't looking every 30, 60, 90 days at these patients because, again, that's not what the study was designed to do. But when we collect the 1-year functional assessments, if we do see some changes, those are things that perhaps would be more meaningful if they're occurring at 12 months versus occurring at 3 months or even 6 months. There is, quite interestingly, there has been some information. We view this information as coming from a reliable source, but there was some information about the chronic patient having some improvement in certain measures. This is anecdotal. This is not part of our conveyance of clinical data to the public, but people are free to talk about their own experiences on clinical trials. So you may find some evocative information out there. We don't confirm or refute it. We will only be communicating actual data from our trial when it becomes available. But I would add only to your specific question that the patient fits within our specific criteria as being ASIA Impairment A. And I guess I could add to that, that we had some difficulty finding the next patient in the stagger. And we recently went through an expansion of the protocol to allow a second impairment level of A for the second patient enrolled in this study. So to the extent that we hadn't enrolled a second patient yet, I can tell you that it was because it was really hard to find the stagger that had been agreed to with FDA. So we went through the steps to amend that protocol stagger to broaden it to allow for another A to be treated, and we have someone who has been identified and may get treated here in the coming weeks this month. So I think we're going to be back on track with this trial, but very good and appropriate questions, Jack. Thank you for them. Jack Allen: Awesome. Maybe if I can just follow up one more on AlloSCOPE. But before I do, it's great to hear about the anecdotal progress of the OPC1 program, while it's not necessarily well-vetted clinical data. There's a high unmet need in spinal cord injury. So that's great to hear that there's some enthusiasm there. On AlloSCOPE, I just wanted to ask very briefly how you think about ramping expense of that program as you move up from the half liter bioreactor, I know if you get more expensive as you move into larger reactors, how are you planning to contain cost there? Brian Culley: Yes. It's not too difficult. The cells are eating the media that we feed them, and we have done a lot of batches and the multi-liter batch size, I've spoken frequently about OpRegen already being manufactured at a 3-liter scale. So we have abundant experience at that scale. I think where it starts getting really exciting is when you go up one level beyond, I don't want to get ahead of myself at this point. There still are risks and uncertainties associated with this. But one of the really powerful attributes of our approach of inverting our development plan and focusing on manufacturing is that we are able to put a relatively modest amount of capital to work to get answers as to the scalability of these lines. If we were doing it the other way, if we were doing expensive animal studies or very expensive human studies, and we were deferring the important questions around scale, we would be spending a tremendous amount of money running studies that others have already shown can be successful and not necessarily proving anything about our viable product candidate in terms of its ability to meet the commercial demand. But if instead, you follow the Lineage approach and you say, well, I'm going to answer the question of scale first, then you are looking at the risk profile of your subsequent preclinical and preclinical studies with a little bit of a different view because you already know you can make a lot of your material. So I really like the overall approach. I think it's prudent. I think it's investor friendly. And from our perspective, we have experienced a lot of experience already at a single leader or multi leader scale production. So we have a well-trained team that can fill and finish vials out of that scale in a GMP environment. So we'll have to see. But as Jill said, we're very committed to high returns on our invested research dollars and trying hard to maintain something close to our historic investment of capital on an annual basis. Operator: Next question comes from the line of Mayank Mamtani with B. Riley Securities. Mayank Mamtani: Thanks also to your company employees and their families in Israel. So Brian, just to piggyback on the last -- kind of framing you had on this inverted risk framework you have on the scale-up of the manufacturing first for this islet cell research initiative. Could you maybe just double-click on what have been the learnings to date from the OpRegen work since inception and also as part of specifically the Roche partnership? And maybe also if you could recap what milestones should we be watching for potential candidate being identified here? Or is this being used by a strategic partner since obviously this would draw a lot of interest? And then I have a follow-up. Brian Culley: Thank you, Mayank, for that multipart question. Yes, the inverted risk, I think, as I say, attractive because we're putting what I believe is the least expensive and most challenging step first. And so we're trying to invert the risk profile of islet cell transplant product initiative or campaign. The specific learnings and lessons from the OpRegen program are coupled with independent learnings and lessons we have because, of course, we have other programs that we've had to solve different problems for whether that's our hearing loss program or our spinal cord program. Altogether, a lot of these have taught us some clever and sometimes patentable material and insights. Overall, I would say that AlloSCOPE is comprised of 3 components. There are physical or engineering-type components. So these are the physical properties of how we do the manufacturing. There are biological aspects to it, i.e., exactly what we expose the cells to and when. And then you have an engineering component, which is a little bit more of like the know-how. So it is not that there's a magical molecule that makes AlloSCOPE work or a special coding of plastic or type of plastic that makes everything click. It is the combination through years, in fact, decades of experience coming together, finally being able to show that this capability can legitimately make millions of vials, as I said, trillions of cells and then applying it in a very unique way to solve a specific problem in the setting of islet cells. I don't envision that being a fee-for-service business of our company. I'll never say never because our job here is to create value, it's not necessarily to make medicine. So if we see an opportunity and it makes sense, we may pursue it. But what we would envision with AlloSCOPE in partnerships is always enjoying significant ownership of any program that's going forward. We are bringing tremendous value to partnerships. We're a healthy company that can carry its own weight in development. And so we want to make sure that we're never viewed as a CDMO, not that there's anything wrong with that business, it's just very hard to price that kind of product when the probability of success is unknown as you go into those alliances. And we also have limited GMP space, a very highly trained team. This is not up the shelf skill set that we just grabbed from some recent college grads. So it is something that we have to be very selective where we apply our technology. But you also asked a very important question in there, which is additional programs, and it occurs to me now in this moment that I have previously said that we had some additional cell types that we are going to talk about and it didn't even make it into my prepared remarks, which gives you a sense of how much exciting stuff is happening here. But we do have plans to reveal another new cell type, that could be as early as in the next 3 to 6 weeks. It's coming together. It's maturing. I'm very excited about it. But it is as yet undisclosed. But hopefully that is something that we could have out into -- out for public consumption prior to our next quarterly call. Mayank Mamtani: Yes. No, that new cell type would be great to learn about that. Thank you for that level of detail. And then on the OpRegen program, if that was to theoretically start a Phase III tomorrow, like, what's your capacity for the amount of doses you can provide because these could be like very large trials, at least historically that have been done. And do you have any visibility of regulatory interaction that has occurred beyond the RMAT designation that was secured last year or 2 years ago? Brian Culley: Thank you for that additional question. Unfortunately, again, that's a question that really can only be answered by Roche and Genentech. I am not a party to regulatory strategy discussions or regulatory interactions that they have regarding OpRegen. So I cannot say because I do not know. Mayank Mamtani: Okay. And one last for Jill. In your cash runway, how much of the additional warrants are factored in? If you could just clarify. Jill Howe: Yes. So of the existing runway that we talked through today, it only includes the $5.4 million in warrants that we collected this week on an exercise, sort of, the $32 million remaining is not factored into our future runway at this point. Brian Culley: Mayank, I neglected to answer the remainder of your question. And I'm happy to say that perhaps one of the least of my concerns at this company is being able to manufacture sufficient material. It really speaks to the power of our technology. We literally are manufacturing more OpRegen than we can reasonably fill and finish in a day's work. So I do not think that supply of clinical material will be gating because the 2-part banking system and then the production vessel scale that we're at, really does generate a very large number of cells on each run that we perform. Operator: Next question comes from the line of Albert Lowe with Craig-Hallum. Gum-Ming Lowe: I was wondering how you'll be applying the hypoimmune cell line that you recently received from the partnership with Factor? And I believe this is an iPSC line. Can you please also speak on some advantages of using induced pluripotent stem cell line? Brian Culley: Albert, thank you for that question. The hypoimmune line that we obtained through our Factor alliance is a line that we designed for a neurological indication. That indication is as yet undisclosed. I may or may not -- I think I'll probably just say that I cannot confirm that it is even the same indication that I suggested could be coming out in the next 3 to 6 weeks. But you're correct that it is an iPSC line. I don't know if there are advantages of iPS over ES or vice versa. Our view is that it is appropriate to follow the data and the behavior of these lines. I do think that there is an important discussion that occurs about various attributes that may make one or the other more attractive but there simply have not been enough approved agents to be able to definitively say one is superior. Typically, what one finds is it when you work with one form of a line, that is the line type or source that you defend for us, we are indifferent. We have both types of -- excuse me, we have both types of pluripotent lines. But in this case, the experience that Factor had with gene editing, with iPS, with hypoimmunity and we also engineered in an additional functional, hopefully, relevant edit into that line. That is about us accessing capabilities that we think are valuable, but that we didn't want to build in-house. And because ourselves are always fully characterized before they go into a patient, we can be confident that there are a number of different editing technologies that could be applied because we can always confirm [ materially ] as it was designed to be before we utilize it and before we invest in the scale-up of that material. Gum-Ming Lowe: And looking forward to hearing about this new cell type that's coming soon. Operator: Next question comes from the line of Sean McCutcheon with Raymond James. Yang Chen: This is Yang for Sean. We have one quick question. Could you speak to the process of getting a new OPC1 formulation into the DOSED study? And how much do you think that may shorten the time line versus bridging study? And are you in dialogue with FDA on that front? Brian Culley: Thank you, Yang. Very appropriate question. We elected to separate the new device that we are testing from the new cells that we have manufactured. So we have completed the manufacturing -- the new process by which we manufacture those cells. We have completed the comparability testing including in-life comparability testing and all the other features that go into a meeting package with FDA, but we have not yet presented or delivered that information to FDA to request us to bridge in those studies. We thought it would be prudent to get a little bit of experience with the new device so that then the focus could shift away from the new device and into the new cells. So what we are hopeful for is that the new device will perform as it was designed to be performing in the first 4, 5, 6 patients and then proposed to FDA that we would switch over to the lineage new process in the last handful of patients in the DOSED study. If successful with that endeavor, that would save a lot of time. It would prevent us from having to establish and conduct a separate safety cohort with our new cells. So you can imagine that the bioinformatics data, the animal data, all of the analytical work that we have done to propose that switch has been exhaustive in order to give us the best probability of success in accelerating that process because it is correct that in order to run a larger study, our view is that we need to have this superior device deployed and we need to use our higher quality, higher purity, higher scale and better control OPC1 cells. And so that is our plan. And when that is complete, then I believe we would be in a position to run a larger study, either ourselves or in a partnership but a larger study of spinal cord injury patients. Operator: There are no further questions at this time. I will turn the call back over to Brian Culley, CEO, for closing remarks. Brian Culley: Thanks, everyone. I know it was long and complicated, but it's very important, and I think also very exciting. So stay tuned. Clearly, we have some exciting stuff coming up not too far away. Thank you for your interest and support of the company, and we'll talk again soon. Operator: That concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good afternoon, and welcome to Research Frontiers' investor conference call to discuss the fourth quarter and year-end 2025 results of operations and recent developments. The company will be answering many of the questions that were e-mailed to it prior to this conference call, either in their presentation or as part of the Q&A session at the end. In some cases, the company has responded directly to e-mail questions prior to this call or will do so afterwards in order to answer more questions of general interest to shareholders on this call. Some statements today may contain forward-looking information identified by words such as expect, anticipate and forecast. These reflect the current beliefs and actual results may differ materially from those expressed due to various risk factors, including those detailed in our SEC filings. Research Frontiers assumes no obligation to update or revise these statements. [Operator Instructions] The call is being recorded and will be available for replay on Research Frontiers website at smartglass.com for the next 90 days. [Operator Instructions] I would now like to turn the conference over to Joe Harary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir. Joseph Harary: Thank you, Paul, and thank you, everyone, for joining us for our year-end and fourth quarter 2025 Conference Call. 2025 was a year of not just incremental developments but structural adjustments in the supply chain and meaningful expansion in our automotive pipeline, architectural retrofit execution and new product development and capital positioning. This call is important because when you step back and look at 2024 and 2025 together, the trajectory of this becomes clearer. We have maintained production continuity in automotive through license transitions, expanded OEM engagement with high unit volume vehicle programs, allowing cost reductions by our licensees and expanded engagement through other areas of the vehicle besides just the sunroof. We've seen Ferrari expand production of cards with SPD-SmartGlass and Cadillac enter the market with SPD. We've seen Mercedes showcase SPD broadly in a concept vehicle and launched architectural retrofit initiatives. We've seen advancement in the Black SPD development. We've strengthened our balance sheet. And our licensees, and I think this is important, are making new investments that are specific to SPD business, and they're moving forward and winning new business. We're going to talk about that later. I'll begin with financial results and our recent financing and then address Gauzy directly and then transition to the significant positive developments that have occurred since our last conference call. For the full year 2025 and continuing in 2026, we remain debt-free. We strengthened our working capital. Our royalties improved when adjusted for onetime licensee events early in the year. And let me now just address our February financing directly because we've gotten some questions about it. And keep in mind, I'm trying to save time by answering as many questions as possible. And I have basically taken questions that have been given to us and included many of them in my presentation. So hopefully, that will allow us to efficiently cover a lot of ground because there's a lot of good things to talk about. As we disclosed in our February 18, 2026 Form 8-K, we completed an oversubscribed $1.1 million private placement at $1 per share with 5-year warrants that are at increasing exercise prices. This offering included credit investors, several family members of one of our directors and also importantly, the owner of one of our SPD licensees, and I think even more significant, the one responsible for the SPD architectural retrofit application. And we all believe that the retrofit represents a potentially very significant market. So when the licensee closes to execution of this invests its own capital alongside long-term shareholders, I think that speaks clearly about their confidence in that opportunity. And let me clarify something that I addressed in prior calls. I had stated that we would not need to raise capital if we were paid what we were owed and if we did not experience additional disruptions and there were several in 2025. And I also said we might raise capital for strategic reasons. In 2025, all of these elements were present. We experienced AGP related developments, Gauzy's French subsidiary rehabilitation process and slower collection of certain receivables some of which are now being collected as we speak. At the same time, we saw expanding opportunities in automotive programs, architectural retrofit, black SPD development as well as new product opportunities. Given that combination, we believed that it was prudent to modestly reinforce the balance sheet. We deliberately kept the offering small and focused and was done at a market price. Participants were long-term holders who, other than our licensee had participated in prior friends and family offerings, including our last one in September 2022. The shares were not registered for resale and are subject to at least a 6-month holding period. We entered 2026 with strength in liquidity and no debt and resources to execute on our business. I know a lot of people have been frustrated by the silence that has been coming out of our licensee Gauzy. So let me now address Gauzy directly. In mid-November, Gauzy's French subsidiaries entered into a court supervised rehabilitation proceeding in France. This applies specifically to the French entities. It does not apply to Gauzy's German SPD film production facility. It does not apply to SPD emulsion production in Israel. However, as one would expect through most business organizations, this filing has had some ripple effects. Liquidity has been reallocated by Gauzy to satisfy the French rehabilitation monitors. That allocation appears to have temporarily reduced access to liquidity in other areas of the company, and Gauzy is actively working to address this. Senior management time and attention is understandably at Gauzy been focused on stabilizing and addressing these matters. In addition, Gauzy reduced headcount. And let me just say that sometimes workforce reductions are never easy, but by adjusting expenses and overhead, it can strengthen the long-term sustainability of the company. These actions by Gauzy appear aimed at lowering operating expenses, reducing capital requirements and moving toward a more stable operating profile for Gauzy. And even in the midst of all of this, SPD emulsion production in Israel and SPD film production in Germany continues. In the midst of this, automotive and architectural development programs continue and expand. Gauzy is reconstituting its Board to restore its NASDAQ compliance. They postponed their third quarter 2025 conference call due to the timing of the French filing. But I think it's important to understand that as a foreign issuer, they are required to file financials only semiannually. And as a foreign issuer, their third quarter filing was purely voluntary and their annual filing is not due until the end of April. So they're on a bit of different as you see reporting schedule than we are as a U.S. reporting company. From our standpoint, we remain in regular contact with them almost daily, production inside and outside of France continues. Program execution continues and progress on multiple fronts continues even during these restructuring efforts by Gauzy and we'll talk about some of those things a little later on in the call. So now let me move from the discussion about stabilization to the acceleration of our business. While restructuring efforts were underway, development did not pause. Since our November call, expansion has accelerated. Ferrari continues to produce vehicles utilizing SPD-SmartGlass. And even though license supplier AGP and their European affiliate, Soliver, both filed for bankruptcy protection in 2025. This had a 6-figure impact on recorded royalties for us during 2025. But we successfully transitioned the Ferrari business to another licensee, Isoclima and even though this transition occurred midyear, Isoclima sales levels exceeded their minimum annual royalty thresholds in the third and fourth quarter of 2025. Maintaining continuity through a supply chain shift requires execution even when one has is zig and zag, and we had to do that. So initially, AGP asked that we transition the Ferrari business to their sister company, Soliver in Belgium. And when some of the key suppliers, not SPD, but just in general, for automotive glass pulled their support they moved it back to their production in Peru, and then that didn't survive, so we had to shift it over to Isoclima. But I think that while that was certainly challenging for everybody, we successfully emerged. And I think it illustrates pretty clearly the strength and the robustness of our supply chain. Moving from Ferrari to Cadillac, they also entered the market with SPD-SmartGlass and the Cadillac Celestiq this year. And the Celestiq is General Motors' flagship ultra luxury vehicle. And it has garnered great industry and press accolades with a strong and positive focus on the 4 quadrant SPD smart roof. It represents adoption by a major U.S. OEM or first, and also validates SPD in a next-generation engineered platform for General Motors. We believe this will result in substantial additional business for us. And it's certainly significant that SPD-SmartGlass was chosen and introduced in European ultra performance and American ultra luxury vehicles. Mercedes also recently unveiled a concept vehicle featuring SPD integrated across much of the car, not just the roof. I think it was 75% of the surface area of the glass. As those familiar with the automotive industry understand, concept vehicles often signal direction. They reflect where engineering resources are being allocated and based upon feedback where marketing resources are deployed and what makes it into ultimately new vehicles. Let's reflect, since our November 2025 conference call, I was the keynote speaker at the Automotive Glazing Summit in Detroit. We now have high-volume quotations on 4 models of automotive -- in the automotive sector. Since our last conference call, we have also started work with a new European OEM. And in addition to those models, which can represent hundreds of thousands of units, we also have specialty programs with potential annual volumes in the tens of thousands of units that recently came on board since the last conference call. The automotive pipeline today is broader than at any point in our history. We'll talk a little bit now about some of the new products and technical advances. SPD Black continues to advance and OEMs have made clear their preference for glazing applications that require a neutral or black aesthetic. Black SPD addresses that requirement and broadens the market. We are also advancing new SPD film variants, optical refinements, IR and UV integration, improved manufacturing and yield and broader access to key ancillary technologies to make a super smart window. These are adoption enabling refinements driven by OEM feedback. And of course, we listen carefully to the customer writing the checks. Moving now to the architectural market. Since our last conference call, we and our licensee, AIT, also known as LTI Smart Glass launched the retrofit architectural SPD product at Glass Build America in Orlando. We have identified 4 initial retrofit projects of different sizes. Each highlights a different advantage of the SPD retrofit system, which is why they were selected. In multiple cases, removing exterior glazing would be disruptive or costly. To give an example, in 1 case, the building is a historically designated building. That project initially specified Sage electrochromic glass, but because Sage and their electrochromics required exteriors removal and replacement and something that was actually restricted because of the historical designation, the project pivoted from electrochromic to SPD retrofit. Instead of replacing the facade, SPD upgrades performance from inside the existing frame. Why is this significant? The installed base of buildings globally is vastly larger than annual new construction. And the SPD retrofit system dramatically expands our addressable market and compressors manufacturing and installation time without requiring facade replacement or structural or occupant disruption. It could stay in the building while they do it. Other projects in the retrofit market also span residential and commercial buildings as well as government installations. And since our product launched last quarter, we are focusing on developing some new and innovative ancillary systems and peripherals for the retrofit application. Joseph Harary: With that, I look forward to answering your questions, and we'll first include some of the questions previously sent in by our shareholders in -- so first, without pulling any punches, here are the additional questions we received that were e-mailed to us. And in some cases, I'm combining several related questions into one. And also, we covered some of these topics earlier, but I thought it would be helpful to you to hear some of the questions and for me to go into more detail. Joe, how concerned are you about Gauzy's French rehabilitation proceeding? What happens if things deteriorate further? Well, that's a fair question. And by the way, all indications are that they're not going to deteriorate further. They're actually improving from where I sit. First, it's important to separate the French subsidiary proceedings from the broader organization. The rehabilitation process applies specifically and only to Gauzy's French subsidiaries. It does not apply to the German SPD some production outside of Stuttgart or the SPD emulsion production operations in Israel. SPD film production in Germany continues and SPD emulsion production in Israel continues. Automotive and architectural development programs continue. Market development and new business development for SPD continues. And yes, the French filing required liquidity allocation and management attention. And yes, Gauzy reduced headcount as a part of the restructuring. But restructuring when done properly, can be very -- a very healthy change that strengthens the company. And we, of course, remain in regular contact with Gauzy and from our standpoint, we see operational continuity and SPD production and program execution. I'm going to take another question that's related to that. Do I have a contingency plan of Gauzy does not perform? The answer, Michael, is yes. We do. We have a plan A, B, C and D. My preference is not to have to use any of those. Another question from Mr. Erdman. What can you say about the war? Well, war is bad. And if I had to say what was the most disruptive thing to our business. We have some key technical developments that are on the verge of happening within Gauzy and we have