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Operator: Good afternoon, and welcome to Marvell Technology Inc. Fourth Quarter and Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I will now turn the conference over to Mr. Ashish Saran, Senior Vice President of Investor Relations. Thank you. You may begin. Ashish Saran: Good afternoon, everyone. Welcome to Marvell's Fourth Quarter and Fiscal Year 2026 Earnings Call. Joining me today are Matt Murphy, Marvell's Chairman and CEO; Willem Meintjes, CFO; Chris Koopmans, President and COO; and Sandeep Bharathi, President, Data Center Group. Let me remind everyone that certain comments made today include forward-looking statements, which are subject to significant risks and uncertainties that could cause our actual results to differ materially from management's current expectations. Please review the cautionary statements and risk factors contained in our earnings press release, which we filed with the SEC today, and posted on our website, as well as our most recent 8-K, 10-K, 10-Q and other documents filed by us from time to time with the SEC. We do not intend to update our forward-looking statements. During our call today, we will refer to certain non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available on our earnings press release. Let me now turn the call over to Matt for his comments on the quarter. Matt? Matthew Murphy: Thanks, Ashish, and good afternoon, everyone. Let me begin by extending a warm welcome to the Celestial AI and XConn team. We recently closed both acquisitions and the teams are working closely together with joint product road map discussions in full swing with customers. These highly strategic additions further strengthen our technology platform and significantly enhance Marvell's position in the rapidly emerging AI scale-up networking market. I'll provide additional detail on these acquisitions later in today's call. Now turning to our results and business outlook. For the fourth quarter of fiscal 2026, Marvell delivered record revenue of $2.219 billion, reflecting 7% sequential growth. Revenue exceeded the midpoint of guidance, driven by strong demand in our data center end market. As a result, non-GAAP earnings per share of $0.80 exceeded the midpoint of guidance by $0.01. Turning to our full year results. Fiscal 2026 was an exceptional year for Marvell. Revenue grew 42% year-over-year to approximately $8.2 billion as reported, and approximately 45% year-over-year, excluding the divested automotive Ethernet business. Our data center revenue surpassed $6 billion, growing 46% year-over-year. This performance was driven by robust demand for our interconnect, switching and storage products, along with a strong ramp in our custom business, which doubled in fiscal 2026. As we begin fiscal 2027, we are seeing very strong demand across our entire data center portfolio with bookings accelerating at a record pace. This robust demand is reflected in our guidance for the first quarter of fiscal 2027, the total company revenue forecasted now to grow 8% sequentially at the midpoint to $2.4 billion. Looking ahead, we expect to grow revenue every quarter this fiscal year at a similarly strong sequential rate, which would result in Q4 revenue exceeding $3 billion exiting this year. This forecast also implies that our year-over-year revenue growth rate will accelerate each quarter throughout fiscal 2027. As a result, we now expect overall Marvell revenue in fiscal 2027 to grow more than 30% year-over-year, approaching $11 billion. Notably, this outlook is meaningfully higher than what we communicated in our prior updates. Some of you may recall, in September 2025, during an investor call hosted by JPMorgan, we provided a fiscal 2027 revenue outlook of approximately $9.5 billion, which at that time was received positively as it was significantly higher than the market expectations. In our December 2025 earnings call, as CapEx growth forecasts continue to increase, we updated our fiscal 2027 revenue forecast to approximately $10 billion. Today's outlook approaching $11 billion raises our forecast by almost another $1 billion. Importantly, this outlook is driven by Marvell's organic businesses as the recently closed acquisitions are not expected to contribute meaningfully until fiscal 2028. The increase in our overall revenue outlook is all being driven by our data center business. Since December 2025, cloud CapEx expectations have continued to increase, and we have seen our bookings continue to accelerate. As a result, we now see our fiscal 2027 data center revenue growing by 40% year-over-year. We expect all our key product lines in data center to be stronger than our prior outlook. Notably, we expect our interconnect business to more than 50% year-over-year, well above our prior expectation of 30% growth. For our communications and other end market, we expect 10% revenue growth in fiscal 2027. Looking ahead to fiscal 2028, while we assume the rate of CapEx growth moderates from the current fiscal year, we expect continued robust data center revenue growth for Marvell. We expect our interconnect business to significantly outpace cloud CapEx growth, our custom business to at least double year-over-year, and our Ethernet switching business to continue to ramp meaningfully. In addition, we expect Celestial AI and XConn to contribute approximately $250 million in aggregate revenue in fiscal 2028. As a result, we expect data center revenue and fiscal 2028 to grow close to 50% year-over-year. Achievement of our forecast would result in three straight years of data center revenue growth compounding at well over 40%. For our communications end market, we continue to expect low single-digit percentage revenue growth in fiscal 2028, consistent with our prior view. So in aggregate, we expect Marvell's overall revenue in fiscal 2028 to grow close to 40% year-over-year, reaching approximately $15 billion, roughly $2 billion higher than the outlook we provided in our December earnings call, and driving our non-GAAP EPS to well over $5. This outlook is based on demand we are seeing now and designs that are already in execution. As we progress through the fiscal year, we plan on remaining closely aligned with our customers as we expect them to continue to invest in AI infrastructure. With that, I'll provide more context on our numerous growth drivers across our end markets, beginning with data center. In our data center end market, we delivered record fourth quarter revenue of $1.65 billion, representing 9% sequential growth and 21% year-over-year growth. Revenue exceeded our guidance, driven by increased demand across our interconnect portfolio. We achieved sequential growth across all key product lines, including optical interconnects, custom silicon, switching and storage. Looking into the first quarter, we expect our data center revenue to grow approximately 10% sequentially, including a seasonal sequential -- including a seasonal sequential decline in on-premise data center revenue. Let me now highlight the broader trends across both our established data center businesses and our newer growth initiatives, including recent acquisitions. I'll organize the discussion into three categories. Interconnect, switching and custom. I'll begin with Interconnect, where we offer the industry's broadest and comprehensive high-speed connectivity portfolio, addressing scale out, scale across, and scale up networking. In our scale-out PAM franchise, demand remains robust for our 800-gig products. We are also seeing very strong bookings from multiple Tier 1 customers for our 1.6T solutions which entered production in the second half of fiscal 2026. Reflecting this demand in our first-to-market technology leadership, we expect our 1.6T revenue ramp -- to ramp very rapidly in fiscal 2027 with substantial additional growth projected in fiscal 2028. As a result, we expect to continue to maintain leadership in the PAM market at 1.6T just like we have at every PAM generation. Marvell is the first company to productize 200-gigabit per lane technology, enabling the 1.6T transition now underway. While this generation is expected to continue to grow through the end of the decade, Marvell has already demonstrated 400-gig per lane technology. We expect that this will position us to enable the industry's subsequent transition to 3.2T, once 1.6T reaches full maturity. To support campus-wide data centers requiring longer reach than traditional PAM solutions, Marvell has introduced Coherent light, optimized for 2 to 20-kilometer applications within a highly power-efficient outlook. We have already begun shipping first-generation 1.6T Coherent light products and are now introducing a second generation with integrated MACsec security. Turning to scale across interconnects, a technology we pioneered with our 100-gig DCI modules, we continue to lead the market with Coherent 400-gig and newer 800-gig solutions. We are winning new customers and expect to supply DCI modules to all five major U.S. hyperscalers this year. We see significant long-term growth in this market, as the global data center footprint expands and bandwidth requirements between data centers continues to increase. Industry forecasts project that DCI pluggable TAM to grow by more than 5x by calendar 2030, with speeds doubling each generation and feature complexity increasing, including the integration of MACsec. To that end, earlier today, we announced our latest innovations and scale across interconnects, including the industry's first Secure 1.6T ZR and ZR+ DCI modules powered by our new 2-nanometer Coherent DSP. We also introduced a new 2-nanometer 800-gig DSP, which enables second-generation lower-power 800-gig DCI modules. DCI modules powered by these 2-nanometer MACsec-enabled DSPs are expected to begin sampling later this year. This positions Marvell to maintain technology leadership, supported by our proven expertise in large-scale manufacturing of these highly specialized and complex modules. Now let's move to scale-up interconnects, which is an entirely new and rapidly emerging market. We are very excited about what we believe to be a massive opportunity unlocked by Celestial AI's photonic fabric, or PF technology, as well as growing customer traction for our AEC and retimer solutions. As discussed last quarter, Celestial AI's PF technology is expected to enable large-scale commercial deployment of CPO for scale-up connectivity starting next year. Our chiplets will be co-packaged into both custom XPUs and the scale-up which is connecting them together on both sides of the length. With the acquisition now complete, Marvell's engineering and operations teams are fully engaged in bringing Celestial's first generation chiplet into high-volume manufacturing. We remain on track for our forecast for our CPO revenue from Celestial to reach a $500 million annualized run rate in the fourth quarter of fiscal 2028, doubling to a $1 billion annualized run rate by the fourth quarter of fiscal 2029. We have seen strong interest from a broad range of customers in Celestial's photonic fabric technology following the deal announcement. We look forward to updating on our progress in the scale-up interconnect market, which we believe could exceed $10 billion by 2030. In the AEC market, we have secured design wins with 3 Tier 1 U.S. hyperscalers and several additional customers, including model builders and hardware OEMs. We are also seeing strong traction for our retimers. As a result, we expect combined AEC and retimer revenue to more than double year-over-year in fiscal 2027. We continue to innovate through our Golden Cable initiative, a strategic program that delivers a complete solution, including industry-leading software and validated reference designs, enabling ecosystem partners to rapidly design and deploy AEC products at scale. Hyperscale customers benefit from access to multiple high-volume cable OEMs offering fully compatible AECs, both on the same high-performance Marvell DSP and reference design. Turning to data center switching, we delivered strong growth in fiscal 2026 with revenue exceeding $300 million, driven entirely by scale-out applications. Given sustained demand for our current 12.8T products and a strong ramp of next-generation 51.2T products, we now expect data center switch revenue in fiscal 2027 to surpass $600 million, up from the $500 million we had indicated last quarter. We are seeing strong engagement from both existing and new customers for our 51.2T platform, and our upcoming 100T platform, which we begin to -- should we expect to begin sampling in the first half of this fiscal year. Our 100T switch delivers industry-leading power efficiency and lower latency, attributes that are especially critical for AI applications. In scale-up switching, the combination of Marvell and XConn creates a significantly larger team to address rapidly emerging UAL and Ethernet-based opportunities. UA Link builds on decades of PCI ecosystem development and incorporates high-speed interface innovations from Ethernet to meet the bandwidth, latency and reach requirements of next-generation accelerated infrastructure. XConn expands Marvell's switch team with deep PCIe switching expertise, enabling a comprehensive -- enabling comprehensive support to customers building next-generation AI platforms. We are fast tracking our scale-up switch road map by leveraging our extensive experience in developing large reticle size scale-out switch chips, and best-in-class in-house high-performance series. We remain on track to sample our UALink 115T solutions in the second half of this fiscal year with volume production expected in fiscal 2028. In parallel, we continue to advance the Ethernet-based road map with key customers. We're able to further enhance our scale-up road map by enabling integration of our CPO technology from Celestial directly with our switches, delivering a purpose-built, fully optimized end-to-end optical scale-up platform. XConn also adds advanced PCIe and CXL switch solutions, another completely incremental TAM for Marvell. The PCIe Gen 6 and CXL 3.1 solution is based on a monolithic switch architecture supporting up to 256 lanes, delivering the industry's highest ratings and lowest latency. PCIe switching remains foundational in standard compute architectures connecting CPUs to peripherals and increasingly an AI infrastructure to connect CPUs to XPUs. In parallel with next-generation protocols like UALink, PCIe is also adopted for XPU to XPU connectivity, particularly in AI inference systems and small- to medium-sized clusters. CXL is rapidly becoming essential for memory disaggregation in modern data centers. We have been investing in CXL for several years and XConn switching portfolio, combined with Marvell CXL memory expanders create the industry's most comprehensive CXL platform. XConn was already engaged with more than 20 customers prior to the acquisition. As part of Marvell, XConn now benefits from our global sales and marketing reach and strong presence in the data center. As a result, we expect to drive strong growth in both the PCIe and CXL switch markets over the next several years. Turning now to our custom business. This remains one of the most compelling growth drivers for Marvell. In just a few years, we have scaled from zero revenue to $1.5 billion in fiscal 2026. As you may recall, the first meaningful ramp again in the second half of fiscal 2025. Fiscal 2026 marked the first full year of production for those programs. And as a result, we doubled our customer revenue year-over-year. We expect custom revenue to grow more than 20% year-over-year in fiscal 2027, higher than our prior view. We continue to see growth from our Lead XPU program this year, including a transition to its next generation. As I noted last quarter, we have purchased orders covering the entirety of this fiscal year's forecast for this next-generation program and are now ramping production. In addition, we are expecting the growth to continue in fiscal 2028 from this program. We are also deeply engaged on the follow-on generation of this XPU. In addition, several XPU attach programs are ramping in fiscal 2027, including our initial CXL and NIC products. CXL demand is accelerating, partly driven by tight memory supply. Our custom CXL expanders enable customers to reuse prior generation DRAM with new XPUs, GPUs and CPUs, while also supporting near-memory compute operations. A recent white paper from a leading hyperscaler on next-generation LLM inference architectures highlighted, near-memory processing is a key opportunity to improve model performance. They cited Marvell's structure a processor as an example of a CXL-enabled solution that improves programmability and simplify system integration. This all provides a great setup for fiscal 2028, where we continue to expect custom revenue to at least double year-over-year from three primary drivers. First, continued growth from our existing custom programs. Second, multiple XPU attach programs reaching high volume, particularly in custom NIC and CXL applications. As I mentioned last quarter, we have line of sight to revenue exceeding $2 billion by fiscal 2029 from just these two use cases, and we expect to make significant progress towards that outlook through fiscal 2028. Third, our new Tier 1 XPU program ramping into high-volume production. This program has continued to progress well -- very well through development, and we have firm volume requirements for all of next year and are planning for high-volume manufacturing. Beyond programs already won, we are encouraged by strong new design engagements with both existing and new customers. Custom compute is proliferating across the hyperscale ecosystem with inference optimized hardware becoming increasingly important. We are seeing an unprecedented level of activity across multiple new engagements as hyperscalers increased their cadence of custom chip development. We are engaged in deep technical discussions on innovative new architectures, and are seeing a massive opportunity on 2-nanometer and below process technologies. Okay. Turning to our communications and other end markets. We delivered fourth quarter revenue of $567 million, up 2% sequentially and 26% year-over-year. For the first quarter, we expect low single-digit sequential growth on a percentage basis and approximately 30% year-over-year. In summary, we concluded fiscal 2026 on a strong note with revenue growing 42% year-over-year and non-GAAP EPS increasing 81%, roughly twice the rate of revenue growth, demonstrating the strong operating leverage in our business model. Fiscal 2026, we were very active on the M&A front, divesting our automotive Ethernet business for a double-digit revenue multiple, and rapidly redeploying the proceeds into two highly strategic acquisitions. These positioned Marvell at the forefront of the large and incremental AI scale-up networking market. At the same time, we continue to execute our capital return program returning $2.245 billion to stockholders through share repurchases and dividends. So far in fiscal 2027, we are seeing strong bookings across our entire data center portfolio with customers signaling robust demand not only for this year but for the next several years. We believe we are still in the early stages of a strong multiyear growth cycle for Marvell. Our first quarter fiscal 2027 guidance represents 27% year-over-year growth at the midpoint, reaccelerating from 22% in the prior quarter. We expect year-over-year growth to accelerate each quarter throughout fiscal 2027, with revenue exiting the fiscal year at over $3 billion in the fourth quarter. We have raised our fiscal 2027 forecast meaningfully. And in fact, the revenue growth rate we are projecting today for fiscal 2027 is roughly double the outlook we provided just a few months ago in September. This is an exciting moment for Marvell. I want to take a moment to thank our global team for staying focused despite the external noise, and delivering consistent execution, which has enabled record results and positioned us to capitalize on what we expect will be a massive AI opportunity ahead. I look forward to updating you on our progress in the coming quarters. With that, I'll turn the call over to Willem for more detail on our recent results and outlook. Willem Meintjes: Thank you, Matt, and good afternoon, everyone. Let me start by summarizing our full fiscal year 2026 results, which were very robust across the board. In fiscal 2026, Marvell delivered $8.195 billion in revenue, growing 42% year-over-year. This growth was primarily driven by AI demand in our data center end market, as well as the continuing recovery in our communications and other end markets. For the full year, on a GAAP basis, our gross margin was 51%. Operating margin was 16.1%, and earnings per diluted share was $3.07. On a non-GAAP basis, our gross margin was 59.5%. Operating margin was 35.3%, expanding by 640 basis points year-over-year, and earnings per diluted share was $2.84, growing 81% year-over-year. We also significantly increased capital returns to our stockholders, returning $2.245 billion through share purchases and dividends in fiscal 2026, an increase of approximately $1.3 billion from the prior year. Moving on to our financial results for the fourth quarter of fiscal 2026. Revenue in the fourth quarter was $2.219 billion, growing 22% year-over-year and 7% sequentially. Our data center end market was 74% of total revenue, with our communications and other end markets contributing the remaining 26%. GAAP gross margin was 51.7%. Non-GAAP gross margin was 59%. Moving on to operating expenses. GAAP operating expenses were $744 million, including stock-based compensation, amortization of acquired intangible assets, restructuring costs, and acquisition-related costs. Non-GAAP operating expenses came in at $517 million, in line with guidance. Our GAAP operating margin was 18.2%, while our non-GAAP operating margin was 35.7%. For the fourth quarter, GAAP earnings per diluted share was $0.46. Non-GAAP earnings per diluted share was $0.80, above the midpoint of guidance, reflecting year-over-year growth of 33%. Now turning to our cash flow and balance sheet. In the fourth quarter cash flow from operations was $374 million. Our inventory at the end of the fourth quarter was $1.39 billion, growing $374 million from the prior quarter. Our working capital has increased to support the significant revenue growth we are driving. During the quarter, we repurchased $200 million of our stocks through our ongoing capital return program, and returned $51 million to shareholders through cash dividends in the quarter. We expect to continue to return capital through repurchases and dividends. As of the end of the fourth quarter, our total debt was $4.47 billion, with a gross debt-to-EBITDA ratio of 1.38x, and a net debt-to-EBITDA ratio of 0.57x. Our debt ratios have continued to improve as we have driven an increase in our EBITDA. Turning to our guidance for the first quarter of fiscal 2027. We're forecasting revenue to be in the range of $2.4 billion, plus or minus 5%. We expect our GAAP gross margin to be between 51.4% and 52.4%. We expect our non-GAAP gross margin to be between 58.25% and 59.25%. Looking forward, we anticipate that the overall level of revenue and product mix will remain key determinants of our gross margin in every -- in any given quarter. We project our GAAP operating expenses to be approximately $872 million. We anticipate our non-GAAP operating expenses to be approximately $575 million in the first quarter. This is stepping up from the prior quarter due to the typical seasonality in payroll taxes, and employee salary merit increases, as well as the addition of Celestial AI and XConn. The two acquisitions in aggregate are expected to add approximately $75 million to our fiscal 2027 annual non-GAAP operating expenses. We expect our GAAP other income and expense, including interest on our debt, to be an expense of approximately $51 million. We expect our non-GAAP other income and expense, including interest on our debt to be an expense of approximately $48 million. We expect a non-GAAP tax rate of 11%. We expect our basic weighted average shares outstanding to be 876 million, and our diluted weighted average shares outstanding to be $883 million. We anticipate GAAP earnings per diluted share in the range of $0.26 to $0.36. We expect non-GAAP earnings per diluted share in the range of $0.74 to $0.84. As we look ahead to the rest of fiscal 2027, we will continue to invest in growing our business while driving operating leverage. On a sequential basis, we expect non-GAAP OpEx to remain flat in the second quarter and then grow in the low to mid-single digits on a percentage basis in each of the third and fourth quarters, well below the rate of revenue growth Matt provided in his remarks. We are seeing strong growth from our existing franchises and scale out and scale across AI as well as custom, and we are investing to drive new revenue streams from the rapidly emerging AI scale up market. We have entered a robust multiyear growth period and are looking forward to delivering strong earnings growth to our stockholders. With that, we are ready to start our Q&A session. Operator, please open the line and announce Q&A instructions. Thank you. Operator: [Operator Instructions] Your first question comes from Ross Seymore with Deutsche Bank. Ross Seymore: Matt, thanks for all the updates on the out year and well, fiscal year, both this and next. Beyond the magnitude of the revenue growth, can you just talk about the profile of it? Is the customer base broadening? People are always worried especially in your custom business about the concentration of it. So I just wanted to get a little bit more color on the shape of the demand from a customer perspective? Matthew Murphy: Yes. Thanks, Ross. Well, first of all, we're deeply engaged across the entire ecosystem, extremely strong position with the top four U.S. hyperscalers and then the next level. And each of them, we have a different concentration and revenue mix. But just to be super clear, if you look at this year and you look at us driving the company to $11 billion, and then you unpack things like custom, it's not that big a percentage of the total. So that's not what's driving our concentration. I mean by design because of the top four U.S. hyperscalers is spending the bulk of the CapEx, that's where the dollars are going to go. But we're quite diversified across each of them. And some of them we sell a different mix, obviously, of product to. But in the case of all four, within our portfolio, which I just went through the laundry list of all the different types of products that we provide, we're highly diversified within each of these customers. So -- so yes, custom is something that gets a lot of attention. But if you just look at the numbers I gave you and the context as I said, it's a piece of the equation, but not all of it. And then over time, even on the custom business, as you look out through fiscal '28 and fiscal '29, Remember, we've got 20-plus design wins, or products now, sockets that are either in production or going into production, it's going to layer in across all those companies as well. So the diversification is only going to get better over time. But we're very unique in sort of the breadth I think of the products that we offer and the product lines we have to really serve end-to-end the needs of all of our key hyperscalers. And the last two M&As we just did really round that out nicely in terms of adding PCIe, getting -- beefing up the UAL, and then also adding key silicon photonics capabilities. Operator: Your next question comes from Harlan Sur with JPMorgan. Harlan Sur: Congratulations on the strong results and execution. Matt, on your custom XPU and XPU attached subsegment, OpenAI recently inked a partnership with your lead XPU, customer to consume, I think, something like 2 gigawatts worth of your lead customers, next-gen and next-gen XPU. So it feels like the overall demand for AI compute continues to accelerate. Right on top of that, like you said, you're ramping 15 to 20 XPU attached custom programs this year and next year. Within our better outlook for custom this year, and with you already starting to ramp your lead customers next-gen XPU program, do you still anticipate a stronger second half step-up of this XPU program? Or is it more of a linear ramp through the year now? And I think you previously thought that you would exit this year with custom driving about a $2 billion sort of annualized growth rate. What does that exit run rate look like today? Matthew Murphy: Yes. Thanks, Harlan. I think the first part of your question is absolutely seeing strong validation in the market for the AI compute spend, and the fact that a significant portion of that continues to go to companies that are building their own XPUs. So that's a positive trend. We certainly see it. And you're right. Even where we don't necessarily have the XPU, we have XPU attached. So all the XPU attached is going with XPUs in customers where we're not participating. So we're -- we participate across every one of those large companies and more on XPU attached. So that's a very positive trend for us that's driving our positive outlook for sure through this year, which we said custom was going to grow faster than we thought, but more meaningfully into fiscal '28 and '29. And then from a linearity perspective, under the hood, we kind of give you a view of what the sequentials would look like throughout the year. But yes, custom, we have said was going to be a stronger second half due to a program transition. That's still the case. And that -- the type of exit rate you're talking about is certainly still intact and probably has an upward bias to it. If you look at the exit rate we're talking about for the whole company now, we're looking at north of $3 billion. So within that custom continues to have some real upside to it. But that's going to improve meaningfully and the revenue growth is going to continue into fiscal '28 which is basically those programs from the second half now having a full year. So that's going to provide some nice growth. Content increase, then layering in the XPU attach, and then layering in our new program with a new Tier 1 hyperscaler, which is in its early stages, but just even the rough plug we have for them, is significantly lower than actually the wafers that we're planning on starting the material and the production plan we have with our manufacturing supply chain. So I think it's a very reasonable setup for next year with a lot of upward bias depending on if these trends continue. Operator: Your next question comes from Aaron Rakers with Wells Fargo. Aaron Rakers: I guess my first question is on the optics, the electro-optics business. I know Matt, you've talked about in the past that your ability to kind of outgrow the pace of what we're seeing in CapEx spend. So I guess my question is, we've seen some massive upward provisions in CapEx. I think most people look at that and say, "Hey, we're looking at like 60% plus growth this year." Do you think you can grow at that level? And how do you think about the durability of that growth as we move into fiscal '27 -- or fiscal '28? Matthew Murphy: Yes. Aaron, your observation is absolutely correct. And that's why even as we look at the upward momentum we see in the business for this year, a big part of that change is in that electro-optics portfolio. We had been calling it kind of closer to CapEx as we were modeling what we thought we could do this year back in the September call and then even in the -- in my December call. But now it's clearly growing more like -- more like accelerator growth and more like this sort of accelerated CapEx growth. So yes, it's growing like 50% plus this year now. And that momentum is going to continue, okay, into fiscal '28. A couple of things are happening there. The first is that as new XPU, GPU, et cetera, generations are released. There is -- we are seeing some increased concentration on the attach rate of optics. So that's a positive. You get more 1.6T, which has just -- because of its performance, commands higher ASP. So that's going to roll in. And then we have -- yes, we just have some pretty new exciting programs happening in that area. So that business has been growing at like 50% a year-ish. You can give it plus or minus, I get the exact data. But it's been at that rate for some time since we acquired Inphi and the data center stuff really took off. We see that continuing not only through fiscal '28, but that momentum should continue beyond that. Maybe it's not the exact same magnitude, but it's significant. We have a real head of steam on the electro optics business at Marvell. Operator: Your next question comes from Blayne Curtis with Jefferies. Blayne Curtis: Matt, I don't want to ask on the custom business. So I think you feel very confident about the trajectory. I'm just kind of curious, one, can you just help us with '26? Because I mean, you have the big broad swath, but I mean, is that custom business growing 30% this year? I just want to figure out the base that you're going to double. And can you talk about that second major XPU customer? I mean, kind of give this type of guidance, like what kind of confidence do you have in the timing of that program? Matthew Murphy: Sure. Yes. And I think you're talking about -- just to be clear, calendar '26, fiscal '27 set on custom, kind of what numbers are we talking? Is that the first question? The second one is the... Blayne Curtis: Yes, sorry, your fiscal year. But yes, fiscal '27 is at around 30%. And then your confidence level on that second major XPU customer and timing as we try to layer that in to get to that double? Matthew Murphy: Yes, great. And by the way, I don't feel bad. I've been in this job for 10 years, and I still have to translate every day between my fiscal year on my calendar year. So don't feel bad. For fiscal '27 we had been indicating after the double from last year, it would grow 20% this year. So we're just saying that's north of that. So I'm -- I can't give you the exact number now, but it's biased upwards, but it's just -- so just take what I read before that 20%, you can make an estimate but higher, but not significant enough where I would like give you a new number, but just say it's biased higher. So in the ballpark, but higher. So then next year, obviously, gets a little bigger than we thought. And then the reason we're confident is we have line of sight in terms of -- well, first of all, we have history, right? We've built these large scale custom programs before. We've done these ramps before. We have a good sense of when the product is going to go through its key milestones through NPI. We have had very detailed discussions and alignment around the manufacturing plan, and we've aligned up a corridor for fiscal '28 for production on this that would be a lot higher than what I'm indicating to you. I think we're budgeting at the moment for -- is there a delay? Does it take longer, et cetera. And plus, I think at the moment, it seems like a lot of folks aren't really believing it's maybe going to do anything. But I think our plug is very, very reasonable for next year Blayne in terms of what's there. And I think it would bias quite a bit higher if we could just achieve what we're planning on reserving in terms of capacity. So more to come there. But I think we try to call the ball as best we can. And in general, we've done a pretty good job over the years of trying to size and judge things in advance. And then usually, we're pretty good and then they're biased upwards. So we'll see where it lands. But I think it's not a big stretch for this custom business to double next year. Operator: Your next question comes from Ben Reitzes with Melius Research. Benjamin Reitzes: Matt, nice to see the beat and raise. I wanted to ask the question about what got better in a different way? I mean, if you could just unpack since December, the $2 billion, especially the -- how fiscal '28 got $2 billion better since December? What -- if we can unpack that and what exactly got better? And then potentially, I'm going to be a little greedy, what can carry into the next year as well, calendar '28 of those signs that you saw since then? Matthew Murphy: Yes. Thanks, Ben, and great to hear from you a long time. So I think -- one is you just kind of look at it as progression. I mean, it's the first point I'd make is we tried to give a view for investors to be helpful because there's a lot of concern and angst back at the end of last year. So in September, we talked about 9.4-ish for this year. And then that's now -- in December, we said that looks more like 10, and now I'm saying it's more like 11. So some of that is just the progression in terms of time and getting better visibility and more concrete. And then that just ripples into the -- I'll use calendar for a second, calendar '27. But on top of that, I mean, one, we've now got very firm requirements and understand the profile, in particular the interconnect business. And that is, I think we had called it very conservatively, to be frank. And I think even a few analysts last quarter kind of [ dinged ] us saying, well, you're plugging your interconnect business at CapEx, but it really looks more like it should be tied to GPU, XPU. And that's really the case. So I think we're seeing that now in terms of the forecast. So that's come up quite a bit, which then again, the upward revisions we're seeing for this year then ripple into next year. And then I'd say this is all underwritten Ben, by extremely strong bookings and backlog layering in and then the detailed conversations with our customers around supply planning. It's just given us a much more concrete view. And by the way, the other reason I think it's important and why we felt it was important to continue to update on this metric is that we set targets back in April of '24 for calendar '28. We did that around some assumptions around data center market share of 20%. And those numbers looked enormous at the time we talked about it. I think you guys were there. We were doing low billions a quarter in revenue at that time. $1 billion -- I think we had guided $1.1 billion or $1.2 billion when we put out this number that was like $15 billion in data center revenue in four years. And I think everyone thought we were nuts. At our June AI investor event, we said the TAM went up, so that data center revenue bogey kind of moved up to like if you just did the math, moved up to more like $18 billion and change. But now you kind of look at it and you see where we're landing in calendar '26. And now we're sitting here in '27. I mean, it's -- we're very much on track actually to those targets that we had set Ben. And so in a way, yes, it's some upward revisions and that's part of it is just because we have more data, but it actually is also validating, I think, the plan we set actually four years ago about what we thought we could go off and do, which were very lofty ambitions, and we're not there yet, and we have to go execute like crazy me and the whole team. But we're very encouraged by what we're seeing, and the proof is in the pudding that we're getting in terms of the backlog forecast and alignment with our entire supply chain to be ready to go make that happen both this year, next year and in calendar '28. Operator: Your next question comes from Tom O'Malley with Barclays. Thomas O'Malley: I think in the preamble, Matt, you talked about AEC and retimers more than doubling in the fiscal year. Could you maybe give us some perspective on the base there? And then you've been really helpful in the next few years kind of giving the contributing factors of what is a pretty impressive growth profile. Maybe talk a little bit about how much that can contribute in this broader overview? Matthew Murphy: Yes. Tom. Yes, this is still an emerging area for us. So we're -- it's doubling -- over doubling this year, but it's probably in the $200 million range is what I would say. I mean, we actually -- I think based on some of the things we're looking at, maybe that goes higher, but that just gives you a sense of the magnitude. But it's going to keep going from there. I mean this is -- we've seen this in a lot of our emerging product areas when we get into them. Once they start doubling, they kind of keep doubling, and you know this market quite well. There's quite a bit of room, I think, for a bunch of people to participate. So yes, we're very encouraged by what we see based on the traction we have on our products, especially on product leadership. We leverage a lot of our DSP and PAM technology in this area. We inflected when both on the retimer side and AECs move from NRZ to PAM, and that was -- that was our kind of conscious decision to do that. So we're earlier in the cycle because we're coming in, in later generations than some of the existing sockets, but we intend to really invest here in a significant way and participate. Over the long term, we see that as complemented. There's a place in the market for this, and we're going to participate. But obviously, we made the bet when you go back to even the Inphi acquisition five years ago on optics and pluggable optics, in particular, and then now with Celestial also, on CPO on the scale upside. So there's a period of time we're going to participate. I think it's going to be great, and the business is going to do well and it leverages what we have. And I think it's going to be just part of our goal to be the end-to-end provider for our customers of all of these types of solutions. From electrical to optical to silicon photonics various reaches various distances, various form factors. And that's what our customers are looking for, okay? They want to have an interconnect partner that could be the one-stop shop and do it all and have high amounts of leverage on the IP, so they can trust it, because we do it ourselves and also on the firmware and the software, and the system implementations, they also want to make sure that they have reusability. So it's been a virtuous cycle here, just the scale-up part relative to the scale out is smaller but growing rapidly. Operator: Your next question comes from Vivek Arya with Bank of America Securities. Vivek Arya: Matt, I just wanted to first clarify what your XPU attach was last year and what contribution you expect in '27 and '28? And then, kind of, my more strategic question is, when we look at the pattern of your first large XPU program, right, you had a very strong start, followed by competition from another supplier. How would you handicap kind of your exclusivity at the large new XPU customer you plan to start at next year? Matthew Murphy: Yes. Thanks, Vivek. So maybe I'll answer the second one first. So yes, we're -- I think you're asking specifically about our newer program that would ramp next year, and we feel very good about our position. These are very deep engagements we have with our customers. We're two hands on the steering wheel on this. This is multi-generational in nature. Given the rate of innovation and the pace that the technology is moving at, it's really in everybody's best interest to plan, not just one generation out but even farther. And so we've really been able to do that, I think, across the Board with our customers. And so we feel really good about our position there. And the sustainability of that. It still needs to ramp obviously. But certainly, the CapEx envelope is out there to really consume a lot of product, and we're very encouraged by what we see from a road map perspective. And we're investing heavily as a company to be there across the board on all of the key attributes that these big XPU customers care about. So I think more to come on that, as well as future opportunities on XPU for the company. But we feel very good about our position in the next few years in terms of line of sight to hitting the revenue targets that we talked about over the last couple of years and then growing beyond that. And then, yes, I'm sorry, then the -- on the XPU attach, we [ can't ] give the exact numbers, but just maybe big round numbers. And maybe we'll first start with the line of sight just on the NIC and CXL I gave you, which was kind of $2 billion out in '28, and then you layer more on that. So -- and by the way, just -- we had sized for everybody on the call, the XPU attached TAM in the future at about $15 billion in calendar '28. We didn't break it out exactly, but we had a total market share goal of about 20% in that time frame. So I'll just call that $3 billion, we're driving in that area. So let's take a step back now. XPU attached probably in the couple of hundred million ballpark say like this last year, doubling this year, maybe over doubling again the year after. So I think by next year, this thing is probably a $1 billion type business. We'll see how it all shakes out. It's all going to happen under the hood of our custom business with that. But just to give you a sense, it's on a massive trajectory upward, and it's in that category of kind of double plus each year. Operator: Your next question comes from Tore Svanberg with Stifel. Tore Svanberg: Congrats on the record quarter. Matt, I was hoping you could give us a bit of an update on the mix of the opto electronic business. So you talked about 1.6 already shipping. But my understanding is that 800-gig is definitely going to be the bigger volumes this year. So any sense for what the mix is going to look like for fiscal '27 between 1.6, and I guess, 8 and even some 400? Matthew Murphy: Yes. Well, I think you got it right. First of all -- and we've been saying this for a while that 800 was going to be sort of stronger for longer, and I think that was our mantra even last year. And that's still the case for sure. But as I mentioned in the prepared remarks, we had significant shipments actually of 1.6T at the end of last year, and it's going to ramp again pretty hard this year. But 800 will still be the majority. I think it's going to take probably through -- I mean, even next year, 800 is still going to be strong. So I can't give you the exact breakout at the moment, Tore, but part of the -- I think, the uplift as well in terms of just our outlook for interconnect for the year was also based on, kind of, all of our customers revising up in terms of what they were going to need, but maybe a little bit more pronounced in 1.6T and it's really ramping strong with those initial customers we had and more will layer on throughout the year and next year. So yes, maybe more on that later, Tore, but probably not in a position to give you the exact number. And also, I'd say the reason why too, is it's been moving around a lot. I mean, this has been very dynamic in terms of the bookings environment and the demand environment. So I think the mix will have a better view of what that looks like as we progress throughout the year. Operator: Your next question comes from Joe Moore with Morgan Stanley. Joseph Moore: With all the growth that you're looking at here, I wonder if you see anything on the supply chain, that could be challenging for you. My sense is you've come a long way in terms of supply chain management since a couple of years ago, but just any updates there would be great? Matthew Murphy: Yes. Joe, great to hear from you. I'm going to have Chris answer that, our COO. He's been knee deep and had that job for about 5 years, and he's knee-deep in the supply. So Chris, go ahead. Christopher Koopmans: Yes. Thanks, Joe. Look, we've been in a tight supply environment for anything that touches AI, advanced node wafer fabrication, advanced packaging, large body substrate since the launch of ChatGPT. And against that backdrop, to your point, we were still able to grow the company north of 40% in total revenue last year. So we clearly have very, very good relationships with our suppliers. But I would argue that really what helps us we've been forecasting this growth for quite some time. And by giving them multiple years of visibility of what we're going to need and ramping into these numbers is really helping us. And so I'm very confident we've secured the supply that we need for all the growth that Matt outlined this year, next year and beyond. Operator: Your next question comes from Jim Schneider with Goldman Sachs. James Schneider: It's great to hear the increased visibility you have business in the next year, but If I think about the guidance for $15 billion of revenue next year, and $5 of earnings, roughly speaking, that's about 15% to where I see the peak consensus being for next year's revenue, but only about half of that on the earnings side. So can you maybe unpack a bit of what are the moving pieces below the top line? Whether that's gross margin mix, or increased investments to sort of get to that? Or is the $5 number just relatively conservative? Matthew Murphy: Jim, yes, yes, that's like just a floor like it's 5-plus. I mean you can run your own pro forma income statement. But just to give you a sense of how to think about it. So on the top line, we gave you a framework. And then you can also take, basically where we're going to exit this year and you could use whatever number you want to model finally in your model, but we're saying put in 3, or a bit more. And then if you actually just kind of roll through some of the guidance we've given you already for this year on OpEx and the moving pieces on gross margin, we actually start to get to our target operating model, margin model exiting the year. And that probably continues through the next year is a safe assumption. So the number if you put in 15, and you put in that, it probably -- it floats above $5. So that was not a prescriptive number, or a firm number. It was just a 5-plus. People are going to have their own estimates, and you guys will sort of come up with your own view. But yes, no, I'm not making any comment about any kind of margin changes, or dilution, or losing leverage at all. We're going to get leverage -- we're in the mid-30s op margins right now, if you kind of look at where we were last quarter and what we're guiding and that should float up throughout the year. And then not calling it exactly for next year, but it probably would be consistent with our -- certainly our exit rate of this year. And so that's a simple way to think about it. So it's -- that would pop out a number above $5. Operator: And your next question is from Christopher Rolland with Susquehanna International Group. Christopher Rolland: Matt, thanks for answering the question. So mine is around kind of big picture, like the CPO scale-up world. Perhaps if you could describe what it looks like, what it looks like for Marvell? But also in your prepared remarks, you talked about integrating Celestial, it sounds like into the Innovium platform. I was wondering, are there potentially like UALink switch trays that you might be able to integrate this into as well? And just the timing around such products would be cool. Matthew Murphy: Yes. Great. Thanks. So yes, on the initial plan on Celestial -- and where we -- and just by the way, on the big picture side, our view pretty consistently for some time now has been that the deployment of CPO and scale out would be relatively limited relative to the -- especially relative to the amount of pluggable transceivers that we're going to get deployed. And you can go back many, many OFCs ago, and that's been our view. And that's been the case to today, for sure. And then I think on the go forward, relatively wise, it's still the case, although you may see some of the industry. That's not our current plan today, although we could absolutely do that and do that integration with the Celestial technology, and our Innovium CareLink products. And we've done POCs and we've done some work there, but we'll be ready to react to the market there, Chris, when it's needed. On the scale up, and you mentioned UAL, that's a perfect use case where that is where we see that CPO technology inflecting in a pretty big way and Celestial brought us a pretty significant design win and engagement in that area. And that's what we're trying to drive for next year. So when we ramp it next year, at the end of next year, the -- that would be serving the scale-up application and it would be both an integration of the photonic fabric chiplet into the XPU, as well as on the switch side. That's the first one. There will be a whole bunch of shipments on scale up switching that will be copper-based, and that's going to exist for some time, too. But we're seeing very, very strong interest across the board for kind of beyond the next few years of where the CPO for scale-up really starts to inflect. And this has been -- and that's sort of been our recognition over the last year or two, is that's where that's going to happen and that's why we did the M&A and we brought the team on. So to sum it all up, we'll be shipping next year CPO for scale up at one large customer, and then we're working on more for beyond that. And then the rest of those deployments would be still copper-based. I think we'll do one more question and then I'll -- I think we'll wrap it. Operator: Our last question then will come from Mark Lipacis with Evercore ISI. Mark Lipacis: Congrats on the great quarter. Matt, I'm wondering, when you look at these AI systems that your customers are building, it sounds like the way you're talking about it that there's a bigger bottleneck on the connectivity side and the processor side. And so -- but that would be like the part one of the question. And if you agree with that, what's the argument for, why not shift your process or resources to focus more on connectivity? It seems like your lead is a lot more obvious on the connectivity side, it's a higher margin business. That's where the bottleneck is. And seems like there's a higher chance to add more value, to get paid for that value. And by contrast, the processor side sounds like it's quite noisy on the competitive front. And I think you guys probably get dinged on multiple because of that noise. And so what's the kind of -- what's the rationale for not doing something like that? Matthew Murphy: Yes. Thanks, Mark. It's a valid question. So first of all, on the interconnect side -- well, on your first part of your question, I'm not sure what's more of the bottleneck or not? I know for sure, the interconnect is a bottleneck, but you could also argue industry-wide, there's a lot more to do on the processing side. But just to be clear, we are absolutely investing to win on interconnect. Like we're not sort of trading anything off there. I mean we're going all in to make sure that we're the leader here. And that's why you can even see when we did our M&A moves last year, we put all that towards that market. I would say, though, at the same time, we're in the custom business. The -- and you got to break it into two pieces. On the XPU attach side, obviously, that is more margin-rich. And leverages a lot of the Marvell IP, and technology we have, and those typically are our chips that we do. And we've made quite a nice business out of that. And then on the XPU side, we want to be a big time supplier to our customers. We do get strategic advantage, okay, in being in that market though, Mark, which was actually even a reason thinking all the way back to Avera when we acquired it out of IBM -- or sorry, out of GLOBALFOUNDRIES back in 2019. And one of the reasons that I wanted to do that acquisition and get Marvell into custom -- I mean I never envisioned it would be this significant business for us. Okay. Let's be clear, back in 2019, we weren't thinking that we were going to buy an asset for $650 million, and it was going to open up a $50 billion TAM, but it did. And one of the strategic rationales that I had for that deal was that it would put Marvell in a product area where we had to be at the bleeding edge. We had to be at the bleeding edge on nodes, packaging, IP development, and it was a tip of the spear type of product line that I felt would be really good for us to really have a driving force to keep Marvell best-in-class on technology. Because at that time, we were making the move from fast follower to trying to be a technology leader. So now we're in that business. I agree with you. It's got a lot of noise around it, and it's got a lot of controversies over the last year and all the different things that have gone on, and maybe it's affected a multiple. But the fact of the matter is, we're in that business. Our customers are counting on us. We've grown that business from zero to $1.5 billion. It's going to grow again this year. It's going to double the year after. And it's going to be a significant revenue growth driver for Marvell. So I'm not compromising anything on the rest of the portfolio to be in that business. And remember as well, that business also gets significant funding and contribution from our customers who pay us NRE and put their commitment in to make sure that those programs are successful. So we do get underwritten in terms of the support to go do them. And so I'm going to keep -- at this point, I'm in the AI market. I have the full portfolio. I'm going to follow what my customers want me to do. And I'm going to ignore the noise. I mean, if you actually look at last year and all the different things that came out, and all the different noise that was out there, it was all wrong. I mean you actually analysts retracting notes. You had articles that weren't even accurate at all. I mean you had -- honestly, it was all noise. Look at our results that we're guiding, look at our outlook for this year. Look at our outlook for next year. Do you see me blinking? You don't. So yes, we're in the business. We're going to be in the business. Our customers want me to be in this business, and we're going to drive a major significant revenue company at Marvell. I'm very fired up on this topic. Thank you, Mark. All right. Ashish wrap it? Ashish Saran: Go for it. Matthew Murphy: Yes, I got a couple of closing statements. That wasn't it, by the way, everybody. All right. So first, thank you, everybody, for joining the call. I appreciate the interest in the company. It's always fun. Look, our business is on a very strong trajectory, okay? I mentioned on our prepared results. We had record design wins over the past year. Team did a great job. We're seeing record demand. We're on track to grow our data center revenue at or above 40% for the third straight year. And by the way, if I go back 4 years, 5 years, 10 years, this business has been growing at like 35%, 40%, 45% for a very, very long time, and it's going to continue to do that. In fact, for next year, we're looking at that growth accelerating closer to 50% next year, and we're driving the company to try to get this company to $15 billion of revenue next year. It's -- I've been doing this job for 10 years. The team has been incredibly dedicated and we have this massive opportunity in front of us. So as I said to Ben, who asked one of the great questions, we set some very ambitious targets for the company for calendar '28, fiscal '29. Almost 2 years ago, it looked crazy. We're on track. We're on track to achieve the goals that we set. This is the start of it. We're going to continue to update you guys on the progress of the company. And I want to end by just thanking all the Marvell employees for your focus, your commitment, and your commitment to our customers to drive the execution they're looking for, and our goal is to make Marvell one of the big winners in this once-in-a-lifetime episodic AI infrastructure build-out. So thanks, everybody, for your interest in the company. I'll see a bunch of you guys on the East Coast in New York next week. Operator: Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.
Mike Chang: [Presentation] Good afternoon and welcome to Samsara's Fourth Quarter Fiscal 2026 Earnings Call. I'm Mike Chang, Samsara's Senior Vice President of Finance. Joining me today are Samsara's Chief Executive Officer and Co-Founder, Sanjit Biswas; and our Chief Financial Officer, Dominic Phillips. In addition to our prepared remarks on this call, additional information can be found in our shareholder letter, press release, investor presentation and SEC filings on our Investor Relations website at investors.samsara.com. The matters we'll discuss today include forward-looking statements. Actual results may differ materially from those contained in the forward-looking statements and are subject to risks and uncertainties described more fully in our SEC filings. Any forward-looking statements that we make on this call are based on assumptions as of today, March 5, 2026, and we undertake no obligation to update these statements as a result of new information or future events unless required by law. During today's call, we will discuss our fourth quarter fiscal 2026 financial results. We'd like to point out that the company reports non-GAAP results, in addition to, and not as a substitute for or superior to financial measures calculated in accordance with GAAP. We also report both actual and constant currency growth rates for certain metrics. On the call, we only provide constant currency commentary when there is difference. Reconciliations of GAAP to non-GAAP financial measures and additional information on constant currency are provided in our press release and investor presentation. We'll make opening remarks, dive into highlights for the quarter and open the call up for Q&A. With that, I'll hand the call over to Sanjit. Sanjit Biswas: Thanks, Mike, and thank you, everyone, for joining us today. FY '26 was an outstanding year of durable and efficient growth. We ended the year with $1.9 billion in ARR, growing 30% year-over-year. Our $432 million of net new ARR drove this performance, growing 21% year-over-year and demonstrating our ability to accelerate growth even as we operate at much larger scale. Our momentum is strongest with our largest customers. We ended the year with $1.2 billion of ARR from our $100,000-plus ARR customers, an increase of 37% year-over-year and our second consecutive quarter of sequential acceleration. As we look back on FY '26, it's clear we are uniquely positioned to help digitize the world of physical operations. We help these industries transform through a combination of hardware devices, cloud connectivity, deep AI and data integrations. At the heart of our competitive advantage is our proprietary data asset, information that simply isn't found on the Internet. This includes everything from dash cam imagery captured across hundreds of millions of miles of roads daily to specific maintenance inspection workflows and service routes. We now have more than 25 trillion data points flowing through our platform every year. This data provides us with the unique moat that fuels a powerful data network effect, as we add more customers and assets, our AI models become more insightful for everyone on the platform. This creates a compounding advantage that is difficult for others to replicate. Since our founding in 2015, we've worked towards a vision of fully digitized operations. We see this transformation occurring in 3 distinct phases. Phase 1, connecting the world's physical operations, then Phase 2, analyzing the data to surface actionable operational insights and Phase 3 automating entire workflows with proprietary AI agents. Let's start with Phase 1. Our customers are service businesses that rely on physical assets and labor and require a wide range of equipment for their operations. This includes light-duty vehicles, school buses, yellow iron construction equipment, trailers, tools and even dumpsters. On average, our largest customers spend around 80% of the revenue on these types of assets and workers. By connecting their operations to the cloud using IoT hardware, we're building a massive and proprietary data asset that represents the physical world. This includes real-time data such as video, GPS locations, sensor readings and diagnostics codes which our customers use to gain operational benefits, including protecting frontline workers from false claims and liability with HD video evidence, delivering best-in-class customer service with live locations to provide accurate ETAs and ensuring compliance with asset and worker monitoring. While customers can immediately achieve clear and fast ROI from connecting their operations to the cloud, this digitization is still in its early stages. This is due to the significant change management required to digitize revenue-generating assets. We believe the multi-decade effort to connect the world's physical operations creates a durable long-term growth opportunity for our business. Once we've collected all the data, our customers enter Phase 2. We trained purpose-built AI to surface deeper cross-functional insights that were previously unattainable. For the first time, our customers can see the direct correlation between worker behavior and long-term vehicle health, how specific service routes impact both fuel efficiency and customer satisfaction and how real-time coaching helps prevent accidents and keep their workers safe. By applying AI to this operational data, our customers are using actionable insights to transform their operations. This includes identifying safety risks through 40-plus AI detections, like drowsiness, risky weather and passenger left behind, and correlating that risk with the workers' broader safety record, simplifying compliance tracking by automating the verification of worker and asset qualifications and minimizing fuel spend through coaching driving behavior and intelligently suggesting the most cost-effective gas stations along their routes. Our AI analysis can now go even deeper by expanding the scope beyond a single customer driving actionable insights from analyzing our network of tens of thousands of customers collectively. For example, we can predict asset breakdowns by analyzing sensor data and comparing it against data from tens of thousands of assets of the identical make, model, and year to understand the average time to failure. Analyze weather risk by comparing national weather service data with actual camera footage from Samsara's network of millions of devices, and optimize operational performance by comparing an organization's safety records -- safety scores, utilization rates and fuel efficiency against anonymized data from industry peers to identify specific areas for improvement. These actionable insights do more than just power dashboards. They build a high-velocity, high-quality data foundation required for automation. You cannot effectively automate what you've not first unified and understood. Next, our customers enter Phase 3. Advances in AI reasoning capabilities allow us to build AI agents to take action and automate entire workflows. We are shifting the paradigm from providing insights in Phase 2 which require a human to interpret and act to delivering automated outcomes in Phase 3. These agents will supercharge our customers' operations, giving them virtual teammates to completely transform their approach to safety, efficiency and sustainability. As part of this, we're excited to announce our very first AI agent, the AI Safety Coach. It comprehends risk by self-reviewing data sources such as safety event videos, workers' safety records and weather conditions. This depth of understanding allows the agent to deliver automated safety outcomes, providing real-time voice coaching in the cab, and personalized end-of-week coaching videos for workers. It even dynamically adjust safety alerts based on risky conditions such as increasing following distances when it begins to snow. Beyond safety, our road map includes a suite of specialized AI agents designed to act as force multipliers for back office teams. We're developing additional AI agents to assist with compliance, maintenance and dispatching. By automating these high-frequency complex tasks, we're enabling our customers to scale their operations without the traditional linear increase in administrative costs. To realize the full potential of these 3 phases, technology must be adopted by the people who power the business every day. Today, the majority of physical operations are moving into Phase 1 or Phase 2 of their digital transformation, which requires installation of our hardware and change management with their frontline workers. From there, the transition to Phase 3 can happen much faster as the core parts of their operation are digitized and prepared for AI automation. The progress we've made in digitizing the world's physical operations is directly translating to our results. We partner with many of the leading physical operations organizations, including 7 of the top 10 food service companies, 7 of the top 10 waste management companies, and 5 of the top 10 wholesale and retail companies. In Q4, we added 204 new $100,000-plus ARR customers and ended FY '26 with 3,194, $100,000-plus ARR customers. Our large customer momentum is laying the foundation for durable growth as these organizations adopt more products across our platform to achieve additional ROI. Large customer wins for the quarter include Southern California Edison, Groundworks and Harris County in Texas. I'd like to share 2 examples of how we're expanding with our customers. The first is with 1 of North America's leading freight transportation companies, operating a rail network of more than 30,000 route miles. Since becoming a customer in 2021, they've used our video-based safety and telematics products on their freight hostlers to build a world-class safety program. This resulted in a 90% drop in safety events and a 97% drop in distracted driving. In Q4, we expanded our partnership to include AI Multicam as they are growing their safety program. They were a top 10 win for the quarter. We estimate they will save over $12 million per year through fewer and less severe accidents, lower maintenance spend and reduced fuel consumption. Another example is with Estes, which was also a top 10 win for the quarter. Estes is the largest privately held freight transportation company in North America. They operate over 43,000 trailers and 10,500 tractors to move 70 million pounds of freight daily. After initially partnering with Samsara for video-based safety and Telematics, they expanded in Q4 to add equipment monitoring, Asset Tags and connected asset maintenance, further unifying their operations on our platform. Estes is deploying asset gateways across their trailer fleet to gain real-time visibility and safety insights. They're using Asset Tags to track thousands of smaller mission-critical assets, including dollies, forklifts and ramps that are essential to their daily dock operations. They're also using connected asset maintenance to detect issues early and reduce unplanned downtime and streamlined shop operations with integrated warranty and inventory management. We are proud of the impact we're making together with our customers. We introduced the Asset Tag 18 months ago, and our customers are rapidly adopting them to get better visibility across their operations from heavy-duty assets to smaller tools and equipment. This is only made possible by our industry-leading industrial-grade Samsara network, which continues to get bigger and better. In just the last 2 years, we doubled our network density and can now detect Asset Tags in near real time providing visibility at scale that can't be replicated. We are further strengthening our network through an integration with Hubble's terrestrial network of more than 90 million consumer smartphones. This builds on Samsara's strong presence on roads, job sites, and in residential areas by extending visibility inside buildings. To continue the momentum of our Asset Tags, we are introducing the all-new Asset Tag XS, a form factor 5x smaller than our original Asset Tag. It is purpose built for more compact, high-value handheld tools and specialized equipment, such as gas meters and IV pumps. Equipment managers can now mix and match Asset Tags based on the size and shape of their assets. Finally, we also introduced the latest generation of our Asset Tag. It has 6 years of maintenance-free battery life, a 50% increase over the previous generation and improved precision finding and range. We're excited to see the growing impact that Asset Tags are having on our customers' operations. As we close out a fantastic FY '26, I want to thank our customers for their continued partnership and our team for their relentless focus on innovation. We're in the early innings of a multi-decade opportunity to transform the physical world and I have never been more excited about the road ahead. We also wanted to share that our Chief Product Officer, Kiran Saker has retired. Our CTO and Co-Founder, John Bicket; and SVP of Product Management, Johan Land, will take over leadership of our engineering and product organizations, respectively. We thank Kiran for his outsized impact and customer focus which were instrumental in growing Samsara from an early-stage idea into a multibillion-dollar business. Lastly, we're excited to announce that we will be hosting our customer conference Beyond 2026 from June 23 to 26 in Las Vegas. We'll also be hosting an Investor Day as part of the event. Beyond is our opportunity to bring together leaders from across industries to discuss the state of physical operations and new ways to deliver value through digitization. We hope you'll join us and are looking forward to seeing many of you there. I'll now hand it over to Dominic to go over the financial highlights for the quarter. Dominic Phillips: Thank you, Sanjit. Q4 was another quarter of accelerating growth and improved operating leverage. The quarter was highlighted by strong performance across several key metrics, including 31% year-over-year net new ARR growth in constant currency, the third consecutive quarter of sequential acceleration and the highest net new ARR growth in the past 8 quarters. leading to 30% total ARR growth also accelerating sequentially at a larger scale. 37% year-over-year ARR growth for $100,000-plus customers, the second consecutive quarter of sequential acceleration at a larger scale, and 56% year-over-year ARR growth for $1 million-plus customers, the third consecutive quarter of sequential acceleration at a larger scale. A quarterly record 13 $1 million plus net new ACV transactions, 23% of net new ACV from emerging products launched over the past 2 years and achieving our second consecutive quarter of GAAP profitability. More broadly, our durable and increasingly efficient growth demonstrates the large yet still early opportunity for digital transformation across physical operations. Looking ahead, we believe we're well positioned to deliver durable growth and create long-term shareholder value for several key reasons. The first is that we have a unique defensible data advantage. By instrumenting physical assets with IoT hardware, we generate a large and growing proprietary data asset that cannot be easily replicated. Second, we're leveraging this proprietary data to power a closed loop of intelligence and action. We use AI to surface operational insights and deploy AI agents to take action on those insights and automate workflows across the platform. This drives stronger customer engagement and expands the long-term value of our platform. Third, we have exposure to secular growth in physical infrastructure. Our business model scales with physical assets rather than headcount or knowledge workers and aligns us with end markets benefiting from major initiatives such as the global AI infrastructure build-out. The stock price performance of our top 100 public customers is up more than 30% over the past year. Fourth, our products offer a differentiated value prop in mission-critical workflows, delivering fast tangible ROI such as accident reduction, fuel and maintenance savings, and improved asset utilization, making us essential to our customers' operations. And lastly, we're targeting the large less discretionary operations budget, which represents approximately 80% of our customers' revenue on average. And because we help them optimize this significant cost base, we have a large opportunity to drive customer impact and long-term growth. Okay. Now turning to our results. Q4 and FY '26 ending ARR was $1.9 billion, an increase of 30% year-over-year, accelerating sequentially at a larger scale. Within that, we added $145 million of net new ARR in Q4, an increase of 33% year-over-year or 31% in constant currency, resulting in the third consecutive quarter of accelerating sequential growth and the highest net new ARR growth rate in the past 8 quarters. Our overall net new ARR in FY '26 was $432 million, an increase of 21% year-over-year, which also accelerated year-over-year at a larger scale. And FY '26 revenue was $1.6 billion, an increase of 30% year-over-year or 29% in constant currency. Several factors drove our strong top line performance in Q4. First, large customer momentum is leading to higher growth at scale. In terms of large deals, we signed a quarterly record 13 $1 million plus net new transactions in Q4. This reflects the success of our R&D and go-to-market investments to support these larger customer opportunities. In terms of large customers, we ended Q4 with 3,194, $100,000 ARR customers including a quarterly increase of 204, our second highest quarter ever. ARR from $100,000-plus customers was $1.2 billion, increasing 37% year-over-year resulting in the second consecutive quarter of sequential acceleration at a larger scale. $100,000-plus customers represent 61% of total ARR, up from 58% 1 year ago and 56% 2 years ago. Additionally, ARR from $1 million-plus customers increased 56% year-over-year, representing the third consecutive quarter of sequential acceleration at a larger scale. Consistently over time, our ARR mix from large customers has increased, while ARR mix from smaller customers has decreased. To better reflect this trend and align with our capital allocation strategy, we're refreshing our definition of core customers to include customers with more than $25,000 in ARR versus $10,000 previously. At the end of Q4, $25,000-plus customers contributed 85% of total ARR, up from 83% 1 year ago and 81% 2 years ago. We expect this trend to continue and believe this update also helps investors better understand our focus on larger customers versus other competitors in the space. Second, our customers are increasingly using Samsara as their mission-critical system of action by subscribing to multiple applications on a single unified platform. 