加载中...
共找到 18,131 条相关资讯
Richard Clarida, former Fed vice chairman, joins 'Closing Bell' to discuss Bessent's recent comments on the Federal Reserve, if the Fed's right to wait and see and much more.
A White House report says DEI promotion led to inefficient management, raising business costs and reducing economic growth by an estimated $94 billion.
In the Middle East, not much has changed on the ground in the past week—fighting continues in Lebanon, the Strait of Hormuz remains effectively closed, and negotiators left this weekend's peace talks empty-handed. On Wall Street, traders see things differently.
The Producer Price Index (PPI) rose less than expected in March amid the spike in energy prices due to the war in Iran. The PPI increased 0.5% during the month, which was the same as February and lower than the 0.
“The constant lesson of history is the dominant role played by surprise. Just when we are most comfortable with an environment and come to believe wefinally understand it, the ground shifts under our feet.
A tech-led rally may have taken the market headlines, but quantum computing stocks added unseen muscle to that move higher. PPI coming in below Wall Street's expectations offered some reprieve on the inflation front.
AT&T, Darden Restaurants, and Philip Morris International offer reliable dividends above 3% and steady earnings growth in a volatile market.
Comprehensive cross-platform coverage of the U.S. market close on Bloomberg Television, Bloomberg Radio, and YouTube with Isabelle Lee, Katie Greifeld, Carol Massar and Tim Stenovec. -------- More on Bloomberg Television and Markets Like this video?
Wall Street's major indexes moved higher on Tuesday, with the Dow Jones Industrial Average and the S&P 500 approaching record levels as investors weighed easing geopolitical tensions, fresh inflation data, and a mixed start to the earnings season. Optimism around a potential resumption of US-Iran negotiations helped lift sentiment, even as markets remained sensitive to developments in the Middle East and their impact on energy prices and inflation.
Wall Street sees more gains ahead for companies that can help protect against future energy shocks like this one.
Eddie Ghabour, co-founder and CEO of Key Advisors Wealth Management explains why he's deploying cash now and how investors can position for a market he believes will hit all‑time highs by May.
Operator: Good afternoon, and welcome to the Ecora Royalties Investor Presentation. Today, we're joined by CEO, Marc Bishop; and CFO, Kevin Flynn, for the presentation and the live Q&A. [Operator Instructions] I'd now like to hand over to Marc to begin the presentation. Marc, over to you. Marc Lafleche: Well, good afternoon, everyone, and thank you for joining us today for a call in relation to our 2025 results. On a number of fronts, 2025 marks a year of delivery. First and foremost, we saw 2025 representing an inflection point. For the first time in this business' history, critical minerals exposures generated more than half of our overall portfolio contribution. And this is primarily driven by our base metals exposures, which grew 150% year-on-year. So all in all, we're obviously very delighted to see our critical minerals royalties demonstrate what is a portion ultimately of the true underlying potential of the wider portfolio in the past year. Second, during the past year, we acquired a producing copper stream, the Mimbula Copper royalty, which has certainly augmented our exposure to copper and pro forma for that commodity, cemented copper at the core of our commodity exposure. And last, I think one of the key highlights of the prior year relates to the rapid deleveraging, which we demonstrated following the acquisition of the Mimbula Copper stream. Following the transaction's close, our net debt was just under $130 million, and we ended the year with net debt that was roughly similar to where we actually started the year 2025. So in other words, roughly flat, inclusive of a $50 million acquisition, which is a strong outcome, an indication of the portfolio's cash generation, but also second, the active steps we took during the year to unlock value from noncore assets. So pausing to speak about the prior year. And overall, it's quite clear to us anyways that 2025 is indeed a landmark year for this business. First, in relation to the commodity complexion with critical minerals representing for the first time ever, more than 50% of coal. But second, in terms of a reduction as we look to the future of an expected reduction in the volatility of the critical minerals royalties cash flows relative to those that we've seen historically with Kestrel, which is a royalty that has been in and out of our royalty area and on a quarter-to-quarter basis has created an element of volatility that we should see far less of into the future. And third, I think this is perhaps to us the most important point on this slide. We're now looking at a source of cash flows that have mine lives that are measured in decades and that compares to Kestrel, which is always measured in much shorter increments more recently in years. So this is a very exciting step forward when we think about the producing aspect of this portfolio and the business' quality of earnings, further supplemented by the organic growth that exists within the existing Ecora portfolio. Looking back 5 years, the critical minerals portfolio