some key meetings with companies outside of Israel that are going to be scheduled for this month or early next month. And really the limiting factor on both was when are they going to open up the Israeli airspace. Right now it's closed. I heard today, I think it was that they're reopening it on Sunday. In some cases, people outside of Israel at Gauzy had to take claims to other countries, then trains and buses, including a 6-hour bus ride to get home. They're very able to operate in these environments where that happens. So kudos to them for the strength and determination to do that. I got another question. Can you provide a postmortem why we didn't get a business on -- and there's a couple of car models mentioned. This is from Jared. I'm going to talk about three of them that are on the list. The only one I'm not talking about is Mercedes, and that's because of some active discussions going on. But one of them was VW. Why don't we get the VW business or the Rivian business, which is somewhat related since they kind of share a lot of the platforms together. VW initially, with the Porsche Taycan went with a PDLC product. And I don't know why they did. So I can't answer the question, why didn't we get the business? I'm sure that they were told some things about the performance and reliability of PDLC as was these other companies. It's probably interesting to note that they took the PDLC out of the out of the Taycan. So sometimes what's promised isn't always delivered. And the question also said, what about in particularly Corvette? I know the reason it has nothing to do with performance. And as many people on the call may know a company that is a well-known supplier of other products to Corvette asked to supply an electrochromic sunroof. It was announced with a lot of fanfare in August of this year by Corvette, there was some good press accolades. And then they realized that they couldn't produce it in scale, and they took it off the configuration list. Another question I got -- and this is from John Nelson. Is there a possibility that SPD can be used on Corvette roofs as a replacement for the sad option that GM offered earlier in 2025? Well, thank you for calling it a sad option. I don't want to disparate anybody, but I'm just reading literally the questions. So thank you, John. Not that I disagree, by the way. Yes. A matter of fact, I think our chances are much higher as a result of what happened there. I think people realize that what we've accomplished in automotive is unprecedented. We're in 4 different OEMs. That means 4 different quality assurance requirements, 4 different supply chain preferences and we were successfully introduced in series production in all of them. So it's something that I highlighted at the Detroit Automotive Glazing Summit that I was the keynote and Chairman of. But I think now it's becoming crystal clear to a lot of the OEMs, how hard that is to do it, what we and our licensees did and what it means to have a reliable supply chain like we have. Let me go back to some other questions. Do we see stabilization efforts underway at Gauzy? Yes, not only that, but continued execution across all their active programs. And they're making progress and they're fixing what are mostly entirely cash flow issues caused by the French bankruptcy. I think once that's done, everything comes together again nicely. And like I said earlier, we're in very close contact almost daily with them. And we've been trying to help them navigate as best we can through some of these issues, and they're very receptive to that. It's another tough question. When do you expect meaningful revenue growth from these automotive programs? And in general, what gives you confidence that 2026 and beyond will be better? Well, thank you for that. Let me start. Not as an excuse but an observation, automotive integration takes time. You're talking about vehicles that have thousands and thousands parts and purchasing decisions and a lot of that has to be coordinated. Fortunately, we have a couple of things going on. Number one, even though these things take time, we started them a while ago. So they're very much well under way. And also another thing that's extremely helpful, and I think every day becomes clear to the OEMs, our SPD technology has been validated across 4 OEMs. And in the auto industry, that's unprecedented, and we have even more OEMs in aircraft. So I think that, that reliability and continuity and maturity of the technology, I think, has been very helpful. But bottom line is the seeds have been planted, getting back to the question, and they've been nourished and now you're seeing them begin to grow. And really, what matters and why I think this year is going to be different and this is going to continue is the breadth of our pipeline and the engagement of engineering that we have. Today, we have Ferrari and McLaren models in production, we have Cadillac newly entered into production with some legs basically within General Motors, some of which I alluded to earlier. Mercedes showcasing SPD broadly in a concept platform, 4 high-volume quotations allowing us to get our costs down meaningfully. Additional new European OEM programs and specialty programs with tens of thousands of unit potential. And also, I think what's helpful is the new SPD related investment by our licensees. So that breadth is broader than at any point in our history. And that's why I think 2026 and beyond will be different. And as programs move from quotation to production, revenue follows, but not before, not in the automotive industry and not with a licensing model. So we focus on execution and integration, getting it into cars reliably. And then for revenue for us and for our licensees, that follows integration. And that's what we've been doing. It's very simple. Next question. Ferrari's low volume, Cadillac is ultra low volume, isn't this still a niche technology? Well, Ferrari and Cadillac and prior to the Mercedes and McLaren all validated performance of SPD technology and the ability of our supply chain to reliably produce for serial production. I might add, produce for serial production across 4 different OEMs with 4 different requirements and 4 different production processes and 4 different procurement processes, we did it. What matters now is expansion. And we have 4 high-volume quotations in the automotive industry. We also have specialty programs in the tens of thousands of unit range. And we also have broader glazing integration discussions beyond just sunroofs. So the pipeline today is about scalability and not just halo vehicles, it's about cost and it's about performance. And we've always had great performance, but the scalability and the costs are things that we're now showing people we can do. Another tough question, also automotive related. If this technology is so compelling, why hasn't a major OEM adopted across all vehicles already? Well, from your mouth to God's ears that it happens, then it might, and I'll give you an example of why that might happen. But automotive adoption is very model specific, at least in the beginning and very platform-specific. OEMs integrate technology based on cost targets, future positioning and design cycles and also what their competition is doing. But we're now seeing broader glazing discussions beyond just sunroof panels, and that represents platform expansion. And a useful historical analogy is antilock brakes. That began as a very expensive item, I mean a fairly significant percentage of the car. But Mercedes took a risk on that one. And even though it was very expensive, and they put in first and high-end vehicles, it eventually became standard across the industry. And as many of you know, we have very good relations with Mercedes, and we speak to them often. And we have pretty much an insider's viewpoint on how they think about things. And I asked the guy that developed the S-Class. And of course, I met him in connection with our work on the SLK and the SL and then the Maybach and the S class. And we had a lot of discussions. And I said to them and I said, Hans, did you have ready regrets about a decision you made? He goes, well, not about SPD, but I did have one regret. We had developed a dynamic shock absorber system that would take the 6 cameras in a car and feed the data into dynamically changing the shock absorbers on the car. And we wanted to call it either Magic Carpet Ride or Magic Glide Control. It made the car really, really smooth to drive. And one day, Dieter Zetsche walked into my office and said, BMW wants to license it from us. And the regret I made as I said, no, because had I said yes, that would have gotten the cost of that down. And if I got the cost of it down by licensing BMW, so that the unit volumes for our supplier were much higher than it would have gone to other carmakers, too. And then it would have been in every one of our cars. So Magic Ride Control would have been in everything at Mercedes, and we'd have a better performing vehicle. So the thinking is and this happens more than I thought it would, that OEMs do share technology. And when they don't, they regret it sometimes. So in our case, adoption, I think, across every model within an OEM will happen when we address 2 things that we spoke about earlier. Cost and color. We have already discussed the significant progress we made in both of these key areas. Next question, which I asked myself today because I'm an investor is, why should investors be patient? Well, first of all, it's a little easier for me to be patient because I have more information as you'd expect, as to what's going on and what's in the pipeline. But I think if you look at this even from an outside viewpoint, investors should be patient because the infrastructure has already been built. We have invested over $125 million in SPD and its markets. That's done. Because these major investments have been made and validated by significant customers, I think that's another reason to be patient. And diversification has increased. Diversification across multiple OEMs, diversification across now you're beginning to see different places in a car where this could be used, and you'll see more of that. I think we should be patient because production continuity has been maintained. I'll mention it very briefly because people sometimes say, well, why do you talk about the competition? I pay attention to the competition. We've had several competitors go bankrupt. The most recent, which you may not be aware of, was eyrise, which is the company that makes architectural liquid crystal. Not PDLC, liquid crystals. So sometimes, when you see something that looks like SPD, it was the eyrise product in an architectural application or they ended up liquidating. And that was within the last month or so. So it's a tough industry. But I think by being smarter, and not that I'm the smarter one, but just setting up a business that was smarter. We've been able to have that production continuity that no one else has had. New OEM programs have opened. Another reason to be patient because those things are seeds that have been planted that will sprout. The architectural retrofit greatly expands the addressable market. These are all structural developments. And durable growth follows those structural expansions, those foundations that we build. So we've also set the table for lower cost and higher revenues, all without requiring large capital expenditures or erosion of profit margins at Research Frontiers. So we've built strong foundations in their we're green from them. And I think that's why investors should be patient. We've discussed a lot of exciting topics so far today, and I'll now ask our operator, Paul, so please open up the conference to any additional questions people participating today might have had that have not already been covered. And just one caveat. We have covered a lot of ground. The call was running a little bit long because there's a lot of exciting things that we wanted to talk about and share with you. So if we've not fully answered any of your questions, but they've been substantially answered, e-mail us rather than ask it on the call because we want to leave time for as many other questions as possible. So Paul, if you can open up the Q&A for live questions, I'd appreciate it. Operator: [Operator Instructions] And our first question comes from Jeff Harvey an investor. Unknown Attendee: So Gauzy announced a $50 million funding proposal. That obviously hasn't gone forward. At least I haven't seen anything to indicate that the funding has been in place. So that's a little disturbing. The other thing is that...... Joseph Harary: Having -- yes, let me address that first because having cut my teeth on corporate transactions as a lawyer and also as the CEO of Research Frontiers. It's not that it hasn't gone forward, but equity credit lines require a registration statement we filed with the SEC and they go effective. Due to kind of the timing of the year, I believe that Gauzy would have to actually have their audited financials in place in order for them to file that registration statement. So I think -- but I think it's also probably important and I don't think I'm revealing anything that I shouldn't about Gauzy's funding plans. But that's more of an intermediate funding plan. They don't need that much money to execute on their business plan and move it forward. And they have access to more immediate, shorter-term capital. That's meant to take care of some of the debt that they have with a particular lender at a higher interest rate. And it's nice to reduce your interest expense. We don't have any debt, so we don't have any interest expense. But they're a different company, so they do. Anyway, I didn't mean to cut you off. I just wanted to address the question while it's fresh. I think you had another question or comment. Unknown Attendee: Yes. Two other things. First of all, the stock has been under $1 for -- I would think getting to a point where they're going to get another letter from the SEC about getting delisted being under $1, but I also.... Joseph Harary: You're talking about Gauzy stock. You're talking about Gauzy stock. Unknown Attendee: Correct. So I think that's -- and the other thing is I would think that they're not going to be able to pay you on time the way you'd like to be paid until they get their financial house in order. So I would think that your expectations of getting royalty revenue from them, again, are going to be subdued near the near term. And I also..... Joseph Harary: Let me address that while it's fresh. Okay. I'm sorry if it's related. I want to make sure I answer all your questions, Jeff. Unknown Attendee: I would think also that potential customers would be reluctant to want to do business with Gauzy given their financial distress. Joseph Harary: Right. They're all excellent observations. Let me maybe put some color on it because like I said, I've been in very close contact with Gauzy throughout this process since pretty much the day after the filing, the bankruptcy filing. So the first question is, are we going to get paid? And the answer is yes. They have stressed to the French -- remember, we get our funding from 2 sources from Gauzy. Vision Systems, which is in France. Now that's directly under the control of the French regulators. And it's more of a monitor to basically just like internally, we have a list of bills that we had to pay, and my office manager presents it to me as CFO and CEO, and I approve it and our audit committee looks at it and it gets approved and then we pay it. What you're doing is you're adding 1 level on top of that, but it's a bureaucratic level, which is a French bureaucratic official that also has to do that. So it could slow down the process. Our invoices have been submitted. I'm told. No guarantee, but I'm told that it typically takes the regulators 1 to 2 weeks to approve something like that. So we're in the queue. As far as post filing things, that's a little smoother because really what they do is they treat prefiling obligations a little bit differently than they do post filings. And November 13 was the prefiling -- was the filing date. So anything that existed, which is about half of our receivables from Gauzy, and from Vision Systems rather, is subject to the French regulator. And the other half is ongoing in the queue for payment. As far as your other question, and it's an excellent observation, are they experiencing any customer concern about their finances? And Jeff, that was the first question I asked them too. Is anybody concerned about your viability or -- said, no, Joe, they're not. We are -- I mean, I'm more focused on SPD film and emulsion obviously. But company-wide, I think when you consider that the flow of revenue and product sales is coming out of France and it's coming out of everywhere else in the world, the customers are continuing to buy. And these are -- some of these are very long-term lucrative contracts that Gauzy has. So because they're long term, the customer has to buy from them and they have to supply and the challenge is, do you have the liquidity to supply what's a very large backlog of orders. And part of this I mean, I'll tell you 2 things. Number 1 is, the backlog -- Gauzy was on track to meet their projections for 2025 until the labor unions initiated this reorganization or rehabilitation proceeding. Then everything stopped because all of a sudden, you have to go through the monitor process to get paid if you're a supplier and it's not just us, it's people that are supplying glass and plastic film and cameras and everything else that they use in their systems. So it's very important to get that restarted quickly, especially since the backlog was tens of millions of dollars of product sales that were profitable. So Gauzy, I think, did what they needed to do, which is they reallocated some capital and some liquidity from other areas of their company to get that flowing quickly because those have longer lead times. And of course, you have the steady-state stuff for research frontiers and other licensees with the SPD emulsion and film. And I'll tell you, yesterday, I was speaking to the CTO of Gauzy and they're producing emulsion. It's ready to go. And they get it over to Germany. Probably after Sunday, it will be a lot easier when they open up the air space. But prior to the word they were getting it too. So it's not -- it's a little bit of a blip. But obviously, you want to see blips as possible. At some point, I imagine, given what Israel has gone through with 2 wars in May when I was there on 7 different fronts. And now this war with Iran, they may very well move a lot more of their emulsion production over to Germany so that -- and their people so that you have less concern about air spaces opening and closing. But I think we're on the tail end of that kind of disruption. So I think we're good. Operator: And our next question comes from Mike Forrester, an investor. Unknown Attendee: My question arises out of the third quarter report of Research Frontiers. And in light of everything you've said about how positive our whole situation is. It leads me to wonder why do we have a capitalization in January at basically $1 a share plus opportunities to buy more stock at $1.10 a share with a selective group of investors, including family members of a director when at the end of the third quarter report, it said we currently expect to have sufficient working capital for more than the next 5 years of operations. End of quote. So how do you justify that? Joseph Harary: Sure. Michael, thank you for bringing that up, and I appreciate the question. So as I mentioned earlier, there was a qualifier on that, which is assuming we get paid what we're owed and assume there's no more supply disruptions because we had one in the second quarter with AGP, as you know. And also for strategic reasons. And what I said earlier in the call, I'm not sure if you were on it, is all three of those factors were present here. Now you asked about directors participating or their family members participating. That was basically the terms were set not with the directors, obviously, they were set with the large investors, the anchor investors that were much larger investors in this offering. And then we were asked, "Hey, why don't you have a director participation in this?" And I said, "Guys, we already circulated our 10-K internally." No company in the world would allow a director to buy stock once that happens. We're closing on this deal. If there's people who know that want to participate on these terms, which have already been set, they're welcome to come into this. And I'll say this to any shareholder out there. Where do these friends and family investors come from? A lot of them had amassed large positions in Research Frontiers and wanted more. And because they have large positions, they would call me throughout the year, throughout the years, I got to know them. Most of the people in this round had invested in the last round, which was in September of 2022. So I knew them there. And they had invested in the prior rounds and the prior rounds and the prior rounds. So these are long-term shareholders. And maybe just to kind of put a color on this, if anybody out there is interested in participating in one of these things, assuming we have to do one again, maybe it's a couple of years before we do it or maybe it's sooner if isn't an acquisition we want to make or a marketing program we want to launch or something like that. Let me know when we're talking, I'm happy to put your name on a list, and we could always figure out if it makes sense for you. But it's not meant to exclude anyone. But these are people that we know and trust. And just to put a little more color on it, in September 2022, the stock that everyone got had a restrictive legend, meaning you cannot sell it in the open market as long as this legend is on the stock certificate. And even though they could have taken that certificate legend off 6 months after the September 2022 offering, nobody in that offering did. So these are long-term holders. And we appreciate that because that's how you get rewarded with a company like this, which has relatively long development cycles with customers in automotive and an aircraft, I think everyone that works in that industry kind of knows about the development cycles. But that's why we did it, and that's why we did it with the people we did. And if anyone is interested, love to hear from you. I can't promise you we're going to do this again. But if we do, and things make sense, we certainly would consider you. Unknown Attendee: Well, it's not just with respect to there being recapitalization, although the third quarter report does mention an expectation that there wouldn't -- this wouldn't happen for 5 years. But....... Joseph Harary: But if you listen to the conference call..... Unknown Attendee: Hang on. Joseph Harary: Okay. I'm sorry. I didn't mean to interrupt you. Unknown Attendee: Well, it's the timing. I mean you're giving us all this glowing information about how Gauzy's situation isn't as bad as the press, so to speak, present it to be. And I'd love to believe that because I have stock in Gauzy as well. But they just filed the bankruptcy or thrown into bankruptcy in mid-November, and here it is January, less than 3 months later that with Research Frontiers' stock plummeting just as Gauzy is plummeting, the offer is at $1 a share. When you talk about '22, I think it was like $2.30 a share and with better warrant rewards for those who reward to the company in terms of the total income. I question the timing, why not wait at least until May. We had at least 12 months before -- according to the latest quarterly report that we have cash and cash equivalents to take us at least 12 months. While this timing is like you're giving a gift to people who may not need that gift. . Joseph Harary: I'm not giving a gift to anyone. This is an investment. But I will say this. Listen to what I said, please. If we were paid what we were owed, and we didn't have any supply disruptions. Two things that didn't happen, by the way. We did that -- we weren't paid what we were owed and we'd have supply disruptions, okay? And if we had a strategic reason, we would do another one. So here we are in March. We have something sitting at a French regulators desk hoping that it gets paid today versus tomorrow. And I don't think anybody on this call would want Research Frontiers to not have the liquidity to execute on our business plan. So I'm thinking about the long-term shareholders and the execution of the business plan and capitalizing on the successes we've had in multiple markets and something no one else has done. And I'm not going to sit there and roll the dice with your money or my money and hope that I get paid on time or hope that there's no more supply disruptions. You wouldn't want a CEO of your company being that reckless. Unknown Attendee: One last question then for you. In light of what you're predicting is when you get the money and so on. Are you going to put out a press release of how things are going so that we might know? Joseph Harary: Yes. We typically don't put out press releases unless there's a specific event like the launch of the Celestiq was a specific event or a major nonfinancial development, but the financial developments are on a cadence of being announced quarterly. And our next quarterly conference call is in the beginning of May. It's not that far off the way that the SEC filing schedule falls, early May is when we typically have our first quarter call. You might see it then. Unknown Attendee: So by then, we should know whether or not Research Frontiers has got its licensing fees from the bankruptcy monitor, right? Joseph Harary: Yes. Yes. I think you'll see a change in our receivables when that happens and in our cash position. And that's not too far off. So financial results, we don't announce in between quarters, but it's close enough where you'll know about it soon enough, I think. Operator: And our next question comes from John Nelson, an Investor. John Nelson: Joe, just a couple of quick questions. You mentioned 4 projects with the retrofit window. Do you have -- can you give us any idea as to how soon any of those could start? . Joseph Harary: I think they -- I mean, they've already started. I mentioned earlier that we're working on some peripherals that go in conjunction with the retrofit window. The retrofit window is a very solid developed product. But now think about any kind of smart window. You're going to want to have ways of controlling it in a smart manner that hopefully will be just as easy to install and integrate as the glasses. So that's one of the things that we're actively working on together. That's LTI and Gauzy and Research Frontiers and the customers to give them a choice. So that's basically what it is. And we've selected different types of projects because I view these not only as revenue sources. I'm not worried about revenue on this. Revenue, when we decide that we're going full force with this, and we have these peripherals all done. AIT has the capacity and the customer base to do this quite quickly without buying a Super Bowl ad or anything like that. But I also want to have white papers so that the architects could get their ideas as to, hey, why would I use this? In some cases, it's obvious. I have building facility management, building envelope issue that I got to deal with. I need glass on the outer skin of the building, but what about things like one of the residents has, I think, 30 or 40 interior windows that to take out the glass and put this in, it's a residential project would be very disruptive to the tenant and very expensive, whereas we could just pop it in and be done with it. And so it's a matter of creating proof points there. John Nelson: Yes. Successful application will create awareness, more awareness...... Joseph Harary: And good news, John, I think -- the good news, John, is that in the architectural market, we have a lot more control over that good news getting out more so than an automotive aircraft where you're somewhat beholden to the OEM. Here, the architects and the homeowners like to brag about what's in their home unless they're rushing oligarchs or something that are trying to lay low. And we've had that happen, too. John Nelson: Okay. And second question is, has Ferrari expressed any interest in expanding the SPD roofs to other models? Joseph Harary: They have. I can't talk about the specifics on that, but they make a lot of money on the [ option ], and they're thrilled with the performance. I mean it has the performance of Ferrari. So what wouldn't they like about it? Operator: Our next question comes from Art Brady, Investor. Art Brady: Basically, I'm interested in learning a lot more about what is happening with the GL project, the Korean company that concentrates on building kiosks? Joseph Harary: I'm not going to talk about a specific project. And I don't think, given that this has been an hour phone call, we should probably spend a lot of time on specifics. But Art, I know you try to reach me earlier in the week, and I typically don't answer shareholder calls right before the SEC filing because I don't want to get any shareholders in trouble, but feel free to call me tomorrow, and we could talk about that. And if you have -- I know you're a resourceful person, you might have some thoughts on that. I'd like to now maybe make some closing remarks. Look at the fact that Ferrari and McLaren have their production continuity going on in Cadillac entering the market and Mercedes integrating SPD broadly in a concept that covered 75% of the car, not just the sunroof and the expanding OEM quotations, high-volume quotations that helped us get the cost down significantly and Black SPD advancing and the architectural retrofit launching and the strengthening of the balance sheet and new investments by our licensees and SPD equipment, and in one case, a direct investment in research frontiers to the friends and family offering. You don't see a static company, you see a foundation that's been built and a technology platform that's being embedded in many of the different places. It's being embedded across geographies worldwide. It's being embedded across vehicle segments. It's being embedded across applications. And the major investments have already been made and the infrastructure has been built. And we've always had the best performance of any SmartGlass technology, and SPD continues to deliver industry-leading performance. And cost and color are being addressed and diversification has increased. The breadth of engagement today is stronger than at any point in our history. And when you connect these developments together, you see a business that is no longer dependent on a single vehicle or a single OEM or a single customer in general or a single market. And we believe all of this positions research printers for durable, diversified growth as these programs mature and enter the marketplace. With that, I want to thank everyone for their participation in the conference call today. If we haven't answered your questions, feel free to e-mail me or call. We try to do the best we can to respond quickly. And I look forward to sharing more upticks with everyone. Operator: This concludes today's conference call. Thank you for attending.