96% of our $100,000-plus ARR customers subscribed to 2 or more products and 69% subscribe to 3 or more. In Q4, 9 of the top 10 net new ACV deals included, 2 or more products. 8 of the top 10 included 3 or more products, and 6 of the top 10 included 4 more products. In Q4, we had a large win with 1 of the Midwest's largest farmer-owned co-ops, following rapid M&A-driven growth that left data fragmented across systems, they consolidated on Samsara. This customer leverages route planning to digitally access daily orders, commercial navigation for safe, compliant vehicle aware turn-by-turn directions, and connected workflows to streamline proof of delivery and signatures. Additionally, Telematics and video-based safety provide real-time visibility to enable proactive protection of drivers and reduce risk. In a pilot, they achieved a 65% reduction in safety events, an 85% reduction in speeding events, and a 45% reduction in idling time. Strong multiproduct adoption like this helped us achieve our target dollar-based net retention rate of approximately 115% for core customers, both for our prior definition of $10,000-plus ARR customers and our updated definition of $25,000-plus ARR customers. And third, we demonstrated strong execution across several frontiers. In terms of emerging products, 23% of net new ACV in Q4 came from new products launched over the past 2 years, including AI Multicam, asset maintenance, Asset Tags, commercial navigation, qualifications, routing, training and workflows. Emerging products now contribute more than $100 million in ARR, 8 of the top 10 net new ACV transactions in Q4 included in emerging product, 58 transactions in Q4 included more than $100,000 in emerging product net new ACV and Asset Tags ending ARR more than tripled year-over-year. In Q4, we signed our largest ever Asset Tags deal with Total Safety, a leading provider of industrial safety services with over 250,000 assets in the U.S. Total Safety is deploying Asset Tags to track critical high-value safety equipment such as breathing air tanks, eyewash stations, and small tools to ensure asset visibility critical to their operations. By digitizing their inventory, they are increasing equipment recovery and helping their customers eliminate the high cost of lost assets. In terms of end markets, we saw strong momentum across construction, wholesale and retail trade and public sector. Construction contributed the highest net new ACV mix of all industries for the tenth consecutive quarter and had its highest net new ACV growth in the last 7 quarters. Wholesale and retail trade was our second largest vertical in Q4 and contributed its highest net new ACV mix in the last 3 years and public sector FY '26 net new ACV growth accelerated for the third consecutive year, including Q4 wins with the state of New York and Harris County, the third largest county in the U.S. And in terms of international, 15% of net new ACV came from non-U.S. geographies. Europe ARR growth accelerated for the fourth straight quarter, led by our largest ever European net new ACV deal with Dawsongroup, the U.K.'s largest independent asset rental leasing and contract hire company. And Canada had a highest year-over-year net new ACV growth in the last 10 quarters. In addition to driving strong top line growth, we continue to deliver operating leverage across our business as we scale. In FY '26, non-GAAP gross margin was 78%, up 1 percentage point year-over-year. Non-GAAP operating margin was 17%, up 8 percentage points from 1 year ago, and free cash flow margin was 13% in FY '26, up 4 percentage points year-over-year. Okay. Now turning to Q1 and FY '27 guidance based on FX rates as of January 31. Our guidance philosophy remains the same and is derisked for potential downside scenarios. For Q1, we expect revenue to be between $454 million and $456 million, representing 24% year-over-year growth or 22% to 23% growth in constant currency. Non-GAAP operating margin to be 15%. And Non-GAAP EPS to be between $0.12 and $0.13. For full year FY '27, we expect revenue to be between $1.965 billion and $1.975 billion, representing 21% to 22% year-over-year growth or 21% growth in constant currency. Non-GAAP operating margin to be 19%, non-GAAP EPS to be between $0.65 and $0.69. And we also expect to be GAAP profitable for full year FY '27. Finally, please see the additional modeling notes in our shareholder letter. To wrap up in Q4 and in FY '26, we delivered accelerating growth at scale while expanding operating leverage across the board. Looking ahead, we believe we're well positioned to sustain durable and efficient growth because we use hardware to generate a unique defensible data asset that we harness with AI to surface operational insights and automatically take action to drive more customer value. We are aligned with the secular growth in physical operations and markets that are benefiting from major initiatives such as the global AI infrastructure build-out and we deliver large tangible customer ROI with fast payback periods. We look forward to building on this momentum as we help our customers operate more safely, efficiently and sustainably at a greater scale. And with that, I'll hand it over to Mike to moderate Q&A. Mike Chang: Thanks, Dominic. We will now open the line up for questions. [Operator Instructions] The first question today comes from Matt Hedberg with RBC followed by Keith Weiss with Morgan Stanley. Matthew Hedberg: Can you hear me? Dominic Phillips: Yes. Matthew Hedberg: Great. And great job this quarter. A lot of positives to pick through here. The emerging product success was certainly a standout reaching 2 really significant milestones. I guess, as you look to the future, and by the way, I think you guys outlined a really, really compelling reason why data is at the core of Samsara and why that is extremely defensive and in fact, offensive in an AI environment. Can you talk about, though, where you're seeing some of the best adoption rates for some of these emerging products? Is it across all your customers? Is it some of your larger customers, particular verticals? Any sense for just kind of how those emerging products are distributed? Sanjit Biswas: Matt, this is Sanjit. I'll take that one. So I would say we are seeing very strong momentum, especially with large customers because they have the most complex physical operations thousands of, and tens of thousands of frontline workers and similar -- probably a larger number of assets. So when we introduce new technologies like commercial navigation, maintenance, training, they're very well received because they know immediately how to put that technology to work. So I would say if I had to choose a pattern, it would be among these larger customers where they're set up to absorb these new products. Mike Chang: The next question comes from Keith Weiss with Morgan Stanley, followed by Alex Zukin with Wolfe. Keith Weiss: Congratulations on a really outstanding quarter and end to the year. Two -- Really 2 questions I want to ask 1 more tactical, 1 more strategic. On the more tactical side of the equation, the acceleration that we've seen over the past couple of quarters in net new ARR. Is it too simple to say that this is sort of Asset Tags and that new solution ramping up within the product portfolio? Or is there like a broader set of drivers that are behind that acceleration? And then on the more strategic side, coming out of the Morgan Stanley TMT Conference. We've been talking a lot about proprietary data. And 1 of the debates that emerged is the, how the value of data sustains over time? And I'd love to hear your guys' view on it in terms of the relative value of the data when it's brand new and it's just coming off of the devices versus how much value it retains as it becomes older and older and becomes part of that like bigger data set that you have over time? Dominic Phillips: It's Dominic. I'll go for the first 1 and then Sanjit can take the second one. I think the acceleration, the net new ARR acceleration over the last 3 quarters has been much broader than something just simply as Asset Tags. I think broadly as a bucket, the emerging products have definitely been a big contributor. So going from 8% of the net new ACV mix in Q2 to 20% in Q3 and then 23% in Q4. Asset Tags has been important within that. But once again, we didn't see 1 product within the emerging products driving more than 50% of that contribution. I think it's been a lot of large customer momentum and success. Again, a quarterly record 13 $1 million plus net new ACV transactions, our second highest quarter ever of $100,000-plus adds. We're seeing good momentum internationally. And then in specific verticals, again, things like construction and wholesale and retail and public sector this quarter were all strong. So emerging products definitely playing a role, but it's been -- the strength and the growth has been much more broader than that. Sanjit Biswas: And Keith, on the proprietary data angle, we think there's a lot of value in the sort of accumulation and really the data asset that builds up over time. And I'll give you 1 or 2 just kind of concrete examples. Maintenance is actually 1 that our customers have really started taking to. We have a tremendous amount of information about what happens with the specific make, model, year of a truck. So for example, if you have a 2020 Freightliner Cascadia, how does it wear over time? What have others seen? Where does it start to break down? Where does the maintenance cost go up? That is from the accumulation of a lot of data over time. The same philosophy applies to things like risk data. You want to understand how millions of drivers over different weather conditions over time, different tenures of their company, different risk patterns behave. So it's not just in-the-moment data, that's, of course, valuable, but it's really being able to look at it over time and across customers, that's where it accumulates to be something really interesting. Mike Chang: The next question comes from Alex Zukin with Wolfe Research, followed by Michael Turrin with Wells Fargo. Aleksandr Zukin: I echo my congratulations on really, really strong quarter. Maybe first one for you, Sanjit, just the AI offering that you launched the agentic offering. Maybe just help us understand a little bit of how you plan to monetize that within your customer base and kind of how -- I think listed a few that are on the maybe horizon. Maybe talk to us a little bit about your vision for introducing that type of functionality and maybe how the pricing evolves around that. And then Dom, it's your largest net new ARR beat as a public company. Despite the conservatism you always embedded in the guidance, I think we're starting with a 2 percentage point expansion on a larger scale, implying the largest starting incremental margin guidance for a fiscal year guide. So maybe walk through kind of just the momentum that you're seeing in existing and new customers that gives you that confidence to embed that sales efficiency to start the guidance. Sanjit Biswas: Sure. I'll start with the agentic question. So AI agents are sort of new concept to the world and very new in the world of our customers. We are getting these products out there to understand better how they're going to use the agents, how often they use it, the patterns and so on. And that will give us the data we need to figure out the right pricing model. both is a fair share of value but also matches how the customers use the product. So we'll have more to come there. We'll really get these out there starting in the summer with Beyond. And we are excited, not just about the Safety Agent, but also the maintenance compliance and the other sort of virtual team members we can add to our customers' teams. Dominic Phillips: Yes. And I would say, that we've -- again, Q4 was fantastic, but we've really had 3 consecutive quarters now of accelerating net new ARR growth. And so a lot of great momentum, obviously, to end FY '26 and then taking us into FY '27. I think not only have we demonstrated a lot of accelerating growth, but we've also done so by getting more efficient, again across the board. And so we're finding ways to operate more efficiently. We're using a lot of AI tools internally to drive a lot more productivity. Even looking at something as simple as like ARR per employee, that has increased every year over the last several years, I think it's like up like more than 30% over the last 3 years. And so we're able to drive a lot more top line scale while doing so much more efficiently. And that gives us confidence that we can continue to do that into FY '27. Mike Chang: The next question comes from Michael Turrin with Wells Fargo, followed by Matt Martino with Goldman Sachs. Michael Turrin: Echo my congrats as well. The 4Q results are really impressive even for Samsara in Q4. So the first question is just, you had a lot of rich detail in there, but just help us understand where the sources of upside came from? And if anything at all, surprised you relative to what you're expecting? And as sort of the second part to that, just how that shades what you're framing to us for fiscal '27 as well, Dom?. Dominic Phillips: Yes. Again, as I -- we just kind of talked with Alex a third consecutive quarter of net new ARR acceleration, strongest net new ARR growth in 8 quarters. And then -- and so much net new ARR acceleration that the overall $1.9 billion of ending ARR accelerated back up to 30%. Again, large customers, a lot of large deals, the record 13 $1 million-plus transactions and then the $200,000 and $400,000-plus adds was very strong. I think tied into the emerging products, we're just seeing much larger multiproduct transactions. So 9 of the top 10 deals, 2-plus products; 8 of the top 10, 3 plus; and then 6 of the top 10, 4 plus. So a lot of multiproduct strengths driving the growth. And then we're getting contribution from these emerging frontiers, whether it's the emerging products at 23%, international or again some of these verticals. And so 3 consecutive quarters, I'd say, of acceleration and a lot of growth strength, and that gives us a lot of good momentum going into '27. Michael Turrin: Congrats again. Mike Chang: Next question comes from Matt Martino with Goldman Sachs, followed by Matt Bullock with BofA. Matthew Martino: Sanjit, for you, Asset Tags clearly feels like something much bigger. So as you introduce the XS form factor, bring in Hubble to extend the network, how should we think about the strategic end state there? Is this mainly about driving deeper adoption within the base? Or does this really start to open up an entirely broader asset visibility platform for you guys? Sanjit Biswas: Yes, Matt, I would say it's definitely both. The world of physical operations has a ton of assets. There's, of course, vehicles and trailers and construction equipment, but I mentioned a lot of the smaller handheld assets, there's tools, there's dollies and so on. So really, our first priority here is, like I said, with Phase 1, we're just simply trying to digitize and get this information into the cloud so we can start operating on it. As we do that, I think it does open up a lot of interesting use cases. Many of our customers are interested in things like asset dormancy, which piece of equipment haven't moved, maybe they don't need to own them and they could rent them instead there are definitely sophisticated ways to kind of load balance where those assets are placed. And then I do think there's this agentic opportunity. All of that will appeal to our existing customers. And I do think this will open up some new possibilities of maybe some customers that don't have a tremendous number of vehicles, but have a lot of other kinds of field assets. We highlighted total safety, for example, they have about 250,000 assets. That will be a good example of one. Mike Chang: Great. The next question comes from Matt Bullock with BofA, followed by Derrick Wood with TD Cowen. Matthew Bullock: Sanjit, I wanted to ask about the public sector. Annual net new ACV growth accelerated for the third consecutive year here. It's now a $100 million plus ARR business that's pretty clearly benefiting from network effects. My question was about legislation or the policy environment. We noticed that Samsara presented to Congress twice during February. What was that about specifically? And are there any kind of legislative tailwinds that we should have on our radar as we enter fiscal '27? Sanjit Biswas: Yes, absolutely. So we are very excited about momentum in the public sector. Just as a reminder, the public sector, they have a lot of physical operations that are required to maintain and really run all of our communities. There -- a lot of the reason that we're providing so much information to Congress is simply to educate. We want them to understand the benefit of these technologies, not just in the public sector, but even in the private sector. Our products have a huge impact on safety, on efficiency, and it's part of this bigger digitization trend. So there, I would say the work has really been around kind of education, first and foremost. And then in the public sector itself, I think we are seeing some great network effects, as you highlighted, cities and states that are not competitive with 1 another. So when you unlock value for one, they tend to talk about it and tell others about it. Matthew Bullock: That's fantastic. And if I could squeeze 1 more in for Dom, if I could. Obviously, the large deal momentum was excellent in 4Q. But I wanted to ask about helping frame the contribution from large deals that were ramping from 2Q and 3Q? Just helping us understand kind of what the contribution was from prior deal momentum in 4Q given the pretty huge net new ARR number. Dominic Phillips: Yes. Most of the Q4 performance and results were driven by new deals booked and signed in the quarter. The -- I assume the 1 that you're referring to in Q2 is the First Student transaction. That was a large deal that we signed in Q2 and is a phased rollout. And so we got some of that contribution in Q4 will continue to be rolled out over time. But most of the bookings and ARR, the net new ARR in Q4 were the result of new deals, whether they are expansions to existing customers or signing new customers, but that were booked in the quarter. Mike Chang: The next question comes from Derrick Wood with TD Cowen followed by Jim Fish with Piper Sandler. James Wood: Great. I'll echo my congrats as well. I guess, Sanjit, just going back on vertical discussion, construction, 10th sequential -- or 10th quarter in a row of strength, outsized. How much of that is being driven by physical AI data center infrastructure build-out? And what are some of the other drivers? And then just -- I mean, given the projected tens of gigawatts of data center capacity expected to be stood up over the next couple of years, are you -- can you just talk about the strength of your pipeline, not only in construction but those other verticals, energy, utilities, field services that are tied to data center builds. Sanjit Biswas: Sure. So Derrick, Construction was absolutely another strong vertical for us this quarter. I would say that a significant number of our customers are involved in this AI data center build-out, but they're also helping build and maintain roadways and buildings and kind of all the infrastructure that powers the planet. So while it has been a kind of tailwind in general in the construction industry, there are a number of different sort of areas of interest there. But on the utility side, we see electrical utilities, other trades. We work with a lot of electrical contracting companies, for example, they are all involved in this AI data center build-out. So it's really been an interesting kind of macro tailwind or effect in that industry. But at the adjacent industries, as you highlighted, utilities and field services, too. James Wood: Great. And if I could squeeze 1 for Dom, speaking of macro. I -- We have been getting questions on whether the rise in memory prices would have any impact on your margins or cash flow or supply chain dynamics or anything to flag to think about potential impact on the model? Dominic Phillips: Yes. We're definitely seeing some increase in memory for us. It's more on the storage side, more on the NAND side than on the memory side. I think we've operated through different supply chain disruptions. We have a very kind of nimble supply chain team that's really well prepared to kind of handle and navigate the current dynamics. We kind of went through something similar in 2022. And I think most importantly, we were able to meet all customer demand while driving free cash flow leverage, and we feel like we're in a similar position now we factored this into the -- in the modeling notes and the gross margin and the 100 basis points of free cash flow leverage that we started with in the notes. I think, also something that we think about it from a competitive standpoint, we think that we're best positioned and best capitalized to navigate through this. This could be an opportunity for us to increase more market share and then ultimately, we obviously think that the prices are going to stabilize over time, and we don't see any long-term structural changes to our financial profile. Mike Chang: The next question comes from Jim Fish with Piper Sandler, followed by Alex Sklar with Raymond James. Sanjit Biswas: Thanks for the question here. Look, I think a lot of people here are impressed by the emerging product side of things. Dom, another quarter north of 20% here. It seems like this is starting to become the new norm. I guess, how are you guys thinking about it for the annual guide here? And was it fairly balanced again or a few of the products underneath starting to lead a little bit more. And Sanjit, just for you, was tags XS, a customer-driven ask? Or why this version? How should we think about capability difference or pricing difference? Dominic Phillips: Yes. From the emerging products side, very similar to the previous quarters. It was very widespread. There wasn't 1 of the kind of emerging products that drove more than 50% of the bookings. And so we saw pretty broad-based strength, and we have good momentum across all of those products going into '27. Sanjit Biswas: Yes. And in terms of Asset Tag XS, it very much was customer-driven. Customers tried the original Asset Tags. They really like the functionality. Many of these customers, they have smaller, often handheld tools where they needed something that basically had less volume. So that's where that ask came from, and that's why we built XS. The pricing is similar to the original Asset Tag family. It's really the form factor that's different. Mike Chang: The next question comes from Alex Sklar with Raymond James, followed by Peter Burkly with Evercore. Johnathan McCary: This is Johnathan McCary on for Alex. So Sanjit, I'll start with you. You guys called out success in Europe again this quarter. So I wanted to think ask how you're thinking about resourcing to that region as we head into fiscal '27. And then conceptually, how much of a priority is geo expansion over the next few years? And then tangentially for Dom, I wanted to ask on the hiring embedded in the outlook for the year. continued success in Europe, but you're also seeing product velocity that seems like it continues to pick up. So curious where you're adding more manpower across the business? And then which areas are driving the leverage embedded in the guide. Sanjit Biswas: Yes. I'll take the first part of that. So we're, again, very pleased with the progress in Europe. Dawsongroup [indiscernible] Fraikin. These have all been huge lands for us are very well-known companies in the geo. So I think it's just going to be continued investment and effort. We're planning to just be consistent there. And we're making the product investments that are required as well in terms of the features and functionality that are required. But if we take a step back, we play in some of the most important geographic markets today between North America and Western Europe. So I think it's really about to follow through and really helping digitize these large-scale operations. We still have a long way to go, which we're excited about. Dominic Phillips: Yes. And then on the hiring front, I touched on this a little bit earlier. But again, we expect FY '27 is going to be another year of productivity improvements. I use the stat that over the past 3 years, the ARR per employee is up more than 30%. We expect it will increase again in FY '27. Most of the hiring in FY '27 will be in our go-to-market and sales-related roles. Most of the other functions are going to be roughly the same size, maybe some smaller, which we expect will drive leverage across all of the OpEx line items. Mike Chang: The next question comes from Peter Burkly with Evercore followed by Jackson with William Blair. Peter Burkly: This is Pete Burkly on for Kirk Materne. I'll echo my congrats on a really strong quarter here. So just want to sort of focus in on, again, on the large customer segment and really strong growth and acceleration, the $100,000 ARR segment and the $1 million-plus segment as well. So I'm curious if you could just sort of unpack some of that strength, whether it's primarily multiproduct attach, some of the emerging products like Asset Tags and AI Multicam or if you're just seeing a broader fleet and asset expansion sort of underneath the hood in some of those larger customers. And then just curious how much runway sort of remains to continue to expand ARPU within that really large ARR customer base. Dominic Phillips: Yes, I'd say on the large customers, it was weighted a little bit more towards existing customers doing expansions, multiproduct adoption across the board definitely drove strength. And again, almost all of those licensing the core kind of vehicle-based products, Telematics and video-based safety. But as I said, things like 8 out of the top 10 had 3-plus products and 6 of the top 10 at 4 or more. So licensing something outside 1 of these emerging products, which is also quite strong for us. And similarly, even on the new logo side, the new customer lands, the large ones, all had or multiproduct transactions out of the gate. Mike Chang: The next question comes from Jackson with William Blair, followed by Jason Celino with KeyBanc. Jackson Bogli: This is Jackson on for doing Dylan Becker. We've talked about the substantial data set. We have more than 25 trillion data points on the platform. Large customers are doing more. There's more products in earlier stages of development and adoption altogether, I was curious if you could speak to how all of these things really allow you to accelerate the time to value with customers and really support the already considerable value proposition that you guys offer customers? Sanjit Biswas: Yes. I think, first of all, we're excited to be able to expand the platform. This really expands areas of value more than anything else. So for example, with maintenance, that was something weren't doing as much in before, but it's a tremendous area of expense for our customers who have a lot of assets. Time to value continues to be strong. Our customers realize this ROI within a year. So that's never really been an issue of like how do we speed that up. I'm excited about helping just kind of drive that already 8x ROI that we see with customers even broader as we expand into kind of more adjacent areas like maintenance, training, qualifications, workflows and so on. Jackson Bogli: Got it. That's super helpful. And then 1 more quickly, if I could. There's a lot of geopolitical turmoil going on in multiple regions. How should we think about the impact to the business' international expansion plans? Like would you even say the heightened uncertainty may provide a tailwind or headwind to potential adoption? I'm just curious any color you guys would have on the current macro landscape. Sanjit Biswas: I think it's -- for us, again, as I said on an earlier question, we're pretty focused on North America and Western Europe. There's 35 million commercial vehicles here in North America. There's 45 million in Western Europe. So we feel that the markets we're selling in are ready for this kind of digital transformation, they're adopting these technologies. So we're going to stay focused in the geographies we're in. Mike Chang: Great. Next question comes from Jason Celino with KeyBanc, followed by Nick Altmann with BTIG. Jason Celino: Maybe my first one, I think it was mentioned that you have 40 different AI detections, I don't know if this is a new way to frame it, but how many of these are powered by like AI-type models? Or can they be powered by kind of the same models. And then when we think about the categories of some of these detections, are they more than just safety-based detections? Sanjit Biswas: Sure. So these are all different forms of AI detection. Some of them involve technologies like large language models, others are kind of more time series-based models. So we are continuously expanding the library of types of detections. And safety is, of course, an important area for these detections, but are thinking about AI models much more generally. So we look at things like weather conditions and road conditions. We're looking at other kind of health vehicle and asset health related AI models. So we're continually expanding, but they build on a number of different technologies. Jason Celino: Okay. Great. And then maybe just a quick 1 for Dom. SBC philosophy. I know you're guiding to GAAP full year profitability, which is refreshing. But maybe refresh us on how you're thinking about SBC as a whole and its trajectory. Dominic Phillips: Yes. We view equity-based compensation as a real cost of the business. We forecast that we're driving leverage. I think we were in the kind of the high 20s 4 years ago, when we went public. We got it down into that low 20s last year in FY '26, the 10-K will come out -- or it's in the press release, but it was 20%, we'll be below that again in FY '27 and expect it to go down even further from there. So this is a big area of focus for us. And pleased that we were able to get to GAAP profitability now for 2 consecutive quarters. I think it will probably go a little bit negative in Q1, where we tend to spend a little bit more money, not on the SBC side, but on the OpEx side, but then we've got a path to getting it to positive for the full year. Mike Chang: The next question comes from Nick with BTIG, followed by Mark with Loop Capital. Nicholas Altmann: You mentioned you doubled the network density, and that is enabling you guys to detect the Asset Tags in near real time. So can you just talk about how much of an unlock those new real-time detection capabilities could be for both customers who are looking to adopt Asset Tags or even existing Asset Tags customers who are potentially looking to expand their footprint. Sanjit Biswas: Yes, absolutely. So the network density is an interesting 1 because it lets us basically increase the frequency and fidelity of the data we're getting back. This is especially helpful in a scenario like theft and loss. A lot of these assets get lost or stolen, and they walk away from job sites and so on. So customers are looking to go recover those. They need to know where they are if they're moving and so on, so it definitely helps there. And then we also embed this technology in other areas like our worker safety wearable. And so even if someone is not near a vehicle, we're able to help keep them safe outside of the cab. So for field services workers, for example, this is a helpful technology. So I think it just increases the number of applications we can address from kind of basic asset tracking, doing much more fine-grain analytics on these assets because we get much more frequent data updates. Mike Chang: The next question comes from Mark with Loop followed by Andrew with BNP. Mark Schappel: Congrats on the strong quarter here. Sanjit, typically at the start of the year is when software companies will adjust their sales orgs and the go-to-market strategies. I was wondering if you're planning any meaningful changes on the sales front in the coming year? Sanjit Biswas: No. I would say, Mark, we're always looking at efficiencies, trying to make sure we're approaching the market in the best way possible. We're very happy with our structure, nothing significant to report there. I don't know, Dominic, if you want to add anything? Dominic Phillips: I think more like evolutionary changes. And so -- having kind of more global account specialists for these like larger multinationals, we're experimenting and we'll make more investments in things like product sales specialists to cover all of these emerging products, but nothing hugely structurally different going into FY '27. Mike Chang: Our next question comes from Andrew with BNP followed by Junaid with Truist. Andrew? Okay. Let's pass there. Okay. Our last question today comes from Junaid with Truist. Junaid Siddiqui: Great. Given the scale of your network now and with offerings like AI Multicam, 360, real-time weather intelligence. How do you see these capabilities, positioning the platform as fleets begin adopting higher levels of autonomy. And how should we think about the monetization potential of that proprietary data in an autonomous future context? Sanjit Biswas: Yes. From our perspective, autonomy is an exciting technology. It's been on the horizon for some time, and it's starting to come to fruition on the consumer side at least. We kind of view operations as a whole. So autonomy is an and for us. We're going to start seeing autonomous vehicles and devices appear in our customers' operations at some point. We do think that will help expand the number of types of asset -- number and types of assets and the applications we address. So you're going to see more workflows, more automation happening where people and these autonomous vehicles are working together. We don't have plans to take this video data and sell it to the autonomous providers or anything like that. But for us, we're really just tracking it as more of a technology. Mike Chang: All right. So this concludes the question-and-answer portion. Thank you all for attending our Q4 fiscal year 2026 earnings call. Before I let you go have a few short announcements. We'll be attending the Loop Capital Markets Conference on March 10 and the Wells Fargo Symposium on April 8. We'll also be hosting the William Blair Bus Tour on March 16 and the Goldman Sachs Bus Tour on April 13 in San Francisco. We hope to see you at 1 of these events. Finally, we are hosting our Investor Day, as Sanjit mentioned, this June in Las Vegas. Please send an e-mail to ir@samsara.com, if you're interested in attending in person. For those who prefer to attend virtually our IR website will have a link to a live broadcast. That's it for today's meeting. If you have any follow-up questions, you can e-mail at ir@samsara.com. Bye everyone.
Operator: Good afternoon, and thank you for standing by. Welcome to Grove Collaborative Holdings Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. Hosting today's call are Grove's CEO, Jeff Yurcisin and CFO, Tom Siragusa. Some of the statements made today about future prospects, financial results, business strategies, industry trends and Grove's ability to successfully respond to business risks may be considered forward-looking, including statements relating to reactivation of lapsed customers, future increases in advertising spend, stabilization of our e-commerce platform, sequential revenue growth throughout the year, while maintaining profitability discipline, increased capacity to execute additional growth initiatives, savings from reduction in force and improved subscription experience, future increases in product development, guidance for 2026, including guidance related to revenue and adjusted EBITDA; net revenue reaching a low point in the first quarter of 2026, seasonality and advertising investment in the first quarter of 2026, sequential improvement in revenue and acceleration of advertising investment, such statements are based on current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including those risks discussed in Grove's filings with the Securities and Exchange Commission. All of these statements are based on Grove's views today, and Grove assumes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. During today's call, Grove will also discuss certain non-GAAP financial measures, which adjust GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP items to the most directly comparable GAAP financial measures and Grove's earnings release, which is also available on Grove's Investor Relations website. I would now like to turn the call over to Jeff Yurcisin to begin. Jeff Yurcisin: Thank you, operator, and thank you for everyone joining us. I want to start with the financial headlines. We delivered on our revised full year 2025 revenue and adjusted EBITDA guidance, and we returned to positive adjusted EBITDA in the fourth quarter. This was our first positive adjusted EBITDA quarter in the last 6 quarters, and the result reflects a deliberate choice to prioritize liquidity and adjusted EBITDA profitability while we work through customer experience disruptions tied to our e-commerce platform migration. Stepping back Grove's focus remains the same. Driving long-term shareholder value by building a stronger, more resilient business, one that can deliver sustainable growth and consistent profitability over time. Our mission is also unchanged to be the leading destination for clean, sustainable nontoxic products for every room in the home. To earn that position in a market dominated by scale, digital platforms, we have to win where it matters by delivering a customer experience that's meaningfully differentiated with unit economics that support profitable growth and that starts with execution in the near term. Today's consumer is navigating a fragmented, often confusing marketplace crowded with options, inconsistent standards and marketing claims that are hard to verify. And I have higher conviction than ever that Grove is positioned to capitalize on this consumer problem by building a platform of curated and highly vetted products leading with transparency and making it easier for customers to align everyday purchases with their values without sacrificing efficacy. For the conscientious 57 million consumers who care about ingredients, performance and sustainability, shopping can feel like a trade-off between convenience and trust. We believe Grove is uniquely positioned to simplify that decision. We curate and vet products to a higher standard. We lead with transparency, and we make it easier for customers to align everyday purchases with their values without sacrificing efficacy. That positioning matters because it's not just a brand promise. It's a business model that we believe can drive durable unit economics over time. When customers trust the curation and feel confident in the experience, we earn repeat behavior. And when we earn repeat behavior, we can invest more efficiently and scale more profitably. However, '25 was a challenging year and a meaningful part of that came from our e-commerce platform migration early in the year. While the migration was strategically important, the transition created real friction in the customer experience, most notably across the mobile app, subscriptions and our VIP program. When those areas did not perform consistently, we saw more churn in '25 than we originally expected. That was particularly disappointing because we entered '25 with real momentum. We had delivered our first quarter of sequential revenue growth in Q4 2024 and our first full year of positive adjusted EBITDA. The migration issues interrupted that progress. We ended 2025 with 599,000 active customers, down 13% from 689,000 at the end of 2024. That ending customer base is the starting point for our 2026 revenue expectations. Importantly, we don't view the customers who churned as gone forever. As we continue to stabilize our e-commerce platform and restore reliability and the customer experience, we believe we have an opportunity to reactivate a meaningful portion of them over time. But first, we need to build the best possible shopping experience for clean, sustainable products that arrive regularly in one's home. And that's what 2026 is for us, a year of rebuilding that momentum. We are encouraged by the direction because we now have clarity on the root e-commerce platform issues, and we're making tangible progress to fixing them. As those fixes take hold, we expect to stabilize active customers, reactivate lapsed ones and measurably increasing advertising spend to acquire new customers. We expect to deliver sequential revenue growth through the year while maintaining profitability discipline. And as the core experience stabilizes, we will also have more capacity to execute additional growth initiatives, which I'm looking forward to highlighting in future quarters. As we execute that plan, we're staying anchored to the same 4 key pillars we've discussed throughout the year, balance sheet strength, sustainable profitability, revenue growth in environmental and human health. These pillars continue to represent the framework that keeps us focused as we're still rebuilding parts of the customer experience. Starting with balance sheet strength and profitability. In the fourth quarter, we delivered $1.6 million of positive adjusted EBITDA. It reinforces our commitment to navigate this transformation responsibly, protecting liquidity, managing profitability and scaling advertising spend only when the customer experience is stable and paybacks justify it. We also delivered breakeven operating cash flow in the quarter. This is the fifth quarter in the last 8, where we've achieved at least breakeven or positive operating cash flow. That consistency matters. It underscores our focus on disciplined execution and building a more durable operating model. Contributing to these results, we continue to align expenses to the current scale of the business. We executed a reduction in force in November that we expect to generate approximately $5 million of annualized savings. This action was necessary to match our cost structure to the business today, improve operating leverage and create capacity to invest as performance improves. On the revenue and customer side, we advanced several important initiatives to strengthen the experience and rebuild engagement. First, we launched our loyalty program, Grove Green Rewards in the fourth quarter. The program is designed to deepen engagement, reward repeat behavior and reinforce the value customers get from shopping growth. It includes a sign-up bonus, differentiated earn rates for VIP customers and enhance earning on subscriptions. It also gives us multiple levers to run points-based promotions and exclusive VIP deals. And importantly, it allows us to incorporate rewards into new customer offers and reintroduce referral capabilities. Second, in February, we launched our redesigned mobile app, which is a key step towards stabilizing the mobile experience. We moved away from our prior third-party approach and rebuilt our own customer app. Mobile is too important to the customer experience to tolerate instability. This release restores much of the functionality and experience customers have prior to the migration. There's still work ahead to improve performance over the coming quarters. But this release represents a meaningful step forward in delivering a better customer experience. Third, we're focused on strengthening our subscription experience, which is a core driver of retention and lifetime value and an experience that was negatively impacted in the platform migration. In 2025, subscription units drove 60% of our revenue and orders with subscriptions were 79% of total orders. By the time we report second quarter earnings we expect to meaningfully improve the subscription experience to customers who want a box of home essentials delivered on a regular basis to their home. Taken together, Grove, Green Rewards, the redesigned mobile app and our planned subscription improvements are foundational to our strategy this year. They are designed to restore elements of the experience customers know and love, deepen engagement through loyalty, improve discovery and convenience and help us deliver a more personalized and reliable experience that reinforces Grove as the destination for clean and sustainable Assets. Our fourth pillar is environmental and human health. In the first quarter of 2026, we expanded Grove's ingredient standards to cover more than 10,000 banned or restricted ingredients, including more than 3,000 outright banned across every category we carry. To our knowledge, this is the most stringent standards and curated assortment that exists in this space. These standards are also informed by leading EU safety frameworks and often go beyond baseline U.S. requirements through tighter limits and stricter exclusions. For customers, the benefit is straightforward, more confidence in what comes into their home. Strategically, it further differentiates Grove versus competitors that have shorter, less comprehensive less, reinforcing our role as the trusted curator not just the marketplace. Alongside our focus on core execution, as we've stated previously, we continue to evaluate strategic options to maximize shareholder value. These may include additional acquisitions or partnerships, divestitures and other strategic options consistent with our mission and long-term vision. Any action we take will be guided by the same principles that shape how we operate the business every day, customer focus, capital efficiency and sustainable shareholder value creation. In closing, I'm energized about 2026 because the work in front of us is clear and gives us a credible path to stabilizing the business and then reaccelerating responsibly without sacrificing profitability discipline. Grove remains uniquely positioned to lead in human health and wellness by combining trusted standards with the convenience and economics of a modern digital platform. Tom will now walk you through the financials and our 2026 outlook. Tom Siragusa: Thank you, Jeff, and welcome, everyone. I'll walk through our fourth quarter and full year financial results and then review our outlook for 2026. Starting at the top line, revenue for the fourth quarter was $42.4 million, down 14.3% year-over-year. The decline was primarily driven by fewer orders reflecting reduced advertising investment and the lagging effects of disruptions from our e-commerce platform migration earlier in the year. That decline was partially offset by $2.9 million of QVC revenue driven by 8Greens Today’s Special Value program. QVC was an existing 8Greens sales channel that Grove acquired as part of the 8Greens acquisition in the first quarter. For the full year, revenue was $173.7 million, within our revised guidance range. While revenue declined 14.6% year-over-year, we made deliberate trade-offs to protect liquidity and profitability while prioritizing fixes to the customer experience, and we ended the year with positive adjusted EBITDA in the fourth quarter. Turning to our operating metrics. DTC total orders were $539,000, a decline of 25% year-over-year, while active customers ended the quarter at $599,000, down 13% versus the prior year. These declines were driven primarily by headwinds related to the e-commerce migration and lower advertising spend relative to prior years, which reduced new customer acquisition and in turn repeat orders given the recurring nature of our business. DTC net revenue per order was $69.50, an increase of 4.1% year-over-year. The increase was primarily driven by more targeted promotional strategies and a larger mix of higher-priced items and customer orders as we continue to expand our selection. Our gross margin was 53.0%, an increase of 60 basis points compared to 52.4% in the fourth quarter of 2024. The increase was primarily driven by lower promotional activity, partially offset by a nonrecurring benefit in the prior year period related to the sell-through of previously reserved inventory. Turning to advertising. We invested $1 million in the quarter, a 65.2% decrease year-over-year. This reduction reflects a strategic decision to preserve liquidity and drive profitability while we focus on optimizing the core experience through ongoing improvements across our web and app platforms. Product development expense was $1.9 million, down 59.2% year-over-year. This decline reflects our decision to streamline our technology organization as well as lower amortization costs following the e-commerce platform migration. In the near term, we've also been more selective in own brand innovation, prioritizing resources towards stabilizing and improving our core technology and customer experience. As the platform work progresses, we expect to rebalance our investment in product development to support both innovation and growth initiatives aligned with our financial discipline. SG&A expense was $21.2 million, a 20.8% decrease versus the prior year. The reduction was driven by lower fulfillment costs from fewer orders, ongoing cost optimization initiatives, including the reduction in force executed in the fourth quarter as well as reduced depreciation and amortization and lower stock-based compensation. Net loss was $1.6 million or a 3.7% net loss margin compared to a net loss of $12.6 million or a 25.5% net loss margin in the prior year. The year-over-year improvement reflects lower operating expenses and lower interest expense as well as the absence of the noncash loss on debt extinguishment related to the payoff of our term loan in the fourth quarter of 2024. Adjusted EBITDA was $1.6 million or a 3.7% margin compared to negative $1.6 million or a negative 3.3% margin in the prior year. The year-over-year increase reflects structural cost reductions, including our reduction in force from November and disciplined advertising investment. As Jeff mentioned, this is a return to positive adjusted EBITDA for the first time in 6 quarters, reaffirming our commitment to navigating our transformation with discipline. For the full year, net loss was $11.7 million, and adjusted EBITDA was negative $2.2 million, which is in line with our revised full year adjusted EBITDA guidance and reflects the trade-offs we made throughout the year as we navigated the migration and reset our cost structure. Turning to the balance sheet and liquidity. We ended the quarter with $11.8 million in cash, cash equivalents and restricted cash down from $12.3 million at the end of the third quarter, primarily reflecting cash used in investing and financing activities. Operating cash flow was breakeven for the quarter as noncash items more than offset the net loss while working capital was a modest use of cash. This is compared to a $0.3 million operating cash inflow in the prior year. Now turning to our outlook. For the full year 2026, we expect net revenue to be approximately $140 million to $150 million and adjusted EBITDA to be approximately breakeven. Looking across the year, we expect Q1 to represent the trough in revenue for the year, reflecting seasonality and continued disciplined advertising investment. From that point, we expect sequential improvement as customer experience enhancements support customer retention and enable a measured reacceleration of customer acquisition investment throughout the year. In closing, our priorities for 2026 are clear, maintain financial discipline as we continue to optimize the customer experience. These actions are laying the foundation for a healthier, more efficient business that can return to profitable growth going forward. With that, I'll turn the call back over to Jeff for closing remarks. Jeff Yurcisin: Thank you, Tom. As we close out the year, I want to bring us back to what's most important. Grove is rebuilding for the long term, but we also have to deliver in the short term. Over the past year, we've done the really hard work. migrating to a modern platform, reshaping our cost base and refocusing the organization on fixing the core customer experience. We now believe we're past the most disruptive phase of this migration. Our priorities for the next phase are clear. First, keep improving the experience, especially on mobile and subscriptions, so customers can reliably shop, subscribe and reorder with confidence. Second, operate with tight financial discipline protecting liquidity and ensuring that investments meet our standards for payback and lifetime value. And third, as these improvements take hold, we turn to measured growth built on stronger unit economics and a more efficient cost structure. The last year hasn't been good enough, but we know the path forward, and we're executing with urgency and discipline. That's how we'll rebuild long-term shareholder value and reinforce Grove as the destination for clean and sustainable essentials. With that, we're happy to answer any questions you have. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question is from Susan Anderson with Canaccord Genuity. Susan Anderson: Maybe just to start off, if you could kind of talk about -- so first quarter is going to be the trough in sales and then pick up after that. Maybe talk about the drivers that's going to drive the pickup sequentially in sales as we go throughout the year. And then also, maybe if you could just talk about your customer acquisition investment for this year? Are you expecting to invest more in customer acquisition versus what you did last year? Jeff Yurcisin: Susan, let me take that, and then I'll let Tom kind of share in terms of total acquisition spend. So the core reason we're expecting the sequential growth goes back to building a better customer experience. Over the last 12 months since that -- since we jumped on the platform migration, it's been a rough customer experience. The mobile app alone was a really big change that we just launched in Q1, and we're seeing early positive signals. The loyalty program in Q4, each one of these will improve the core customer experience. We mentioned the subscription experience that we hope to be able to announce before our next call, and you put all of this together. And it's pretty energizing about what we can get accomplished. And so that is the primary driver. And then with that in parallel, we do expect to be increasing marketing spend because we are seeing the better repeat rates and a better LTV to CAC and ultimately, better paybacks. Tom, I'll let you kind of handle the specifics around marketing spend. Tom Siragusa: Thanks, Jeff. Yes, so Susan, we -- if you look at our P&L in the fourth quarter, we took our advertising spend down from about $3 million in the third quarter, down to about $1 million in the fourth quarter. We expect to be in about the same range in the first quarter. And we're not going to give specifics as to what we think that ramp is going to look like over the course of the year. But given some of the technology improvements and the impact that those will have on the CX, those should be the enabler for us to go and grow advertising spend because there will be a better user experience, and that should be one of the key enablers for growth over the course of the year. That, along with stabilizing existing customer base. So that's how I would think about the cadence. Susan Anderson: Okay. Great. And then maybe if you could just talk about the categories that you offer currently on your site. And I guess, is there any white space left. You've obviously been able to expand quite a bit into health and wellness and then beauty and pet as well. So maybe just talk about kind of where you're at with those newer categories and then also any white space opportunity ahead. Jeff Yurcisin: Appreciate that. We think most of the opportunity is within our core categories, and we see real growth paths within the type of assortment that we are currently selling. Are there opportunities adjacent, of course, they are. So some of those will be when we think about wellness, thinking in a more broad perspective than justify them as minerals and supplements, but everything going into air filters and even potentially mattresses where the opportunity is to deliver and curate the best products for a healthy home. And that goes beyond just our kind of standard categories. I would also say, this year, we will be enabling some drop ship capabilities, which will allow us to get into some higher AOV categories with the right type of economics. But again, all through the lens of these 3,000 banned ingredients and substances, the highest most -- the highest standards from an ingredients perspective. And also the most kind of curated assortment out there. And so from a category perspective, we are seeing success in all of these new categories whenever we launch more products, customers love it. And we're seeing growth, but the real opportunity is serving the core customer with an adjacency towards drop ship, which will expand our overall categories into beyond just VMS, but into broader human health. Susan Anderson: Okay. Great. And then maybe lastly, if you could just talk about the margins for this year and if there's any varying cadence by quarter, whether it's gross margin or operating expense to get to your breakeven for the year? Jeff Yurcisin: Tom, I'll let you take this. Tom Siragusa: Yes. So I think in terms of margins, without giving specific guidance, I think from a gross margin perspective, we don't expect there to be a lot to move the needle one way or the other there. We did launched our loyalty program, which will allow us to be more tactical with our promotions from a point-based perspective. So we'll be leaning into that and using that to be as effective as we possibly can from a promotional perspective to engage customers. And then from an advertising perspective, we're going to spend similar to the fourth quarter and the first quarter, and then we'll scale it from there. I think given the discretionary nature of advertising spend, we'll lean in there as we see the results from some of the technology improvements and from a new customer acquisition perspective. And then from an operating expense perspective, we executed the RIF in the fourth quarter that reset our cost base lower. And so I think that's probably a good baseline to think about what our operating expense structure will look like going forward. Operator: There are no further questions at this time. I'd like to hand the floor back over to Jeff Yurcisin for any closing comments. Jeff Yurcisin: Thank you very much. I just want to thank everyone who joined the call, and hope you have a great night. Thank you. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Roy Nir: Good afternoon, everyone, and welcome to Entravision's Fourth Quarter and Full Year 2025 Earnings Call. I'm Roy Nir, Vice President of Financial Reporting and Investor Relations. Joining me today to discuss our results are Michael Christenson, our Chief Executive Officer; and Mark Boelke, our Chief Financial Officer and Chief Operating Officer. Before we begin, I would like to inform you that this call will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ. Please refer to Entravision's SEC filings for a list of risks and uncertainties that could impact actual results. The press release is available on the company's Investor Relations page and was filed with the SEC on Form 8-K. Additional information may also be found on our annual report on Form 10-K, which was also filed today. Our call today is using Zoom. If you'd like to ask a question, please use the Q&A function on the screen, during the call, indicate you name and company, and submit your question in writing. We will try to answer any questions that relate to the topics contained in today's call during the Q&A session. I will now turn the call over to Michael Christenson. Michael Christenson: Thanks, Roy, and thank you to those of you joining this call today. We appreciate your interest and your support. As you saw in our press release, on a consolidated basis, Entravision increased revenue 26% to $134 million in 4Q '25 compared to 4Q '24. We had an operating loss of $21 million in 4Q '25 compared to an operating loss of $49 million in 4Q '24. The 4Q '25 operating loss included a $26 million noncash impairment charge. So we would have had an operating profit if we exclude that adjustment. But as we've said on prior calls, we're committed to growing our business and earning a profit. So we acknowledge that we have work to do to improve our operating performance and profitability, especially in our Media business. We report our results for 2 segments: Media and Advertising Technology & Services, what we call ATS. For our Media segment, our revenue declined 32% in 4Q '25 compared to 4Q '24. This decline was primarily due to lower political revenue. Excluding political revenue, our 4Q '25 results included a 4% increase in local advertising revenue and a 5% decrease in national advertising revenue. Our local operations had 3% lower monthly active advertisers, but this was offset by an 8% increase in revenue per monthly active advertiser. In terms of operating expenses and profitability, as we have discussed in the past, we made a number of important investments in our media business in 2025. We added capacity to our local sales teams, more sellers, and we added digital sales specialists and digital sales operations capabilities, more digital. When we analyzed our local markets and our local advertiser base, we saw an opportunity to increase revenue by adding sales capacity. In addition, virtually all our local advertising customers are advertising in digital channels, search, social, streaming video and streaming audio. And we believe we can serve their needs in digital channels as well as our traditional broadcast, video and audio channels. The increase in operating expenses in our Media segment for these investments is about $8 million on an annualized basis. However, we funded these investments in part by improving efficiency and reducing costs in nonrevenue-generating operations. So as you'll see, total operating expenses in our Media segment were actually 6% lower in 4Q '25 compared to 4Q '24. Since revenue was lower because we did not have political revenue, we did have an operating loss of $428,000 in 4Q '25 compared to an operating profit of $18.5 million in 4Q '24. For our Media segment, we have 2 additional initiatives underway to generate incremental revenue. First, in October of last year, we began broadcasting a new network that we call Altavision. Altavision is broadcast on our multicast capacity across all of our markets. We provide the broadcasting infrastructure and sales, and we also provide local news programming. The balance of the programming is provided by Grupo Multimedios of Monterrey, Mexico. And together, we share the revenue. The stations have been on the air since October, and we've been test marketing with local advertisers since the beginning of this year. In addition, on January 1, 2026, we launched new programming on our full power Orlando television station, WOTF-TV, in a partnership with Hemisphere Media. Hemisphere Media owns WAPA TV, the #1 television station in Puerto Rico. And together, we launched WAPA Orlando Channel 26 to serve the growing Puerto Rican, Caribbean, Central and South American Spanish-speaking communities in Central Florida. There are more than 500,000 Puerto Ricans in the Orlando market, and we are very excited about this new -- the new revenue potential for this business. Now for our Advertising Technology & Services segment. ATS revenue more than doubled in 4Q '25 compared to 4Q '24, and we had more customers and higher spend per customer. We've continued to invest in our ATS segment in 4Q '25 to grow revenue and operating profits. We invested in our engineering team to continue to improve our technology and to build more powerful AI capabilities into our platform. And we invested to increase the capacity of our sales organization and customer operations. In addition, our infrastructure costs, primarily cloud computing costs increased in 4Q '25 compared to 4Q '24 as our infrastructure costs will grow as our revenue grows. They're currently growing at about the same pace as revenue. But as the business gets larger, we expect to see some incremental operating leverage so that these costs will grow at a slower pace than revenue. But the combination of our investments, investments in increased operating expenses, that's the direct operating expenses plus selling, general and administrative expenses were $6.5 million higher in 4Q '25 compared to 4Q '24. That's $26 million higher on an annualized basis. The operating profit for ATS was $12 million in 4Q '25 compared to an operating profit of $2 million in 4Q '24. In our ATS segment, this week, we announced an acquisition. We acquired the technology, platform and product IP of Playback Rewards. Playback Rewards is a reward and loyalty platform. For the past year, we have been developing our own reward platform, but this acquisition presented an opportunity to accelerate our entry into this market with a more robust platform. So to summarize, in Media, we're investing to increase our local sales capacity and to expand our digital sales and digital sales operations capabilities. Again, more sellers and more digital. And in ATS, we're investing to add more engineers to advance our technology and to increase our sales capacity, more technology, better technology and more sellers. We believe these investments will help us build a stronger company. So now I'll ask Mark to share with you more details of our financial results for 4Q '25 and the full year 2025. Mark? Mark Boelke: Thank you, Mike. I'll start by reviewing the performance of each of our 2 reporting segments, again, Media and Advertising Technology & Services. In our Media segment, fourth quarter revenue was $45.8 million, which was down 32% compared to fourth quarter 2024. Full year 2025 revenue was $176.7 million, down 20% compared to full year 2024. As we've noted on previous calls, our Media business began slowly in 2025, in part due to advertiser uncertainty in the environment of a new administration and federal immigration enforcement actions. In addition, there was significant political advertising in 2024 that was not present in 2025. However, we've seen sequential quarterly improvements in revenue as we move through 2025, particularly in local ad sales, and we're seeing momentum and progress in the execution of our revenue strategies. One of our goals is to optimize our organizational structure and the expense of support services in order to align them with revenue and to be profitable in each segment as well as on a consolidated basis. Let's look at total operating expense for the Media business, again, meaning the sum of direct operating expense and selling, general and administrative expense, or SG&A, as those 2 line items are reported in our segment results. Media segment total operating expense in the fourth quarter decreased $2.5 million compared to fourth quarter '24, a decrease of 6%. Operating expense was flat for full year 2025 compared to full year 2024. Starting in Q3 '25, we have taken steps under an ongoing organizational design plan intended to support revenue growth and reduce expenses in our Media segment. Key components of this plan included a reduction in Q3 and Q4 of approximately 5% of the Media segment's total workforce, primarily in back-office roles, and we abandoned several leased facilities with impacted employees transitioning to remote work. We expect these changes to reduce media operating expense by approximately $5 million on an annual basis, and we recorded charges during third and fourth quarter totaling $2.8 million for the expenses associated with these moves. And these charges were reported as restructuring costs on our income statement. The Media segment had an operating loss of $0.4 million in Q4 '25 compared to operating profit of $18.5 million in Q4 '24. The decrease was mainly due to political advertising revenue in Q4 '24 that was not present in Q4 '25. We continue to evaluate the organizational structure of our Media business in order to provide compelling content, drive sales, streamline our organization and optimize expense. And the Media segment operating loss improved significantly from third quarter to fourth quarter '25. Now let's turn to our Ad Tech & Services segment, or ATS. Fourth quarter revenue for the ATS business was $88.6 million. This was an increase of 123% compared to fourth quarter '24 and a sequential increase of 16% from third quarter to fourth quarter '25. Full year 2025 revenue was $270.9 million, an increase of 90% year-over-year compared to full year 2024. As the year progressed through the fourth quarter, we had a higher number of monthly active accounts and higher revenue per monthly active account. As discussed on previous calls, we have had success executing our strategies in the ATS business during 2025, including expanding the sales team and geographic sales coverage and strengthening our AI capabilities and platform technology. ATS total operating expenses increased by 48% in the fourth quarter '25 compared to Q4 '24, an increase of $6.5 million. Operating expenses increased by 54% in full year '25 compared to full year '24. The ATS expense increase was primarily related to the increase in revenue. For example, as Mike mentioned, the expense of cloud computing services has increased as a result of processing more transactions and using stronger AI capabilities built into our ad tech platform. There was an increase in sales commissions and performance compensation as a result of the revenue increase and achievement of other performance metrics. And the ATS business has also hired additional sales, engineering and ad operations staff in recent quarters in order to drive ATS growth and expand into new geographic areas. ATS operating profit was $12.3 million in Q4 '25. This was an increase of 464% versus Q4 '24 and a sequential increase of 26% from the prior quarter, Q3 '25. Operating profit for full year 2025 was $33.8 million, an increase of 317% versus full year 2024. Our goal for the ATS business is to continue to grow revenue and generate positive operating leverage and the ATS revenue increase exceeded the expense increase in terms of percentage and absolute dollars. Combining our 2 operating segments, on a consolidated basis, revenue for fourth quarter '25 was $134.4 million, up 26% compared to fourth quarter '24. Full year 2025 revenue was $447.6 million, up 23% compared to full year '24. The 2 segments together generated a consolidated segment operating profit of $11.9 million in Q4 '25 and $27.6 million for full year '25, a decrease of 43% and 41% compared to the respective prior periods. The decrease was a result of decreasing -- I'm sorry, was a result of decreased operating profit in the Media segment, primarily due to political revenue in 2024 that was not present in 2025, partially offset by increased operating profit in the ATS segment. We had a consolidated operating loss of $20.7 million in Q4 '25 compared to a loss of $48.6 million in Q4 '24. Our consolidated operating loss included a noncash impairment charge of $26 million related to certain FCC licenses. Without this noncash impairment charge, we would have had an operating profit of over $5 million in Q4 '25. Full year 2025 operating loss was $83.4 million versus $52 million for full year 2024, with the increase primarily due to a loss on lease abandonment related to our corporate headquarters and restructuring charges related primarily to our Media segment. Again, our goal is to be profitable for each segment and generate a consolidated operating profit. We have additional work to do, particularly in the Media business, and we remain focused on growing revenue and reducing operating expense throughout 2026 and beyond. Looking at corporate expenses, we have taken significant steps to reduce these expenses over the past few years. Corporate expenses in fourth quarter '25 were $6.5 million, a 13% decrease compared to fourth quarter '24 or about $1 million. The decrease was primarily due to expense reductions in rent and professional services. For full year 2025, we reduced corporate expenses by $10.5 million compared to full year '24, a 28% decrease year-over-year. Going back 1 year further for additional context, corporate expense in 2025 was almost half of the amount of corporate expense in 2023. Entravision's balance sheet remains strong with over $63 million in cash and marketable securities at year-end. We're proud of our strong balance sheet, which we believe sets us apart from others in the industry. In 2025, we made total debt payments of $20 million, reducing our credit facility indebtedness to about $168 million as of year-end. We entered into an amendment to our credit facility in Q3 as previously reported. The amendment was a proactive and strategic move to accelerate debt reduction and provide more financial stability and flexibility under our credit agreement. In addition, we paid $4.6 million in dividends to stockholders in the fourth quarter or $0.05 per share and a total of $18 million for full year 2025 or $0.20 per share. For the first quarter of 2026, our Board of Directors has approved a $0.05 dividend per share payable on March 31 to stockholders of record as of March 17 for a total payment of approximately $4.6 million. Our strategy regarding allocation of cash is, first, reduce debt and maintain low leverage; and second, return capital to our shareholders, primarily through dividends. We look at capital allocation on a 2-year basis to take into account cyclical political advertising that occurs every other year. During the past 2 years, 2024 and 2025, we had about $85 million of net cash provided by operating activities. During this 2-year period, we used about $76 million of that $85 million to pay down debt and pay a shareholder dividend. That's $40 million used to reduce debt and $36 million used to pay dividends to shareholders. 2025 was not a political year, so we did not have meaningful political revenue last year, but we have now entered another political advertising election year here in 2026. We'd like to thank you for joining our call today. We welcome our investors to connect with us through the Investor Relations page on our corporate website, entravision.com, where you will have access to a transcript of this call, the press release containing our fourth quarter and full year financial results and a copy of our annual report filed with the SEC on Form 10-K. At this time, Mike and I would like to open the call for questions from the investment community. Roy, I'll turn it back over to you. Roy Nir: Thank you, Mark. [Operator Instructions] The first question is regarding the outlook for political revenue in 2026. Mike, do you want to address that? Michael Christenson: Yes. So as of today, we are 243 days away from election day 2026. And as you can see in the news, primaries are underway across the country. I think we're very well positioned for a strong political spending environment in 2026. As we've said on prior calls, we believe the Latino vote will be critical to the outcome of the congressional elections in all -- in our 6 Southwestern states. The Cook Political Report lists the 35 closest races of the 435 congressional races, and we are fortunate to have 11 of those 35 in our markets. We also have the important Texas U.S. Senate race, which is, again, getting a lot of press. And then finally, we have governors' races in California, Colorado, Nevada, New Mexico and Texas. So we're very well positioned. And what I would say is, which we've also said on past calls, we believe the Latino vote will be critical to the outcome of these elections. Studies have shown that Latinos are the most persuadable segment of the electorate, and we have a powerful channel for reaching that audience. And what we will say to make it very clear, what we say to everyone, we can get to listen to our pitch, you must win the Latino vote to win your election. And if you want to win the Latino vote, you should double or triple your allocation to Spanish language media. So again, we're very optimistic about how we're positioned for 2026. Roy Nir: Thank you, Mike. We received another question related to the status of renewing the affiliation agreement with TU. Can you provide an update on that? Michael Christenson: Sure. Not much to update since our last call, what we said last time, and it's still the case today. The affiliation agreement with TelevisaUnivision runs through December 31, '26. We've been partners for 3 decades, and our plan is to renew this agreement. So we expect to renew this agreement. But that's all I can say at this point. Roy Nir: Thank you, Mike. Please hold as we review additional questions. Thank you, everyone, for joining us today. Mike, I'll turn it back to you for closing remarks. Michael Christenson: At this point, we'll say thanks, Roy, and thank you again to all of you who are joining our call today. We look forward to speaking with you again when we report our 2026 first quarter results. Thank you very much.