really has delivered. From 2020 to 2025, we see approximately 6x to 7x increase in contribution from specialty metals, uranium and base metals. But looking to the future, we still do appear to remain very much at the foothills of the organic cash generation potential that exists in Ecora. And the next 12 months -- 12, 18 months are very key towards derisking that 2030 profile, particularly those assets that are not yet in development -- not yet in production that are at the development stage. And this is summarized on the left of this slide, where what you see is a very layered dimension to our growth profile. For those who have been tracking Ecora for as long as Kevin and I have been with the business, I think what you'll see for the first time probably ever in Ecora's history, we now have a growth profile that's layered across volume growth from assets that are in production, volume growth potential from assets that are in production being expanded by brownfield expansions or being restarted from assets that are -- once we're in production that have stopped and are intended to revert near-term development, so assets that are far along the development curve, not yet in production, but greenfield growth. And then last, early stage or assets where we see not necessarily a path to income in the next 5 or 10 years, but a path to sizable capital appreciation potential in royalties like Patterson Corridor East, for example. So with that, I'll hand it over to Kevin to talk us through the financials for the prior year. Kevin Flynn: Thanks, Marc, and thanks again, everybody, for joining us today. Turning to our financial performance slide. So as Marc mentioned, this was really an inflection point in the year. Looking at our portfolio contribution, whilst there was a small decrease in the period of about 10%, that in no means tells the full story. And we'll touch on this in a little more detail on the next page in terms of the changing complexion of the business and also the significant growth that Marc touched on that drives the next wave of our evolution. Our adjusted earnings were a bit lower in the period. This really reflects the increased finance costs we assumed with the Mimbula acquisition. Although the deleveraging kicked in, in the second half of the year, our finance costs were on average higher, reflecting higher average borrowings. In addition, our overheads, whilst a reduction in terms of our underlying cost base, the U.S. dollar to sterling exchange rate movement led to an increased reported overhead in the period. So that impacted on adjusted earnings. But we should see some improvements and increases in adjusted earnings going forward as these catalysts kick in. In terms of free cash flow, another point that's quite important to reflect on with Kestrel representing less than 50% of our income is that our free cash flow conversion significantly increases. Kestrel has a high associated effective tax rate with it. And as its proportion of our overall contribution reduces, the free cash flow conversion within the portfolio increases. This slide shows our portfolio contribution in the year, and I'll use this as an opportunity just to run through briefly some of our key assets. The first one, Voisey's Bay, had a very strong year with contribution almost tripling in the period. This reflects a 113% increase in volumes, which is reflective of the ramp-up of the operation as it continues its underground transition. And we'd expect to see in 2026 full steady-state production being achieved here, which should result in increased production levels in 2026 before that then becoming a stable platform thereafter. Voisey's Bay also benefited from a significant increase in cobalt prices in the period. It's hard to believe that it's about a year ago sitting here that cobalt prices were about $13 a pound. Today, that number is closer to $30. And this reflects actions taken by the DRC in the period to really stabilize the cobalt market following a period of significant oversupply, which resulted in the DRC announcing first an export ban and then a quota-based system, which has really stabilized the pricing environment for cobalt. So good tailwinds to come in 2026 for our cobalt asset. Mantos Blancos was certainly a highlight in the period, generating $9.5 million based on record levels of production. And actually, this amount approximates to a running cash yield of about 20%, which we're very pleased with. We acquired this royalty for about $50 million in 2019. We would expect here to see volumes in 2026 a little bit lower as they go through a period of planned lower ore grades within the body. That should recover then in 2027. Mimbula represented our copper stream acquisition around this time last year, which Marc touched on. It's worth pointing out here that the $4 million reported really only represents 2 full quarters of production because due to a nuance in the accounting, we only recognize the revenue when the units are sold. So the quarter 4 production is sold in January of 2026 and will be reported in Q1 '26. So in 2026, we should see that transitional period of reporting for Mimbula disappear. I'll just pick out a couple of other highlights. Four Mile is our uranium royalty in Australia. Similar to Mimbula, this doesn't really tell the full story. Normalized sales patterns returned to this royalty in the first quarter of last year, but