Operator: Good morning, ladies and gentlemen. Welcome to Grupo Financiero Galicia Fourth Quarter 2025 Earnings Call. This conference is being recorded, and the replay will be available at the company's website at gfgsa.com. [Operator Instructions] Some of the statements made during this conference call will be forward-looking statements within the meaning of the safe harbor provisions of the U.S. federal securities laws and are subject to risks and uncertainty that could cause actual results to differ materially from those expressed. Investors should be aware of events related to the macroeconomic scenario, the financial industry and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements. Now I will turn the conference over to Mr. Pablo Firvida, Head of Investor Relations. You may begin your conference. Pablo Firvida: Thank you. Good morning, everyone. I will make a short introduction, and then Gonzalo Fernández Covaro, our CFO, will have some words. Latest figures indicate that Argentina's economy grew by 4.4% on average during 2025 and the primary surplus stood at 1.4% of GDP with an overall fiscal result of 0.2% of GDP. The National Consumer Price Index recorded a 7.9% increase during the fourth quarter of 2025. Inflation for the year stood at 31.5%, significantly decelerating from the 117.8% recorded in 2024 and reaching its lowest level in 8 years. However, monthly inflation accelerated during the second half of the year and displayed a 2.8% increase in December after having reached lows of 1.5% in May and 1.6% in June. In January 2026, monthly inflation rose to 2.9%, while the year-on-year rate accelerated to 32.4%. On the monetary side, the Central Bank expanded the monetary base by ARS 0.7 trillion in the fourth quarter and by ARS 13.2 trillion over the year, bringing the year-on-year increase to 44.5% as of the end of 2025. In December 2025, the exchange rate averaged ARS 1,448 per dollar, reflecting a 29.5% year-on-year depreciation. As of January 1, 2026, both the floor and the ceiling of the exchange rate band began to adjust monthly in line with the latest available monthly inflation data. In December 2025, the average rate on peso-denominated private sector time deposits for up to 59 days stood at 26.6%, 6.4 percentage points below the December 2024 average. Private sector deposits in pesos averaged ARS 104.1 trillion in December, increasing by 10.6% during the quarter and 40.1% in the last 12 months. Time deposits rose 4.3% during the quarter and 44.8% in the year. Peso-denominated transactional deposits increased 18.3% during the fourth quarter and 35.2% in year-over-year terms. Private sector dollar-denominated deposits amounted to $36.4 billion in December 2025, increasing 11.7% during the quarter and 14.6% in the last 12 months. Peso-denominated loans to the private sector averaged ARS 87.6 trillion in December, showing a 10.4% quarterly increase and a 73% year-over-year rise. Private sector dollar-denominated loans amounted to $18.2 billion, recording a 0.5% quarterly decrease and an 83.6% annual increase. Turning now to Grupo Galicia. Net income for 2025 amounted to ARS 196 billion, 91% lower than in the previous year, which represented a 0.4% return on average assets and a 2.5% return on average shareholders' equity. Excluding integration expenses, the result would have been ARS 333 billion and the ROE 4.2%. The result was mainly due to profits from Galicia Asset Management for ARS 127 billion from Naranja X for ARS 59 billion and from Galicia Seguros for ARS 40 billion, partially offset by ARS 70 billion loss from Banco Galicia. Going to the fourth quarter, net loss amounted to ARS 84 billion as the improvement of the financial margin was more than offset by the impact of asset quality deterioration. In the quarter, Banco Galicia recorded ARS 104 billion loss, Naranja X, ARS 49 billion loss, while Galicia Asset Management and Galicia Seguros posted profits for ARS 36 billion and ARS 27 billion, respectively. This loss represented a minus 0.7% annualized return on average assets and a minus 4.3% return on average shareholders' equity. The net result from Banco Galicia for the fiscal year was negatively affected by the non-recurring expenses related to the merger with HSBC, without which it would have reported ARS 60 billion profit. In addition, during the year, the financial margin was negatively affected by changes in reserve requirement regulations and by a significant increase in interest rate, which had an impact on the cost of funding. At the same time, loan loss provisions increased significantly compared to 2024, mainly due to the increase in the retail-loan-portfolio-delinquency rates. The most relevant factors for the deterioration of asset quality were the abrupt increase in interest rate in real terms, the loss of purchasing power of customers and the disappearance of the dilution effect on the installments related to a lower level of inflation. During the quarter, the bank reported ARS 105 billion loss, decreasing 6% as compared to the loss of the third quarter. Operating income increased, reaching ARS 164 billion, up from the ARS 6 billion recorded in the previous quarter due to higher net operating income driven by an improvement of financial margin, offset by higher loan loss provisions, which still showed an upward trend. Average interest-earning assets reached ARS 25 trillion, 3% higher than in the previous quarter, primarily due to the increase of the average volume of dollar-denominated loans, which grew 9%. In the same period, its yield increased 130 basis points, reaching 31.4%, 39.7% in the Peso Portfolio and 8% in the Dollar Portfolio. Interest-bearing liabilities increased 4% from September 2025, amounting to ARS 22 trillion, primarily due to an increase of the dollar-denominated deposits. During this period, its cost decreased 220 basis points to 14.3%. Net interest income increased 23% when compared to the third quarter because of a 7% increase in interest income and of a 9% decrease of interest expenses. Net fee income increased 4% from the previous quarter, mainly stood out the fees related with bundles of products and the ones of deposit accounts. Net income from financial instruments decreased 3%. Gains from FX quotation difference were 29% higher from the previous quarter, including the results from foreign currency trading and other operating income decreased 8% in the quarter. Provision for loan losses increased 42% in the quarter and 220% when compared to the fourth quarter of 2024. Deterioration that was mainly focused in the retail portfolio in which NPLs rose to 14.3%, up from 3.2% recorded at the end of the previous year, particularly affecting personal loans and credit card financing. Personnel expenses reached ARS 178 billion and were 50% lower than in the previous quarter as during that period, losses for ARS 181 billion were recorded due to the restructuring plan following the acquisition of HSBC business in Argentina. Administrative expenses were 12% higher than in the previous quarter due to a 13% increase of taxes and to a 23% increase in expenses for maintenance and repairment of goods and IT. Other operating expenses increased 10%, mainly due to a 68% higher charge for other provisions. The income tax charge was positive as the pretax net income was a loss. The bank's financing to the private sector reached ARS 21 trillion at the end of the quarter, down 2% in the quarter with peso financing decreasing 1% and dollar-denominated financing down 5%. Deposits reached ARS 26 trillion, 4% higher than the quarter before, mainly due to a 6% increase in dollar-denominated deposits. The bank's estimated market share of loans to the private sector was 14.3%, 50 basis points lower than at the end of the previous quarter, and the market share of deposits from the private sector was 16.2%, 20 basis points lower than in the third quarter of 2025. The bank's liquid assets represented 93.2% of transactional deposits and 59.4% of total deposits, similar levels to those of the previous quarter. As regards to asset quality, the ratio of non-performing loans to total financing ended the quarter at 6.9%, recording a 110 basis points deterioration as compared to the 5.8% of the third quarter. As I mentioned before, the deterioration is mainly related to the personal loans and credit card financing portfolios. At the same time, the coverage with allowances reached 97.4%, down from the 101.5% recorded a quarter ago. As of the end of December 2025, the bank's total regulatory capital ratio reached 25.2%, increasing 310 basis points from the end of the third quarter, while the Tier 1 ratio was 25.1%, up 330 basis points during the same period. In summary, during the fourth quarter, financial margin partially recovered and efficiency improved, but still asset quality and the monetary loss due to inflation had a significant impact on profitability. Despite this, Grupo Financiero Galicia was able to keep liquidity and solvency metrics at healthy levels, and we expect an improvement in profitability during 2026. Now Gonzalo Fernández Covaro will make some additional remarks. Thank you. Gonzalo Covaro: Thank you, Pablo. Hi, everyone. Well, looking ahead, I mean, we believe Argentina is entering in a phase of stability, more predictable policy framework and renewal potential for great growth. As normalization continues and structural reforms advance, the banking system is expected to play a central role in supporting investment, productive activity and the long-term economic development. So we see a positive trends for the future for the country. Talking about 2026 specifically, we see inflation a bit higher than our first estimation, now at 23% and GDP growing at 3.7%. We're keeping our projections of 25% loan growth for the year, but we see slower pace at the first half and accelerating in the second half, that could put some pressure to our revenues. As we said in prior calls, we expect NPLs in the bank to have their peak in March '26. So during March to be -- to with the peak, but the cost of risk, we are seeing that we already had the peak in the fourth quarter of 2025, and we started to see credit losses charges to the P&L to decrease in the first quarter of 2026 in the bank. In Naranja X, same trend, but with some slower pace, but also same trend. We expect to have the benefit of the restructuring made last year after the HSBC acquisition and to continue to improve our efficiency ratios and to capture those positive effects during 2026. We are keeping our ROE guidance for 2026 in the low-double-digit range, I would say, between 10% and 11% going from low to high during the year. And regarding dividend payments, we are proposing a payment of ARS 190 billion, which ARS 40 billion are subject to Central Bank approval as usual. So with that, I mean, we are open for questions. Operator: [Operator Instructions] Our first question is from Mr. Brian Flores with Citi. Brian Flores: Gonzalo, Pablo. Gonzalo, just a quick follow-up on the 2026 guidance. So basically, you're maintaining around 25% real year-over-year growth in deposits should be a bit lower. I think the last notion you provided was around 20%. So I just wanted to confirm if these ranges are still value. Gonzalo Covaro: Yes, we said deposit between 15% and 20%, but close to not material changes, I would say. Brian Flores: And then something that caught our attention here is that we saw a strong maybe revision of the growth strategy, right? Because you were growing very fast in the first 3 quarters and you slowed down significantly in the last quarter. Just wanted to check if you have changed your focus on growth, if we should see maybe Galicia losing a bit of market share in 2026 as this asset quality is digested? Or do you think you will defend and keep it steady during 2026? Gonzalo Covaro: No. I mean our goal is to keep market share and also increase it -- try to increase it. But I would say that maybe at a slower pace, as I said before, in the first half and accelerating in the second half. I mean, in the last quarter, yes, I mean, you saw mainly a slower pace in the consumer lending. We still in the same scenario in the first quarter. But until we see that it is the right time to accelerate again, that will be, we assume later in the quarters. But in the whole year, we expect really to defend market share and to grow market share. In terms of commercial, we have lending, we have been seeing some lower demand from customers. But there, as you know, our NPLs in the commercial portfolio in the wholesale portfolio are okay. But we are working with our customers and trying to accelerate commercial lending where we see also a lot of opportunities. But to summarize the answer, the idea is to continue protecting defending market share. And -- but as we said, we see lower growth in the first half, I would say, and higher growth in the second half of the year. Brian Flores: If I may, just a very quick follow-up. So in terms of potential catalysts, do you think the recovery could come more from the macro filtering to the micro, or do you think regulatory -- this is more on the regulatory side than on the economic side? Gonzalo Covaro: I would say that the macro should start accelerating impacting the micro. That's something that we haven't seen maybe last year a lot. But we are expecting that the macro -- I mean, I think it's a combination. We, of course, expect the macro to start accelerating the micro at some point, and we believe that the government should take measures to do that because it's what country needs. From regulatory side, I mean, we don't know what will happen. So we are not betting on changes on the regulatory side. Of course, at some point, they may come, but that's something that we cannot manage. So we are not betting on that one. Operator: Our next question comes from Tito Labarta with Goldman Sachs. Daer Labarta: My question, you mentioned already provisioning levels should begin to come down in 1Q, although this quarter was a bit higher than expected, and we're still seeing that deterioration in asset quality. I guess how quickly can it come down? And what does give you that comfort that you maintain the loan growth guidance, but that credit quality should improve sufficiently to be able to grow at a faster pace in the second half of the year? Is there anything that you need to see? Or do you think it's just getting through the cycle another quarter or 2 and things should get better? Or any other -- any risk to that? Gonzalo Covaro: I mean, of course, that's something that we are assessing and monitoring. Anyway, still 25% is lower than the pace that we have been coming in the last year. So it's a deceleration from what we were coming -- so it's not that we keeping the growth of the prior years. But I mean, it's -- we think that is part of the cycle, as you said. We are starting, of course, to focus in different scores and different segments and that's where we're focusing so far our growth, and that's starting to show. Of course, it's lower than what we were happening in the first half of last year. But we believe that 2 things. First, the cycle is going -- is passing. And also, as I said to Brian before, we believe that the -- at some point, the economy, the current economy -- the growth in the economy should start impacting the micro, and we should start seeing activity to rebound in different sectors. And we should see not in every sector, but we, of course, are monitoring niches of customers and groups of customers where we will focus. So we believe that, that should come. Of course, that if the economy doesn't impact the micro and we don't see growth impacting the activity, well, of course, that would be more difficult. But we expect that, that should happen, and that's where we are seeing the growth -- that's why we are maintaining the growth. Daer Labarta: Okay. No, that's helpful. And just on the cost of risk because it was a little bit elevated, you compared to the last quarter, and you said it should, I guess, beginning to improve already in 1Q. But how -- can you get back to the low-double-digits, high-single-digits maybe by the end of the year? Just sort of what kind of magnitude of improvement should we expect from here on the cost of risk? Gonzalo Covaro: Cost of risk, we are seeing to end the year 8%, I would say, for the 12 months of the year of 2026. The last quarter was -- I am talking about the bank. Last quarter was 12.5%. So we are expecting that -- and the year was like 10%, 10.5% this year -- sorry, 2025 full-year, 12.5% in the last quarter, which is the highest, and we expect to end '26 in 8%, that would be the projection we are managing, and we started to see that in the -- we made some updates of our models, the variables, as you know, you need to do every year. In the fourth quarter, that contributed also in the growth of the charges. So that's done, and we don't expect -- we expect that our next update that we need to be making by the end of this year won't be increasing charges. So that also explains the peak on the last quarter. Operator: Our next question comes from Pedro Offenhenden with Latin Securities. Pedro Offenhenden: I wanted to ask on cost. Should we expect some restructuring or acquisition or integration costs throughout the year or the one-offs are largely behind that? Gonzalo Covaro: One-offs are largely behind, as you said. We continue, of course, looking for the right size of the organization and trying to make our organization more efficient. So we may see some things here and there, but nothing material or that will be treated as one-off as last year. So from now on, everything we do is part of our normal operations. So we won't have any big impact like the ones we had last year. Pedro Offenhenden: And do you have some target on efficiency or administrative expenses growth for the year? Gonzalo Covaro: I mean we expect to see -- I mean, a reduction of around 10% to 11% year-over-year, excluding the one-off of last year. Nevertheless, if you consider the one-off of last year, the reduction will be higher. But excluding the one-off in the expense line of last year, we see a reduction of around 10% to 11% year-over-year, and we see efficiency a bit below 40% for the year. Operator: Our next question comes from Yuri Fernandes with JPMorgan. Yuri Fernandes: No, very briefly on margins. If you can help us understand a little bit the trajectory because I guess the risk-adjusted message is clear, right? This was likely the peak and NPLs still could deteriorate a little bit in the first quarter, but the cost of risk is lower. But I'd like to understand the margins because if your cost of risk improves, maybe we could see better risk-adjusted NIMs this year. So maybe just asking, could we see more stable or not? Like what is the view given the mix shift towards commercial lending? And then my second question is regarding -- I think like there are 2 big debates in Argentina, right? One is the ROE recovery -- and the second one is growth, right? Like when growth will pick up, like could we see more than 20% real growth or not? How confident you are on those 2? Like if you were to pick just one for 2026, are you more comfortable that ROEs, they should recover to more normalized level? Or are you more comfortable with growth? Gonzalo Covaro: Okay. Let's go. I think the first question was NIMs. I mean we see -- as you know, the last 4 quarter, we saw December NIMs recuperating. Remember that October, November were still recovering from the higher -- the spike in interest rates of the elections period. We see the first -- for the year, we see around 16.5% the margins for the bank. Total margin for the bank 16.4%, maybe starting a bit higher around 17%, 18% and ending in 16% during the year. But on average for the year, with the mix we are expecting, we see margins around 16.4% for the year. I mean talking about growth and ROEs, I mean, I would say that we are, I would say, determined to protect our share in the market. So we are focusing a lot in -- I mean, it's difficult to answer which are -- with the ones are more sure in an economy that is still recovering and that we still depend on the economy evolution for the growth, of course, I mean, we need the economy to grows as expected and that the macro impacts the micro as we were saying before, and that families should salaries in real terms starts to recovering, which we expect that to happen, but it's something that we depend -- so it cannot be guaranteed. So I would say that our guidance is -- we maintain the guidance because we believe we can achieve both. But of course, we depend on the -- how the economy evolves and not having any surprise like we have, for example, last year in the third quarter with the interest rate spike or stuff like that. I would say that still, it depend on inflation. Remember that inflation accounting for Argentine banks is a big thing. The lower the inflation comes and interest rates goes down, I would say that in relative terms, the higher the impact is when we compare with other banks in the region, for example, because at some point, we may end with an inflation of 15% or 12% and still booking inflation accounting, where other countries with 8% inflation are not booking it. So -- and if you see, it's a big portion of our P&L. So at some point, when that disappear, I would say that hopefully, in 2028, that will help the Argentine financial system to improve ROE significantly. But on top of that, I would say that we can get to ROE levels above 15% next year. So low-double-digits this year, but including inflation accounting, we can achieve above 15% next year. And after 2028 without inflation accounting, I would say that the consolidation of the higher ROEs will be easier and more stable for the banks in Argentina because you won't have that drag on the inflation accounting that as you know, it's a big burden for us. So in summary, I would say that we are -- we think that we can maintain both. But of course, in both cases, we depend on how the economy continues also in the growth in the top line, but also in the NPLs and the cost of risk that, of course, we are counting this to continue to improve because we see the economy growing and the families to -- with enough disposable income, et cetera, et cetera. Yuri Fernandes: If I may, just on the growth, just to touch on deposits. I think the guidance is 15% to 20%, right? Can you break down dollar and pesos on this? And I don't know like we have another tax kind of flexibilization, right? Like the dollar under the mattress kind of the date. Can this be helpful for deposits to grow this year? So just checking if funding could be another part of the equation for growth. Gonzalo Covaro: Yes. I mean regarding the dollar deposit growth, we may see something with this change in the legislation. We don't expect to be as high as the prior effect that we had with the Tax Amnesty that we have between last year and the year before, but some effect it may have. Remember that today, our dollar deposits are almost half of our deposits. Our goal, of course, is to get more profits out of the dollar. So we are seeing how to get more margins on those. I mean, trying to increase the dollar lending. But as you know, we have some restrictions in terms of who we can lend, but that's something that we are focusing a lot because it's increased. I don't know, Pablo, if you remember the growth divided by dollar deposits and peso deposits? Pablo Firvida: It was -- basically, we concentrated in the peso one around 20%. Dollars is more sensitive to political environment, this type of legislation, as you said. And as we are not really making a good profit on dollar deposits we really don't pay that much attention in a way. We forecast more the peso financing and funding more than the dollar one that perhaps is also -- we cannot manage it as much as the peso funding. The peso was 20%, the dollar, I think it was something like 15%, but they take it as a bulk number. Operator: Our next question comes from Mario Estrella with Itau. Mario Estrella: Well, I guess you already answered with the evolution for the next quarters. I believe well, the next quarter is going to be relatively better than 2025, going from lower ROE to higher as we move towards the end of the year, right? And I understood that the drivers for that, of course, is going to be less pressure on the cost of risk side. But because, I mean, the full quarter results, I mean, in terms of NII, I believe they weren't that bad, I would say. So my question is, I mean, with the inflation trend that we've seen, the first quarter was more inflationary than expected. I mean, what are the downside risk that you see for your guidance if inflation keeps surprising in the upside right? Taking into account that monetary correction loss that the fourth quarter was actually higher than in the third one, right? So that kind of shows you the potential downside risk that we can see from much inflation -- for more inflation, right? Gonzalo Covaro: Yes. I mean the downside, of course, as you just mentioned, is more inflation that, of course, affects our balance sheet. So that could be -- if inflation is higher than expected, that could be a downside. And I would say that we are focusing all our efforts in improving the cost of risk. As you can see easily from our results, margins are okay. I mean costs are okay. I mean, efficiency, but of course, that the thing that is putting some sticks in the wheel for profitability is the cost of risk. So that's main focus we have. So I mean -- and that, of course, is for the good and for the bad. I mean we have a lot of room for improvement there. But also if the improvement is lower than we will see an improvement. I mean that we cannot guarantee anything, but my point is we are seeing the improvement. I would say that the risk could be that the improvement is at a slower pace than expected, and that could impact results, not getting the improvements in as fast as we expect during the year. I would say that could be a downward risk that we're facing. We -- so far, January, we came what we are expecting. But of course, the year is long, and we depend on a lot of things on how economy evolves, et cetera, et cetera, that I mentioned before. So on the other hand, top line is important. I mean even though margins are still healthy, we depend, of course, in growth and growing the top line. And of course, that if we don't see the demand of lending because the economy has any deceleration or whatever, well, that could also -- I would say that both -- those 2 could be downward risks. It's not our base case. We are not -- we are expecting that the economy should help on that. But of course, those 2 are downward risk. In the cost side, I think we are okay. We have done a good job in restructuring. As you know, last year, more than 2,000 people from the HSBC acquisition. Of course, we continue to look for more alternatives to continue to improve efficiency. So we continue in that work to always find and adjust the rightsizing of the organization. But I think those are more predictable or manageable by us. The other 2 top line and NPLs, of cost of risk. In our base case, those should come as expected. But of course, if we have different evolution of the economy and also as we were discussing before, how the macro impacts in the micro, we need to start seeing the economic activity in more sectors moves faster. Well, that could be a downward risk, of course. Mario Estrella: I understood that the ROE evolution for this year will be something around high-single-digits. And then 2027 something around 15%, right? I mean, based on improvement in asset quality, right? Is that right? Gonzalo Covaro: Yes, yes. This year, we're saying low-double-digits or high single is