Operator: Welcome to Evogene's Fourth Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, March 5, 2026. Before we begin, I would like to caution that certain statements made during this earnings conference call by Evogene's management will constitute forward-looking statements that relate to future events. This presentation contains forward-looking statements relating to future events and Evogene Ltd., the company may from time to time, make other statements regarding our outlook or expectations for future financial or operating results and/or other matters regarding or affecting us that are considered forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995, the PSLRA and other securities laws as amended. Statements that are not statements of historical fact may be deemed to forward-looking statements. Such forward-looking statements may be identified by the use of such words as believe, expect, anticipate, should, plan, estimate, intend and potential or words of similar meaning. We are using forward-looking statements in this presentation when we discuss our value drivers, commercialization efforts and timing, product development and launches, estimate market sizes and milestones, pipeline as well as our capabilities and technology. Such statements are based on current expectations, estimates, projections and assumptions, describe opinions about future events, involve certain risks and uncertainties, which are difficult to predict and are not guarantees of future performance. Readers are cautioned that certain important factors may affect the company's actual results and could cause such results to differ materially from any forward-looking statements that may be made in this presentation. Therefore, actual future results, performance or achievements and trends in the future may differ materially from what is expressed or implied by such forward-looking statements due to a variety of factors, many of which are beyond our control, including, without limitation, the aftermath of the recent war between Israel and each of the terrorist groups, Hamas and Hezbollah, Iran and other regional terrorist groups supported by Iran and any destabilizations in Israel, neighboring territories or the Middle East region and those described in greater detail in Evogene's annual report on Form 20-F and in other information Evogene files and furnished with the Israel Securities Authority and the U.S. Securities and Exchange Commission, including those factors under the heading Risk Factors. Except as required by applicable security laws, we disclaim any obligation or commitment to update any information contained in this presentation or to publicly release the results of any revisions to any statements that may be made to reflect future events or developments or changes in expectations, estimates, projections and assumptions. The information contained herein does not constitute a prospectus or other offering document nor does it constitute or form part of any invitation or offer to sell or any solicitation of any invitation or offer to purchase or subscribe for any securities of Evogene or the company nor shall the information or any part of it or the fact of its distribution from the basis of or be relied on in connection with any action, contract, commitment or relating thereto or the securities of Evogene or the company. The trademarks include herein are the property of the owners thereof and are used for reference purposes only. Such use should not be construed as an endorsement of our product or services. With us on the line will be Ofer Haviv, President and CEO of Evogene and Yaron Eldad, CFO of Evogene. Now I will turn the call over to Ofer Haviv. Mr. Haviv, please go ahead. Ofer Haviv: Thank you for joining Evogene's Fourth Quarter and Annual 2025 Analyst Call. In today's call, I would like to focus on the significant progress Evogene has made over the past year and to outline the strategic transformation we initiated to position the company for long-term value creation. Following my remarks, our CFO, Yaron Eldad, will present the financial results, and we will then open the call for questions. During 2025, following a comprehensive review of our technology, markets and capital allocation, we made deliberate choice to sharpen our focus and execution. This transformation was guided by a strong objective to direct Evogene resources where we believe we can create the greatest sustainable value. Today, our mission is clear and focused. to design novel, highly potent small molecules optimized across multiple parameters for drug development and ag chemicals by utilizing ChemPass AI, our computational generative AI engine. For this purpose, we implemented 2 core strategic decisions. First, we focused our technology development on a single computational engine, ChemPass AI. Second, we streamlined our business activities to concentrate exclusively on 2 high-impact markets where ChemPass AI offers strong differentiation, human health centered on small molecule drugs and agriculture focused on novel ag chemicals. These decisions led to determined actions across the company. We dedicated our computational capabilities to ChemPass AI, discontinued noncore activities, divested misaligned assets, resized the organization and established a business development team aligned with our refined strategy. I would like to elaborate on ChemPass AI and emphasize its competitive advantage for small molecules generation. ChemPass AI is designed to generate novel, highly active molecules while meeting the complex parameters required to meaningfully increase the probability of downstream development success. ChemPass AI competitive advantage lies in the powerful combination of the following 2 capabilities. The first, generating novel molecules based on vast chemical territories and the second, ensuring they meet demanding multiple parameters requirement from day 1. Our platform goes far beyond the chemical space the industry traditionally explores. Based on 38 billion molecules universe, ChemPass AI foundation model navigates vast diverse chemical domains that others simply cannot access. This enables us to design truly original molecular structures with strong biological potential and highly defensible intellectual property, opening the door to breakthrough products and new IP landscape. At the same time, precision is built into every molecules we create. Our AI engine simultaneously optimize a wide range of critical chemical, biological and physical parameters, tailoring each compound to the exact constraints and success criteria of the specific target product. The result is not just innovations, but synthesizable active molecules engineered from the outset to meet real development requirements, dramatically increasing the probability of real-world commercial success. This differentiation is supported by proprietary technological advancements developed by our internal team, guided by world-class scientific advisers and reinforced through multiple collaborations with leading technology companies, including Google Cloud with whom we are currently engaged in our second collaboration. Our first announced collaboration with Google Cloud was successfully completed in mid-2025 with a first-in-class foundation model for the generation of novel molecular product candidates optimized for multiple parameters by processing a database of 38 billion structures. We tripled our benchmarks for accuracy, delivering 90% design precision. Building on this, we were pleased to announce our second collaboration with Google Cloud initiated this February. We are now integrating advanced AI agents into ChemPass AI using Google Cloud Vertex AI to decrease manual errors and automate complex scientific workflows, aiming to improve our novel small molecule candidate probability of development success. This move towards autonomous discovery is key to advancing and scaling our capabilities for the support of future partnerships across the pharma and agriculture industries. To summarize the uniqueness of Evogene's offering, our product candidate combines 3 powerful capabilities: novel molecules generated based on vast and diverse chemical space, simultaneous optimizations for multiparameters requirements from the outset, highly potent molecules optimized through targeted experimental validation. We don't just design novel chemistry. We generate novel chemistry that performs. ChemPass AI is built on fully integrated partnership-driven workflow, forming our business model expressed in collaboration and in-house development towards proprietary product candidate. Our partners are engaged at every stage from joint strategic review through rigorous experimental validation and collaborative evaluation. Each project is custom designed to align precisely with each specific scientific and strategic objectives. I view this collaborative structure as a key strategic advantage for us, both in enhancing the likelihood of advancing proprietary candidate molecules with the highest potential to become successful products and in positioning Evogene as a true development partner, enabling participation in the product's future revenue stream. That brings me to this slide, demonstrating the implementation of our business model, summarizing Evogene's current achievements of which I'm very proud. In human health, we are advancing multiple partnered drug discovery programs with biotechnology companies and academic institutions. In this partnership, ChemPass AI is driving discovery and optimization of candidates that are progressing into testing with our partners. To date, we have publicly disclosed 4 such collaborations, and we expect such activity to scale with additional collaborations. These achievements were made within a very short time frame of several months, and we aim to present similar advancement during the remainder of 2026 and beyond. You are invited to visit Evogene's website and review our company's presentation for additional details on each of these collaborations. In agriculture, our subsidiary, AgPlenus, continues to apply ChemPass AI to development of novel herbicides and fungicides. The maturity and robustness of the platform are reflected through our strategic collaboration with Bayer and Corteva alongside a differentiated internal pipeline. We expect continued growth through the expansion of those collaborations and the formation of new partnerships. In our future quarterly analyst call, I expect to go deeper into these business engagements and update on new ones. To complete my part in today's call, I would like to send a clear message. The generation of proprietary small molecule product candidates is our mission. With ChemPass AI, our well-differentiated generative AI engine, disciplined capital allocation focused on high potential markets and a strong strategic partnerships, we believe Evogene is now positioned on a defined more focused path towards sustainable value creation. Our business aim for short and midterm is to become the partner of choice for small molecule discovery and optimization with pharma and big biotech companies for drug development and with multinational agriculture companies for ag chemical development. For the long term, Evogene aims to develop its own product pipeline, benefiting from the competitive edge of our proprietary technology. This is Evogene, combining cutting-edge AI with deep scientific expertise to generate real-world innovation. Thank you for your time and attention. With this, I conclude my part and will now hand the call to our CFO, Yaron Eldad, to present the financial results. Yaron Eldad: As part of the company's updated strategic plan, management implemented an organizational realignment and cost reduction initiatives. The effects of these measures are reflected in the significant decrease in operating expenses net, which declined to approximately $13.8 million for the year ended 2025 compared to approximately $22 million in 2024. The impact is also evident in the fourth quarter results with total operating expenses net of approximately $3.2 million compared to approximately $4.3 million in the corresponding period of 2024. The company expects this reduced expense level to be sustained in future periods. In 2025, Lavie Bio Ltd, a subsidiary of Evogene Ltd focused on agriculture biologicals, completed the sale of the majority of its operations to ICL. As a result of this transaction, Lavie Bio no longer maintains employees and its operation expense level has decreased significantly. Lavie Bio anticipates distributing the majority of its remaining cash to its shareholders, including Evogene during 2026. During 2025, as part of the company's updated strategic plan, we scaled down Biomica's operations and research and development activities and reduced its personnel to a minimal level. In early 2026, Biomica entered into a license agreement with Lishan Pharmaceuticals for its lead oncology candidate, BMC128. Following this transaction, Biomica does not expect to conduct further material operational activities and anticipates distributing the majority of its remaining cash to its shareholders, including Evogene. With respect to AgPlenus, we integrated AgPlenus, our ag chemical subsidiary into the core operations of Evogene with the objective of maximizing the value of our ChemPass AI platform for the development of novel ag chemical products. In alignment with the company's updated organizational structure, AgPlenus was resized and streamlined to reflect the revised operating model. During 2025, due to a significant decline in demand for castor seeds, Casterra AG ceased its operations in Kenya, reduced its headcount and overall expense level and is currently focusing its activities on the Brazilian market. As a result of these developments, Casterra recorded an impairment of approximately $2.2 million related to its seed inventory. This impairment is presented within cost of sales in the consolidated financial statements in a separate line item. In February 2026, Evogene entered into a warrant inducement agreement with an existing investor, providing the immediate exercise in full of its August 2024 Series A and Series B warrants, resulting in gross proceeds to the company of approximately $3.4 million before deducting placement agent fees and other offering expenses. In consideration for such exercise, the investor will receive in a private placement, new unregistered Series A1 and Series B1 warrants to purchase up to an aggregate of 5,076,924 ordinary shares. The new warrants are exercisable immediately at an exercise price of $1.25 per ordinary share. Cash position. As of December 31, 2025, Evogene held consolidated cash, cash equivalents and short-term bank deposits of approximately $13 million. The consolidated cash usage during the fourth quarter of 2025 was approximately $3 million. Excluding Lavie Bio and Biomica, Evogene and its other subsidiaries used approximately $2.4 million in cash during the fourth quarter of 2025. Revenues for 2025 totaled approximately $3.9 million compared to approximately $5.6 million in the same period the previous year, reflecting a decrease of approximately $1.7 million. The decrease was primarily driven by lower revenue recognized from AgPlenus' activity, which included onetime payment during the first quarter of 2024 and revenues recognized from the collaboration agreement with Corteva that was completed during 2024. Revenues for the fourth quarter of 2025 were approximately $0.3 million, a decrease compared to approximately $1.5 million in the same period last year. The decrease was mainly due to reduced seed sales generated by Casterra during the fourth quarter of 2025. Cost of revenues for the year ending 2025 was approximately $4.1 million compared to approximately $2.4 million in the previous year. The increase was primarily attributable to an inventory impairment of approximately $2.2 million recorded by Casterra during the fourth quarter of 2025, mainly due to its decision to cease its operations in Kenya as noted above. Cost of revenues for the fourth quarter of 2025 was $2.3 million compared to $0.7 million in the fourth quarter of the previous year. The increase in quarterly cost of revenues was mainly driven by the same inventory impairment of Casterra as noted above. R&D expenses net of nonrefundable grants for the year 2025 were approximately $8 million, a decrease of approximately $4.5 million compared to $12.5 million in the year 2024. The decrease was primarily due to reduced R&D expenses in Biomica, Casterra and AgPlenus. In the fourth quarter of 2025, R&D expenses were approximately $1.8 million, down from approximately $2.7 million in the same period of 2024. This decrease is mainly attributed to decreased expenses in Biomica. Sales and marketing expenses for the year 2025 were approximately $1.5 million, a decrease of approximately $0.5 million compared to approximately $2 million in the same period last year. The decrease was mainly due to reductions in Evogene and Biomica's personnel costs. Sales and marketing expenses for the fourth quarter of 2025 and 2024 were approximately $0.3 million and $0.4 million, respectively. General and administrative expenses for the year 2025 decreased to approximately $4.3 million from approximately $7 million in the same period last year. This decrease is mainly attributable to expenses recorded during the year 2024 related to a provision for doubtful debt for one of Casterra's seed suppliers as well as transaction costs associated with Evogene's fundraising in August 2024. Additional decrease is attributable to a reduction in Biomica's activity and personnel costs during 2025. General and administrative expenses for the fourth quarter of 2025 decreased to approximately $0.9 million compared to approximately $1.3 million in the same period of the previous year. primarily due to decreased expenses in Evogene and Biomica, as mentioned above. Operating loss for 2025 was approximately $14 million, a significant decrease from approximately $18.8 million in the same period of the previous year, mainly due to decreased operating expenses, partially offset by the decreased revenues, as mentioned above, and the higher cost of revenues, mainly due to an inventory impairment of approximately $2.2 million recorded by Casterra in the fourth quarter of 2025. The operating loss for the fourth quarter of 2025 was approximately $5.2 million, an increase from approximately $3.5 million in the same period of the previous year primarily due to the decreased revenues and increased cost of revenues mentioned above, partially offset by decreased operating expenses. Financing income net for the year 2025 was approximately $0.6 million compared to approximately $4 million in the previous year. The decrease in financing income net was mainly associated with accounting treatment of prefunded warrants and warrants issued in August 2024 fundraising. As a result, during the 12 months of 2025, the company recorded financial income net related to prefunded warrants and warrants of approximately $458,000 as compared to a financial income of approximately $3.4 million in the same period of 2024. Financing expenses net for the fourth quarter of 2025 were approximately $0.2 million compared to financing income net of approximately $4.5 million in the same period of the previous year. The decrease in financing income is mainly associated with accounting treatment of prefunded warrants and warrants issued in the August 2024 fundraising as mentioned above. Income from discontinued operations net for the 12 months of 2025 was approximately $5.7 million compared to a loss of approximately $3.2 million in the same period of 2024. For the fourth quarter of 2025, loss from discontinued operations net was approximately $16,000 compared to a loss of approximately $1 million in the fourth quarter of the previous year. These amounts primarily reflect the financial results of Lavie Bio's operations as well as expenses related to the development and maintenance of MicroBoost AI for Ag, which are presented as a single line item in the consolidated statements of profit and loss. Following the sale of the majority of Lavie Bio's assets as well as Evogene's MicroBoost AI for Ag to ICL, the company recognized a gain on sale of approximately $6.4 million which is also included in the income from discontinued operations net for the year of 2025. All prior period amounts have been reclassified to confirm to this presentation. Net loss for the 12 months of 2025 was approximately $7.8 million compared to approximately $18.1 million in the same period last year. The $10.3 million decrease in net loss was primarily due to decreased operating expenses and an income derived from discontinued operations due to the asset sale to ICL net, partially offset by reduced revenues, higher cost of revenues and a decreased financing income net. The net loss for the fourth quarter of 2025 was approximately $5.4 million compared to net loss of approximately $5,000 in the same period last year. This increase in net loss was primarily due to decreased financial income, decreased revenues and increased cost of revenues, partially offset by decreased operating expenses as mentioned above. Operator? Operator: [Operator Instructions] There is a siren in Israel. We will be back in a few minutes. Thank you for standing by. The first question, can you speak to the terms of the BMC128 license agreement with Lishan Pharmaceuticals? Ofer Haviv: This is Ofer. Sorry for asking you to wait. It's not a regular time here in Israel, we are -- everybody that participated in the call is in the same place at Evogene Office. With respect to this question, what I can disclose is that the agreement with Lishan includes a milestone payment, which is expected based on advancing the BMC128 in the pipeline or if there will be any commercial transaction that will generate value for Lishan so we will participate in this amount. And of course, revenue sharing from revenue the end product will generate. So this is what we can disclose. And in pharma, the numbers will be quite significant. So when this [indiscernible], it could be significant for Evogene. It could be quite significant for Biomica and Evogene as a major shareholders in Biomica is expected to benefit from it. We can move to the next question. Operator: Can you speak to the magnitude of cash potentially coming in from Lavie Bio and Biomica. To summarize, can you highlight investor catalysts over the coming 12 months? Ofer Haviv: So with respect to the cash expected from Biomica and Lavie Bio. So we disclosed the financial terms of the acquisition of the majority of Lavie Bio -- and MicroBoost and to ICL and what we have expected is that the cash that Evogene will have after this dividend distribution will satisfy our need for at least mid next year, maybe even more. But the current operation, the expectation is that even without additional financial transaction, we have sufficient cash for a little bit more than 1.5 years. And with respect to the catalyst that might took place -- so I think that I tried to describe it in my part. So you can envision 3 type of catalysts. The first one, additional technology collaboration with companies such as Google. What I can share is that we are talking with some other company in the same size like Google, where we are looking for a different opportunity to work together and leverage their assets and knowledge to the where we acted. And each time that such a thing happen, it really pushed the limitation that we are addressing with our technology to further and further. So this is quite important. And of course, it the attention of potential partners because it increased the evidence that what we are offering is something very unique if all of this mega, mega company is working with us. So this is one type of catalyst. The second type of catalyst is additional collaboration agreement with pharma companies or with biotech companies where we are going to use ChemPass AI to identify small molecules which bind to the protein of interest addressing multi actor criteria, novel chemical structure and with high potency. The first set of collaboration that we engaged with small biotech companies and institution. Now we are targeting for more and bigger type of tech companies. And we are also expecting that at least some of those transactions will inject cash to the company to Evogene even in the early stage to cover our expenses. So this is the first type of catalyst that you can think of. And the second type of catalyst you can think of. And the third is, again, collaboration agreement, but this time with other chemical companies -- we are talking with some companies in this field. The industry in the last few years didn't have a positive performance the market. And this has had a negative effect on their willingness and appetite to enter into a collaboration. But things start to change now and understanding that there is a clear need for innovation increase. And also I think that the performance that AgPlenus achieved in the last year, hopefully will help us to engage in some collaboration agreements with potential partners in this industry. So to summarize, 3 type of catalyst technology collaboration with companies like Google and others, then collaboration with midsized biotech and pharma companies and collaboration with other chemical companies. This is the main catalyst I'm expecting to share coming from the core business of Evogene as we see today -- we also have some other activities such as Casterra and some other legacy activity. But I prefer not to refer to them today because it's very important for me to make sure that it's very clear that what is the strategic avenue Evogene decided to go through and we truly believe this represent the highest potential for our shareholders for the next few years. Operator: There are no further questions at this time. Mr. Haviv, would you like to make a concluding statement? Ofer Haviv: Yes. I would like to thank everybody to participate in today's conference call. We are here in Evogene committed to achieve our targets I can assure you that all of Evogene employees are working from home or even coming to our offices. And I'm looking forward to continue to update you and share with you additional great announcement like in the last quarter. Thank you. Operator: Thank you. This concludes Evogene's Fourth Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Operator: Welcome to the Dürr conference call for the preliminary figures of 2025. I will now hand over to Mathias Christen. Mathias Christen: Thank you, Anna. Welcome to today's call, ladies and gentlemen. The corresponding presentation is available on our website, and I assume you have it in front of you. As you know, we published select key figures in an ad hoc release already on February 17. Nonetheless, there are still enough figures and news to share with you today. The figures usually relate to continued operations with some exceptions that will be marked. Our CEO, Jochen Weyrauch will start on Page 2 before Dietmar Heinrich, our CFO, will take you through the financials. Jochen, the floor is yours, please. Jochen Weyrauch: Thank you, Mathias, and good afternoon to all participants on the call. As the most important figures, as Mathias said, were already released, I would like to start with a wider perspective and share with you what I personally consider the most important achievements of 2025. Basically, we delivered on what we promised. We simplified our group structure and turned Dürr in a more focused technology company with only 3 instead of 5 divisions. This involves sharpening our focus on the core business, which is automating production processes and making them more sustainable and efficient or Sustainable Automation as we call it. In this context, we successfully sold the noncore environmental technology business with a high post-tax book gain of EUR 227 million. On top, we started resizing our administrative structure to adapt to a smaller scope of business and tackle cost savings of EUR 50 million. This was after the capacity measures at HOMAG, a further major step to systematically reduce our fixed costs. The effectiveness of our cost-cutting measures is being testified by the improved operating performance in 2025 that was achieved despite the adverse macro environment. Next is Slide 3. The improved operating performance is reflected by 100 basis points improvement of the EBIT margin before extraordinaries. At 5.6%, the margin even slightly exceeded the target corridor of 4.5% to 5.5%. The group's net profit of EUR 206 million benefited from the good operating performance and the high book profit from the environmental technology sale. At EUR 227 million, the book profit was higher than assumed, mainly due to valuation and currency effects. We met our revised order intake guidance, thanks to a strong finish [ to the ] year. In Q4, customers have more flexibly adapted to the uncertain environment and started to place large strategical orders again. However, I would like to underline that we might see quarterly fluctuations in new orders again as the macro volatility remains high. Sales stood at EUR 4.2 billion and we were not satisfied. But given the fact that we were facing customer-induced project delays, I would still call them solid. Free cash flow for the continued operations reached EUR 162 million and was appreciably higher than projected, mainly because of very high premature payments in Q4 that were expected in 2026. For 2026, we see potential for further earnings improvement. I'd like to talk about the drivers in a few minutes. Slide 4 shows the already released figures relating to the developments I just described. I would like to highlight that we managed to increase operating EBIT by 19% despite the slight drop in sales. This was mainly supported by 50% earnings increase at HOMAG and further improvements in Automotive from an already high base level. Moreover, we benefited from lower cost -- lower expenses for our OneDürrGroup synergy program that will be closed in 2026. On Slide 5, you see strong fourth quarters are not -- as you can see -- as we already mentioned a number of times, strong fourth quarters are not unusual at Dürr. Nonetheless, Q4 2025 was a really good one. As I already mentioned, the good levels of order intake and free cash flow, I would like to underscore the high 7.4% EBIT margin before extraordinaries, mainly resulting from an 11% margin in Automotive and an above 6% margin at HOMAG. Automotive's high margin reflects the division's best-in-class project execution and the effects of the value before volume strategy while HOMAG benefited from its self-help measures. Slide 6 shows that we met or exceeded all of our targets that has in part been revised in July. Please note that the low reported EBIT margin of 0.7% was influenced by high extraordinary expenses of EUR 204 million, while the book gain of EUR 264 million before taxes was not considered in EBIT as it is not attributable to the continued business. On the opposite, net income of the group includes the post-tax book profit and thus doubled to EUR 206 million. Slide 7 reveals the strong impact of the tariff conflicts on order intake in Q2 and Q3. In both quarters, new orders were almost EUR 300 million lower than they should have been in order to meet our initial guidance from March. Q4 included 2 major automotive orders from U.S. and Eastern Europe and the largest order ever for HOMAG in timber house construction equipment. This order from North America has a volume of not much less than EUR 100 million and underlines the outstanding market position of HOMAG when it comes to really large projects. Slide 8, please. The global distribution of order intake was well balanced. We saw the expected declines in those regions that we were very strong in 2025. That means Europe and particularly Germany. While the China share continued to decline, we benefited from higher dynamics in other Asian countries, especially India and Saudi Arabia. Slide 9 underscores that the sale of the environmental technology business was a really successful transaction. This is mainly expressed by the high book profit. Before 2018, [ these ] environmental technology activities were a low-performing business. Then we acquired our main competitor, MEGTEC/Universal, shaped an integrated global player with best-in-class technology and consequently created additional value. This value is reflected in the high book gain we generated from the sale. When looking at the lower table, please keep in mind that the 12% margin in 2025 is not an adequate measure for assessing the selling transaction as it includes EUR 9 million of positive nonoperating allocation effects. Let's have a look on the divisions, starting on Page 11 with Automotive. Looking at the 29% drop in order intake, please consider that the 2024 base was very high due to several exceptionally large orders. On the opposite, Q2 and Q3 2025 were exceptionally weak as automotive OEMs postponed CapEx decisions due to tariff-induced uncertainty. Q4 was appreciably better again with customers resuming strategically important projects. At constant sales, the operating margin exceeded last year's high level and reached a strong 11% in Q4. There were 2 decisive factors for this. Our excellence in order execution under the umbrella of the combined Automotive division and our value before volume strategy with its focus on margins, strong projects in the sales process. Page 12. At the Industrial Automation, order intake [indiscernible] were mainly burdened by the market weakness in the lithium-ion battery business. We restructured this business and transferred it to the Automotive division at the beginning of 2026 to make use of Automotive's execution strength. The negative EBIT includes impairments of EUR 135 million. Of this, EUR 120 million are attributable to the impairment of BBS Automation in July. Further impairments of EUR 15 million were recognized in the battery business in Q4, reflecting the weaker market outlook. A quick view on the other 2 businesses of Industrial Automation. Schenck's balancing technology business showed a very good earnings performance, while at BBS Automation, there's still room for improvement. We installed a new management at BBS at the beginning of 2026, headed by the former Chief Operating Officer of HOMAG. His task is to improve operating excellence at BBS and further develop the strategy. He has a great track record at HOMAG, and I'm very sure he will do a very good job at Industrial Automation and BBS as well. Speaking about HOMAG, the main message on Page 13 is that the division made excellent margin progress despite slightly lower sales and was able to much better cope with the difficult furniture market environment than in 2024. The margin increase of just under 200 basis points is the result of self-help measures and successfully reduced fixed costs. Order intake slightly grew on the back of the accelerating demand in the timber house sector. 3 years after the beginning of the market weakness in the furniture sector, it's still difficult to tell when there will be a real recovery. But what we know is that HOMAG is well prepared for it. Next is Page 14. Service sales were almost on last year's level, even though the uncertain environment prompted customers to temporarily be more cautious in their service spending. With this, I hand over to Dietmar, who will take you through the financials. Dietmar Heinrich: Thank you, Jochen. Ladies and gentlemen, a warm welcome also from my side. Page 16 basically presents figures Jochen already touched upon. Therefore, I would like to limit myself on shedding some light on net income. You can see 2 net income figures here. The first one is minus EUR 50 million for the continuing operations, resulting from the high extraordinary expenses of EUR 204 million, of which EUR 135 million were impairment driven. We will get back to this point more in details later on as well. On the second topic on the bottom, you can see the net income of EUR 206 million of the group as a whole. This additionally includes the post-tax book gain of EUR 227 million from the environmental technology sale. Slide 17 contains information on the quarterly and regional sales split which will certainly be helpful for your follow-up analysis. For now, I would like to directly jump to Slide 18 with the EBIT before extraordinary effects. As mentioned, operating earnings increased by a high 19%, spurred by a strong second half when HOMAG fully benefited from its self-help measures and Automotive contributed very high earnings. High margin towards the end of the year are a characteristic at Dürr. But the 7.4% in Q4 2025 are really remarkable and came close to our midterm target level of 8%. The main earnings driver in the full year was a gross profit increase of EUR 23 million based on lower material costs, good order execution and well-managed personnel costs. And this despite a sales drop compared to previous year. On top, we benefited from lower costs for the OneDürrGroup synergy program as well as from lower negative allocation effects of EUR 9 million. On Slide 19, we show the composition of the extraordinary expenses of EUR 204 million in continued operations. 2/3 were attributable to the impairments and will not lead to any cash out. The second largest item was cost of EUR 38 million for restructuring measures, mainly for the admin adjustments announced in mid-2025 that are well on track. PPA decreased from EUR 42 million to EUR 28 million. On the group level, the extraordinary expenses were opposed by the high book gain of EUR 264 million from the environmental technology transaction. Now let's turn to Page 20. Back in December, we announced that free cash flow would be in the range of EUR 100 million to EUR 200 million and exceed the original target of up to EUR 50 million. In fact, it reached EUR 162 million in the continued business. This resulted from very high customer prepayments before Christmas. We were often asked about the reasons for this. The answer has a lot to do with customers' balance sheet and cash flow considerations. If they expect lower cash flows in the year to come, they will bring forward payments to the old year to reduce future cash outs. Beyond high prepayments, free cash flow mainly benefited from lower cash outs for investments. Page 21 shows that we kept net working capital under respective 2024 levels during the complete year with very low days working capital of 27 at the year-end. While the business volume was almost constant with a sales decline of just under 3%, we strongly reduced inventories, receivables and contract assets. This shows that we are able to keep a decent level of cash in the company, which is even more important when macro uncertainty is high. I'm pleased to say that we saw strong progress in net working capital management at BBS Automation under the Dürr umbrella and that the Automotive division managed to further reduce net working capital to less than 0. Page 22 is next. In the group as a whole, free cash flow expanded to EUR 193 million. Based on this and the EUR 295 million proceeds from the environmental technology sale, we were able to reduce net financial debt by EUR 330 million to only EUR 66 million. This equals to a low leverage of 0.2 and brought back debt to the very comfortable levels before the acquisition of BBS Automation in 2023. My last slide, #23, is on ESG. I would like to point out 2 important facts in our climate reporting. The first one is a reduction of Scope 3 emissions by 27% in 2025. Scope 3 mainly includes emissions in the use phase of our products. 27% is an enormous decline. This figure illustrates the very high relevance of our painting equipment for reducing our customers' CO2 footprint. The reason for the strong reduction is that a large share of the painting equipment we commissioned in 2025 features low-emission technology. The prime example is the world's first paint shop to operate entirely without fossil fuels that we handed over to a customer in Europe. The second fact I would like to draw your attention on is related to the EU taxonomy. We were able for the first time to recognize sales from the spare parts and service business in our taxonomy eligible and taxonomy aligned revenues. This means that almost 1/4 of group revenues are taxonomy aligned compared to 13% in 2024. With this, I would like to hand back to Jochen, who will make you familiar with the outlook for 2026. Jochen Weyrauch: Thank you, Dietmar. Slide 25 expresses that we expect the high level of macro uncertainty to persist in 2026. And looking at the war in the Middle East, this assumption seems absolutely justified. Automotive, we see a solid pipeline with quite a number of CapEx projects in the field of painting and assembly technology. However, the lesson learned from 2025 is that predicting the timing of contract awards is difficult nowadays. There's enough new business out there, but we cannot rule out that projects expected for 2026 might be postponed. Industrial Automation continues to see good prospects in the medtech and consumer sector, while new business with auto OEMs and suppliers is expected to remain volatile given the slower pace of EV transformation. At Woodworking or HOMAG, it's difficult to predict when the furniture business will finally recover. From today's point of view, we would rather expect another challenging year. However, HOMAG is strong enough to cope with this, especially given the upward trend in the timber house business that will support utilization and sales realization. Page 26, please. The war in the Middle East additionally threatens economic stability. This increases uncertainty and makes the outlook for 2026 even more difficult. Provided that the war will not further escalate, but rather be finished in the foreseeable future and under the assumption that no other international conflicts put additional pressure on supply chains and economic stability, we can give the following guidance for 2026. Sounds like a little longer disclaimer this year, however. We see potential to increase both order intake and sales. In the best case, order intake could rise up by up to 8% to EUR 4.2 billion, while sales could expand to up to EUR 4.3 billion. Looking at the ongoing uncertainties and the fragile geopolitical situation, however, we also included the possibility of declining new orders and sales in the guidance. With respect to earnings, our target is to further improve the operating performance and to increase the EBIT margin before extraordinaries to up to 6.5%. This also requires that the world will return to a more stable state soon. Supporting factors from earnings increase in 2026 include further earnings potential at HOMAG, operating improvements at BBS Automation, positive effects from the capacity cuts in the administrative sector and the battery business as well as strongly reduced expenses for the OneDürrGroup synergy program. On the opposite, we expect a onetime burden of around EUR 10 million at HOMAG for the transition to a new ERP system and for ramping up a new factory in Poland that will yield efficiency improvements from 2027 on. For free cash flow, we are giving a guidance of EUR 150 million minus to EUR 0 million. This considers the advanced customer payments at the end of 2025, higher net working capital needs for 2026, the tax payments for the environmental technology sale and the cash out for the administrative adjustments. Moreover, there might be a payment resulting from a tax audit that we will have examined by court, however. Upside potential for free cash flow may arise from customer prepayments in the course of the year that are not yet fully foreseeable. Page 27, please. To keep it short, I would like to refrain from going into detail on the divisional outlook. When looking at this, please note that the shift of the battery business from Industrial Automation to Automotive at the beginning of 2026 and the transfer of the BENZ Tooling business to Woodworking. The joint sales volume of both businesses is around EUR 100 million. This brings us to the summary on Slide 28. 2025 was marked by the transformation of Dürr into a leaner group with only 3 divisions and full focus on automation and sustainable production. Alongside with this, we improved our earnings resilience. Our 2 largest divisions, Automotive and Woodworking, were able to increase earnings in an adverse environment based on operating excellence and self-help measures. Industrial Automation will go the same way and improve its performance under the new management. Order intake was impacted by market uncertainties in 2025, but there is potential for improvements in 2026, provided that the extremely high level of uncertainty that we are facing right now will not last too long. Sales should, if at all, only grow slightly in 2026, but are expected to accelerate more strongly again in 2027. Provided that the geopolitical situation will calm down soon, there are good prospects for further margin improvements in 2026 and beyond based on operating excellence and further cost reductions, for example, in administration. Free cash flow will probably be lower in 2026. However, given our business model, it makes more sense to look at the 3-year cash flow average as this smooths out the high fluctuations in customer payments. Our balance sheet is very solid, securing the funds to grow and further develop our business. In 2026, we will put full focus on further strengthening our efficiency and operating excellence, especially at BBS Automation. Large acquisitions should not be expected this year, but are an option to speed up top line growth beyond 2026. Ladies and gentlemen, thank you very much for listening. Dietmar and I will now be happy to answer your questions. Operator: [Operator Instructions] We have a couple of questions already incoming. We will start with the first question from Nikita Papaccio, Deutsche Bank. Nikita Lal: I would actually have 3. The first one is on your service part of the business. The share of revenues is fluctuating close to 30%. Are there any initiatives or planning to increase the share? The second one is on your margin guidance for your automation business. I understand that you installed a new management team, but could you explain in more detail the building blocks of the margin improvement in 2026, please? And my final question is on dividends. Maybe I oversee it, but any comments here would be really helpful. Jochen Weyrauch: Thank you for your question, Nikita. First on service. We have always ongoing initiatives for the service business. And it's a bit different by division. We have already a very good share of service revenues in Automotive, which we are further expanding with new offerings, for example, our spare parts in many cases now comprise RFID chips to make it easier for our customers to track the lifetime of our products on the one hand. But on the other hand, of course, make our business more captive as companies, let me simplify, like pirates are more difficult to work on similar spare parts. We use a lot digital products in the service system now partially based already on artificial intelligence. This maybe on Automotive. On the HOMAG side, we are developing because we have a very high installed base, a very complex installed base. We are developing very special standardized service and upgrade programs that will help to support the service there as well, just given a few examples. And as you can see on our Industrial Automation business, especially at the BBS side, is not so much used to a strong service business yet. There, we're really kicking off programs to benefit from the [ potential ] that's out there. So lots of programs. And this makes us really very confident that this business will grow. And actually, we've set this as a strategic target even down to our remuneration for the year. On the margin guidance for Industrial Automation, the blocks and improvements, Dietmar, do you want to cover a few topics where we see the improvements? Dietmar Heinrich: It's on one side, continuing the optimization measures that are already established. We will on the -- one impact have the -- negative impact from the lithium-ion business that Jochen mentioned before that was under stress, and we had to do the impairment actually is removed to auto. This helps them to lift already to a certain extent then the margin. The second topic is that we are working on operational excellence in project management that we are improving the footprint continuously. We are combining 2 locations here in Germany that are very close together. That's already agreed upon with the works council there so that we can realize synergies. So that's why we are finally confident that we can reach the margin improvement, but it's not yet where we want to go. So there are still further steps to come finally beyond 2026. Jochen Weyrauch: On the dividends, I think we have -- there is nothing to be communicated yet. So it's difficult to comment on it at this point. Dietmar Heinrich: But Nikita, maybe to add, Jochen, we have the guardrails of 30% to 40% of the net income, but you are for sure aware that in case of extraordinary charges, we did some adjustments. This year, we have, 2025, an extraordinary benefit. So we might consider this. But in general, we are a good friend of a continuous dividend policy. And of course, nevertheless, having our shareholders having a share of the -- or the income [ that is the ] benefit that we produce. So it's a very generic statement, I have to say. We will discuss with the Supervisory Board. And when we get out with the final report at the end of March, you will get information in that regard. Operator: All right. The next question is from Philippe Lorrain from Bernstein. Philippe Lorrain: So I also have like a few questions. So maybe if I can just follow up a little bit on the impairment that you were mentioning for Industrial Automation, if you can quantify that? And also with regard to the guidance that you provide per division, you give indications on the sales for 2025 in the lithium-ion battery system business and also for BENZ. But looking at 2026, what would have been like the kind of figures that you were anticipating for this in terms of order intake and also like the margin impact, maybe the dilutive margin impact on Automotive and the relative margin impact on Industrial Automation would help a little bit. So that would be the first question. Dietmar Heinrich: So Philippe, in regard to the impairment, just to make sure it's LIB that you mentioned. Philippe Lorrain: Yes... Dietmar Heinrich: Because I was still busy taking note, sorry for that. Yes, it's the market situation in the battery market in European market is very, very difficult. That's the area that we focus on because we have been of the opinion that we can gain business in the European market with the drive also for independency in regard to battery supplies in the European Union. We can see that from a customer perspective, this did not materialize finally. We could see the difficulties of Northvolt. We could see Porsche's announcement regarding their joint venture, Cellforce. And we do see that last year, the market in regard to new business was very, very low. At the very end of -- then we reviewed the business opportunities, we reviewed the business plan, and we came to the conclusion that for the foreseeable future, it's not going to build up then finally in the area that we really targeted. And we did then finally impairment of EUR 15 million. So the impairment as a whole is EUR 135 million. As I mentioned before, thereof the EUR 120 million for BBS that we already [ or PAS ] at that time that we already did at the end of the first half of the year and the EUR 15 million now in the fourth quarter for LIB. Philippe Lorrain: Okay. So the margin -- yes, sir. Jochen Weyrauch: Maybe to add to that - go ahead, Philippe. Go. Philippe Lorrain: No, I was just meaning -- so the margin step-ups come basically from the fact that we just reduced the amount of depreciation going forward? Jochen Weyrauch: Yes, it's also operational improvement. So we expect a significant -- after restructuring we've made in the lithium-ion business, we really expect even close to double-digit million improvement in the lithium-ion business as such operationally independent from any depreciations on the business. You were asking also on the dilution for the business, it's... Dietmar Heinrich: Based on last year, it would be around 70 basis points for Automotive in the margin. Philippe Lorrain: Okay. So basically, so if I take like the 7% to 8% target -- margin target range, sorry, for 2026, I would need to hike that by basically like around 70 bps. So more or less what you expect... Dietmar Heinrich: Philippe, when you look to 2020 figures, then you would go down from the 8.6% towards 7.9% in order to have it comparable. And in regard to 2026 guidance, as Jochen outlined, we want to bring back the figure to the breakeven or the business to breakeven for 2026. So the dilutive effect is significantly smaller. Jochen Weyrauch: More comes from volume. And you were asking about volumes, both businesses are in the magnitude of EUR 50 million or a bit more at the moment. Philippe Lorrain: So that was the order intake volume for the LIB. Jochen Weyrauch: Also order intake on lithium-ion was lower last year. We had a good 2024 with a large order that we're currently still executing and BENZ would be around the EUR 50 million roughly, yes. Philippe Lorrain: Okay. Perfect. Then I have like one question maybe on the large order that you had for timber house for HOMAG in Q4, if you can quantify a little bit that kind of impact? Jochen Weyrauch: Yes. That order was close to EUR 100 million in order intake is coming from North America. It will be executed this year and to some extent, also next year. And all in all, in that area, what we call [indiscernible], which is the wooden houses business, we had an order intake of about EUR 200 million last year, record order intake. Philippe Lorrain: Okay, including that order? Jochen Weyrauch: Including that order, yes. Philippe Lorrain: Okay. Perfect. I've got 2 more technical questions, so to say, for you. So the first one is on the announcement that you already preemptively make that you are to revise the 2030 sales guidance. So obviously, there's a need to adjust anyway for the sale of the environmental business of CTS. But are there any other reasons also that push you to do that, say, for instance, like the slightly lighter anticipation in terms of order intake for 2026 versus what could have -- one could have expected, so let's say, me, for example, in terms of growth and also generally like the cautious stance that you have with regard to the geopolitical situation? Jochen Weyrauch: All of what you're saying is valid in a certain sense. However, EUR 100 million up or down, maybe I'm a bit too generous now, in 2026 don't have much impact on 2030, at least I hope. So CTS is a valid discussion. We will be, of course, reviewing growth potentials, which currently we are really revisiting in order to, not too far in the future, redefine what would bring us to the EUR 6 billion or whether the EUR 6 billion are still the EUR 6 billion. Dietmar Heinrich: And Philippe, it's always including both organic growth and inorganic growth, which means acquisition, Jochen pointed out with -- on the presentation, you can see 2026 is on efficiency. But of course, for the future, especially when opportunities coming up to strengthen the business, we will seriously diligently look into them. Jochen Weyrauch: Within the core business. Dietmar Heinrich: Within the core business and with net debt being reduced to a level close to 0, we are also now having a good headroom again to act when opportunities are coming up in the future. Philippe Lorrain: Okay. So maybe you will actually stop targeting such a fixed figure, including, let's say, like M&A and so on and rather guide organically that could actually like be wiser, I guess, going forward? Dietmar Heinrich: We will take it into consideration. Philippe Lorrain: Yes. That's good. And finally, I've got a question for you, Dietmar, because you were mentioning the fact that contract assets were actually reduced. So to which extent do you manage to proactively reduce or keep that under control versus what is it that you actually cannot control? Because I understand there's always a relation between that item and also the sales recognition and the earnings recognition and actually, the market typically likes if contract assets are not too much inflated. So it's good news here, but we get that to be seen. But I was wondering whether there's actually like -- really like something that you can control versus something that you have to actually deal with. Dietmar Heinrich: Yes, you're right, Philippe, and looking into the number, we had a decline of EUR 84 million from end of 2024 to end of '25. So that's a significant decline. But basically, I would say the majority of this, we can manage. I think one of the reasons for this at the very end is in conjunction with the sales recognization, especially the excellent EBIT margin on the automotive side in the fourth quarter business. So a couple of projects have been completed. We had to -- or we could then finally realize the outstanding sales. We could realize then also the profit with releasing contingencies that we had in there, and that was also making a contribution to the drop in the total contract assets as well. Philippe Lorrain: Okay. Perfect. And if you don't mind just like a very -- like a little housekeeping stuff. So you mentioned EUR 10 million of cost for HOMAG for ERP transition. Is it going to be recognized below the line, so i.e., in earnings adjustments or within the guided margin? Dietmar Heinrich: We had internally some discussion, but let's say it this way, the Head of our Audit Committee is not too much a friend of it. Jochen Weyrauch: So it really goes bottom line. Philippe Lorrain: Okay. So in the adjusted EBIT still? Jochen Weyrauch: This is earnings before extraordinary effects. Dietmar Heinrich: And that's also -- Jochen mentioned that we had a decline or we expect a decline or had already a decline last year in the OneDürrGroup synergy program. In that regard, we stopped the one ERP approach, and we finally moved now to a brownfield approach regarding SAP R/3 to S/4 transformation that is division based. And we have on one side, the savings, and we have smaller amounts due to the brownfield approach than in the division, but it's reflected directly in the divisions, and it's shown there. Operator: The next question is from Adrian Pehl, ODDO BHF SE. Adrian Pehl: Actually, 2 questions left from my side. First of all, on the cash flow guidance that you gave, just to get a sense of what defines really the very low end and the upper end of that? Because if you take the 2 years together, i.e., 2025 and your, let's say, very low end of 2026, there's literally any -- hardly any cash flow left on an EBITDA of EUR 600 million. So that seems a very cautious to me, but maybe also the moving parts and building blocks would be interested on that number. And then secondly, on the regional developments, I mean, obviously, throughout the year, we have seen, in particular, China quite soft. And I was wondering also on the order side of things, actually now down to book-to-bill of 0.4 in Q4. First of all, how do you think of that business progressing? And secondly, is that due to a structure of Chinese rather buying Chinese products? So is that a structural thing? Or how should we see it? And then I might have a follow-up on the regional setup. Dietmar Heinrich: Shall I start with the free cash flow guidance? Adrian, in that regard, we mentioned that we received quite big early prepayments or payments in December from our customer side that had a strong influence. Remember that the guidance originally was 0 to EUR 50 million. Now -- then we increased, we got out now with EUR 162 million. Based on the past, maybe we sometimes could overexceed a little bit. So you can roughly say that we received around EUR 100 million more than we expected finally. And this, of course, is missing as a cash inflow in 2026. So that's why we are certain. On the other side, we will not, for ongoing projects, receive significant milestone payments because these earlier payments also to some extent are made. And then we have nonoperating cash outs like we mentioned for the tax on the environmental technology sale. We booked the net gain finally, but the tax payments will be made in 2026. And we have the expected payout from the tax audit in Germany that we are targeting or not targeting, we will have it examined by the court. We don't want to mention the number due to the tax authority not letting to know our real position on this, but we build up respective provisions. So no impact on the profit side impacted. And that's actually -- and of course, when orders are coming in towards the end of the year, we could have again the advantage that we get the initial down payments and then have a better cash flow development despite the fact that not much of the contracts as is being built up during that time. So this defines the upper and the lower end from a verbal explanation. Jochen Weyrauch: On the regional distribution, especially China of the orders, first, as a disclaimer, as you know, in many cases, we have orders that are triple-digit millions. So this can fluctuate over time. However, especially on China, where we've seen some declines, it is -- China is a very competitive market. And from what we see, it's not about in terms of winning the orders, at least in most cases, independent from whether you are local or not local. In fact, we are local for more than 30 years already in China. It is competition. And of course, the market after boom times around adding capacities with now dozens of producers that -- it's natural that the investments have been somewhat down. However, I can note that this year, we've already seen some upwind and book 1/2 orders in automotive, not the big orders, but activities there. So let's see what's happening. And China, of course, is the most competitive market on the planet. This is why we are also continuing to play there, especially to learn from them. And not to forget, we're using our own Chinese facilities to follow Chinese OEMs into the world. So if you look at China from a holistic point of view, it's a bit more than just the order intake mix. Adrian Pehl: Right. And more generally on that, I mean, how are you managing your capacities, in particular on the automotive side of things? So I mean, obviously, your overall profitability was solid in particular in the second half of the year. It looks like you are probably also assuming or selecting orders depending on the margin profile. Is that continuously the case? And how should we think of the margin profile in your order backlog going forward? Jochen Weyrauch: Yes. We have a healthy -- continue to have a healthy margin in the order backlog. And in many cases, with the excellence that we have in order execution, we turn or we even increase the margin that we have in the backlog when executing projects. Then in terms of capacity management, we are very much used still today to manage projects very globally. So when we -- just to give you an example, execute an order in Saudi Arabia, you would have colleagues from China involved, from Korea, from Italy, from Poland, from Germany and probably a few more countries. This is how we are used to execute orders, not saying independently from where they are, but to a large extent. And this is why we can manage capacities quite well. And second, also very important is that a lot of the P&L, especially in automotive, is purchased goods. So we are not so dependent in terms of load in factories because our value adding, our own value adding in terms of products is limited to the amount where we can differentiate with own IP. Operator: So dear ladies and gentlemen, there are no more questions in the queue at the moment. [Operator Instructions] And there is a follow-up from Philippe Lorrain, Bernstein again. Philippe Lorrain: So the first one would be on the extra cost that you had on the continuing business prior to the actual sale of CTS Environmental. So could you quantify that again for the full year of 2025, so we know what negative impact actually leaves the P&L? Dietmar Heinrich: This was around EUR 30 million, Philippe, as a whole, a smaller amount, low to 1-digit million euro, I would say, EUR 3 million to EUR 4 million was already in 2024. The remainder was in 2025. So that's the amount that we spent, and this was related to the carve-out preparation, which was quite complex and was then transaction-related expenses. Philippe Lorrain: Okay. But you had also this -- this also includes the impact of shifting the costs that were actually not recognized anymore in CTS Environmental, but rather in the existing continuing business also [indiscernible] all together? Dietmar Heinrich: That's correct. It recorded in the discontinued operations. Philippe Lorrain: Okay. Perfect. And second question that came to my mind as well, as you were mentioning Saudi Arabia. But with the current situation in the Middle East, so do you have any, let's say, like significant projects where you have works on the ground and so on? And what's the situation like there in this kind of scenario that we are going through in the Middle East? Jochen Weyrauch: Yes. We are -- Philippe, we're having 2 projects that are currently significant, the 2 projects in Saudi Arabia, but they are not at the Persian Gulf side in the East, but they are in the West, near Jeddah, King Abdullah Economic Zone. So far, first of all, our people are safe because we have the people there. We have all the plans to deal with the situation and escalate if necessary. And second, in terms of the supply chain, we're carefully watching. And where necessary, we reroute goods at this point. So, so far, we're not with a view on this region, expect any interruptions. What, of course, we have to carefully watch is our supply chain in general. And there, it's difficult to say at this point. It is what we said before, if this conflict is managed within the foreseeable future, we don't see a real impact. If it takes longer, we will have to see. Operator: Thank you very much. With that, since there are no more questions in the queue, I'm closing the Q&A session again and handing the floor back over to the host. Mathias Christen: Thank you, Anna. Thank you, ladies and gentlemen, for your questions and the discussion. If there are follow-ups, please don't hesitate to contact me. The full annual report will be published on March 26 and the Q1 figures on May 12. We are planning a Capital Markets Day in the course of the year as we are currently examining our midterm sales targets and working on a strategy update. For today, that's it. Take care. Goodbye.
Operator: Welcome to the Dürr conference call for the preliminary figures of 2025. I will now hand over to Mathias Christen. Mathias Christen: Thank you, Anna. Welcome to today's call, ladies and gentlemen. The corresponding presentation is available on our website, and I assume you have it in front of you. As you know, we published select key figures in an ad hoc release already on February 17. Nonetheless, there are still enough figures and news to share with you today. The figures usually relate to continued operations with some exceptions that will be marked. Our CEO, Jochen Weyrauch will start on Page 2 before Dietmar Heinrich, our CFO, will take you through the financials. Jochen, the floor is yours, please. Jochen Weyrauch: Thank you, Mathias, and good afternoon to all participants on the call. As the most important figures, as Mathias said, were already released, I would like to start with a wider perspective and share with you what I personally consider the most important achievements of 2025. Basically, we delivered on what we promised. We simplified our group structure and turned Dürr in a more focused technology company with only 3 instead of 5 divisions. This involves sharpening our focus on the core business, which is automating production processes and making them more sustainable and efficient or Sustainable Automation as we call it. In this context, we successfully sold the noncore environmental technology business with a high post-tax book gain of EUR 227 million. On top, we started resizing our administrative structure to adapt to a smaller scope of business and tackle cost savings of EUR 50 million. This was after the capacity measures at HOMAG, a further major step to systematically reduce our fixed costs. The effectiveness of our cost-cutting measures is being testified by the improved operating performance in 2025 that was achieved despite the adverse macro environment. Next is Slide 3. The improved operating performance is reflected by 100 basis points improvement of the EBIT margin before extraordinaries. At 5.6%, the margin even slightly exceeded the target corridor of 4.5% to 5.5%. The group's net profit of EUR 206 million benefited from the good operating performance and the high book profit from the environmental technology sale. At EUR 227 million, the book profit was higher than assumed, mainly due to valuation and currency effects. We met our revised order intake guidance, thanks to a strong finish [ to the ] year. In Q4, customers have more flexibly adapted to the uncertain environment and started to place large strategical orders again. However, I would like to underline that we might see quarterly fluctuations in new orders again as the macro volatility remains high. Sales stood at EUR 4.2 billion and we were not satisfied. But given the fact that we were facing customer-induced project delays, I would still call them solid. Free cash flow for the continued operations reached EUR 162 million and was appreciably higher than projected, mainly because of very high premature payments in Q4 that were expected in 2026. For 2026, we see potential for further earnings improvement. I'd like to talk about the drivers in a few minutes. Slide 4 shows the already released figures relating to the developments I just described. I would like to highlight that we managed to increase operating EBIT by 19% despite the slight drop in sales. This was mainly supported by 50% earnings increase at HOMAG and further improvements in Automotive from an already high base level. Moreover, we benefited from lower cost -- lower expenses for our OneDürrGroup synergy program that will be closed in 2026. On Slide 5, you see strong fourth quarters are not -- as you can see -- as we already mentioned a number of times, strong fourth quarters are not unusual at Dürr. Nonetheless, Q4 2025 was a really good one. As I already mentioned, the good levels of order intake and free cash flow, I would like to underscore the high 7.4% EBIT margin before extraordinaries, mainly resulting from an 11% margin in Automotive and an above 6% margin at HOMAG. Automotive's high margin reflects the division's best-in-class project execution and the effects of the value before volume strategy while HOMAG benefited from its self-help measures. Slide 6 shows that we met or exceeded all of our targets that has in part been revised in July. Please note that the low reported EBIT margin of 0.7% was influenced by high extraordinary expenses of EUR 204 million, while the book gain of EUR 264 million before taxes was not considered in EBIT as it is not attributable to the continued business. On the opposite, net income of the group includes the post-tax book profit and thus doubled to EUR 206 million. Slide 7 reveals the strong impact of the tariff conflicts on order intake in Q2 and Q3. In both quarters, new orders were almost EUR 300 million lower than they should have been in order to meet our initial guidance from March. Q4 included 2 major automotive orders from U.S. and Eastern Europe and the largest order ever for HOMAG in timber house construction equipment. This order from North America has a volume of not much less than EUR 100 million and underlines the outstanding market position of HOMAG when it comes to really large projects. Slide 8, please. The global distribution of order intake was well balanced. We saw the expected declines in those regions that we were very strong in 2025. That means Europe and particularly Germany. While the China share continued to decline, we benefited from higher dynamics in other Asian countries, especially India and Saudi Arabia. Slide 9 underscores that the sale of the environmental technology business was a really successful transaction. This is mainly expressed by the high book profit. Before 2018, [ these ] environmental technology activities were a low-performing business. Then we acquired our main competitor, MEGTEC/Universal, shaped an integrated global player with best-in-class technology and consequently created additional value. This value is reflected in the high book gain we generated from the sale. When looking at the lower table, please keep in mind that the 12% margin in 2025 is not an adequate measure for assessing the selling transaction as it includes EUR 9 million of positive nonoperating allocation effects. Let's have a look on the divisions, starting on Page 11 with Automotive. Looking at the 29% drop in order intake, please consider that the 2024 base was very high due to several exceptionally large orders. On the opposite, Q2 and Q3 2025 were exceptionally weak as automotive OEMs postponed CapEx decisions due to tariff-induced uncertainty. Q4 was appreciably better again with customers resuming strategically important projects. At constant sales, the operating margin exceeded last year's high level and reached a strong 11% in Q4. There were 2 decisive factors for this. Our excellence in order execution under the umbrella of the combined Automotive division and our value before volume strategy with its focus on margins, strong projects in the sales process. Page 12. At the Industrial Automation, order intake [indiscernible] were mainly burdened by the market weakness in the lithium-ion battery business. We restructured this business and transferred it to the Automotive division at the beginning of 2026 to make use of Automotive's execution strength. The negative EBIT includes impairments of EUR 135 million. Of this, EUR 120 million are attributable to the impairment of BBS Automation in July. Further impairments of EUR 15 million were recognized in the battery business in Q4, reflecting the weaker market outlook. A quick view on the other 2 businesses of Industrial Automation. Schenck's balancing technology business showed a very good earnings performance, while at BBS Automation, there's still room for improvement. We installed a new management at BBS at the beginning of 2026, headed by the former Chief Operating Officer of HOMAG. His task is to improve operating excellence at BBS and further develop the strategy. He has a great track record at HOMAG, and I'm very sure he will do a very good job at Industrial Automation and BBS as well. Speaking about HOMAG, the main message on Page 13 is that the division made excellent margin progress despite slightly lower sales and was able to much better cope with the difficult furniture market environment than in 2024. The margin increase of just under 200 basis points is the result of self-help measures and successfully reduced fixed costs. Order intake slightly grew on the back of the accelerating demand in the timber house sector. 3 years after the beginning of the market weakness in the furniture sector, it's still difficult to tell when there will be a real recovery. But what we know is that HOMAG is well prepared for it. Next is Page 14. Service sales were almost on last year's level, even though the uncertain environment prompted customers to temporarily be more cautious in their service spending. With this, I hand over to Dietmar, who will take you through the financials. Dietmar Heinrich: Thank you, Jochen. Ladies and gentlemen, a warm welcome also from my side. Page 16 basically presents figures Jochen already touched upon. Therefore, I would like to limit myself on shedding some light on net income. You can see 2 net income figures here. The first one is minus EUR 50 million for the continuing operations, resulting from the high extraordinary expenses of EUR 204 million, of which EUR 135 million were impairment driven. We will get back to this point more in details later on as well. On the second topic on the bottom, you can see the net income of EUR 206 million of the group as a whole. This additionally includes the post-tax book gain of EUR 227 million from the environmental technology sale. Slide 17 contains information on the quarterly and regional sales split which will certainly be helpful for your follow-up analysis. For now, I would like to directly jump to Slide 18 with the EBIT before extraordinary effects. As mentioned, operating earnings increased by a high 19%, spurred by a strong second half when HOMAG fully benefited from its self-help measures and Automotive contributed very high earnings. High margin towards the end of the year are a characteristic at Dürr. But the 7.4% in Q4 2025 are really remarkable and came close to our midterm target level of 8%. The main earnings driver in the full year was a gross profit increase of EUR 23 million based on lower material costs, good order execution and well-managed personnel costs. And this despite a sales drop compared to previous year. On top, we benefited from lower costs for the OneDürrGroup synergy program as well as from lower negative allocation effects of EUR 9 million. On Slide 19, we show the composition of the extraordinary expenses of EUR 204 million in continued operations. 2/3 were attributable to the impairments and will not lead to any cash out. The second largest item was cost of EUR 38 million for restructuring measures, mainly for the admin adjustments announced in mid-2025 that are well on track. PPA decreased from EUR 42 million to EUR 28 million. On the group level, the extraordinary expenses were opposed by the high book gain of EUR 264 million from the environmental technology transaction. Now let's turn to Page 20. Back in December, we announced that free cash flow would be in the range of EUR 100 million to EUR 200 million and exceed the original target of up to EUR 50 million. In fact, it reached EUR 162 million in the continued business. This resulted from very high customer prepayments before Christmas. We were often asked about the reasons for this. The answer has a lot to do with customers' balance sheet and cash flow considerations. If they expect lower cash flows in the year to come, they will bring forward payments to the old year to reduce future cash outs. Beyond high prepayments, free cash flow mainly benefited from lower cash outs for investments. Page 21 shows that we kept net working capital under respective 2024 levels during the complete year with very low days working capital of 27 at the year-end. While the business volume was almost constant with a sales decline of just under 3%, we strongly reduced inventories, receivables and contract assets. This shows that we are able to keep a decent level of cash in the company, which is even more important when macro uncertainty is high. I'm pleased to say that we saw strong progress in net working capital management at BBS Automation under the Dürr umbrella and that the Automotive division managed to further reduce net working capital to less than 0. Page 22 is next. In the group as a whole, free cash flow expanded to EUR 193 million. Based on this and the EUR 295 million proceeds from the environmental technology sale, we were able to reduce net financial debt by EUR 330 million to only EUR 66 million. This equals to a low leverage of 0.2 and brought back debt to the very comfortable levels before the acquisition of BBS Automation in 2023. My last slide, #23, is on ESG. I would like to point out 2 important facts in our climate reporting. The first one is a reduction of Scope 3 emissions by 27% in 2025. Scope 3 mainly includes emissions in the use phase of our products. 27% is an enormous decline. This figure illustrates the very high relevance of our painting equipment for reducing our customers' CO2 footprint. The reason for the strong reduction is that a large share of the painting equipment we commissioned in 2025 features low-emission technology. The prime example is the world's first paint shop to operate entirely without fossil fuels that we handed over to a customer in Europe. The second fact I would like to draw your attention on is related to the EU taxonomy. We were able for the first time to recognize sales from the spare parts and service business in our taxonomy eligible and taxonomy aligned revenues. This means that almost 1/4 of group revenues are taxonomy aligned compared to 13% in 2024. With this, I would like to hand back to Jochen, who will make you familiar with the outlook for 2026. Jochen Weyrauch: Thank you, Dietmar. Slide 25 expresses that we expect the high level of macro uncertainty to persist in 2026. And looking at the war in the Middle East, this assumption seems absolutely justified. Automotive, we see a solid pipeline with quite a number of CapEx projects in the field of painting and assembly technology. However, the lesson learned from 2025 is that predicting the timing of contract awards is difficult nowadays. There's enough new business out there, but we cannot rule out that projects expected for 2026 might be postponed. Industrial Automation continues to see good prospects in the medtech and consumer sector, while new business with auto OEMs and suppliers is expected to remain volatile given the slower pace of EV transformation. At Woodworking or HOMAG, it's difficult to predict when the furniture business will finally recover. From today's point of view, we would rather expect another challenging year. However, HOMAG is strong enough to cope with this, especially given the upward trend in the timber house business that will support utilization and sales realization. Page 26, please. The war in the Middle East additionally threatens economic stability. This increases uncertainty and makes the outlook for 2026 even more difficult. Provided that the war will not further escalate, but rather be finished in the foreseeable future and under the assumption that no other international conflicts put additional pressure on supply chains and economic stability, we can give the following guidance for 2026. Sounds like a little longer disclaimer this year, however. We see potential to increase both order intake and sales. In the best case, order intake could rise up by up to 8% to EUR 4.2 billion, while sales could expand to up to EUR 4.3 billion. Looking at the ongoing uncertainties and the fragile geopolitical situation, however, we also included the possibility of declining new orders and sales in the guidance. With respect to earnings, our target is to further improve the operating performance and to increase the EBIT margin before extraordinaries to up to 6.5%. This also requires that the world will return to a more stable state soon. Supporting factors from earnings increase in 2026 include further earnings potential at HOMAG, operating improvements at BBS Automation, positive effects from the capacity cuts in the administrative sector and the battery business as well as strongly reduced expenses for the OneDürrGroup synergy program. On the opposite, we expect a onetime burden of around EUR 10 million at HOMAG for the transition to a new ERP system and for ramping up a new factory in Poland that will yield efficiency improvements from 2027 on. For free cash flow, we are giving a guidance of EUR 150 million minus to EUR 0 million. This considers the advanced customer payments at the end of 2025, higher net working capital needs for 2026, the tax payments for the environmental technology sale and the cash out for the administrative adjustments. Moreover, there might be a payment resulting from a tax audit that we will have examined by court, however. Upside potential for free cash flow may arise from customer prepayments in the course of the year that are not yet fully foreseeable. Page 27, please. To keep it short, I would like to refrain from going into detail on the divisional outlook. When looking at this, please note that the shift of the battery business from Industrial Automation to Automotive at the beginning of 2026 and the transfer of the BENZ Tooling business to Woodworking. The joint sales volume of both businesses is around EUR 100 million. This brings us to the summary on Slide 28. 2025 was marked by the transformation of Dürr into a leaner group with only 3 divisions and full focus on automation and sustainable production. Alongside with this, we improved our earnings resilience. Our 2 largest divisions, Automotive and Woodworking, were able to increase earnings in an adverse environment based on operating excellence and self-help measures. Industrial Automation will go the same way and improve its performance under the new management. Order intake was impacted by market uncertainties in 2025, but there is potential for improvements in 2026, provided that the extremely high level of uncertainty that we are facing right now will not last too long. Sales should, if at all, only grow slightly in 2026, but are expected to accelerate more strongly again in 2027. Provided that the geopolitical situation will calm down soon, there are good prospects for further margin improvements in 2026 and beyond based on operating excellence and further cost reductions, for example, in administration. Free cash flow will probably be lower in 2026. However, given our business model, it makes more sense to look at the 3-year cash flow average as this smooths out the high fluctuations in customer payments. Our balance sheet is very solid, securing the funds to grow and further develop our business. In 2026, we will put full focus on further strengthening our efficiency and operating excellence, especially at BBS Automation. Large acquisitions should not be expected this year, but are an option to speed up top line growth beyond 2026. Ladies and gentlemen, thank you very much for listening. Dietmar and I will now be happy to answer your questions. Operator: [Operator Instructions] We have a couple of questions already incoming. We will start with the first question from Nikita Papaccio, Deutsche Bank. Nikita Lal: I would actually have 3. The first one is on your service part of the business. The share of revenues is fluctuating close to 30%. Are there any initiatives or planning to increase the share? The second one is on your margin guidance for your automation business. I understand that you installed a new management team, but could you explain in more detail the building blocks of the margin improvement in 2026, please? And my final question is on dividends. Maybe I oversee it, but any comments here would be really helpful. Jochen Weyrauch: Thank you for your question, Nikita. First on service. We have always ongoing initiatives for the service business. And it's a bit different by division. We have already a very good share of service revenues in Automotive, which we are further expanding with new offerings, for example, our spare parts in many cases now comprise RFID chips to make it easier for our customers to track the lifetime of our products on the one hand. But on the other hand, of course, make our business more captive as companies, let me simplify, like pirates are more difficult to work on similar spare parts. We use a lot digital products in the service system now partially based already on artificial intelligence. This maybe on Automotive. On the HOMAG side, we are developing because we have a very high installed base, a very complex installed base. We are developing very special standardized service and upgrade programs that will help to support the service there as well, just given a few examples. And as you can see on our Industrial Automation business, especially at the BBS side, is not so much used to a strong service business yet. There, we're really kicking off programs to benefit from the [ potential ] that's out there. So lots of programs. And this makes us really very confident that this business will grow. And actually, we've set this as a strategic target even down to our remuneration for the year. On the margin guidance for Industrial Automation, the blocks and improvements, Dietmar, do you want to cover a few topics where we see the improvements? Dietmar Heinrich: It's on one side, continuing the optimization measures that are already established. We will on the -- one impact have the -- negative impact from the lithium-ion business that Jochen mentioned before that was under stress, and we had to do the impairment actually is removed to auto. This helps them to lift already to a certain extent then the margin. The second topic is that we are working on operational excellence in project management that we are improving the footprint continuously. We are combining 2 locations here in Germany that are very close together. That's already agreed upon with the works council there so that we can realize synergies. So that's why we are finally confident that we can reach the margin improvement, but it's not yet where we want to go. So there are still further steps to come finally beyond 2026. Jochen Weyrauch: On the dividends, I think we have -- there is nothing to be communicated yet. So it's difficult to comment on it at this point. Dietmar Heinrich: But Nikita, maybe to add, Jochen, we have the guardrails of 30% to 40% of the net income, but you are for sure aware that in case of extraordinary charges, we did some adjustments. This year, we have, 2025, an extraordinary benefit. So we might consider this. But in general, we are a good friend of a continuous dividend policy. And of course, nevertheless, having our shareholders having a share of the -- or the income [ that is the ] benefit that we produce. So it's a very generic statement, I have to say. We will discuss with the Supervisory Board. And when we get out with the final report at the end of March, you will get information in that regard. Operator: All right. The next question is from Philippe Lorrain from Bernstein. Philippe Lorrain: So I also have like a few questions. So maybe if I can just follow up a little bit on the impairment that you were mentioning for Industrial Automation, if you can quantify that? And also with regard to the guidance that you provide per division, you give indications on the sales for 2025 in the lithium-ion battery system business and also for BENZ. But looking at 2026, what would have been like the kind of figures that you were anticipating for this in terms of order intake and also like the margin impact, maybe the dilutive margin impact on Automotive and the relative margin impact on Industrial Automation would help a little bit. So that would be the first question. Dietmar Heinrich: So Philippe, in regard to the impairment, just to make sure it's LIB that you mentioned. Philippe Lorrain: Yes... Dietmar Heinrich: Because I was still busy taking note, sorry for that. Yes, it's the market situation in the battery market in European market is very, very difficult. That's the area that we focus on because we have been of the opinion that we can gain business in the European market with the drive also for independency in regard to battery supplies in the European Union. We can see that from a customer perspective, this did not materialize finally. We could see the difficulties of Northvolt. We could see Porsche's announcement regarding their joint venture, Cellforce. And we do see that last year, the market in regard to new business was very, very low. At the very end of -- then we reviewed the business opportunities, we reviewed the business plan, and we came to the conclusion that for the foreseeable future, it's not going to build up then finally in the area that we really targeted. And we did then finally impairment of EUR 15 million. So the impairment as a whole is EUR 135 million. As I mentioned before, thereof the EUR 120 million for BBS that we already [ or PAS ] at that time that we already did at the end of the first half of the year and the EUR 15 million now in the fourth quarter for LIB. Philippe Lorrain: Okay. So the margin -- yes, sir. Jochen Weyrauch: Maybe to add to that - go ahead, Philippe. Go. Philippe Lorrain: No, I was just meaning -- so the margin step-ups come basically from the fact that we just reduced the amount of depreciation going forward? Jochen Weyrauch: Yes, it's also operational improvement. So we expect a significant -- after restructuring we've made in the lithium-ion business, we really expect even close to double-digit million improvement in the lithium-ion business as such operationally independent from any depreciations on the business. You were asking also on the dilution for the business, it's... Dietmar Heinrich: Based on last year, it would be around 70 basis points for Automotive in the margin. Philippe Lorrain: Okay. So basically, so if I take like the 7% to 8% target -- margin target range, sorry, for 2026, I would need to hike that by basically like around 70 bps. So more or less what you expect... Dietmar Heinrich: Philippe, when you look to 2020 figures, then you would go down from the 8.6% towards 7.9% in order to have it comparable. And in regard to 2026 guidance, as Jochen outlined, we want to bring back the figure to the breakeven or the business to breakeven for 2026. So the dilutive effect is significantly smaller. Jochen Weyrauch: More comes from volume. And you were asking about volumes, both businesses are in the magnitude of EUR 50 million or a bit more at the moment. Philippe Lorrain: So that was the order intake volume for the LIB. Jochen Weyrauch: Also order intake on lithium-ion was lower last year. We had a good 2024 with a large order that we're currently still executing and BENZ would be around the EUR 50 million roughly, yes. Philippe Lorrain: Okay. Perfect. Then I have like one question maybe on the large order that you had for timber house for HOMAG in Q4, if you can quantify a little bit that kind of impact? Jochen Weyrauch: Yes. That order was close to EUR 100 million in order intake is coming from North America. It will be executed this year and to some extent, also next year. And all in all, in that area, what we call [indiscernible], which is the wooden houses business, we had an order intake of about EUR 200 million last year, record order intake. Philippe Lorrain: Okay, including that order? Jochen Weyrauch: Including that order, yes. Philippe Lorrain: Okay. Perfect. I've got 2 more technical questions, so to say, for you. So the first one is on the announcement that you already preemptively make that you are to revise the 2030 sales guidance. So obviously, there's a need to adjust anyway for the sale of the environmental business of CTS. But are there any other reasons also that push you to do that, say, for instance, like the slightly lighter anticipation in terms of order intake for 2026 versus what could have -- one could have expected, so let's say, me, for example, in terms of growth and also generally like the cautious stance that you have with regard to the geopolitical situation? Jochen Weyrauch: All of what you're saying is valid in a certain sense. However, EUR 100 million up or down, maybe I'm a bit too generous now, in 2026 don't have much impact on 2030, at least I hope. So CTS is a valid discussion. We will be, of course, reviewing growth potentials, which currently we are really revisiting in order to, not too far in the future, redefine what would bring us to the EUR 6 billion or whether the EUR 6 billion are still the EUR 6 billion. Dietmar Heinrich: And Philippe, it's always including both organic growth and inorganic growth, which means acquisition, Jochen pointed out with -- on the presentation, you can see 2026 is on efficiency. But of course, for the future, especially when opportunities coming up to strengthen the business, we will seriously diligently look into them. Jochen Weyrauch: Within the core business. Dietmar Heinrich: Within the core business and with net debt being reduced to a level close to 0, we are also now having a good headroom again to act when opportunities are coming up in the future. Philippe Lorrain: Okay. So maybe you will actually stop targeting such a fixed figure, including, let's say, like M&A and so on and rather guide organically that could actually like be wiser, I guess, going forward? Dietmar Heinrich: We will take it into consideration. Philippe Lorrain: Yes. That's good. And finally, I've got a question for you, Dietmar, because you were mentioning the fact that contract assets were actually reduced. So to which extent do you manage to proactively reduce or keep that under control versus what is it that you actually cannot control? Because I understand there's always a relation between that item and also the sales recognition and the earnings recognition and actually, the market typically likes if contract assets are not too much inflated. So it's good news here, but we get that to be seen. But I was wondering whether there's actually like -- really like something that you can control versus something that you have to actually deal with. Dietmar Heinrich: Yes, you're right, Philippe, and looking into the number, we had a decline of EUR 84 million from end of 2024 to end of '25. So that's a significant decline. But basically, I would say the majority of this, we can manage. I think one of the reasons for this at the very end is in conjunction with the sales recognization, especially the excellent EBIT margin on the automotive side in the fourth quarter business. So a couple of projects have been completed. We had to -- or we could then finally realize the outstanding sales. We could realize then also the profit with releasing contingencies that we had in there, and that was also making a contribution to the drop in the total contract assets as well. Philippe Lorrain: Okay. Perfect. And if you don't mind just like a very -- like a little housekeeping stuff. So you mentioned EUR 10 million of cost for HOMAG for ERP transition. Is it going to be recognized below the line, so i.e., in earnings adjustments or within the guided margin? Dietmar Heinrich: We had internally some discussion, but let's say it this way, the Head of our Audit Committee is not too much a friend of it. Jochen Weyrauch: So it really goes bottom line. Philippe Lorrain: Okay. So in the adjusted EBIT still? Jochen Weyrauch: This is earnings before extraordinary effects. Dietmar Heinrich: And that's also -- Jochen mentioned that we had a decline or we expect a decline or had already a decline last year in the OneDürrGroup synergy program. In that regard, we stopped the one ERP approach, and we finally moved now to a brownfield approach regarding SAP R/3 to S/4 transformation that is division based. And we have on one side, the savings, and we have smaller amounts due to the brownfield approach than in the division, but it's reflected directly in the divisions, and it's shown there. Operator: The next question is from Adrian Pehl, ODDO BHF SE. Adrian Pehl: Actually, 2 questions left from my side. First of all, on the cash flow guidance that you gave, just to get a sense of what defines really the very low end and the upper end of that? Because if you take the 2 years together, i.e., 2025 and your, let's say, very low end of 2026, there's literally any -- hardly any cash flow left on an EBITDA of EUR 600 million. So that seems a very cautious to me, but maybe also the moving parts and building blocks would be interested on that number. And then secondly, on the regional developments, I mean, obviously, throughout the year, we have seen, in particular, China quite soft. And I was wondering also on the order side of things, actually now down to book-to-bill of 0.4 in Q4. First of all, how do you think of that business progressing? And secondly, is that due to a structure of Chinese rather buying Chinese products? So is that a structural thing? Or how should we see it? And then I might have a follow-up on the regional setup. Dietmar Heinrich: Shall I start with the free cash flow guidance? Adrian, in that regard, we mentioned that we received quite big early prepayments or payments in December from our customer side that had a strong influence. Remember that the guidance originally was 0 to EUR 50 million. Now -- then we increased, we got out now with EUR 162 million. Based on the past, maybe we sometimes could overexceed a little bit. So you can roughly say that we received around EUR 100 million more than we expected finally. And this, of course, is missing as a cash inflow in 2026. So that's why we are certain. On the other side, we will not, for ongoing projects, receive significant milestone payments because these earlier payments also to some extent are made. And then we have nonoperating cash outs like we mentioned for the tax on the environmental technology sale. We booked the net gain finally, but the tax payments will be made in 2026. And we have the expected payout from the tax audit in Germany that we are targeting or not targeting, we will have it examined by the court. We don't want to mention the number due to the tax authority not letting to know our real position on this, but we build up respective provisions. So no impact on the profit side impacted. And that's actually -- and of course, when orders are coming in towards the end of the year, we could have again the advantage that we get the initial down payments and then have a better cash flow development despite the fact that not much of the contracts as is being built up during that time. So this defines the upper and the lower end from a verbal explanation. Jochen Weyrauch: On the regional distribution, especially China of the orders, first, as a disclaimer, as you know, in many cases, we have orders that are triple-digit millions. So this can fluctuate over time. However, especially on China, where we've seen some declines, it is -- China is a very competitive market. And from what we see, it's not about in terms of winning the orders, at least in most cases, independent from whether you are local or not local. In fact, we are local for more than 30 years already in China. It is competition. And of course, the market after boom times around adding capacities with now dozens of producers that -- it's natural that the investments have been somewhat down. However, I can note that this year, we've already seen some upwind and book 1/2 orders in automotive, not the big orders, but activities there. So let's see what's happening. And China, of course, is the most competitive market on the planet. This is why we are also continuing to play there, especially to learn from them. And not to forget, we're using our own Chinese facilities to follow Chinese OEMs into the world. So if you look at China from a holistic point of view, it's a bit more than just the order intake mix. Adrian Pehl: Right. And more generally on that, I mean, how are you managing your capacities, in particular on the automotive side of things? So I mean, obviously, your overall profitability was solid in particular in the second half of the year. It looks like you are probably also assuming or selecting orders depending on the margin profile. Is that continuously the case? And how should we think of the margin profile in your order backlog going forward? Jochen Weyrauch: Yes. We have a healthy -- continue to have a healthy margin in the order backlog. And in many cases, with the excellence that we have in order execution, we turn or we even increase the margin that we have in the backlog when executing projects. Then in terms of capacity management, we are very much used still today to manage projects very globally. So when we -- just to give you an example, execute an order in Saudi Arabia, you would have colleagues from China involved, from Korea, from Italy, from Poland, from Germany and probably a few more countries. This is how we are used to execute orders, not saying independently from where they are, but to a large extent. And this is why we can manage capacities quite well. And second, also very important is that a lot of the P&L, especially in automotive, is purchased goods. So we are not so dependent in terms of load in factories because our value adding, our own value adding in terms of products is limited to the amount where we can differentiate with own IP. Operator: So dear ladies and gentlemen, there are no more questions in the queue at the moment. [Operator Instructions] And there is a follow-up from Philippe Lorrain, Bernstein again. Philippe Lorrain: So the first one would be on the extra cost that you had on the continuing business prior to the actual sale of CTS Environmental. So could you quantify that again for the full year of 2025, so we know what negative impact actually leaves the P&L? Dietmar Heinrich: This was around EUR 30 million, Philippe, as a whole, a smaller amount, low to 1-digit million euro, I would say, EUR 3 million to EUR 4 million was already in 2024. The remainder was in 2025. So that's the amount that we spent, and this was related to the carve-out preparation, which was quite complex and was then transaction-related expenses. Philippe Lorrain: Okay. But you had also this -- this also includes the impact of shifting the costs that were actually not recognized anymore in CTS Environmental, but rather in the existing continuing business also [indiscernible] all together? Dietmar Heinrich: That's correct. It recorded in the discontinued operations. Philippe Lorrain: Okay. Perfect. And second question that came to my mind as well, as you were mentioning Saudi Arabia. But with the current situation in the Middle East, so do you have any, let's say, like significant projects where you have works on the ground and so on? And what's the situation like there in this kind of scenario that we are going through in the Middle East? Jochen Weyrauch: Yes. We are -- Philippe, we're having 2 projects that are currently significant, the 2 projects in Saudi Arabia, but they are not at the Persian Gulf side in the East, but they are in the West, near Jeddah, King Abdullah Economic Zone. So far, first of all, our people are safe because we have the people there. We have all the plans to deal with the situation and escalate if necessary. And second, in terms of the supply chain, we're carefully watching. And where necessary, we reroute goods at this point. So, so far, we're not with a view on this region, expect any interruptions. What, of course, we have to carefully watch is our supply chain in general. And there, it's difficult to say at this point. It is what we said before, if this conflict is managed within the foreseeable future, we don't see a real impact. If it takes longer, we will have to see. Operator: Thank you very much. With that, since there are no more questions in the queue, I'm closing the Q&A session again and handing the floor back over to the host. Mathias Christen: Thank you, Anna. Thank you, ladies and gentlemen, for your questions and the discussion. If there are follow-ups, please don't hesitate to contact me. The full annual report will be published on March 26 and the Q1 figures on May 12. We are planning a Capital Markets Day in the course of the year as we are currently examining our midterm sales targets and working on a strategy update. For today, that's it. Take care. Goodbye.