similar to Mimbula, this is reported based on cash sales. So the $2.2 million really only represents 3 full quarters of production here in the period. So we should see some revenue growth to come in 2026 based on more normalized levels of sales. Looking further down, it's worth remembering we do have some gold exposure in the portfolio through our EVBC gold royalty. which generated $3.2 million in the period based on very strong gold price environment, which again shows the virtues of a diversified royalty portfolio, certainly diversification across commodities. The operator here has signaled that there's reserve potential for a further 5 years. So good to have some gold price exposure in the portfolio in a strong gold price environment. And finally, Kestrel, which is now nearing the end of its economic life for Ecora. Kestrel met guidance in the period, although reported income was down. This is due to average coking coal prices being down around 35% in the period. The midpoint guidance for tonnage next year is about 1.1 million tonnes. And thereafter, Kestrel really starts its transition outside of the group's private royalty area. But the key takeaway from this slide, certainly, as Marc alluded to, is the quality of the earnings now within the portfolio. So if we look at our base metals portfolio, which was up 150% in the year, many of these assets have reserve lives that go into decades. And if we compare that to Kestrel at the bottom, which now has only about 2 or 3 years left, that really does show the potential and the cash flow potential to be generated from our core assets going forward. So to show you how the portfolio contribution, along with some portfolio initiatives has resulted in our meaningful deleverage in the second half of the year. This slide really shows it. The portfolio contribution, which is cash flow number of $55 million, really accelerated our deleveraging in the second half of the year. Looking at our capital allocation priorities, growth still remains our firm focus, and we were very pleased on that basis to acquire the Mimbula stream about a year ago for $50 million. At the time of doing that, we increased our borrowing facility to $180 million. And a lot of the conviction that we had to take on that additional debt was the visibility that we had in the near-term cash flow potential from our portfolio, along with some of the initiatives that we undertook subsequent to the acquisition to bring down our deleveraging. Amongst those, we accelerated the remaining contingent payments associated with our Narrabri thermal coal royalty disposal a number of years ago. And we also took the opportunity to dispose of our noncore Dugbe gold royalty in the middle of last year. Both of those actions realized $28 million, which effectively refinanced over 50% of the Mimbula transaction and brought our net debt down to the end of the year to similar levels to the beginning. To remind everyone about our dividends, we paid close to $7 million in dividends in 2025, which represents about $0.0281 per share on a cash basis. With our year-end results, we've proposed a final dividend of $0.014 for the final dividend, which combined with the interim dividend would bring a final dividend -- or sorry, a total dividend for 2025 to $0.02 per share. And I think it's very important in the context of our net debt to look at the table on the bottom right of the screen. This is a table we like to include to show based on guidance that's in the public domain or the guidance that we provide when applied to consensus price forecasts shows a path to deleveraging to the end of 2026 to $53 million from $85 million at the beginning and bringing this down further to $27 million by the end of 2027. At those levels, our debt position is very comfortable. We're very comfortably within our debt covenant limits. And with a $180 million debt facility provides a significant financing flexibility to continue adding to our royalty portfolio. And with that, I'll hand back to Marc. Marc Lafleche: Thank you, Kevin. Well, all in all, I think looking across the suite of our commodities during 2025 and to some degree, through carrying forward to the start of 2026, we've seen a really strong performance across the board. Copper, cobalt, uranium, rare earths, nickel all performed quite well. I think met coal was slightly soft over the course of last year, although we've seen that rebound to levels in early 2026 that are historically in line with averages. And one of the strongest performers, which has followed -- which is delightful to see following our acquisition of the Phalaborwa rare earth royalty, our rare earth prices, which performed exceptionally strongly in 2025, in part is becoming part of a geopolitical negotiating tool between China and the United States is in relation to tariff and trade policy. From a volume perspective, looking ahead at 2026, overall, from our base metals exposures, we anticipate volume growth. Mimbula is expected to continue to ramp up towards an expanded nameplate production capacity rate. Voisey's Bay, likewise expected to continue to ramp up towards nameplate throughput levels. As Kevin mentioned, Mantos Blancos production is expected to be slightly softer this year as mining goes through a lower ore head grade portion of the ore body and is expected to normalize in the future. Otherwise, overall, we anticipate other than