close. So you're right? But the idea is between 10% and 11% this year and next year, around 15% or above and to stabilize those in 2028 without inflation accounting. But what you are in the spot of what you just described, yes. Operator: Our next question comes from Bruno Kenji with UBS. Bruno Kenji: It would be a follow-up regarding the recovery that you expected for results next -- this year. When we look to Naranja X and lower ROE levels that we saw in those fourth quarter results, should the recovery on the metrics such as NPL and cost of risk be on the same pace of the bank or it could have a little delay in terms of the recovery? And if that and also reflects on the ROEs, do you think that there might be a lower acceleration of loans considering the portfolio of Naranja X for the first half and then an opportunity to have a quicker recovery in second quarter if the economies have some space for personal loans and retail when we compare to the bank? Gonzalo Covaro: Yes. I would say that we are seeing improvements in NPLs at Naranja X, albeit at a slower pace than the bank. Nevertheless, that what we are seeing, but still expect also improving during the year. And the scenario -- the growth scenario is similar to the bank. We are seeing also higher growth in the second half. As you know, we still are stabilizing the portfolio in Naranja, which is, of course, 100% consumer, so we don't have a commercial portfolio to go there. But we are growing, of course, selectively growing, but at a slower pace during the first months of the year, and we expect us in the bank to regain as we stabilize the portfolio, regain the growth, the faster growth. We will grow, of course, but the faster growth closer to the midterm of the year or something like that. Operator: Our next question is from Santiago Petri with Franklin Templeton. Santiago Petri: Can you help us understand in which segments are you expecting to grow this year, this 20%, 25%? Is it commercial, consumer? And within commercial, which sectors do you see that you can lend to? Gonzalo Covaro: I mean we are growing -- I mean, I would say that we were growing in the first half. Today, the mix is more 45% consumer, 55% companies in the toll in the bank, our mix. I would say the first half, we are focusing a bit more in commercial. So maybe by the end of the year, we will maybe 60%-40%. So this year, we may see more growth in the commercial and the consumer. But of course, we are growing -- we are going to grow both portfolio, but more towards the commercial portfolio, mainly because in the first half, we are -- as well, we are lending at a higher pace than in the consumer side, as I said before. In the commercial portfolio, of course, we are picking segments, I mean, that are less affected or not affected by the change in the economics or the imports opening and everything we know that it is suffering. We are strong and we are focusing a lot in the agribusiness. As you know, we are one of the main banks in that sector, and we continue to do that and our expectations in this year to continue strongly there. We are also lending in the oil and gas sector, not just the big loans, but because that's local bank doesn't have the balance sheet, but also all the supply chain and all the value chain in oil and gas. In mining, we are also making deals with supply chain in that sector. We see -- we also see the automotive industry doing okay. So we are also focusing on that and part of the value chain. So we have different -- we divided our wholesale operations in verticals. We have oil and gas, we have automotive, we have agribusiness, and we are going through all the value chains. We see commerce, retail commerce that at some point, some sectors not doing that good. So we are not growing in those ones. But we are doing a very good and deep analysis in which sectors we believe that are going to be the winners in these changes that the economy is doing or at least in this transition. And the sectors I mentioned are ones that we see growth and there are others like technologicals and a lot of SMEs that do services, provide services that we see them strong that we are also helping them in the growth path. So we see room for growth in the commercial portfolio. Of course, that, as you know, there are sectors that are not doing good, and we have them very clear, and we are not growing those ones. Santiago Petri: A follow-up, if I may. There are some conversations or I don't know how to name it, about the possibility of banks expanding their U.S. dollar lending to non-U.S. dollar revenue-generating entities. Is this something that you see with, are you comfortable with this change in regulation? Gonzalo Covaro: I mean, two things. Regulation could change then we'll see if we apply or we use it or not. I mean, I would say that for us, that would be on a very cautious way. We don't believe that going massive in lending dollars to non-dollar producer will be something safe. So of course, that will be more focused in the Commercial side, the Wholesale side. And if we have big local companies that are very strong or international, but big companies that even though they are not dollar producer, we see that they could -- they are a devaluation or whatever, well, that would be on a case-by-case basis. But we are not seeing anything massive that we will start lending massively if the regulation change massively to non-dollar producers. So my answer would be, we will evaluate it cautiously and do it on a case-by-case basis, but nothing massive. At least is what we are seeing now with this year, with the -- how the economy is evolving in the future, if Argentine start being more dollarized or how the dollar start being more important in the daily trading, well, we may change our mind. But so far, our first reaction is that if this happen, we will do it on a selective basis and cautiously basis. Operator: The question and answer session is over. We would like to hand the floor back to Pablo Firvida for the company's final remarks. Pablo Firvida: Okay. Thank you, everybody, for attending this call. As always, we are available if you have any further questions. Good morning and good afternoon. Bye-bye. Operator: Grupo Financiero Galicia conference is now closed. We thank you for your participation and wish you a nice day.
Operator: Good morning, and welcome to PROREIT's Fourth Quarter and Annual Results Conference Call for Fiscal 2025. [Operator Instructions] For your convenience, the results release along with fourth quarter and fiscal 2025 financial statements and management's discussion and analysis are available at proreit.com in the Investors section and on SEDAR+. Before we start, I have been asked by PROREIT to read the following message regarding forward-looking statements and non-IFRS measures. PROREIT's remarks today may contain forward-looking statements about its current and future plans, expectations, intentions, results, levels of activity, performance, goals or achievements or other future events or developments. Forward-looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors may cause actual results, level of activity, performance, achievements, future events or development to differ materially from those expressed or implied by the forward-looking statements. As a result, PROREIT cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. For additional information on the assumptions and risks, please consult the cautionary statement regarding forward-looking statements contained in PROREIT's MD&A dated March 4, 2026, available at www.sedarplus.ca. Forward-looking statements represent management's expectations as at March 4, 2026, and except as may be required by law, PROREIT has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The discussion today will include non-IFRS financial measures. These non-IFRS measures should be considered in addition to and not as a substitute for or in isolation from the REIT's IFRS results. For a description of these non-IFRS financial measures, please see the fourth quarter and fiscal 2025 earnings release and non-IFRS measures section of the MD&A for fiscal 2025 for additional information. I will now turn the call over to Mr. Gordon Lawlor, President and Chief Executive Officer of PROREIT. Please go ahead. Gordon Lawlor: Thank you, Sylvie. Good morning, everyone, and welcome. Joining me today is Alison Schafer, our CFO and Corporate Secretary. Zach Aaron, Vice President of Investments and Asset Management, is not joining us today as he has a new bouncing baby girl as of last week. Congrats Zach and Julia on his proud new parents. I'll begin with an overview of our fiscal 2025 and fourth quarter performance before turning the call over to Alison for a more detailed review of our financial results. We're very proud of our performance in 2025, which marked a major milestone for PROREIT as we completed our transition to a pure-play industrial REIT focused on small and midday properties. I want to commend our entire team. Achieving this strategic objective established 3 years ago reflects the disciplined execution and commitment of our employees. Over the course of the year, we repositioned our portfolio, strengthened our balance sheet and enhanced the overall quality of our platform to support sustainable long-term growth. At year-end, our portfolio comprised 105 investment properties, totaling 6.4 million square feet of gross leasable area. Weighted average lease term to maturity was 4.3 years compared to 3.8 years at the same time last year. In line with our capital recycling strategy, we sold a total of 17 noncore properties during the year for gross proceeds of $71.2 million. We also acquired a portfolio of 7 high-quality industrial properties in Winnipeg, Manitoba from Parkit Enterprise, Inc. for $101.9 million. By the same token, we struck a strategic partnership with Parkit to pursue future growth opportunities. As part of the transaction, we also successfully raised $42.1 million of equity, further enhancing our financial flexibility and positioning the REIT for future growth. As of year-end, industrial assets represented 90.5% of our base rent compared to 80.8% a year ago. The enhanced earnings profile of our industrial-focused portfolio is reflected in our financial performance. NOI rose by 9.6% in the fourth quarter and 8.4% for the year despite owning 10 fewer properties. Turning to the portfolio transactions during the year. We completed the sale of a noncore office property located in St. John, New Brunswick, totaling approximately 51,000 square feet for gross proceeds of $7.2 million. We continue to manage that property on behalf of the purchaser. And the sale of our noncore retail property in Rocky Mountain House, Alberta, totaling approximately 5,000 square feet for gross proceeds of $400,000. Net proceeds for these sales were used to repay related mortgages, credit facilities and for general corporate purposes. Leveraging our partnership with Parkit, we purchased an industrial property in Winnipeg from them for $5.4 million as we continue to increase our presence in this market. Purchase price was financed through $3.2 million of the non-revolving credit facility and approximately $2.1 million of PROREIT equity priced at $6.20 per unit to Parkit. Subsequent to year-end, we engaged in 2 additional transactions. First, we sold our 50% interest in a noncore industrial property in Dartmouth, Nova Scotia, totaling approximately 65,000 square feet with our share of gross proceeds of $5.7 million. Second, we're in the process of acquiring a 100% interest in a single-tenant 2024 built 10-year leased industrial building in Milton, New Brunswick, totaling approximately 60,000 square feet of GLA for $12.3 million. Our focused presence in robust secondary markets continues to deliver compelling results. According to CBRE, our core markets of Halifax, Winnipeg and Ottawa all outperformed the national average in terms of market rent growth in 2025. Turning to leasing activity. Our leasing momentum was sustained throughout the year, driven by contractual rent escalations as well as stronger renewal rates and higher rents on new leases. As of today, we've secured 80.1% of GLA maturing in 2025 at a positive average spread of 34.2%. Excluding the St. Hison property, which I'll address shortly, we've renewed 95% of our 2025 GLA. We've also secured renewals on 68.2% of GLA maturing in 2026 at a 33.8% positive average spread, reflecting one of the strongest leasing cycles at this stage in our history and providing meaningful embedded growth heading into 2026. This includes, among other transactions, 5 leases renewed starting in 2026 with rent increases ranging from 40% to 45%. Overall portfolio occupancy was 95.4% at year-end compared to 97.8% a year earlier. As noted on previous calls, our occupancy rate was impacted by a single vacancy in a 176,000 square foot property located at 6375 Picard Street in Saint-Hyacinthe Quebec. On February 27, we entered into a nonbinding offer to lease for approximately 74,000 square feet at this property to a new tenant for a term exceeding 10 years at a market rent. Subject to the completion of the binding lease, rent commencement is expected mid-2026. Including this property, our portfolio occupancy would have been approximately 98.1% at year-end. With that, I'll now turn the call over to Alison. Alison, over to you. Alison Schafer: Thank you, Gordie, and good morning, everyone. We are pleased with our fourth quarter and full year results. In the quarter, property revenue totaled $26.2 million. That's up 5.4% year-over-year despite owning 10 fewer properties. The increase is mainly driven by contractual increases in rent and higher rental rates on lease renewals and new leases. For the full year, property revenues amounted to $104.1 million, up 4.9% year-over-year. Net operating income, or NOI, was $16.1 million, an increase of 9.6% compared to last year due to the same factors. For the full year, NOI amounted to $63.4 million, which was up 8.4% year-over-year. Fourth quarter same-property NOI, representing 98 of our 105 properties reached $14.1 million. That was up 8.1% year-over-year, driven by robust 9.1% growth in our industrial segment. The increase reflects contractual rent escalations, stronger renewal rates and higher rents on new leases. This was achieved despite a decline in overall average occupancy related to the single tenant vacancy Gordie mentioned earlier. For the full year, same-property NOI reached $53.0 million, up 8% year-over-year. Our funds from operations, or FFO, amounted to $7.8 million for the quarter, which was up 14.3%. This was driven by increases in contractual base rent, higher rates on renewals and higher rental rates on new leases. This was offset by an increase in interest and financing costs. Basic AFFO payout ratio was 99.1% in Q4 compared to 96.1% for the same quarter last year. This is primarily driven by the timing of the sale of 17 properties we completed in 2025, an increase in interest and financing costs and the issuance of equity in connection with the Parkit transaction in Winnipeg. We expect improvement on our payout ratio, creating some financial flexibility and some room for future acquisitions. The weighted average capitalization rate of our portfolio was stable year-over-year at approximately 6.7% at December 31, 2025. Moving on to our balance sheet. Adjusted debt to annualized adjusted EBITDA ratio came in at 9.0x at December 31, 2025. That was down from 9.2x at the previous year-end, while our adjusted debt to gross book value decreased to 48.8% from 50.3% at the same time last year. Our midterm goal is to reduce our adjusted debt to adjusted EBITDA ratio and adjusted debt to gross book value further as we continue to grow the business. At year-end, our total debt, including current and noncurrent portions, totaled $525 million compared to the $531.1 million at September 30, 2025, and $499 million at December 30, 2024. Looking at our upcoming maturities. In 2026, we have $157.1 million maturing. We are actively engaged with lenders on these maturities and expect to secure refinancing on competitive terms with robust refinancing proceeds. In 2027, we have another $48.7 million maturing, mainly tied to high-performing industrial assets in Burnside Industrial Park. And for 2028, we have $59.8 million of maturities. The weighted average interest rate on these mortgages is 3.7% for 2026. 4.8% for 2027 and 3.5% for 2028. Finally, our distribution of $0.0375 per unit was maintained for the fourth quarter of 2025. That wraps up our financial review. Gordie, back to you for closing remarks. Gordon Lawlor: Thank you, Allison. We're entering 2026 with a clear strategy and a focused industrial platform, supported by disciplined financial management. Our priority remains the pursuit of high-quality opportunities aligned with our prudent value-driven approach to growth. Fundamentals across our small and midday portfolios remain healthy, and we're seeing signs of improving market conditions as we move through 2026. With this strong foundation, we are well positioned to strengthen our leadership position in the Canadian light industrial sector and create sustained long-term value for our unitholders. Thank you. Sylvie, back to you for the question-and-answer period. Operator: [Operator Instructions] And your first question will be from Sam Damiani at TD Cowen. Sam Damiani: [Operator Instructions] Just on your comments, Gordie, and I guess, Allison, too, just with the NOI growth being very strong and you're seeing improving market conditions as you enter the new year, your leverage did tick down below 49% with the asset sales that you've completed. I mean, are you seeing a better path, an easier path, I guess, to bring that leverage toward those midterm targets now than, let's say, was the case a year ago? Like are we -- should we be building in some expectations for that leverage to stay further below 50% going forward? Gordon Lawlor: Thanks, Sam. I think where we are right now, I mean, I like us being around the 50%. I know we have that 45% target -- to [indiscernible] fully get there, we need to tie it into a larger deal with some equity. So really, what we're focused now is just staying around the $50 million. When we talk about where we are, I mean, we have room for about $40 million in acquisitions right now, and we'd like to see if we could execute on that. We announced a $12 million -- great $12 million asset here. So probably room for another $25 million or $30 million. So you'd probably see that before we focused on the debt reduction. We've been so focused on the debt reduction since 2022, and we just want to have this opportunity. We see a lot of assets right now in the market. So there's some opportunities here to add about another $40 million to the math. And then we're still mindful of the 50%, we wouldn't go above that other than if it was on a short-term basis or anything. But the 48.8% is where we ended up the year, but we'd probably pick that up a little bit if there were some good acquisitions. Sam Damiani: That's helpful. Just looking at the lease expiry schedule, you've got 17% expiring in 2027. I assume the government is a decent chunk of that. I mean, do you have any early prospects on extending those? Are there any larger expected departures within that cluster of leases? Gordon Lawlor: I mean we're reaching out to everybody in 2027. It's a little early on that basis. We have no real inclinations of any big spaces coming back at this point in time for 2027. And we have A big chunk of that is under market rent as well. So we don't really have a negative view of anything on as far as 2027 goes at this point in time. But obviously, we're just getting going on it. Sam Damiani: Okay. All right. That's helpful. Last one for me, just on Picard Street and St. Haison. You've got, I guess, that lease that's almost across the finish line. I'm just wondering what's left to finalize there with that? And also any update on prospects for the remaining 100,000 square feet of that property? Gordon Lawlor: Yes. So I mean I just signed the LOI like Friday night. So that's fresh, but we've been dealing with this tenant for 3 or 4 months. So we're well through that. We're crossing lease drafts and things like that. And if all things move well, they'll be into the building in April for some setup of some work to be done. So it's nonbinding, but everybody in good faith is working towards this one. It seems like a very good group we have here. So -- and backs off for a couple of weeks. So it's landing on my plate. So pushing it through to get it across the line, obviously. And as far as other prospects, nailing that piece down, if you were to look at the building, that's the half of the building facing the 20, the TransCanada Highway there. That leaves another 100,000 in the back of the building. There's good shipping in the back right of that building and then a little bit of shipping in the back bottom of the building. So it can be split in 2 more pieces. We're in initial discussions with another 60,000 square foot tenant right now, maybe short-term or midterm type storage. opportunity on one piece of the space without having to do anything to the building. But literally, we just started that this week because we've kind of secured the other piece. Sam Damiani: Okay. And you're getting rents that's sort of in line with the kinds of numbers you were talking about last quarter? Yes, higher than 9%, lower than 11%. Operator: Next question will be from Mark Rothschild at Canaccord. Mark Rothschild: Just following up on the discussion of same-property NOI growth and leases. You started answering or talking about 2027. To what extent do you believe that this wide leasing spreads that you're achieving will continue past 2026? Gordon Lawlor: So we have 5-year cash flow, Mark. I think we told you that before. So we still see the 7% to 9% cash flow growth across '26, '27 and '28 at this point in time when we -- when you get out to '29 and '30 and you're 4 and 5 years out, you're in other leasing assumptions and terms. But we see good strength for '26, '27 and '28 for sure. Mark Rothschild: When you just say cash flow growth, do you mean same-property NOI growth? Or do you mean actual cash flow FFO? Gordon Lawlor: Cash flow FFO. Mark Rothschild: Okay. Great. And maybe just one more for me, quite a bit of debt maturing this year. Can you just give a little more clarity on what rates you're seeing now and what we should expect based on the current market? Gordon Lawlor: Yes. I mean it's a great time to have debt coming due it seems other than all the terrible things going on in the world, like 3 lenders are a big piece of that. We're trying to secure some of that now. We've got good competition among the lenders. So I think we'd be -- and we just signed a $29 million 7-year brand-new piece with a new lender at $158 million over 7 years. So I mean that's a pretty solid rate for us. I think $155 million over is the best rate we've ever had on a margin basis. So I think we'd be -- depending on when we pick the terms, we're trying to break this $150 million up in the next number of years. So we may take some 3-year piece of this some 5, obviously, and then there was an attractive 7% here. So we're trying to split this one up a little bit more. We bought $300 million of assets in '21, which got us to the point where it was mostly all 5-year money that was available then. So we're trying to split that up. So the long story short, I'd say we'd be at about 4.5% on all of it. We'll probably get some 4.3s and then 4.6s is for the longer-term stuff. Operator: Next question will be from Brad Sturges at Raymond James. Bradley Sturges: Just maybe switching gears a bit. The asset sale that you completed to start the year in Halifax, just curious to get a bit more color in terms of the decision around or what drove that decision to sell that asset? Is it kind of a one-off? Or do you see potentially more rebalancing within the industrial portfolio? Gordon Lawlor: Yes, that's give or take, a one-off. I mean that's a joint venture asset with our partner who has a view on the portfolio, obviously. This asset was a little lower ceiling height than the rest of it, kind of orphaned in a different spot in the park. And so which we agreed with at the time just because I've known the asset for several years. We've got it secured now with some longer-term leases, so kind of full value. So I thought it was a good time to see if we could sell it. And we sold it just a slight premium above our IFRS value. I think it was $175 a foot or something like that. So we don't have significant discussions with towing of assets out of the JV. I mean we sold a small $3 million, $4 million retail asset, that type of thing. So it's just calling on the edges more than a sale program on the JV entirely, Brad. Bradley Sturges: Great. And can you comment on what the exit cap rate might have been? Gordon Lawlor: Don't exactly know. I would say it would have been slightly below 7. I don't have Zach here today with the math on it. But it was -- I'd say it would have been just below a 7 from 3 quarters perhaps. Bradley Sturges: And then obviously, you bought something in Moncton. Maybe just expand on the opportunity you see there with that acquisition. And then maybe what else could be in the pipeline from an acquisition opportunity? Gordon Lawlor: Yes, that's an asset, brand-new build asset that we've been monitoring. I think we gave our first offer on that back in April of '24, and we couldn't agree on a price. So it came up again, there was a rent step that happened, which made it easier to make the math work. So that was just a one-off asset that we've been watching and saw it being built and leased, and we like it a lot, and that's a long-term hold for us. As far as other assets, the -- publicly, the RFA Artis has 1.2 million square feet portfolio came out here a month ago. There's Winnipeg assets in there, which is obviously be of interest to us. I bid on an asset in single-tenant asset in Quebec City last week, just a quiet offer. So there's -- like there's a couple of million -- hundred million of real estate kind of sitting around my desk that we're getting quiet looks at or things like that, that some of it will stick. So it's a very interesting time actually. It seems like things are loosening up, and we're going to see some real estate come on here in the next 6 months, which is positive. Operator: Next question will be from Tal Woolley at CIBC Capital Markets. Tal Woolley: Apologies if you answered this before, but just any significant dispositions planned for 2026? Gordon Lawlor: No, not for 2026. We're I just looked it out and can't keep track of what's coming in and out the door anymore. Alison Schafer: No, we don't have any. Gordon Lawlor: No, no, we don't have any plans. I mean what we have left on the retail basis is grocery anchored on our line of credit, honestly. So it's like, honestly, just a pain to sell it. You'd have to replace it with other things. We might have one more office building towards the end of the year, small office. You can figure that one out. And then we're still holding the 60,000 square foot Ottawa office building. That's got debt on it at 2.9% until 2029. Good solid asset. I think it's still 80% occupied. I think we leased a floor but there were some other tos and fros. So it's still performing very well. And we have no need to fire sale that. That's a good asset. So yes, nothing big planned at this time. Like I said, we're going to try to put a few more assets on the books here with a little bit of room we have and then let the cash flow growth to keep these buildings leased obviously. Tal Woolley: Got it. And then maybe you can talk just a little bit about -- there's been a lot of chatter around defense spending, and that matters a lot in markets in the East. I'm just wondering, are you seeing sort of anything really translate on the ground yet in terms of demand? Or how should we think about that tailwind maybe coming to the market over the next few years? Gordon Lawlor: Yes, I sat in on the Burnside leasing call Tuesday. Every 2 weeks, we have a detailed call where you go through every 2,000 feet. It is a bit painful, but and Zach's absence. I think there's some RFPs out there for some larger space and that I go around the country talking about the defense spending, too. I think where it will help Halifax is the construction around all of that. That's what Burnside is construction related. They're going to let more people back in this country again, and they'll land in Halifax as well. So I think it's really the defense spending because of what will go on around it versus a specific defense contractor taking space from our small base standpoint at least, right? So I think [Killam] would probably have that same view on that. I didn't listen to their call. But I think that's the piece of it. And then just the defense spending in general, I mean, we have 128,000 square foot leased in Canada, Ontario, that's Thales, a French contractor. That's related to the Halifax project, but they're in Ontario. So it's not specific to Halifax. It's just in general, it could help defense contractors across Canada taking more space, I think it will be helpful. Tal Woolley: Okay. And then just lastly on -- are you looking at any sort of developing more new nodes? I think it's something like Quebec City, where I think you've got one property right now. Any interest in building out other sort of nodes within the portfolio over the next couple of years? Gordon Lawlor: Yes. I mean Quebec City has been on my list for like 15 years. It's just been hard to buy there. And for those of you who have followed, you know that through the Cominar deal, Blackstone Pure has like 3 million square feet there. So we have an interest in getting into that market eventually as we think some of that real estate will come to fruition. So that's definitely an area that we're interested in. I've been on a single tenant building here just last week. The ask was ridiculous. So I don't suspect we'll get anywhere. But yes, we're cognizant of that market. We've been trying to understand the market rent in the last 3 to 6 months because the rents were pushed there for a while. And we think we've got that figured out now. So we're happy to look there a little more. Tal Woolley: Okay. And anywhere else across the portfolio, Western Canada? Gordon Lawlor: Yes. I mean I was out West. I was in Calgary for a few days last week, like the Calgary small Bay market, spent the whole day driving that. There's some big bombers there in Balzac area north, all very fancy, all very shiny, but kind of not our real estate. But the Calgary small Bay market seems to be doing quite well. I've got a trip plan to Edmonton in the next couple of weeks as well to just test that back out. So the concept, as I said, at the Board yesterday, if we're trying to get to $2 billion in assets, we have to look at some of these other secondary markets. If you call Calgary and Edmonton, secondary in Quebec City, you do, I guess. So yes, we're just looking at those opportunities to see if any of it fits in our wheelhouse. So it's an interesting time. Operator: [Operator Instructions] Next is Demon Liu at Desjardins. Unknown Analyst: So on 2026 lease maturities, so very encouraged to see the strong leasing spreads so far for almost 70% of those maturities. So do you expect to achieve similar spread for the rest of the 2026 maturities? And do you see any material nonrenewal risks? Gordon Lawlor: I think we're going to -- I mean, if I look back to '24, '25, '26 yesterday, we've had plus 30% across all of those years. we don't see any indication of that changing significantly. The 70% that's done, a big piece of that is -- I think it comes in, in September. It's about 325,000 square feet from single-tenant temperature controlled building. So that would be more September that we'd see that cash flow. I think we may get 80,000 square foot back in a building in Woodstock, Ontario, probably in Q2. That's just recent. That's great space. We've already got some interest in it already, some tours like just in the last number of weeks. So that would be the only thing that's hitting us right now, probably mid-Q2. Unknown Analyst: Okay. So lastly, just on the acquisition, like what's your acquisition pipeline look like this year and in 2027? And like which markets and type of assets that you are targeting, if any? Gordon Lawlor: Yes. I mean, so we're a small mid-Bay folks. So that's what we're targeting. I mentioned briefly, there's some Winnipeg assets in the market right now. We're going to look at that. Quebec City is an area that's of interest. It's 2.5 hours down the road from our head office here in Montreal. Halifax, we look more -- we have 35-plus percent of the market there with our partners. So no need to do too much unless there was something interesting there. We have room for about $40 million in acquisitions right now. And then we announced a brand-new asset, $12 million in Moncton at a 7 cap. So that's really attractive brand-new building for us. So it's just a mix of small and mid-bay assets around our regions. Ottawa is of interest. It's just hard to get assets there. So we're -- there's a lot of real estate that's going to come out, I think, here in '26. So we're going to be poised and looking at it all. Operator: Ladies and gentlemen, this concludes our question-and-answer period for today as well as the conference call. We would like to thank you for attending and ask that you please disconnect your lines. Enjoy the rest of your day.