Operator: Good afternoon. My name is Ina, and I will be your conference operator today. I would like to welcome everyone to Thinkific's Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Joo-Hun Kim, Head of Investor Relations. Please go ahead. Joo-Hun Kim: Thank you, and good afternoon, everyone. Welcome to Thinkific's Fourth Quarter and Full Year 2025 Financial Results Earnings Call. Joining me today are Greg Smith, CEO and Co-Founder of Thinkific; and Corinne Hua, CFO. After the prepared remarks, we will open up the call to questions. During the call today, we will discuss our business outlook and make forward-looking statements that are based on assumptions and therefore, subject to risks and uncertainties that could cause actual results to differ materially from those projected. These comments are based on our predictions and expectations as of today. We undertake no obligation to update these statements, except as required by law. You can read about these risks and uncertainties in our regulatory filings that were filed earlier today. Our commentary today will include adjusted financial measures, which are non-IFRS measures. They should be considered as a supplement to and not a substitute for IFRS measures. Reconciliations between the two can be found in our regulatory documents, which are available on our website. In addition, our commentary today will include key performance indicators that help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Such key performance indicators may be calculated in a manner different to similar key performance indicators used by other companies. I should also note, we have a slide deck that supports our remarks available to download on the webcast interface or on our website. Finally, all dollar amounts discussed today are in U.S. dollars unless otherwise indicated. I will now turn the call over to Greg Smith, CEO and Co-Founder of Thinkific. Greg Smith: Thank you, Joo-Hun. Good afternoon, everyone. Thank you for joining us. We ended 2025 encouraged by the progress we're making in executing our upmarket strategy as demonstrated by our Q4 results, which came in at the high end of our guidance range. While it's still partway into our transformation, the progress we made in 2025 gives us confidence that the new strategic direction is translating into measurable execution gains. Our 2026 priorities are clear, and we are focused on executing to validate and accelerate the path we are on. We are strengthening engineering excellence by deeply integrating AI into our development processes and platform capabilities while sharpening our go-to-market execution. With releases like Thinker AI agents, we believe we are innovating to deliver the tools that will allow our customers to grow and scale their businesses more effectively, which in turn will deliver measurable progress to Thinkific. Before we proceed, as was announced in the press release after market close today, Corinne Hua will be stepping down from her role as Chief Financial Officer. She's been an incredible partner and leader during her time of almost 6 years with us. Her financial stewardship allowed us to return to profitability, and her focus on always driving growth is foundational to laying the groundwork for the new strategic direction we're pursuing today. We are grateful for everything she brought to Thinkific, and I want to wish her every success ahead. The search for our new CFO is well underway, and I look forward to providing an update at the appropriate time. Kevin Wilson, who has been involved in Thinkific since before our IPO, will provide strong leadership as our Interim CFO. I've had the pleasure of working with Kevin for nearly 6 years, and I'm very confident in his ability to lead us and the team through this transition. We also announced some updates to the Board of Directors. I'm very pleased to welcome Jean Lavigueur to Thinkific's Board of Directors. Jean brings deep financial leadership and a proven track record guiding high-growth technology companies such as Coveo where he led the company through its IPO until 2023 and Taleo, where he was a Co-Founder and the CFO until 2005 when the company went public on NASDAQ. His experience in public company finance, capital markets and governance will be a significant asset as we advance our current strategic journey. I'd also like to thank Brandon Nussey and Fraser Hall for their dedicated service and contributions during their time on the Board. Both have been instrumental in the success the company has achieved, and I wish them the best in the future. Now turning to the quarter. It's still early in our transformation, but once again, we came in at the high end of our guidance. We see this as a reflection of our ability to continue to execute toward our strategic shift upmarket. Crucially, we are seeing signals that our go-to-market execution is improving. The go-to-market teams are now restaffed with new senior leadership in place, and we are focused on establishing the most effective path to market, including validating our outbound motion. On our last earnings call, I spoke about shifting budgets away from lower ROI campaigns and toward upmarket opportunities. Since then, we have made significant shifts in our marketing spend with good results coming in as planned. We are seeing larger brands with significant expansion opportunities enter our sales pipeline. These results are showing up in the quality of opportunities and scale of customers choosing Thinkific. On our last earnings call, I also shared that currently less than 10% of Thinkific Commerce revenue comes from Plus opportunities and how we are investing in Commerce capabilities to meet the needs of customers with larger sales volumes. This is a big opportunity for us. We've improved our billing environments, functionality for larger group orders, pricing and flexibility and notifications and trial periods for subscriptions. The result of this has been larger customers processing larger volumes being more likely to adopt Thinkific payments and earn more revenue on Thinkific. As a result, this quarter, we saw strong growth in the Commerce revenue generated from Plus customers. We're also seeing growth in customers that generate 5- and 6-figure revenues for Thinkific, and we continue to see strength in multiyear deals with built-in accelerators at over 50% of new deals. We are actively investing in supporting and scaling this upmarket customer segment. We see both the need and opportunity to provide higher levels of support and service for these customers, and we're actively investing in this opportunity. On our last earnings call, I spoke about steps we were taking to strengthen our sales team to handle larger, more complex deals. This quarter, we begin to see the fruits of these labors. In Q4, we secured a major win with the education unit of a large multinational media conglomerate. This win showcases our recent improvements, including our new outbound motion, enhanced support capabilities and a deal team equipped to handle the extra rigor of closing deals with larger businesses. This media company came to Thinkific after realizing that the 2 different legacy learning systems they had were not meeting their needs. Their traditional LMSs were hard to use and navigate and lacked modern feature sets, which contributed to user significant frustration and drop off across their learners experiences. They were looking for a more flexible and scalable solution. Thinkific stood out for our platform adaptability, pricing model and ability to support both internal training and external audience education. Key differentiators included Thinkific's ability to scale to support multiple academies, seamless SSO integration as well as a mobile app that improved accessibility and adoption. On our last earnings call, I also mentioned the creation of our outbound motion. This deal was sourced through this new outbound channel. This represents a significant opportunity for additional growth for Thinkific in the quarters ahead. Despite being a smaller division of a multinational organization, the procurement process was rigorous, typical of large enterprise, but our go-to-market team was able to successfully navigate the complexity. Moreover, our recent investments in higher top-tier support teams demonstrates the readiness and ability to support larger enterprise customers and was key to their choosing Thinkific. Many of the recent improvements we've made have started to bear fruit. However, I'm confident there's a lot more growth to unlock here with the product improvements we have coming in the near term, and we should see our investments help us accelerate. Our release late this February of Thinker is a giant step in delivering on these enhancements. Thinker is our AI agent teaching assistant. Customers of Thinkific can now have their own custom agents that are experts in any media and content customers upload to Thinkific. On our last earnings call, I shared that Thinker would be generally available early in '26. We've now launched Thinker and it's currently available to all of our Plus customers. Thinker represents the next step in Thinkific's broader approach of embedding AI across the learning experience. It allows each of our customers to deploy custom AI agents trained on their own proprietary data to interact directly with their learners. The result is a more engaging, more responsive and more valuable learning experience. Thinker leverages Thinkific's own indexing engine, which is designed for response accuracy, a critical need in offering AI support to students and referencing their learning content. Additionally, Thinker allows our customers to create multiple agents trained on multiple topics. Research shows that interaction with instructors is among the most significant factors affecting learner retention and its absence often contributes to dissatisfaction and dropout decisions in online learning. At the same time, identifying timely upsell and cross-sell opportunities remains difficult as businesses work to maximize revenue per learner. Thinker addresses these challenges by providing an easier navigation, faster answers and personalized experiences that's intended to support higher completion rates and satisfaction. It offloads repetitive questions from educators, freeing them to focus on high-value interactions. Customers can create multiple custom agents that are deeply familiar with their proprietary learning content and answer accurately with reference to this material rather than generic web searches, while maintaining brand consistency with a fully customizable tone to ensure every interaction aligns with the business' unique voice and will soon help unlock revenue opportunities by identifying and acting on potential upsell moments. Thinker also provides analytics about the use of Thinker by students, including on the types of questions they're asking. This helps our customers further refine their content and can even identify new opportunities for additional courses or learning products. As Stephen Ekstrom, CEO and Co-Founder of Learn Tourism shared with us, Thinker helps to amplify the learner experience, supporting self-discovery, responding with a more personal tone and engaging people in ways that reflect how they actually learn. The result is learning that is more effective, more relatable and more memorable at a scale we simply couldn't achieve manually. Thinker is currently available to Plus customers, and we believe it will act as a catalyst to drive further adoption of the platform as well as ARPU or ACV expansion. Now that Thinker agents are actively being used by customers, we are seeing positive feedback. Additionally, we've identified a number of opportunities to expand its capabilities to enhance the offering to our customers and the revenue opportunities for Thinkific. To date, Thinkific is seeing benefits of AI in 2 principal categories: improvements in our productivity and efficiency and how we work, allowing us to produce more value at lower cost in most areas of the company. Specifically, we've seen significant gains in customer support and R&D. Also, we're incorporating AI into our product for the benefit of our customers with Thinker, our custom agents, AI agents for our customers being the most recent innovation here. As a next step, we see an opportunity for some onetime investments to significantly improve future efficiency, productivity and innovation, specifically in R&D. We are currently making some mostly onetime investments to equip our engineering teams with best-in-class AI tools and best practice methodologies. Our expectation from this short-term investment is clear, drives significant productivity increases in our engineering teams. This will mean we'll see a 2% to 5% adjusted EBITDA loss in Q1 as we increase our AI-driven investments and quickly returning to adjusted EBITDA profitability thereafter. We have an ambitious product launch schedule ahead, including a comprehensive platform refresh, enhanced content management and commerce capabilities designed to better serve our ideal customer profile. This surge will enable our teams to operate on a higher level, accelerate our pace and ultimately deliver more value, both internally and ultimately for our customer. Once complete, the company will be ideally positioned to accelerate growth, expand margins or strike the optimal balance between the 2 to best enhance shareholder value. I am genuinely excited about the progress we've made. At the same time, I'm deeply impatient and I'm working hard to accelerate our progress. It takes time for all the actions we took to take effect. With the investments we've made and the strategy we've put in place, I do expect we'll be able to share concrete measurable evidence of progress as we execute on our new strategy by the end of this year. I'll now turn it over to Corinne. Corinne Hua: Thanks, Greg. Good afternoon, everyone. Our fourth quarter financial performance came in at the high end of our guidance range, driven by continued penetration gains in Commerce and progress in focusing on our upmarket opportunity. Fiscal 2025 marked a pivotal period for Thinkific. We embarked on a strategic repositioning, focusing our product road map and go-to-market efforts on a narrow segment upmarket. We believe this more targeted approach addresses a large underserved market who are looking for a comprehensive platform that can help them grow and scale their business. We are confident that this focus will also accelerate Thinkific's long-term growth trajectory. As Greg has already discussed, we are making targeted onetime AI-related investments in research and development to better serve our upmarket customers. These investments are designed to accelerate the delivery of our product road map and drive productivity gains across the entire organization. We expect these investments to position Thinkific to deliver revenue growth and drive sustainable margin expansion, thereby enhancing long-term shareholder value. While we expect an adjusted EBITDA loss in Q1, we will see improvements as we move throughout the year. On to Q4 financial results. For the fourth quarter, revenue was $18.7 million, up 6% year-over-year, driven by the continued penetration of Thinkific Commerce into our customer base and improving execution of the go-to-market teams in Thinkific Plus. For the year, revenue was $73.2 million, up 9% year-over-year. As part of moving upmarket, we've purposefully scaled back certain traditional go-to-market activities where we weren't seeing the returns we expected. These adjustments allowed us to concentrate resources on larger, more strategic accounts with greater lifetime value, positioning the business for more durable, high-quality growth over the long term. ARPU of $175 per month was up 5% in Q4 and up 5% for the full year of 2025. The increase in ARPU came from the growth of Commerce revenue and the continued progress we're seeing in Thinkific Plus, where ARPU is approximately 20x that of a typical Self Serve customer. Subscription revenue for Q4 was $15.2 million and ARR was $61 million, both up 5% year-over-year. For the full year, Subscription revenue was $59.8 million, also up 5%. The growth in Subscription revenue for the quarter and year results from continued strength in Thinkific Plus, offset by softness in Self Serve. Commerce revenue was $3.5 million, up 13% quarter-over-quarter, and $13.4 million or up 32% for the year. The growth reflects continued penetration of Thinkific Commerce across our customer base, including significant improvements within our Plus customer group. Penetration, which is measured as GPV as a percentage of GMV, increased to 62% in Q4 from 61% in the prior quarter and 52% in the prior year. It's worth noting that given our current product offering in Commerce and the makeup of our customer base, we are near a plateau for Commerce adoption. We expect to see penetration growth slow down and flatten as we approach the mid-60% range. The near-term impact of this is we expect normal seasonality of Commerce volumes to result in Q2 Commerce revenue being roughly in line with Q1. From there, we see continued Commerce growth opportunities through a number of levers, including growth of GPV from our larger existing customers, the movement of currently off-platform sales onto Thinkific Payments, continued adoption from new customers, and importantly, as we've moved upmarket, we are seeing more new customers with large sales volumes starting on Thinkific Commerce. GMV for the quarter was $117 million, up 2% versus a 3% growth last quarter and the flat growth in Q4 of 2024. For the full year, GMV was $460 million, flat from the prior year. Take rate of 4.3% for Q4 was down from the 4.5% in Q3 and a 4.4% average for all of fiscal 2025. We expect the take rate to fluctuate around these levels quarter-over-quarter, influenced by the geographical mix of sales and the specific commerce tools utilized. For instance, this quarter saw higher international sales that generally carry a lower take rate as they utilize a lower-cost payment options like ACH. Our sales tax solutions aren't available to them, and they have lower usage of options like buy now, pay later that have a higher take rate. Now on to revenue by customer group. Self Serve revenue reached $13.7 million in Q4, up 3% from Q4 of the prior year. For the full year, Self Serve revenue was $54.2 million, up 6% year-over-year from 2024. Q4 and the full year 2025 growth reflects expanding Commerce revenue, offset by higher churn and lower tier accounts amid our focus upmarket. Thinkific Plus revenue was $5 million, a 17% increase from Q4 of 2024. For the full year 2025, Plus revenue was $19 million, up 21% year-over-year. The deceleration of Thinkific Plus revenue in Q4 relative to the first half of the year and for the same period in 2024 is due to hard compares following the release of the highly anticipated SCORM feature in the summer of 2024 and the sales force disruption that we experienced early in 2025. We are beginning to see positive signs in our sales team as it stabilizes from the summer. We are pivoting ad spend upmarket which along with the rebranding we began the spring of 2025 is having a positive effect. And we see larger companies with greater expansion opportunities entering our sales pipeline. Gross margin was 72.5% as compared to 73% in Q3 and 75% in Q4 of 2024. As we discussed in prior calls, the gradual decline in gross margin over the past 2 years is largely due to a shift in the revenue mix towards Commerce revenue, which carries a gross margin that is lower than Subscription. Moving to operating expenses. Total operating expenses was $13.6 million, in line with the prior quarter and the prior year. We increased our engineering investment of $5.8 million sequentially to accelerate the product road map and advance our AI initiatives. These increases were offset by a reduction of almost $500,000 in sales and marketing, which came in at $4.6 million. The reduction was a result of a decrease in promotions and advertising spend aimed at the creator market. While we have reallocated go-to-market resources towards the upmarket segment, we're still testing and iterating on different paths to market in order to identify the most effective channels before meaningfully ramping spend. For the full year, operating expenses were $54.9 million versus $52.8 million in 2024. The increase in operating expenses in 2025 came from increased investments in product development. Q4 adjusted EBITDA totaled $1 million, representing 6% of total revenue, an improvement of approximately $100,000 compared to Q4 2024. For the full year 2025, adjusted EBITDA was $4 million, up from the $3 million in 2024. Cash from short-term investments as of December 31, 2025, was $51 million, a decrease of $1 million from the prior quarter. This reflects cash usage of $494,000 from operations and $445,000 used in the repurchasing of common shares for the purchase of cancellation. The usage of cash in Q4 is a result of working capital changes that occur intra-quarter. For the full year, cash from operations was a positive $5.6 million. We believe adjusted EBITDA is the best predictor of operating cash flow for the company on a normalized basis. Reiterating Greg's comments, we are making solid progress in embedding AI across the company and see a growing pipeline of opportunity coming from businesses looking for a more comprehensive, scalable platform to help them grow their businesses. To drive continued growth, we are committed to targeted investments with AI within our R&D team. For the first quarter of Q1 2026, we are expecting revenue of $18.6 million to $18.9 million, representing growth of 4% to 6%. We expect adjusted EBITDA to be in the range of a loss of 2% to 5% of revenue due to the aforementioned strategic investments within R&D with improvements in adjusted EBITDA expected as we move through the year. This is my final earnings call as the CFO after almost 6 incredibly rewarding years here at Thinkific. I'm proud of the team I was a part of building across the entire organization and the transformative achievements we've delivered together. Though I'm leaving, I have confidence in the team's ability to lead the organization into the future and look forward to continuing to cheer them on to success. And with that, we are now happy to take your questions. Operator: [Operator Instructions] And your first question comes from the line of Stephen Machielsen from BMO Capital Markets. Stephen Machielsen: So I just want to touch on the increased investment in engineering. I'm sure that some of the releases of the coding tools that have come out since we've last spoke and they're probably helping drive this. But I just want to get a sense of what -- how has your thinking changed about your product road map since last quarter? Are there -- are you accelerating a lot of potentially revenue-generating features as well? Or is it primarily going to be investing in the core platform? Greg Smith: Thanks, Stephen. Good question. Yes. So on the road map and how we're thinking about that, it is -- it has changed, and we just went through actually over the last couple of weeks, a lot of planning around looking at the road map looking ahead. and really how do we leverage AI, both in terms of how we're building, which is where some of the investments are, but also in terms of the product that we're offering. Thinker is a huge step forward in this. Again, that's our AI teaching assistant. It really has the potential to be a stand-alone product that's entirely AI-driven. I'm also looking at or we're looking at a lot of ways that we can leverage the assets that we have that you could not build with AI elsewhere. So there are some network effects. There's some data, significant media assets. These are things that we can leverage to create products for our customers that no one could build on their own. And so there's a lot of opportunity for us to work that into the road map. And Thinker is one big step in this direction, of course. Stephen Machielsen: Okay. And just sticking with Thinker. I know this won't be your last AI-powered tool or I can't imagine it would be. But just wondering how the -- how you're thinking about monetizing it and the economics? And is there enough unit economics in it for it to be eventually rolled out to the rest of the Thinkific base? Greg Smith: Yes. It's -- both good questions. On the monetization, it's included in Plus plans, but there is usage pricing -- or sorry, it's outcome pricing. So as we see customers have success, this does seem to be the fairly standard in terms of how AI tools are being priced. It works great and that customers are paying for the results that we're getting or they're getting. We're seeing good results already from how Thinker is being used already. And so what we get to see is customers have the ability currently to roll this out to their students, their customers. And the more they save and the more they gain from interactions, either they didn't have or have to have because Thinker does it for them or even revenue opportunities that it can create, that turns into billing for us. But right now, it is included with some success outcome and outcome-oriented pricing into the Plus plans. And then in terms of rolling it out to the broad base of customers, we are looking at that. It's -- that will be an interesting one. I think eventually, we will make it available to everyone. But right now, it's really focused on the larger, more successful group of customers and unlocking it for them. Stephen Machielsen: All right. That's it for me. I just want to say, Corinne, it's been great working with you, and I wish you all the success going forward. Operator: And your next question comes from the line of Gavin Fairweather from ATB Cormark. Gavin Fairweather: Maybe just on Self Serve, despite the lower marketing on earlier-stage customers, revenue is pretty flat sequentially this quarter as one might have expected a bit of a decline and the guide for Q1 is showing kind of further growth. So is the readthrough here that you are having success at this stage of the transition kind of backfilling some of that earlier-stage churn with kind of more established customers? Greg Smith: Yes, I'm really impressed with the discipline within our go-to-market teams on spend, and they've self-identified a lot of opportunity over the last few quarters to save. And I think you're seeing part of it reflected in the go-to-market spend, not all of it because some of it is again being redirected upmarket. But they saved a significant amount there and yet they've been able to do it with discipline and intelligent approach such that we're really not seeing much of a decline. In fact, we sort of made estimates as to what kind of a decline we would see, and we're beating all of our estimates. And as you're pointing out the numbers, it's looking pretty good despite the cuts in ad spend there. Gavin Fairweather: Great to hear. And then maybe just curious what you're hearing in the ecosystem on Udemy. I mean, obviously, they've announced their kind of merger with Coursera and then they had that partnership with OpenAI, where they're going to send a bunch of their content kind of into the LLM. Wondering what you're hearing from prospects and customers and whether you could see any kind of opportunities for Thinkific through all that disruption. Greg Smith: Yes, I mean the -- they don't come up in the competitive set for us just because they're the marketplace, and I know you know that, but they don't come up in the competitive set for us in that way and that our customers couldn't use Coursera or Udemy for the same kind of solutions that we offer. But the selling through LLMs is definitely something we've been looking at and have some opportunity to do. I think the -- we've seen Shopify do this. And yes, definitely with MCP, there is that opportunity where you're having your conversation with your favorite LLM and then courses or other learning opportunities are presented to you. In a sense, that is some of what Thinker can do in the future as well. So lots of opportunity for us there and definitely something that's being considered in our road map. Gavin Fairweather: Great. And then just lastly for me, it's been, I don't know 7 months, 8 months since kind of the rebuild of the leadership team in Plus. Your growth was pretty flat sequentially compared to what you did last quarter. But maybe you can just update us on what you're seeing in the pipeline and what you're seeing with the AE team. Obviously, a nice win that you announced alongside the results, but maybe you can just unpack what you're seeing under the hood there, whether we can expect a reacceleration in '26? Greg Smith: Yes, that is the intent is to reaccelerate here. What we're seeing is really the logos that are coming in are excellent, surprised even by the sort of size and pedigree of the companies that are coming to us through our brand and go-to-market. And a lot of what we're hearing from them is that we have things that no one else does. And so there's something we're doing right here, and I think we have a good understanding of it to be able to go and get more of these people coming into the pipeline. We're seeing good results in the retention and upsell and expansion opportunities and what the team is doing there. And there's a lot coming from product that will double down on that opportunity as well. And then the area where we're learning and growing as well as is in being able to land these larger deals. And the one I talked about today was one example, but there's a bunch of others that's come through recently, a few more that are close to closing that the team is doing a great job of quarterbacking these much more complex deals. It's really starting to shift from you're having a one-to-one conversation with a single buying decision-maker at an organization of 25, 50 people to you're having a quarterback a variety of different stakeholders and decision-makers and champions across a larger organization. Again, for much larger deals, which is a great opportunity for us, and we're starting to see the team come together and have some real strength in that as well. So pretty excited about the potential for an acceleration there as well. Gavin Fairweather: Corinne, I'll echo Stephen's comments, it's been great working together. All the best. Operator: And your next question comes from the line of Robert Young from Canaccord Genuity. Robert Young: I guess I'll say, first, Corinne, it's been great working with you. Look forward to working with you somewhere again. For the questions, I was maybe a little bit like Gavin's question. I just wanted to see if you could dig into, maybe give a little more insight into what the top of the funnel looks like and what the sales cycle looks like after these changes. You said that there are customers with significant expansion opportunities. I think you said that some deals have built-in accelerators. I wonder if you could talk a little bit about that. And I think you said 5- to 6-figure deals. Is that MRR or is that annual revenue? If you could talk about what that means. Greg Smith: Yes. So a few things there. The 5- to 6-figure is a simple one, that is annual revenue, and that can be a combination of our Subscription revenue, combined with the potential for Commerce revenue. Another exciting thing that's happening here is we're seeing really good adoption rates from these larger and Plus customers coming in, and they have the potential to do larger volumes than we've seen before. So that's exciting as well. We're seeing those numbers up considerably in terms of the volume of Plus customers who are hopping on to Thinkific Payments. Part of that is a lot of the work we've done on the product side to increase the complexity and power of those features for larger sellers and their expectations. It's interesting. It's been a competitive advantage for us in the selling process and that they're often coming to us where it's not necessarily on their RFP as a requirement because they do have other options to process payments or maybe doing it somewhere else. But then when they realize they can bring it all into one system with us that's truly integrated and works the way they need it to, it quickly becomes a strong selling feature and can help us win the deal. And then yes, on the expansion, part of that is the Commerce component, but part of it is the maturity of the team developing better conversations, better systems and processes for dealing with these more senior customers, offering stronger services on an ongoing basis is creating a lot of opportunities. So within the team of our customer success team, they've done a lot of work that we're quite proud of that's improving this. And so we see more opportunity there. And then, yes, on the multiyear, we're still seeing, over the last few quarters, consistently over 50% of deals are multiyear and that typically has a built-in accelerator over the course of the multiyear deal, which is exciting as well. And we're just now starting to roll over some of those accelerators. So that will be helpful on the expansion going forward as well. Robert Young: Okay. And I would assume most of that's going to be within the Thinkific Plus segment, obviously, but it wasn't so long ago, you were talking about a 30% growth target. Is that still where you think that business will grow over the medium term? Is that still the target? Or would you revise that? Greg Smith: Yes, that's where I'd like to get back to. I think we can do that. There is a ton of opportunity as possible we can do more there. So I don't want to limit us to just that, but I also don't want to give guidance on a very near term for that because we still have a little bit of a way to go to get back there, but there's certainly a lot of opportunity. The -- we've been surprised at the volume of opportunity within the pipeline and what we're seeing and what we're able to generate. Now it's just about getting to work on capitalizing on it, both from a sales and a product perspective. Robert Young: Okay. And then last question, I guess, would be just to push you on this -- the expectation to get back to positive EBITDA. In different parts of the prepared remarks, I think you said that you would like to strike the optimal balance between margins and growth acceleration. And so like would you still expect positive EBITDA for the full year? Or is this a point in time when you're really looking at everything given CFO change and a lot of perhaps the strategy may change, et cetera? Maybe if you could just give a sense to investors how serious you are in that expectation of EBITDA will be positive. Greg Smith: Yes. And to be clear, no connection or relation to CFO change in any of this. And definitely, I'm very serious about getting back to positive. It's where I'm most comfortable operating. I think it's where any business should operate. But at the same time, for this quarter, what we saw was a real opportunity to invest in something that was extremely important for our future, which is really an investment in AI, both in how we're using it for our customers and how we're using it internally. So I think, in the midterm, that will actually play out with a strong ROI, and so it seemed a good investment there. And yes, quite committed to getting back to that profitable level and then scaling it up from there. Operator: And your next question comes from the line of Todd Coupland from CIBC. Thomas Ingham: Great. Corinne, good luck in your -- the next phase of your career, and thanks for all the help. Really appreciate it. I had a few questions. First on the Plus pipeline. What's your sense on the rhythm of that pipeline in terms of efficiency of go-to-market now, how much is yet to be done before you're starting to get that performing at a level you'd like to see it? Are there any milestones that you can sort of put out there for us to help us track sort of pipeline to close rates to maybe other goals that you have there? Could you just talk about that, please? Greg Smith: Yes. And it would probably be useful for us to come back with even more detail on, but I would say that -- I can definitely speak to some of it now in that we're -- some of the things we can where we -- I've talked about some of the things we're doing well, some of the things we can work on here is further improving capitalizing on the pipeline of leads and opportunities that we're generating. They do still close quite quickly. We're still seeing most deals come in at 30, 45 days. One thing that's actually accelerated for us quite considerably is how quickly we're getting customers to launch, which has been a big selling feature as well, which is getting them launched typically in under 60 days when they're coming in with expectations from other companies that it's going to take much longer. That does help with the pipeline because it gets them up and running and helps with the expansion and retention opportunities in the future as well. In terms of time lines, I think through this year, we're going to be seeing some key big improvements, both in terms of lead generation partly through new channels like outbound that we're pushing more significantly now and starting to see. I think that one, we've made a few attempts at it. We finally got -- started to get it figured out where the opportunity is. So that should improve the overall pipeline and the kind of deals that we can be closing there. And so through this year, I think there'll be some key milestones, particularly in Q3 and Q4, where we should see that tick up overall in terms of the impact of the sales pipeline. Thomas Ingham: And you had said you were pleasantly surprised recently for getting selected by these larger entities. What are they picking you for? And who are you replacing? Greg Smith: Yes, it's a combination on both fronts in terms of who we're replacing and what they're picking. Typical legacy LMSs that -- a variety of them that are out there. And the reasons they're picking us, Commerce is one of them, that ability for us to have integrated Commerce into it. Certainly, the user experience and ease of use and the student experience and learning experience, this has been a big one for us, and it's actually something that's going to get a lot more powerful for us over the next few months. We've really over the last 9 months invested heavily in improving our overall learner experience. And so you'll see quite a big improvement on that rolling out in the very near term here and then getting out to all customers over the course of this year. But that's been a big win for us as well. Some of it as well has been our investments in AI. Thinker is starting to win us more deals and have more -- helped with more conversations with customers. So it's a combination of factors, just that ability for us to meet their needs where they are. We actually had one large account come through recently that had a number of competitors in the process and very quickly identified that it wasn't a matter of choosing. The choice became a lot easier when they realized we were the only one that actually met all of their needs. So we have a number of unique things that are helping us win these deals. Operator: That ends our question-and-answer session. I will now hand the call back to Greg Smith for any closing remarks. Greg Smith: Thank you, and thank you for everyone attending. I just want to say one more big thank you to Corinne. It's been amazing working with you, and I know we'll stay in touch lots. And thanks for everyone for attending. Again, I am a mix of impatient and excited about the future. We're seeing a lot of good signs in terms of our road map, the deals that are coming in, the opportunities we have with product and specifically with AI and what we can do with our customers and how we can help them. There are also a variety of things that we're working on that really only we can do that will set us apart and differentiate us even further, especially in this world of increasing use of AI. And so I do see good things ahead, and we're pushing hard to achieve them for all of you. Thank you. Operator: This concludes today's call. Thank you for participating. You may all 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: 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: Good afternoon. Thank you for attending today's Traeger's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Megan, and I'll be your moderator for today. I would now like to pass the conference over to Stephanie Read, Vice President of Finance, Strategy and Investor Relations. Stephanie, you may proceed. Stephanie Read: Good afternoon, everyone. Thank you for joining Traeger's call to discuss its fourth quarter and full year 2025 results, which were released this afternoon and can be found on our website at investors.traeger.com. I'm Stephanie Reed, Vice President of Finance, Strategy and Investor Relations at Traeger. With me on the call today are Jeremy Andrus, our Chief Executive Officer; and Joey Hord, our Chief Financial Officer. Before we get started, I want to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and views of future events, including, but not limited to, statements made regarding our organizational focus and strategy, our mitigation efforts to offset the direct impact of tariffs, our Project Gravity initiative and its impact on our business, our expected product launches and our outlook as to our anticipated first quarter 2026 and full year 2026 results. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied herein. I encourage you to review our annual report on Form 10-K for the year ended December 31, 2025, once filed and our other filings for a discussion of these factors and uncertainties, which are available on the Investor Relations portion of our website. You should not take undue reliance on these forward-looking statements, which we speak to only as of today. We undertake no obligation to update or revise them for any new information. This call also contains certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income or loss, adjusted net income or loss per share, adjusted gross margin, free cash flow and net debt, which we believe are useful supplemental measures. The most comparable GAAP financial measures and reconciliation of the non-GAAP measures contained herein to such GAAP measures are included in our earnings release and investor presentation, which are available on the Investor Relations portion of our website at investors.traeger.com. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. Now I'd like to turn the call over to Jeremy Andrus, Chief Executive Officer of Traeger. Jeremy? Jeremy Andrus: Thanks, Steph, and thank you all for joining our fourth quarter earnings call. We closed fiscal 2025 with strong execution and meaningful strategic progress, and I'm proud of how this team performed in a dynamic environment. For the full year, revenue came in above the high end of our guidance at $560 million and adjusted EBITDA landed in the upper half of the range at $70 million. More importantly, we delivered on what we said we would do. We navigated tariffs, took actions to protect profitability and made hard decisions that simplify the business and strengthen our foundation for the long term. Before I get into 2026, I want to step back and talk about what we saw in 2025 and why we remain confident in the long-term value of this business. Even with more cautious consumer spending, the Traeger brand remains as strong as ever, and our community engagement continues to be a leading indicator of demand. Over the holiday season, we leaned into seasonal cooks and ambassador content and the community showed up in a big way. On Thanksgiving alone, we had 315,000 connected cooks, up 11% year-over-year, which we believe is a powerful signal of engagement across our installed base. What's important is that this brand strength is translating into business performance. In 2025, we held market share across outdoor grilling, including fuels, despite a sluggish category backdrop. That performance was supported in part by strong consumer response at price points below $1,000 where we've seen traction without sacrificing brand or performance. And with household penetration still low, we believe this brand strength positions us well as replacement cycles normalize over time. Innovation has always been core to Traeger, and it continues to be rewarded when we execute. A good example of how we're meeting consumers where they are is the Woodbridge platform launched earlier this year. Woodridge combines thoughtful innovation like the Easy Clean Grease and Ash Keg increased cooking space and our free flow fire pot that delivers better smoke with approachable price points. That balance of performance and value has driven strong consumer reception, and we believe Woodbridge is well positioned to be a meaningful contributor to our grills business in 2026 as consumers continue to prioritize value without compromising quality. Looking ahead, we plan to launch 2 additional products in 2026 that we expect will deliver Traeger innovation at more accessible price points and with a broader reach. That matters because expanding household penetration remains one of our largest long-term opportunities and the ability to deliver great product at price points that meet consumers where they are is a key part of our strategy. Our pellets business performed well this year, supported by the continued fuel category expansion of wood pellets overall. Pellet performance remains an important indicator for the broader category. When consumers are buying fuel, they're cooking. And when they're cooking, it supports the long-term health and replacement outlook. Historically, parts of this category have been tied to housing cycles and broader consumer confidence. The outdoor grilling market, including fuels, has been relatively steady since 2022, reflecting only modest declines. We believe replacement cycles have been extended beyond historical norms due to elasticity following tariff pricing actions and other macro factors. Now let's talk about what defined the operating environment in 2025. Tariffs had a meaningful impact on the category this year, and they drove volatility in ordering behavior across the channel. But through discipline and execution, we managed the impact while still delivering the full year results I just mentioned. As we've discussed in prior quarters, our approach has been consistent. We focused on 3 pillars: supply chain, pricing and cost discipline, and we've worked closely with our partners to protect profitability and maintain inventory health. We'll continue to take a disciplined approach, managing pricing on a portfolio basis as policy evolves. Meanwhile, our current guidance remains based on the framework in place earlier this year. Next, I want to provide an update on Project Gravity because it's a central part of how we're building a stronger Traeger. Project Gravity is a multiyear effort to reshape the business, not just to reduce costs but to simplify how we operate, sharpen where we compete and improve the durability of our profit model. Just as importantly, it allows us to focus and invest in the areas that matter most, including product innovation and brand. Phase 1 focused on organizational efficiency and foundational cost actions, including changes to our operating structure and the integration of MEATER into our Salt Lake City infrastructure. Phase 2 builds on that foundation and is more strategic in nature. It is focused on simplifying the business, sharpening our channel strategy, reallocating resources to our highest return opportunities and driving sustainable profitability improvements. A key component of Phase 2 has been channel optimization, including exiting the Costco roadshow, winding down direct-to-consumer commerce and transitioning to a distributor model in Europe. We've executed most of these actions already, along with additional organizational changes announced for the fourth quarter, and we expect continued progress on the distributor transition as we move through 2026. Taken together, these previously announced Phase 1 and Phase 2 savings are expected to deliver approximately $58 million of run rate savings with benefits beginning to materialize in 2025 and continuing as we move through 2026. As we've gone deeper into the work, we've also identified additional value capture opportunities within Phase 2, particularly around SKU rationalization and pricing. These initiatives are focused on simplifying our product portfolio, exiting lower-margin SKUs and taking a more strategic approach to pricing, which results in a simpler product architecture and a structurally higher-margin business mix. We expect these actions to drive an incremental $6 million to $12 million of run rate value with the majority of that benefit realized in 2027 and 2028 as the portfolio fully resets and end-of-life activity rolls off. Taken together, Project Gravity is now expected to deliver approximately $64 million to $70 million of total value across both phases. And I want to be clear, the point of Gravity isn't just about cost takeout. It's about applying a more disciplined, return-focused lens to how we run the business. Gravity is helping us simplify the model, concentrate resources where returns are highest and make deliberate trade-offs that improve margins, cash generation and long-term earnings power. That's what enables us to perform through uncertainty and generate operating leverage as the business grows. Before I move to guidance, I want to briefly address MEATER. MEATER continues to face challenging competitive dynamics, and we're working through elevated inventory as we reset the business. The steps we've taken, including closing the U.K. operation, integrating MEATER into our Salt Lake City infrastructure as part of Phase 1 of Project Gravity and optimizing demand creation investments are designed to improve the profitability profile of the business and give us more flexibility to invest in the product road map and retail channel over time. Near term, we're prioritizing inventory health and margin discipline. Longer term, we remain focused on product and retail execution to stabilize and improve performance. Now turning to guidance, 2026 is a year of disciplined execution as we focus the business on our highest return opportunities for long-term growth. After a period of tariff-driven disruption and ordering volatility in 2025, we are focused on normalizing channel inventory and working through discontinued product in the marketplace as we enter the year. In addition, our outlook reflects the full year annualization of price elasticity impacts from prior pricing actions taken in response to tariffs. At the same time, our channel actions under Project Gravity, particularly exiting the Costco roadshow and winding down DTC commerce will reduce revenue, but these are deliberate choices that simplify the business and improve profitability over time. Finally, our accessories business will continue to see pressure in 2026, primarily driven by the ongoing MEA reset. To be clear, these impacts are driven by specific identifiable actions and timing dynamics, not a change in underlying consumer demand. For fiscal 2026, we are guiding to revenue of $465 million to $485 million and adjusted EBITDA of $50 million to $60 million. Importantly, our expectations for sell-through in 2026 are significantly higher than what our sell-in plan reflects. We view this as a normalization of channel behavior rather than a change in underlying consumer demand, and we expect closer alignment in sell-through and sell-in as we move into 2027. As a result, we expect to exit 2026 with owned in-channel inventory aligned to our new grill product architecture, a lineup that delivers clear price value for consumers and supports a healthier marketplace as we move into 2027. Encouragingly, we are seeing early sell-through trends exceed expectations, particularly with our largest retail partners. That said, we are taking a prudent approach to extrapolating those trends across the full year given promotion timing and broader operating environment. We believe we're taking the right actions on efficiency, product strategy and inventory management to position Traeger for sustainable long-term growth and profitability. To wrap up, fiscal 2025 was a year where the team executed through uncertainty. We delivered on our commitments, managed meaningful tariff pressure and drove structural changes that strengthened Traeger for the long term. We're approaching 2026 with strategic discipline to set the foundation for our long-term growth strategy. We are prioritizing inventory health and continue to invest behind the product and brand with a focus on extending our consumer reach. And we believe the work we've done through Project Gravity sets up a stronger foundation for operating leverage as we look beyond 2026. And with that, I'll turn the call over to Joey. Joey? Joey Hord: Thanks, Jeremy, and good afternoon, everyone. I'll walk through our fourth quarter and full year financial results in more detail, then discuss our balance sheet, cash flow and our outlook for fiscal '26. Starting with the fourth quarter and the full year, I'm pleased with how the business performed financially in a dynamic operating environment. In the fourth quarter, we exceeded the top end of our revenue guidance and delivered adjusted EBITDA in the upper half of our full year range despite continued elasticity following tariff-related pricing actions and ongoing pressure in m. For the full year, we delivered adjusted EBITDA of $70 million while executing through these pressures and making deliberate decisions to simplify the business. There are 3 financial takeaways from fiscal '25 worth highlighting. First, we successfully managed tariff exposure and protected profitability through disciplined pricing, supply chain actions and cost control. Second, consumables, including pellets, continue to be a source of strength and stability, reinforcing the durability of the reoccurring fuel model even in the cautious consumer environment. And third, we made meaningful progress on Project Gravity, delivering $20 million of cost savings in fiscal '25. This exceeded our original expectation of $13 million and represents an important step towards a structurally improved cost base and stronger cash generation profile. Turning to fourth quarter results. Fourth quarter revenues decreased by 14% to $145 million. Grow revenues were $61 million or down 22% compared to the fourth quarter of last year. Declines in our grow category were driven primarily by elasticity and an unfavorable mix shift as well as a difficult comparison related to the Wood Ridge load-in ahead of launch in the prior year quarter. Consumables revenues were $36 million, up 16% from the prior year. Consumables growth was driven by higher unit volumes across both wood pellets and food consumables. Accessories revenues were $49 million, down 18% versus the fourth quarter of '24. Revenues were pressured by negative sales growth at MEATER. Fourth quarter gross margin was 37.4%, down 350 basis points versus the prior year. Excluding $3 million in costs related to Project Gravity, adjusted gross margin was 39.5%, down 130 basis points, driven primarily by tariff-related costs, offset by lower promotional activity and supply chain efficiencies. Sales and marketing expenses were $23 million compared to $34 million in the fourth quarter of '24. The decrease was driven by the reduced MEATER investment and Project Gravity savings. General and administrative expenses were $22 million compared to $27 million in the fourth quarter of '24. The decrease is primarily driven by lower stock-based compensation expense as well as lower professional fees and employee-related costs as a result of Project Gravity. Net loss for the fourth quarter was $17 million as compared to net loss of $7 million in the fourth quarter of '24. Net loss per diluted share was $0.13 compared to a loss of $0.05 in the fourth quarter of '24. Adjusted net income for the quarter was $2 million or $0.01 per diluted share as compared to $2 million or $0.01 per diluted share in the same period in '24. Adjusted EBITDA increased 6% to $19 million in the fourth quarter as compared to $18 million in the same period of '24, demonstrating operating leverage in the model even at lower revenue levels. Turning to the balance sheet. We exited the year in a solid financial position after making the balance sheet health a leading priority throughout '25. Cash and cash equivalents were $20 million compared to $15 million at the end of '24. We had $403 million of short-term and long-term debt, resulting in total net debt of $384 million. Net debt declined by $10 million in fiscal '25 compared to the end of fiscal '24. Cash flow from operations was $16 million in the fourth quarter, driven by disciplined working capital management and Project Gravity cost savings. From a liquidity perspective, we ended the fourth quarter with ample liquidity of $162 million. Inventory at the end of the fourth quarter was $99 million, down from $107 million in the fourth quarter last year and down from $115 million at the end of the third quarter. While we have elevated meter inventory that we expect to work through in '26, we are pleased with the positioning of our Traeger branded inventory. Now turning to our outlook. As Jeremy outlined, fiscal '26 is a foundational year. From a financial perspective, it is a year of disciplined execution as we continue to focus the business on our highest return opportunities. For fiscal '26, we are guiding to revenues of $465 million to $485 million and adjusted EBITDA of $50 million to $60 million. As Jeremy mentioned, we expect a divergence between sell-through and sell-in in '26. Importantly, the year-over-year revenue decline implied by our guidance is driven by a small number of specific identifiable factors, not a deterioration in the underlying consumer demand. There are 4 primary drivers shaping our '26 revenue outlook. First, Project Gravity actions reflect deliberate decisions to exit or reshape lower return revenue streams, including the Costco roadshow direct-to-consumer commerce and certain international markets as we prioritize profitability and cash generation. Second, the annualization of tariff-related elasticity reflects pricing actions taken primarily in the second half of '25 to offset tariff costs. Because those actions were not fully in effect for the full year, we continue to see their impact carry into the first half of '26. Together, these 2 drivers are continuations of strategic actions taken in fiscal '25 and account for approximately $70 million of the year-over-year decline with just over half coming from Project Gravity actions net of recapture. Next, our outlook reflects deliberate actions to optimize marketplace health. We exited fiscal '25 with select pockets of elevated inventory, and we're proactively managing these positions to reduce weeks of supply. That inventory dynamic was driven by 2 largely timing-related factors in fiscal '25. First, advanced orders placed to mitigate anticipated tariff exposure and support country of origin transitions; and second, higher order volumes following a strong spring selling season before the full impact of pricing elasticity became evident. Finally, we are planning for continued competitive pressure in LTE as we reset that business. Taken together, these factors explain the expected revenue decline in '26 and importantly, reflect deliberate actions and timing dynamics rather than a change in the long-term demand profile of the Traeger brand. From a margin perspective, we are guiding to gross margin of 38% to 39% or down 120 basis points to down 20 basis points versus fiscal '25. Margin guidance reflects pressure from tariffs and deleverage on fixed promotional investments, partially offset by the benefits of Project Gravity. On operating expenses, we expect meaningful improvement in '26 as we realize the full year benefit of actions taken in '25 and continue executing Phase 2. In total, we expect Project Gravity to deliver approximately $50 million of adjusted EBITDA benefit in fiscal '26, reflecting roughly $30 million of incremental benefit on top of approximately $20 million realized in fiscal '25. Taken together, adjusted EBITDA for fiscal year '26 is expected to be $50 million to $60 million. Despite the year-over-year decline in adjusted EBITDA, we continue to expect strong free cash flow generation. While we do not typically provide free cash flow guidance, we currently expect free cash flow of at least $30 million in fiscal '26, driven primarily by inventory reductions and working capital management. This expected free cash flow will support continued net debt reduction as we expect our leverage ratio to remain comfortably below covenant levels throughout the year. I'd also note that our covenant calculation includes credit for cost calculations taken over the trailing 12 months, resulting in a lower leverage ratio than what you would calculate using published EBITDA alone. As a reminder, our revolver capacity will step down by $30 million in the second quarter as part of the amendment executed in '25. This has no impact on our operations. The remaining $82.5 million of capacity is fully available through December of '27 and currently undrawn. Our first lien term facility does not mature until June 2028. Turning to the first quarter. We are seeing some meaningful timing shifts from Q1 into Q2, so I want to provide explicit guidance for the quarter. Importantly, we expect first half seasonality to be broadly consistent with historical patterns, with 26 impacted by new product load-ins occurring in Q2 rather than Q1. From a margin perspective, we also expect some timing impacts between the first and second quarters, driven by promotional activity and direct import mix, which we believe will pressure gross margin rate in Q1 and benefit later quarters. For the first quarter, we are guiding revenue of $92 million to $97 million and adjusted EBITDA of $3 million to $7 million. As it relates to tariffs, our guidance is based on the tariff framework that was in effect through mid-February and does not incorporate the recently announced changes. Depending on market conditions, any incremental benefit could flow through a combination of improved gross margin, dealer margin support or pricing actions for consumers. Before I close, I want to step back and talk about how we see the business position beyond '26. As we move into '27, we believe several factors create a constructive setup for improved profitability. These include the continued realization of Project Gravity value beyond what is reflected in our '26 guidance, including the incremental $6 million to $12 million of value capture announced today as well as the potential for a more favorable tariff environment and improved alignment between sell-in and sell-through. As these dynamics come together, we would expect the business to begin to benefit from meaningful operating leverage as revenue returns to growth with a structurally improved margin profile and cost base. As a result, these factors support our view that fiscal '26 represents a transition year financially and that the business is positioned to deliver higher profitability and improved adjusted EBITDA performance as we move into '27 and beyond. And with that, I'll turn it over to the operator. Operator? Operator: Our first question will go to the line of Brian McNamara with Canaccord. Brian McNamara: First, I'm curious, where did the grill market finish in 2025 relative to 2019 levels in terms of industry volumes? And what is the company's expectation for grill market growth in '26, if any? Jeremy Andrus: Thanks, Brian. So a couple of thoughts. First of all, after, of course, a very meaningful decline in unit volume between '21 and '22, the market has been modestly down the last handful of years. Last year, down probably sort of mid-single digits or so on a revenue basis. I don't have the exact numbers in front of me on unit volumes between last year and 2019. What I can tell you is that units are still down meaningfully. We, of course, we spent a lot of time thinking about, in addition to our strategy from a macro perspective, what are the catalysts to really to get the outdoor cooking category to return to more normalized replacement levels. Mathematically, we should be heading into that window. We did not see that last year, and that was probably in part driven by the fact that tariffs really hit in the spring, and we saw this corresponding very, very material drop in consumer confidence. But we are now 6 years removed from the beginning of the pandemic, and that should be when consumers generally begin to think about replacing other grills, at least the Traeger Grill in terms of the ownership life cycle that we observe. I will say this has been historically a remarkably steady category. And what we've seen, of course, is unusual since the pandemic. But our expectation is that the market will recover. There are just as many, in fact, slightly more outdoor books than there were pre-pandemic. And so this is more around the replacement cycle. I will say that we have not forecasted in the guidance that we've offered, we have not forecasted a return to a more normalized replacement cycle because it's hard to know exactly when. We just believe that this is a very durable category and then it will return to those more normalized levels. So we're heading to that period at some point in time, certainly over the next 12 to 24 months. The other thing that I would add that I think is relevant as we think about brand position and engagement as the category improves is that this is a brand that has been very consistent in terms of the consumer engagement. We observed, for example, in the fourth quarter, connected cooks up 11%. We still -- we continue to see strong pellet attach, which, of course, is another important measure of engagement for us. So we're very focused on the things that we can control. We're not forecasting the next cycle, but we believe that we're getting closer to it. Brian McNamara: Great. You actually answered my second question. So good on you there. My next question is, how big is the expected revenue impact from the DTC exit? And what is the underlying assumption for sales recapture with your retail partners? And in addition to that, I guess, why wouldn't we see a bigger margin boost there? It sounds like Project Gravity is accounting for kind of $50 million of the $50 million to $60 million EBITDA guidance, if I heard that correctly. Joey Hord: Sure. Brian, it's Joey. As far as what we're speaking to right now, we spoke originally around the $60 million just recapture or sorry, a $60 million impact in terms of just overall the shift out of DTC, Costco roadshow and international. That was on a rear-looking number. On the go-forward number, it's a little bit smaller. What we can say is overall between the full year pricing elasticity and Project Gravity, the shift there is around $70 million of the total revenue impact. And if you're doing the math on the P&L flow-through, we have margin rate pressure, and that's driven by full year tariffs and promo deleverage. And that's probably if you're doing the math on why there's not as much flow-through. Operator: Our next question will go to the line of Peter Benedict with Baird. Zachary Beeck: This is Zach on for Peter. Nice to see the additional savings from Gravity. Just curious if you could share more about the SKU rationalization efforts there, maybe which items or categories you plan to address? And then on pricing, Jeremy, you mentioned annualizing some elasticity impacts from your last round, which I believe was last spring. Could you just share more details around that dynamic and maybe how the consumer response to pricing actions is influencing your innovation plans for both this year and beyond? Jeremy Andrus: Yes, of course. So let me start with the SKU rationalization, and then I'll lead into some of the thoughts on pricing and sort of how it impacts our product line or how we think about product strategy going forward. The intent of SKU rationalization was it was twofold. First of all, I wanted to streamline the product portfolio so that we create efficiencies in manufacturing and inventory. There are certainly opportunities to, in a modular way, ensure that we're just driving more volume in assembly, in subcomponents and fewer SKUs, of course, leads to lower inventory levels. That's sort of thought number one. Thought number two is that the rationalization also has consumer benefit. Our ability to create a more clear line, a clear line with a clear step-up story and real clarity from a consumer decision process also was an underlying motivation of the rationalization. These things take time. Of course, we are in a consumer durable, we're looking years out from a product line perspective, and we will sunset certain SKUs beginning this year, but over the next 2 to 3 years. And so as you saw from some of the increased value capture of Gravity, some of these things extend out into '27 and into '28. But we believe in that. We think it's going to make us a better, more focused business, and we have begun this process. The pricing is -- I will say, really forecasting price elasticity last year was challenging. not only because our prices were moving around, but it was a very dynamic environment, not knowing how competition was going to price, being a discretionary, high-ticket discretionary durable, how decision-making on the consumer part relative not only to this category, but thinking about other discretionary purchases that they'll make. We're getting sharper on elasticity. I would say that one of the learnings is that during promotional windows, there is there's greater elasticity. And -- but I would say on balance, we're feeling pretty good about how we've priced our products, and it's given us confidence where we are going forward. We'll continue to evaluate this. There -- as has been announced over the last week or so, there have been some shifts in tariffs. We haven't forecasted any of that in our guidance, but there is some decline in our tariff rate, which will give us the ability to sort of step back and think about how do we allocate those savings. Where will we get value in reducing MSRP versus value in allocating some of that to our dealers where there is some additional margin need. And of course, to the extent that some of it gets allocated back to Traeger, how do we think about that from a business reinvestment perspective. As it pertains to our product strategy relative to what we've learned about elasticity, I would say that it really doesn't change how we think about the future. It takes it takes 30 to 36 months to bring a durable -- this durable, which is a highly engineered product with firmware, software, industrial mechanical design from concept to consumer launch. And so it's hard to really build a product line around macro environment trends. But I think what we've learned is that although there has been a little bit of pressure on price point as consumers have tightened their belt, notably last year as we saw consumer sentiment decline meaningfully -- what we believe and what we see -- what we have seen in cycles over time is that the consumer will return to price points in better times where they are comfortable, but also where there is a reason to purchase. So those features and those innovations that may be slightly discounted in a down period, we believe a consumer will continue to value. And so we think about our product line going forward in a very similar way. Of course, we're always learning from the consumer, and we're always thinking about how should our brand be positioned long term. On a positive, and this just happens to be a nature of where we are in our product development life cycle, we're launching a couple of new products this year in the second quarter. As is our strategy, we really launch innovation at more premium price points, and we cascade that innovation downstream as we understand consumer value of certain products and features and as we understand how we get scale from a product manufacturing perspective. And it so happens that where we are in that life cycle, the 2 product platforms that we're launching this spring, they're sub-$1,000 products, which are -- which is certainly very appropriate for the moment in time. But otherwise, we don't shift our product strategy relative to the cycles that we're in. Operator: Our next question will go to the line of Peter Keith with Piper Sandler. Peter Keith: So just trying to understand the revenue decline and maybe how you're thinking about general demand trends. So I'm going to kind of interpret what you've told us, which was some good detail. So we've got an $85 million revenue decline at the midpoint for the year. It sounds like $70 million of that is from exiting the Costco roadshows, DTC and then some demand elasticity impact from pricing. So there's sort of a $15 million delta that I'm trying to get my arms around. Is that a sort of a lack of sell-in because of the orders last year? Is that demand declines? Kind of how should we think about that other chunk of revenue decline? Joey Hord: Sure. Thanks for the question. So just to be clear, there's -- we're planning on sell-through. There's a divergence between sell-through and sell-in in '26. And sell-through, we're planning to -- current sell-through trends in the beginning of the year are exceeding our expectations. We're planning on sell-through to be in line with the overall category, and that's sort of flattish. So keep in mind, there's a divergence there. As far as the remaining $15 million, there's sort of 2 factors driving that. One is ongoing meter pressure. And the other is we're calling it marketplace health initiatives. We have as Jeremy mentioned, we have specific inventory pockets in a specific retailer that have higher weeks of supply inventory in market than we would like, and we're going to rightsize the inventory. And keep in mind, pricing elasticity, project Gravity reduction in revenue and marketplace health initiatives are strategic in nature. MEATER is -- we're addressing MEATER through the centralization of the MEATER office here in Salt Lake, leveraging the fixed cost infrastructure. We're resourcing the plan and the business to drive ongoing growth. So if you're doing the math on that, it's really focused on that marketplace health initiatives in MEATER. Peter Keith: Okay. Yes. That's the detail I was looking for. And that -- just a follow-up on that, that marketplace pressure, that's just with one retailer where you're trying to rebalance the inventory? Or is that across a variety of retailers? Jeremy Andrus: Generally speaking, yes. It's a distinct pocket of inventory. And keep in mind, it's high-volume inventory, it's high flow-through, and that also puts pressure on overall margin. And the other thing point I'll make on that is as we rightsize marketplace, this is the marketplace health initiative. There's going to be a role in FY '26, but this will create capacity in '27 and beyond, and we'll be able to fill that capacity, and that's why we're confident in the future growth algorithm. Peter Keith: Yes. Yes, that makes sense. Okay. And so then my last question, and I think you partially addressed this in your last answer, but we're looking at the decremental margin on the revenue declines, it's around 30% this year, pretty similar to last year. And I guess with Project Gravity, one would think that maybe the decremental margins would be coming down this year. So why is it a similar level of 30% decremental on the EBITDA margin with the revenue decline? Joey Hord: Yes. I think we need to focus on overall gross margin and gross margin is being impacted full year of tariffs. So last year, tariffs were announced -- they were announced in February, but they were relatively low in the first quarter. Liberation Day, I believe, was in early April, and then we had a much higher tariff burden. They've sort of settled throughout the year. So we have a full year of tariff impact. So that's driving some margin degradation. The other is what we're calling is promo funded deleverage. So we invest a fixed promo number into our P&L every year. And with the overall revenue coming down, it's eroding margin. That is also going to drive margin expansion in the out years as well as we get to more normalized revenue numbers. Operator: With no additional questions waiting in queue, we will conclude both the Q&A session as well as today's earnings call. Thank you for your participation, and enjoy the rest of your day.