Kestrel, where you expect roughly half the volumes overall continued volume growth in our critical minerals. I think we've touched on the key points here at Voisey's, but just taking a moment to touch on a few additional points. Year-on-year, we'd expect 12% to 25% volume growth at Voisey's. And touching on something that we've always highlighted as being very likely at Voisey's is the life of mine expansion that we've seen here, where the volume extended to 2044. And more recently, we've seen as part of Vale's Base Metals Day in late March, additional disclosures in relation to the Voisey's Bay ore body and to the likely and possibility life of mine expansion potential that exists, which is significant and really underscores what we've been indicating for many years is a possible of multi-decade life of mine expansion potential at Voisey's Bay in excess to the existing life of mine that already runs towards the end of the next decade. We touched on most of the key points at Mantos Blancos. So just zooming in on one on the far right, and that's the Phase 2 expansion study. I think we're delighted to have seen record performance in the last year. And in addition to what were very high levels last year, there's -- Capstone has alluded to the potential to increase production to potentially 100,000 tonnes compared to production last year and just above 60,000 tonnes of copper. That feasibility study in relation to Phase 2 is expected later this year. And we're very excited for that to be released. We think that's the key next step to demonstrate the value upside of this royalty. And as of yet, with the benefit of that further detail, hopefully, that will provide sufficient financial figures and forecast for Ecora research analysts to include this potential value in our revenue forecast, but also our net asset value estimates as well. I think we've touched on the key wins on this slide. So I won't touch in too much detail on any other than to just pick out one, which is the Cañariaco royalty. And that's specifically the key point to flag is the Fortescue, the multibillion-dollar iron ore and future-facing commodity mineral royalty company out of Australia has acquired control of this project, which is an incredible step forward in terms of the projects, our operating partner quality and capability to develop this project in the future. So bringing it all together for our base metals exposures, I think what this slide clearly demonstrates is that following the Mimbula acquisition last year, we have roughly doubled our attributable annual copper production solely with the Mimbula acquisition, which is a great step forward. And beyond that, with the existing assets in our portfolio, Ecora offers a copper pipeline to more than quadruple our attributable copper in this decade and the next. So all in all, while we really do feel that this slide highlights how we've cemented copper at the core of our portfolio that's fully paid for and that is amongst, if not the leading organic copper growth profile of any royalty company. Turning to key assets in the specialty metals and uranium side at Phalaborwa and over the course of the past 12 to 18 months, we've seen a number of key derisking milestones that continue to position this project for the publication of a feasibility study and subsequently a financing process. We've seen strong increases in underlying rare earth prices over the last 12 to 18 months. And turning on the uranium side, I think it's difficult to categorize the exploration program at Patterson Corridor East as anything other than geologically exceptional. NexGen is targeting a program in 2026 to further build upon last year's program, and we're very excited to update you soon and hopefully with some very continued positive news on further progress. Kevin mentioned that this was expected to be our final year of material contribution from Kestrels and you can see why on the map on the right hand of this slide. Over the course of this year, we expect roughly half of the volumes from the prior year. And then beyond that, sort of a tail between a few hundred thousand to 500,000 tonnes between 2027 to the end of the decade. And then last, at EVBC, as a result of strong gold prices, we've seen our operator partner, Orvana communicate the possibility to continue with EVBC in production towards the end of this decade. Should that be the case, carrying this asset well past its originally expected mine life and potentially benefiting Ecora from further upside and participation in what has been a very strong gold price backdrop. So bringing it all together in terms of key points, I think, number one, we anticipate further volume growth from our key base metals royalties in 2026. We anticipate a number of key potential derisking or project development milestones in relation to some near production development royalties that we're very looking forward to and hopefully, we'll be able to update you in relation to on our next call. Commodity prices have demonstrated a level of volatility year-to-date 2026. Nevertheless, remain at historically elevated levels. And should they remain at these levels, combined with the operator -- our operator partner volume guidance, we anticipate further rapid deleveraging, which positions the business very well for further growth and diversification. And last and certainly not least, I think the royalty model as it