Operator: Good afternoon, everyone, and thank you for joining OptimizeRx' Fourth Quarter and Fiscal 2025 Earnings Conference Call. With us today is Chief Executive Officer, Steve Silvestro. He is joined by Chief Financial and Strategic Officer, Ed Stelmakh; Chief Legal and Administrative Officer, Marion Odence-Ford; and Chief Business Officer, Andrew D'Silva. At the conclusion of today's call, I will provide some important cautions regarding the forward-looking statements made by management during today's call. The company will also be discussing certain non-GAAP financial measures, which it believes are useful in evaluating the company's operating results. A reconciliation of such non-GAAP financial measures is included in the earnings release the company issued this afternoon as well as in the Investor Relations section of the company's website. I would like to remind everyone that today's call is being recorded and will be made available for replay as an audio recording of this conference call on the Investor Relations section of the company's website. Now I would like to turn the call over to OptimizeRx CEO, Steve Silvestro. Mr. Silvestro, you may begin. Stephen Silvestro: Thank you, operator, and good afternoon to everyone joining us for today's fourth quarter and fiscal year 2025 earnings call. We delivered a strong fourth quarter, exceeding both consensus estimates and our internal expectations. Revenue for the fourth quarter was $32.2 million, and adjusted EBITDA was $12 million. For the full year, revenue totaled $109.4 million with adjusted EBITDA of $24.3 million. Our full year 2025 results clearly demonstrate the strength of our operating model and the significant opportunity within our market. We delivered solid top line performance across both our largest and most established clients and a growing cohort of newer customers, particularly in the mid-tier and long-tail life science companies. We view this segment as highly attractive, providing a meaningful runway to expand our customer base and deepen our relationships over time. At the same time, improvements in our product mix and channel partner strategy contributed to higher gross margins in 2025. When combined with cost optimization initiatives following the Medicx acquisition and the benefits of our largely fixed cost, highly scalable operating model, we more than doubled both adjusted EBITDA and free cash flow year-over-year. While we're pleased with our fourth quarter results, we are seeing softness in our year-to-date contracted revenue numbers as compared to last year. This is mostly driven by a previously communicated market shift away from managed services, which contributed a material portion of our contracted revenue in the first half of 2025. In addition, we believe some of our clients are adopting a more conservative spending tone in the early stages of 2026 as they adjust their portfolios to most favored nation pricing. We feel confident that the latter is a temporary phenomenon that will start to normalize in the course of the coming few months. Given this backdrop, we are updating our 2026 guidance and are taking a more conservative view on revenue while continuing to stay focused on profitability. For 2026, we expect revenue in the range of $109 million to $114 million and adjusted EBITDA between $21 million and $25 million. I also want to be clear, management and our Board believe there is still significant opportunity for value creation, particularly when examining the demand and operating leverage we saw in 2025. Indeed, fiscal 2025 demonstrated the strength of our profitable growth model. We achieved Rule of 40 performance, delivered adjusted EBITDA margins above 20% for the year and generated nearly $19 million in free cash flow from operations. Reflecting our confidence in the long-term value of the business, our Board has authorized a $10 million share repurchase program. We intend to finance the repurchase using our available cash and cash equivalents in open market or privately negotiated transactions. I'd also like to address some of the speculation and questions we received regarding artificial intelligence. Our business has experienced minimal disruption from AI, and we do not expect to be disrupted in the future. We are not a commoditized software solution or a strategic partner to life science companies supported by a proprietary and highly valuable communications network that connects pharmaceutical manufacturers with health care professionals and patients at critical moments of care. In fact, AI may serve as a tailwind. We are hearing from customers that historically up to 50% of marketing budgets were allocated to content creation. As AI drives efficiencies within our client base, that allocation of spend is likely to be redeployed to both expand reach and improve execution of marketing efforts, areas where OptimizeRx is particularly well positioned. We believe we are strongly positioned for long-term outperformance on both the top and bottom line. We address key pain points for our customers, including enhancing brand visibility, reducing script abandonment, improving interoperability between disparate point-of-care platforms and supporting the transition to more complex and specialty medications. A strong example of our impact comes from one of our largest customers, a top 10 pharmaceutical manufacturer that engaged OptimizeRx to support specific oncology initiatives through our point-of-care and point-of-prescribe-based marketing solutions. While early programs were focused on targeted use cases, the results demonstrated measurable impact in reaching prescribers within a clinical workflow and influencing engagement at key decision points. As performance validated the DAAP model, the manufacturer expanded their investment with OptimizeRx in 2025 to support multiple oncology brands across various indications. This expansion across brands and tumor types drove meaningful year-over-year revenue growth, evolving from initial pilot programs into a scaled multi-brand oncology engagement strategy. When we talk about enterprise engagements, this is the momentum we're looking for. We're also seeing strong momentum in the med tech sector. One flagship client first partnered with us post-COVID to expand prescriber reach to our legacy point-of-care marketing solutions. Consistent script lift in 2024 prompted the client to adopt DAAP, our AI-enabled Dynamic Audience Activation Platform, which facilitated precise timely outreach to prescribers, including many previously untapped new prescribers, exactly when it mattered most in the patient journey. This continues to be a major differentiator for the company and for our clients. By activating and leveraging these high-value HCP audiences identified through DAAP, the client rapidly scaled deployment to additional brands and channels. This multi-brand, multichannel scaling is delivering substantial impact in a highly competitive and rapidly growing landscape. The success of this program resulted in the customer drastically increasing its investment in OptimizeRx solutions from pilot dollars in 2022 to several million dollars in 2025. This pattern, starting with targeted POC engagement, progressing to DAAP adoption and then accelerating across the portfolio highlights the repeatable path to accelerated growth and stronger ROI that we see across dozens of similar pharma and med tech companies. OptimizeRx is uniquely positioned to drive sustainable long-term growth and shareholder value. The keyword here is sustainable. With one of the nation's largest point-of-care networks and the only true point of prescribe network, we enable pharmaceutical manufacturers to engage health care providers directly at the moments that matter most when actual decisions are being considered and made. Building on this foundation, we've developed a purpose-built omnichannel platform that integrates advanced patient finding capabilities such as DAAP and micro neighborhood targeting. These tools are redefining how pharmaceutical companies, physicians and patients connect, improving patient outcomes and transforming engagement across the health care ecosystem. Our reach across both point-of-care and direct-to-consumer channels provides a durable competitive advantage. We believe OptimizeRx is the only company with the scale, technology and data integration required to seamlessly engage providers and patients across all channels. This positions us as a comprehensive commercialization partner, supporting customers throughout the full product life cycle, deepening relationships and expanding long-term value capture. As we have discussed on prior calls, a key focus moving forward is to further demonstrate our reach, scalability and value as a trusted strategic partner. Our ability to consistently expand relationships with our largest customers underscores the value we deliver and the impact we have on script lift in the commercialization process. I'm confident that continued focus on execution, notwithstanding some of the near-term headwinds seen in our space, combined with our differentiated platform and strong customer outcomes will translate into meaningful long-term shareholder value. We believe our momentum positions us to capture additional market share and expand our role within the pharma industry's multibillion-dollar digital ecosystem. Our customers remain deeply integrated across our HCP and DTC offerings, and our objective is to support them seamlessly across the full patient care journey. And with that, I'd like to turn the call over to our CFSO, Ed Stelmakh, who will walk us through the financials. Ed? Edward Stelmakh: Thanks, Steve, and good afternoon, everyone. A press release was issued with the financial results for our fourth quarter and fiscal year ended December 31, 2025. A copy is available for viewing and may be downloaded from the Investor Relations section of our website, and additional information can be obtained through our forthcoming Form 10-K. Fourth quarter revenue came in at $32.2 million, and this was largely in line with our previously communicated expectations as we continue to convert more of our DAAP agreements into subscription revenue that spread more evenly over the course of the year. In addition, buys came in at a more moderate level than in 2024. Gross margin increased from 68.1% in the quarter ended December 31, 2024, 74.8% in the quarter ended December 31, 2025. Year-over-year gross margin expansion is tied to a favorable solution and channel partner mix. While the fourth quarter was a record gross margin quarter, we don't anticipate gross margins to be at this level in 2026 and continue to believe we'll be in the mid-60% range as the fourth quarter saw an unusually high amount of specialty messaging in higher-margin channels, which was a favorable but uncommon mix for us. Our operating expenses for the quarter ended December 31, 2025, decreased by $2.9 million year-over-year, largely due to lower cash OpEx as we saw benefits from the post-acquisition cost reduction measures we implemented in 2024. Meanwhile, our net income came in at $5 million or $0.26 on a fully diluted basis for the fourth quarter of 2025 compared to a net loss of $0.1 million during the fourth quarter of 2024. On a non-GAAP basis, our net income for the fourth quarter of 2025 was $9.9 million or $0.51 per diluted share outstanding as compared to a non-GAAP net income of $5.5 million or $0.30 per diluted share outstanding in the same year ago period. Our adjusted EBITDA came in at $12 million for the fourth quarter of 2025 compared to $8.8 million during the fourth quarter of 2024. We ended the year with cash and short-term investments totaling $23.4 million as of December 31, 2025, as compared to $13.4 million on December 31, 2024. We were able to increase our cash balance throughout the year despite paying off $8 million in principal during 2025, including $6 million ahead of our prepayment schedule. Our operating cash flow was $18.7 million for 2025 versus $4.9 million in 2024. As a result, our current debt balance stands at $26.3 million. We continue to believe we're well funded to execute against our strategic and operational goals, and we'll look to utilize free cash flow to pay down debt at an accelerated rate and opportunistically look to repurchase shares. Now I'd like to turn to our KPIs for the 12 months ended December 31, 2025. Average revenue per top 20 pharmaceutical manufacturer was $2.8 million, which declined slightly from $3 million in 2024 and was directly tied to lower buy-ups and data-related revenue that I highlighted earlier. Meanwhile, net revenue retention rate remained strong at 116% and revenue per FTE came in at $839,000, topping the $701,000 we posted during the 12 months ended December 31, 2024. Finally, I'd like to provide additional color around our guidance, which now calls for 2026 revenue to come in between $109 million and $114 million and adjusted EBITDA between $21 million and $25 million. As you may recall, our first half 2025 revenue was positively impacted by managed service revenues, which contributed to approximately $9 million in the first half of 2025. Since we don't expect a similar revenue mix in 2026, our revenue phasing is likely to fall in line with historical 40% to 60% contribution between first and second half of the year. And with that, I'll turn the call back over to Steve. Steve? Stephen Silvestro: Thanks, Ed. Operator, now let's move to Q&A. Operator: We'll now begin the question-and-answer session. [Operator Instructions] The first question comes from Ryan Daniels with William Blair. Ryan Daniels: Curious in your commentary on some of the end market weakness, a few points there. One, are you really just seeing the conservatism with the 17 companies that are in MFN negotiations? Or is it broader across the entire client base? That's number one. Stephen Silvestro: Great. Thanks, Ryan. Good to hear from you. We're seeing a broader pause across all of the clients as they're trying to just digest what it's going to mean for them. So the contracting duration has started to shorten a little bit from maybe 6 to 12 months down to quarter pulses or even half year pulses as they're sort of contemplating how they're going to deploy spend. I think that will normalize over time or we think it's going to normalize over time as they get through it. And outside of those that are -- I think it's really just over conservatism for the first quarter. That's sort of our stance. And that's what we're hearing as people are just being cautious. Ryan Daniels: Okay. And are you seeing any nuances between D2C and HCP marketing? Are you seeing pressure on both of those from your partners? Stephen Silvestro: Yes, it's about the same across the board. They're not being viewed differently at this point by any of the manufacturers. Everybody has got the same view of both DTC and HCP spend as a whole. Ryan Daniels: Okay. Okay. That's helpful. And then maybe one for Ed. You mentioned during the quarter, gross margins were obviously great and drove a lot of upside to the bottom line. I think you said there were some specialty messaging and higher-margin channels. Can you go into a little bit more detail on what that was or what drove that? And then why you don't think that could be sustainable? Is it just something that you don't want to model, but maybe in a given quarter, you might be able to do that again and drive margins through those specialty messages? Edward Stelmakh: Ryan, yes, thanks for the question. Yes. So, I guess, two parts here. First of all, what happened in Q4 2025. So there, we did have a very positive -- very favorable mix of channel partners that we utilize to drive our messages. And as you know, we can pick and choose which channel partners we can drive messages to, but we're clearly going to be running those messages through channel partners where we can reach the best audience under DAAP. So that's what happened there in terms of our ability to drive higher margins for that quarter. As far as 2026 is concerned, we are guiding to mid-60% gross margin range, mainly due to the fact that we don't feel comfortable taking the high end of the equation and running it through the year. We can do it periodically, but I don't see us doing this on a regular basis throughout the year. Ryan Daniels: Okay. I appreciate that. And then maybe last question, I'll go back to Steve. You mentioned you're not seeing any disruption from AI, but would love to hear your purview on how it's actually helping your operations. I know you have used AI in some of your kind of real-time analytics and product deployment in the past. So just curious what AI has meant to you maybe over the last quarter or two and what you're investing in as we look forward over the next few years to enhance your offering or your ROI for clients. Stephen Silvestro: Yes. No problem, Ryan. Happy to talk to it. And it's actually an extension of what Ed just mentioned, which is everyone is pretty hyped up on the Agentic AI deployment across the board. As you know, we've been doing this now for years. So it's not anything new for OptimizeRx. But what it does is creates efficiency and speed within organizations. You still need human input to get things to actually move. But what it will enable us to do is get clients to stop spending money on things like content creation or other stuff where they were just very people heavy and start to deploy AI in a way that enables them to spend more money on commercial execution, and that's where we're particularly strong. And so we're excited about the AI piece. We don't see it as disruptive to us at all. We see us as an enabler of people adopting more AI. And then just to piggyback on Ed's comment around sort of channel partner selection and deployment of messages that impacts the profile, I think that is a great example of what AI could do for OptimizeRx as more people adopt the Agentic and other components of AI that are getting out there. It allows us to be more efficient with channel partner distribution message distribution and physician identification. And so we are welcoming it. I think it's not broad enough yet, Ryan, where we're willing to reset the profile of the business from a margin perspective, but we were able to flash that publicly and show what the potential is within this business as we continue to grow it. So, for me, I'm very excited about it. I'm trying not to overhype it, but it's a positive, net positive for us. I appreciate you calling it out. Operator: The next question is from Eric Martinuzzi with Lake Street. Eric Martinuzzi: Yes. Historically, you've been able to give some color on the percent of revenue that's under contract. I would guess, given the duration color that you gave, Steve, that maybe that number is not in what I would say a 30% number is what you've talked about in the past. Can you give us any color on percent under contract? Stephen Silvestro: Yes, we can give a little bit of color. I mean right now, we're roughly -- if we take out the managed service component, Eric, that we talked about, which is predominantly first half contracted, we're running roughly 15% to 20% off of where we normally would be. And that's mostly due to the timing of the contract, the duration of the contracts. When you take out the managed service component, it's mostly contract duration, meaning shorter-term contracts than we would have seen same time last year or years previous. And we think that's -- we're not panicking about that. We think that's going to adjust over time. And we think as we get to the midyear, we'll start to see that the contracted revenue numbers will take care of themselves and normalize themselves. But Ed, you can feel free to chime in if you want. I know you and Andy are also tracking it very closely. Edward Stelmakh: Yes. I think you got it right, Steve, 15% to 20% behind last year's numbers. We typically don't disclose the exact percentage of revenue that's already under contract, but we will give you a gauge for whether or not we're running ahead or behind. But just to give you a little more color, as Steve said, there was an impact of managed services playing a pretty big material role last year in the first half around the same time. So that's missing from the equation this year to a large extent. And also shorter duration contracts are also hitting us a little bit out of the gates. But we are kind of reading the market, and we are very positive and very optimistic about pharma once they get through the first quarter or two of this year, normalizing their spending within the year and coming back strong in the back half of the year. Eric Martinuzzi: And following up on the managed services comment. I think you said there was -- was it $9 million in the first half? Or was it $9 million for 2025? Edward Stelmakh: So it was $9 million of revenue in the first half of 2025. Eric Martinuzzi: And is there -- have you -- does the guide for 2026, does that include any amount for managed services? Edward Stelmakh: It includes very little. As we said last year, managed services is a very episodic solution for us. It comes and goes. So we're not counting on much of it coming in this year. Operator: The next question is from Constantine Davides with Citizens. Constantine Davides: Great. Steve, you highlighted in your prepared remarks performance from mid-tier and smaller manufacturers. Just wondering what exactly you're doing to attack that portion of the market and what's been driving that success? Stephen Silvestro: Constantine, good to hear from you. Really, what it is, is we have an ability to supplement a lot of what those mid-tier and long-tail clients don't have infrastructurally within their own businesses. So if you think about what OptimizeRx is evolving into as a commercialization partner for a lot of these assets, taking new -- a lot of these companies, taking new assets to market, launching them, trying to drive sales, we can fill a lot of the empty space where they may not have big budgets for big marketing teams, Cadillac budgets for agencies, hundreds of sales reps out on the street. And we're able to fill that gap very seamlessly in a cost-efficient, effective way. And the growth in the mid-tier and the long tail has, I would say, has exceeded our expectations that the uptick there is faster than we were even initially anticipating, which is a really, really good sign. And coming back to one of the questions that Ryan had around the people that are negotiating on the MFN front, all of those are the top 10 manufacturers, right? It's the Lillys of the world and the Pfizers and everybody else that people are familiar with household names. But the volume of specialty pharmaceuticals is actually still coming out of the mid-tier and the long tail, the biotech sector. And so it's a particularly interesting opportunity for our business. So we're honing in on it. I appreciate, it's a great question. Constantine Davides: Great. And then just in terms of capital deployment, I saw you guys announced a share repurchase plan. And just trying to think about or understand how you're thinking about paying down debt versus deploying it towards buybacks, just what we should be expecting there? Stephen Silvestro: Sure. Ed, I'll let you handle that one. Edward Stelmakh: Thanks, Steve. Constant, Yes, so we're going to look at every opportunity as it comes to us. As you know, historically, we've paid down debt with all of our excess cash flow. And the plan is to continue to do that as much as possible this year as well. But also we'll gauge it against the opportunity to come in and buy back our stock at the right price point. So, I guess, the easy answer to your question is it depends. But in most cases, I think you can expect us to spend that money on paying down the debt. Constantine Davides: Got it. And then maybe one last one for you, Ed. What have you contemplated in guidance in terms of approximate NRR for the year? Edward Stelmakh: So, NRR in our case, as I said consistently, we're shooting for anything above 100% as a good marker. So we haven't really unpacked our guidance based on specific NRR numbers. But I think if you look at where we're guiding now, there's probably some room for slight excess above 100%. Operator: [Operator Instructions] The next question is from Jeff Garro with Stephens. Jeffrey Garro: I wanted to ask a few more follow-ups on the end market dynamics. I'll throw a couple out to start, really focused around customer behavior. And curious if any comments you can give on what January and February bookings looked like versus December when those large pharma companies were still in the middle of negotiating those most favored nation pricing agreements. And then as we think about lower spend, early here in 2026. Is that likely to result in increased catch-up spend in the back half of the year? Or is there a possibility that, that piece of the budget is just unlikely to be recaptured this year? Any particular feedback or anecdotes you're hearing from your customers to support what the likely back half behavior is? Stephen Silvestro: Yes. Jeff, good to hear from you. So just the dynamics right now that we're seeing out in the marketplace, which is pretty consistent with everybody in our peer group that I think you guys are all either following or aware of, is exactly what we said, right? Everyone is a little bit distracted with the MFN negotiations, even if they're not directly in those negotiations, they're sort of in a