Operator: Thank you for standing by. Welcome to Gevo's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Eric Frey, Vice President of Finance and Strategy. Please go ahead, sir. Eric Frey: Good afternoon, everyone, and thank you for joining us on today's call to discuss Gevo's Fourth Quarter and Full year 2025 results. I'm Eric Frey, Vice President of Finance and Strategy at Gevo. With me today, we have Patrick Gruber, our Chief Executive Officer; Paul Bloom, our President; Leke Agiri, our Chief Financial Officer; and Chris Ryan, our Chief Operating Officer. Earlier today, we issued a press release that outlines our fourth quarter and full year 2025 results and some of the topics we plan to discuss as well as a slide presentation that we will discuss on today's call. Copies of the press release and the slide presentation are available on our website at www.gevo.com. Please be advised that our remarks today, including answers to your questions, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. Those statements include projections about the timing, development, engineering, financing and construction of our alcohol to jet projects, our future carbon credit sales, our Gevo, North Dakota and RNG plants and other activities described in our filings with the Securities and Exchange Commission, which are incorporated by reference. We disclaim any obligation to update these forward-looking statements. In addition, we may provide certain non-GAAP financial information on this call. The relevant definitions and GAAP reconciliations may be found in our earnings release, which can be found on our website at www.gevo.com in the Investor Relations section. Following the prepared remarks, we'll open the call for questions. I'd like to remind everyone that this conference call is open to the media, and we are providing a simultaneous webcast to the public. A replay of this call and other past events will be available via the company's Investor Relations page at www.gevo.com. I'd now like to turn the call over to the CEO of Gevo, Patrick Gruber. Pat? Patrick Gruber: Thanks, Eric. What a year. Successfully acquiring and integrating our North Dakota ethanol and carbon capture assets has transformed our adjusted EBITDA and has enabled us to learn and to capture value from carbon, treating it as an important co-product in addition to the ethanol, animal feed and oil that we produce. Gevo North Dakota has performed superbly well. It's the well-run operations, combined with our learnings on how to capture value from carbon dioxide that have allowed us to turn positive on operating cash flow in the fourth quarter. We also now have 3 quarters in a row of positive non-GAAP adjusted EBITDA. I'm very pleased with the progress and what we are learning. Great operating results, combined with consolidating our debt in early 2026, has strengthened our balance sheet and increased our cash on the balance sheet without tapping into equity markets. We also continue to make progress on our ATJ-30 plant, the jet fuel project that is targeted for our North Dakota site. I believe Gevo is in a really good place. I make this point because you probably all recall that I'm retiring as CEO on March 31. Paul Bloom, who has been with us 5 years now, will assume the role of CEO on April 1. He has been instrumental in helping us build the business platform to where it is today. He also knows technology and processing, operations, market development and business. I'm convinced he's the right person to take over. I think he will be a really strong CEO, and I'm excited for him to take the helm. Paul, it's your show today. Paul Bloom: Thanks, Pat. To begin, I'm extremely honored to be taking on the role of CEO starting April 1. Pat has led the company for nearly 2 decades, guiding Gevo through some incredible times and put us in a great spot with our current business that sets the stage for future growth. From developing our intellectual property portfolio to shaping Gevo's business system from field to flight, Pat has been a visionary leader for renewable fuels and chemicals. I'm happy to announce that after Pat's retirement, he will continue to serve on Gevo's Board of Directors, and the company will continue to benefit from his expertise and insights. Thank you, Pat. Now I'm pleased to highlight some of the progress we made in Q4 and on our full year for 2025. 2025 was truly a transformational year for Gevo. The successful acquisition and integration of the Red Trail Energy assets now operating as Gevo North Dakota marked a pivotal moment in the company's growth story. I want to express my sincere appreciation for the outstanding people and great community who have welcomed us so warmly. Their partnership and dedication have been essential to our success. The team did an outstanding job across the board in 2025, delivering record-setting biofuel production, starting up our carbon business and leading the industry with some of the first large-scale 45Z clean fuel production tax credit sales. All of this was accomplished while substantially advancing our alcohol-to-jet growth platform. Our execution in 2025 led to 3 consecutive quarters of positive adjusted EBITDA with almost $8 million in adjusted EBITDA in Q4 as we continue to make solid progress on our goal of reaching $40 million in adjusted EBITDA on an annualized basis from our current asset base. Leke will give more color when he highlights our financial results. Gevo's operations team exceeded the nameplate capacity of our ethanol production facility, reporting a record of about 69 million gallons of ethanol produced during the full 12-month period of 2025 while capturing 173,000 metric tons of carbon dioxide. To further build on these strong results, I'm happy to announce that we've approved our capital plan for Gevo North Dakota to expand capacity to 75 million gallons per year, produce more co-products, improve energy efficiency, capture more carbon dioxide and invest in our operational reliability. We are reinvesting in Gevo North Dakota to grow our base business and improve our returns while we set the table for alcohol to jet. We have an aggressive time line to deliver these projects and anticipate they will be starting to deliver returns in early 2027. Chris will say more on this during his operations update. During 2025, we also started up our carbon business. The team has done extremely well developing the business from scratch, and we believe we are the first biofuel producer to develop and operate this business model. We believe our flexibility to sell carbon value either with our fuel products or separately in the voluntary carbon market provides a distinct advantage for optimizing returns and will apply to our ATJ growth platform in the future. In Q4, about 80% of our carbon benefits remained attached to ethanol gallons sold into low carbon fuel markets, and we built our inventory to roughly 30,000 tons of carbon dioxide removal credits or CDRs, by the quarter's end to meet future demand from spot and contract sales. Our customer base for CDR credits continues to grow beyond those previously reported such as NASDAQ and now includes companies like PayPal, Bank of Montreal and additional international clients. As the market develops, we are confident that Gevo is well positioned to produce, certify and supply high-integrity carbon credits that can help supply the growing market demand. In addition, Gevo retired carbon credits from Gevo, North Dakota to offset substantially all our own air travel in 2025. At Gevo, we're committed to leading by example. We don't just talk about our values. We put them into action by utilizing our own products and solutions. Turning to our growth platform. Let me comment on ATJ-30, which stands for alcohol to jet at 30 million gallons per year in North Dakota. We refer to this as Project North Star. As we've mentioned before, we anticipate that by adding Project North Star, once constructed, we could deliver $150 million in adjusted EBITDA per year from the fuels, carbon value and co-products. From there, we believe we can enable and create a franchise approach to deploying synthetic aviation fuel globally. But first, we need to build cereal #1 and demonstrate the value proposition monetizing our commodities and carbon. Project North Star is designed to be a modular build that we can copy edit paste to meet the growing global demand for synthetic aviation fuel. North Star lays the groundwork for building out a franchise that is deploying many similar plants, either with our own capital or through partnerships to meet the growing global demand for jet fuel as the world flies more, not less. We are developing the playbook containing Gevo's intellectual property and business system, which can be effectively replicated and implemented on a global scale. The work we are doing at Gevo North Dakota and with Verity is critical and provides the blueprint for what needs to happen at more ethanol plants in the future. Low carbon ethanol is the feedstock for our synthetic aviation fuel. We need more of it, and we can help enable it. In fact, we started to sign letters of intent with third-party ethanol producers to bring Gevo's carbon business and Verity capabilities to other locations along with carbon management services. We believe our collaboration with Frontier Infrastructure Holdings and the options we are exploring to transport and store third-party carbon dioxide at Gevo North Dakota may enable more low-carbon ethanol facilities to be viable sites for additional ATJ plants. As we started to show at Gevo North Dakota, there is money to be made in setting the table with low-carbon ethanol today and potentially a lot more with ATJ additions in the future. We currently believe that this will take the form of us delivering and getting paid for our technology, business system and know-how. It could give us more flexibility between investing our own capital and more of a capital-light type growth model, the franchise model. While we are very optimistic about this growth, we will continue to be laser-focused on getting Project North Star to the finish line. Our goal is to reach FID on the project in 2026. We have a conditional commitment from the U.S. Department of Energy's Office of Energy Dominance Financing, or EDF, for a loan guarantee to finance the construction of an ATJ plant. As previously announced, we are discussing with them using that loan for ATJ-30. EDF is an excellent goal-aligned partner and a strong option for us, assuming we can get all the details worked out. Our goal is project level non-dilutive funding to build ATJ-30. Finally, as part of our growth strategy and what we've learned at Gevo, North Dakota, we'll also stay on the lookout for more acquisitions that are accretive, that strategically fit our platform and further scale our adjusted EBITDA. It was a transformational 2025 that we are leveraging to make 2026 even better. With that, I'll turn it over to Leke. Oluwagbemileke Agiri: Thanks, Paul. Starting on Slide 4 of our earnings presentation. For the full year 2025, we had revenue of $161 million, a loss from operations of $20 million, non-GAAP adjusted EBITDA of $16 million, a record-setting low carbon ethanol volume of about 69 million gallons plus 173,000 metric tons of CCS at our production facility. During the fourth quarter of 2025, we turned positive on cash flows from operations, generating $20 million during the period. We increased cash, cash equivalents and restricted cash to $117 million at year-end, which is a $9 million increase versus the third quarter. All of the restricted cash we had at year-end was released after we completed our debt consolidation transaction in February 2026. Finally, we maintained our strong 2026 outlook, including our previously communicated near-term organic growth target of achieving annualized non-GAAP adjusted EBITDA of about $40 million and a neutral to positive operating cash flow in full year 2026. Turning to Slide 5. Our full year 2025 results showcase a transformative year and highlight how we executed on and integrated our strategic acquisition of Red Trail Energy assets. In comparison to prior year, revenue during full year 2025 increased by 849% Loss from operations decreased by $71 million, non-GAAP adjusted EBITDA increased by $74 million and the cash flow from operations increased by $44 million. On Slide 6, we can see the step change and the strong foundation for growth that we have built. The past 3 quarters have averaged $43 million to $45 million in revenue. Going forward, we expect revenue to vary quarter-to-quarter depending on the market prices of ethanol, RNG and environmental benefits. However, we expect our adjusted EBITDA drivers to remain resilient and grow in 2026. One of our adjusted EBITDA drivers, which does not depend on the market prices that I just mentioned, is our production tax credits. Last year, we sold $52 million of production tax credits related to Gevo, North Dakota as we produce ethanol and sequester carbon. We received about $41 million of cash proceeds in 2025 and expect the remainder in the first quarter of 2026. As a reminder, we book production tax credit as a reduction to cost of goods sold each quarter. Looking forward to 2026 operating results, we are confident in our execution capabilities and remain focused on achieving our target of approximately $10 million in adjusted EBITDA per quarter in 2026 or roughly $40 million on an annualized basis. We're also now targeting neutral to positive operating cash flow in 2026. With that, I'll turn it over to Chris. Christopher Ryan: Thanks, Leke. 2025 was a record operational year. Gevo North Dakota recorded 69 million gallons of low-carbon ethanol volume during the full 12-month period and achieved a yield of nearly 3 gallons per bushel, which is close to the theoretical maximum. Included in that number is approximately 2 million gallons of cellulosic ethanol that was produced from corn kernel fiber. That adds incremental value due to its lower carbon score. Our carbon sequestration system sequestered 173,000 metric tons of CO2, exceeding our previously stated benchmark of 165,000 metric tons. Operationally, the plant is running reliably and efficiently. Our focus now is on; one, debottlenecking to increase ethanol, CO2 and co-product volumes; two, reducing carbon intensity further; and three, preparing for the fabrication of modules for our ATJ-30 project. We think our debottlenecking and expansion organic growth projects can increase efficiencies, put more money in the pockets of our farmer partners and local communities, drive down our carbon intensity score, optimize our production tax credits and finally, increase ethanol production to as high as 75 million gallons per year and we'll raise carbon sequestration to at least 200,000 metric tons a year. Most of these projects have a 1- to 2-year payback, and the remainder of the projects will improve our operational efficiency and asset life. In 2026, we plan to deploy about $26 million of capital, which further positions us to achieve stronger operating results starting next year. In addition to the incremental organic growth, Gevo North Dakota provides an exceptional foundation for our ATJ-30 project. We have our own captive low-carbon ethanol feedstock, our own operating CCS, we have rail infrastructure. We have about 500 acres of space, and we have a great operations team. This is why we believe ATJ-30 is the right project for the site and why Project North Star will be a good showcase to pursue Gevo's long-term copy-paste strategy. Back to you, Pat. Patrick Gruber: Thanks, Chris, Paul and Leke. While the company has solid economic footing with a clear path to grow adjusted EBITDA even without building the jet plant, investors should be able to see how the cash flow from our businesses benefit us prior to the ATJ-30 plant coming online in the future. We built a strong foundation from which to grow. I believe the ATJ opportunity is exciting, especially with Project North Star and the franchise approach. It has taken longer than I ever wanted to get to the point where we are today, but here we are. And looking back, what a journey it's been. I'm incredibly pleased with where we are and where we are going. I'm most proud of the terrific team we have. I hear from investors and partners all the time how impressed they are with our people. We work to deliver, and we are incredibly persistent because we believe in what we are doing with deep conviction. So for me, the timing is right. The team is strong. The balance sheet is looking good. There are what I believe to be great opportunities in front of us. It's time for me to pass the torch to Paul, who I have bet will be a great CEO. And with that, we'll take your questions. Operator? Operator: Certainly. And our first question for today comes from the line of Jeff Grampp from Northland Capital Markets. Jeffrey Grampp: I was curious on the CI front. I believe there were some changes in the calculations that kicked in at the start of this year. I was just kind of curious to contextualize those a bit more. Is there any way you guys could share maybe like what your CI score were in the back half of 2025 and how much of a benefit that could be for you guys looking ahead into this year? Patrick Gruber: I think let's -- I think what we should do is give an outline, Leke, of the kind of numbers that you're seeing. Oluwagbemileke Agiri: Yes. Absolutely. Thanks, Pat. I think high level, so last year, our Gevo North Dakota, as you know, we generated and monetized $52 million of tax credits. That was based on a CI score of low double digits last year. With the changes to the guidance and then the 45Z-GREET model, how that's going to work in terms of [ no eye lock ] effectively, I think that's what you're referring to. That impact is going to be reflected in the amount of 45Z that we generate for our Gevo North Dakota asset in 2026, not necessarily 2025. And the impact that, that has on our CI score is it's going to reduce our CI score by pretty much 6 to 7 CI points. And when that happens, we expect to generate an incremental $0.10 per gallon in 2026. That is what we expect to see from our facility in 2026 in terms of 45Z. So based on our projected production of our Gevo North Dakota asset in 2026 of 67 million gallons, we are going to be in that threshold of $0.90 per gallon of credit generation in 2026. Changes to the 45Z guidance has very little to no impact to the 45Z generation for our RNG production or RNG asset at this time. Jeffrey Grampp: Perfect. I appreciate it. That's exactly what I was looking for. My follow-up is on the ATJ side. I believe that DOE extension that you guys got last year has maybe a couple more months remaining, at least on the original extension. Is it fair to assume that something gets figured out with them or another party by that deadline? Do you think additional time may be needed? I know you guys are targeting this year for FID on that, but wasn't sure if there's other things at play to reach that FID outside of financing. Patrick Gruber: Paul, your question. Paul Bloom: Yes, sure. Great question, Jeff. Yes, we're working -- we've been working on this for a number of years now, 3 years going on. And so we want to get this to the finish line with the DOE. And we're pretty excited about where we're at and continuing to move this forward. But yes, we're absolutely -- when that got extended through mid-April, so we'll be working with the DOE to reach a decision there on most likely an extra extension is what we're looking for. But we're also working with a number of other parties who we're excited about, who see the value in the ATJ platform. So it's a combination of things. Patrick Gruber: Yes, I'll add to this point is that the economics look good. One of the interesting things that happened was that we're having -- our engagement with the DOE, and they fully understand that we want to build that ATJ-30 plant up there in North Dakota rather than a 60 million gallon plant down in South Dakota, outstanding. You know what, the economics are good. We have low carbon ethanol. It's a great site. Carbon capture is under our control. We've got half of what we would have had to build in South Dakota already built up there in North Dakota. And so other parties are interested, too, and other people are interested in working with us to finance it, particularly because of this franchise model that Paul was talking about. Operator: And our next question comes from the line of Dushyant Ailani from Jefferies. Dushyant Ailani: Pat, it was a pleasure working with you and Paul. Again, congrats on the new role. My first question, I know that you kind of talked about that incremental $0.10. Maybe could you give a little bit more on the details on the path to get to that $40 million in EBITDA, the bridge? I know you guys have highlighted that before, but maybe if you can talk a little bit about the timing of it and how you can think about that going forward? Patrick Gruber: Paul, that's a question for you, and then you and Leke teaming up on it, I think. Paul Bloom: Yes. Sure thing, Dushyant. I mean you see what we've done right now. I mean, last quarter, we were kind of at this $20 million in EBITDA run rate. And with the extra push on the carbon and our good and low carbon fuel sales, we've got that coming forward. Now we're looking at -- you heard what Leke was saying, we can't get more than kind of this dollar per gallon. That's where we're going to cap out with the 45Z tax credits. So you put those kind of things together with the existing assets even before expansion, and we're really looking at how this shapes up to something like around a $10 million kind of average per quarter going forward. So that kind of puts in perspective. Leke, maybe you can chime in with a few extra details there. Oluwagbemileke Agiri: Paul, no, I think you captured it. I think the trajectory is we are on track with really just how our EBITDA mix is made up to be tracking exactly as to how we're projecting, which is that $10 million per quarter. We feel very confident. I think 45Z is going to be part of the story, but we also do believe that really the intrinsic EBITDA margin that our assets can also generate also from the carbon monetization that we're doing, we're on the right track to achieve that goal. Dushyant Ailani: Understood. And then my follow-up was, I know you mentioned some talk around potential acquisitions as well. Maybe could you dive a little bit further into that, what kind of assets you're looking for and maybe around timing of those? Patrick Gruber: Yes. I think I'm going to follow up on one other thing about an important point about Gevo and Leke and his team compared to other companies who talk about 45Z. We actually -- Leke his team actually brought the money in the door. That's an important distinction. And it shouldn't be -- that's an important point. It's not a hypothetical. It's a real thing that's been brought in. Now as far as looking at are there other Gevo North Dakotas that we could apply our skill to and bring value to. Paul, do you want to comment on that? Paul Bloom: Yes, sure. I mean, look, I think this is what we're learning, Dushyant, at Gevo North Dakota that there's a lot of money to be made kind of setting the table as we think about the ATJ franchise. So as we look for how do we build out that franchise, we're looking for similar things that we've already identified. And it was a good learning for us going from South Dakota to North Dakota. We have on-site CCS in capture. So that's good. You got to have good corn. You got to have good logistics, right? You have to have all the good things that we're proving that are critical. And again, that kind of sets the base for then how do you grow ATJ. And so as we look through this and we talk to others, we know there aren't that many of these different assets out there, but we're going to keep our eye on that because I'd sure like to have another Gevo North Dakota if it exists. But we're going to just keep watching for that and be opportunistic. Operator: And our next question comes from the line of Sameer Joshi from H.C. Wainwright. Sameer Joshi: Just sticking to ATJ-30 and the financing thereof. The FID is expected during 2026. Is it dependent on the EDF loan guarantee transferring to this? Or it is independent of it? Paul Bloom: Sure, Sameer. Look, I mean, it definitely accelerates things quickly, right? We can get the debt sizing right and move this forward and get the loan completed here. So that's a fast track that we want to try to keep moving forward. But like we said before, we're working with others because we're advancing the engineering along. And if you remember, we did a lot of work in South Dakota. So this is -- as we're thinking about how do we fit this project into -- at North Dakota, it's really taking it from that 60 million gallon size that we had there to a 30 million gallon size. Good news is now we've got 2 different sized designs for our franchise. And then we basically have a little bit less on the capital to go out and get. But it's a combination of looking at what's the debt and the equity that we're going to have and who are the partners to put that together. Either way, we want to get this thing moving because we want to get -- like Pat was saying before, North Star has just fantastic economics. And we think that the returns speak for themselves with potential to add up to $150 million in EBITDA from adding the ATJ-30 and Gevo North Dakota. Patrick Gruber: And you have to remember that we're a lot more interesting than we used to be. We're positive cash flow kind of situation here. And so that makes us a whole lot less risky. And that's not lost on all kinds of people who invest in these types of things, right? There's a good base, same thing we were talking about, strong base, good economics up there. Everything is under our Gevo control, and it's a good situation. So yes, there's other options available. Sameer Joshi: Makes sense. It was interesting to see the 2 million gallons of corn fiber cellulosic ethanol being produced. Is it -- like what are the considerations in either increasing that volume or in order to get a higher CI score, like can you go do 4 million next year or 7 million? Just wanted to understand what the limits or extent is. Patrick Gruber: Chris? Christopher Ryan: Sure. So the way we make that corn fiber ethanol is really through the new enzymes that we add. And there's definitely room to optimize things, absolutely. We continue to do that. So you might expect incremental increases. At the same time, we are working on getting more ethanol gallons out the plant, including the capital investment to further debottleneck the plant. And likewise, that will result in more corn fiber ethanol. So that's really -- it's really in the enzymes. Patrick Gruber: And I think as far as improving the overall economics, you got several levers they're working on, right? Chris just mentioned the increased production of ethanol. We're producing quite a lot of CO2 right now, capturing more of it and then capturing additional that comes off as we produce more ethanol, that's awesome. We have -- we can optimize co-products, the protein and the corn oil. And of course, we were just talking about the cellulosic. So there are several levels. And that's why helping debottlenecking up there is important every little bit matters because we really would rather have $1 a gallon on the tax credits, plus it generates more CDRs, and those are valuable in the marketplace. And those are completely separate than those production tax credits. They're not the same at all. So that's an important point. We're increasing the number of products available by increasing how effective we are capturing the co-products and the ethanol. Sameer Joshi: Got it. Just one last one. I don't think we discussed Verity in any detail. But are we on track to sort of commercialize that during this year for feedstock traceability, agricultural applications. Just would like to see where Verity is at. Paul Bloom: Well, Sameer, great question. So we're pretty excited. I think we finally got a really good catalyst. And we talked a little bit about the 45Z tax credits. And if you see -- if you look at what guidance came out from treasury recently, while it didn't perfectly include that ag benefits would be counted and indicated that ag benefits would likely be part of what is going to be added into 45Z tax credits, which is exactly the kind of carbon accounting and traceability solutions that Verity was designed to actually deliver. So we've been actually signing up more customers over the past quarter than we ever have before. So it's a combination of traceability and basically think about compliance services that you need to simplify, right? These are a lot of complicated calculations that need to be done. Gevo has to do them for ourselves. This is why we created it. We created it as a tool to simplify our lives and make things more accurate and easier to do. But that's the same thing that our customers for Verity need. So we're really excited about that, and we're trying to make it more operational friendly and work with farmers. So you may have seen that we also announced the partnership with Bushel who has a lot of farm management and grain software that help farmers just with their regular business. And so this is how we're now starting to integrate Verity with actual farm business software to make it really an integral part of how people do their business and also do their tracking and traceability that is needed to monetize. So we're pretty excited about that. So thanks for asking the question. Sameer Joshi: Yes. sounds really good. Thanks, Patrick, for bringing the company so far Paul, good luck for the future. Operator: And our next question comes from the line of Derrick Whitfield from Texas Capital. Derrick Whitfield: Congrats on a strong year-end. And Pat and Paul, congrats on your respective updates. And Pat, hopefully, you can enjoy some well-deserved time off in retirement. Starting maybe first with bigger picture. With what you guys have accomplished over the last year, I mean, it's quite remarkable as you look at Slide 5. Paul, for you specifically, as you think about, again, this progress that the organization has accomplished and where you'd like the organization to be next year at this time, how would you paint the picture of what changes, if any, to expect? And it could be as simple as emphasizing certain aspects of the business, but just kind of how you think about the business and where you'd like to be 1 year from now? Operator: Yes, sure, Derrick. And look, it's an exciting time, right, because we have come so far in this past year and started things. I think the carbon business is one that we're really excited about, and we've been working on growing, and it's just getting started, right? So we're selling fuel with carbon attached or pulling that off separately. And I think the biggest thing that we've learned and the biggest -- maybe the biggest opportunity is just how do we really sell and monetize that carbon. We're starting to see our sales pick up with brand names. And obviously, there's a long way to go because we're just getting started. But really, the market is just getting started. So I think as carbon develops, if you look at some of the stats on the carbon markets, about 44 million tons of carbon has been sold in these carbon dioxide removal markets, but only about 2.8% of that has actually been delivered. We're one of the first companies to be actually producing and delivering carbon credits and have a model where we can basically select between do we sell into low carbon fuel markets that have good returns or do we separate that carbon if there's more value to sell into separate markets. So really getting that -- dialing in that carbon business and improving on it because we're just getting started, I think, is a big deal for us. And that not only rolls into how we're doing our low-carbon ethanol business, that's exactly the same way we're thinking about the ATJ business as we think about a franchise, right? Because we can sell that fuel with those carbon attributes. It's called a little bit different terminology, Scope 1s and Scope 3s when it's sold with the fuel, but we can also separate those off and sell customers, those Scope 1s and Scope 3 separately from that physical fuel. So it's really the same business model just applied to different commodities. And so as we get good at this, and we've already got essentially half of the output of the carbon sold from ATJ-30 under contracts. So I think that's going to be a bigger part of what we do. And that's a bigger part of the business that we believe we can bring to others, right, as we franchise this business. We don't have to own all the ethanol assets in the world. We don't have to own all the ATJ plants in the world. We have a business system that we can kind of copy paste even on that side and help people and get paid for our know-how and our business system as we bring that playbook, right? And so this will be kind of the piece we really look at is what is our -- how capital intensive do we want to be? Obviously, we like -- we love the returns that we're getting from Gevo North Dakota. And so it's great to have that asset, and we'd sure love more. But we realize that we got to manage that growth and how can we do that in an efficient way to balance our capital versus a capital-light strategy, which is where we think that franchise model comes into place. And that's a model, too, just thinking about how else we grow. We're talking a lot about ATJ, but we just licensed our technology to Praj for IBA for diesel in India. And I think this model really applies not only for what we're doing in ATJ, low-carbon ethanol, but it applies for what we can do in renewable chemicals. It applies for what we can do in isobutanol. So just think about that as we bring these business systems forward, that's the picture that we're going to be working on and developing with partners, and we're excited to get this going. And like we said earlier, signing LOIs with even other ethanol companies to bring kind of Gevo's know-how and business system to help them and then for us to get paid for it. Derrick Whitfield: Great. No, that's a great update. And maybe shifting over to ATJ with my follow-up. One of your industry peers has experienced some challenges with their ATJ project over the last year. As we inch closer to your FID, could you speak to how your ATJ-30 project is different from a scale process and risk perspective to that other project that I'm referring to? Patrick Gruber: I can give -- I think I can give a perspective and then Chris. One of the things that we did, we're using known unit operations, proven at full-scale commercially unit operations. We didn't rely on anything new like other people might have done. We didn't take something off of a laboratory in a national lab and never have it seen proven out. We're using unit operations that anyone can go kick the tires upon because they come directly from the petrochemical industry. So there's nothing new in that regard. How we put it together, how you lower CI score, how you optimize, that's different, but that's not what makes or break it. Chris, Paul, you guys want to add anything else? Christopher Ryan: I'll add just a bit and then Paul can chime in. So Pat, I'll echo what you just said, which is, yes, we're using proven technologies and their technologies from a proven company that has commercialized many, many things at large scale, including at oil refineries. In fact, the engineering that's been done, so at the heart of the process is from a company called Axens. But as we design the entire process around it, we only use engineers that have experience working on these things and have the capability of supporting operations once we get operating. So these engineers aren't just desktop engineers. They've actually operated assets. and they have experience starting up plants. And so it's that experience. And like what Pat said, there's no new technology gives us a lot of confidence this is going to start up very easily. Paul? Paul Bloom: Yes. I think Chris nailed it, right? I mean when we talk to a lot of companies in diligence, right, they figure out, especially on the petroleum side that they've got these assets already running, not all coupled together in the same order, but individually running in operations that they already are running. So it's one of those kind of things where we took a proven approach, right? So we know these unit operations work. Yes, they're integrated together a little bit differently, but we've also been working with companies like Praj. And Praj actually just put all these unit operations together in a fully functional integrated pilot plant. And I was actually there and got to open this spigot and jet fuel poured out the other end with ethanol going in one end. So it was great, but I think we've really -- the combination of using known technologies and really good partners and great engineers who understand this have really put us in a very different spot from that other group that you're mentioning if I'm assuming who it is and how we're ready to execute. Patrick Gruber: And I'll add one more thing is that we think about it completely differently. We're trying to do something that's scalable to really big scale and really low economics. We're not trying to do some one-off specialty thing, and we're not venture-backed. We were -- it isn't that kind of a perspective. We're actually trying to solve a real-life problem, deliver jet fuel that's cost competitive with petroleum. Yes, we're going to sell the carbon attributes to go with it. And no waste is not a strategy. You can't get there from here. I was just doing some research about this, again, where it's -- you take waste products, yes, it drives up the price. We've seen this over and over again. You know what, carbohydrates are a great feedstock there, way abundant in oversupply across the world. Paul has got a great saying that I love, take carbohydrates, right? Paul, what do you do with them? From the waste line to the airline, I think. Paul Bloom: We take those carbohydrate calories from the waste line to the airline so fast. Patrick Gruber: I see one more [indiscernible] to make jet fuel out of it. So it's a whole different perspective of scale of what we're trying to do. And that's how we think about it. Super pragmatic. We don't want technology risk. That's why we're able to clear diligence at the DOE. That's why we've been able to clear diligence with our other big partners. It isn't a -- it's not a project just to generate vibes, is to make it breaking real for the long run and win. Derrick Whitfield: That's a great answer. And maybe one if I could just follow up on the $40 million run rate. I think based on what I've heard you guys say, there appears to be some upside with debottlenecking that hasn't necessarily been factored into the $10 million per quarter run rate. And then also when you kind of think about what's happening in the LCFS markets now and where you're going to place the product, it feels like there might be a little bit of extra upside there because you now have a few more markets competing with one another for those molecules. But again, any color you can offer on that front would be helpful. Paul Bloom: Yes, sure, Derrick. A couple of things there. If you look at the LCFS markets first, right, we're still applying for pathways where we want the pathway with carbon capture. We've got pathways today without carbon capture and sequestration, but we'll look at applying and we're in the process of applying for those today and positive outlook on getting those done. But places like Canada in Canadian CFR, right, where the credit prices are $2.50 or higher, right, really nice from a carbon perspective, and that looks positive. We're obviously selling into markets today that have good returns on LCF markets. But the other thing that you have to remember is we're also inventorying some CDRs to build inventory to satisfy some of our contracts and spot sales in that market that we think is going to grow later. And as we do that, that's carbon value that we can't sell into those existing LCF markets that we're selling into today. So it's a little bit of a delayed revenue there. And so what you probably will see and Leke was talking about this a little earlier, we'll have this kind of push and pull with inventory build on carbon that we sell separately into carbon dioxide removal markets. LCF markets that have more immediate returns. And so you'll see that kind of balance out a little back and forth. And then, yes, I think, of course, as we continue to finish up some energy efficiency projects, we get a lift from additional or lower CI score on 45Z going forward. All those things are going to be adding up to get us to that number. Operator: And our next question comes from the line of Peter Gastreich from Water Tower Research. Peter Gastreich: So congratulations to the team on the results. Also, Pat and Paul, many congratulations to you and really wish you both the best during the transition. Just a couple of questions. First of all, you were just talking about the -- or Paul is just talking about the CDR inventory and carbon credits. Just curious what you're seeing in terms of pricing in terms -- in the voluntary CDR market? And what is your outlook there? Paul Bloom: Thanks first, Peter, for the congratulations. And when you look at the carbon markets, like we said, it's a developing space, right? So it's hard to peg it at kind of a number. And that's why if you look at our investor presentation, we've got a range. So typically, we have a range in the voluntary markets anywhere from $100 to $300 a ton for those voluntary carbon dioxide removal credits. And like I said, we're on the top 10 list of the suppliers in that market today. So that's pretty exciting for Gevo to move from basically nonexistent there to one of the top 10. And then when you look at the low carbon fuel markets, I would have said even in the investor presentation that's on our website, we've got that pegged a little lower. Typically, we've seen markets like California be down even as low as $50 a ton, which that's not very attractive, especially if we're -- we have this optionality. But now when you see Canada and Oregon start to really ramp up and get up to these $200 or $200 plus over $200 numbers, then this is where we've got good competition between carbon dioxide removal markets in the voluntary space and the compliance markets with low carbon fuel. And so we're going to continue to leverage that to our advantage so we can make some decisions and figure out where to place volume both with our commodity and our carbon value to get Gevo the best returns. Peter Gastreich: Okay. Great. So my next question is just about your share CCS capacity. So it looks like the Frontier partnership that's really going to help accelerate the plans there. I'm just curious, first of all, are you able to share what would be a realistic time line for starting to bring in that third-party CO2? And the question also second question related to that would be, once you reach a critical mass of volume, I don't know if that's in terms of contracts or whatever, will you have incremental CapEx of any sort, perhaps above ground that will be required to accept those incremental volumes? Paul Bloom: Yes. Sure, Peter. I mean I think when -- the Frontier Infrastructure Holdings partnership or collaboration that we've been working on, it's been really interesting because I think what -- there was a lot of promise from these pipelines. And obviously, we had a pipeline that we thought was going to come to us in South Dakota that didn't materialize. So we feel that. And so this is exciting to think about CO2 by rail. And I think it comes back to -- we're going to be producing more fuel and more carbon dioxide co-product and capturing that and capturing more in North Dakota. But today, for example, we're only using 16% to 17% of what's called our pore space, which is the available volume for storage. So we've got a lot of extra capacity. So really, our goal is to figure out, as we expand, we want to make sure we're capturing Gevo's carbon dioxide, but we can help others. And what we've learned working with Frontier is that there is -- there are a lot of ethanol companies out there that we can help. And this is where it comes back into this approach where our carbon management services, if we can bring in CO2 by rail and monetize our pore space, this is a big deal for us because we could get paid in things like storage fees. We can help with carbon marketing. So we're still in the design phase of this. So we're scoping this out. I think it's still going to take a while because you have to build basically a terminal to put in place. But that does get pretty exciting if we can connect the dots between the rest of the capacity that we've got, and it doesn't mean that we have to stop there. We could probably access more capacity in the pore space around us. But pretty good opportunity for us. And if you look at our investor presentation, this is where a lot of the unlock going beyond that $40 million up to the $110 million in adjusted EBITDA and the carbon value comes from how do we monetize this pore space, how do we help others with the carbon business. And that, in turn, right, I mean, the other piece, and I'll just try to connect the dots full circle here, is the more low-carbon ethanol plants we can enable by helping them with carbon management services, whether it's the actual physical removal and storage of that carbon or the digital services like Verity and things like our carbon business, that sets that table for more sites to be fully enabled and ready to be a site for an alcohol to jet plant. So I think that's really that combination and how it fits. It's not just the revenues that we could generate today from that kind of relationship. Those are great, but it's really how do we have or enable 10, 15, 20 more sites in the future. Operator: This does conclude the question-and-answer session of today's program. I'd now like to hand the program back to Pat Gruber for any further remarks. Patrick Gruber: Well, thank you all. It was a fantastic year. It's a lot of potential. This carbon business is extremely interesting. It gives us the ability to arbitrage, look at -- make decisions discretely about where can we capture the most value. We're the first to do it, and we're breaking a lot of new ground at it, and it's quite interesting. I'm really grateful for the team up there at Gevo North Dakota. They've done a fantastic job running that plant. Congratulations to all the folks who've done it. Chris, great job. And it was really a good move for us to acquire that and bring it under our -- get that asset under our control because it solves all kinds of problems. Now we have low carbon available, boom, box checked. That question is answered, sequestration available. It's a beautiful sequestration site. I don't think we had a full appreciation of how great it actually is compared to the others that are out there. It's outstanding in that it's a -- we're the only ones in that formation, and it's an outstanding well. And so we're learning more and more about why that's so important. And you see the results in that we got certified as a 1,000-year well by Puro.Earth. And I look at the potential of what's going on here, and you see these things that Paul mentioned, like the IBA in diesel fuel. Who would have thought? We never have quit working on IBA. It's just in the background because you don't need it for jet fuel, but it's good for other stuff, other fuels. Great. Those things are going to happen sometime in the future using partners. Awesome. And so get the ATJ plant done. You heard Paul talk about it. We got to get that done and then do the franchise model. Already, Paul talked about bringing the -- being able to go to other parties or other ethanol companies who want to learn from us, and we can -- we have a service we can provide and get paid for. Those are all very interesting things. So we're hugely derisked situation compared to where we've been. We have a huge amount of intellectual property, huge amount of growth potential. And so this is, I think, something around my 59th or 60th earnings call, my very last one. I want to thank you all for your investment. Thank you for your questions and sharpening us -- forcing us to sharpen up over the years, especially me, and thank you for all the opportunity to work with you all. I truly appreciate it, and I wish the team the very, very best. And with that, I sign off. Thank you much. Operator: Thank you. And thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good evening, ladies and gentlemen. Welcome to the Fourth Quarter 2025 Results Conference Call. I would now like to turn the meeting over to Mr. Rob Wildeboer. Please go ahead. Robert Wildeboer: Good evening, everyone. Thank you for joining today. We always look forward to talking to our shareholders, updating you on our business and answering your questions. We also note that we have other stakeholders, including many of our employees on the call, and our remarks will be addressed to them as well as we disseminate our results and commentary to our network. With me this evening are Pat D'Eramo, Martinrea's CEO; our President, Fred Di Tosto; and our CFO, Peter Cirulis. Today, we will be discussing Martinrea's results for the fourth quarter and full year ended December 31, 2025. I refer you to our usual disclaimer in our press release and our filed documents. On this call, Pat will outline some key highlights and achievements in 2025, touch briefly on the quarter and comment on some of our key initiatives, including machine learning and artificial intelligence. Fred will discuss operations. Peter will go over the financials and our outlook for 2026 and beyond. And I will conclude with some comments on the current trade environment, capital allocation and valuation. Then, we'll open it up to Q&A. So without further ado, here's Pat. Pat D'Eramo: Thanks, Rob, and good evening, everyone. Let me start with a few highlights from this past year. Our safety results continue to be world-class. Our total recordable injury rate or TRIF was 0.71 in 2025, which is among the very best in our industry and much better than the average, which is around 3. We've said it before, there's no better way to show your people that you care about them than to keep them safe. Moving on, we generated just under $200 million in free cash flow in 2025, a new record for the company. This is now the third year in a row where we have generated free cash flow in the $150 million to $200 million range. We have delivered on our commitment of being a consistent generator of strong free cash flow. Our track record is now well established and will continue going forward. We accomplished this while continuing to invest in the business with $238 million in capital expenditures, which is lower than we spent in recent years. This reflects improved capital management, including optimization and reuse of our existing assets. Given the strong cash performance, we were able to reduce our leverage with net debt to adjusted EBITDA ending the year at 1.35x and below the upper end of our target of 1.5x or better. We achieved this while resuming our NCIB activity, spending $8 million to repurchase approximately 779,000 shares in the fourth quarter. Next, we improved our adjusted operating income margin as we continue to drive operational improvements across the organization and obtained commercial recoveries from our customers for EV volume shortfalls and lingering inflationary costs. We also won multiple supplier awards, including the General Motors Supplier of the Year Award and awards from Toyota, Volvo, Nissan, ZF and Caterpillar. Next, our advanced manufacturing team or AMT has made good progress on the machine learning installations across the plant network. To better support our machine learning strategy, we acquired a 10% equity stake in Polyalgorithm Machine Learning or PolyML, a provider of advanced machine learning and data analytics solutions that serve as the core intelligence behind Martinrea's machine learning AI. PolyML uses a proprietary technology called feature importance insights or Fiins AI to expose the most valuable signals in complex data sets. Most conventional black box machine learning focuses on predictive accuracy, and you can't see inside. PolyML technology creates more accurate models that are transparent and fully explainable. This is a unique breakthrough feature. This approach is driving significant improvements in weld quality, efficiency and energy usage. It's also deployed in our press health monitoring, providing an early warning system that will substantially reduce unplanned downtime and maintenance costs. Fiins AI is a key component of Martinrea's machine learning initiative, and we expect our relationship with PolyML to grow over time. Back in October, we acquired the assets of Lyseon North America. As a reminder, Lyseon was a single plant operation in Tulsa, Oklahoma, engaged primarily in manufacturing metal parts and subassemblies for school buses in the U.S. This acquisition adds business with International Motors, formerly Navistar, a high-quality customer that the company sees a lot of opportunity to grow with over time in both buses as well as commercial vehicles. It also broadens our product offering and further diversifies the business in nonautomotive markets. I'm happy to say that the integration is going very well. We are pleased with the progress that we're making there and the prospects of eventually adding more business to the facility in the future. 2025 was a busy year with notable achievements on all fronts. I would like to thank our team for their hard work and dedication in delivering these results. Turning to the fourth quarter, we're pleased with our performance, both operationally and financially. Adjusted operating income margin was up year-over-year as we continue to drive operating improvements and negotiated commercial recoveries with our customers, largely for volume shortfalls on EV programs. Also recall that Q4 of last year was impacted by an inventory correction in North America that affected some of our key programs, most notably with Stellantis. We continue to navigate through the impact of tariff costs on our business. For us, the vast majority of parts that we export from Canada or Mexico into the United States is compliant with the terms of the USMCA and therefore, not subject to tariffs. We do have some exposure, most notably as it relates to Section 232 tariffs on steel and aluminum products that impact some of our components. I'm happy to report that we've been successful in recovering the vast majority of our tariff costs through commercial settlements with our OEM customers. This is a remarkable achievement. Our supply chain operations, sales and commercial teams worked tirelessly to make this happen, and we're proud of it, and we appreciate all of their efforts. Looking at the full year of 2025, we met our outlook for sales and adjusted operating income margin, which came in at 5.6%, above the midpoint of our 5.3% to 5.8% outlook range. We spoke on our last call about the ongoing negotiations with our customer on some sizable commercial items mainly related to EV volume shortfalls. And that these could fall in either the fourth quarter of '25 or the first half of 2026. These discussions are progressing well, and we intend to close on these items in the first half of the year. Most importantly, and as I mentioned earlier, we generated a record free cash flow for the year at just under $200 million, well above our outlook of $150 million to $175 million, reflecting our operational performance and our CapEx discipline. We expect another strong year in 2026, and Peter will have more to say on our outlook for 2026 and beyond later in the call. With that, I'd like to end by thanking the Martinrea team for their tireless work and continued dedication to make our business better every day. And now I'll turn it over to Fred. Fred Di Tosto: Thanks, Pat. Good evening, everyone. As Pat noted, we are executing well, both operationally and financially in the face of ongoing industry dynamics pertaining to trade, tariffs and electric vehicle volumes. We are doing well, managing what's in our control and mitigating what isn't in our control through a focus on continuous improvement, overhead cost reduction, leveraging investments in automation and machine learning and recovery of costs related to tariffs and volume shortfalls on EV programs through commercial settlements with our customers. We have full confidence in our team, and I'd like to thank our people for their dedication and hard work in delivering these results. Turning to our segments, starting with North America. Q4 adjusted operating income margin came in at 6.9%, up 110 basis points year-over-year on the flow-through impact of higher production sales, improved operating performance and higher favorable commercial settlements year-over-year. We ended the full year 2025 at an adjusted operating income margin of 7.3%, up from 6.7% in 2024, a nice year-over-year increase. We continue to operate at a healthy margin in North America, the main growth engine of our business and expect that to continue. In Europe, our Q4 adjusted operating income margin improved significantly year-over-year, narrowing the loss to negative 1.4% from negative 3.6% in Q4 of last year, driven by better flow-through on higher production sales and the benefits of the restructuring actions we previously undertook. For the full year, we are approximately breakeven, a result reflective of a volume environment that remains below expectations and normalized volumes with the improvements we have made across our European operations, we will be positive in the region. Strategically, our objective is to maintain a disciplined, stable presence in the region rather than pursue aggressive growth. Our Rest of World segment delivered a much improved full year performance ending 2025 with a positive operating income margin of 1.3%, a significant increase from the negative 2.1% in 2024. The fourth quarter did show an operating loss, which reflected a lower level of favorable commercial settlements year-over-year. As we have stated before, this segment is small, representing less than 3% of our consolidated sales and results can vary quarter-to-quarter based on program timing and commercial settlements. Our strategy in this region remains deliberate and focused on maintaining only the footprint required to support our global business. In line with that approach, we signed an agreement to sell a small plant in Anting, China after the quarter. We have a strong relationship with the buyer, and we retain a minority interest through a planned transition period. Moving on, I'm very pleased to announce that we've been awarded new business, inclusive of some nice takeover work worth $210 million in annualized sales and mature volumes, which includes $180 million in structural components in our lightweight structures commercial group from Stellantis, Toyota, General Motors and Audi, $20 million in our Propulsion Systems group with Stellantis and Ford and $10 million in our Flexible Manufacturing Group with Volvo Truck and JCB. New business awards during the last 12 months totaled $340 million. Quoting activity is quite robust at the moment, and we have recently won work on a number of program extensions with various customers with a value of over $1 billion in annualized sales and mature volumes. It's important to note that while extensions are replacement work, they support our sales outlook and ultimately help our margin profile as we can generally reprice the business to fully build in the inflationary costs that we have had to absorb over the last few years. Extensions also require less capital for the same amount of volume compared to new programs, which supports our free cash flow. As you can see, we had a strong quarter of new business awards with a diverse group of customers, which we are very happy with. We feel like we have some good momentum building in this area with a very healthy pipeline of quoting activity and opportunities in front of us. A strong quarter of new business awards underscores not only the confidence our customers place in us, but also our ability to deliver the service, expertise and innovation they rely on. Winning new business, in particular, takeover work reflects our team's capacity to respond quickly to customer needs and provide solutions that create real value. That's what we do. We solve customer problems, and we're really good at it. At this point, based on this momentum, we expect a strong 2026 of new business awards, which ultimately will largely start launching in 2028, supporting our 2028 outlook, which Peter will speak to in a few moments. Thank you for your time. And I turn it over to Peter. Peter Cirulis: Thanks, Fred. Looking at the results year-over-year, adjusted operating income came in at $55.1 million, up 37% year-over-year on production sales that were up about 7% or 6% on an organic basis, excluding $14 million in sales from the Lyseon acquisition. Adjusted operating income margin came in at 4.6%, up 110 basis points year-over-year. The margin improvement was a function of the flow-through on higher volumes and operational improvements. Free cash flow came in at $108 million before IFRS-16 lease payments or $93.3 million after IFRS-16 lease payments, up from $76.4 million before lease payments or $63 million after lease payments in quarter 4 of last year, driven mainly by lower CapEx as well as higher EBITDA and lower cash interest and taxes paid. As Pat noted, 2025 free cash flow, excluding these lease payments came in at $199 million, which is a new record for the company. Some of this is timing related, but overall, our free cash flow performance is a function of improved capital discipline and optimization and reuse of our existing assets. Adjusted net earnings per share came at $0.67, up from a loss of $0.21 in the fourth quarter of 2024. Recall that quarter 4 of last year was impacted by an abnormally high tax rate, reflecting a noncash loss that flowed through our tax expense on the P&L due to the rapid depreciation of the Mexican Peso against the U.S. dollar, and this reduced EPS by $0.40. This year, in quarter 4, the peso appreciated and we had the opposite effect, resulting in a noncash gain flowing through our tax expense on the P&L, increasing EPS by $0.30. Again, these are accounting adjustments that exist only under IFRS and do not impact cash or operating income. Turning now to our balance sheet. Net debt, excluding IFRS-16 lease liabilities, decreased by approximately $73 million over quarter 3 to $695 million, reflecting the strong free cash flow generation in the quarter. Our net debt to adjusted EBITDA ratio ended the quarter at 1.35. Our target is 1.5 or better, so we are well within our target. We did this while resuming our share buyback activity under our normal course issuer bid, repurchasing approximately 779,000 shares during the quarter for $8 million. We reduced long-term debt by approximately $113 million in 2025, lowering our financing costs by about $12 million. We believe in a balanced approach between share repurchases and debt reduction. This maintains a strong balance sheet while serving our investors and leaves us well positioned to take advantage of opportunities like we did with the recent acquisition of Lyseon and other investments we've made. Rob will have more to say on our capital allocation priorities in a few moments. Subsequent to year-end, we amended our banking facility, extending our maturity out to 2030 from 2027. We also brought 2 new banks into the syndicate, which is now up to 12. The size of the facility is unchanged other than the accordion feature being increased from USD 300 million to USD 400 million. Covenant terms remain unchanged. We have a great relationship with our lenders, and we thank them for their ongoing support and continued vote of confidence. As for the future, we are rolling out our 2026 outlook, which calls for sales of $4.5 billion to $4.9 billion and adjusted operating income margin of 5.5% to 6% and free cash flow of $125 million to $175 million. Unpacking this, starting with sales, the midpoint of the $4.5 billion to $4.9 billion range reflects a modest year-over-year change that is largely driven by 2 known and isolated factors. The wind down of the Ford Escape program, which contributed roughly $200 million of sales in 2025 and an expected decrease of tooling sales compared to an unusually strong 2025 level. Excluding these items, our underlying production sales are expected to be broadly consistent with 2025. Moving on, our adjusted operating income margin outlook range of 5.5% to 6% assumes an increase from 2025. The main assumption here is that the flow-through impact of the lower sales is expected to be offset through continued operating improvements, including our investments in automation and machine learning that Pat discussed. It also assumes ongoing commercial recoveries for EV volume shortfalls and recovery of the majority of our tariff-related costs similar to what we achieved in 2025. Lastly, we are projecting another strong year of free cash flow in the $125 million to $175 million range. This assumes CapEx comes in at approximately $300 million, which is higher than where we landed last year, in part due to some of the new business award that Fred discussed. There was also some timing impact with certain capital items getting pushed out of the fourth quarter and into 2026. But overall, CapEx is at a good level, reflective of our ongoing capital discipline. As Pat noted, we continue to build on our track record of strong consistent free cash flow generation, which is now well established. Looking further out, we see a lot of opportunity for our business, including inquiries from our customers asking us to look at taking over business from distressed suppliers. We also see opportunities from the rebalancing of global trade that should result in meaningful volumes being reshored to the U.S., increasing quote activity and potential acquisitions. We recently completed our annual budget process and the cadence of our launches should contribute to meaningful organic sales over the next few years. Fred spoke about these new business awards, product extensions and quoting activity in his remarks, and these factors solidify our view. Based on our Board-approved budgets, we expect total sales of between $5.3 billion and $5.5 billion in 2028, assuming no acquisitions. Again, this reflects the cadence of our launch activity as well as some modest improvement in the overall vehicle production volumes. Importantly, 75% of our projected production sales for 2028 is already booked and the balance coming from replacement work where we are the incumbent supplier and high probability new business opportunities. So good organic growth in a relatively flat market. This should help drive adjusted operating income margin to a range of 6.5% to 7% in 2028, which reflects the flow-through impact of higher sales volumes, continued operating improvements, including gains from our automation and machine learning initiatives and lower SG&A costs as we realize and sustain the full benefit from our $50 million in targeted savings. Note that 2027 will be a busy launch year, so more of the growth in sales and margin will come in 2028. The key takeaway is our future is bright, notwithstanding the ongoing issues from tariffs and slow EV sales, which we are effectively navigating through. With that, I would like to thank our people for their hard work and commitment in these continually evolving times. I now turn you over to Rob. Robert Wildeboer: Thanks, Peter. Now that you've heard from our team, I want to make a few takeaway comments on where we are at with USMCA and trade issues, capital allocation and valuation. I'll touch briefly on the Mid East conflict as well. As you have heard, there are many great things happening in our company. We had a good 2025, better than many anticipated in the middle of much trade and tariff uncertainty. Operations are running well. We're embracing new technologies in a prudent way. We are seeing and capitalizing on opportunities. Our financials are really good, and we have a bright future. Regarding the USMCA and trade discussions, while there is always a lot of noise, it seems to me pretty clear that we will very likely not see any tariffs on North American-made auto parts. Scott Bessent himself told me tariffs on auto parts is a very bad idea. This is good for us, but this is a consensus view in Washington, Mexico and Canada. I also foresee no tariffs on Canadian-made autos eventually. That's what we are negotiating for, and that's what the entire industry wants. But let me make an observation that I don't think many realize, and that's perhaps our fault for not emphasizing it more. The fact is over 97% of our sales are made to assembly plants that are not in Canada. That is less than 3% of our revenues worldwide are made from sales of our products to Canadian assembly plants. Most of what we make in Canada is shipped to U.S. assembly plants already, tariff-free. And our U.S. footprint is much bigger than Canada, and our Mexican footprint is even bigger. It is clear to me that our North American auto parts sales are likely not materially impacted even if, for example, Canada faces a tariff on assembly or USMCA discussions don't go well between Canada and the United States. I do believe there is huge consensus in our industry, OEMs and suppliers alike for a tariff-free North American auto industry, autos and parts makers. See, for example, the industry submissions to the administration and Congress, and we will get there. But even if we don't, we will be fine. In terms of the USMCA and other negotiations, we are heavily involved. Mexico is moving forward with the U.S. on a renewed USMCA and Canada is definitely involved in discussions, too. Both Mexico and Canada are insistent on a tripartite deal. I note that Prime Minister Carney recently announced Canada's auto policy in our Alfield plant on February 5, my birthday. It was a good birthday present. The PM and the people wish me a happy birthday. And my present was their declaration that auto is Canada's core manufacturing industry and that this federal government is committed to it with a Made in Canada auto policy. This is good news. I strongly support the government's policy on remissions to reward companies that make vehicles here and to use the remission system as a carrot and a stick to get more assembly in Canada. Good news for parts makers and us. I strongly support the tax and grant incentives to invest here, good news again. And I support the removal of a hypothetical and unachievable EV mandate with a somewhat more realistic approach. I, like others, have some concerns about Chinese EVs in the market, but that is a quota, and Chinese EVs do not qualify for government incentives. Overall, the government has recognized the need for a strong auto industry here, and this is a good time for us in that regard. I also note that governments in the U.S. and Mexico support us as a parts maker unequivocally. The USMCA rules of origin provisions will be tightened in some fashion and the penalties for noncompliance will be increased, which is good news for North American parts suppliers and Martinrea. I believe that the U.S. tariffs on other jurisdictions on parts and vehicles in whatever form they take, will over time, encourage more manufacturing in North America. Again, good news for suppliers and Martinrea. When I go to the U.S. or Mexico, the first question I generally get is what can we do to support you, promote you, get you to invest more, get you to hire more people. It's a great environment. Our company and our industry are simply loved in the U.S. and Mexico. As you recall, we showed growth, much of it in North America over the next few years. By the end of the decade, I believe we will be at around $6 billion in revenues, give or take, without major acquisitions. I note some of our increased revenues could be from taking over a plant here or there as we did with Tulsa in November, but I don't call out a major acquisition. Now let me talk about share price and start with the USMCA context. Before Donald Trump ran for office and started threatening Canada and just about everybody with tariffs, our share price was significantly higher than today. I believe there is a USMCA cloud over our stock. As the things I've just talked about get sorted out, I believe that cloud will disappear. Canadian investors and analysts won't have to read a report every day about something going wrong in the auto industry. Note that we and other auto parts companies saw stock prices come under pressure during Trump's first term, then a recovery once the USMCA was signed. But I think there's a bigger issue here, and it's the receptivity of Canadian shareholders to auto parts companies and their valuations, at least at this time. I might not be the only person who sees this or says this. And I say that's a perception problem and not a real problem with risk or operations. Canadian headquartered auto parts suppliers are among the most competitive in the world. Look at our growth, especially outside the country. Our metrics compare favorably to any of our competitors, especially internationally. The average EV or enterprise value to EBITDA ratio for public U.S. traded auto parts companies is well over 4x, closer to 5x or more in most cases, yet we trade at a discount. And if you look at comparisons to our peer group, companies that are in similar spaces, our margins are top end in comparison, our free cash flow is top end of the range. Our leverage ratio is near the bottom of the range or very strong. And you cannot say the discount is because we are a company that has major revenue exposure to Canadian assembly plants. We have more North American sales than most of them, and our exposure to Canadian assembly plants is relatively low. I believe this discount will go away over time, starting with clarity in the North American tariff environment. Our share price was up 15% or so last year in 2025. That's a decent return. Our share price is pretty flat year-to-date. If we trade at 4x EBITDA even, our price is around $20, depending, of course, on debt levels, share levels and so forth. Our job is to get it there and a simple look at valuations in the U.S. market shows where valuations sit. Now let's touch briefly on the Mid East Iran conflict, which has rolled to markets this week and may do so for a while. Wars are generally not good for markets in general, although they could be positive for some sectors such as oil and defense stocks. Sustained high oil prices are generally not good for automotive sales, at least ICE vehicles. We anticipate that the current situation will eventually stabilize and that oil prices will stabilize too. As one industry player once said, the cure for high oil prices is high oil prices. Over the next few years, we remain bullish on the industry and our place in it. Now let's chat about capital allocation. Our philosophy has been set out on our website. We have followed it very well over the past number of years, even through COVID, chip shortages, inflation, the EV Fiasco and tariff issues. We have invested first to maintain, grow and improve the business organically through strategic investments in technology. We are a stronger company because of it and stronger today than ever before. We have maintained a strong balance sheet. Important for this industry as a supplier bidding on jobs. We have targeted a net debt-to-EBITDA ratio of 1.5x or better, and we're better now. That's where we were in 2019, and we have brought it down from over 3x in early 2022. We paid down over $200 million in debt in the past 3 years to the end of 2025. That's good, we believe. At the same time, we have repurchased shares when appropriate. In the past 3 years, we have repurchased 10% of our outstanding shares and are now down to about 72 million shares outstanding. Since 2009, our last share issuance, we have bought back almost 20% of our outstanding shares on a fully diluted basis. We are not buying back much in the last year, taking a prudent approach given the tariff situation, but resumed in Q4. We will continue to balance our capital allocation, but frankly, the intrinsic value of our shares is higher than the market value as I see it. So we have to work on that, and we will. I see the way companies in the U.S. are valued more richly than we are, and I reflect we are as much a U.S. company as most of them are. I do remember times when we and other Canadian companies trade at a premium to our U.S. counterparts. I hope we get there again. Peter talked about us being a consistent free cash flow producer. We will use that cash to invest in our company, strengthen the balance sheet and buyback some shares. We're making decent money. As the stock market grew, we all know once said, at some point, making good money has got to stand for something. Thanks for your time. Our future is bright. Our people are great and our time in the sun is coming soon. Now it's time for questions. We have shareholders, analysts, employees, even some competitors on the phone. So we may need to be a little bit careful with our comments, but we will answer what we can. And thank you all for calling in. Operator: [Operator Instructions] Your first question comes from the line of Ty Collin from CIBC. Ty Collin: Maybe just to start on the 2026 guidance. I mean, what sort of assumptions underpin the high and low ends of those ranges that you've given? How would you kind of frame those 2 ends of the outlook? Peter Cirulis: Yes. Thanks, Ty. So one of the main underpinnings is that we've got compensation on our tariffs, as we mentioned, at the same level or near the same level as 2025. So that's a base assumption in both the low end and the high end of the range, okay? Then second, we would assume that our operational efficiencies, some of the ones that Pat talked about and also what we talked about, I think, in the second quarter earnings call with our development of the AI and moving that through our footprint is also a major underpinning depending on how quickly we can deploy some of those cost savings. That would be in more of the, say, the high end of the range. Then we've got some recovery of some of our plants that make fluid products is another major underpinning in our range. Ty Collin: Okay. Great. So the expectation is that recoveries are neutral from a margin perspective year-over-year. Did I hear that right? Peter Cirulis: Yes. Basically, year-over-year will be margin neutral, Yes, on the tariffs side, yes. Ty Collin: Okay. And what about on the EV side or just other commercial-related recoveries, what are the expectations around that in the 2026 outlook? Peter Cirulis: Sure. So also, a good question. You'd have to expect that we will have commercial negotiations and offsets as the oscillation and the EVs fits and starts continue to happen. So that will be a part of our business going forward here in the middle term. So as far as performance, if you will, more or less the same on a year-over-year basis. It's going to be in terms of timing, a little bit lumpy. Like we mentioned actually last quarter, we were working on a major negotiation and it didn't happen to fall when we kind of wanted it to, if you will, but we're still working on that. And so the lumpiness of the OCIs, as we call them here, the commercial issues that we negotiate will still be there. But as far as being a component of our guidance, it will be a component of that throughout 2026. Fred Di Tosto: Had that OCI hit last year, I think it's safe to say that year-over-year will probably be down because I do believe that, that activity as -- although it continues, is starting to normalize, become -- becoming less reliant on that, just given the fact that the volume is starting to stabilize in a particular band. So the whole industry is starting to adjust. Ty Collin: Right. Okay. And yes, I guess sticking on that question in the EV business. Obviously, as you said, there's been a pretty significant reset there in terms of expectations. I mean, do you think production plans at this point are kind of appropriately aligned with where the market is? Or do you still think that EVs are maybe an area of risk this year? Pat D'Eramo: This is Pat. They've bottomed out quite a bit, as you know. I don't anticipate significant changes in any of our customers from this point up or down this year. I think they're going to be pretty level for the most part. Peter Cirulis: Yes. I think some of the recent General Motors announcements of their EV platforms ending a little bit early, that's a part of our outlook as well at the moment. So those have been already announced. Ty Collin: Okay. Great. And if I could just sneak one more in on the 2028 outlook that you guys gave. Obviously, some very significant growth baked into that. How should we think about the level of investment needed over the next few years to support that outlook? Peter Cirulis: Yes. So good question as well. So for that, roughly $700 million, I think, in the next couple of years. The way to think about that is roughly around the $300 million range, I would say, approaching, I would say, the depreciation and amortization levels that we've got. As we talked about, some of the -- that's a lot of growth actually and needs a lot of capital. But on the other hand, we've talked about that we are deploying our capital in a more flexible way. So our new generation of, let's say, weld cells and so forth, these are more flexible, can be redeployed with new growth. So that helps mitigate our costs. In addition, we talked about our replacement business. So that takes less capital and also some of these extensions that the customers have talked about. So Fred mentioned as well, that will inherently take less capital than a brand-new program. So for those reasons, we think around $300 million is a good number to go with at the moment. Pat D'Eramo: Yes. And I think it's important to understand, Peter said it, but we've become particularly good at being able to reutilize capital. If you recall, 5 or 6 years ago, as we started to invest in all the new lines when we won all the work in '18 and '19, we said there would be a number of them would be multigenerational, and we're starting to see that pay off as we go forward. Operator: Your next question comes from the line of Michael Glen from Raymond James. Michael Glen: Just on Europe specifically, I'm sort of -- is it safe to assume that this recovery that you're alluding to in the first half of the year is related to the European business? Pat D'Eramo: I don't think we'll speculate on. Why does it matter? Michael Glen: No, but it does matter because your European business is losing money, okay? And like what is the outlook for Europe? Because now you're telling us you're not going to be spending any more money in Europe. So are you committed to Europe? What's the outlook for Europe? And do you think Europe having European exposure is an overhang for your stock? Peter Cirulis: Okay. Now thanks for the clarification, Michael. So I would say in broad terms, the restructuring we've undertaken in the recent past will -- is helpful for us going forward. And it really is a function of, I'd say, the EV recovery in Europe, the volume recovery in Europe. We're at a volume level of industry vehicles around 17 million vehicles in Europe, we're talking about some margins between breakeven and obviously less than in North America, but a decent number for Europe. Our strategy in Europe is to keep the footprint because it is helpful for us when it comes to European customers that are looking to reshore some of their operations, especially in North America. We've seen some of that recently. So for that reason, it's strategic for us. That also occurs in the Asian segment as well. So a lot of our customers in Asia are European-based, and so very helpful there. So while we don't intend to grow the business significantly, we would like to maintain it for customer strategic reasons. Pat D'Eramo: And it has made a significant impact on our local wins in North America. Peter Cirulis: Yes. And I would not expect, though, that, Michael, that we would have margins in the area of our North American segment. That we've mentioned as well that those margins in Europe, while we expect to be better than breakeven depending on some of the commercial issues that we negotiate with our customers on occasion, that the restructuring we've taken is starting to bear fruit. Fred Di Tosto: A good chunk of our growth is from European customers. Michael Glen: And how -- is Europe right now, can you -- is it a drag on your free cash profile? Fred Di Tosto: I mean I wouldn't necessarily say that. I think the market has not been kind right now from a volume perspective there. And I don't know if you picked up on our comments. If the volumes were more normalized, we would be positive. We have proven that in the past that we can actually make money in Europe. So we do expect to get back there at some point, but we need some cooperation from the markets. And while that happens, we're managing our capital profile there and making sure that it doesn't necessarily create a big drag from a free cash flow perspective. So we're working within, call it, internal constraints, if you will. Michael Glen: Okay. And final question, are you guys -- a few years ago, you used to provide quarterly guidance for us. And I would tell you that, that was always a very helpful item in terms of some of the forecasting we did. Is there any plan in place to return to that single quarterly forecast? Peter Cirulis: Not at the moment, Michael. No, there's not a plan to do that, especially with some of -- just every week, there's something new here. So we don't feel prudent at the moment to provide that again at the moment. Pat D'Eramo: That's compounded by the lumpiness that Fred talked about, too, in the commercial settlements because you really don't know when you're going to land them. You know you're going to land them, but they don't necessarily happen when you think they're going to happen. Fred Di Tosto: We also had some comments that what would be helpful is what the next year look like and then update that and going 3 years out or effectively trend lines. But the customer and people dealing with tariff issues and everything else, they don't go by a calendar. They go by -- it's a more detailed, complicated process in terms of where we are. And yes, there's some lumpiness, especially when you get into the commercial discussions. Operator: [Operator Instructions] Your next question comes from the line of Brian Morrison from TD Securities. Brian Morrison: I missed a little bit of the call, but the EV shortfall settlement that Michael was just asking about, what was the high-level magnitude or basis point impact in Q4 that shifted into the first half of next year? Peter Cirulis: Yes. We're not going to disclose that since we're still in the negotiation phase for that particular commercial issue. Brian Morrison: Okay. Maybe, Peter, if you use the midpoint of your '26 and '28 sales and margin guide, your incremental margin is 13.5%. Is this not typically around 20% with your fixed cost structure? Just clarify how you think of increments? Or is this maybe lower-margin European business? Peter Cirulis: No. I would -- it's a good assumption to say that our normal flow-through is 20% to 30% flow-through on incremental sales. Brian Morrison: So why then is the '26 to '28 increment 13.5%? Peter Cirulis: So we'll have some launch cost in there in the middle, right? So most of the revenue and the margin that I mentioned will take place in the '28 time frame. So there'll be some launch costs there in the middle that we'll have to work ourselves through. Brian Morrison: That impacts '28 as well? Peter Cirulis: So there'll be normal inflation that we've got to offset in that year and the incremental depreciation that will take place in that year. Fred Di Tosto: I would say there would be some launch costs in '28 as well because not all this work will be launching on Jan 1. It will be throughout the year. Peter Cirulis: The year could be... Fred Di Tosto: So that will be an element of a drag, I guess, in '28 as well. But you'll see more of it in '27. Peter Cirulis: Work that we're winning now, a lot of that is launching in 2028, and we just had a really good quarter of winning work. That will be 2028 work for the most part. Pat D'Eramo: Right. One of the things that's very encouraging is we're seeing a lot more activity from the OEMs more recently as far as RFQs and so forth. So we expect it to continue to get busier. Brian Morrison: Okay. That makes sense. Maybe just -- maybe for Peter, just when I look at the margin profile, the increase from '25 to '26, just the drivers, I assume it's operating efficiencies, restructuring benefits, the benefit of the settlement that we talked about from '25 and then offset by margin decrements to get a net positive impact on the margin outlook. Are those the key drivers? Is there anything else that I'm missing? Peter Cirulis: No, those are the main drivers. We're going to have, let's say, the plant operating elements that Pat mentioned and some of our AI built in there, if you will, machine learning activities for improvements of quality and being able to do that faster. Then we've got material improvements through some resourcing as we work through these tariff elements. Then you'll have the offsets of the normal inflation in there. Brian Morrison: Okay. Okay. And maybe last question, and Rob, it's more of a curiosity than anything else, but why the long focus upon the valuation discount? I mean it's even greater when you include Nano as cash. Is this -- does this do you think put you on the screen as a target? Or does it make you think that your leverage is below your target and strong free cash flow, you should do an SIB. I'm just -- I'm curious why the focus on it today. Robert Wildeboer: Just reflecting thoughts. So some people have asked us the question to, okay, why don't we just talk to it? A lot of our investors hear the call, a lot of our shareholders hear the call, our employees hear the call. We get that question a lot and just figured we'd address it. I got to come up with something. We don't want to just talk about tariffs all the time. Brian Morrison: Nobody does. Robert Wildeboer: I agree with you 100%. Operator: There are no further questions at this time. I would like to turn the call back to Mr. Rob Wildeboer for closing comments. Please go ahead. Robert Wildeboer: Well, thanks very much for giving us part of your evening. Look forward to any follow-ups, any questions, you know where to get a hold of us and always happy to talk to you. Have a great night. Operator: This brings to a close today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.