wait-and-see what's going on with it. We do think that, that's disruptive in the first half of the year. That's why we've adjusted the guide to accommodate for that. We do think the business will be back to its 40-60 traditional performance in terms of revenue flow. And so that would tell you that the back half will probably be a little bit stronger than the first half. In terms of how January, February, et cetera, are looking, we've already shared a contracted revenue number and told you that we did $9 million in the first half. So you'd have to pull that out because we know it's not repeatable. And then we told you sort of where we were year-to-date. So that should give you the info that you're looking for. We feel pretty confident in the way that we're going to get to the first half, and we feel more confident in the back half. And the conversations we're currently having with clients, the client satisfaction that we're hearing back from our Chief Commercial Officer, has us feeling bullish on the back half of the year. But again, we've dropped the guide a little bit on the top line just to adjust for some of the things that we've already mentioned. And we've reiterated and raised the guide on EBITDA. So that should be, I think, a pretty good signal on how we feel about the year. Happy to answer more questions around the dynamics, but I think that probably addresses that. Jeffrey Garro: All super helpful. And maybe to just kind of probe a little bit more on visibility and the business shifts to drive more consistent results. Maybe you could update us on converting some of your DAAP arrangements to subscription. I think at one point in 2025, it was greater than 5% of annual revenue, I would assume for 2025. And a later update, you talked about a line of sight into moving that to 10%. So any color you could give on where that subscription mix ended exiting 2025 and how you see that progressing in 2026 would be helpful. Stephen Silvestro: Andy, why don't I have you talk to just the conversion factor, if you'd like. And I don't know if we're going to disclose a number yet, Jeff, but Andy can talk to you about the trend we're seeing, and we feel really good about it is what I would say. Andy, why don't you take that? Andrew D'Silva: Yes. So we got pretty close to 10% as it relates to exiting the year on that run rate, obviously, not for the full year. We were between 5% and 10% for the full year. As you think about it in 2026 and going forward, if we continue to increase DAAP as a percent of our overall business, I believe you'd start to see a continued increase in the subscription side of the business, and DAAP is a key focus area for our growth. Operator: The next question is from David Grossman with Stifel. David Grossman: So just to kind of level set on maybe the macro assumptions underlying the revised guide for '26. Are you thinking that we've kind of stabilized at a level and it should be flat to up from these levels? Are you contemplating incremental degradation? Maybe you could just give us some incremental insight into how you're thinking about that and how that was embedded in the guide -- the revised guidance. Stephen Silvestro: Sure. Ed, do you want to take that one? Edward Stelmakh: Yes, I can take that. Yes. So I would say, yes, definitely a slower start to the year than we had hoped for. Our current thinking is that as the year goes forward, these things will start to improve. hoping Q2, Q3 is when we really see that come to fruition. And those are the signals we're getting back from the market that they're taking a bit of a pause, trying to digest what MFN means to their individual portfolios. So they're signing up for shorter duration contracts out of the gates, but eventually, they'll open up their wallets and continue to market like the kind of industry they've been for many, many years. David Grossman: Is your sense that we'll have more of a fourth -- back-end loaded year than we typically have in the fourth quarter? Or do you expect it will be similar? Edward Stelmakh: It's tough to predict, but I look at it in a similar way we had a few years ago, a slowdown in FDA approvals. And pharma watches certain factors like that very closely. So any time there's any kind of disruption or change in course, they'll usually hit the pause button or pump the brakes a bit, but then come back strong in the back half of the year. David Grossman: Got it. And on the net revenue retention, how much is the decline in the fourth quarter related to managed services? Or was managed services in the fourth quarter similar to what you saw in the fourth quarter last year? Just trying to get a sense because it looks like NRR dipped a little bit in the fourth quarter. And just wondering if that's really tied to the managed service dynamic or if there are other things that play there like the reduced spending. Edward Stelmakh: Yes. I mean it's partially that. Partially also the quarter is the buy-ups and the conversion to a subscription model that happened in 2025. It just smooth out the way revenues are recognized. So those two factors contributed to the drop. David Grossman: Got it. And I guess, Steve, just on kind of your AI commentary. What -- when you're talking to these large pharmaceutical companies, what are they sharing with you in terms of their own internal efforts and where they want you to fill in, in terms of how they're kind of deploying AI on the marketing side of the house? Stephen Silvestro: Yes, sure. Happy to comment on it. And then I know we're looking -- we're looking to see you here next week, so we can chat some more on it. But the large part of what they're trying to do right now is look at it for basically internally the way that they're structuring clinical trials, making that more efficient, large language models, looking to train on those large language models, looking to use data that they've got from places like IQVIA, Surescripts or any of the other providers that they've amassed over the years and start to deploy some of that in a more, I think, a direct way and create some efficiencies around that. So those are the big things that they're looking to do. And I already shared the content creation comment, David, which is a huge one. The amount of content, as everybody knows on the call, that pharma creates is enormous. And if they can leverage some of these tools that are coming out to basically eliminate the manual labor associated with building all of that content and the approval process that is constrained that content from getting deployed in a timely manner, that is going to be an unbelievable unlock for the industry. The biggest frustration for pharmaceutical marketers is going through the medical legal and regulatory process. And one of the areas that they're really looking at is trying to use AI to eliminate the need to go through that entire process the way that it's currently constituted. So you can think about like medical simulations, you could think about legal. Obviously, legal is a huge place that could be disrupted with this, right? And then on the regulatory front, same thing. Those are all places where large language models and AI can absolutely disrupt or replace what's going on in those spaces. And so if pharma is successful in the deployment of what really is being called by McKinsey and others, Agentic AI, they'll be able to speed their time to get things to market. So drugs getting through approval and getting launched and getting deployed and all that will be rapidly to be significantly faster than it currently is. And that will give them way more marketing opportunity and more marketing budget to focus on execution, which is what they really want to spend money on. And that's where we sit. We sit on the execution side. Operator: The next question is a follow-up from Constantine Davides with Citizens. Constantine Davides: Let me ask one more. Steve, at the end of '26, you guys announced a few new partnerships and transitioned -- it looks like transitioned a couple to exclusivity arrangements. So just wondering if you can talk about your ongoing efforts there. I think perception that, that world was pretty well canvassed, but just how much more room to run is there in both the EHR world, but also the stand-alone e-prescribing arena? Stephen Silvestro: Yes. Thanks for the question, Constantine. It's a great one. So it's important for the group to know for everybody to know EHR and e-prescribe are two different animals. And every EHR has an e-prescribe module that's bolted into it. In some cases, the EHR owns the e-prescribe and it's native. In other cases, they've integrated and e-prescribe into it. So those are two different points of connectivity that we have. what we're really focused on is expanding not just our EHR footprint, but what we call our point-of-prescribe footprint as well. And the reason for that is we want to make sure that we are actively engaging in the digital conversation with the prescriber when they are contemplating the diagnosis and prescription therapy selection and subsequently transmitting that prescription to whatever pharmacy it's going to go to after the real-time benefit check and so on and so forth. So it's less about platforms that we don't have. It's more about further integrations into those platforms and making sure that we're consistently embedded in every part of the workflow that we can be. We did sign just on your question around the exclusivity, we were able to peel back a few channel partners from competitors who had signed agreements with these specific channel partners and either failed to pay the channel partner, failed to perform didn't deliver on what they said they were going to deliver. And so those channel partners proactively approached OptimizeRx through our channel lead who's done a phenomenal job of relationships and wanted to become part of the network. And to me, that is a huge positive signal that we are doing good by our partners and striving to be the best partner that we can for them, and that's why we have more people coming. So I'm excited to share more about that. I'm not going to share names on this call, Constantine, but at some point, you're going to see press releases with the names and joint statements from me and those additional channel partners coming in the not-too-distant future. Constantine Davides: Thanks for the additional color. Stephen Silvestro: Yes, you got it. Does that answer the question? I just want to make sure I got it. Constantine Davides: Absolutely. Yes. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Steve Silvestro for any closing remarks. Stephen Silvestro: Thank you, operator. Thank you all for joining us today. I'd like to end by congratulating and thanking the entire OptimizeRx team for a tremendous 2025. We deeply appreciate their dedication and hard work as we navigate an increasingly complex and rapidly evolving digital pharma marketing landscape. Our industry is undergoing significant transformation, and our products and services are uniquely positioned to redefine how pharmaceutical brands, patients and prescribers connect. Our mission-driven culture continues to fuel innovation and execution, enabling us to attract and retain strong partnerships while reinforcing our role as a trusted and long-term technology partner. While we remain in the early stages of what is still a relatively nascent industry, we are confident that our proven business model, solutions and technology platform are directly addressing the evolving needs of our customers. Our synchronized HCP and DTC marketing capabilities powered by real-time brand eligibility signals, combined with expanded functionality such as micro neighborhood targeting allow us to deliver hyperlocal privacy-safe audiences across both patients and prescribers. These differentiated capabilities continue to expand our competitive moat and strengthen our market leadership. For the remainder of the year, our priorities are clear. We are intensely focused on increasing customer utilization of DAAP and building greater revenue predictability by transitioning more customers to a subscription-based model. Establishing a consistent recurring revenue component is a critical step as we advance toward becoming a sustained Rule of 40 company. We believe these initiatives will be transformative and central to driving long-term shareholder value for OptimizeRx. Thank you again for your time today. I look forward to speaking with you on our next earnings call and connecting with many of you at the upcoming industry conferences. Operator, please proceed with OptimizeRx' safe harbor statement. Operator: Thank you, sir. Before we conclude today's call, I would like to provide the company's safe harbor statement that includes important cautions regarding forward-looking statements made during today's call. Statements made by management during today's call may contain forward-looking statements within the definition of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Act of 1934 as amended. These forward-looking statements should not be used to make investment decisions. The words anticipate, estimate, expect, possible and seeking and similar expressions identify forward-looking statements. They may speak only to the date that such statements were made. Forward-looking statements in this call include statements regarding our plans to drive sustainable long-term growth, plans for shareholder value creation, converting more customers to our reoccurring model. Becoming a sustained Rule of 40 company, strength of our operating model, experiencing minimal disruption from AI, unlocking new opportunities for profitable revenue growth, plans to make our revenue streams more predictable, plans to drive substantial operating leverage, estimated 2026 revenue and adjusted EBITDA ranges, long-term outperformance on both the top and bottom lines, continued strong momentum in the medtech sector, ability to improve patient outcome and to transform engagement across the health care ecosystem, ability to consistently expand relationships with our largest customers, estimation of total addressable market size, ability to capture additional market share and expand our role within the pharma digital ecosystem, market penetration, revenue growth, gross margin, operating expenses, profitability, cash flow, technology, investments, growth opportunities, acquisitions and upcoming announcements. Forward-looking statements also include the management's expectations for the rest of the year. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying these forward-looking statements. The risks and uncertainties to which forward-looking statements are subject to include, but are not limited to, the effects of government regulation, competition, dependence on a concentrated group of customers, cybersecurity incidents that could disrupt operations, the ability to keep pace with growing and evolving technology, the ability to maintain contracts with electronic prescription platforms and electronic health records networks and other material risks. Risks and uncertainties to which forward-looking statements are subject could affect business and financial results are included in the company's annual report on Form 10-K for the year ended December 31, 2023, and in other filings the company has made and may make with the SEC in the future. These filings when made, are available on the company's website and on the SEC website at sec.gov. Before we end today's conference, I would like to remind everyone that an audio recording of this conference call will be available for replay starting later this evening running through for a year on the Investors section of the company's website. Thank you for joining us today. This concludes today's conference call. You may now disconnect your lines.
Operator: Good morning. My name is Natalia, and I will be your operator today. Welcome to Ecopetrol's earnings conference call, in which we will discuss the main financial and operating results in 2025. [Operator Instructions] Before we begin, it is important to mention that the comments in this call by Ecopetrol's senior management include projections of the company's future performance. These projections do not constitute any commitment as to future results nor do they take into account risks or uncertainties that could materialize. As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections shared on this conference call. The call will be led by Mr. Ricardo Roa, CEO of Ecopetrol; Juan Carlos Hurtado, Executive Vice President of Hydrocarbons; Camilo Barco, CFO; and Bayron Triana, Executive Vice President of Transition Energies. Thank you for your attention. Mr. Roa, you may begin your conference. Ricardo Barragan: Good morning. Thank you for joining us today for Ecopetrol Group's Fourth Quarter and Full Year 2025 Results Call. Last year, we achieved our goals, maintained financial discipline, stable operations, maximizing value management, drivers that reflect the strength of our strategy and the group's ability to operate in challenging environment. We consolidated a 44% 3-year success rate in exploration the industry average and exceeded our 2025 target by 60% drilling 16 wells. [ This team ] achieved the second highest net profit in history. In production and refining, we met our targets within the announced range and achieved a reserves replacement ratio of 121%, the highest in the last 4 years. In 2025, we marketed in advance 100% of the Sirius gas and moved forward with new supply alternatives. On the other hand, we declared the well Lorito to be commercially viable. Also, we surpassed our renewable energy capacity goal, reaching 951 megawatt, initially set by 2030 and strategic milestone for diversifying the company's energy metrics. But in ISA, we executed investments 31% higher in 2024 with projects of a total amount of $664 million. I would like to highlight how our efficiency program delivered history result in 2025 accumulation more than COP 16 trillion over the past 3 years, strengthening our financial position and supporting business sustainability. 2025 was a year of reliable execution. We maintained the group's long-term sustainability and met the goals announced to the market. Let us move to the next slide. Average production reached 745,000 barrels per day. Transportation exceeded 1.1 million barrels per day and refining throughput reached 417,000 barrels per day. Both operational performance and the efficiency program mitigated the impact of one adverse environment, considering a reduction of nearly 15% in crude prices. Despite this, we maintained an EBITDA margin in line with expectation, demonstrating discipline and resilience. On the commercial front, we achieved the best crude differential of the past 4 years. We closed 2025 at $4.6 per barrel, an improvement of $2 compared to 2024, driven by market diversification, basket optimization and effective coordination among our trading companies. Finally, to our shareholders. In 2025, we transferred COP 35 trillion to the nation in dividends, taxes, and royalties. This result ratifies Ecopetrol's role as a fundamental pillar for national economic development. The Board of Directors will propose to the general assembly on March 27 a dividend of COP 110 per share equivalent to 50% of net income under the dividend distribution policy of Ecopetrol. This proposal reaffirms our commitment to responsible, sustainable and value-oriented dividend distribution. Let's move to the next slide. At the end of 2025, Ecopetrol reached 1.944 billion barrels of oil equivalent improving 1P reserves, supporting the long-term sustainability of our operations. This result was mainly driven by organic growth, which added [ 314 ] million barrels through enhanced recovery, the largest reserves incorporation in the history as well as operational optimization that contributed with 19 million barrels helping to offset external variables such as Brent prices, exchange rates and inflation. In addition, according to Law 2056 of 2020 and Resolution 164 of 2015, reserves associated with crude royalty securitization were incorporated. This practice is recognized by the SEC and has been applied to gas royalties since 2014 for Ecopetrol Group. The total crude incorporation amounted to 314 million, 1.6x the year's production, allowing the company to reach historic highs in one peak crude reserves volumes, reaffirming the resilience of the field, both national and internationally. In gas, natural decline led to a reduction of 4.7 million barrels of oil equivalent partially offset by results at Pauto and Pauto fields, where pressure reduction techniques and hydraulic improvements were implemented to extend wells' life. We expect this trend to be reversed in the medium term as we progressively enable volumes discovered in Sirius and KG. Internationally, we continue to advance in the Orca Brazil Gas to the Market project after the commerciality declaration in 2025. Once the development plan gets the approval by the National Agency of Petroleum, Natural Gas, and Biofuels of Brazil, resources will gradually be progressed as reserves. Let us move to the next slide. In 2025, we also advanced firmly in ESG indicators by strengthening our environmental, social and governance commitments. On the environmental side, we reduced 561,000 tons of CO2 equivalent 165% of the annual target. We also received the Gold Standard recognition for methane management from the United Nation, validating our technical and transparent approach based on environmental protection. Ecopetrol consolidated its leadership in Colombian's aviation energy transition by supplying co-processed jet [indiscernible] with renewable feedstocks for the operation of more than 700 LatAm flights. Regarding water management, we reused 181 million cubic meters, equivalent to 82% of water used in operations, a 10% increase compared to 2024, positioning us as a global benchmark in the sector. In energy transition at the Cartagena Refinery, we began installing the largest PEM electrolyzer in Latin America, capable of producing 800 tons of green hydrogen per year and avoid up to 7,700 tons of CO2 equivalent annually. In 2025, we consolidate our leadership in Works for Taxes in Colombia. Since 2018, we have accumulated 154 projects, worth COP 1.4 trillion equivalent to 35% of the national total. Only in 2025, we completed 21 projects worth COP 109 billion, benefiting more than 49,000 inhabitants in 31 municipalities across 12 departments. On corporate governance, we highlight the approval of the statutory reform that incorporates an employee representative on the Board of Directors, strengthening diversity participation and best governance practices. With this, I hand over to Juan Carlos, who will present the details of the Hydrocarbon business performance. Juan Carlos Parra: Thank you, Ricardo. On the exploration front, we continue to strengthen our portfolio. By the end of the 2025, we drilled 16 wells, exceeding our target of 10. Of these 16, 7 were successful, 5 are under evaluation and 4 failed, achieving an average success rate of 44% over the last 3 years, placing us at competitive levels within the industry. In 2025, we promote the maturation of discoveries towards the development phase with a potential of over 455 million barrels of crude equivalent to 24% of the current reserve of the Ecopetrol Group, highlighting one first commercial declaration of 4 exploration areas of Orca Brazil, Lorito, Toritos and Saltador. Second, the extension of the commercial area of the Terecay field, reaffirming the potential of Los Llanos Centrales. These volumes will gradually be incorporated into 1P reserve as their development progress. Environmental license is currently underway for the Lorito project and the development plan for the Orca asset is awaiting approval from the Brazilian National Ports Administration. In the Sirius project, the delineation stage of the discovery was completed, confirming the potential of the 6 trillion cubic feet. Furthermore, the ANH approved the extension of the 10 exploration and production contracts and agreements with additional terms between 1 and 4 years and authorized the transfer of 50% of the participation and operation, the Parex Resources Colombia in the Farallones E&P agreement. By 2026, in association with Parex, we expect the drilling of 2 exploratory wells in the Pedemonte as well in Farallones extension agreement. Next slide, please. On the production front, we reached a total accumulated production of 745,000 barrels of oil per day, in line with the established target at levels comparable to those of 2024. This result was largely driven by national crude production, which reached 517,000 barrels, the highest level in the last 5 years. Thanks to, first, the enhanced recovery strategies to increase production in major fields and mitigate natural decline. Second, growth in production from the Caño Sur fields, and third, the acquisition of a 45% stake in the CPO09 block. We highlight that this production level was achieved with a 10% optimization at the initial planned investment, and we achieved efficiencies of more than $139 million in drilling and completion activities. The 2026 organic investment plans has a simply breakeven of $40 per barrel, positioning this a competitive portfolio given current market conditions. Of this portfolio, 88% of the investment will be concentrated in growth projects. Among the milestones to be achieved in [ 2026 ] increased the number of development wells to be drilled in the country compared to 2025 and extending the development plan in Midland with Oxy until July 2027. Jointly defined with the price framework, the interest of both and aligned with the reduction in activity. Next slide, please. By the end of 2025, the Transportation segment posted one of its best historical performance in EBITDA and net income, affirming its flexibility and operational efficiency amid a challenging environment. Regarding transport volumes, the segment through the strategic investments and operational adjustments managed to expand evacuation options to capture volumes outside the network and respond actively to the needs of both the business growth and the market. In the context, the following milestone stand up, which enable us to transport volumes above 1,100,000 barrels through the network. First, expansion of evacuation capacity in oil pipelines by more than 122,000 barrels. Multiproject pipelines by more than 10,000 barrels and additional storage capacity by 323,000 barrels, thanks to the commissioning of the new tanks in Pozos Colorados. Second, commissioning of the crude oil import scheme from Coveñas to our Barrancabermeja refinery to mitigate and respond of the third-party impact on the infrastructure monitoring schemes, operational control and the interinstitutional coordination were strengthened in the Caño Limón - Coveñas system. The time line activation of alternative evacuation routes together with flexible operating schemes and the use of the technology allowed us to preserve system continuity, avoid deferred production and maintain refinery supply. From a financial standpoint, prioritization of cost optimization neutralizing external effects such as the exchange rate and maximizing the use of infrastructure among other measures enabled the segment to achieve an EBITDA of COP 11 trillion and net income close to COP 5 trillion, one of the highest results in the history of the segment. Continuing with the refining segment results, solid operational execution and commercial decisions allow us to capture better international price differentials, strengthening profitability reservations of the business for 2025. We highlight the historical record of [ 113,000 ] barrels per day of integrated throughput in the fourth quarter of 2025, reflecting operational stability and high unitability after major maintenance for first half of the year. The results contributed to the annual total of 470,000 barrels. The gross refining margin increased by 32% in 2025 compared to 2024, increasing from $9.9 to $13.1 per barrel, thanks to production focus on higher value and higher quality fuels, crude basket optimization, prioritizing the processing of crudes with greater economic contribution and acting opportunity to capture international price differentials. EBITDA reached COP 2.7 trillion, 20% higher compared to 2024, driven by prioritizing operational and energy efficiency, which keep refining costs under control and strengthen competitiveness and resilience in the face of energy and price conditions. In practice, each barrel contribute more supported by the system capacity to take advantage of international price differentials, control and unit costs and energy use efficiencies. Regarding electrical reliability in Cartagena, efforts continued throughout 2025 to manage and decrease risk with a projection of reaching a tolerate risk level in 2026. In 2025, progress reached 81%. 3 out of the 13 out of the 16 milestones complete and connection to the national interconnecting system was secured. 