Eric Born: All right. Good morning, everyone, and welcome to the Grafton Full Year Results Presentation. A few operational highlights from me before I hand over to David, who will guide you through the financial numbers in more detail. Good morning. A resilient Group performance in 2025 with pleasingly a return to revenue and to profit growth. So revenue was up for the full year, 10.4%. Adjusted operating profit was up 7.1%, and our adjusted return on capital employed was up 60 basis points at 10.9%, comfortably exceeding our cost of capital. We made continued progress on our development activities to further strengthen the group, enhanced leadership teams and the talent pool in general across the Group, including bringing in -- for Iberia to really focus on our growth aspiration in that relatively new market for us. We successfully integrated the first platform acquisition we did, Salvador Escoda, which I'm pleased to say delivered the profit growth in line with our plan, and we made good work to prepare that business to be ready to accelerate growth going forward. We also strengthened our market position in the Republic of Ireland with the bolt-on acquisition of HSS Hire into the Chadwicks Group to further extend our hire proposition to our customers. And in general, we delivered a strong cash conversion and preserved a strong balance sheet to continue to support the future development of the Group. So I shall now hand over to David, who goes into more detail. David Arnold: Thank you, Eric, and good morning, everyone. As Eric has already covered off some of the headline details of our performance in 2025, I'll talk you through some of the financial details now starting with the income statement. Revenue of GBP 2.52 billion was 10.4% higher than last year. Thanks to the hard work of our teams across the group, we delivered a resilient adjusted operating margin pre-property profit of 7.3%, only 30 basis points below last year. This reflects a continued focus on margin management with the group achieving a 50 basis point improvement in gross margin, together with a proactive management of our cost base to mitigate the ongoing inflationary environment on operating costs. It's pleasing to report that we saw a return to profit growth for the first time in 3 years, with the group's adjusted operating profit before property profit of GBP 184.3 million, 6.2% ahead of 2024. Adjusted operating profit, including property profit of GBP 5.9 million was 7.1% up to GBP 190.2 million. The net finance cost of GBP 10.1 million was higher and reflected 3 elements: lower interest income on deposits following interest rate cuts, lower cash balances due to acquisitions and share buybacks; and finally, a foreign exchange movement. The effective tax rate was 18.2%. That's lower than the 19.5% indicated at the half year and reflected the geographic mix of group's profits and a credit relating to updated estimates of liabilities relating to prior years. Adjusted earnings per share was 75.4p, 5.1% higher than 2024 and which benefited from our share buyback program. Since we first started our share buybacks in 2022, we've reduced our share count by over 20%, and I'm delighted that we're announcing a new GBP 25 million share buyback today. For more technical guidance on 2026, I've included some information in the appendices, which you may find helpful. As noted in our January trading update, the Group has adopted a new reporting structure that better reflects our strategy and management focus. The Group is now organized into 4 geographical areas, the Island of Ireland, Great Britain, Northern Europe and Iberia. And I've set out on this slide where the various brands now sit. For clarity, all results presented today follow the new reporting structure with comparatives restated. And we've included a couple of slides again in the appendices to help you track through the new segments. Let's look now at movements in revenue for the year in comparison to 2024. The organic movement, which I'll cover in more detail on the next slide, saw revenue increase by GBP 30 million. Acquisitions contributed GBP 195 million of incremental revenue in total, largely due to the full year impact of Salvador Escoda, which reflects the benefit of an additional 10 months of trading compared to 2024. The divestment of the noncore MFP piping business in the Republic of Ireland at the end of May reduced revenue by GBP 5 million. As MFP mostly supplied internal customers, the revenue effect is limited here, but you'll see a larger impact later when we discuss the operating profit impact. Finally, the strengthening of the euro against sterling accounted for an exchange gain of GBP 18 million in the year. This slide analyzes the net increase of GBP 30 million in organic revenue. It should be noted that revenue in the year was supported by modest levels of product price inflation, and that's in contrast to 2024 when product price deflation, particularly in our distribution businesses in Ireland and Great Britain, adversely impacted sales. The Island of Ireland segment, where all businesses delivered year-on-year growth was a key driver of organic growth with revenue up GBP 34 million. In a difficult market, organic revenue in Great Britain was broadly flat year-on-year, which we felt was a creditable performance. Revenue in Northern Europe declined by GBP 6 million, largely due to lower trading activity in Finland. Organic growth in Iberia relates only to the last 2 months of the year as the business was acquired on the 30th of October 2024. Turning now to the movement in reported adjusted operating profit. We'll look at the movement in the profitability of the like-for-like business in a moment. The net impact of new and closed branches had a small positive impact on profits, while the impact of the MFP divestment, which I talked about earlier and is shown separately here, resulted in GBP 2.6 million reduction in profitability. Acquisitions added a total of GBP 13.2 million, mostly driven by Salvador Escoda in Spain with GBP 1.4 million coming from 7 months of trading from the bolt-on acquisition of HSS Hire Ireland. Property profit was up GBP 1.9 million in the year, while the stronger euro had a positive impact on reported sterling profitability. Looking at the movement in adjusted operating profit in our like-for-like business, you can see that all operating segments, except Northern Europe reported an increase in adjusted operating profit. Our businesses in the Island of Ireland delivered a strong profit growth as strong sales performance underpinned gross margin expansion. And in Great Britain, even in a very challenging market and with sales broadly flat, profits were higher, thanks to a 120 basis point improvement in gross margin. Northern Europe experienced a reduction in profits, driven by -- primarily by lower sales in Finland and ongoing operating cost pressures in both the Netherlands and Finland, which I'll cover in more detail in a few minutes. Finally, central costs were higher in the year, partly due to the planned investment made towards the end of 2024 and into 2025 to strengthen capabilities to support the group's strategic priorities. Moving on now to look at each segment in a little bit more detail. Our Island of Ireland segment delivered a strong performance during the year, supported by favorable economic conditions in the Republic of Ireland. Revenue of GBP 1.07 billion increased by 4.3% on a constant currency basis. Average daily like-for-like sales were up by 3.5%, with all businesses reporting year-on-year growth. Woodie's delivered another year of strong growth, supported by a particularly strong performance in plants and garden products with growth driven predominantly by increased transaction volumes alongside modest increases in average transaction values. Chadwicks saw good growth across the hardware, heating and plumbing categories. The gross margin increased by 20 basis points in the year, driven primarily by the strong performance of Chadwicks. Overheads increased due to inflationary pressure, while all our businesses continue to mitigate these impacts through productivity gains, better use of technology and more efficient rostering. Adjusted operating profit of GBP 111 million was 1.8% ahead on a constant currency basis, but the operating margin was slightly down by 20 basis points to 10.4%, largely due to operating cost pressures. The integration of HSS Hire Ireland into Chadwicks continues to progress well with a short-term focus on systems integration. The outlook for the construction market in Ireland remains positive with a focus on accelerating new housing supply expected to continue for at least the next decade. In Northern Ireland, market conditions were and remain more challenging with the construction sector delivering modest growth in 2025, primarily due to an increase in new housing, albeit from a low base. Moving next to the Great Britain. We were especially pleased that our targeted commercial actions delivered a 120 basis point improvement in the gross margin despite a very competitive market backdrop with subdued volumes. Around 60% of our sales in Great Britain are generated from London and the Southeast, and this market has been particularly affected by a weak housing market with London seeing the lowest level of housing starts in 40 years. After a positive start to the year, overall construction activity softened from late quarter 2 and remained that way into the second half with the U.K. government's autumn budget further weighing on consumer sentiment. Revenue in Great Britain of GBP 765 million was broadly unchanged in comparison to prior year. Average daily like-for-like sales were up 0.4% with strong growth in our manufacturing businesses, helped by softer comparators from 2024, largely offset by a modest decline in our distribution businesses, which represent a greater share of sales. Notwithstanding inflationary pressure on costs, especially with respect to labor and property, overheads were tightly controlled across our businesses with the increase in like-for-like overheads contained to 1.8%, well below general inflation levels. Adjusted operating profit of GBP 49.2 million increased by 6.2%, supported by that gross margin expansion. In our Northern Europe segment, performance in the year was below our expectations. Revenue of GBP 469.7 million declined by 1.1% on a constant currency basis. Average daily like-for-like sales increased -- decreased by 0.5% in 2025, with moderate growth in the Netherlands more than offset by a pronounced decline in Finland. Sales increased in the Netherlands, driven primarily by strong branch sales and growth in national key accounts, in addition to increases in project-related sales and modest product price inflation. After a strong start to the year, momentum in the Netherlands eased as several major construction projects reached completion and the start of new projects was delayed. Sales in Finland fell sharply due to difficult market conditions, unfavorably mild weather at the start of the year and temporary operational issues that disrupted our internal supply chain. Challenges have gradually eased in the second half as management took decisive actions. Gross margin increased by 90 basis points in the year, reflecting strong performances in both geographies. In the Netherlands, active commercial management actions more than offset the adverse mix effects of large construction projects and key accounts, which accounted for a higher proportion of sales, whilst gross margin in Finland improved primarily through optimization of rebates and procurement efficiencies. Overheads remained under pressure in the year, reflecting general inflationary pressures, the high settlement agreement under the industry-wide collective labor agreements in the Netherlands and strategic investments which we made to strengthen the Finnish business. Adjusted operating profit of GBP 29.6 million was 17.2% below prior year on a constant currency basis. The operating margin was 120 basis points lower at 6.3%, reflecting the impact of lower sales in Finland and the inflationary pressure on overheads across both geographies. Salvador Escoda is one of Spain's leading distributors of HVAC, water and renewable products, which we acquired at the end of October 2024. We're very pleased with how the integration of the business has progressed and its trading performance in its first full year under Grafton ownership was in line with our pre-acquisition expectations. We've strengthened the business further during 2025, adding resources and support to its experienced management team to create a strong foundation for Salvador Escoda to accelerate organic and inorganic growth in the coming years. Salvador Escoda reported revenue of GBP 212.9 million and delivered an adjusted operating profit of GBP 13.6 million, representing an adjusted operating profit margin of 6.4%. The year-on-year increase reflects the benefit of an additional 10 months of trading in 2025. On a pro forma basis, in comparison to prior year, average daily like-for-like revenue was 6.1% higher, driven by strong growth in the air conditioning, ventilation and refrigeration categories as well as favorable market backdrop. The Spanish economy continues to be one of the fastest-growing economies in Europe with GDP expected to have grown by approximately 3% in 2025. The Spanish construction market is forecast to grow slightly faster by around 3% to 4% in 2026, supported by sustained housing demand, substantial investment in renewable energy and transport infrastructure and the accelerating shift towards energy-efficient and sustainable building practices. Within the construction sector, the HVAC segment is well positioned for strong growth, driven by tighter energy efficiency rules, rising consumer focus on efficiency and higher temperatures across the Iberian Peninsula. Despite navigating significant change in 2025, the business delivered a strong trading performance, outperforming the prior year on both a reported and pro forma basis. The group continues to support the local management team in driving organic growth. New business -- new branches opened in Vic in Catalonia and Plasencia in Extremadura, enhancing our existing market positions in these regions. We continue to assess further growth opportunities in the attractive Iberian market with a strong pipeline of potential new branch locations in hand. Now this slide analyzes our cash flow in the year. As you can see, the group generated strong free cash flow of GBP 168 million in 2025, representing an 88% conversion of adjusted operating profit into cash and contributing to more than GBP 700 million of free cash flow generated over the last 4 years. And some key highlights to note. We were pleased to see a reduction in net working capital of GBP 12 million in the year despite higher sales. Optimizing our investment in net working capital, whilst not compromising our customer proposition continues to be a key focus across the group. We continue to reinvest to strengthen our businesses, notwithstanding current market weakness in certain geographies with a net GBP 41 million invested in replacement and development CapEx. There was a GBP 14.3 million investment in net M&A activity, being the acquisition of HSS Hire Island, partially offset by proceeds from the divestment of our MFP piping business in the Republic of Ireland. And finally, we returned GBP 128 million of capital, net of issued shares under the LTIP and SAYE schemes to shareholders in the year. Of that, GBP 72.6 million was paid in dividends. And you'll have seen from today's results that we propose to increase the full year dividend by 2% to 37.75p per share. Dividend cover for the year was 2x, and it is our intention to restore dividend cover more firmly within the 2 to 3x dividend cover ratio as we move forward. The cash-generative nature of businesses continues to support both shareholder returns and a strong balance sheet, providing significant firepower for the group to capitalize on organic and inorganic development opportunities. At the end of December, our net debt was GBP 123 million, representing a lease-adjusted net debt-to-EBITDA ratio of just under 0.4x, slightly better than at the end of 2024. And finally, just turning to the balance sheet. I'd just note the net working capital increase, which you see there of GBP 8.8 million in comparison to the end of 2024, and that's largely due to the recognition of the deferred consideration related to the divestment of MFP. Adjusted return on capital employed was 10.9%, almost 2 percentage points higher than our estimated weighted average cost of capital and 60 basis points higher than 2024. And I'll now hand back to Eric to talk about current trading trends, our strategy and outlook. Eric Born: Thank you, David. On the left, you can see the average daily like-for-like revenue change in constant currency for Q1 '25 and for the first couple of months in 2026. It's early in the year and the important trading months are still to come. So if you go to the Island of Ireland, wet weather impacted the trading on the Island of Ireland and in Great Britain. However, Ireland delivered some growth, supported by the softer comparators following the storm Eowyn in the prior year during that period. In GB, in Great Britain, the market environment remains challenging, as you can see on the like-for-like numbers. We had modest growth in Northern Europe with a strong Finnish performance, offset by some softer trading in the Netherlands, which was impacted by a change of holidays. In other words, they had the Carnival period in the like-for-like period, which will not deliver the sales you would hope during the period. But ongoing strong momentum in Iberia. From an outlook point of view, Island of Ireland, the construction outlook remains positive in the Island of Ireland with the retail consumer slightly more cautious than previously, but we have a positive outlook overall for the Island of Ireland. In terms of Northern Ireland, we don't expect any significant uplift during 2026. Moving to GB, a slow start, as I mentioned. However, the important months are yet to come and January, February was certainly impacted by bad weather conditions in Great Britain. We would expect a modest market growth in the second half of the year. Northern Europe, the Netherlands construction market is expected to gradually recover during the year. And in terms of Finland, we don't expect any meaningful improvement of the construction market until the second half of the year. Iberia, as David already mentioned, the construction market is expected to grow 3% to 4% during 2026, and we would expect our product segments to do well within that market environment. In terms of medium-term outlook, positive across all geographies because they all are supported by the structural growth drivers of not enough housing and aged housing stock. So the long-term drivers are very positive, and we have strong position in all of those markets. The recovery potential is especially great in Great Britain and Northern Europe, where we have a lot of operating leverage and the business has not cut into the muscle. So whilst we are lean in those businesses, we are ready to take advantage of increasing volumes when they will arrive. Tight cost control really gives us the benefit of the operating leverage as volumes return. So let me say a few words about our strategy. So how do we intend to drive growth and create value going forward. As you know, we focus on European markets with long-term growth characteristics. And within each geographic market, we build strong positions to distribute construction-related products and solutions to our predominantly trade customers. In terms of operating model, we have a federated operating model with local execution, supported by strong group capabilities, how we help the businesses to improve and drive results across the geographies. So what sets us apart are really strong and experienced leaders in each market supported by the group, but the accountability really sits in the market and the ownership. That drives very high colleague engagement and a relentless focus on providing customer service and a real sense of ownership. And I think that's something which really sets us apart because our businesses really care. We also have a very resilient model based on the geographic diversification we have. And you can see this again in this year's results where 2 of our markets are challenged, let's say, in 2 of our markets are in a more positive macro environment, which overall still leads to a very, very strong generative -- cash-generative business, which is a real underlying strength. And as David mentioned earlier, we are very disciplined in terms of our financial discipline. So we will maintain our credit grade rating, and we have a very clear structured approach to capital allocation, which you can see on the right of the slide. So it's really around, first, fund organic growth and keep our existing estate fresh and make sure we have sufficiently invested into the existing estate, pay a dividend in the range of a dividend cover of 2 to 3x with an ambition to move closer to 3x over time than we are at the moment. Third priority, inorganic growth. We have a very strong pipeline, and we are focused on driving growth at this moment in time in our already existing markets. So it's not about planting a flag in another country at this moment in time, focused on the existing markets and then to return surplus capital to our shareholders, which we did again with the announcement this morning of a further GBP 25 million share buyback. And I think the next slide nicely illustrates this in practice when you look around the capital allocation between 2022 and 2025. We started in '22 with a net cash position. We generated over GBP 700 million of free cash flow after replacement CapEx. We then allocated a good chunk, namely GBP 721 million to pay dividends and execute share buybacks and return that money to shareholders, whilst we also invested roughly GBP 100 million in development CapEx and over GBP 160 million in acquisitions. So I think that's a very nice illustration around the cash generation of the business and how we allocate the capital mindfully. But of course, we want to tell you more about all of that and how we drive future growth with a Capital Markets Event, which will be held on May 20 here in London. And the event will focus on the group's strategy and growth ambitions over the medium term and you will have the opportunity to not just meet David and me, but of course, many other senior leaders and see more about the bench strength of the management team we have from all the different geographies. So shall we move over to Q&A. Shane Carberry: Shane Carberry, Goodbody. Two, if I can, please. The first one, just in terms of the gross margin in the U.K., really impressive 120 bps increase year-over-year. Could you talk a little bit about the dynamics behind that and some of the levers that you had to pull to achieve that outturn? And then the second was just to get a little bit more color around Iberia. It's been kind of 14, 15 months now since you bought Salvador Escoda. So how has that process been? Has it integrated as well as you thought it would to date? And just thinking looking forward, now that you've hired a CEO, how should we think about how things are going to evolve from here from an organic and inorganic growth perspective relative to what you might have thought 14, 15 months ago? Eric Born: Okay. So let's start with GB and the margin improvement. I think in general, given we have, as you know, a federated structure, we have people in the businesses who are focused on the bottom line. This is a performance-led culture. And as -- for example, as demand was soft, we saw in some of the activities we did early in the year when we drove promotions that even with support of suppliers, the incremental volume you generate on the promotion activities actually led to a lower gross profit than in absolute pound sterling numbers than if you wouldn't have run a promotion. So the businesses will have been very tactical picking their battles, if you want, and more making sure we deliver an overall attractive basket for our customers rather than drive aggressive price promotions into a market where you will not have the incremental revenue and will be net-net out of pocket. So those were some of the levers. Of course, others were working hard on some of our exclusive and own brands and how are they positioned and what's the share of those and all sorts of commercial activities and collaboration with the suppliers to manage the gross margin overall. But I think that is really something where you have to be nimble and you have -- and I really attribute the strength of the federated structure and that operating model for the businesses to take the right decisions because it will be impossible for us to legislate if you want from a Group point of view, how they have to react to daily trading. So that's the bit on GB. If you look at Iberia, I think that has been a great success so far, right? So we have -- we are absolutely in line with where we expect to be. This is a business we acquired and in year 1 of acquisitions had a higher ROCE than our cost of capital. So we buy a platform which already in year 1, ROCE is greater than our cost of capital. So that's a good thing. Secondly, we had an experienced management team in a family setup, which had to learn a lot about how we do things in a PC environment. So we had to strengthen, for example, the finance function, the HR functions, the health and safety function, property, right? We have growth ambitions, but we wouldn't have had the infrastructure at the moment we acquired the business to accelerate growth beyond 2 or 3 branches a year, even if the opportunities come up, we just didn't have the infrastructure. Nobody have had the backbone and the infrastructure to absorb a bolt-on acquisition and integrate it, right? So that's really the work we have done during this year to create that, if you want the engine room within Salvador Escoda. And now we are ready to accelerate growth organically, but also to absorb bolt-on acquisitions as they might present themselves to execute. So that's within Salvador Escoda. So we strengthened the management team. We still have the same CEO or Managing Director for that operating business, which is Marta Escoda, the daughter of the founder, who already run the business when we bought it. The plan was always -- we singled out Spain or the European Peninsula as a very, very attractive market for 2 reasons. One, it's a growing market. Secondly, it's highly, highly fragmented, right? So it kind of really gives opportunities for M&A as well as organic growth across multiple verticals. So with Marta, we have an excellent person to run Salvador Escoda, but you need a different animal in the local geography to drive our growth ambitions, to help us to get the position we would want to have by 2030. So -- and that was the backdrop why very early on, we made the decision to go out and bring a CEO in for the Iberian Peninsula. And I'm very pleased, Mario has started in January. And I'm convinced we will have more to report over time from how we will successfully grow across Iberia. Charlie Campbell: Charlie Campbell from Stifel. A couple of questions following on from both of those really. So Spain margin 6.4% in the year. It was more like 7% before you bought it. I guess that comes from putting in more infrastructure to support the business and make growth more sustainable. But how should we think about margins longer term in Spain? Should we think about that 7% as achievable and perhaps more as volumes drop through? And secondly, on the GB and on the gross margin, did you change the incentive structure there at all? Are people perhaps more focused on growth than they were before because that really is an extraordinary performance. Eric Born: Look, in Iberia, we do believe there is room to enhance the margins in Salvador Escoda over time. But if I look at Iberia in general, we would expect for this business to substantially grow, so in Iberia and have somewhere a margin corridor between 7% and 10%, would be kind of the margin corridor we would expect to be throughout the cycle in Spain. So I hope that answers that bit. In terms of incentive structure, no, we haven't changed the incentive structure in the business in GB. We have enhanced the management capabilities within GB. So we have a long-serving colleague, which has kind of oversight over CPI, EuroMix and StairBox. And then we have Frank Elkins, who joined us in 2024, right? Time flies when you have fun, in 2024. And he has been really, really focused with the team and enhancing, as I said, the bench strength, which is an ongoing process, right? I always compare this to like a football coach that you -- whenever you have the opportunity, you strengthen your team. It's a team sport, right? And that's exactly what we have done. So the focus or the achievement has been by targeted activities and focus. But people are bonused on delivering the outcome on the bottom line, right? So in a sense, that incentive has always been there. So the incentive hasn't changed. David Arnold: And I suppose just on that financial piece around Spain, as Eric alluded to, the business is exceeding our cost of capital in its first full year and really very much return on capital employed is our sort of foremost guiding financial metric, I suppose. Operating margin is sort of -- is a good metric for quality. But really, it's about driving return on capital employed and cash. Samuel Cullen: Sam Cullen from Peel Hunt. I've got 3, if possible. Coming back on the Selco gross margins, I guess, how do you -- let's say, volumes do pick up second half of the year and they grow again next year. What's the sensitivity around kind of unwinding some of that gross margin increase to take more volume? And how do the guys on the ground judge if, when, how to do that? That's the first one. David Arnold: Should we just pick them off as we've got another couple coming. I mean, look, I think on gross margin, yes, you've got to play the game that's in front of you. And I think in 2025, it was a game of weaker margins. And therefore, what do we do focusing on that bottom line. And I think that mantra continues going forward. So we just need to be nimble and responsive to how the volume and the strength of the market demand sits overall in GB in the same way that we're not focused on market share as a particular metric and are led by what's the impact on the bottom line. I just think we'll be nimble and the gross margin may come down if we see that strength in volume that we know that we can more than recover that by seeding some margin. So it's that flexibility and nimbleness that we need really. Samuel Cullen: Second one is on central costs. I think you highlighted there was a step-up in investment this year. Do we expect that to be at the end of that step-up and it to be kind of inflationary from here? Or do you envisage... David Arnold: No, I think it's a modest amount. I mean, for example, to give a bit of color on some of the areas that we focused on, it was more support on transaction services so that, again, we were better placed to be able to pursue a broad pipeline of acquisitions. It was elements like cybersecurity and support for a number of the ERP implementations that we've got going on around the group. Some of it was bringing sensible things, for example, like payroll into the center and taking it out of the businesses and saving some of the costs in the businesses. So there were sort of a variety of tactical things. Do we think that there will be major moves or significant more increases in central costs? I don't think it will be significantly more in terms of the investment in additional functions or roles. Samuel Cullen: And the last one is back on the U.K. If we don't see a pickup in overall market volumes, do you see wider consolidation in the sector over the medium term, may not be from yourselves but from other players? Eric Born: It's a good question, right? So we have private equity active in the U.K., right? Do I think they -- if there is no recovery, that was your question, do I think there will be a lot of appetite of those ICs to invest more money in the sector? I'm not sure, right? In terms of the listed players -- in theory, there should be more consolidation. If you look at how many general builders merchants there are in the U.K., you would expect there to be more consolidation. Whether that will play out like that is yet to be seen, right? So we -- again, and I'm clear on that, we are -- from our own investment point of view, we believe in the businesses which we have in the U.K. irrespective of where we now sit in the cycle, and we will continue to support those businesses. And if the right organic growth locations come up, whether that's for a Selco or for TG Lynes or for a Leyland or anything, we will invest the money into it if we believe in the case. You have to look throughout the cycle. You can't just sit and think, now it's bad, it will always be bad because the fundamental growth drivers are there in the U.K. The question is when. But if you then come to M&A capital, do we deploy M&A capital in the U.K. Well, for GB, I'm not saying no. But as you will have seen, we look at capital allocation in a framework, which says, do we actually believe this is the right allocation of capital. Do we get a return on capital and the cash generation out of this business, which we think is really accretive for our shareholders and the business over time. And if the answer is, yes, we do and we find a market like that in GB, well, we will allocate capital. But if it's in Spain or in Ireland or somewhere else within our existing markets, we will allocate it. Florence O'Donoghue: Flor O'Donoghue, Davy. Just 2 for me. One is just on OpEx for this year, just your sense of rents, rates, labor, what they're looking like. Second one then is just on selling prices. What's the current state of play in relation to them? David Arnold: So I think on OpEx, I mean, if we look last year, there were a number of high areas of inflation. You take the Netherlands, for example, where there's a collective labor agreement, and we saw salary increases of 6% in 2025. That under the collective labor agreement for 2026 will be more like 4%. So we're definitely seeing it reduce. But I would still think that we'll be working really hard to contain it in that 3% to 3.5% level because of what we see in terms of some of the statutory increases, national insurance effectively for a full year. We've got what's happening on national living wage, for example, either in Ireland or in the U.K. Those pressures are still there. Pressures on property rents in terms of the inflation that we're seeing where you've got 5-year rents that are refixing this year that we've got the catch-up from a few years ago as well. So yes, we'll work really hard, but I would still say it still feels 3%, 3.5% we'll be doing well to contain it to that, I think. And we'll have to work really hard around efficiencies and cost control to mitigate some of the softness in the market. As regards overall, what we're sort of seeing across the piece on selling prices, I would say probably not a too dissimilar picture in '26 to what we saw in '25. Depending upon geography, Netherlands was probably closer to 1%. Ireland on the distribution side was more like 1.5% to 2%. I think we're still in that sort of zone, certainly talking to manufacturers and suppliers. It felt at the start of the year that we were in that sort of zone. Of course, we're slightly in the lap of the gods in terms of exactly what happens to the evolution of inflation in the year. But yes, we started thinking 1%, 1.5%. Christen Hjorth: Christen Hjorth from Deutsche Bank. Just 2 for me. First of all, on the GB like-for-like at the start of the year, just trying to unpick some of the one-offs in there and I suppose the extent to which the first 2 months is a read for the first half and maybe how you exited those first 2 months because obviously, the number was a bit standout on GB. And the second one, sort of maybe a bit similar to Sam's question, but looking at Europe, I mean, there's a few players out there looking to consolidate European distribution. So in the context of that, what really sets Grafton apart, particularly, I'd say, in terms of being the acquirer of choice for some of the businesses that you're looking for? David Arnold: Do you want to pick Europe and I'll come back to GB? Eric Born: Look, many of the consolidator -- not all of them, but many of the consolidators are across Europe are private equity backed, right? So if you look at what we bring to the table is we -- if you think about the family-owned business, we will be a home for the family-owned business and not a transitionary home for family-owned business. And I think that's a major competitive advantage we have. We can have owners talk to people who work for Grafton, who sold their business to Grafton and they can talk about how that experience was for them. And by the way, we do this frequently, right? We have people coming and visit Sitetech or other businesses and which are part of the Chadwicks Group now, and they can really talk about that firsthand experience. We also have that experience with Salvador Escoda, right? How was it for them. And I think that's a major, major benefit. What was the second part of the question? Christen Hjorth: GB like-for-like. David Arnold: Yes, GB like-for-like. I mean, look, the year has started off weakly. There's no doubt in GB. To some extent, it was -- has been influenced by the wet weather. But I think that's an element of it. I think market is -- remains tough at the moment. The good news is that the year is not won or lost in the months of January and February. So there's a lot to play for in the year ahead. There's some really great stuff that we're doing in the GB businesses. So I think confident about that. The underlying market, there's a lot of really good fundamentals that should start to see -- we should start to see some volume growth coming through during the course of this year. The biggest point is really around confidence. That's the thing. And over the last 5 days, that confidence has probably taken a bit of a not more generally. We just need to see how the next sort of few weeks pan out really. But I think if confidence can come back, there's a whole bunch of reasons to feel optimistic about volume growth, I think, in GB. Okay. So I think that looks like it from the room. We haven't got any questions online. Thank you very much, everybody. Enjoy the sunny day. Eric Born: Thank you all. David Arnold: Thanks.
Mary Vilakazi: Good morning, everyone. Welcome to FirstRand's results presentation for the 6 months ended 31st December 2025. I'll start with the -- I'll start the presentation with an overview of the group's operating environment over the last 6 months. In the period under review, the global macroeconomic backdrop continued to be characterized by heightened geopolitical uncertainty, and this is likely to persist for some time. Global growth slowed and inflation and monetary policy continued to play out differently across the world's largest economies. The FirstRand house view is underpinned by an expectation of ongoing geopolitical fracturing and reorientation. Unfortunately, that does imply more frequent global economic shocks, the impact of which is controlled for in our baseline and risk expectations. The current Middle East conflict is an example of one such shock. In South Africa, the combination of structural reform efforts spearheaded by Operation Vulindlela, fiscal discipline and the lowering of the inflation target have started to have a positive impact. South Africa's sovereign rating improved. The country was removed from the FATF gray list, the currency strengthened and inflation registered the lowest average in years. These factors have mitigated the impact of elevated global uncertainty within the SA macro context. The recent bond market impact of the Middle East conflict have seen bond yields lift 40 basis points off their recent lows. Whilst it is still early days, this is a relatively small impact on the overall bond yield reduction of 220 basis points over the last year. We are monitoring the unfolding events and the related impacts closely. Lower inflation allowed the sub to cut the interest rates and affordability pressures on consumers and households are easing. During the period under review, we saw household borrowing tick up marginally in real terms, whilst corporate borrowing continued to grow strongly, potentially signaling an emerging credit and investment cycle. The RMB/BER Business Confidence Index rose from 44 to 47 since the last quarter, an encouraging data point. Barring the post-COVID recovery, this is the highest business confidence level since 2015, giving us confidence about the emergence of credit and investment cycle for South Africa. Several countries in the group's broader Africa portfolio also made good progress on reforms. Nigeria continued to strengthen its macroeconomic position, while Ghana and Zambia have benefited from the post-debt restructuring reforms implemented over the last few years. The 3 countries made difficult and tough decisions and are now reaping the benefits of the reform processes. Certain cyclical factors also provided support with inflation moderating and growth stabilizing on the back of a positive commodity cycle. By the end of 2025, economic activity in the U.K. had slowed. Inflation eased but remained above target, and the Bank of England responded cautiously. Activity was supported by public sector spending. However, private sector demand remained constrained by still elevated borrowing costs and persistent inflation pressures. Moving on to an unpack of the group's operating performance. And just to recap how the group's operational performance in the first 6 months is tracking against the guidance for the full year to June 2026. Pleasingly, all the key line items are trending as expected. NII is up high single digits with a significantly NIM uplift with NIR print materially higher than the previous year. This strong top line performance has resulted in an improved cost-to-income ratio continuing to be in the 40s range. Credit is in line with our expectations with NPLs looking better given the supportive macro environment. As guided, the group's ROE is moving closer to the top of our stated range of 18% to 22%. These metrics clearly demonstrate the strength of the operational performance delivered by the business, which we are very pleased about. This slide unpacks the performance metrics, particular callouts include the strong growth in earnings, economic profits and NAV accretion. We are also pleased to be in a position to grow the dividend faster than earnings as the high ROE means we continue to generate excess capital. This is earnings and ROE over a 5-year period. The only point I'd like to make here is that earnings growth has shown a stronger trajectory over the past 3 years. This demonstrates the group's ability to deliver higher and more sustainable growth in earnings despite one-off contributions in each year's base, testament to the quality of earnings generated by our franchises. This slide demonstrates the group's -- that the group continues to accrete to NAV. The 5-year CAGR of 8% is testament to the group's ability to consistently deliver value for shareholders. Net income after cost of capital or economic profits is the group's key performance measure for shareholder value creation. We saw very strong growth in this period in NIACC. The 5-year CAGR of 14% in economic profit is particularly pleasing given that this was delivered during a period characterized by muted macros and sluggish GDP growth. It demonstrates the group's ability to deliver on its objective to capture the largest share of economic profits available in the system. The group's superior ROE benefited from an ongoing improvement in return on assets, which increased 5 basis points in the period. This was again a result of the quality of our operational performance, particularly the strong growth in investment income, a recovery in trading income and stable impairments. Gearing continued to decrease and the lower cost of equity contributed 10% to the NIACC growth of 26%. The reduction in the SA risk premium is potentially structural given the improved macroeconomic conditions, fiscal discipline as reflected in the recent budget and delivery on the reform agenda. The market pricing indicates a further ratings upgrade is possible in this calendar year, and this could present potential for a sustainable lower cost of equity going forward for South Africa. This is a snapshot of the operational performances delivered by our client-facing franchises. All the domestic franchises performed extremely well, more than holding their own in a fiercely competitive operating environment. FNB performed well, growing earnings by 8% and significantly lifting ROE to 41%. And within this, FNB SA grew earnings by 10%, offset by softer performance in broader Africa. RMB really had a standout 6 months, lifting its margins and ROE on the back of strong top line growth. WesBank again delivered a solid growth and an impressive ROE given how fiercely competitive the market is. The broader Africa portfolio continues to contribute to overall earnings growth. This year, the performance was driven by RMB's cross-border activities. RMB's in-country CIB businesses delivered an impressive increase of 62% in profits before tax. And FNB's in-country -- broader Africa in-country performance was impacted by macro pressures in Botswana and Mozambique, as we previously signaled. Pleasingly, the long-term strategy of growing in-country franchises remains on track. The group is relentless in its pursuit of high-quality earnings growth and superior ROE. And many of the decisions the team makes are anchored to these -- to deliver on these 2 ambitions. From a balance sheet perspective, this is why we are so focused on growing advances at an appropriate risk-adjusted returns and why we have a limitless appetite for deposits. We are working hard to defend and grow our large valuable transactional franchises, given that they provide a significant underpin to our ROE, and we continue to find sources of capital-light income streams. I'll now cover the performance across the 3 themes, similar to how I presented this in the June results. So let me start with the health and quality of our client-facing franchises. As I mentioned in the previous slide, FNB SA franchise performed really well. Turning to FNB Retail first. The business delivered 14% growth in PBT and was the most significant contributor to FNB's overall ROE uplift. The performance was characterized by solid top line growth with NII growth impacted by tough lending markets with muted demand, although we do expect this to pick up in the second half. NII growth improved on the back of higher transaction volumes and customer growth. The retail credit experience was better than we expected and supported retail earnings growth during this period. I just want to call out the turnaround in the customer growth in the personal segment, where competition is really tough. At June 2025, this segment was struggling to grow customers, but this has now reversed significantly on the back of a strong sales effort. Before migrations to the private segment, personal segment grew customers up 3%. In our early engagements with Optasia, we do see exciting opportunities to leverage their capabilities to further grow FNB's offerings in this segment. The private segment grew up -- grew a solid 8%, driven by customer acquisition and migration from personal segment. And overall, we continue to see growth in FNB's main bank clients. This is up 6%, which demonstrates FNB's success in switching customers banked elsewhere with a single FNB product to a full transactional offering, the strength of the FNB franchise. FNB commercial continues to grow off a high base. NII was supported by steady advances and deposit growth. The commercial deposit franchise remains by far the largest in South Africa. Solid customer growth has supported growth in fees and transactional volumes, supporting NII. Merchant Services experienced margin pressure -- margin compression as FNB responds to a competitive environment. In response, FNB has launched new Speedpoints yesterday with enhanced business solution offerings and competitive pricing points. FNB is still leaning in for SMEs that are well positioned to benefit from the early structural reforms and FNB remains the largest lender in South Africa to this sector. FNB's focus on meeting the needs of SMEs is also supporting its strategy to grow in the community economy with advances now at ZAR 17.3 billion and deposits at ZAR 43.3 billion. As I mentioned earlier, FNB continues to grow NIR and the growth is reflective of the different strategies to defend and grow the transactional franchise. The slide shows that the business continues to achieve steady growth across traditional sources of fees and importantly, is scaling new sources of fees supported by its platform strategy. Digital wallet and PayShap volumes are showing very strong growth. And the PayShap volumes also reflecting the strategy to fulfill client needs or the business strategy to ensure that they fulfill client needs and payments needs as client behavior and adoption evolves. The graph on the right-hand side demonstrates ongoing traction in FNB's long-standing strategy to monetize its value-added services. FNB -- the MVNO business, in particular, is scaling well with users increasing to 3 million. West Bank delivered another strong performance, growing advances in a market showing signs of a sustained recovery, driven by new car sales in the industry, which are up 16% and an emerging replacement cycle. There was a slight recalibration of risk appetite to capture the opportunities emerging from these market dynamics. Origination has shifted from only originating in low to medium risk to a higher proportion of medium-risk customers. This has resulted in some front book strain, but remains well within expectations. The insurance business continues to deliver good growth on the group's own licenses as reflected in the new business APE numbers on the slide. The growth in the in-force APE for life and short term demonstrates the quality of these books. The top line growth has not translated into PBT growth in this period as we continue investing for future growth. This investment in distribution capability will set the business up strongly to grow in FNB's customer base as well as the open market. A data point that supports this thesis is the 38% growth in APE that's been generated from the private adviser distribution channel. As I called out earlier, RMB had an excellent first 6 months of the year. Absolute advances growth declined due to the distribution strategy, but production was robust at significantly higher margins. NIR benefited from a private equity realization and a turnaround from the Global Markets business. All these drivers helped lift RMB's ROE. The HSBC transaction has been successfully completed, introducing 260 new large corporates and multinational clients to RMB. And the chart out here goes out to the technology teams who ensured that there was a seamless transition of these clients, building platform capabilities that the group will be able to leverage in future growth strategies. The strategy to build scale in the corporate transactional bank and the introduction of a dedicated executive focus is resulting in good progress on mining the client base, and it is clear that there's a great deal of runway here. I've already mentioned the turnaround in the Global Markets business. This slide demonstrates that the early recovery is emanating from across the portfolio and the business continues to focus on client franchise activities to ensure that the recovery is sustained. I want to cover the point-in-time ROE at the Aldermore Group. We are still -- we are still executing on a clear medium strategy to move this ROE closer to 15%. However, this journey -- the journey to operational efficiency has required a hefty investment into the current offshoring initiatives. This, in time, will increase operational leverage once completed. In addition, the NIM pressure across the industry has also had an impact on Aldermore's performance in 6 months. This will be partly addressed by Aldermore's objective to diversify into higher-margin asset classes as well as accessing other funding sources post the FCA's motor redress process when Aldermore again can go into the capital markets. The excess capital we continue to hold in the U.K. depresses the Aldermore ROE by 1.5%, but we are hopeful that this will be resolved by the end of this year. The performance from our broader Africa portfolio is pleasing, particularly given the macro pressures in Botswana, which is one of our larger jurisdictions. This portfolio is still relatively undiversified, so volatility in 2 markets will have an impact. However, despite these pressures, the overall profitability and ROE held up well, supported by good performances from Zambia, Nigeria and Namibia. There was cost pressure in Ghana due to the platform investment that's required there. RMB's cross-border business and in-country CIB activities performed strongly, as I mentioned earlier. I want to spend a little time on the overall strength and health of our origination franchises, and Markos will cover line-by-line growth in more detail when he takes over the presentation. This slide unpacks the group's long-standing philosophy on origination. One recent adjustment is a slight shift in WesBank's risk appetite, which I covered earlier. A key element of our FRM strategy is to originate to the most appropriate balance sheet and underwriting vehicles. This has created additional capacity for the group, creating additional capital and funding velocity to support further origination. On Slide 28, here, we can see that the lending growth we have achieved across brands, customer segments and product lines, and we are comfortable with these outcomes. Standouts here are WesBank corporate and commercial, where we have seen growth pick up as the economy shows signs of shifting to a more investment-led cycle. Given the macro backdrop, we expect the modest pickup in retail to accelerate in the second half. The pie chart on the right unpacks the results of the sector-specific lending strategies we have been pursuing. Again, this is a high-level unpack of the credit performance, which Markos will cover in much more detail. The point I'd like to make here is that retail is performing better than our initial expectations and the U.K. normalization this year in the CLR is in line with expectations given the base effect from last year's provision releases. And I want to spend a bit more time on the deposit franchises, which deliver our high-quality capital-light NII. It is extremely pleasing to see that all of the group's deposit franchises delivered good growth over this period. RMB's corporate deposit franchise showing good momentum in South Africa and in broader Africa. The steady strategy to build country deposit franchises in the broader Africa portfolio is also gaining traction. SA retail and commercial deposits continue to increase and grow off an already high base. The group once again benefited from the group treasury's active management of interest rate risk and ALM risks, ensuring that the group earns appropriate value from interest rate risk and credit premium. In the current year, this strategy produced an additional ZAR 1.2 billion of NII compared to an opportunity cost in the comparative period. With interest rates forecasted to further reduce, the ALM strategy is expected to yet again have outperformed as shown in the gray shaded area on the graph. The group's margin was up 8 basis points and up 15 basis points, excluding the U.K. operations. Improved asset margins were achieved through the mix of balance sheet growth and deliberate FRM strategies with disciplined segment execution to ensure appropriate risk return margin considering client channel and market conditions. Where quality credits did not meet the balance sheet costs and frictions, these were matched to alternative platforms and investor base as executed through the RMB distribution strategy. The negative impact to the group margin in funding and liquidity of 11 basis points was a consequence of both the levels of higher levels of excess liquidity and lower return on liquid assets. This is a strong margin outcome achieved through active FRM, which the group will continue to use as a central process to deliver shareholder value. A walk-through of the group's CET1 ratio shows a lifting in the capital position following ongoing optimization, FRM initiatives I've highlighted and Basel reforms. RWA consumption up 70 basis points reflects ongoing growth in constant currency as well as investment in strategic initiatives. A CET1 ratio of 14.4% provides the group with sufficient financial resources to deliver on the group's growth ambitions. The strong level of capital and FRM initiatives support a sustainable dividend cover that remains at the bottom end of the range. I will now hand over to Markos, and I will come back to conclude with the prospects and looking forward. Markos Davias: Thank you, Mary, and good morning, everyone. Considering the backdrop of the group's strategic and operational performance, I'm now pleased to present the financial review of the FirstRand Group for the 6 months ended 31 December 2025. Mary has covered the key performance highlights. And as a quick recap, the group delivered 11% normalized earnings growth, coupled with an improving ROE and a resultant 26% growth in NIACC. This performance did not include an adjustment to the U.K. FCA motor redress provision. However, legal and specialist costs of ZAR 333 million pretax and ZAR 244 million post-tax impacted operating expenses and earnings growth by 1%. The group expects the final redress scheme to be published by the end of March, and we'll update shareholders on any potential impact thereafter. NAV is up 7% with the stronger rand impacting the group's foreign currency translation reserve. Excluding this impact, NAV would be up 10% for the period. The final call out is that the group's stronger CET1 position of 14.4% places it in a position that if required, the group can absorb any of the possible negative outcomes from the U.K. FCA motor commission redress scheme, and Mary will touch on this further in the prospects. The group's normalized earnings growth is driven by a strong top line performance with both NII and NIR up 8% and 12%, respectively, creating positive jaws against credit impairments, which are up 6% at a CLR of 86 basis points and cost growth up 9%. I will unpack all of these shortly. As the only additional note to the slide, RMB implemented a debt-to-equity restructure during the period. As a result, a portion of the nonperforming loan was converted to equity with the remaining loan settled. In accordance with IFRS, the group recognized an investment income gain of ZAR 242 million for this conversion with a settled advance resulting in a release of Stage 3 impairments of ZAR 143 million, and the remainder of the loan was written off. The converted equity exposure is then recognized in associate for the group and the cumulative equity accounted losses resulted in a ZAR 377 million loss in associate earnings line, but the net impact to NIR is therefore ZAR 135 million. Netting these impacts results in only a ZAR 8 million gain being recognized, and hence, I will not cover it further in this presentation. Let me now turn to the quality of the financial performance and its key drivers, starting with NII. Turning to advances. Retail mortgage growth continues to be subdued as overall demand and customer affordability do start to show early signs of improvement. Production has picked up in recent months with this improvement expected to drive momentum into the second half of the financial year. WesBank VAF grew 14%, capturing a large proportion of the bounce back in vehicle sales. An important note is that additional retail risk appetite has been allocated. Mary did touch on this. We are using a data-led basis, and we're expanding lending to the quality side of medium-risk customers as the group continues to monitor improvements in retail credit lending conditions and proactively prepares for an improving affordability cycle. Commercial growth of 9% reflects the consistent and focused strategy Mary alluded to earlier with a continued focus on growing the SME customer base and unsecured SME lending is up 11%. Broader Africa continued to service customer needs for credit products in the group's presence countries, up 9% in constant currency. And as a callout, Zambia showed excellent in-country advances growth of 35%. Aldermore delivered 9% growth in advances, primarily driven by its strong origination network in property finance, which was up 15%. Final point on the slide relates to RMB where growth appears subdued at 7% down, but both translation impacts and the deliberate distribution strategy that Mary touched on earlier impacted its balance sheet growth. But what is pleasing about this, we now have a demonstrable financial data point on the underlying hypothesis with RMB's portfolio margin improving by 20 basis points and despite a smaller balance sheet, RMB lending NII is up 15% for the period. On this slide, we reflect the impact of the RMB distribution strategy and the group's currency translation impacts to total advances with each having a 2% negative impact to growth. The group's deposit franchises continue to show momentum across all of the customer segments with overall growth of 6%. This performance, when coupled with RMB distribution strategy enabled a net 2% reduction in total institutional and other funding and in particular, a reduced term debt securities funding cost, which further benefited NII and margins. The group's institutional funding mix and weighted average term continues to be well managed with the right side graph depicting the funding mix change between FI deposits and NCDs. Reflecting the group's balance sheet strategies and an activity view highlights the effective partnership and FRM discipline between the franchises and group treasury. Lending NII benefited from advances growth and mix changes as well as the improved margins in RMB. Despite 107 basis points decline in average interest rates, both transactional NII and capital endowment activities increased 7%, strongly supported by growth in invested balances and the group's ALM strategies and active portfolio management approach. Group Treasury delivered a very good outcome with NII up 61%, driven by the lower funding costs previously mentioned, improved deployment of currency funding and a partial offset in the lower margins on HQLA that Mary mentioned earlier. The U.K. NII is up only 1% with pressure on cost of funding and deposit margins given the continued elevated level of competition for liabilities and a reducing rate cycle, which had some impact on unhedged capital endowment. Mary has already covered the margin outcome earlier. And here, I depicted in the usual waterfall view. In summary, group margins, excluding the U.K., have expanded 15 basis points, 8 basis points to June '25 and then a further 7 basis points to December. Lending asset margins expansion contributed 12 basis points with RMB a significant contributor to the uplift and with continued disciplined pricing across all the other lending portfolios. As mentioned, the ALM strategies reinforced both deposit and capital endowment margins, with Group Treasury reflecting an 11 basis points impact, mainly due to the lower HQLA margins. The U.K. margin compression resulted in an offset of 7 basis points to the group. Moving to the group's impairment charge, which is up 6%. The group's total CLR remains below the midpoint of the TTC range, with a slight improvement of 2 basis points to the CLR excluding the U.K. An important note at this point is that in the comparative period, the U.K. CLR benefited from one-offs relating to various items, including last year cost of living, and these did not repeat in the current period. These supported the prior period outcome for the group CLR, that was 84 basis points. And if you look at the current period, 86 basis points, this is a normalization of these impacts in effect. The overall diversification of the group portfolio continues to support the CLR below the midpoint of the TTC range. The group's impairment charge of ZAR 7.3 billion further reflects the U.K. normalization as well as front-book strain from balance sheet growth, impacting Stage 1 provisions predominantly. I'll give more color to this shortly in the segmental breakdown of the charge. Stage 2 provisions and subsequent coverage are lower as a result of a migration of a few higher coverage watch list assets to Stage 3 in RMB. This then reflects in the slight growth in Stage 3 provisions and coverage of 43.8% and further contributing to the Stage 3 coverage were increases relating to an aging NPL portfolio and higher operational NPL inflows. The group's overall provision stock remains appropriate at ZAR 56 billion, with a performing coverage of 1.43%. The group's NPL formation continues to reflect a slowing 6-month trend across most portfolios, except WesBank VAF and RMB. RMB had a single counterparty in the cross-border portfolio that migrated straight from Stage 1 to Stage 3 and has been appropriately provided for at this point in time. The particular circumstances of this event are isolated and is not pervasive to the portfolio. This new slide depicts the group's segmental composition of its impairment charge. It aims to highlight the diversification of the credit charge as well as period-on-period increases of each segment's charge. What can be seen is that the U.K. impairment growth accounts for ZAR 338 million of the total ZAR 442 million group increase, with Commercial and broader Africa also up significantly for the period. These were then offset by lower impairment outcomes in Retail and CIB. With this backdrop, let me now unpack these individually. Retail CLR, as expected, trended lower into the bottom end of its TTC range, improved forward-looking macros, better collections, coupled with increased customer prepayments and reduced Stage 3 inflows were all key contributors. Strong book growth in VAF drove some front-book strain, which was more than offset by an improved mortgage outcome as house prices in [ Gauteng and KZN ] showed signs of recovery. Increased NPL coverage driven by time in NPL and slowing lower coverage inflows also weighed in. Retail unsecured is benefiting from lower front-book strain and pleasingly, a decline in debt counseling inflows, albeit this portfolio remains structurally higher than in the past. Commercial's impairment outcome continues to lag Retail, but with signs of improvement since June. There has been no new jump to default counters like in the prior period, but the group has proactively raised out-of-model provisions against the larger Commercial watch list, exposures and potential industry concentrations. The 94 basis points CLR is an improved rolling 6-month print compared to the previous 125 basis points, and remains below the midpoint of the TTC range. A significant driver of the increase in charge relates to what I refer to as good CLR in the form of front-book strain, which is as a result of the continued strong advances growth across most of the Commercial lending portfolios. RMB's impairment charge continues to be best described as benign, with a single counter migrating to Stage 2 due to a rating revision triggering SICR. NPLs continue to see some new inflows from the credit watch list, with an offset from migrations out of NPL as RMB's debt restructuring capability continues to successfully assist customers. In addition, the previously mentioned broader Africa exposure that migrated to Stage 3 also impacted RMB's NPL level and provision increases. And finally, the debt to equity restructure I mentioned earlier impacted RMB. But even if you add it back, RMB is below its TTC range of 30 basis points to 50 basis points. I've already covered the core one-off benefits to the U.K.'s 14 basis points charge in the prior period and the primary reason for the more than doubling of the charge to this year. And during this period, in line with the expectations, the U.K. CLR has trended up to the bottom end of the TTC range, with core performance and collections tracking well. Arrears continue to improve, with new origination resulting in some front-book strain. U.K. forward-looking macros have, on average, compared to the prior period, December '24, deteriorated and key call-outs are a weaker house price index, marginally higher inflation forecast and an upward trend in unemployment. This has resulted in an increased modeled FLI requirement for the period and accounts for more than 50% of the U.K. CLR charge to December. Broader Africa's underlying customer portfolio continues to be resilient. The increase in impairment charges mainly from proactive provisioning in Botswana to capture the potential impacts of the visible slowdown in activity, and additional out-of-model provisions have been raised to cater for the increased uncertainty in Mozambique. Moving on to NIR, where the group delivered 12% growth driven by resilient fee income, a robust recovery in global markets and a private equity realization. Pleasingly, fee and commission income continues to show resilience, up 7%, driven by inflationary fee increases, coupled with 4% growth in both FNB customers and volumes. RMB knowledge-based fees also printed good growth off a relatively high base as it continues to offer clients market-leading structuring, arranging and advisory solutions. Mary has already highlighted the key message from the FNB fee and commission outcome, including the 14% growth in value-added services income. What I'd like to do is just give a little more color to the financial impacts of two of the items she referred to earlier. Firstly, FNB defaulted customers real-time payment requests to the cheaper PayShap rail. This resulted in a reduced contribution and reliance on the old rail and associated fees, and it meant -- you would have seen in her chart, there was a graph that showed payment fees down. It meant that those fees are 33% down for the period, and effectively have been replaced by the other fee income lines if you look at the 7% up at the total level. This strategy also was the key driver to the sixfold increase in the values and volumes that Mary highlighted. Secondly, Mary also highlighted the pressure related to merchant services competition, with fees relatively flat for the period. But what I can also note is that billable devices are actually up 10% for the period. And again, the key takeout is that despite these two big impacts, the group has managed to grow its fee and commission 7%. Total insurance income is up 5% and requires further unpacking. Life is up 13%, with underlying performance in underwritten life growing 14%, credit life up 15% and core life growth of 16%. FNB employee benefits were also moved into FNB life from commercial during the period due to the synergies of the group life and employee benefit offerings, and were a slight offset to the other life product performances based on take-on of a large client Mary mentioned earlier. Short-term insurance continues to scale ahead of expectations, with insurance income up 17%. WesBank benefited from the exit of MotoVantage, which resulted in a rundown portfolio being recognized this year, with no base as the investment was classified as held for sale in the prior period. The offset to these good performances relate to a continued reduction in the income from participation agreements. We have previously noted these are winding down and any new business is being written on the group licenses. In addition, broader Africa is down 26% due to additional weather-related claims in Namibia and a lackluster premium growth in credit-linked products in Botswana. And finally, the group continues to invest in its operational and distribution capabilities, which Mary touched on. In the insurance income, the attributable costs get offset against these and reflect in this chart against the growth levels. These investments are expected to result in ongoing support for growth in policy numbers and new business APE. Trading and other fair value income was driven by the strong recovery in RMB global markets, which Mary unpacked in some detail earlier. This graph does, however, reflect the extent of the recovery and highlights that in the prior period, there were also contributions from fair value income from RMB's PI portfolio and other group treasury related benefits, which in the year-to-date have all been replaced by the global markets revenues. Turning to the significant growth of 65% in investment income, which is predominantly driven by a significant realization in the private equity portfolio. But in addition, RMB's associate earnings in the light gray on the chart also remain resilient, especially considering the lost earnings from the prior year realizations that would no longer be in the base. It highlights the quality of the underlying performance of the investee companies. Pleasingly, despite these realizations, the unrealized value of the private equity portfolio has also increased by 12% to ZAR 8.4 billion, driven primarily by an earnings uplift. WesBank's associates, TFS and VWFS, also had improved performances, driven by advances in NII growth and a good impairment print. VWFS also benefited from a large one-off in the current period, which is not expected to repeat next year. Lastly, the improved overall performance in the bond and equity markets resulted in an uplift of ZAR 239 million in investment income related to the assets backing the group post-retirement employee liability portfolio. Turning to operating expenses, which grew 9%. As mentioned earlier, the costs incurred in response to the U.K. FCA consultation paper resulted in a 1% impact to cost growth, and its impact is included in the appropriate cost lines in the pie chart. Going forward, once a redress scheme is announced, any future legal costs would be allocated against the provision raised as opposed to expense through the income statement. The group also continues to invest and allocate resources to its technology platform. The total IT functional spend across all cost category is up 13% to just under ZAR 11 billion. A more detailed breakdown of this is included in the presentation annexures and the booklet. Professional fee growth of 26% is as a result of increased spend related to the implementation of the HSBC transaction, including API integration, as well as some external professional support during the implementation of a core banking platform in Ghana. These costs are not expected to repeat next year. Advertising and marketing costs increased 14% as FNB continued to invest in its brand value proposition and marketing activities. And the increase in the group's depreciation, repairs and maintenance costs are mainly due to increased campus requirements as staff return more regularly to the office. In addition, amortization costs were impacted by the implementation of a new global markets platform, a portion of which was previously capitalized. And then finally, on OpEx, included in other expenses is the increase in the Department of Home Affairs ID verification fee, which had a 6-monthly impact of ZAR 60 million, and is a new ongoing cost of customer onboarding and compliance. Staff cost remains a significant portion of the cost base and increased 7% for the period. Salary increases of 5%, coupled with average head count growth of 1.5% were the key drivers. Head count growth was focused on growing the group's points of presence, particularly in community economies, with 18 new branches opened during the period. In addition, Mary has mentioned the U.K. strategy to offshore some of its enablement head count as part of improving the overall U.K. cost-to-income ratio and ROE. This does, however, result in transition costs with a period of duplicate head count to appropriately manage the offshoring execution. To date, the costs incurred totaled GBP 2 million and is expected to ramp up by June as the execution nears completion. As highlighted earlier, this performance has resulted in positive cost jaws, with an improved cost-to-income ratio anchored below 49%. And in closing, and as an overall summary from my side, solid group performance with strong business execution and financial outcomes that reflect the progress against the group's strategic framework. Thank you. I will now hand you back to Mary to cover the group's full year prospects. Mary Vilakazi: Okay. We are nearing the end. Thanks, Markos, and turning to prospects. Looking forward in terms of macro developments in South Africa, further moderation in inflation creates scope for additional policy rate cuts. This is, of course, barring the events that are taking place at the moment with the oil price from the Middle East conflict. But set aside, combined with structural reform improvements and supportive commodity cycle prices, we believe that this is expected to begin lifting real GDP growth. With regards to broader Africa, despite global uncertainty, economic prospects for most countries in the portfolio are improving, thanks to lower inflation and policy rates and economic reform progress and supportive commodity prices. We expect this to continue. The key exceptions are linked to domestic governance and debt pressures in the case of Mozambique and the need to diversify the economy following the diamond price correction in the case of Botswana. Hopefully, we have provided you with appropriate insights to support our view that FirstRand is on track to deliver another strong operational performance in line with guidance. We expect to deliver high single-digit growth in NII, a strong NIR trajectory and an improving credit outcome. The combination of a growing top line and an increased focus on managing costs will result in positive jaws, something this management team is fully committed to. As the last bullet on this slide points out, this guidance does not include any potential adjustment to the current accounting provision for the FCA process in the U.K. In closing, I want to identify two significant strategic advantages this group has at its disposal to generate an ongoing strong operational performance for the rest of this year and beyond. Our client-facing franchises are healthy, and they are well positioned for growth as they have demonstrated in the last 6 months of this year, delivering top line -- good quality top line growth, growth in earnings and improving returns. Our FRM strategies, which I consider to be a clear differentiator for FirstRand versus our peers, have added significant value in driving balance sheet efficiency, margin uplift, capital strength and ultimately, a superior ROE. Our strong capital position means that under any expected scenario outcomes from the FCA redress scheme, the Board and the management team are confident that the group will be in a position to pay a dividend on normalized earnings pre the motor provision. This brings me to the end of the results presentation. I'd like to thank the employees across the FirstRand Group for your diligent efforts in looking after our businesses and ensuring that the group executes on its vision of delivering shared prosperity to our customers, to each other, to the communities that we serve. You can be proud of what the group has delivered to its shareholders. And lastly, thank you to our customers across the group. Your trust in us inspires us to innovate, to support your current and evolving needs. I will now pause to take questions, if there are any. Thank you. Mary Vilakazi: Okay. There's a question in front. Unknown Analyst: Mary, compliments on the excellent results. I find it very challenging to see you're sustaining this level of growth because you seem to have accelerated your growth tremendously while the economy has not helped you much at all. If I may make a minor comment, on Slide #11 of your earnings, it would have been very helpful if you had included in that slide a line showing the headline earnings per share. And maybe you could consider that in the future. And then on your private equity realizations, every presentation, they're a feature of the results. What fascinates me is the size of the deals that you must be doing and the quantum. And again, I asked the question how sustainable that might be. And on Slide 23, the global markets growth of 62%, again raises the same sustainability question. And I found your comment at the end, quite telling in terms of the dividend in the context of the U.K. provision. Because unless the world falls apart or the U.K. motor market falls apart, that's never going to impact your overall earnings to any extent to affect your dividend. Mary Vilakazi: Okay. I will take some of those questions. And then Emrie, you can prepare for the private equity related one and the global markets one. Let me see if my memory holds well. So we are confident that we can deliver on the full year earnings guidance and the strong growth print. And as I said, I think the quality of our franchises and the diversified portfolio that we have, it means some other businesses are doing well and others are not doing well. We can have an overall good outcome. So -- and I suppose we've had a number of very large one-offs in the past. And I think our commitment is to ensure that we are overall ensuring that -- the portfolio growth. So the last period that we've operated in, in the last couple of years, the macros in South Africa haven't been particularly supportive, and we are constructive on a better operating environment going forward. And I suppose the fact that our business is 80% in South Africa, this is really the market that we are looking to see some recovery. And you can see we are gaining traction in our strategies in broader Africa, where some of those markets are growing. So I think you can take comfort that our earnings growth is sustainable. I'll ask Emrie to comment on the RMB private equity portfolio, which actually has quite a number of investments and then the global markets recovery -- oh, sorry, Markos will make a note of the headline earnings per share disclosure for next time. I'll come back to the U.K. Emrie Brown: Thanks, Mary. Yes, just firstly, private equity portfolio. I think first of all, for us, we have been very focused over all the years to build a diversified portfolio. And as indicated in the booklet, we, I think, now take a much more active portfolio management approach in respect of the portfolio, which ensures that we make continuous investments. I think if you think back about 5 years ago, that was one of the challenges, we didn't regularly invest. And -- so the portfolio management from an investment perspective, but also managing continuous realizations to have the velocity of capital is very much a focus on how we think about our private equity business. So I think where we are at the moment, based on the contribution of private equity to the overall RMB and FirstRand results, this is the level that we're comfortable with, and we manage that part of our business very much with that in mind. On global markets, yes, I would say this year is more a bounce-back from a low in the prior year as well as very deliberate strategies in how we take our global markets products to our full client base. So we feel that this is a more normalized performance. But having said that, the global markets business is exposed to geopolitics and market movements. So it is always a business where there can be fluctuations, but we feel the foundations we've laid in the business set us up for a much more sustainable performance going forward. Mary Vilakazi: And lastly, on the U.K., I mean the reason we make that statement is because the final redress scheme by the FCA is going to be announced end of this month, they have undertaken. And we haven't -- and we are waiting for that final redress scheme to ultimately understand what the financial impact on the group will be. So we don't have the number, but we also know that there are some scenarios that -- where the number is not the amount that we've provided. And hence, we make that comment that as we've worked through all the expected scenarios from the consultation paper, shareholders can be assured that the capital that we sit with should be able to cover any of those scenarios. So still high levels of uncertainty. But hopefully, the end is near with the redress scheme over the next month. Do we have any other questions online? Sorry, James. James Starke: James Starke from RMB Morgan Stanley. Mary and Markos, congratulations on the strong results. Three questions from me. The first, I think maybe we can pass this one to Harry. On the customer gains in FNB, can you perhaps expand on some of the initiatives you've deployed to turn around the growth trends there? Then just pleasing progress on the cost-to- income ratio more generally, I mean, how do you plan to sustain this momentum going forward? And then lastly, just on capital generation, it is very strong. Can you please expand on your plans for the surplus capital generation, particularly with regards to acquisitions? Mary Vilakazi: Okay. So we just take it in that order. Harry? Hetash Kellan: James, thanks for the question. If you look at the customer growth, I mean, if you look at the investments we've done in terms of infrastructure and people, so you've seen growth in our head count, but a lot of that growth is sitting in our branch network. Branches, I mean, if I remember the number right, between December last year to December now, our branches were up 13. So 13 branches new. At the same time, we're investing in what we call AgencyPlus. That went from 63 to just over 170 AgencyPlus in the last 12 months. So we actually got a larger footprint in order to be able to serve customers. And clearly, we've capacitated that with individuals who are able to sell. So I mean, I think that's probably the largest drivers. Mary Vilakazi: Lots of hard work, James. I think on the cost-to-income ratio, Markos will cover the expense piece and the sustainability of the cost trajectory. But James, fair to say that our ambition is for that cost-to-income ratio to have a full handle looking forward. So Markos, maybe on the cost? Markos Davias: Thanks, James. I mean, I guess we've said it a few times, but positive jaws will result in the CTI improving. So that focus is actually what drives it. And during budget periods, I mean, that's kind of the key point that we drive into the teams when they bring budgets. If you have revenue up by a low number, you better find a way to manage the cost there. What I would say on the cost that's important is that we have a high investment base already in the base. And as we deliver projects, we reinvest that from the current cost structure into the base. So we're not doing this at the expense of important investments. And you can see, where there are one-offs to be incurred to increase implementation costs and the likes, we take them. But effectively, it actually is the base, size of the cost base allows us to kind of manage this to the objective we stated. Thanks. Mary Vilakazi: Okay. And then, James, on your question on the surplus capital. So I mean that we acknowledge. I guess the Board's target range for the CET1 is 11.5% to 12.5%. So at 14.4%, we are way over. I guess you have to appreciate the fact that we've been operating in an environment where there's been high levels of uncertainty because if it wasn't that we had to make sure that we are well positioned to deal with any adverse scenarios, I suppose we would have reconsidered those capital levels in the last year. So hopefully, we are close to doing that, and then we can have a bit more clarity on the capital that we require. So I think we have enough capital to fund any of the growth initiatives that we are looking at. We are not holding on to that level of capital because there's something very big pencil-marked, James. I think it's just to get through the U.K. uncertainty soon. You can trust that we will do the right thing when we have better clarity on the way forward. Andries, do you want to comment? Unknown Executive: Mary? Sorry, yes. Unknown Attendee: [indiscernible] from Reuters. Mary, what's your strategy, if any, around East Africa? I mean we're seeing a lot of activity there. We're seeing South African lenders also having a lot of interest there. I mean are you thinking about it? Are you actively looking in that region? Mary Vilakazi: Okay. This one, I can definitely pass on to Andries, who looks after the broader Africa strategies and as well as M&A activities. Andries Du Toit: Thank you. I'll also link to the previous one. When we do expand to M&A, there's two fundamental cornerstones, we underpin our disciplined FRM and we have to add shareholder value. On expansion, we look at capabilities. Can we acquire capabilities, customers? Is it franchise value? And then to your question, geographical expansion. Eastern Africa is a key market we want to enter. We've had discussions. It didn't come to fruition, and we're looking at appropriate vehicle, but it's very important from a FirstRand perspective, we won't [indiscernible] on our FRM discipline and how do we create shareholder value. Mary Vilakazi: Yes. So we keep looking. We've been looking for a while, though. But hopefully, some of the consolidation activities that are taking place in the market will open up some opportunities for us. There's another question, okay. Okay. There's -- yes, you come here. Do we have questions on the webcast? We've got a few. Okay. Unknown Analyst: Mary, if I may. On Slide 60, there's a caption that says share price incentives linked, a negative. Now I follow your share price probably as closely as you do, and I haven't seen it negative. I know it bounces around. I'm just fascinated to understand the basis of that comment. Mary Vilakazi: Okay. Thanks. Markos can take that. Markos Davias: Thanks. That refers to the share scheme -- employee share scheme, which previously vested at a higher level based on the performance in prior periods. And all it means is that currently, that vesting is expected to be lower based on the current performance measures. And when I say high, it was higher than 100% in the prior year. So it's currently accruing at 100%, which is below that. So it's negative year-on-year. That's the main reason. There's not share price -- there's no share price impacts into the employee share scheme. It comes through IFRS 2 charge. Unknown Analyst: Did I hear you correctly that -- I saw your structured aspects of your performance incentives. Is that the key point here? Markos Davias: Yes. So it's just the way the accounting plays out on the long-term incentive scheme, as such. Mary Vilakazi: Okay. Let's go to the line. Maybe what you can just maybe do is just check if some of the questions we've answered already, and maybe we don't repeat them. Operator: We'll do. Thank you, Mary. Some of them have already been partially answered. We'll start with Baron Nkomo from JPMorgan. Given your strong capital ratios, in which segment or region do you see the greatest opportunity to deploy capital over the next 2 years? I think that's been partially answered. The second one is, what is your strategy to deepen and grow broader Africa franchises? Mary Vilakazi: Okay. So I think opportunities that we see for -- in our business, I think the Corporate and Commercial sector, I think we are quite optimistic about the structural economic reforms and activity that will happen in SA. So I guess there, we would say that that's what we've earmarked. Hopefully, the Retail credit expansion as suggested provides more opportunities for further growth of our Retail franchise. So yes, so I think -- we still think that our balance sheet will probably track more the Corporate, Commercial aspects of opportunities. And I guess, broadly, we are looking at making sure that all our franchises are growing and are actively taking advantage of the different various opportunities. So it's not just penciling in those growth aspects for SA. And then how we -- plans to grow broader Africa. I suppose we are executing on organic strategies. We had an opportunity of buying the Standard Charter book in Zambia. So that provided us an opportunity to scale some of our existing markets. The M&A team continues to look if there are other inorganic opportunities that come our way. But I'd say that we are quite small in Ghana and Nigeria. And I think in the various markets, we still think we've got runway in our current existing portfolio. So -- but there's lots of focus to ensure that we are capturing the growth that we are expecting from the rest of the region. Operator: We've got Charles Russell from SBG Securities. He's got three questions. I think one of them has been answered. The first one is, can you take us through key dates and FirstRand's decisions and responses over the coming 12 months relating to the U.K. motor commission issue? The second one is, can you unpack the 37% growth in trading and fair value income? And then the third one, I think we've answered, saying our CET1 looks very full, but I think we've answered how we're going to manage that. Mary Vilakazi: Okay. Markos? Markos Davias: So on the dates, I mean, we've called out that even recently as this week, the FCA have said that by the end of March, they will give an update on the final redress scheme paper. Obviously, our legal teams would need to work through that together with our specialists, and we would have to then regroup on a path of action if we are happy with the paper or if we are not. So that will play out in the next month. Thereafter, we'll update shareholders once we've got a sense of kind of what the impact is. We've got all our models built and ready for the various scenarios that can play out. And in the booklet, we do call out kind of the three criteria, which are the biggest drivers of impact in things that we didn't agree with in the original paper. Mary Vilakazi: And then the trading income question. Unknown Executive: I didn't get it. Mary Vilakazi: Okay. That's basically the global markets recovery that we spoke about. And there is a slide, I don't know which slide that is, that shows where the global market growth came from. I mentioned that slide number. And yes, I suppose Emrie has covered it earlier on that for global markets, it's a recovery because we had a number of years where we went backwards, and I think it's largely reflective of global markets. Operator: Then the last set of questions is from Ross Krige from Investec. He says, just to clarify on the FY '26 guidance. Does unchanged guidance imply an expectation of high mid-teens earnings growth ex U.K. motor provisions and assuming PE realizations as expected? And then the second question, on the U.K. motor commission-related OpEx, how do you expect this to unfold in H2 '26 and beyond? Mary Vilakazi: Okay. I think Markos has covered the last point by saying that depending on just the path that we take forward, any expenses that get incurred will be charged against the provision that we've released. I think it was just to give an indication that, that base, hopefully -- that base should -- hopefully should not have as many legal expenses as we have incurred, and I think that's how they will be dealt with. And the other question, [ Levo ]? Operator: Just on the guidance. Mary Vilakazi: On the guidance, yes. Okay. Let me step through this slowly. So the guidance we gave for the full year, it had the U.K. provision, obviously, in the base. And we said, assuming there's no other provision, earnings growth should be up mid-teens. So that's the guidance that we are confirming today. And private equity, there's uncertainty. There's always uncertainty, but I guess we are not saying we are -- we're not saying that the guidance is subject to that realization taking place, but we note that there can always be changes in the dates. I think my RMB team are still good for their number. Operator: We have additional questions that have come through online. So the first one is from [ Mario Stratum ]. He does say, well done with your strong insurance new business growth and thank you for your improved disclosure on these businesses. Can you please speak to the near-term outlook for operating expenses growth, the rundown profile for other participation agreements and the potential for short-term insurance to double policy count by FY '30. Mary Vilakazi: Okay. Andries, maybe you can take some of that and then I will fill in for the insurance. And [ Mario ], I suppose all these questions are related to insurance, even the expense outlook. Andries Du Toit: Yes. No problem. The strategy was to obviously originate our own licenses. So that will continue. We're quite confident to the numbers that you've alluded to, both as we go in our own channels and also open market on the short term. Our expenses will probably continue to be at high end as we invest in new products and also new distribution and also further into new business lines where we're underrepresented. And maybe... Mary Vilakazi: Yes, but I mean there's a fair chunk of investment in the distribution channel, Andries, which, once we get to a point whereby surely we have -- we are at the levels we want to operate with, I mean it will be rather acquisition cost versus an investment in that. So that I would say is a part of cost that profile should change. Markos Davias: Maybe just a point to add on the other participating agreements. This year, you'll see the 66% decrease means there's a ZAR 50 million 6-monthly base there. So it's a much more manageable base than what it was in the past year. So its impact is reducing. Operator: And then we have the last one, it comes from Harry Botha from BofA Securities. To clarify, is the mid-teens earnings growth potential still intact for 2026? Are you making any technical adjustments to your hedging program for yield curve changes? Mary Vilakazi: Okay. So the first answer is very simple. Harry, no change to the full year earnings guidance that we provided. Hope that helps. [indiscernible] do you want to comment on the hedging strategy? Unknown Executive: So the hedging strategy follows an investment process. So with the volatility we've been experiencing this week. Certainly, there would be tactical adjustments, but that would follow the investment process that's in place. Mary Vilakazi: Okay. I think -- are we at the end? Operator: Yes, we have no further questions. Mary Vilakazi: Okay. All right. No further questions in the room? Okay. Well, thanks, everybody, for joining. Thanks for your time, and we'll see you in 6 months' time.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Tel-Aviv Stock Exchange Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, March 5, 2026. The Recording will be publicly available on TASE's website. With us on the line today are Mr. Ittai Ben-Zeev, CEO; and Mr. Yehuda Ben-Ezra, CFO. Before I turn the call over to Mr. Ittai Ben-Zeev, I would like to remind everyone that this conference is not a substitute for reviewing the company's annual financial statements, quarterly financial statements and interim report for the fourth quarter and full year of 2025, in which full and precise information is presented and may contain inter-alia forward-looking statements in accordance with Section 32A of the securities law, 1968. In addition to IFRS reporting, we might mention certain financial measures that do not confirm to generally accepted accounting principles. Such non-GAAP measures are not intended in any manner to serve as a substitute for our financial results. However, we believe that they provide additional insight for better understanding of our business performance. Reconciliations between these non-GAAP measures and the most comparable related GAAP measures are included in tables that can be found in our earnings press release and in the slide presentation accompanying this call. Both can be accessed on the English MAYA site and in the Investor Relations portion of our website at ir.tase.co.il/in. Mr. Ben-Zeev, would you like to begin? Ittai Ben-Zeev: Good evening, Israel Time, everyone, and thank you for joining us today. I'm happy to host you in our earnings call. The financial statements for 2025 show that TASE ended the year on a high note. Q4 2025 capped another record year for TASE with revenues reaching an all-time high of ILS 149.3 million for Q4 and ILS 563.5 million for the full year 2025. These results represent a record increase of 29% year-over-year and quarter-over-quarter. We also saw a record increase of 58% in adjusted EBITDA, and an increase of 9.5% in the adjusted EBITDA margin as well as an all-time high in TASE net profit with a 79% increase compared to 2024. All this was achieved while continuing to maintain organic growth across all TASE's core activities despite Israel having fought a multi-front work for most of 2025. Yehuda Ben-Ezra, our CFO, will discuss the financial statements in detail later in this call. For most of 2025, trading on TASE took place against the backdrop of the ongoing world and elevated volatility. Against this background, the Israeli capital market has exhibited resilience and economic strength during 2024 and 2025. The leading equity indices on TASE broke their historic record on numerous occasions, outperforming the leading global indices. The TA-90 Index and the TA-35 topped the global return table with gains of 46.6% and 51.6%, respectively, compared to 17.9% on the S&P 500 Index and 21% on the NASDAQ-100 Index. In addition, the positive and exceptional trend was also evident in the sectoral indices, particularly in the financial sector. At the end of 2025, TASE equity market cap reached ILS 2 trillion, a 46% increase from year-end 2024 due to the impact of the rise in TASE equity indices. Trading volumes also set new records with the cash equities ADV rising to ILS 3.4 billion in 2025, 57% increase over 2024. The IPO market stagged an impressive resurgence in 2025 with 21 IPOs and an additional 5 companies listing their shares without raising capital, including 1 dual-listed company. Overall, the total capital raised on the equity market sold to ILS 21 billion compared to ILS 8 billion in 2024. In 2025, the TASE bond market displayed increased trends as a major source for debt funding, both for corporate issuers and for the Israeli government. Corporate bond issuances totaled ILS 187 billion in 2025, compared to ILS 124 billion in the previous year. The Ministry of Finance raised ILS 137 billion in Israel during 2025. The strong demand and successful issuances in Israel and abroad, is a powerful sign of confidence in the Israeli economy. Trading volumes in the corporate bond market rose by 9% in 2025, compared to the volume in 2024, while the government bonds ADV, amounting to ILS 3.3 billion similar to 2024. We have continued implementing our strategic plan to strengthen business activity. As part of a significant milestone in strengthening TASE international profile and attracting foreign investors, I'm pleased to update that we have completed transition to a Monday through Friday trading week at the beginning of 2026. In the last 2 months, this move has already led to a substantial influx of foreign investors during Friday trading, exceeding the average recorded on Sundays in 2025. In addition, on February 23, the cyber giant Palo Alto Networks began trading on TASE, officially making it a dual-listed company on the U.S. and Israeli market, which constitutes a profound vote of confidence in Israeli capital market. And we believe this will lead to further breakthrough for the local capital market while strengthening TASE position on the international financial stage. Foreign investors too expressed confidence in the local capital market and purchased equities totaling ILS 4.4 billion in 2025, mainly in the financial and defense sector. This is in marked contrast to the previous year when foreign investors' activity resulted in net sales. It is worth noting that in the first 9 months of 2025, the value of foreign investors holdings in non-dual listed equities grew by 70%, and in September 2025, the value of their holdings reached an historic high of ILS 64 billion, reflecting the deepening presence in the Israeli market. The Israeli retail segment continued to show significant increased interest in the domestic market and the growth in the opening of new trading accounts continued throughout 2025. The retail investors opened approximately 200,000 new trading accounts, 25% more than in 2024. In the trading segment, we continue to invest and develop the indices market in 2025. In total, we launched 10 new equity and bond indices during 2025, of which 7 indices are exclusive and we intend to continue developing new indices to increase and diversify the products as part of our strategic plan to refine and develop more investment products for the investors. At the end of December 2025, the total AUM of all TASE indices amounted to ILS 148 billion compared to ILS 99 billion at the end of 2024. The total AUM of TASE equity indices amounted to ILS 91 billion, compared to ILS 48 billion at the end of 2024. In the derivatives market, we have seen average daily trading volume grow by 14% compared to 2024. In light of the success of the equities market making reform, that I have mentioned in my previous calls, 7 large companies included in the TA-35 Index joined the tailor-made market-making program, resulting in the trading volumes of those companies increasing significantly. I would now like to provide you with an update to what I reported to you in our previous earnings call regarding examination of a partial or full sale of our index activity. We are currently negotiating to enter into a deal to sell the activity and to cooperate strategically with a major international entity. At this stage, there is no certainty as to when, if at all, the negotiation will bear fruit and result in a binding agreement. I would also like to update you regarding the dividend payment to the current shareholders. You will no doubt recall that we previously adopted a dividend distribution policy for the years 2024 to 2026, pursuant to which TASE is to distribute a cash dividend to its shareholders at a rate of 50% of the annual net profit for 2025. The dividend according to the policy amounts to ILS 90.5 million. In addition to this, in light of the substantial growth in TASE profitability in 2025 and the consequent significant increase in the company's liquid reserves, TASE will distribute a special dividend of ILS 54.3 million. In all, TASE will distribute a total dividend of ILS 144.8 million, representing ILS 1.56 per ordinary share that will be paid on March 20, 2026. Furthermore, during the coming year, TASE management will examine drawing up a buyback plan with this being subject to market conditions and other relevant considerations. In conclusion, the 2025 financial statements show that despite all the challenges of the last few years, we are witnessing the growth and resilience of TASE and of the Israeli economy. Our financial statements continue to reflect our investment in developing new and diverse products for the benefit of the public and the investments made for the benefit of technological and innovative developments so that we continue to achieve the goals we have set for ourselves in accordance with our strategic plan for the coming years. And now I'd like to hand over to Mr. Yehuda Ben-Ezra, who will continue with a review of the year results. Yehuda Ben-Ezra: Thank you, Ittai. As Ittai mentioned earlier, TASE outstanding fourth quarter financial results capped off a highly successful 2025 with the company is delivering record revenues across all lines of businesses. Throughout the year, including the fourth quarter, TASE demonstrated remarkable resilience, [ given ] Israel faced an extended multi-front conflict. This will thus highlight the strength of Israel economy and the stability of its capital markets, showcasing best consistent performance under challenging conditions. I will continue with Slide #7, which shows some of the key highlights from our results for the year 2025. Our revenues in 2025 reached a new high of ILS 563.5 million, increasing by a record 29% compared to the previous year. Adjusted EBITDA in 2025 improved significantly by 58% to record of ILS 293.8 million, while the adjusted EBITDA margin also improved from 42.6% to 52.1%. Our net profit displayed substantial growth of 79% and increase to a new record of ILS 181 million. Our basic EPS in 2025 reached a new high of ILS 1.97, increasing by a record 81% compared to the previous year. I will continue with Slide 17, which shows some of the key highlights from our results for the fourth quarter. Revenues amounted to ILS 149.3 million compared to ILS 115.4 million in the same quarter last year, a 29% increase. This is the highestly quarter of the revenue since the TASE IPO and growth was evidenced across all operations. Our revenues from non-transactional services amounted to 63% of total revenues, the same the corresponding quarter last year. Expenses totaled ILS 84.5 million compared to ILS 84.2 million in the same quarter last year, a 0.4% increase. Adjusted EBITDA totaled ILS 80.8 million, compared to ILS 46.8 million in the same quarter last year, a 73% increase. The increase was due to higher revenues. Net profit amounted to ILS 51.6 million compared to ILS 25.4 million in the same quarter last year, a 104% increase. The increase was due mainly to higher average for services. This increase was partially offset by the increase in tax expenses. I will continue with Slide 15, where we can take a deeper look into our revenues in the fourth quarter. Revenues from trading and clearing commission increased by 27% compared to the same quarter last year and totaled ILS 54.7 million. The increase is due mainly to higher trading volumes, particularly in shares and in the volume of trade share reduction of mutual fund units. Revenues from listing fees in annual levies increased by 14% compared to the same quarter last year and totaled ILS 25.4 million. The increase is due mainly to revenue for annual levies as a result of the increase in the numbers of companies and funds that pay an annual levy. In addition, revenues from listing fees and examination fees were also higher due to the increase in the volume of funds raised. Revenue from clearing [ and ] services increased by 58% compared to the same quarter last year and totaled ILS 41.2 million. The increase is mainly due to the completion of regulation measures relating to the OTC transaction. Other factors related to the increase were the higher custodian fees as a result of the increase in the value assets under custody and the updating of the custodian fees price [ lift ]. Revenues from data distribution and connectivity services increased by 19% compared to the same quarter last year and totaled ILS 27.4 million. The increase is due to an increase in revenues from index licensing fees, mainly as a result of the increase in the value and the use of TASE indices and from higher data distribution revenues for businesses and private customers in Israel and abroad. I will continue with Slide 18, which shows some of our fourth quarter expenses. Compensate expenses decreased by 4% compared to the same quarter last year and totaled ILS 43.3 million. The decrease was due to a decrease in variable compensation. Computer and communication expenses increased by 11% and totaled ILS 11.7 million. The increase results mainly from an increase in the maintenance cost of new computer system and licenses and from an increase in man power and projects. Marketing expenses decreased by 40% compared to the same quarter last year and totaled ILS 1.7 million. The decrease is mainly from a decrease in campaigns. Depreciation and amortization expenses increased by 6% compared to the same quarter last year and totaled ILS 15.2 million. The increase in depreciation expenses was due mainly to the upgrading of infrastructure and the launch of new products. Net financing income totaled ILS 2.5 million compared to net financing income of ILS 2.6 million in the same quarter last year, a 1% decrease. Let's now go to Slide 19, where we can review our financial position. At the end of year 2025 [Audio Gap] our adjusted equity includes deferred income from listing fees and excluding open derivatives position balances, represents 77% of the adjusted balance sheet. We held ILS 494 million in cash and investment financial assets. The balance of the bank loan totaled ILS 21 million. The surplus equity, other regulatory requirements at year-end 2025 totaled ILS 550 million compared to ILS 627 million at year-end 2024. The decrease was mainly due to the decrease in the TASE equity resulting from the buyback of TASE shares and a distribution of dividend in 2025. This decrease was partially offset by the net profit in 2025. The surplus liquidity, other regulatory requirements at year-end 2025 totaled ILS 310 million compared to ILS 172 million at year-end 2024. The increase in surplus liquidity is mainly due to the increase in the EBITDA. I will continue with Slide 20, where we can review our fourth quarter cash flow highlights. Cash flow from financing activities resulted in negative cash flows of ILS 13.1 million compared to negative cash flow of ILS 4.9 million in the third quarter last year. The higher negative cash flow are due mainly to proceeds of ILS 10 million from the sale of our arrangement shares in the same quarter last year. Cash flows for investing activities resulted in negative cash flows of ILS 38.5 million compared to negative cash flow of ILS 20 million in the same quarter last year. The increase in negative cash flow is due to -- mainly to the acquisition of financial assets net. TASE free cash flow amounted to ILS 75.4 million compared to 35.9 million in the same quarter [Audio Gap] the increase in the EBITDA. Also, the Board of Directors today approved the payment of a dividend of ILS 144.8 million, representing ILS 1.56 per ordinary shares to be distributed on March 2026. In conclusion, TASE performance in the last quarter and throughout 2025 demonstrates its solid foundation as well as the fundamental resilience and growth potential of the Israeli economy. And with that, I will return the call over to Operator to conduct the Q&A. Operator: [Operator Instructions] The first question is for Hector Erazo from Jefferies. Hector Erazo Pinto: This is Hector Erazo on for Dan Fannon at Jefferies. On expenses, as you think about the budget for 2026, how does that compare to 2025? And what are the areas of spend that are different going into this year? Ittai Ben-Zeev: Hector. So I think looking at this year, in terms of our marketing budget, it will not exceed what we had in the last couple of years. In terms of the compensation of the employees, it should be similar according to the agreement that we have with the employees. And we continue to invest in our IT, and you can estimate the CapEx ILS 55 million to ILS 60 million a year. So shouldn't be any surprises on that front. Operator: [Operator Instructions] There are no further questions at this time. Thank you. This concludes the Tel Aviv Stock Exchange Fourth Quarter and Full Year 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
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.
Stella David: Good morning, everybody, and welcome to Entain's 2025 Results Presentation. I'm delighted to be here to present a strong set of results. I'm joined this morning on stage by Rob Wood, our CFO and Deputy CFO. And I also have members -- by the way, can you hear me? Good, good. Okay. Always helps in a presentation to be heard, I think. Anyway, I'm also joined by the IR team here in the audience. We also have senior members of the executive team in the audience as well. And we have our new CFO designate, Michael Snape, who's in the front row as well. So welcome to everybody. And now on to the agenda. I'm going to start with the headlines and some of the highlights of our strong progress. After that, Rob will then take you through the financials and provide you with the guidelines for 2026. And then it's going to be back to me to discuss our strategic delivery, how our priorities are evolving to further accelerate our performance and why we have confidence in our pathway to earnings growth, margin expansion and cash generation, including our conviction that we are going to hit at least GBP 500 million of annual adjusted cash flow from 2028. And then finally, I will briefly wrap up before we open everything to your questions. But before I actually do move on to 2025 financial performance, this is the first time that I have spoken publicly since the U.K. budget back in November. The U.K. government's decision to dramatically increase taxes on the gambling sector was extremely disappointing. It opens the door to the illegal black market who pay no tax, do not have a license and offer no player protections. However, during this period of turmoil, we will invest wisely in the U.K., and we will seize the opportunity to gain share from the long tail of subscale operators who, quite frankly, are ill-equipped to withstand this impact. Okay. Now turning to our results. 2025 has been a good year for the group. We delivered against our strategic priorities and achieved a strong financial performance with EBITDA for both Entain and BetMGM ahead of expectations. Importantly, growth was broad-based and underpinned by strong volume growth, which demonstrates the underlying health of the business. Online volumes were up 7% year-on-year in 2025. And impressively, it was up 9% in Q4. Throughout 2025, online business consistently delivered growth, and we now have 7 consecutive quarters of revenue growth online, and that is despite starting to lap some tough comps. The U.K. continues to be a standout performance, but also there are markets like Spain, Canada, Greece, Georgia, New Zealand, all showing strong double-digit growth. And our joint venture, BetMGM, produced an excellent year of strong and profitable growth. We also enjoyed efficiency improvements. Entain's EBITDA was up 8% year-on-year to GBP 1.16 billion. And including our share of BetMGM, EBITDA was up an impressive 28% to GBP 1.244 billion. The EBITDA outperformance is stronger than expected and -- the EBITDA performance and the stronger-than-expected cash return from BetMGM has driven a meaningful improvement in our adjusted cash flow, again, ahead of expectations. So our improvement journey is working and it is delivering. Our diversified portfolio of podium positions provides resilience and scale advantages that matter more than ever now. Building on this momentum, we have evolved our strategic priorities to further optimize how we work, enhance profitability, drive meaningful cash generation. So in summary, 2025 has been a strong year. The business is in good shape, and we're confident in our ability to not only navigate the challenges, but to emerge stronger. And with that, I'll temporarily hand over to Rob. Rob Wood: Thanks, Stella. Good morning, everyone. So for the eighth and final time, I'm delighted to be delivering the full year results presentation, and it's a pleasure to present strong numbers again before I hand over the baton to Mike. It's a familiar format for me this morning, so let me jump straight in. And as usual, all revenue and EBITDA growth numbers that I quote are in constant currency unless stated otherwise. So starting with revenue, and I'm really pleased with the growth we delivered across the whole group. Total revenue, including 50% of BetMGM, was up by nearly GBP 0.5 billion to GBP 6.4 billion or up 8% year-on-year. Within that, online NGR ex U.S. was up -- was GBP 3.9 billion, up 6% year-on-year. And barring adverse sports results in Q4, that growth number would have been 7%, in line with volume growth for the year. On to EBITDA, which came in ahead of expectations for both BetMGM and Entain. Ex U.S. EBITDA of GBP 1.16 billion beat our guidance and was up 8% year-on-year despite digesting new taxes from Brazil following their new regulatory regime. Online EBITDA margin also beat guidance, and I'm delighted to say it was up 0.4 percentage points year-on-year despite a 1.4 percentage point drag from Brazil taxes. So that means that our scaled growth and improving operational execution drove an underlying 1.8 percentage point margin improvement, which is a key highlight of the year. So with EBITDA beats from both Entain and BetMGM, total group EBITDA was GBP 1.24 billion, which was up a very strong 28% on the prior year. And that EBITDA growth led to equally impressive EPS growth, which more than doubled to 62p. Moving on to adjusted cash flow, which is a key measure for us, and I'm delighted to report a strong year-on-year improvement from an outflow in 2024 to an inflow of GBP 151 million in 2025. GBP 151 million is comfortably ahead of expectations and was driven by both the Entain EBITDA beats and higher-than-expected cash from BetMGM. On to dividends, we've declared a final dividend of 9.8p per share, up 5% year-on-year, which is consistent with the half year and our progressive dividend policy. Finally, leverage. We've added a look-through leverage metric, which better reflects the group's leverage position. What do we mean by look-through? On the debt side of the equation, we include the outstanding DPA payments and the balance sheet value of the CEE minority. And on the EBITDA side, we include our 50% share of BetMGM. And as the slide shows, look-through leverage at year-end was 3.6x, which is down significantly from 4.3x at the end of 2024 due to both EBITDA growth, but also paying down the DPA. On a reported basis, leverage has come in at 3.1x, flat year-on-year as expected, and available cash remains strong at over GBP 900 million. Let's turn now to our online revenue performance ex U.S. over recent quarters. And this chart shows 2 lines: one for NGR growth, which includes volatility from sports margin and one for volume growth, which adjusts NGR to remove any impact from sports margin and is therefore a clear measure of underlying growth. Two particularly satisfying callouts. Firstly, we've now delivered 7 consecutive quarters of growth, all on an organic basis, evidencing the structural growth in our business model. And secondly, we maintained strong volume growth into the second half of the year despite lapping the voluntary code in the U.K. in the summer. No doubt there'll be some recycling benefit to volumes in H2, given margin was below expectation in both Q3 and Q4, but volumes were consistently strong and grew 7% across the year. So that means we're growing at least in line with our markets, and we enter 2026 with continued momentum. Now for the eagle eyed amongst you, you'll note this chart is not quite the same as we've shown previously. The prior version normalized for Euro 2024 and it adjusted the current year margin to a normalized margin, meaning that volatility from the prior year margin still impacts the picture, but that version is included in the appendix. Now to our usual market breakdown. And again, it's a strong picture with growth coming from across the portfolio. Our largest market, UK&I, continues to be a standout performer, delivering growth of 15% in online, well in excess of market growth as we continue to regain market share. We also saw sustained double-digit volume growth in the U.K. throughout every quarter of 2025. And U.K. Retail also saw market share gains as we were flat like-for-like across the year in a market which declined by mid-single digits. International online NGR grew 2%, slightly behind volume growth of 4% due to soft margins, especially in Brazil and also Australia. Importantly, the second half saw an acceleration in volumes from 1% in H1 to 7% in H2, helped by lapping the regulatory changes in 2024 from Belgium and Netherlands. If we look now by market within international, Brazil had a tough sport margin in H2, falling 3 percentage points year-on-year. So consequently, NGR declined in H2 and brought growth for the year down to flat. However, on the plus side, volumes were up 13% over the year. Market share was maintained over H2, so we know other operators were hit by a poor margin, too. And we delivered a positive contribution to EBITDA despite the new regulation and high competition. Australia next, where customer-friendly results at several tentpole events suppressed NGR, particularly in the second half of the year. Volume growth fared better with 3% growth in H2 as our refreshed management team have been a catalyst for improving performance and improving profitability. Italy online was up 5%, growing NGR consistently by mid-single digits in every quarter of the year. And Italy retail also fared well with 7% NGR growth over the year. Other large markets in International continued to see double-digit growth, including New Zealand, Georgia and Spain on this page, but also Canada, Greece and parts of the Baltics and Nordics as well. CEE next and both Croatia and Poland delivered growth in both NGR and EBITDA and retained their market leadership positions in those markets. And finally, BetMGM also reported an outstanding performance with 34% growth in online revenue. The key takeaway from this slide should be the unrivaled broad-based growth that Entain enjoys across the diversified portfolio. Looking forward, we're targeting growth across every one of these online markets in 2026, which positions us very well for '26 and beyond. Moving on now to EBITDA, which came in ahead of expectations for both Entain and BetMGM. This slide shows our year-on-year bridge with EBITDA excluding BetMGM on the left and then EBITDA including BetMGM on the right. Starting on the left, Entain's EBITDA grew 7% or up GBP 71 million on a reported basis, that 7% becomes 8% on a constant currency basis, and it would be 14% excluding the new Brazil taxes. As usual, as the left-hand side chart shows, our online business is the main growth engine, adding GBP 136 million year-on-year. Where did that come from? Three things. Firstly, NGR growth, as we've looked at on the prior slides. Two, efficiency savings, particularly within cost of sales as our online gross profit margin increased a whole percentage point before Brazil tax. And thirdly, improved marketing returns, enabling us to hold spend broadly flat year-on-year in absolute terms, thereby improving margin. Retail now, and we saw EBITDA up GBP 16 million year-on-year, helped by a favorable margin versus our expectations. Then in addition to Entain's GBP 71 million year-on-year increase from the left-hand side, the right-hand chart adds our share of BetMGM's significant EBITDA improvement of GBP 178 million year-on-year as it inflected to profitability, which gives an all-in total group EBITDA of GBP 1.244 billion, up almost GBP 250 million year-on-year. That's an impressive 25% growth on a reported basis and a touch higher at 28% in constant currency, and that's all organic growth. And as I mentioned earlier, that EBITDA growth is the primary driver of why EPS more than doubled last year. Let's now take a closer look at cash flow and leverage. And as always, there's a detailed cash flow provided in the appendix. As a reminder, adjusted cash flow is effectively our distributable cash, i.e., cash flow pre-equity dividends, and we also exclude working capital noise and strip out M&A and debt movements. In 2025, we delivered adjusted cash flow of GBP 151 million, which is meaningfully ahead of expectations. You'll remember a year ago, I had guided adjusted cash flow to be broadly neutral. And then by Q3, we were ahead of plan, particularly thanks to BetMGM. And so guidance effectively moved from neutral to GBP 75 million, and then we beat that too. So what drove the outperformance? Firstly, Entain's EBITDA beat guidance. And secondly, BetMGM returned more cash to parents than guided, $270 million in total for 2025, which far exceeded expectation. And finally, a net favorable movement across other cash items, including lower interest costs following our debt refinancing efforts last year. Net debt ended the year at GBP 3.6 billion, with the improvement in adjusted cash flow offset by an FX translation bad guy of over GBP 100 million and the working capital outflow that was as expected. So overall, reported leverage of 3.1x is in line with where we expected it to be, but more insightfully, look-through leverage of 3.6x saw a meaningful improvement, down from 4.3x in the prior year, reflecting EBITDA growth, improved cash flow and a reduction in the remaining DPA balance. So our cash flow and look-through leverage improved significantly. Our available cash remains strong at over GBP 900 million, and we have a healthy debt maturity profile with our next significant maturity of around 20% of the debt not falling due until 2028. A few quick comments on BetMGM now. It won't be new news, but it's still important given its significance to the group's priorities, particularly cash generation. BetMGM had a fantastic year and delivered ahead of its upgraded expectations with total revenues up 33% and EBITDA up over $460 million year-on-year as it moved into profitability. This inflection triggered the start of cash returns to parents with $270 million distributed in 2025, including excess cash from the 2024 year-end. The strong performance last year was driven by BetMGM's disciplined execution, underpinned by a leading iGaming offering and BetMGM remains on track to deliver approximately $500 million of adjusted EBITDA in 2027. Since we created BetMGM around 8 years ago, total net investment between parents now sits at almost exactly $1 billion. So with approximately $500 million of EBITDA next year, it's easy to see that the ROI on that investment has been excellent. Now last slide from me, the outlook for 2026. And remember, the appendix includes a detailed guidance slide for modeling purposes as well as a slide on the BetMGM parent fee mechanics. To be consistent with prior years, when I refer to Entain EBITDA, this is before parent fee income, which does start in 2026. So for 2026, we expect online NGR growth of 5% to 7% on a constant currency basis with broad-based growth across the portfolio. Online EBITDA margin is expected to drop to 23% to 24% in 2026 following the increase in U.K. gaming taxes, including our expectation of mitigating approximately 25% of that cost in 2026. Stella will talk about it more shortly, but our upgraded mitigation expectation today is to improve cost mitigation to over 50% of the U.K. tax impact from 2027 onwards. The efficiency plans, which Stella will take you through, will support an upward trajectory for both EBITDA and EBITDA margin from 2027. So with 5% to 7% online NGR growth and 23% to 24% online EBITDA margin, we're comfortable with current market expectations for 2026 Entain EBITDA, which represents a small decline year-on-year. However, when combined with growth in the U.S., EBITDA, including the U.S., will be broadly stable year-on-year. And broadly stable, of course, represents significant underlying growth before absorbing the U.K. gambling tax rises. Another consequence of the U.K. tax rise is that we lose a year on a deleveraging profile because now look-through leverage will be broadly stable in 2026 before resuming deleveraging thereafter. Two more bits of guidance to touch on. Firstly, marketing phasing because 2026 is a World Cup year, we expect approximately 55% of marketing spend to be in the first half, consistent with previous tournament years. And then secondly, now that BetMGM is sustainably profitable, our ETR guidance going forward is on an including U.S. basis. And the new ETR, so effective tax rate, the new number is 30%. This is higher than 2025 due to the U.K. tax increase as we'll now have less profits in the U.K., which are taxed at a below average ETR. And so that adverse change in geographical mix pushes up the group's blended ETR. In addition, there's a slide in the appendix, which takes you through expected tax accounting treatment of our share of the $1 billion of available brought forward losses in BetMGM. In short, a deferred tax asset is expected to be recognized in 2026, which will give a boost to EPS in 2026, but then available losses are no longer benefiting EPS in the following 2 to 3 years. Cash tax is not impacted. So in summary from my section, we expect 2026 total group EBITDA, including BetMGM, to be stable year-on-year despite digesting the significant increase in U.K. taxes. How do we achieve that? We operate in growth markets where we have the most diverse set of podium positions globally. So we have structural sustained growth built into our model. We also have a gaming-led business in the U.S. without material exposure to prediction markets. So those combined give us confidence that underlying growth will continue into 2026 and beyond. And on a final note, I'm proud to say that our EBITDA of just under GBP 1.25 billion is now twice the size of the first EBITDA number that I reported 7 years ago and is many multiples bigger than my early days at Gala Coral. It's been quite a journey. It's been hugely eventful. It's been highly rewarding, and I'm delighted to be leaving the business with great momentum across an outstanding global footprint, yet still with so many growth opportunities ahead. And it's also clear that in Mike, we have -- I'll be handing over the CFO reins to a hugely capable replacement. With that, I'll hand back to Stella. Stella David: Thank you, Rob. It's difficult to beat that because he's got all the numbers, and I've got all the fluffy stuff. So -- and this is the audience for fluffy stuff. You like numbers. So I'll do my best, okay? So look, Entain in 2025 did deliver strategically and financially. So that is a really good starting point. But now our priorities have to evolve because we have to reflect the next stage in our journey, and it's an improvement journey. And we have to build on some of those achievements, but we also have to be bolder in our mindsets. We have to address the significant challenges from the dramatic tax increases in the U.K. So what are we doing about it? Well, we're intensifying our focus on cash generation and disciplined capital allocation. And importantly, today, we reiterated our confidence in delivering at least GBP 500 million in annual adjusted cash flow from 2028. Cash generation being a key component of long-term value creation. And as you can see from this slide -- yes, good, you see from this slide, it is now an explicit strategic priority, called out in our bonusing for our people, called out in our long-term incentive plans, it's a very important part of where we're trying to go. But before discussing our achievements and progress during '25 in detail, these next 2 slides are an important reminder of Entain's foundations. We are a global leader in an industry that is in long-term growth, and we are well positioned. This slide is a powerful visual representation of the breadth and the quality of our business. In Entain's 16 largest online markets, we have a podium position in 13 of them. And we're in the top 4 in all 16. And excitingly, many of these positions have the opportunity for significant growth. So for example, if you take New Zealand, where we are the partner with the New Zealand government for sports betting. We now have a great opportunity in iGaming when it becomes regulated at the end of '26 beginning of '27. And in Spain, we have a great revitalization of our beautiful bwin brand. And we're really hopeful that by the end of 2026, it will also have a podium position. And this next slide is also going to be familiar. I'm a bit boring. I keep showing the same slides, but that's consistency for you. Consistency is good. The left-hand bar chart shows that over 98% of our NGR is locally licensed. And 97% of our online revenue is from markets estimated to grow at least by mid-single-digit CAGR. That is a truly impressive statistic, 97% of revenue coming from markets in good, sustained long-term growth. And the pie charts on the right showcase the diversity of the portfolio by both geography and by product. And it's the combination of all of these things that gives our business the resilience that it needs, underpinning our ability to deliver long-term shareholder value. And now I'm going to share a few of the highlights from across our portfolio in 2025. In the U.K., one of our many initiatives was refining our bonusing, using real-time player data to increase segmentation, reduce bonusing as a percentage of GGR while increasing player value. This bonus optimization on our central platform is also driving benefits in markets like Brazil, Spain, Portugal and Canada. Our U.K. retail team continued to raise the bar with a state-wide rollout of our group bet stations. And this has driven an increase in our market share as well as an increase in our Bet Builder staking. In Australia, our new leadership team adopted a disciplined and returns-led approach, retiring some of the inefficient legacy marketing initiatives whilst also leaning into AI to produce high-quality creative assets more quickly and at a fraction of the cost. Across the group, we've also reduced nonworking marketing spend, centralized performance marketing and improved our allocation of investment. Our strong performance in Spain reflects that reawakening of the bwin brand and also markets like Canada, Brazil, Georgia, all benefiting from refining how our brands engage with our customers. And also some things on product and tech. In Poland, STS migrated onto our Croatia Sportsbook, rebuilt its mobile app and now has a slicker, faster user experience. And in Brazil, we launched Sporting bot for the Club World Cup, an AI personalized assistance to help our customers enjoy the product more. And it's proved to be such a success that it's being rolled out across more markets and more sports this year. So that's just a flavor of the strategy in action. We're seeing improvements to the portfolio because we have shared learnings that generate a powerful multiplier effect, supporting our momentum and our operational efficiency. Moving on now to customer acquisition and retention. And again, this slide will be familiar. Net revenue retention is holding strong. It's above the 85% benchmark, and it has been north of 90% for the entirety of 2025. And this reflects the work that has been done to close product gaps and improve our customer journeys. You'll see there's a slight drop-off in Q4, but that is due to customer-friendly sports results, and it's nothing structural. Customer acquisition also remains comfortably above the 15% level. So if you get the combination of strong net revenue retention and healthy acquisition, that underpins our sustainable growth. And these metrics remain strong as we enter into 2026. As I mentioned with our strategic priorities, Entain is now in the next phase of its improvement journey to accelerate forward. Project Romer delivered over GBP 100 million in savings annually. But we can and we have to do more by continuing to improve on our cost of sales, by optimizing marketing rates as a percentage of NGR and a continued focus on operating efficiencies. We already have multiple work streams identified to deliver against these 3 key levers. And we're also excited by the opportunities that our continued AI enablement program will have for improving the customer experience, the colleague experience and importantly, for increasing our bandwidth, whether that's resolving legacy issues with old -- can't say that, old code. You know what I mean. I hope you know what I mean. Speeding up development cycles to improve the user experience, improving our customer care handling, automating low-quality contracts and legal work or dramatically cutting the cost of asset generation in our marketing areas. So delivery of these type of group-wide initiatives support our expectations to now offset over 50% of the U.K. tax increases from 2027, up from our previous estimate of 25%. I just want to do a slight call out on that. When the tax rates went up, we said immediately, we would mitigate 25%. That was the right thing to say because we haven't done the work at that stage. You need to take the time to add up the numbers and go through the figures to have the confidence. So we didn't come out of the block shouting it's going to be 50% or 60% because that would have been quite frankly, a made-up number. Now we've done the work, and we've got increasing confidence in our ability to deliver against that. And that is the right way to do these things, engage into the business, build the confidence and start to solidify those initiatives. So I just wanted to give that flavor. We're not being dramatic and changing our minds. We're just building on what we started to do immediately after the tax increases, really important points. So let's bring this all together. Despite the jump in those taxes in the U.K., we now remain comfortable with the market expectations for 2026. And when you combine BetMGM and Entain, that means we are delivering a stable set of numbers in '26 versus '25. From '27 onwards, organic growth and those optimization initiatives means that we're going to grow both EBITDA and cash flow and both on a year-on-year basis and importantly, versus 2025. And by 2028, we've got the building blocks in place to achieve at least GBP 500 million in annual adjusted cash flow. And therefore, that will support our journey to getting our leverage back to our target range of 2 to 3x. So let me briefly wrap up before we go into Q&A. 2025 was definitely a strong year. We delivered growth across the portfolio, and that is a highly attractive portfolio that is well diversified. And our relative scale means that we will be winners in the U.K. because we will gain meaningful share from the regulated market. So execution is definitely improving. There's definitely a lot more to do. There always is. That's how you keep being competitive. And we have a clear pathway ahead. So we are confident in it. We are getting more disciplined, and we are accelerating forward. And on that note, I would like to open the floor to your questions, and I will return back over here. Operator: [Operator Instructions]. Monique Pollard: It's Monique Pollard here from Citi. So 2 questions from me. Firstly, on the UK&I, obviously, you've delivered a pretty amazing performance today. You're now materially outperforming, let's say, your main competitor and largest competitor in the market, both on iGaming and sports and even including the comp, so on a 2-year stack, outperforming on both those metrics and taking material market share. Just wanted to get a sense from you of whether you think that can continue as we go into 2026, given some of the initiatives that you've taken on. Second question I had was when we think about the Q4 win margin and that was down 1.4 percentage points in the fourth quarter online sports margin and year-on-year. But obviously, the online EBITDA has come in really good. So what are the sort of measures you've taken to protect that online EBITDA margin despite the unfavorable sports results in the quarter? Stella David: Okay. Great. Well, I think that's 2 questions. So I'll answer one, and Rob will answer the other one. Which one should I do? Okay. I'll take the U.K. and Ireland one because it's been great actually, the revitalization that we've seen in the U.K. And I actually have the U.K. team here. So they are in the audience, so I have to be nice to them. But they genuinely have done a great job. We've done lots of things, improved customer journeys, innovated, more innovation yet to come. We're putting a whole new Ladbrokes experience together before the start of the World Cup. We innovated with the first Bet Builder in horse racing. So there's a lot of focus and there's a lot of energy. And it's energy is really important in these journeys, that belief and that willing to lean in and get it done. So we think there are lots of opportunities, both online where we definitely think we will win share once the new taxes come in place. But let's not forget, we have the best retail estate in the U.K. It's 2,400 shops, great shop colleagues. You would be amazed about their motivation. When we do our global employment engagement survey, they score amazingly. And you think about -- they're not high paid people, but their motivation and their customer care is just outstanding. And those things make a difference to how you perform and how you are relative winners in a marketplace that is going through change. So we're very optimistic. And I can say this because it's true, the U.K. has got off to a great start in 2026. Rob Wood: And then on to the online question. So yes, as you say, win margins below expectations. So in the end, NGR only plus 3%, but volumes plus 9%. How did we still get there on the EBITDA delivery? The main answer is within that gross profit margin point that I made earlier. We've seen great success, particularly this year sort of the continuation of Project Romer. Hugo sat in front of me, his team working on things like payment service providers where we've generated material savings. I referenced it earlier, if you take out Brazil tax, gross profit margin was up about a percentage point. And actually, there were some other tax rises at Netherlands and others that meant that it was even more on an underlying basis. So 1 point across the whole online revenue base, that's GBP 40 million, and actually, it's more like GBP 50 million, GBP 60 million. So that's the primary answer. It wasn't marketing. We spent exactly as we intended to in the second half of the year. We spent GBP 20 million more than we did in the first half, which is what we guided to last summer. So it's really the cost of sales margin or gross profit margin that delivered the catch-up against the NGR miss. Benjamin Shelley: It's Ben Shelley from UBS. Two for me, if I may. One, could you talk about the growth outlook for the U.K. iGaming business, specifically amid the tax changes in that market? And then secondly, on New Zealand, can we expand a bit more on that opportunity? I appreciate it's very early, but what kind of upside do you think that can present to medium-term revenue guidance? Stella David: Okay. Well, we'll try and do them sort of -- I say a bit, you say a bit. Rob Wood: Okay. Stella David: So growth in iGaming, I mean, clearly, there is a market share opportunity here when the taxes go up. If you look at the shape of the business, the bottom 25% share of the iGaming market is through competitors, which are very subscale, 1% percentage share -- 1% share of the market. And they're just ill-equipped to ride the storm with this. So we feel very confident that we will gain share during that journey of the regulated market. Clearly, the black market is going to grow. At the moment, there aren't enough barriers in the way of the black market. And there are still 4 black market operators advertising on the front of football shirts on the Premier League. I spent a letter expressing my concern about that. There is a consultation that's taking place with government. But quite frankly, that should be dealt with now because for all the reasons, the level of interest in the black market is going to go up. But we are in a very strong position. We're very strong in gaming. We have the scale to significantly increase share, which I think we will do. And we factored that partly into our numbers. Anything else on the U.K. before I go into New Zealand? Rob Wood: I mean we also extended the coin economies to Gala and Foxy. So it's not just about Ladbrokes and Coral driving growth in gaming in the U.K. So those brands are responding well, too. Stella David: Yes, that's great. And then on to New Zealand, just as a kind of a bit of background for everybody in case everybody isn't fully up to speed. We are the partner of government in New Zealand. We are the only licensed sports betting operator, and we have that long-term license agreement. Going forward, towards the end of '26, maybe the beginning of '27, there will be licensed operators for iGaming. They're going to be giving out 15 licenses. We are confident that we'll probably get 3 of those licenses. And I think the opportunity for us is significant because we'll be the only player who will be able to do cross-sell, yes. And so therefore, it's too early to say. We haven't explicitly factored it into our numbers, but we have put it forward as one of those opportunity areas that could be significant for us as we go forward. So really exciting. And what's great about the team over in Australia and New Zealand under the leadership of Andrew Boris is they're really leaning into this that they're working very closely with our partners over there. We have 2 brands. Actually, we do under our licensing agreement. We have the TAB brand, but we also have betcha. Betcha is more focused on sports in general, whereas the TAB brand is more focused on horse racing. So we have lots of opportunities going forward. Rob Wood: And maybe put some numbers on it. Andrew probably won't appreciate this, but the opportunity is big. And we estimate that there's around a GBP 600 million marketplace. And currently, we're less than GBP 200 million. So if we have all of sports and a reasonable share of gaming, why can't that below GBP 200 million number go to, say, GBP 300 million. So an opportunity for significant growth over a number of years. Estelle Weingrod: Estelle Weingrod from JPMorgan. I've got 2 questions as well. The first one on your online organic growth revenue guidance. Could you perhaps provide more granularity, more color on the different geographies, what you're baking in like between U.K. and IAC and international? And the second one on the Netherlands. I know it's a small market for you now. But just to understand a bit better how is your -- how was the exit rate and maybe what you're seeing right now in the market because you -- I think you're now lapping some of the affordability check comps that were implemented last year in February. Just to see if you're seeing an inflection in the market now. Stella David: You go and then I'll chip in. Rob Wood: Okay. We'll do it the other way around. So first question, the 5% to 7% guidance, where does it come from? I mean, unusually, I think it's going to be pretty uniform across our segments. So I mentioned it earlier, but international, for example, was below in 2025, but it had the drag from Netherlands and Belgium. I'll come back to Netherlands. So that's now washed through and it exited with 7% volume growth in the second half of the year. And U.K. incredible in '25 with 15% growth. Of course, it won't be 15% in 2026. And so I'd expect those segments to be much more uniform. Plus I mentioned earlier, if you look at the negatives, I'll come back to Netherlands in a moment. But Australia, we do expect Australia to return to growth in '26. And Brazil, when we annualize against those poor margins in the second half of the year, you'd expect growth in Brazil as well. So I think you'll see a more uniform picture. And then the second part of the question, Netherlands. So as at Q3, we were minus 30% at the end of Q3. Then Q4, I think I'm right saying was minus 2%, so you can see a massive difference in performance. So the objective now is to get back into a little bit of growth. But even if we don't, the key thing is we've washed out that minus 30% that we were carrying for 4 quarters. Stella David: Yes. And just one thing to add on Netherlands. It's a kind of -- it's a terrible combination as a market because not only have the gambling taxes gone up significantly, but there's huge amounts of friction for players with very low thresholds in terms of deposit limits, et cetera. And I think I'm right that there's just another tweak up that's going to go on in duty rates, I think from January. Is that right? Yes. I think it's going from 34% to 37.5%, which is, again, a little bit more friction for players there. Richard Stuber: Richard Stuber from Deutsche Bank. Can I ask just a couple of questions on the optimization plan. You talked about it's going to be effective from 2027. I was just wondering whether there are any opportunities to accelerate that? Why don't you sort of start those plans now? And the second question on that as well is, I guess, the initial guidance you gave in terms of U.K. tax mitigation was looking at the U.K. market. So how much of the optimization plan do you think is related to the U.K. and how much is sort of more of a global initiatives? Stella David: Thanks very much. I'll take the first, you take the second. Rob Wood: Yes. Stella David: So I hope I haven't miscommunicated. Optimization plans take place every single day. So it's an ongoing journey. And I think the way that I would describe it is prior to the U.K. taxes going up, we had areas that we were continually thinking about what are the next areas we can improve, whether that's payment service providers, whether it's automation, removing the processes, whether it's using AI to cut down our marketing production costs. So it's an ongoing journey. And if you think about the hit in 2026, we take the big hit from gaming, which is the big increase from 21% to 40% bang first of April. And so without mitigation, we'd obviously have a lower run rate. So we are mitigating and optimizing in 2026 to get to the numbers we have. But some of these other initiatives, they organically happen sequentially over time. And so it will continue to build as we go forward. So it isn't a wait and see. I think everybody is very active in the company looking for those improvements in run rate that come from multiple activities. There isn't one big silver bullet. And I think if I were you, I'd be horrified if there was a silver bullet because why haven't we shot it. So therefore, it is literally multiple activities that go into how we improve the customer experience, how we improve the colleague experience, so we get more efficiency out of them, how we generally cut costs using the tools that are available to us and how we use AI, which is a huge game changer if it's done in the right way, to increase our bandwidth and our capability. A lot of people say AI is about this or that. AI is about enabling us to do more with the resources that we have to help protect us in the future. Rob Wood: And perhaps the only thing I'd add from a modeling perspective, put it through in '27. We're happy with where the market sits for '26 as it stands. And in terms of where is it coming from, where is that initial 25% that we announced last November, that was U.K. focused. The second 25% is a global view for all the reasons Stella has just said, primarily all online, but you can assume it's uniform or proportionate with the segments. There will be a little bit of corporate benefit as well, but the lion's share would be online across all the segments. I think that was the question. Adrien de Saint Hilaire: Adrien de Saint Hilaire from Bank of America, please. A couple of questions. First of all, can you talk about the risk in your view of prediction market platforms coming into your markets and I say your markets beyond the U.S., obviously. And then, Rob, maybe an easy one as the last question. I can see your cash flow Slide 21. You have it down in '26, and I'm not too sure why because you've got stable EBITDA, declining CapEx, declining interest and so on and so forth. So what's the moving part? Stella David: Okay. I'll take the first question on prediction markets outside the U.S. I might even comment on it in the U.S. as well. So in the U.S., there is a unique set of circumstances. It doesn't get taxed like sports betting, and it is not approved by the state regulators. which means that there is a huge amount of prediction markets goes through nonregulated states, particularly California and Texas. I think the percentage going through those 2 states is it's -- I don't know, it's something like 80% of the total volume. There's also a huge amount of play of underage players. So in the U.S., you're going to be 21 to play. So 18- to 21-year olds are playing prediction markets, and they're playing prediction markets in non Luno regulated states. It doesn't touch us that much in the U.S. because we are very much stronger in iGaming, and we never had a business to protect in those nonregulated states. So it is a bit of an anomaly in the U.S. And let me be clear. When people play the prediction markets in sports, it looks like a sports bet, it sounds like a sports bet, and it acts like a sports bet. So I don't think anybody should be any doubt it's sports betting. Now what happens to that legally in the U.S. and have a strong relationship with the regulators. We are in Nevada. Other sports players are not in Nevada. It is a key part of our offering. It's just what I wanted to say that. If you look outside the U.S., equivalents to prediction markets, effectively like betting exchanges with Betfair in the U.K. have existed for decades, and it takes a small single-digit share of the market. There are not the structural reasons for prediction markets to be the hot topic, the flavor of the month in other markets. And indeed, in some countries, they've already come out and said, it's illegal. I think the Netherlands have said, polymarket you're out, otherwise, it's going to cost you $450,000 a week in fines. France has come out against it. So it is a much smaller threat than I think it is -- than people perceive it to be in the U.S. But in the U.S., we're quite comfortable with our position, if that helps. Sorry for the long answer, but I thought it was going to come up at some time. Do you want to take the easy question? Rob Wood: I'll take the easy one. It's easy if I keep it simple. There is more complexity to it. But the simple part of it is Entain EBITDA does go backwards a little bit, as we referenced earlier. So consensus right now is GBP 1,126 million. We delivered GBP 1,160 million in 2025. So there's a little bit of a drop there. The second part of the answer is BetMGM. Even though BetMGM EBITDA does grow, remember, in 2025, we had an outsized cash distribution, including the 2024 surplus. So from a cash perspective, BetMGM is broadly neutral, whereas Entain EBITDA is down a little bit. That's the bulk of the answer. There are some other puts and takes. CapEx is down a bit, interest is down a bit. But that ETR point that I mentioned earlier, that's an offset against that. So the 2 primary drivers, Entain EBITDA down a little bit and BetMGM cash not up, just flat because of the 2024 credit that came through in '25. Luis Chinchilla: I'm Ricardo Chinchilla from Deutsche Bank. I was hoping if you could give us a little bit more of a breakdown of the different buckets for the mitigation strategy for 2026 and 2027. Is it going to be mostly marketing reductions? Do you guys anticipate operational efficiencies from the use of AI? And if you could also comment on how you anticipate the promotional environment to be in the U.K., given that all of the large players have actually referenced the fact that 25% of the market is not going to be able to compete. So we anticipate that there is going to be competition to take that share back. Stella David: Okay. So let me just talk a little bit about mitigation. There are many initiatives. The way we try and sort of bundle them up in the business, we probably put them into probably 8 key buckets of opportunity. It ranges from optimizing our marketing expenditure. It ranges to looking at our cost structure to make sure we're more efficient. It ranges to looking at procurement, lots of opportunity in the very large amount of third-party spend we have. So third-party spend is a very interesting area because we get lots and lots of feeds externally. We have lots of licenses externally. We have lots of external legal fees. I'm just adding them up, giving you a flavor of the different areas that we have. And then the devil's in the detail going down to specific line-by-line item activities. We also see that there is opportunities in terms of hopefully increasing our trading margin sequentially over time. But it takes -- it's a long-run thing, reducing fraud, taking the opportunity to get rid of bonus abusers. There's lots of things that build those buckets up to where they need to be. But I think the thing that I was trying to say is we have a detailed road map. We have sponsors behind that. We have targets that are being set. And we also have specific targets for how we increase the bandwidth from AI, which means that if you think about it, everybody who works in a corporate role or an in-market role or a finance role, they all have to become competent with AI so we can increase efficiency and make those people actually highly employable for the future. But again, efficiencies flow out of doing those kind of things. So there are just many, many initiatives that build up to the total number, yes. Promotional costs, do you want to have a stab at that? Rob Wood: Yes, sure. I'll have a go. So I think you're right. I think the 2 obvious large competitors in the U.K. will lean in as well as ourselves. The fourth largest probably not so much. But then there is such a long tail, as we've touched on earlier. And when you look at one of these staggering numbers as a consequence of these U.K. gambling tax increases, when you look at the tax that we'll now pay in the U.K. as a percentage of profit before tax, it's over 80%. So in how many sectors and how many parts of the world you operate in an environment where your income tax rate is over 80%. That's an astonishing number, which essentially means how can subscale operators possibly want to do business and spend money here. So I think with the exception of the 3 larger operators who I fully expect to want to, just like us, capitalize on it and seize the moment to take market share, I think you will see a lot less promos from mid- to smaller firms. The sort of the unknown dynamic is the black market. Of course, they'll be aggressive, why wouldn't they be? And quite what the impact of that is, we'll see from April onwards. Operator: We're just coming up to time. I'm going to -- just one last question on Italy from Andrew Tam from Rothschild. It wasn't touched on a huge amount in the presentation. Obviously, it remains a key market. So a bit of color on the performance this year and then actually opportunities and actually how you're thinking about going forward. Stella David: Well, I'm happy to just talk about some of the opportunities, and I'll let Robbie okay, just talk about some of the performance at the moment. So we are a distant #3 in Italy, but we do have some exciting plans coming up in 2026. I don't want to share the confidential information. But if you watch this space in the next few weeks, I think we'll be announcing some nice initiatives that will give some more high-profile presence for our business in Italy. There is quite a detailed plan that has been developed to help optimize our position, recognizing that we are disadvantaged in terms of our footprint because we don't do retail gaming. And that is something that is not available to us because we don't have the license and the license isn't open for that. But there are some other things that we can definitely do, but I don't want to spoil the surprise. So, talk about the numbers. Rob Wood: Can I just clarify, these are organic plans in Italy. Stella David: Sorry, definitely organic plans, yes. Rob Wood: So in terms of performance of the business, the way we look at it, we grew online 5% last year, mid-single digits. Retail grew 7%. EBITDA grew 8%. It's a healthy business that's growing nicely year after year after year. That's very well run, tight ship. And so yes, there's a gap to the top 2 operators, but we have a great healthy business in the #3, particularly with Eurobet, which is a very strong brand. Stella David: Are we -- any more questions? Or are we having to wrap now? There was one there. Unless it's a hard one. Pravin Gondhale: I'm Pravin from Barclays. Firstly, on the marketing expense, you sort of mostly answered that, but 45% in second half, given -- I appreciate its mitigation in U.K. seems a bit low given it's World Cup year. So do you think is there any scope in your guidance to sort of raise that if the market demands that, if competitors sort of market hard in second half? And then secondly, on regulation, is the worst behind us or you are still hearing anything in any of your markets there? Stella David: So on the marketing expense, we're investing well throughout the year. We're just shifting it forward because it's World Cup year. So World Cup, even though it's sort of June, July, it goes over 39 days, which is the longest World Cup there's ever been and there's more teams than there's ever been, means that the activity for acquisition, which is one of the things you really want to do in the World Cup comes quite a lot before then. So you're doing -- you do a buildup in terms of marketing. So it does pull investment through into H1. But hopefully, that acquisition then rolls through into H2. But I'm a marketeer by training. If we have any spare money, I'll always put more money into marketing. But we have to deliver the numbers, too. I realize that. So that's obviously an area that we'd always look at going forward. But I think World Cup is a great opportunity. I think it's going to be a bit of a roller coaster ride because there's so many teams playing. In the early days, the margins may be volatile. But hopefully, net-net, the whole thing is going to be an amazing thing, particularly for some of our markets. So given it's in the Americas, our business in Brazil will be really engaged in it. Our business in Canada -- by the way, Canadians, they love betting on soccer. Yes, absolutely love betting on soccer. And also, we've got quite a lot of our markets have teams already in the World Cup final. So we have a high overlap. So I think it will be good for us. And of course, and BetMGM, that small company in the U.S., BetMGM, yes. Regulation. Look, I think it is -- it's our duty to flag the challenges of the increase in taxes and the increase in regulation that it does fuel the black market. I think we talked about the Netherlands earlier. I mean that is the perfectly worst mix. You have highly frictionful regulation and high taxes and their own government or the regulator says that over 50% of their market is black. That is a place that no sensible government would want to go into, in my view, because actually, it's just fueling profits in a different part of the world. And so I think it is the job of people like ourselves to flag the dangers of the black market to try and dissuade other places going like where the Netherlands has gone. Rob Wood: Yes. Can I just make one point of clarification on marketing. So we do expect marketing to increase in absolute terms. You can probably model broadly in line with revenue. So the marketing rate holding firm. It's just the weighting that's H1 related. Yes. And then on regulation, aside from the U.K., then everything else looks a lot more of a balanced picture, which is nice. I know the Republic of Ireland, we have to do a wallet decoupling, which is a small adverse move there. But in Germany, it looks like touchwood, this might be the year that we get an increase in the slots cap, which, as you'll know, has driven the slots market to be 70%, 80% black. So that could be significant for us. We have New Zealand iGaming and other examples of clamping down on the black market as well. So aside from the U.K., and that's a big an aside, but aside from the U.K., it's a more balanced regulatory outlook, I would say. Operator: I draw your attention to the 2 slides that started about the podium positions and our quality of our foundations of our portfolio, which gives us that resilience and the ballast to absorb any regulatory changes. Stella David: I think we're going to have to wrap it up now. But before we do, I just wanted to say a huge thanks to Rob for his huge dedication and passion for this business. He's been in it for 13 years, I think. And I do think if I chopped his arm off, it would actually say Entain. Rob Wood: Glad. Stella David: Should try. No, no. But genuinely, thank you so much, Rob. I really, really appreciate it. And I'm sure everybody in the room, along with all your Entain colleagues, is wishing you the very best in your new ventures when you eventually start them. But he's not going anywhere just yet. He's helping us out on some things until the end of June, but Mike takes over formally as the CFO tomorrow. But Rob is still with us, and we just say thank you so much. Rob Wood: Thank you. Stella David: I'm just going to say something. Rob soak that in. You never get clapped at one of these events ever. This will be the first and last time you get a round of applause. Rob Wood: Thank you very much, everyone. I do really appreciate it. As I said earlier, it's been quite a ride. And you can tell I've been here a long time and also I don't wear suits very often because I looked this morning, and I've got GVC business card. Yes. Thanks, everyone. Stella David: That's funny. Thank you very much. Thank you.