70 megawatts of backup, reducing exposure to grid events and supporting establish operation. Next slide, please. During 2025, the efficiency program was consolidated as a key driver for value generation in the hydrocarbons line. We implemented decisive actions to maintain competitive unit costs, which have allowed us to offset exchange rate and inflationary impacts. At the end of 2025, the total unit cost of the Hydrocarbons line was $46 per barrel, a significant decrease of $1.7 or 3.4% compared to 2024, mainly driven by the synergies implemented in crude oil purchasing and strict cost-executing discipline. The lifting cost stood at $12.2 per barrel, $0.3 less than in 2024, marking 2025 as an important turning point in the indicator trend. Efficiencies played a fundamental role by contributing $0.96 per barrel in optimization. The refining cash cost and transport barrel costs remained stable during 2025, closing at $5.75 per barrel and $3.41 per barrel, respectively. This reflects the effective mitigation of inflation and exchange rate pressures as a result of the established operational discipline and efficiency materials throughout the year. Despite the impact of the exchange rate on costs expressed in dollar, the trend in local currency confirmed operation control, financial discipline and our commitment to ensuring and downward trajectory in our key cost indicators. Now I will give the floor to Bayron, who will discuss the main milestone of the energy transition line. Bayron Triana Arias: Thank you, Juan Carlos. 2025 was a year of disciplined execution in the energy transition business line. We made progress in strengthening energy security, scaling our renewable portfolio and capturing efficiencies with operational and financial impact. In relation to natural gas, the Ecopetrol Group remains committed to generating value and contributing to the growth of the country's supply with Ecopetrol being the only producer to market long-term volumes during 2025 for the period 2026 to '29. As a result, in December, we closed the sale of gas from the Sirius field together with Petrobras, selling the entire volume up to 249 GBTUD, a key step forward for its entry in 2030. Similarly, for 2026, the Ecopetrol Group has signed gas sales contracts for an average of 326 GBTUD to mainly serve the residential and commercial segments, reaching an estimated coverage of 76% of its demand, 6 percentage points more than in 2025. In terms of gas supply optionality, complementary to offshore development in 2025, we will market 60 GBTUD of reclassified gas through Buenaventura with deliveries scheduled for 2026. Additionally, in February, we began marketing 2 products with an offer between 126 and 370 GBTUD, which will be delivered through Sociedad Portuaria Puerto Bahía, starting in December 2026. Let's move to the next slide, please. In terms of electricity, by the end of 2025, we reached nearly 951 megawatts of capacity incorporated into the renewable energy portfolio, exceeding the target of 900 megawatts. This growth contributes to reducing the unit cost of our electricity supply. Within this portfolio, operating capacity grew by 94% from 186 megawatts at the end of 2024 to 381 megawatts at the end of 2025. This growth is explained in part by the acquisition of Statkraft's asset portfolio, which included the Portón del Sol solar farm, the first asset operating in Colombia under the remote self-generation scheme as well as the entry into operation of the La Cira and La Iguana projects. The combined operation of the group's solar farms and the Cantayús small hydroelectric plant avoided the emission of approximately 47,000 tons of CO2 equivalent and generated savings of around COP 55 billion in 2025. In addition, in December 2025, the 205-megawatt Windpeshi wind farm reached its FID. This project will be the first wind project built and operated 100% by Ecopetrol as well as one of the largest in the country. I would like to highlight that during 2025, these efforts enabled us to reduce the electricity supply tariff for Ecopetrol Group by approximately 4%, contributing among other things, to mitigating pressures on lifting costs. Ecopetrol Group's electricity demand is equivalent to 10.25% of the energy in the national interconnected system. This demand was covered 92% through self generation, both conventional and renewable and through contracts in the wholesale energy market, MEM as it is known in Colombia. When contracting in the MEM, the group seeks to mitigate variations in the cost of electricity supply through planning supported by risk policies. To this end, it plans energy contracting with horizons of between 1 and 3 years, considering the expansion of the system, the evolution of demand and climate effects. Next slide, please. Now I would like to highlight our efforts in energy efficiency, which is a structural level of competitiveness for Ecopetrol Group. 2025 closed with 4.79 petajoules of energy optimization, 1.6x the annual target, generating significant emissions reductions and savings. This result led us to achieve 99% of the goal of 25 petajoules of cumulative energy optimization between 2018 and 2030 ahead of schedule. The improvements were achieved through 80 initiatives comprising operational control of production processes, investments in technological upgrades of high consumption equipment and energy management systems in the Transportation segment. Finally, in terms of our contribution to energy justice in the regions, in 2025, the gas social project achieved its historical peak, completing more than 114,000 cumulative connections in 21 departments across the country. And in energy communities, we reached 3.8 megawatts accumulating in operation and construction, helping more than 58,000 people with centralized renewable solutions that strengthen energy autonomy and expand access to affordable energy. I now give the floor to Camilo Barco to detail the financial performance for the period. Alfonso Camilo Munoz: Thank you, Bayron. 2025 results confirm that Ecopetrol Group delivered performance in line with the annual investment plan reported to the market. The company operated with financial strength supported by an improved OpEx reduction target and CapEx flexibility, which boosted efficiencies across all segments and business lines, even in an environment marked by lower crude prices compared to 2024, higher tax burden and inflationary pressure. In 2025, we achieved an EBITDA of COP 46.7 trillion with a stable EBITDA margin aligned with the annual target of 39%, driven by the gradual recovery of the refining segment, the stability of the Transportation segment and the significant contribution of the profitability and efficiency program. The exploration and production segment contributed approximately 51% of the EBITDA, while the Transportation and Transmission and Road segments jointly contributed 43% and refining accounted for the remaining 6%. It is worth highlighting the continued recovery of the downstream segment, which delivered a 20% increase in EBITDA compared to 2024, supported by favorable market conditions for product differentiation. Likewise, portfolio diversification through the contribution of the transportation business and ISA has been key to the group's performance in periods of high volatility. During 2025, the profitability and efficiency programs delivered a record target of approximately COP 6.6 trillion, exceeding the adjusted annual target of COP 5 trillion by 1.3x and reaching nearly COP 23 trillion over the past 5 years. These results reflect our commitment to financial discipline, value creation and sustained contribution to the group's performance. In 2025, this efficiency plan enabled optimizations with an effect on EBITDA of approximately COP 3.6 trillion. In CapEx, we achieved COP 2 trillion in efficiencies through the successful execution of the investment plan, driven by upstream optimizations, particularly in surface facilities, drilling and completion activities. In OpEx, we achieved COP 1.8 trillion in efficiencies, thanks to improvements in energy, maintenance and digitalization. These efforts contained cost in an inflationary environment and improved key indicators such as lifting costs, which decreased by $0.9 per barrel, maintained the Barrancabermeja refinery conversion index near 91% and reduced energy consumption by 4.8 petajoules equivalent to COP 130 billion. These results not only support the 2025 performance, but also consolidate a more competitive basis to face the challenges of 2026. Additionally, our financial flexibility, operational strength and cash management contributed to a total shareholder return of 24% for local investors when combining dividends and share price variation and 39% for our shareholders in the United States. Likewise, our focus on capturing efficiencies enabled us to reach a net income breakeven close to $50 per barrel, reaffirming the competitiveness and resilience of our diversified portfolio. Regarding investments, we closed the year with $6.3 billion in organic investment execution within the range outlined in the investment plan. We highlight the following investments: Hydrocarbons, $3.9 billion, 63% of the total with focus on Meta, Piedemonte, Permian and Brazil. Energy transition and gas, $750 million, 12% of the total for advancing infrastructure to ensure medium-term supply for the country and complementing our energy matrix through renewable energy. And transmission and road, around 25% of the total investments were allocated primarily to the power transmission project. Brazil accounted for the largest share of investment followed by Colombia, Chile and Peru. In total, ISA advanced on 26 transmission projects, 183 reinforcements and upgrades in Brazil and 3 road concession projects which together will add approximately 4,988 kilometers of transmission lines and 296 kilometers of roads once they enter into operation. Let's move on the next slide. Net income for the year totaled COP 9 trillion, a level close to the target established in the financial plan despite a lower average of Brent price of USD 5 per barrel versus the initial estimate of USD 73 per barrel. The outcome is mainly explained by the following factors. First, nonrecurring effects recorded in 2024, such as the valuation of CPO-09 and the reversal of impairment, which generated a positive impact of COP 1.6 trillion. Those were not perceived during 2025. It is important to highlight that these nonrecurring factors did not represent cash outflow nor affected our cash flow results. Second, market factors, including the 15% annual decline in Brent prices, which went from $80 in 2024 down to $68 per barrel in 2025. Inflationary effects on cost and expenses and the revaluation of the Colombian peso against the U.S. dollar had a combined impact of 7.2 trillion. Third, external events such as blockades at production field, a tax on infrastructure and new taxes derived from the state of internal commotion decree and the nondeductible VAT on fuel imports reduced our net income by COP 1 trillion. These effects were partially offset by the improved performance of crude and product differential, which contributed COP 2.6 trillion as well as OpEx optimizations and our commercial strategy, which contributed an additional COP 1.3 trillion. External factors altogether amounted COP 5.6 trillion and explained nearly 95% of the decline in net income between 2024 and 2025. Operational and commercial activity compensated for approximately 22% of the variation. Let's move on to the next slide, please. In terms of liquidity, we closed December with a consolidated cash position of COP 12.7 trillion, maintaining a solid stance supported by operating cash generation and working capital optimization. Free cash flow for the year reached COP 11 trillion, driven by operating cash generation, boosted by the early collection of COP 7.7 trillion from FEPC and cost and expense reduction measures and also the disciplined execution of CapEx in line with the estimates established in the plan. In working capital management, we strengthened liquidity by reducing the FEPC balance to its lowest levels within the last 5 years and by offsetting COP 6.9 trillion in tax credit. To manage foreign exchange risk, we executed hedges using financial instruments that protected between 6% and 16% of monthly dollar-denominated revenue. Likewise, to mitigate Brent price volatility, we carried out hedging operations during the second half of 2025 to cover between 8% and 20% of export volume. For 2026, working capital management will focus on the collection or offsetting of the 2025 tax credit balance, which closed at COP 11.4 trillion as well as on the collection of the FEPC receivables around COP 3 trillion. We have also initiated execution of the hedging plan to mitigate market risk associated with price and exchange rate volatility in 2026. Regarding the ongoing process with DIAN concerning import VAT on fuels for the period 2022 to 2024, the administrative stage has concluded for 3 cases, one in Ecopetrol and the other 2 in Reficar, amounting to approximately COP 9.6 trillion, including estimated penalties and interest. The company maintains its position not to record the provision based on the opinion of external legal advisers and in accordance with the accounting standard. Now let's move on the next slide. 2025 was a key year in consolidating our financing strategy and ended with an adequate debt structure, a controlled maturity profile and a gross debt-to-EBITDA ratio of 2.3x, below the maximum level of 2.5x established in the company's strategic framework. Excluding ISA, this ratio stood at 1.6x, reflecting a healthy leverage level comparable to the oil and gas industry peer. During the year, the following achievements stand out: the renegotiation of bank debt, resulting in rate reduction of up to 80 basis points for U.S. dollar-denominated loans and 85 basis points for Colombian peso denominated loan, the securing of a new committed line of up to COP 700 billion available under any market scenario and the structuring of financing mechanism to support inorganic growth opportunities with the energy transition strategy. To highlight the fact that the group's liquidity remained fully secured throughout the year without the need to increase long-term debt to finance Ecopetrol's organic investment plan even in an environment of lower-than-expected revenues relative to the investment plan. During the year, the group's incremental debt reached approximately $1.8 billion equivalent. Around 70% corresponded to ISA, mainly due to the conversion of its pesos-denominated obligations into U.S. dollar, while the remaining 30% corresponded to Ecopetrol specifically allocated to inorganic business opportunity. In 2026, we plan to continue strengthening the company's capital structure and do not expect definitive incremental debt to finance Ecopetrol organic capital. Our focus is on optimizing the financial cost and debt structure while reinforcing liquidity and flexibility in working capital management. Should we identify inorganic growth opportunities, this may require additional debt always under the principle of maintaining a control leverage level. We will continue monitoring market conditions and will be prepared to respond and adapt to different scenario. Finally, let's move on the next slide to detail this year's investment plan. The investment plan projected for 2026 ranges between $5.4 billion and $6.7 billion. These align with our historical execution levels and allocated to strengthening the traditional business while advancing strategic priorities in the energy transition. The plan is based on an average Brent price expected of $60 per barrel and an exchange rate of COP 4,050 per dollar within a price range that allows us to adapt to different scenarios, maintaining strict capital discipline and ensuring competitive return with a target EBITDA margin of 40%. With approximately 70% of total investments, the Hydrocarbons business will continue to be the core driver, considering a production target between 730,000 and 740,000 barrels of oil equivalent per day, refinery throughputs between 410,000 and 420,000 barrels per day and more than 1,100,000 barrels transported per day. This performance is supported by enhanced oil recovery technologies that optimize resource, increase crude production in Colombia and offset the natural decline of gas. Likewise, we expect to drill between 380 to 430 development wells and up to 10 exploratory wells prioritizing the most profitable opportunities within our portfolio. In transportation and refining, investments will strengthen the integrity and reliability of the group's critical infrastructure. The remaining 30% of investments will deepen diversification into low emission business, including transmission and road, the integration of renewable energy and sustainability projects that enhance portfolio resilience. As part of the 2026 plan, we expect to capture approximately COP 5.7 trillion in efficiencies and deliver COP 28 trillion in transfers to the nation. Additionally, we aim at maintaining a net income breakeven close to $47 per barrel. In renewable energy, we expect to incorporate an additional 750 megawatts of projects in operation, construction and execution. Our goals reflect financial discipline, a focus on profitability and a measurable impact in our energy transition strategy. During 2026, we will continue executing with discipline, prioritizing investments that strengthen our portfolio and ensuring that each decision contributes to a more competitive, resilient and results-driven group. Now I will turn it over to the President, who will present the conclusion. Ricardo Barragan: Thank you, Camilo. In 2026, we will maintain a clear strategic focus, a strict capital discipline, strengthening traditional business, and ensuring the group's long-term sustainability. Natural gas is a strategic lever. We are advancing offshore projects and maintaining continuous exploration activity as a pillar to progress resources into reserves. At the same time, we will proactively manage supply sources to ensure reliability and flexibility. We continue progressing in the energy transition with the start of civil works at the Windpeshi project, community responsible compensation, and the launch of green hydrogen production at the Cartagena Refinery in coming months. We manage working capital, securing liquidity, and reducing cash flow pressures in a volatile environment. We delivered the plan presented for 2025 and expect to comply with the one defined for 2026. With this, we open the question-and-answer session. Thank you very much. Operator: [Interpreted] [Operator Instructions] Daniel Guardiola is online with a question. Daniel Guardiola: [Interpreted] I have a couple of questions. One is about [ Permian ], and I'd like to know if you could give us more light of why there was a sequential fall of the production. And if this result is because of less intensity in the drilling or what happened? And considering what you have been doing in [indiscernible]. Camilo, could you tell us what's the total production at Permian and Delaware? And overall, how many wells do you think that you will be drilling this year to reach those 11,000 barrels per day? And the second question has to do with dividends. Looking at the figures of 2025 of the company, you could see that the cash flow of the company was hurt. And Camilo, could you give us more light of the dividend, which was approved by the Board of Directors? Is it subject or not to the collection of the fiscal -- and the fiscal and the ISAPEC? Juan Carlos Parra: [Interpreted] This is Juan Carlos Parra, Vice President of Hydrocarbons. Regarding your first question, you have to keep in mind that in 2024, we had about 94,000 barrels per day and for 2025, 122,000. So this year, today, we can say that we are above 91,000 barrels in the first year -- first months of the year. And this is basically agreed in the development plans of the agreement that we have in term -- and it depends on the activity as everybody knows and of the prices because it's the type of field that we work on really depends on the prices right then. So it's related to that. For this year, we estimate that we will have 38 to 40 wells. But while the price of the barrel moves, we can start looking at our investment plan. Daniel Guardiola: [Interpreted] I'm sorry. Can I ask you something else about this? Those 78,000 barrels include Delaware or what? Because it said only Midland. Juan Carlos Parra: [Interpreted] It includes everything. All of the basin or the fields that we have. The topic of the reduction of activity is reflected throughout the premium about -- from '24 to '25, we see a 12% reduction in the number of drills in 2024, 309 throughout the basin to 273, and we moved from 4 to 2. Alfonso Camilo Munoz: [Interpreted] This is Camilo Barco. On your question about dividend, there are several aspects. First and very important for everybody that's joining us today. The distribution of dividends is given by the authority of the shareholders' meeting. So it's important to keep in mind that this is the recommendation preapproved by the Board of Directors to be given to the shareholders' meeting. It's a recommendation of 5.1% of the activity available for shareholders, which is COP 110 per share. And if it's related to the [indiscernible] it's important also to mention that the cash flow of Ecopetrol has an important impact on certain accounts that are crossed with those of the nation in favor and against, not only [indiscernible], but also the balance of taxes in favor are things that have an impact on the cash flow. And we hope that as we've seen in prior years to have a discussion in which we agree with the Ministry of Treasury. We can reach agreements on the timetable of payments of [ ETEC ], which determine the timetable of payments of dividends indeed. Operator: Next question from Katherine Ortiz from Corredores Davivienda. Katherine Ortiz Sogamoso: [Interpreted] I have 2 questions. No, 3. One, along with what Daniel asked, I'd like to understand, could you give us a guide of the tax on equity that Ecopetrol will be paying, understanding that the proposition of dividends is only one payment in April. And could you give us a guide to see -- I believe it's close to COP 1 billion. And I'd like to also understand how you will manage the liquidity and the resources to make these payments understanding, of course, the level of cash flow you have today. And also to understand on a short-term basis with the leverage indicators. That's my first question. Second question relates to the reserves. This report surprises us because of the change in the agreements with the National Agency of Hydrocarbons. So I'd like to understand why did you make a change in the contracts, especially in that aspect? And how can this really benefit Ecopetrol because it's an accounting change really that makes the added value to look higher. But from another viewpoint, do you really see a benefit? And if there is one, what percentage of the contracts are currently tied to royalties in sample and in money? And my third and last question relates to the breakeven profit. The gap between the breakeven and the EBITDA is wider. And if we look at the end of 2025, there is a difference that's quite big, about $18 per barrel. So I'd like to understand if that difference in the total what proportion is explained by the higher taxes that we've observed that Ecopetrol is paying and if it obeys to other reasons? Those are my 3 questions. Alfonso Camilo Munoz: Camilo Barco. On your question related to the equity tax, the calculation that you mentioned is correct. What we estimated to pay by Ecopetrol is between COP 1 billion and COP 1.3 million calculated as the rate of COP 1.6 million over the liquid equity. This payment will be made in April. How does it relate to the liquidity? It's important to say that we have tax balances in favor that ended at a high level in 2025, close to COP 11.5 billion, which give us good space to compensate part of that tax. Otherwise, the cash flow and the liquidity of the group is in healthy conditions and robust as we saw COP 12.7 billion consolidated total cash, and that gives us the capability to maneuver and make all the payments of dividends and the debt on a timely basis. Also, we have to keep in mind here. When it comes to the tax equity and other taxes, there are discussions constantly made with the Ministry of Treasury that allow us to have agreements on the availability of the group's cash flow and the requirements of treasury and also allow us to align the time lines of payments of these. So we're talking about an item to compensate the accounts payable and receivable to the Ministry of Treasury. Ricardo Barragan: We can continue with the question on reserves. My name is Ricardo Roa and I'm the CEO. I'm going to answer your question on the explanation you need on the changes of agreements with ANH. But I'd like to clarify, there were no changes in the contracts between Ecopetrol and the National Agency of Hydrocarbons. Secondly, this is legal situation that we've been experiencing for some years. But what did happen is that a decision was made as a result of the change of title on the royalties that instead of being made in things, it was -- they were made in money, paid in money. And we incorporated these reserves to the resources of the company on the balance. We're talking about 9 fields that are subject to this application, the scheme. This is validated not only by SEC, but other methodologies that audited these reserves. We are talking about 100 fields in which we are working on, but we are looking at 9. And we're going to continue consolidating in our balance the disposition of reserves that we have. These are valid in the methodology and create more stability to the expectations of production that the company has in time. We also have to add in terms of the report or the role played by the incorporation of reserves, we could say that this is the highest in the history of the company and the participation with the appropriation of reserves in the fields in Colombia was big. We're talking about 20%. Logically, when we look at this incorporation, we could say in short that we have consumed in production 248,000 barrels. We've incorporated 200,000 barrels, and this is the result that shows the 121% reposition of reserves. Katherine Ortiz Sogamoso: Ricardo, I'm sorry, thank you for the answer, but also that potential of 100 would then allow to add how many reserves as well. If that's made -- please correct how I'm saying this because we're talking about contractual agreements according to what you wrote in the report. Juan Carlos Parra: This is Juan Carlos Hurtado, Executive VP of Hydrocarbons. To add more fields is an analysis underway? Yes. But really, the benefit -- one of the biggest benefits is to ensure the commercial basket because it's our oil, and we can ensure in 2 ways: one, because we're in charge of the refineries and in the basket. So it really depends on the analysis we make year after year. And as the President said, it also depends on the analysis we make every year depending on the conditions. Alfonso Camilo Munoz: Okay, Katherine. Let's talk about the breakeven of profit. It's important to mention that indeed, in 2025, we ended with a breakeven close to $50 per barrel. For 2026, aligned with the goals that we have set out, we estimate that the breakeven will be closer to $46 per barrel. And within that -- those $46, there's a tax component of $9 to $10 per barrel. Operator: [Operator Instructions] Thiago Casqueiro from Morgan Stanley. Thiago Casqueiro: I have 2 questions and one follow-up here. The first question is related to lifting costs. We have seen a strong Colombian peso recently. So if the FX remains around current levels, what would be a reasonable assumption for lifting costs in 2026? I'm trying to get a sense here if there is room to further reduce it in dollar basis? And the second question is related to the commercialization front. The company reached the best crude differential in 4 years. So how do you see this going forward, especially considering the current developments in the Middle East? And then the follow-up is related to Permian. If you could remind us when exactly does the Delaware contract expire in 2027? Is it also in -- during the midyear or it's earlier or later than that? Alfonso Camilo Munoz: [Interpreted] This is Camilo Barco. I'd like to refer to the effect of the exchange rate on the lifting cost. Indeed, as you mentioned, the exchange has a significant impact on the lifting cost because this metric is expressed in dollars per barrel. So it is evident that in revaluation periods, the exchange rate has a pressure when there is a higher lifting cost. When this trend changes, which we are starting to see, just keeping this trend of devaluation we're seeing, surely, we will see a significant impact that will allow us to foresee and meet our goal to have a lifting cost below $12 per barrel. Julián Fernando Lemos: This is Julián Fernando, Corporate Vice President of New Businesses. Regarding your question on the agreement with Oxy in Delaware, it's in effect until December 31, 2026. Thank you for your question. Unknown Executive: Thank you for your question. We have had a successful commercial strategy that has allowed us to report better differentials between the last quarter of 2024 and last quarter of 2025. When it comes to what's happening in the Middle East, part of the answer depends on how long the conflict will last. There are several countries involved, not only Iran, now we have Saudi Arabia and countries close by. There are 15 million barrels that are -- that do not -- cannot pass through the Hormuz Strait. We see that this will strengthen the company, meaning it will position us to have a lower differential than the demand will be higher for Colombian oil, not only for oil, but refined products as well. Two days ago, what happened, one of the refineries in Arabia, Aramco, which