Stephanie Luyten: Good morning. Thank you for joining us as we present Elia Group's Full Year Figures and have a look at what 2026 will bring for the Group. I'm joined today with our CEO, Bernard Gustin; and Marco Nix. Bernard Gustin: Good morning. Stephanie Luyten: Good morning, both. Before we start, please take a moment to review the on-screen disclaimer. It contains some important information you should take note of. And as always, the slides will be and the script will be published on our live stream afterwards. Bernard, I'll let you kick off. Bernard Gustin: Thank you, Stephanie. I want to start by saying how proud I am of what we've achieved this year. Three achievements stand out. First, we secured financing for significant growth and reestablished market trust. When I took on this role, there were questions about our capacity to fund ambitious growth and deliver on our promises. Addressing this was my main focus. And I'm pleased to say that we are back on track. Second, we delivered operationally investing EUR 5.2 billion in CapEx this year, more than triple our historical annual average. And third, we are attracting exceptional talent. Despite challenges, people want to join us because they see Elia Group as a place to make a real difference and help build the energy infrastructure of the future. That tells me we have the right people and the right vision. Stephanie Luyten: Thank you, Bernard. Before Marco takes us through the financials, let's have a look together at the major highlights that defined the year. [Presentation] Bernard Gustin: Well, 2025 was indeed a year marked by major milestones, collective achievements and moments that shaped who we are and where we are heading. When it comes to project execution, 2025 was a year of real tangible progress. In Belgium, we continued to advance on several strategic infrastructure projects that form the backbone of the country's future electricity system. Ventilus and the Boucle du Hainaut, both critical missing links in connecting large volumes of offshore wind and reinforcing Belgium's North-South transmission corridor progressed through key regulatory and construction milestones. These projects are essential for integrating the Princess Elisabeth zone, strengthening system reliability and ensuring Belgium can transport renewable energy efficiently across the country. BRABO III also entered its final stretch, further reinforcing the Antwerp region and enhancing cross-border capacity with the Netherlands. The construction of the Princess Elisabeth Island also continued to advance steadily. The installation of the concrete caisson made solid progress with 11 of the 23 caisson already installed at the sea. And the remaining units are ready for deployment as soon as weather conditions allow it. This brings Belgium another step closer to achieving its decarbonization targets. And in Germany, we also saw real progress. On SuedOstLink+, one of the country's most important North-South transmission corridors with permitting moving ahead and technical preparation advancing, the project is now getting much closer to implementation. At the same time, offshore progress stayed on track. We successfully completed the cable laying for Ostwind 3, the link for the next wave of wind projects at the German Baltic Sea, securing future capacity to integrate more renewable energy. And on Bornholm Energy Island, Germany and Denmark signed a landmark agreement for 3 gigawatts of offshore wind connected through new hybrid grid links to both countries. It's a major step forward future toward future cross-border offshore grids in the Baltic Sea and support Germany's vision for a more meshed and resilient offshore system. We also put 2 new high-voltage lines into service, each over 100 kilometers, boosting our transmission capacity and strengthening stability across key parts of the German grid. So overall, it was a year of strong delivery with our teams moving forward the strategic projects, but at the same time, congestion is becoming more visible. As more renewables connect to the system, and that's a good thing, our consumption patterns also evolve and that is putting pressure on our grid. And this isn't just a Belgian or a German challenge, it's a European one. Our recent study on storage shows just how quickly the landscape is changing. Storage and batteries, in particular, will be a cornerstone of the future system. But equally important is the question, how, where and when storage operates. Today, the current wave of connection request isn't always a healthy growth. We are seeing a huge number of speculative projects across Europe. In Germany alone, TSOs are facing requests equivalent to the load of 100 million households. That's not sustainable. It strains the grid, dodge the queue and delays more mature investments that society actually needs. This is why we advocate for a new approach. We need to prioritize system relevant mature projects and move away from a first come, first serve logic that is now being exploited and risk driving up cost for all consumers. This is where the EU grid package helps set the direction. It supports anticipatory investment and clearer rules so that flexibility, renewables and storage can work together as aligned pillars of a sustainable, affordable and secure system. Marco Nix: And another key factor for our long-term investment needs is the right regulatory frameworks. Based on what we know so far about the German regulation, we welcome BSR's ambition and its recognition that the full package matters for investors. However, the draft framework still does not provide the balanced and internationally competitive returns needed to attract the level of capital required for the grid expansion. Key adjustments are still necessary, particularly on return on equity level, debt cost coverage, OpEx predictability and the effectiveness of the incentive schemes to ensure the framework truly supports the unprecedented investment effort ahead. We remain committed to constructive dialogue to help shape the final determination that safeguards investments capability and supports Germany's long-term energy goals. To speak about 50Hertz goals, we will now share a short video from the CEO of 50Hertz, Stefan Kapferer, on the progress made and the milestones still ahead of us. Stefan Kapferer: With a new focus on resilience of the energy infrastructure and affordability of energy transition, it became clear in 2025 that an overarching responsibility for the electricity system is urgently needed. This can only be delivered by companies like Elia Group with 2 national TSOs, ETB in Belgium and 50Hertz in Germany. In 2026, 50Hertz will once again invest a record high amount of money in additional grid infrastructure, substations and new connections for consumers, EUR 5.1 billion. So affordability of the energy transition will be key. We have to harvest efficiency potential, and we have to take care that only those projects are included in the next grid expansion development plan, which are really needed to make the energy transition happen. And to finance these challenges, the current review of the regulatory framework in Germany has to deliver an internationally competitive return on equity to guarantee that the engagement of the investors will be the same also in the upcoming years. Stephanie Luyten: 2026 will be a year in which significant regulatory developments and grid planning milestones emerge in both our countries, giving us much more clarity on the investment landscape and its associated returns. To build on that, I'd like to turn to the CEO of Frederic Dunon. He will walk us through the challenges and opportunities shaping our next steps. Frederic Dunon: Discussions will begin on our regulatory framework for the period '28, '31. Two major objectives are at stake. First, to ensure that market parties have the right incentives to allow safe and efficient system development and operation. And second, to ensure that Elia has a financial and human means to realize the plans approved by the authorities. The design of our '27, '37 federal development plan will be at the center of attention of our authorities. Indeed, it will define the boundaries of possible futures in terms of energy, industrial and economical policies. Whereas development plans were seen in the past as an administrative process, it is now well understood that they are the foundation of our major society for the coming decades. Stephanie Luyten: Now that we've looked at Belgium and Germany, let's shift to what's happening internationally. As you know, we took a minority investment in energyRe Giga at the end of 2023 with a clear understanding that this is a long development cycle model and that progress would not be linear. Since then, the U.S. environment has evolved. At federal level, the current administration has created uncertainty for offshore wind with slower permitting and approvals while at the same time, many states continue to actively push for grid expansion. In parallel, the U.S. power system is facing rapidly rising electricity demand driven by electrification and data centers, which reinforces the structural need for additional transmission capacity. Last year, we also saw the acceleration of the phaseout of the wind and solar tax credits. This puts pressure on the developers to bring the projects forward and required adjustments in project structures and portfolios across the sector. Against this backdrop, we have taken a disciplined approach, prioritizing value protection over speed. As a result, contributions from energyRe Giga to the Group results will come later than initially expected, but we remain supportive of the investment and of its long-term strategic rationale. As we already flagged at our Q3 results, Clean Path New York faced a setback. For SOO Green, the picture is more positive. Permitting is close to completion and land acquisition is largely secured. Finally, the offshore project, Leading Light Wind is, as you know, currently on hold under the present federal administration. Translated in financials, this means the group recognizes an impairment on its U.S. assets of EUR 99.1 million. This consists of 2 elements. On the one hand, a EUR 70.8 million write-off on the energyRe Giga portfolio, an additional provision of EUR 28.3 million, reflecting the group's remaining commitment to invest USD 150 million to reach its 35.1% ownership stake. Let me remind you that this impairment is a noncash and reflects a prudent reassessment of, on the one hand, value and timing, and it's not at all a change in our discipline or our financial strength. Our exposure remains well controlled. Our commitments are fully manageable within our balance sheet, and we retain flexibility on the pace of future capital deployment. Marco Nix: Thank you, Stephanie. Let me now elaborate on some of the headline figures for '25. We delivered strong progress across all fronts in 2025. Our 5-year CapEx plan remains fairly on track. We invested EUR 5.2 billion, EUR 1.4 billion in Belgium and EUR 3.8 billion in Germany. As a result, our regulatory asset base expanded to EUR 22.6 billion. Our hiring drive in '25 was also a success. We welcomed again more than 760 new employees, strengthening our operational capabilities and supporting the growth objectives we laid out during the Capital Markets Day. On the operational side, system performance remained outstanding. Grid reliability reached 99.9% in Belgium and 99.8% in Germany, positioning our TSOs among the most reliable grid operators in Europe. These figures highlight our continued focus on operational excellence and the effectiveness of our investments in technology, infrastructure and talent. In terms of financial results, the group delivered a strong performance with net profit attributable to Elia Group shareholders of EUR 556.6 million. This corresponds to an adjusted return on equity of 7.3% and earnings per share of EUR 5.51 per share. As shown on the slide, we indeed had a busy year on funding as well. We proactively secured the funding needed to support our strategic priorities in Belgium and Germany. We executed a well-diversified financing program across entities and instruments, reflecting the greater flexibility we have embedded into our funding strategy. A key focus early in the year was strengthening the balance sheet. We completed a EUR 2.2 billion equity package, which reinforced our capital base, broadened our strategic partnerships and provided significant financial flexibility. On the debt side, we raised EUR 3.6 billion in green financing through loans and bonds and both Elia and Eurogrid issued their first EU-labeled green bonds, an important milestone that broadened again our investor base and reinforced the central role of sustainable finance within our capital structure. At the start of the year, Standard & Poor's reaffirmed the credit ratings of all entities. We also strengthened liquidity, bringing the total available funds at year-end at EUR 11.9 billion, which underpins our prudent risk profile and supports our investment-grade ratings. Overall, the group's investment plan is backed by a robust financial framework designed to maintain its current ratings, ensuring continued strong access to capital markets and providing funding flexibility. Finally, the group is progressing on the various options of the funding toolkit as outlined to the market. Elia Group delivered strong operational and financial results reflected in a sharp increase in adjusted net profit. These figures excludes material one-offs and reflects the group's underlying performance. Adjusted net profit rose by 39.8% to EUR 716.5 million, driven by CapEx execution, higher equity remuneration and solid operations. Additionally, the third segment benefited from the first time of a tax benefit linked to the application of tax consolidation in Belgium. Germany remained the largest contributor, delivering just over 60% of the group adjusted result. Belgium added around 38%, while nonregulated activities and Nemo Link contributed EUR 5 million, including EUR 33.4 million in one-off adjustments, the reported net profit reached EUR 683 million. After noncontrolling interest and hybrid costs, net profit attributable to Elia Group shareholders increased by 32% to EUR 556.6 million. On this slide, we show that the reported figures include several nonrecurring items, both in Germany and in the nonregulated activities. We adjust for those to show the underlying performance. Starting with Germany, the reported net profit includes a EUR 46.5 million deferred tax impact. This relates to the revaluation of deferred taxes following the planned reduction in the German federal corporate tax rate from 15% down to 10% between the years '28 to '32. Turning to the third segment. There are 2 main adjusted items. As said by Stephanie, the U.S. impairment amounting to EUR 99.1 million negatively. On the positive side, the tax consolidation had a positive impact due to the application of the Belgium tax consolidation mechanism and linked to the tax periods prior to '25. It is there of a one-off effect, not reflected of a recurring tax benefit. After adjusting for all these items, adjusted net profit amounts to EUR 716.5 million at Group level. Stephanie Luyten: The RAB remains the core driver of the group's regulated remuneration. Supported by the execution of our investment program, Elia Group's RAB increased by 22.5% year-on-year, reaching EUR 22.6 billion at the end of '25, up from EUR 18.5 billion in 2024. This increase reflects the acceleration of major infrastructure projects in both Belgium and Germany that are critical to integrating growing volumes of renewable generation, reinforcing cross-border capacity and strengthening the overall system resilience. These investments ensure we can deliver the energy transition at the lowest societal costs, while contributing to Europe's long-term energy autonomy. When we look ahead, we expect an average annual RAB growth of over 20% for the period '24 to 2028, supported by around EUR 21.6 billion of cumulative CapEx over the next 3 years. As we have invested EUR 5.2 billion across our Belgium and German grids, the impact on our funding metrics remains well under control. Net financial debt increased by around EUR 1 billion, bringing the total to EUR 14.1 billion. This limited increase reflects the successful capital increase and the fact that a large share of our investment was funded through operating cash flows. Our average cost of debt rose slightly to 2.9%, and the portfolio remains very well protected from interest rate volatility with 98% of our debt held at fixed rates. Finally, our credit profile remains solid. Standard & Poor's reaffirmed our BBB rating with a stable outlook, underscoring the resilience of our financial structure and the strength of our funding strategy. Marco Nix: As this concludes the group overview, let me guide you through into the segments, starting with Belgium. In '25, adjusted net profit rose by 27% to EUR 272 million. This was mainly driven by a EUR 30 million increase in fair remuneration, reflecting continued RAB growth, higher equity and improved risk-free rate to 3.2% Incentives were up slightly by EUR 1.1 million. Beyond the regulatory result, the outcomes was also influenced by IFRS restatements. These were mainly driven by higher capitalized borrowing costs from the larger portfolio of assets under construction as well as tariff compensation for the costs linked to the capital increase. This compensation is recorded as equity under IFRS, but these costs are fully passed through to the tariffs under the embedded debt principle. In total, the Belgium segment delivered a return on equity of 6.2% for the year. For Germany, the adjusted net profit rose to EUR 439 million, up 42%. This strong performance is the result of several key factors. First, asset growth continues to be the biggest driver of the result, combined with imputed depreciation and cost of debt coverage. This was further supported by a slight increase in the allowed equity remuneration on new investments, reaching 5.7% for the year. On the cost side, the onshore OpEx outperformance declined slightly by EUR 3 million. The inflation index-based year revenues helped to offset most of the operational cost increases, associated with our expanding activity footprint. At the same time, a number of offsetting effects also incurred. Depreciation increased as several major projects were successfully commissioned and brought online. Financial costs rose due to the higher interest expenses from debt financing. This was balanced by capitalized interest during construction, which increased and interest income from a prefinancing agreement. After including a one-off deferred tax revaluation gain of EUR 46.5 million, net profit reached EUR 485 million. Considering the adjusted net profit, 50Hertz achieved a total return on equity of 11.1% for the year. Finally, the nonregulated activities and Nemo Link segment delivered an adjusted net profit of EUR 5.3 million in '25. This performance was mainly driven by the application of group contributions for the '25 financial year, which contributed EUR 24.7 million to the result. This reflects the Belgian tax consolidation mechanism that allows to utilize a tax loss at the group level and Eurogrid International. The positive impact followed a legislative change adopted at year-end, which removed the discriminatory treatment previously applicable when combining the group contribution regime with the dividend received deduction regime. This positive effect was partly offset by several factors, mainly higher holding company costs, a lower contribution of our consultancy business, EGI. Finally, Nemo Link contributed slightly less to the result. After taking into account net adjusted items, the net loss amounts to minus EUR 74.5 million. Stephanie Luyten: Before we move to the final part of the presentation, our financial guidance for 2026, I'd like to briefly touch on the group's dividend policy. Elia Group proposes a dividend of EUR 2.05 per share. This dividend proposal will be submitted for approval at the Annual General Meeting and is expected to be paid in June 2026. Marco Nix: Ending with the outlook for '26, Elia Group expects a net profit at Elia Group share in the range between EUR 690 million and EUR 740 million. In Belgium, we plan to invest around EUR 1.7 billion, delivering an adjusted net profit between EUR 290 million and EUR 320 million. While in Germany, we plan to invest around EUR 5.1 billion and an adjusted net result in the range of EUR 585 million and EUR 625 million. The nonregulated and Nemo Link segment is expected to report an adjusted loss of minus EUR 10 million to EUR 30 million. Bernard Gustin: Well, thank you, Stephanie. Thank you, Marco. Before we move into our Q&A session, let me share some closing remarks with you. Earlier this year, the Hamburg North Sea Summit highlighted the urgency of building an integrated offshore grid with European TSOs presenting a joint framework for hybrid interconnections and shared cost models capable of enabling up to 1,000 terawatt hour of clean energy by 2050. At the same time, the Hamburg declaration committed key North Sea countries to delivering 100 gigawatts of joint offshore wind projects, underscoring that system security and sovereignty will increase, increasingly depend on collaborative offshore development rather than isolated national solutions. Complementing this, Mrs. von der Leyen, underscored at the recent Antwerp Industry Summit that Europe's continued dependence on fossil fuels exposes industry to volatile price swings and highlighted the urgent need to reduce this exposure by accelerating the shift towards stable homegrown clean energy sources. The current war in the Middle East underlines once again how vulnerable Europe remains to external shocks. Strengthening and interconnecting the European grid is, therefore, essential, not only to expand access to affordable clean electricity, but also to reinforce Europe's energy sovereignty and reduce dependence on increasingly unstable fossil fuel supply. In this context, Elia Group stands out as the only international electricity transmission group in Europe, combining a multi-country footprint, deep operational presence in both the North and Baltic Seas and a public-private capital structure capable of aligning public anchors with long-term private investors behind strategic and critical infrastructure. This combination is exceptionally unique in our sector and precisely what Europe needs in these troubled times. Our leadership is most visible in our flagship hybrid interconnector portfolio, the first of its kind in Europe and the foundation of tomorrow's meshed offshore grid. Kriegers, yes, thinks and acts on European scale. Together with Energnet, they already have put the world's first hybrid interconnector Kriegers Flak into operation. Furthermore, together with Denmark, they will realize Bornholm Energy Island, unlocking large-scale offshore wind in the Baltic Sea and connect through hybrid HVDC links. And in Belgium, Princess Elisabeth Island and Nautilus could form one of Europe's earliest true hybrid offshore hubs, pulling up to 3.5 gigawatt of offshore wind, while interconnecting Belgium and the U.K. HansaLink, a key project of our entity WindGrid, expands this logic across new cross-border corridors, drawing private capital into offshore infrastructure at scale. And with Nemo Link operating reliably for years, we have already proven our capability to deliver, operate and maintain complex interconnectors safely and efficiently. This portfolio is unmatched in Europe. No other player combines so many hybrid assets across the 2 strategic European sea basins under one group, not as concept, but as concrete investable projects that show how offshore wind and interconnection can be planned, financed and built together. Thank you for your attention. Stephanie, I think we are now ready to move to the Q&A section. Stephanie Luyten: Yes. Thank you, Bernard. And in the meantime, Yannick Dekoninck, our Head of Corporate Finance, has also joined us. Stephanie Luyten: So let's turn to the screen. I see that our first question comes from UBS, Wanda. Wierzbicka Serwinowska: Congratulations on the results and the CapEx delivery because there were some concerns last year if you will deliver. The first question -- I mean, 2 questions to Marco. The first one is on the capitalized cost at the net income level. I mean, what was it in 2025 for 50Hertz because I couldn't see it disclosed. And what is embedded in your 2026 guidance? And also, if you could give us any rough guidance on the capitalized cost until 2028, that would be much appreciated. It's a very hard to model item. And the second question is on the S&P. As you said, back in September, S&P confirmed the rating, but they also said that the Elia Group consolidated business risk has marginally increased. And they raised the FFO to net debt threshold by 100 bps. And they also assume that your CapEx post-2029 will moderate. So does a higher FFO to net debt requirement worry you when thinking about CapEx plan or funding beyond 2028? Marco Nix: Maybe start with the technical question then on the capitalized borrowing costs. It's indeed something we are mindful of in the figures of '25, which are subject to disclosure finally, with the annual accounts at year-end, there's a part close to EUR 90 million considered in the German figures. So what is a noncash result contribution. So -- and that puts a little bit 11% into a certain perspective as, of course, this is being included in the 11% guidance. For the future growth, it's indeed linked to some degree with the investments to be taken. However, it's not linear simply as we try to limit the impact to some degree, and it's being connected to a relatively short period between 2 milestones of the projects, where I must admit that that's a little bit hard to model in the future. But I assume on one hand, that the IFRS standard is subject of a change, which might help us then in the future to limit that impact. However, it will grow. And as a rule of thumb, potentially, it's good to look into the investments in the year being taken compared with the previous year, how it will be growing in the year '26. Wierzbicka Serwinowska: So what should we -- what is embedded in your guidance because your guidance for 50Hertz was running much, much above consensus? Marco Nix: In the guidance of 50Hertz, it's a similar area, so between EUR 90 million and EUR 100 million. So that's currently what we have embedded there. Bernard Gustin: And then... Marco Nix: So then on the FFO to net debt. So currently, after the capital raise, we feel rather comfortable, in particular, with an eye on the liquidity position the group currently has. So therefore, we are not in a rush. Of course, we are looking into the horizon beyond '29. But as we stated, it's subject of the new CapEx plan, which is still under development as both the grid development plan in Germany and the federal development plan in Belgium is still under construction, if you want to say it like this. And as this is the underlying combined with the regulation of our future capacity in funding and of course, in remuneration, that is a necessary input for our funding plans. And of course, the rating will play a significant role in there as, of course, we don't expect that the growth will stop and taking that into perspective, there's a solid investment-grade position being needed to fund the investments in the future as well. Stephanie Luyten: Thank you, Wanda. Let's go to the next question. I believe it's from Bank of America, Julius. Julius Nickelsen: I have 2. The first one is on German regulation. So in the draft methodology that came out in December, I think the BNetzA for now ruled out the concept of a return on equity adder. But I believe since then, you've and the other TSO have provided some evidence why there should be an adder. So if you have any update, do you still believe that this could come in the final methodology? Any update on the reception that would be quite useful. And then the second question is a little bit more high level. But if I look out to like beyond the summer and towards the end of the year. Correct me if I'm wrong, but I think at that point in time, you should have the new Belgium returns, the final methodology in Germany and a good idea on the grid development plan in both countries. Could there be a point in time where you will upgrade the market -- update the market on your investment plan and maybe roll forward to 2030 with the new CMD? It would be useful to know. Marco Nix: Maybe starting from the last question and then developing to the other ones. Our expectation will be more towards year-end or beginning of next year to have that clarity as there are some specific aspect that you name a few of them in the regulation, but on the CapEx plan as well. To name a few, in Germany, that will be the total amount and the sequence of the offshore grid connections, which will play a big role in our CapEx program, or the question on overhead lines versus cabling in the big DC corridors. And that will, of course, change significantly the means being needed to realize that CapEx program. And this debate, to be fair, is still open. So there, we do not see really a landing zone for the time being. A little bit the same in Belgium with the Princess Elisabeth Island and the DC components or the interconnector there. Even though government will potentially take a position then in the second quarter, you do see kind of delay in that decision-making as this was originally being foreseen in March. So therefore, likely that it's more towards the end of the year where we have that kind of clarity. So on the point you mentioned in regards to the framework, in the conference, BNetzA hosted, they stated a little bit that they are not convinced yet on an adder to the return on equity. That's still a subject of a discussion, at least they opened the door for, and we provided some evidence that this is being needed. But it's fair to say there's an ongoing discussion on that one. What is, first of all, a positive sign that the door has not been closed. But so far, it's not being drafted in any adjustment of the determination of the return rates for the future. Stephanie Luyten: Thank you, Julius. Are there any other questions? I do not see -- Temi. Good morning, Temi, please go ahead. We have you here with us. Temitope Sulaiman: Congrats also on the results presentation this morning. I've got a couple of questions, but I'll keep it to 2. One is just clarity on your 2026 net debt expectations. If you can provide an update on that, that would be very helpful. Clarity on the Belgian regulatory time lines in terms of the consultations, but also the final determinations. And then finally, it seems that you've had strong operational delivery in Belgium and Germany, '24, '25, '26, you've raised the guidance above consensus expectations. And I'm just wondering whether you might consider revisiting your '24 to '28 guidance in terms of returns and when maybe you might consider that? Yannick Dekoninck: Maybe net debt, I will take. So on net debt for '26, we expect to land with the CapEx that we have announced at a net debt of around EUR 19.5 billion. So that's what we are targeting for in '26. Marco Nix: On Belgium regulation, there's a relatively straightforward path being published. So there will be a public consultation on 14th of April, if I'm not -- 17th or mid of April. Bernard Gustin: [indiscernible] Marco Nix: Mid of April. So happy to invite you to comment on that one once it is being out there and a final determination in the course of quarter 2. So end of half year, there is likely a robust visibility how the scheme will look like. Stephanie Luyten: And in terms of guidance? Marco Nix: Guidance, I think we still stick to the guidance which we have given as the growth is still intact with the double-digit percentage growth on the EPS and on the net results to the shareholders and around, as you have seen in the past, the 20% growth on the RAB. So that's quite consistent to each other, even though the guidance for '26 seems to be a little bit higher than the expectation, if you make it linear, but that comes from some of the aspects, which are not that fully linearized as we try to optimize the results, of course, as we can. And in connection with commissioning, for instance, we might have one or the other year an outliner and '26 seems to be one of them as a couple of significant investments come to commissioning, which gives us a favor in particular, in Germany. Stephanie Luyten: The next question will come from Piotr from Citibank. Piotr Dzieciolowski: I have a couple of questions. So the first one I wanted to ask you about this financial result in 50Hertz. So in your disclosures, you also point out apart from increased capitalized interest, you point out to accrued interest from the developer of an offshore platform of EUR 28 million, plus EUR 10 million from discounting effects on long-term provisions. So just wanted to understand, can you please explain on this first item what it really means? And is there any change on these numbers between '25 and '26? So I'm trying to get a bridge between '25 and '26 financial item. Is it just capitalized interest going up and these things disappear? Or how shall we think about these items? And second question, I wanted to ask you about your actual performance. So in your Slide 20, sorry, Slide 19, you said that the net income of ETB increased by EUR 1 million because of incentives. I was under impression that the incentives should grow in line with RAB with the size of the business, but it doesn't seem so. So can you please tell us how do you assume the incentives increment between the '25, '26? And likewise, you don't disclose incentives for the 50Hertz. I think there are some outperformance. So can you also say like operationally, do you improve -- or do you keep like a size of outperformance in line with the business growing with RAB growing or that basically the incentives and outperformance becomes bigger -- smaller relative to the size of RAB and so on. So these were 2 questions. Marco Nix: Okay. Maybe taking the first one on the wind farm contract, which we closed. So there's a nearshore wind farm at the German coast, which is being connected by 50Hertz in an AC technology. And for efficiency reasons, we agreed on to share the platform with the wind farm developer so that not both needs to have a platform being erected, what saves costs for both sides. And it's more or less a 50-50 split there. As the wind farm developer pushed back for some of the costs to some degree, and we had a relatively long-lasting negotiations on that one. We finally agreed on that the funding costs, the financing costs of this chunk, which is related to the final agreement, and which will be borne by the wind farm operator are being out of the regulatory sphere. So that's something the 50Hertz and Elia Group can keep finally. And the number you referred to is the accumulated interest income over the periods once we started that construction. So the effect itself will remain, but the order of magnitude will potentially go down as this is a kind of loan agreement, which is related on one hand to the size and the second to the scheme where there's some flexibility on the wind farm operator side once they are paying us, then, of course, the interest connected to the outstanding exposure will be lower in one of the years. And as this wind farm will likely be -- the connection of the wind farm will likely be finished in '26 and the wind farm operator will potentially commission its assets then beginning of '27, despite the fact that there's a 15 years period on that contract, there might be some changes over time in the payment scheme as the flexibility is on the wind farm operator. So that's a little bit long explanation. It's relatively complex matter, but likely that there will be an interest income over a certain period of time with different kind of order of magnitude. Bernard Gustin: Okay. And maybe, Piotr, on your question on the incentives in Belgium, it's indeed correct that they increased by EUR 1 million compared to last year. And it's indeed correct that they are, to a certain extent, correlated with the RAB, but as well, they are -- they have in the regulation a maximum amount that you can have on certain incentives. So that's one element. And some of the incentives are a bit, I would say, binary between 0 to 1. If you remember last year, we had a cable issue linked to the availability of the MOG in '24. So we had no incentive at that year. This year, we have a full incentive, a full maximum amount. So that gives a little bit why you don't see exactly that linear evolution on the incentives. Nevertheless, I think we had a solid operational results where incentives remain quite important to the overall result in Belgium. Stephanie Luyten: Let's now turn to Deutsche Bank, Olly. Olly Jeffery: Two questions from my side, please, like everyone else. So the first one just is on CapEx. Now I appreciate that you need to wait for the grid development plans to give a precise view on future CapEx for '29 onwards, and that's more likely to impact presumably CapEx in the 2030s. Are you able to give kind of a high-level view in Germany of kind of the broad level of increase you think might be likely given that most of the changes to the grid development plan are probably going to impact in the 2030s. Any insight you can give there would be helpful. And then secondly, just on funding the plan from '29 and onwards. I know obviously, you don't want to be precise about this. But could you say, is there a credible scenario where you think you might be able to fund CapEx in '29 and 2030 without the need for equity using the rest of your equity toolkit with the hybrids and opening up the capital structure of some of the TSOs potentially? Any views on that would be great. Bernard Gustin: Taking the first one, it's still, as we said, a little bit too premature to lay out a number. So if you take the total volume, which is currently as a price tag being seen on a total grid development plan in Germany, you can compare the EUR 320 billion, which was the number in the last grid development plan, which the EUR 340 billion, which is currently the number connected to the most likely scenario. It's not chosen yet, but that gives a little bit the view that likely the outcome will be rather the same with an eye on EUR 345 billion in terms of euros. However, there will be a kind of different allocation on that one. And that what makes it that's hard for the time being really to say the CapEx is further growing or going down at a certain point of time. As, of course, only part of the EUR 340 billion are connected then to 50Hertz to the Elia Group. So as a rule of thumb, it was 20% all the time. But the spread over 20 years is a difference than the spread over 10 years. So that's -- I mean, that's the simple math. And as the former government was quite in a rush to complete or to set very ambitious targets, which partially have been out of reality, the current government is more pragmatic in that view, and that's a little bit what still the debate is on. Stephanie Luyten: And on the funding? Marco Nix: On the funding, I mean, we have full flexibility now. So that's currently what we are going to execute. That's all our options are valid. We are working on further optionalities as well. But please, as we don't have the CapEx numbers currently in place, we do not want to give guess how we are continuing to fund the growth in the future at this moment. Stephanie Luyten: Nor do we have the regulatory framework set in place? Bernard Gustin: Yes, it's a bit early... Stephanie Luyten: So I think it would be a bit too early. But thank you for the questions. I see the next questions will come from ODDO, Thijs. Thijs Berkelder: A couple of questions. Do you still require probably an additional EUR 2 billion of equity? And can you confirm that you still aim to raise this via in principle, EUR 4 billion of hybrids? Second question is on your Energy Island and the DC connectivity there as well as for the U.K. connector. The HVDC cost price was too high. Any reason in your view why HVDC pricing now should be lower? And third is on the North Sea offshore wind projects targeting 15 gigawatts installations by 2031. What can we expect as impact for your CapEx from that plant compared to what we currently are installing on the North Sea? Marco Nix: Yes. Maybe starting with the first one. Our toolkits provide us flexibility, and we stated that it can be both hybrid -- the hybrid capacity potentially being sufficient at this point of time, while another option is to open the capital on one of the subsidiaries and/or finding structural solutions to help us funding the growth. And that's still something we are closely monitoring. And there's a couple of key elements to be considered and criteria's in the decision-making, once is timing. Another one is, of course, cost of capital. Third one is execution to name a few of them. And as we have a strong liquidity position and of course, the credit rating is comfortable as well. So we are carefully looking for the best solutions there. And once this is being decided, it can be both extremes. So both elements of the toolkit would gives us the credit in total, so it has the potential. However, it could be a combination as well depending on the point of time where we make the decision. Bernard Gustin: On the Princess Elisabeth Island, I would say that, first, it was the right decision to postpone the project because, as you know, at the time, we were really in a very heated market on the HVDC component. However, the teams have been working on updated design. We have also some very good discussion between U.K. and Belgium on how to best share the cost and the benefits of the project. And I hope that in the coming weeks, months, we can come with a solution that fits with the original objectives, while being more reasonable from a cost point of view. We see that the HVDC technology remains an expensive technology, but we also see that the heat that we had a few months ago is a little bit lower. On your North Sea approach, which actually the Princess Elisabeth Island is a subpart of. As I explained in my conclusion, I think we are really, as Elia Group extremely well positioned being the only transmission group having a portfolio of assets already in our base today. But of different nature because we have the Belgian port on the North Sea. We have the projects on the Baltic Sea with Windanker's. But we have also with our subsidiary, WindGrid, a project called HansaLink. And the advantage, of course, of this setup is that it's a setup where you can also use financial players who can help the financing of the project. So I'm not going to preempt on the decision of Europe. I think, by the way, we see with what's happening now in the Middle East that it's high time that we reduce our dependency on gas and that offshore wind in the North and the Baltic Sea is a critical element in there. We will see how Europe will evolve in -- and the grid package already goes that direction, but how they translate that into a series of projects. But I think what's interesting is that Elia by its strategic geographic positioning, by its current portfolio of projects, but also by its setup where we can leverage financing capital at different levels is very well placed to play a role in there. And already in our current portfolio of projects and in our current asset base, we have projects on both seas in the North and in the Baltic Sea. Stephanie Luyten: Are there -- yes. I see the next question coming. Unknown Analyst: And also from my side, compliments for the good results and outlook, of course. Yes, on the -- I'm still going to try on the North Sea, and thank you for the answers so far. But looking at the ambitions and with the involvement of TSOs as well in these kind of framework ambitions that were published, a step-up to 15 gigawatts already in 2031 and for a number of years, even a decade. And now looking at your CapEx approaching EUR 7 billion. So let's say, connecting all these gigawatts already upfront or preparing for that upfront and for a number of years to come. Is it fair to say that, yes, maybe previous assumptions on EUR 7 billion being the higher end of forward CapEx. Is that something that we need to reassess to a larger number, higher number? That's my first question. And the second one is on CapEx, and it's a great achievement that, of course, you met the expectation after the -- I think the questions that were raised at the midyear presentation. What should we expect for 2026? Will it be a more balanced picture of the EUR 6.8 billion or also 1/3, 2/3, maybe some guidance there. Bernard Gustin: I will take the first one and let the team go for the second one. I think the guidance remains the same. So we are on EUR 7 billion CapEx because we are talking on a series of projects that we know. Then we will have to see how the developments happen, and we will be looking at it as you do. And according to the developments, of course, Elia Group wants to position itself on these developments. But I think then there will be also another way at looking at it. And I think from the European standpoint, from the political standpoint, we will have also to think of the tools to make sure that we can reach those developments without having always a direct impact on the balance sheet of the TSOs. And that's where I say with some of our tools like WindGrid and so, we are very well placed to test those type of model. We will also have to see what Europe does in terms of SAF funding and other conditions. So just to say, within the current framework, we are in the current guidance, and there is no reason to change. Of course, we remain attentive and opportunist of what it would develop. But I think then there would be other ways of looking at the thing and not directly in the CapEx of a TSO, which will be one of the topic to manage if we want to reach this great ambition, but also needed ambition when you see the situation of Europe. Marco Nix: And maybe to complement, we published recently a paper then which could be a way forward in the future to fund in particular the far offshore wind farm developments and the connection to that one mainly via hybrid interconnectors, where we are facing several constraints to go ahead there, and that could be an element with the so-called WSPV concept, which helps both on one hand to unlock a little bit resistance in one or the other countries. And secondly, combine the forces with giving some securities by public authorities like European investment banks, for instance, and combining with private capital to fund that in the future, as Bernard rightly said, it's questionable whether all TSO can absorb simply these big request of capital in the future. In regards to our CapEx program, it's likely that you will do see a heavy loaded second half year again as this is, on one hand, a little bit in nature as during the summer, most of the construction is being made. And then, of course, we usually account for the progress once a certain milestone has been reached, and that's likely more in autumn than in spring. And the second one is that at least in Germany, gives us a favor to have that backloaded profile. As usually, you get remunerated for the average of the year while -- for the capital cost as well. While, of course, the later you will have it, the bigger the gain could be. And that's something which we have seen in the results as well as, in particular, the difference between the real funding costs and the funding costs, which are being embedded in the grid fees gives us a favor to some degree and contributes to results, too. Stephanie Luyten: And let's go to Wim from KBC. Wim Hoste: Yes. I hope you can hear me. Stephanie Luyten: Very well. Marco Nix: Yes. Wim Hoste: All right. Also congrats from me. Lots of questions have been asked. I just want to throw in some add-ons. If I want to come back to the financing, the equity raise potential, and I understand regulatory framework has to be put in place. Can you give an idea, suppose that if you want to do something like an ABB like in '24, EUR 0.5 billion, if that's possible, what you need to do, whether you would need to have some kind of Board's agreement first, if that's a possibility simply because the share price has rallied quite a lot. It's more than doubled since the last capital raise. So how you feel about that? Then smaller questions on the dividend. I think in the past, you said that, that would go in line with inflation. I think it stays more flat now. Is that also the outlook for the future? I completely would agree that would make sense as well. And then lastly, more like a general question and something that we've seen in the U.S. where the government has asked big tech to -- yes, basically pay via some kind of taxes to upgrade the grid because obviously, we know that, that demands a lot of investments to accommodate all the hyperscale investments. So just your view, is that something that could be possible in Europe? Obviously, things move a little bit slower. But if there's anything that you can say just in order to kind of divert the pressure that we have seen and the pushback from industry and consumers on -- yes, obviously, offloading a lot of the investments via the energy prices. So those are my 3 questions. Stephanie Luyten: Maybe I can tackle the dividends, if you like. We indeed gave a dividend or proposing a dividend of EUR 2.05. But what you need to take is as a basis is actually the EUR 2 because when we did the capital increase, we actually restated the dividend. And if we were to increase the dividend on a restated basis, it would be close to EUR 2, but we did not want to pay less than last year dividend. So we have increased it slightly. That has been our rationale for the EUR 2.05. Marco Nix: And we do see that as a strong signal that the investment in the Elia Group is a value-accretive one and the dividend payment is one of the elements there. So that gives some certainty that our growth path is intact. Stephanie Luyten: Regarding the ABB, what do we need to have in place for that? First of all, yes, we will have to have an authorized capital in order to do such a transaction. But we -- as Marco already highlighted today, we are not looking to use any nondilutive -- we are looking to use nondilutive options. And I think there, we have enough flexibility. The way forward would be towards the future to bring back unauthorized capital, put that in place, and that are the first steps that we need to take. Bernard Gustin: And on the U.S., well, first of all, it reminds us of the potential in the U.S. We have a little bit of a setback at the moment, but we are convinced that over the long run, we know the situation of the grid in the U.S. It's certainly not at level with the AI ambition that the U.S. has and the battle of AI will pass via a strong grid. So I think it's good that we are positioned in there. It will take a little bit more longer than expected, but I'm convinced that the potential is the same because the grid becomes a critical asset in every region of the world that want to electrify. The debate, of course, is who needs to pay, and we see the investments that the hyperscalers are doing and all things relative, the investment in the grids are indeed a fraction of the investments they are generally doing. So the idea to make them contribute is a political decision where it will be difficult for me to take a position, but it's clear that we've seen in our countries that the development of AI and data centers is representing a certain burden on the net, burden on the consumption. And I think at some point, there are 2 positions that need to be taken. The first one is what do we want in terms of industrial development and where do we give the priorities in terms of segments, AI, data centers versus general industry. And then how do we make sure that the general consumer is not hampered by a consumption that is not responsible for. So I think I don't know what is the exact recipe, but the direction is certainly a direction to investigate. Marco Nix: And maybe to complement on that one, on one hand, there are multiple congestions on all these connection requests. So funding is one. So in Germany, for instance, the consumers are not paying for the direct connection. It's indeed then the applicant. On the other side, we do see that the grid is heavily loaded and simply that makes a congestion in connecting a new device to the grid. So as this is something we need to be careful of as well to protect our people in doing the works there. And last but not least, it's not all the time that visible how mature the project is. And our lead time, it's fair to say, are still longer than the ones from this developer. And as they want to go in a staged process usually with extending the devices which are consuming them at the stage, but we are designing the -- yes, the connection only once. So that's all the time a little bit mismatch in the planning horizon. That's something which we need to work on commonly to make sure that we do see how mature the project is that we can give some access being granted and we can rely on that one as well as, of course, we want to prevent that we invest in an area where nothing is going to happen. As we honestly have seen in Germany with the ship industry as Intel canceled the big factory in an area of Magdeburg, and then the TSO was forced to bring down the commitments in that area. However, the land has been already being acquired. So that's a mismatch, which we need to be careful on as, of course, we need to protect then the final consumer, as Bernard rightly says, that we are not socializing cost of the industry, yes. That's a little bit what we are in. Bernard Gustin: But it's clear that AI needs the grid, but the grid also needs AI. And we will also -- and we are really developing an AI strategy and developing -- we are already using a lot of AI, but we want to accelerate there because AI is also a way to solve some of the bottleneck issues that we have today. So it's really a very close relationship, both ends. Stephanie Luyten: Let's now move to Juan from Kepler. Juan Rodriguez: I have 2, which are more of a follow-up, if I may. The first one is on guidance. Can you please confirm that you have no additional hybrids included on your 2026 guidance? And on guidance as well, what is the targeted return on equity that you have on Belgium and Germany within the guidance that you've given, especially on Germany as is substantially above expectations? And the second one is on the U.S. impairments. What are your expectations now in terms of the timing and size of the expected earnings contribution that you expect in the region going forward? If you can give us more clarity on that, that will be helpful. Marco Nix: You take the hybrid? Yannick Dekoninck: I think in the guidance that we have given is a guidance that takes into consideration multiple options that we have in the funding toolkit. So we do not exclude -- to be clear, we do not exclude a hybrid issuance, but the guidance that we have published this morning takes into consideration multiple options. Now in terms of return on equity, as you know, we are not guiding specifically on the return on equity for a specific year. We have guided on the return on equity over the period, over the regulatory period, both in Germany and Belgium. So that's still something that we are targeting for, knowing that you could have certain variability year-over-year due to important one-off effects like we had this year. That's also why we have been very clear on what that one-off effect was in Germany. Marco Nix: So to remind you, the average guidance which we have given was between 7% and 8% in Belgium, while in Germany, it was 8% to 10%. Stephanie Luyten: Yes. And on the impairment? Bernard Gustin: Did we miss one? Stephanie Luyten: Yes. I think on the U.S. impairment on the timing, when we could expect a positive contribution, but that one is a little early to say today because there's still a lot of uncertainty on when those projects and how and when they will materialize, but that's more towards the end of the decade, I would say. Bernard Gustin: Yes. And it's clear that, as you know, we have 3 projects, the project on Clean Path, New York, which is a line in New York, didn't pass some regulatory approval, what we call a priority transmission project, but it doesn't take away that New York needs an extra transmission line. And so we will use the assets to participate to further project development. So there, we believe we are rather facing a delay. You know the uncertainty that exists today in the U.S. about the offshore and things can turn very quickly one way or the other. So our strategy there is to secure the assets that we have in place. We have already the leasing rights on this project, that's Leading Light Wind. And on SOO Green there for the moment, that's a project that, as Stephanie explained in the presentation, continues on its path of the different regulatory hurdles. And so there, for the moment, there is no reason to review the project. So as you say, we are rather delaying in time. But as I said to your colleague just earlier, I'm convinced that the fundamentals stay and at some point, somebody will see that these projects are heavily needed. Marco Nix: So in the '26 guidance, there's no positive contribution being expected to make that clear. Stephanie Luyten: Thank you, Juan. Let's now turn to Alberto from Exane. Alberto de Antonio Gardeta: Congratulations for the results. A couple of follow-ups from my side. The first one is regarding the German regulation. Maybe if you could -- based on the like already published consultation papers, if you could quantify what are your expectations in terms of ROE and WACC based on the current consultation papers and what else is needed? So maybe if you could give us some guidance of what will be your expected level of returns in order to get the competitive returns that you need for being competitive in the equity markets? And the second one will be regarding the potential update to the market, the potential Capital Market Day. You have said that maybe by the end of the year or beginning of 2027. When do you know that we will have more visibility if this is happening or if we can consider as confirmed or it's still pending? Stephanie Luyten: I think maybe I'll start on the Capital Markets Day. That's still very much pending. As Marco clearly said, there are still a lot of moving factors. We don't yet have clarity in Germany. And also in Germany, the final elements will only be defined somewhere in 2027. So that's why we cannot fix to a date somewhere in the future. So next to that, we also have grid development planning that is ongoing in Belgium, in Germany. Those time lines aren't super fixed neither. So this will be something, I think, towards the end of the year, we will have more clarity on. So I do not expect us to really do a CMD still this year. Marco Nix: So to come to the German regulation, if you really look into the paper, even though it's heavy reading, I would say, it's for the time being, for our perception, more a description of a structural approach while the ingredients are not being flagged yet. And even though a WACC model could be something comparable, but the big debate on the cost of debt coverage is not finished yet. So that's still ongoing, but a rating adjustment is being made, which kind of reference rate is being used. These elements are still pending. That's why it's a little bit too early really to say what the outcome could look like, and we previously discussed equity or return adder for the TSOs, what is still in the discussion, which is not in yet. So I would say we are not there yet with that what we assume BSR could deploy. However, our clear target is not being worse than today. And if you take the return on equity, which we disclosed and take off all the accounting items, there's still a return rate above 8.4%, which is, if you want to name it, a kind of cash return. And as BSR already said, the total package matters, that's something we are requesting, and that's something which we are targeting to get out of it. Which elements shall we put in place. There, we have some openness. So if there's an incentive being put in place, which gives us an order of magnitude lending there, we are fine with it as well. We are happy to get challenged in terms of our operations. But so far, it's not really clear. So therefore, we are hesitating to give a guidance what it could give for the time being. Stephanie Luyten: Thank you, Alberto. Let's now -- I see Olly, you have some further follow-up questions? Can you hear us, Olly? Olly Jeffery: Yes. Just one follow-up question, please. Going back to the discussion on the capitalized interest within the guidance for '26 at 50Hertz. Is that -- which is noncash. Is there anything else within that '26 guide 50Hertz that is noncash in addition to the capitalized interest that we should know about? Or is that the only item? Marco Nix: I wouldn't say it material. There is -- now we come a little bit in great territory as we assume commissioning, which gives us a full depreciation in the revenues, there's a cash connected to that one, while the depreciation is lower, the real depreciation, which we are recording in that year. So for us, it's a cash item, which contributes to the results as well. While the capitalized borrowing cost is a noncash item as this is reverted later stage. So -- and therefore, I would keep it on that one, knowing that, of course, the example which I raised could give us a favor in the results of next year as well. And as I said, if you only linearize that, the result would look a little bit outstanding compared to that linearization in line with the CapEx, which you otherwise would compute. Yannick Dekoninck: And maybe if I can complement it, Marco, for those that have been following us for a couple of years, you see that we also have sometimes discounting of interconnecting provisions or interconnected income. As you know, you -- sometimes have spike in the forward rates that has an impact on those long-term provisions. That's not something that we estimate or take into account in the guidance as such, but that's always something that can happen. We were confronted with that a little bit at the end of Q4 of this year, where the interest rates started to move up. But that's not something that we can -- that we have a control on. That's not something that we can steer. So there, we have a neutral approach. But in the actuals, of course, that can have an impact. Olly Jeffery: And what was the impact of that in the '25 results from that movement at the end of Q4? Yannick Dekoninck: I think at the end of Q4, we had a net impact of EUR 22 million that was coming from this discounting of provisions. Stephanie Luyten: Thank you, Olly. If there are no further questions, let's wrap up today's presentation. First of all, a big thank you to all the teams who have contributed. Thank you, Bernard, Marco, Yannick. Marco Nix: Thank you, Stephanie. Stephanie Luyten: And thank you for joining us today. Have a nice day, and see you soon.
Eric Born: All right. Good morning, everyone, and welcome to the Grafton Full Year Results Presentation. A few operational highlights from me before I hand over to David, who will guide you through the financial numbers in more detail. Good morning. A resilient Group performance in 2025 with pleasingly a return to revenue and to profit growth. So revenue was up for the full year, 10.4%. Adjusted operating profit was up 7.1%, and our adjusted return on capital employed was up 60 basis points at 10.9%, comfortably exceeding our cost of capital. We made continued progress on our development activities to further strengthen the group, enhanced leadership teams and the talent pool in general across the Group, including bringing in -- for Iberia to really focus on our growth aspiration in that relatively new market for us. We successfully integrated the first platform acquisition we did, Salvador Escoda, which I'm pleased to say delivered the profit growth in line with our plan, and we made good work to prepare that business to be ready to accelerate growth going forward. We also strengthened our market position in the Republic of Ireland with the bolt-on acquisition of HSS Hire into the Chadwicks Group to further extend our hire proposition to our customers. And in general, we delivered a strong cash conversion and preserved a strong balance sheet to continue to support the future development of the Group. So I shall now hand over to David, who goes into more detail. David Arnold: Thank you, Eric, and good morning, everyone. As Eric has already covered off some of the headline details of our performance in 2025, I'll talk you through some of the financial details now starting with the income statement. Revenue of GBP 2.52 billion was 10.4% higher than last year. Thanks to the hard work of our teams across the group, we delivered a resilient adjusted operating margin pre-property profit of 7.3%, only 30 basis points below last year. This reflects a continued focus on margin management with the group achieving a 50 basis point improvement in gross margin, together with a proactive management of our cost base to mitigate the ongoing inflationary environment on operating costs. It's pleasing to report that we saw a return to profit growth for the first time in 3 years, with the group's adjusted operating profit before property profit of GBP 184.3 million, 6.2% ahead of 2024. Adjusted operating profit, including property profit of GBP 5.9 million was 7.1% up to GBP 190.2 million. The net finance cost of GBP 10.1 million was higher and reflected 3 elements: lower interest income on deposits following interest rate cuts, lower cash balances due to acquisitions and share buybacks; and finally, a foreign exchange movement. The effective tax rate was 18.2%. That's lower than the 19.5% indicated at the half year and reflected the geographic mix of group's profits and a credit relating to updated estimates of liabilities relating to prior years. Adjusted earnings per share was 75.4p, 5.1% higher than 2024 and which benefited from our share buyback program. Since we first started our share buybacks in 2022, we've reduced our share count by over 20%, and I'm delighted that we're announcing a new GBP 25 million share buyback today. For more technical guidance on 2026, I've included some information in the appendices, which you may find helpful. As noted in our January trading update, the Group has adopted a new reporting structure that better reflects our strategy and management focus. The Group is now organized into 4 geographical areas, the Island of Ireland, Great Britain, Northern Europe and Iberia. And I've set out on this slide where the various brands now sit. For clarity, all results presented today follow the new reporting structure with comparatives restated. And we've included a couple of slides again in the appendices to help you track through the new segments. Let's look now at movements in revenue for the year in comparison to 2024. The organic movement, which I'll cover in more detail on the next slide, saw revenue increase by GBP 30 million. Acquisitions contributed GBP 195 million of incremental revenue in total, largely due to the full year impact of Salvador Escoda, which reflects the benefit of an additional 10 months of trading compared to 2024. The divestment of the noncore MFP piping business in the Republic of Ireland at the end of May reduced revenue by GBP 5 million. As MFP mostly supplied internal customers, the revenue effect is limited here, but you'll see a larger impact later when we discuss the operating profit impact. Finally, the strengthening of the euro against sterling accounted for an exchange gain of GBP 18 million in the year. This slide analyzes the net increase of GBP 30 million in organic revenue. It should be noted that revenue in the year was supported by modest levels of product price inflation, and that's in contrast to 2024 when product price deflation, particularly in our distribution businesses in Ireland and Great Britain, adversely impacted sales. The Island of Ireland segment, where all businesses delivered year-on-year growth was a key driver of organic growth with revenue up GBP 34 million. In a difficult market, organic revenue in Great Britain was broadly flat year-on-year, which we felt was a creditable performance. Revenue in Northern Europe declined by GBP 6 million, largely due to lower trading activity in Finland. Organic growth in Iberia relates only to the last 2 months of the year as the business was acquired on the 30th of October 2024. Turning now to the movement in reported adjusted operating profit. We'll look at the movement in the profitability of the like-for-like business in a moment. The net impact of new and closed branches had a small positive impact on profits, while the impact of the MFP divestment, which I talked about earlier and is shown separately here, resulted in GBP 2.6 million reduction in profitability. Acquisitions added a total of GBP 13.2 million, mostly driven by Salvador Escoda in Spain with GBP 1.4 million coming from 7 months of trading from the bolt-on acquisition of HSS Hire Ireland. Property profit was up GBP 1.9 million in the year, while the stronger euro had a positive impact on reported sterling profitability. Looking at the movement in adjusted operating profit in our like-for-like business, you can see that all operating segments, except Northern Europe reported an increase in adjusted operating profit. Our businesses in the Island of Ireland delivered a strong profit growth as strong sales performance underpinned gross margin expansion. And in Great Britain, even in a very challenging market and with sales broadly flat, profits were higher, thanks to a 120 basis point improvement in gross margin. Northern Europe experienced a reduction in profits, driven by -- primarily by lower sales in Finland and ongoing operating cost pressures in both the Netherlands and Finland, which I'll cover in more detail in a few minutes. Finally, central costs were higher in the year, partly due to the planned investment made towards the end of 2024 and into 2025 to strengthen capabilities to support the group's strategic priorities. Moving on now to look at each segment in a little bit more detail. Our Island of Ireland segment delivered a strong performance during the year, supported by favorable economic conditions in the Republic of Ireland. Revenue of GBP 1.07 billion increased by 4.3% on a constant currency basis. Average daily like-for-like sales were up by 3.5%, with all businesses reporting year-on-year growth. Woodie's delivered another year of strong growth, supported by a particularly strong performance in plants and garden products with growth driven predominantly by increased transaction volumes alongside modest increases in average transaction values. Chadwicks saw good growth across the hardware, heating and plumbing categories. The gross margin increased by 20 basis points in the year, driven primarily by the strong performance of Chadwicks. Overheads increased due to inflationary pressure, while all our businesses continue to mitigate these impacts through productivity gains, better use of technology and more efficient rostering. Adjusted operating profit of GBP 111 million was 1.8% ahead on a constant currency basis, but the operating margin was slightly down by 20 basis points to 10.4%, largely due to operating cost pressures. The integration of HSS Hire Ireland into Chadwicks continues to progress well with a short-term focus on systems integration. The outlook for the construction market in Ireland remains positive with a focus on accelerating new housing supply expected to continue for at least the next decade. In Northern Ireland, market conditions were and remain more challenging with the construction sector delivering modest growth in 2025, primarily due to an increase in new housing, albeit from a low base. Moving next to the Great Britain. We were especially pleased that our targeted commercial actions delivered a 120 basis point improvement in the gross margin despite a very competitive market backdrop with subdued volumes. Around 60% of our sales in Great Britain are generated from London and the Southeast, and this market has been particularly affected by a weak housing market with London seeing the lowest level of housing starts in 40 years. After a positive start to the year, overall construction activity softened from late quarter 2 and remained that way into the second half with the U.K. government's autumn budget further weighing on consumer sentiment. Revenue in Great Britain of GBP 765 million was broadly unchanged in comparison to prior year. Average daily like-for-like sales were up 0.4% with strong growth in our manufacturing businesses, helped by softer comparators from 2024, largely offset by a modest decline in our distribution businesses, which represent a greater share of sales. Notwithstanding inflationary pressure on costs, especially with respect to labor and property, overheads were tightly controlled across our businesses with the increase in like-for-like overheads contained to 1.8%, well below general inflation levels. Adjusted operating profit of GBP 49.2 million increased by 6.2%, supported by that gross margin expansion. In our Northern Europe segment, performance in the year was below our expectations. Revenue of GBP 469.7 million declined by 1.1% on a constant currency basis. Average daily like-for-like sales increased -- decreased by 0.5% in 2025, with moderate growth in the Netherlands more than offset by a pronounced decline in Finland. Sales increased in the Netherlands, driven primarily by strong branch sales and growth in national key accounts, in addition to increases in project-related sales and modest product price inflation. After a strong start to the year, momentum in the Netherlands eased as several major construction projects reached completion and the start of new projects was delayed. Sales in Finland fell sharply due to difficult market conditions, unfavorably mild weather at the start of the year and temporary operational issues that disrupted our internal supply chain. Challenges have gradually eased in the second half as management took decisive actions. Gross margin increased by 90 basis points in the year, reflecting strong performances in both geographies. In the Netherlands, active commercial management actions more than offset the adverse mix effects of large construction projects and key accounts, which accounted for a higher proportion of sales, whilst gross margin in Finland improved primarily through optimization of rebates and procurement efficiencies. Overheads remained under pressure in the year, reflecting general inflationary pressures, the high settlement agreement under the industry-wide collective labor agreements in the Netherlands and strategic investments which we made to strengthen the Finnish business. Adjusted operating profit of GBP 29.6 million was 17.2% below prior year on a constant currency basis. The operating margin was 120 basis points lower at 6.3%, reflecting the impact of lower sales in Finland and the inflationary pressure on overheads across both geographies. Salvador Escoda is one of Spain's leading distributors of HVAC, water and renewable products, which we acquired at the end of October 2024. We're very pleased with how the integration of the business has progressed and its trading performance in its first full year under Grafton ownership was in line with our pre-acquisition expectations. We've strengthened the business further during 2025, adding resources and support to its experienced management team to create a strong foundation for Salvador Escoda to accelerate organic and inorganic growth in the coming years. Salvador Escoda reported revenue of GBP 212.9 million and delivered an adjusted operating profit of GBP 13.6 million, representing an adjusted operating profit margin of 6.4%. The year-on-year increase reflects the benefit of an additional 10 months of trading in 2025. On a pro forma basis, in comparison to prior year, average daily like-for-like revenue was 6.1% higher, driven by strong growth in the air conditioning, ventilation and refrigeration categories as well as favorable market backdrop. The Spanish economy continues to be one of the fastest-growing economies in Europe with GDP expected to have grown by approximately 3% in 2025. The Spanish construction market is forecast to grow slightly faster by around 3% to 4% in 2026, supported by sustained housing demand, substantial investment in renewable energy and transport infrastructure and the accelerating shift towards energy-efficient and sustainable building practices. Within the construction sector, the HVAC segment is well positioned for strong growth, driven by tighter energy efficiency rules, rising consumer focus on efficiency and higher temperatures across the Iberian Peninsula. Despite navigating significant change in 2025, the business delivered a strong trading performance, outperforming the prior year on both a reported and pro forma basis. The group continues to support the local management team in driving organic growth. New business -- new branches opened in Vic in Catalonia and Plasencia in Extremadura, enhancing our existing market positions in these regions. We continue to assess further growth opportunities in the attractive Iberian market with a strong pipeline of potential new branch locations in hand. Now this slide analyzes our cash flow in the year. As you can see, the group generated strong free cash flow of GBP 168 million in 2025, representing an 88% conversion of adjusted operating profit into cash and contributing to more than GBP 700 million of free cash flow generated over the last 4 years. And some key highlights to note. We were pleased to see a reduction in net working capital of GBP 12 million in the year despite higher sales. Optimizing our investment in net working capital, whilst not compromising our customer proposition continues to be a key focus across the group. We continue to reinvest to strengthen our businesses, notwithstanding current market weakness in certain geographies with a net GBP 41 million invested in replacement and development CapEx. There was a GBP 14.3 million investment in net M&A activity, being the acquisition of HSS Hire Island, partially offset by proceeds from the divestment of our MFP piping business in the Republic of Ireland. And finally, we returned GBP 128 million of capital, net of issued shares under the LTIP and SAYE schemes to shareholders in the year. Of that, GBP 72.6 million was paid in dividends. And you'll have seen from today's results that we propose to increase the full year dividend by 2% to 37.75p per share. Dividend cover for the year was 2x, and it is our intention to restore dividend cover more firmly within the 2 to 3x dividend cover ratio as we move forward. The cash-generative nature of businesses continues to support both shareholder returns and a strong balance sheet, providing significant firepower for the group to capitalize on organic and inorganic development opportunities. At the end of December, our net debt was GBP 123 million, representing a lease-adjusted net debt-to-EBITDA ratio of just under 0.4x, slightly better than at the end of 2024. And finally, just turning to the balance sheet. I'd just note the net working capital increase, which you see there of GBP 8.8 million in comparison to the end of 2024, and that's largely due to the recognition of the deferred consideration related to the divestment of MFP. Adjusted return on capital employed was 10.9%, almost 2 percentage points higher than our estimated weighted average cost of capital and 60 basis points higher than 2024. And I'll now hand back to Eric to talk about current trading trends, our strategy and outlook. Eric Born: Thank you, David. On the left, you can see the average daily like-for-like revenue change in constant currency for Q1 '25 and for the first couple of months in 2026. It's early in the year and the important trading months are still to come. So if you go to the Island of Ireland, wet weather impacted the trading on the Island of Ireland and in Great Britain. However, Ireland delivered some growth, supported by the softer comparators following the storm Eowyn in the prior year during that period. In GB, in Great Britain, the market environment remains challenging, as you can see on the like-for-like numbers. We had modest growth in Northern Europe with a strong Finnish performance, offset by some softer trading in the Netherlands, which was impacted by a change of holidays. In other words, they had the Carnival period in the like-for-like period, which will not deliver the sales you would hope during the period. But ongoing strong momentum in Iberia. From an outlook point of view, Island of Ireland, the construction outlook remains positive in the Island of Ireland with the retail consumer slightly more cautious than previously, but we have a positive outlook overall for the Island of Ireland. In terms of Northern Ireland, we don't expect any significant uplift during 2026. Moving to GB, a slow start, as I mentioned. However, the important months are yet to come and January, February was certainly impacted by bad weather conditions in Great Britain. We would expect a modest market growth in the second half of the year. Northern Europe, the Netherlands construction market is expected to gradually recover during the year. And in terms of Finland, we don't expect any meaningful improvement of the construction market until the second half of the year. Iberia, as David already mentioned, the construction market is expected to grow 3% to 4% during 2026, and we would expect our product segments to do well within that market environment. In terms of medium-term outlook, positive across all geographies because they all are supported by the structural growth drivers of not enough housing and aged housing stock. So the long-term drivers are very positive, and we have strong position in all of those markets. The recovery potential is especially great in Great Britain and Northern Europe, where we have a lot of operating leverage and the business has not cut into the muscle. So whilst we are lean in those businesses, we are ready to take advantage of increasing volumes when they will arrive. Tight cost control really gives us the benefit of the operating leverage as volumes return. So let me say a few words about our strategy. So how do we intend to drive growth and create value going forward. As you know, we focus on European markets with long-term growth characteristics. And within each geographic market, we build strong positions to distribute construction-related products and solutions to our predominantly trade customers. In terms of operating model, we have a federated operating model with local execution, supported by strong group capabilities, how we help the businesses to improve and drive results across the geographies. So what sets us apart are really strong and experienced leaders in each market supported by the group, but the accountability really sits in the market and the ownership. That drives very high colleague engagement and a relentless focus on providing customer service and a real sense of ownership. And I think that's something which really sets us apart because our businesses really care. We also have a very resilient model based on the geographic diversification we have. And you can see this again in this year's results where 2 of our markets are challenged, let's say, in 2 of our markets are in a more positive macro environment, which overall still leads to a very, very strong generative -- cash-generative business, which is a real underlying strength. And as David mentioned earlier, we are very disciplined in terms of our financial discipline. So we will maintain our credit grade rating, and we have a very clear structured approach to capital allocation, which you can see on the right of the slide. So it's really around, first, fund organic growth and keep our existing estate fresh and make sure we have sufficiently invested into the existing estate, pay a dividend in the range of a dividend cover of 2 to 3x with an ambition to move closer to 3x over time than we are at the moment. Third priority, inorganic growth. We have a very strong pipeline, and we are focused on driving growth at this moment in time in our already existing markets. So it's not about planting a flag in another country at this moment in time, focused on the existing markets and then to return surplus capital to our shareholders, which we did again with the announcement this morning of a further GBP 25 million share buyback. And I think the next slide nicely illustrates this in practice when you look around the capital allocation between 2022 and 2025. We started in '22 with a net cash position. We generated over GBP 700 million of free cash flow after replacement CapEx. We then allocated a good chunk, namely GBP 721 million to pay dividends and execute share buybacks and return that money to shareholders, whilst we also invested roughly GBP 100 million in development CapEx and over GBP 160 million in acquisitions. So I think that's a very nice illustration around the cash generation of the business and how we allocate the capital mindfully. But of course, we want to tell you more about all of that and how we drive future growth with a Capital Markets Event, which will be held on May 20 here in London. And the event will focus on the group's strategy and growth ambitions over the medium term and you will have the opportunity to not just meet David and me, but of course, many other senior leaders and see more about the bench strength of the management team we have from all the different geographies. So shall we move over to Q&A. Shane Carberry: Shane Carberry, Goodbody. Two, if I can, please. The first one, just in terms of the gross margin in the U.K., really impressive 120 bps increase year-over-year. Could you talk a little bit about the dynamics behind that and some of the levers that you had to pull to achieve that outturn? And then the second was just to get a little bit more color around Iberia. It's been kind of 14, 15 months now since you bought Salvador Escoda. So how has that process been? Has it integrated as well as you thought it would to date? And just thinking looking forward, now that you've hired a CEO, how should we think about how things are going to evolve from here from an organic and inorganic growth perspective relative to what you might have thought 14, 15 months ago? Eric Born: Okay. So let's start with GB and the margin improvement. I think in general, given we have, as you know, a federated structure, we have people in the businesses who are focused on the bottom line. This is a performance-led culture. And as -- for example, as demand was soft, we saw in some of the activities we did early in the year when we drove promotions that even with support of suppliers, the incremental volume you generate on the promotion activities actually led to a lower gross profit than in absolute pound sterling numbers than if you wouldn't have run a promotion. So the businesses will have been very tactical picking their battles, if you want, and more making sure we deliver an overall attractive basket for our customers rather than drive aggressive price promotions into a market where you will not have the incremental revenue and will be net-net out of pocket. So those were some of the levers. Of course, others were working hard on some of our exclusive and own brands and how are they positioned and what's the share of those and all sorts of commercial activities and collaboration with the suppliers to manage the gross margin overall. But I think that is really something where you have to be nimble and you have -- and I really attribute the strength of the federated structure and that operating model for the businesses to take the right decisions because it will be impossible for us to legislate if you want from a Group point of view, how they have to react to daily trading. So that's the bit on GB. If you look at Iberia, I think that has been a great success so far, right? So we have -- we are absolutely in line with where we expect to be. This is a business we acquired and in year 1 of acquisitions had a higher ROCE than our cost of capital. So we buy a platform which already in year 1, ROCE is greater than our cost of capital. So that's a good thing. Secondly, we had an experienced management team in a family setup, which had to learn a lot about how we do things in a PC environment. So we had to strengthen, for example, the finance function, the HR functions, the health and safety function, property, right? We have growth ambitions, but we wouldn't have had the infrastructure at the moment we acquired the business to accelerate growth beyond 2 or 3 branches a year, even if the opportunities come up, we just didn't have the infrastructure. Nobody have had the backbone and the infrastructure to absorb a bolt-on acquisition and integrate it, right? So that's really the work we have done during this year to create that, if you want the engine room within Salvador Escoda. And now we are ready to accelerate growth organically, but also to absorb bolt-on acquisitions as they might present themselves to execute. So that's within Salvador Escoda. So we strengthened the management team. We still have the same CEO or Managing Director for that operating business, which is Marta Escoda, the daughter of the founder, who already run the business when we bought it. The plan was always -- we singled out Spain or the European Peninsula as a very, very attractive market for 2 reasons. One, it's a growing market. Secondly, it's highly, highly fragmented, right? So it kind of really gives opportunities for M&A as well as organic growth across multiple verticals. So with Marta, we have an excellent person to run Salvador Escoda, but you need a different animal in the local geography to drive our growth ambitions, to help us to get the position we would want to have by 2030. So -- and that was the backdrop why very early on, we made the decision to go out and bring a CEO in for the Iberian Peninsula. And I'm very pleased, Mario has started in January. And I'm convinced we will have more to report over time from how we will successfully grow across Iberia. Charlie Campbell: Charlie Campbell from Stifel. A couple of questions following on from both of those really. So Spain margin 6.4% in the year. It was more like 7% before you bought it. I guess that comes from putting in more infrastructure to support the business and make growth more sustainable. But how should we think about margins longer term in Spain? Should we think about that 7% as achievable and perhaps more as volumes drop through? And secondly, on the GB and on the gross margin, did you change the incentive structure there at all? Are people perhaps more focused on growth than they were before because that really is an extraordinary performance. Eric Born: Look, in Iberia, we do believe there is room to enhance the margins in Salvador Escoda over time. But if I look at Iberia in general, we would expect for this business to substantially grow, so in Iberia and have somewhere a margin corridor between 7% and 10%, would be kind of the margin corridor we would expect to be throughout the cycle in Spain. So I hope that answers that bit. In terms of incentive structure, no, we haven't changed the incentive structure in the business in GB. We have enhanced the management capabilities within GB. So we have a long-serving colleague, which has kind of oversight over CPI, EuroMix and StairBox. And then we have Frank Elkins, who joined us in 2024, right? Time flies when you have fun, in 2024. And he has been really, really focused with the team and enhancing, as I said, the bench strength, which is an ongoing process, right? I always compare this to like a football coach that you -- whenever you have the opportunity, you strengthen your team. It's a team sport, right? And that's exactly what we have done. So the focus or the achievement has been by targeted activities and focus. But people are bonused on delivering the outcome on the bottom line, right? So in a sense, that incentive has always been there. So the incentive hasn't changed. David Arnold: And I suppose just on that financial piece around Spain, as Eric alluded to, the business is exceeding our cost of capital in its first full year and really very much return on capital employed is our sort of foremost guiding financial metric, I suppose. Operating margin is sort of -- is a good metric for quality. But really, it's about driving return on capital employed and cash. Samuel Cullen: Sam Cullen from Peel Hunt. I've got 3, if possible. Coming back on the Selco gross margins, I guess, how do you -- let's say, volumes do pick up second half of the year and they grow again next year. What's the sensitivity around kind of unwinding some of that gross margin increase to take more volume? And how do the guys on the ground judge if, when, how to do that? That's the first one. David Arnold: Should we just pick them off as we've got another couple coming. I mean, look, I think on gross margin, yes, you've got to play the game that's in front of you. And I think in 2025, it was a game of weaker margins. And therefore, what do we do focusing on that bottom line. And I think that mantra continues going forward. So we just need to be nimble and responsive to how the volume and the strength of the market demand sits overall in GB in the same way that we're not focused on market share as a particular metric and are led by what's the impact on the bottom line. I just think we'll be nimble and the gross margin may come down if we see that strength in volume that we know that we can more than recover that by seeding some margin. So it's that flexibility and nimbleness that we need really. Samuel Cullen: Second one is on central costs. I think you highlighted there was a step-up in investment this year. Do we expect that to be at the end of that step-up and it to be kind of inflationary from here? Or do you envisage... David Arnold: No, I think it's a modest amount. I mean, for example, to give a bit of color on some of the areas that we focused on, it was more support on transaction services so that, again, we were better placed to be able to pursue a broad pipeline of acquisitions. It was elements like cybersecurity and support for a number of the ERP implementations that we've got going on around the group. Some of it was bringing sensible things, for example, like payroll into the center and taking it out of the businesses and saving some of the costs in the businesses. So there were sort of a variety of tactical things. Do we think that there will be major moves or significant more increases in central costs? I don't think it will be significantly more in terms of the investment in additional functions or roles. Samuel Cullen: And the last one is back on the U.K. If we don't see a pickup in overall market volumes, do you see wider consolidation in the sector over the medium term, may not be from yourselves but from other players? Eric Born: It's a good question, right? So we have private equity active in the U.K., right? Do I think they -- if there is no recovery, that was your question, do I think there will be a lot of appetite of those ICs to invest more money in the sector? I'm not sure, right? In terms of the listed players -- in theory, there should be more consolidation. If you look at how many general builders merchants there are in the U.K., you would expect there to be more consolidation. Whether that will play out like that is yet to be seen, right? So we -- again, and I'm clear on that, we are -- from our own investment point of view, we believe in the businesses which we have in the U.K. irrespective of where we now sit in the cycle, and we will continue to support those businesses. And if the right organic growth locations come up, whether that's for a Selco or for TG Lynes or for a Leyland or anything, we will invest the money into it if we believe in the case. You have to look throughout the cycle. You can't just sit and think, now it's bad, it will always be bad because the fundamental growth drivers are there in the U.K. The question is when. But if you then come to M&A capital, do we deploy M&A capital in the U.K. Well, for GB, I'm not saying no. But as you will have seen, we look at capital allocation in a framework, which says, do we actually believe this is the right allocation of capital. Do we get a return on capital and the cash generation out of this business, which we think is really accretive for our shareholders and the business over time. And if the answer is, yes, we do and we find a market like that in GB, well, we will allocate capital. But if it's in Spain or in Ireland or somewhere else within our existing markets, we will allocate it. Florence O'Donoghue: Flor O'Donoghue, Davy. Just 2 for me. One is just on OpEx for this year, just your sense of rents, rates, labor, what they're looking like. Second one then is just on selling prices. What's the current state of play in relation to them? David Arnold: So I think on OpEx, I mean, if we look last year, there were a number of high areas of inflation. You take the Netherlands, for example, where there's a collective labor agreement, and we saw salary increases of 6% in 2025. That under the collective labor agreement for 2026 will be more like 4%. So we're definitely seeing it reduce. But I would still think that we'll be working really hard to contain it in that 3% to 3.5% level because of what we see in terms of some of the statutory increases, national insurance effectively for a full year. We've got what's happening on national living wage, for example, either in Ireland or in the U.K. Those pressures are still there. Pressures on property rents in terms of the inflation that we're seeing where you've got 5-year rents that are refixing this year that we've got the catch-up from a few years ago as well. So yes, we'll work really hard, but I would still say it still feels 3%, 3.5% we'll be doing well to contain it to that, I think. And we'll have to work really hard around efficiencies and cost control to mitigate some of the softness in the market. As regards overall, what we're sort of seeing across the piece on selling prices, I would say probably not a too dissimilar picture in '26 to what we saw in '25. Depending upon geography, Netherlands was probably closer to 1%. Ireland on the distribution side was more like 1.5% to 2%. I think we're still in that sort of zone, certainly talking to manufacturers and suppliers. It felt at the start of the year that we were in that sort of zone. Of course, we're slightly in the lap of the gods in terms of exactly what happens to the evolution of inflation in the year. But yes, we started thinking 1%, 1.5%. Christen Hjorth: Christen Hjorth from Deutsche Bank. Just 2 for me. First of all, on the GB like-for-like at the start of the year, just trying to unpick some of the one-offs in there and I suppose the extent to which the first 2 months is a read for the first half and maybe how you exited those first 2 months because obviously, the number was a bit standout on GB. And the second one, sort of maybe a bit similar to Sam's question, but looking at Europe, I mean, there's a few players out there looking to consolidate European distribution. So in the context of that, what really sets Grafton apart, particularly, I'd say, in terms of being the acquirer of choice for some of the businesses that you're looking for? David Arnold: Do you want to pick Europe and I'll come back to GB? Eric Born: Look, many of the consolidator -- not all of them, but many of the consolidators are across Europe are private equity backed, right? So if you look at what we bring to the table is we -- if you think about the family-owned business, we will be a home for the family-owned business and not a transitionary home for family-owned business. And I think that's a major competitive advantage we have. We can have owners talk to people who work for Grafton, who sold their business to Grafton and they can talk about how that experience was for them. And by the way, we do this frequently, right? We have people coming and visit Sitetech or other businesses and which are part of the Chadwicks Group now, and they can really talk about that firsthand experience. We also have that experience with Salvador Escoda, right? How was it for them. And I think that's a major, major benefit. What was the second part of the question? Christen Hjorth: GB like-for-like. David Arnold: Yes, GB like-for-like. I mean, look, the year has started off weakly. There's no doubt in GB. To some extent, it was -- has been influenced by the wet weather. But I think that's an element of it. I think market is -- remains tough at the moment. The good news is that the year is not won or lost in the months of January and February. So there's a lot to play for in the year ahead. There's some really great stuff that we're doing in the GB businesses. So I think confident about that. The underlying market, there's a lot of really good fundamentals that should start to see -- we should start to see some volume growth coming through during the course of this year. The biggest point is really around confidence. That's the thing. And over the last 5 days, that confidence has probably taken a bit of a not more generally. We just need to see how the next sort of few weeks pan out really. But I think if confidence can come back, there's a whole bunch of reasons to feel optimistic about volume growth, I think, in GB. Okay. So I think that looks like it from the room. We haven't got any questions online. Thank you very much, everybody. Enjoy the sunny day. Eric Born: Thank you all. David Arnold: Thanks.