processes 550 barrels per day was attacked. And this, of course, has to do with gasoline and diesel in the Middle East. So when it comes to oil, we see an enhancement, although now it all depends on the durability of this crisis. Arabia reported its inventory for today of 75 million barrels. It will last a week. China already said it closes its exports. So although right now, we do not see it, we do believe that this will help the company. Operator: Ricardo Sandoval from Bancolombia. Ricardo Andres Sandoval Carrera: [Interpreted] I have 2 questions. One, on the reserves. We have high ambition to see reserves entering or incorporated in Brazil. However, I'd like to have more details, if possible, if these reserves were incorporated or not? If -- or what could be the potential of the reserves that we can see incorporate? And what do we need to materialize this? Could you give us more light on this? Second question is on DIAN, the tax authority in Colombia. And the report, the big risk because DIAN has the power to continue with the fine. So in terms of risks, have you been talking with rating firms? What do they say to you about this? And could you give us any comments, the covenants or what borrowers say about these future fights with DIAN. Could you give us more color on this? Ricardo Barragan: This is Ricardo Roa, the CEO. Thank you for your questions. Let me share with you that, indeed, that was one of the expectations to incorporate the reserves that we had with the Gato do Mato asset in Brazil. But because of the proceeding of the national agency of oil, which is equivalent to that of hydrocarbons in Colombia, we could not incorporate about 70 million barrels in our balance of reserves of the year before. But it is the initial foundation for this year. I would say in a couple of weeks, we can incorporate those reserves in the significant reserves in our balance. Alfonso Camilo Munoz: Ricardo, this is Camilo Barco. On your question on the DIAN, there are major developments made that we'd like to share with you. With regards to the controversy or the difference of the interpretation with this authority, several advances have been made. And today, we can say that we have completed the administrative phase, and we are within the jurisdictional path. We have filed different cases on the official payments, and this makes us compete, especially with the administrative contentious courts where the process will take place in the terms that are foreseen in the law. We insist since this is a controversy that's more tax related, the statute clearly states that once these actions are presented, with the cautionary measures, especially those related to the provisional suspension, the coactive charge would have to be part of the discussion within the judicial process. And this is one of the elements that's being discussed. But we trust that the jurisdictional instances will know how to protect the interest of the company in this sense. When it comes to the terms, we are within the terms of this process. And in similar cases or similar events, we're talking about terms of 3 to 6 years long. These are long processes. When it comes to discussions held with the rating firms, of course, as we've done it with the market. This is something that we've discussed with them. We've disclosed this with details to them. And we haven't seen major concern from these rating firms on this controversy. And specifically, it's worth mentioning on your question of covenants, we have no covenants included in our mechanisms of financing. We don't see a risk -- an imminent risk. But let me go back. In 2026, we do not see any risk in terms of liquidity or any effect. There is no likelihood that this controversy will be resolved on a short-term basis. So there is no incidence on Ecopetrol. And there is no impact on the provision, either on the accounting. Our external counsel say that there is very low risk to lose this controversy or again, there is no -- there is likelihood to have success. It's very, very high, the likelihood. And this will have very little, if any, impact on our balance sheet. Operator: We have from Hugo Beltrán from Acciones y Valores. Hugo Beltrán: [Interpreted] I'd like to ask about the gap between the real production of oil and the goal that was established for the year. And you mentioned several factors like the climate and blockades. Could you please elaborate more on those settings? And if you overcame some of these reasons for lower production and which were the fields were affected? And the maintenance aspect last year, you said that this reduced the supply of natural gas in some refineries of Ecopetrol. If there is a similar scenario in 2026, do you have a contingency plan different that could help you with the natural gas problem? Or are we still exposed to a similar scenario? Juan Carlos Parra: Good morning. This is Juan Carlos Hurtado, Executive VP of Hydrocarbons. When it comes to the gap that you were asking about, I can say that when it comes to the settings this year, especially in the last 1.5 months, we had events that did hit our production levels. And because of the rainy season, we still have factors related to weather, not only the stability because of thunderstorms, but we also had the slide of an electric tower, and that stopped us from operating a station from working with the field, and this also affected and restricted partially the production of those fields. This has been restored now, of course, but that did have an impact. So when it comes to Rubiales, Caño Sur, Castilla, Chichimene and [ Casix ], those are the fields. Bayron Triana Arias: Good Morning. Bayron Triana, VP of Energies for Transition. When it comes to the [ SPAC ] question, and we always carry out the overhaul, the maintenance. And what differs from last year is that the import project from Buenaventura is already in operation. So it gives more capability and resilience to the transport of natural gas system in Colombia. So now we see the coordination of all the agents, so that in October, we can surpass this event. Operator: We have Andrés Duarte from Corficolombiana Andres Duarte: I have 2 questions. And maybe later, I have time for a third one. My questions are, the first one is related to Venezuela. I'd like to know what opportunities do you see? And in what cases or what type of opportunities do you see with the investments planned that you already have approved already? Or in the future, would you go from self-generation to sell electricity to Venezuela? Second question is a follow-up to what you already explained on the reserves and the ANH. You paid for some fields, the royalty in money, right? And that, to me, will imply that the production related to those reserves, which are about 5% of the total today, that production will necessarily -- no, the profit per barrel will decrease for those barrels because it's like if you paid the lifting cost twice. On the one hand side, you're paying royalty and on the other side, you're paying the lifting cost of those barrels. So please clarify if I'm correct. Ricardo Barragan: Andrés, this is Ricardo Roa, the CEO. Allow me to talk about the opportunities we've identified and the chances to make transactions of energy with Venezuela. First, Venezuela needs electricity to reactivate its economy and the exploitation of the hydrocarbons in higher volumes to those that we've seen recently. And we need gas for the past 10 years, we've needed. So we can exchange resources of products or light crude oil, which we see a lot in Venezuela. And after identifying these opportunities, we have talked with OPAC last week to give -- to make an assessment and to make transactions of this nature with Venezuela. When it comes to the amount of energy that we could sell to Venezuela, or yes, electricity or to improve the concept of self-generation to sell energy to Venezuela. Remember, the transactions are not -- of this type are not physical, they're financial. We have to go through the wholesale market, and these contracts are financial. And today, Ecopetrol cannot do this because when it purchased ISA, it was forced to do it. But ISA can do it. It has no restrictions to commercialize energy with Venezuela. The core of the business of ISA is to develop these interconnections for years, and it's done so with Venezuela before. So there's an opportunity there. So today, the regulation allows us to have projects and to record that energy for our consumption. That's a premise that we can do today. So the energy that Venezuela needs and Colombia having good sources based on hydroelectricity, I would say that we can enable those connections without any problem to Venezuela provided the restrictions are raised. And from there, we can carry out the transactions, energy transactions with that country. Meaning... Andres Duarte: So you mean Ecopetrol generates it according to your new strategic plan? Yes. But it would be for the system and the system with any surplus, part of that surplus would be sold to Venezuela, right? Ricardo Barragan: Yes. Any generator in the country can place the energy in the system. And with the transactions held according to the boundaries and the agreements with boundaries made, Yes. We've -- this is the way that we've been doing transactions for many years. We have generations in the system. We have what's called the boundary or frontier systems. And according to what's agreed with those frontier systems, any generator, any self-generator can place a surplus in that system and the energy is taken from other buyers. Alfonso Camilo Munoz: Andrés. Good morning. I would like to answer your question related to the treatment, the accounting treatment and financial treatment given to the royalties. The most important part here is to repeat that the monetization of the royalties is that today, the volumes are no longer of the ANH but become volumes of barrels owned by Ecopetrol. This isn't a big cost for Ecopetrol, but there is a reconversion or reclassification of the cost. Before, what we did was to provide the barrel to the ANH and the ANH would give it back to us to commercialize it. So then we would register a sales cost, a higher sales cost over those volumes of royalties. However, today, since it's owned by Ecopetrol, the sales cost to purchase those barrels is transferred to the operating cost, as you stated. And as so, this increases the total cost of the lifting cost, yes. But we have to keep in mind, when you produce more barrels, which are incorporated in the production of Ecopetrol, the unit cost per barrel drops. So what we can say is that the effect is neutral -- and it's more a reclassification of the sales cost and the operating cost with the effect, yes, that when you divide the total cost -- lifting cost by number -- a higher number of barrels, you can record a lower lifting cost per barrel. Andres Duarte: Yes, Camilo. So when you look at these fields, when it comes to royalties, those barrels and those fields are not being commercialized by ANH, but with the mechanism that you've explained through Ecopetrol, right? Alfonso Camilo Munoz: Until before this monetization of royalties, that's how we did it, yes. ANH would give it to us to be commercialized by Ecopetrol with the risk that any other commercializer could do it. But today, since it's owned by Ecopetrol, we eliminated that risk. We ensured the crude slate and 100%, we are commercializing those barrels. Operator: Next question from Juan Felipe from Credicorp. Juan Felipe: I'd like to make 2 questions. One, what's happening in Iran today and the impact it has on the higher crude oil prices and on the margins, do you see any changes on your strategy for this effect because it will hurt surely the profitability levels? And second question, during this quarter, we see in the midstream volumes transported compared to the last quarter of last year, but we see a decrease in revenue. Since these are tariffs regulated, could you give us more details of this negative variation? Unknown Executive: Thank you for your question. When it comes to the Iranian conflict, there are impacts on the 15 million barrels, of course, that cannot pass the Hormuz Strait. And that, of course, will increase the price of oil. When it comes to refined products, as of today, the report says is that in the Middle East and Iran and Arabia, you can see a shortage of diesel because when it comes to load, so for these enhanced in the past 48 hours. Also in naphtha, we see a cut in exports. Remember, there are countries like Qatar, Dubai, Iran, Saudi Arabia, Iraq and others that exported last year, 1.2 million barrels in naphtha. And that naphtha went to countries in the East. And most likely, that naphtha now will have to go from the U.S. and rebalance all the market. The gasoline market right now does not export a lot of gasoline and jet. We see also a cut in exports. So to conclude, we can foresee that if this war is extended, there was a spike in prices. But we have to keep in mind the following. The freight are at astronomical prices, 150%, 160% higher. So we can have a better price that will be mitigated by transport cost of those oils or products, and we have to see the impact on this. But if the situation will continue like this, surely, it can be a good time for the downstream in many parts of the world. Unknown Executive: This is the [ President of Senate. ] Regarding your question, as you can see in the report, the increase or higher volume transported was of oil. And you have to remember that the transport rates are in dollars. Therefore, because of the exchange rate, there was a reduction in revenue. The total reduction is COP 512 billion, of which a good percentage is because of the lower exchange rate. In addition, there is COP 131 million owed because when you compare the semester of '24 to '25, there was a chip boy for the transport, which in '25 is not there. Still, I'd like to highlight that of the COP 512 million through efficiencies, we reduced the impact to COP 179 million. So in the report, you can see there is an improvement of the EBITDA margin to 61%. Operator: [Operator Instructions] Joao Barichello from UBS. Joao Barichello: I have 2 from my side. So my first question is a follow-up on the 2026 investment plan. So the company raised all its guidance and operational financial figures based on a $60 per barrel Brent, but oil prices have been supporting higher levels since the beginning of the year, and it's right now above the $80 per barrel level following all the recent geopolitical events. So could the company consider an update on the plan if oil prices remain at these levels for longer? Could the company also higher production levels or accelerate investments? And also, I have another question on M&A activity. So in the last few months, there was some news link in Ecopetrol for potential acquisition of upstream companies in Brazil. So could you elaborate further on how the company has been seeing M&As opportunity in the industry? Is this being under discussed as a way of strengthening Ecopetrol reserves replenishment? That's it from my side. Ricardo Barragan: This is Ricardo Roa, the CEO. The plan is elaborated now for 3 years. We have a long-term planning plan for the next 3 years, first. Secondly, when it comes to the maintenance that we are observing today, now we see prices above $80. We will make the corresponding assessments like we did last year in April in another process when we saw that the barrel price dropped significantly, and we changed our investments for the rest of the year. And we got more into our savings and efficiency program. If in the next weeks or months, we will see changes, of course, we will be making a revision of better bets to increase production and to look at the relocation of our CapEx with our different assets. to be more profitable with the conditions we're seeing today. Joao, if you allow me to complement with several figures, we'd like to -- we announced to the market an investments plan between COP 22 billion and COP 27 billion. And this plan that was announced, we incorporate what we call an option. And we believe that while we see the Brent increasing its value and to have more flow. And in turn, we see more -- the possibility to make more investments under the stringent capital management systems that we have. We will be more on the higher range of the investments plan close to COP 27 trillion. And of course, thinking about the investments with the capability to increase production on a short-term basis. Julián Fernando Lemos: This is Julián Lemos. I'll talk about your question of Brazil. Ecopetrol constantly evaluates growth opportunities, inorganic growth opportunities in these operations are almost always covered by confidentiality agreements. And once we make a lot of the technical economic analysis and we have the approvals, we will be reporting these to the market. Operator: Next question from Alejandra Andrade from JPMorgan. Alejandra Andrade Carrillo: There are 2. First, in a higher Brent price scenario, are you going to review your investments plan or the opportunities that you see now are the highest? Second, what type of opportunities, inorganic opportunities do you see when it comes to A&P? Ricardo Barragan: Thank you, Alejandra. This is Ricardo Roa. With regards to your first question, when there are conditions of an uptrend on the price of oil, we will be, of course, reviewing these. And according to the figures obtained, we'll be reviewing the allocation of the CapEx and investments that we have for this year of COP 22 billion to COP 27 billion. Remember, in past years, we have been investing $20 billion with our strategic business, the traditional one. So we'll be doing the same thing we did last year like we did in April of last year when the Brent dropped so much. So once we see a sequence of the conditions that we see today, we, of course, will be reviewing the plan for the rest of the year, and we'll be looking at the possibility of increasing the production of our assets. Let's hear what Julián can answer on the type of opportunities, inorganic opportunities we see. Julián Fernando Lemos: Thank you, Mr. President. This is Julian Lemos, Julián. As I said before, the group recurrently analyzes opportunities that contribute to the growth -- inorganic growth of reserves and production. When we have announcements to make, we will let the market know. Operator: Let's continue with Guilherme Costa from Goldman Sachs. Guilherme Costa Martins: I have 2 quick ones, actually more as a follow-up of recent questions. The first one on the higher freight prices. Could you please remind us of the share of your production that is actually exported overseas and hence would be exposed to the volatility in freight prices? And my second question, we saw some increase in discount for heavy oil in the global markets given the higher availability of Venezuelan crude oil in the market. Could you please remind us as well what percentage of your output is similar to Venezuelan crude and is also exported overseas. Also, have you seen any impact in pricing so far?RECELL. Ricardo Barragan: Thank you so much for your 2 questions. With regards to the follow-up of the wells, yes, of course, these are high. We export 35% of the Colombian production, 11 million barrels a month to the U.S. 45% is exported to Asia and the residual part to Europe. The exposure right now has been mitigated with actions like contracting a time charter, which are vessels contracted at a fixed rate. We recently -- we have one vessel between Coveñas and the U.S. and that allows us to have a better price and helps us right now. in times of volatility. We're looking at similar options also for Asia. That exposure also is seen by us, especially looking at offers with clients and if we and if we can provide everything in Coveñas. And this is how we've been working to not be exposed to the volatility that we are seeing globally. With regards to your second question, when it comes to the discount of the heavy crude, it's true that we expect a weakening of prices because no restrictions of Venezuela, yes. But this is more a perception of oversupply. We moved crude in a nonformal market to a formal market. So there is no incremental production now. We can refer to increases before 2019 when we took to the U.S., 40% of the Colombian production, we exported to there. And also remember that the bad crude oil from Venezuela has an effect on the Middle East. Before we said therefore that we are also working on a s-commercial strategy. And let me tell you what we're doing to mitigate all this. We have clients and markets, and we have fixed-term contracts. So the increases of discounts are being managed through these agreements. We also have commercial offices in Asia and the U.S., which allow us to mitigate that exposure to that potential discount we may have. And our crude oil compared to those of Venezuela, those oils with lower content of metals and acidity levels are better. And I'd like to end, yes, there is a discount of heavy crude has been seen. But we believe that with our commercial strategy, we can mitigate this soon. Operator: Next question from Badr of Barclays. Badr El Moutawakil El Alami: I had a quick question on the FEPC and the downstream pricing policy. As we're seeing, obviously, with the unfortunate in the Middle East, we're seeing crack margins going up, especially for diesel. And I was wondering, can you remind us what is Ecopetrol downstream pricing policy? How fast do you adjust downstream prices? And how are you thinking about the potential pressure from the FEPC that could start materializing in the second quarter this year? Ricardo Barragan: We have seen factorizing the conversation we've had today that there is a potential in prices, and we made a sensitivity analysis at $80, what would be the impact on the FEPC. If we continue in the same conditions, we had a discount of gasoline prices of almost COP 1,000, and we could close the FEPC that covers the part of gasoline and diesel more or less at COP 5 million. If we were at $80 and we had an increase of prices, we think that, that number could be [ COP 7.98 million. ] So short answer, we would have an increase in FEPC with high prices. But it's still early, but you're right, there could be an impact on the FEPC depending on how high are those prices and the international price. Alfonso Camilo Munoz: I would like to add, this is Camilo Barco. I'm the CFO. I'd like to -- I'd like to say conceptually on the performance of prices and FPEC is very important. Of all the downstream policies and prices, these are determined by the ministry. So this has -- really depends on what this ministry determines. We're talking about sales prices and prices for the producers. And what we do envision is that with this new level of prices, while the current conditions take place, we could have a reverse in the FPEC according to what we see in our financial plan, I would say, for the national government of about COP 2 billion more than what Julio already mentioned as well. Operator: We don't have any live. Now we're going to read the questions. Juan Pablo Ramirez from Davivienda asks, what could be the impact by closing the Hormuz Strait on the gas price imported by Colombia, understanding that it's imported from the U.S. and Trinidad and Tobago, what is the development of the regasification system in Coveñas? When will it begin operations? Bayron Triana Arias: This is Bayron Triana, with regard to the questions on the impacts of importing gas in Colombia, I'd like to highlight that import is made by a company that's not Ecopetrol. The duration -- we have to see the impacts that will take place in this company. But we can say that in the spot, when it comes to purchases of Ecopetrol for the infrastructure of the Pacific and the Caribbean, the contracts are all long term to mitigate the effects of what's taking place now. When it comes to the development of the Coveñas plant, this plant has all the permits now, the environmental permits. We are working now with the carrier. The initial phase of 110 million cubic feet was canceled, and we have a phase of 400 million cubic feet, and we expect that by the end of 2028, it will be in operation. Operator: Declan Hanlon from Banco Santander asks, "Could you update -- give us an update on the strategy and plan related to the joint venture in [ Permian ] in terms of rights and obligations and in the strategy of the company to political pressure to sell this asset? Julián Fernando Lemos: I am Julián Lemos, the Corporate VP of Strategy and New Businesses. Today, we have an agreement in force with Occidental. As I mentioned in another question, one of the contracts is in force until December 31, 2027, the one of Delaware, the one of Midland is a joint venture agreement in force while the partners decide. And as Juan Carlos said before, the level of activity and therefore, of investments made the analysis of what's happening macroeconomically in the market. And to -- that way, we can agree with our partner how we can develop that basin. Operator: Nelson Bocanegra from Reuters asks, "Does Ecopetrol keep in mind compete to keep the resources upstream that Parex has -- since Parex has already given its offer? Julián Fernando Lemos: Julián Lemos, Corporate VP of Strategy and New Businesses. Since these processes usually are covered by confidentiality agreements, we cannot state anything on this. But again, as I've said before, Ecopetrol constantly evaluates inorganic growth opportunities to incorporate reserves, and these will be announced to the market. Thank you. Operator: Nicolas Bourgeois from [indiscernible] Capital asks, the bonds in dollars of Ecopetrol are quoted at levels that seem disconnected from the fundamentals. Do you -- would you consider to have a tender offer for any of these bonds? Unknown Executive: With regard to the operations to handle debt or to financing in Ecopetrol, we'd like to take this opportunity to indicate several aspects. First, Ecopetrol, we monitor constantly the market, the banking financial markets and that of capitals. And we evaluate carefully the different windows and performances. Right now, we have several purposes in terms of handling debt. And the goal is to decrease the cost of that financing. And secondly, to reduce or mitigate the refinancing risks. So consequently, we evaluate all the possibilities. And it's important to clarify that right now, we do not have any refinancing risks associated. Our next maturities, major maturities are closer to the end of the year of 2029. And our average mean life is over 8 years. So with this said, we will be carefully evaluating all the possibilities and the performance of the market. Initially, we do not see any windows. But as they open, we are going to be prepared to look at them closer. Operator: Alfredo Jaramillo from REDD asks, what are the -- what's the likelihood that Ecopetrol will be purchasing the assets of Canacol this year? Julián Fernando Lemos: Alfredo, thank you for your question. This is Julián Lemos. This is a competitive process. As I said before, covered by a confidentiality agreement. So we cannot tell you the likelihood. But we can say that when Ecopetrol analyzes and will conclude that these operations are proper and gets the approvals, this will be shared with the market. Operator: Felipe Gomez from Ashmore asks, how much do you expect CapEx from Sirius? When will this be disbursed? And when will it be financed? What happens when -- if you do not reach the production levels in 2030? Unknown Executive: Allow me from the financial area to answer the questions regarding the CapEx and the financing schemes that we have. And let's give the microphone to Bayron to talk about the expectations and the commercialization we have for that. Bayron Triana Arias: The consortium will invest about $1.2 billion in the exploration phase and $2.9 million more for production development. This major CapEx investment will have different financing schemes. Of course, these are being evaluated according to the best practices to finance these types of projects. Especially we are emphasizing the possibility to develop structures of balance to -- for this particular project Unknown Executive: With regard to the question of what happens with the commercial part of gas by 2030, this has been financed with flexibility for the seller provided the project is in operation. So when the project is in operation, the contracts are firm and become mandatory for us beforehand, there is no obligation to deliver the gas. Still, Ecopetrol has projects until Sirius is in operation to import gas back that level of gas needed. Operator: There are no more questions. Now let's listen to Ricardo Roa, the CEO, for final remarks. Ricardo Barragan: Thank you all for attending this earnings call. We appreciate your questions, which have allowed us to clarify the aspects that you were wondering about regarding the results of the last quarter of 2025. We'd like to say finally that there is absolutely no aspect or parameter that has not been protected duly by the hundreds and thousands of employees of Ecopetrol. They have devoted their intellect and their smartness. So for all of our shareholders and creditors, we have sound robust results that allow us to continue showing you that we have a great company in Colombia that does create value for shareholders and for the country. Thank you all. Operator: Thank you all. This concludes our earnings call for the fourth quarter of 2025. Thank you for attending. You can disconnect now.