stands is very defensively positioned to the continued inflationary pressures that we see in the market today, more recently as a consequence of a conflict in the middle in our end, but have persisted for a variety of factors for the past 5 or 6 years at a minimum, if not more. So looking ahead, we do genuinely feel that Ecora is probably at the best it's ever been with a platform of key royalties generating from the producing side, generating income that's expected to run decades with a number demonstrating only a small portion of the portfolio's true longer-term underlying cash generation potential. And over the course of the next 12 to 18 months, we hope to see further derisking events that will further underpin that next wave of growth in this business and its portfolio. So with that, we thank you for joining us, and we're happy to take any questions you may have. Operator: Thank you so much to Marc and Kevin for the presentation. We've had a number of questions that have been pre-submitted and also submitted live. [Operator Instructions] But the first question that we have is, you're talking quite positively about the year, but when I look at the numbers, it feels mixed. What am I missing? Marc Lafleche: Well, I think when you look at the numbers, you are correct to see certain parts of our portfolio performing in diverging ways. So for example, further volume growth from our base metals assets. We anticipate some degree of volume growth from our specialty metals, for example, Four Mile. Gold on the back of -- on the expected volume from our legacy exposure to EVBC, expect some form of price tailwinds. And where you'd expect to see some form of downside relative to last year is specifically the Kestrel met coal royalty. So overall, you're expecting stronger contribution from the critical minerals and offsetting a weaker contribution from the legacy met coal exposure. Kevin Flynn: I think -- just to add to that, I think you are -- if you're looking at 2025 in isolation, you are missing the nuance of the Four Mile and the Mimbula assets, which don't represent a full run rate in the period. And also, you've got a blended average price of Voisey's Bay, which is much, much lower than what we currently have and what's expected to be for 2026. Operator: The next question, you kindly provided a little bit further clarification on the following. So the expected time line for revenue growth from newly acquired assets, e.g. copper streams and base metals. And maybe you could include the Mimbula deal. It sounds good, but when will we see cash flow through? I know that has been sort of covered in the presentation, but maybe anything you want to add on that? Marc Lafleche: So I think the first thing I'd point anyone to -- I think for -- in terms of time lines and additional details on the portfolio, I'd encourage you to review this slide, which gives you an indication of what key events are expected when. And in terms of Mimbula. Mimbula is in production. Mimbula contributed to our earnings profile last year. And the Mimbula asset is expected to continue to demonstrate volume growth over the course of 2026 in addition to production that was -- to which we received as part of our stream following the acquisition last year. Operator: Now you described this as the first year for critical minerals represent a major majority of your portfolio contribution. Is there a target split you're managing towards? And what does the ideal portfolio look like in 3 to 5 years? Marc Lafleche: If you look to the future in 5 years and working -- why don't we start that and work backwards. Based on the NAV, the portfolio's NAV and the development milestones as communicated by our operator partners, the #1 exposure as a percentage of NAV, but also revenue in 5 years is expected to be copper. Secondly, it would be base metals. And then more widely, you'd have in the suite of critical minerals, uranium and vanadium and rare earths as a smaller portion of the total. When we look to the future as sort of an optimal portfolio structuring, our intent is very much to keep the core of the portfolio in base metals, and we've been very deliberate in targeting copper as our core commodity exposure. We certainly will consider the wider suite of critical minerals. But even then in that context, our strategy and our desire is to retain copper as a core commodity exposure. Operator: Thanks, Marc. Your position in Largo Resources still stands today. What is your outlook and interest in Cañariaco Copper Project in Peru? Marc Lafleche: So we touched on this briefly in the presentation. Cañariaco, if I understand the question correctly, was recently acquired by Fortescue, which is, as I mentioned, a fantastic counterparty, very well capitalized, very experienced in the mining sector, has the capability to develop this type of project in time, both the wherewithal, financial experience, execution capability. I think this is an asset that historically has not garnered a huge amount of attention in the Ecora portfolio. I think the -- hopefully, following the acquisition by Fortescue, it will. It's an asset that has the potential to generate substantial income for us in time for many decades with enormous prospectivity beyond what's already been drilled out and evaluated in the resource. So it's something that we're excited about. And hopefully, we'll see more from Fortescue as they further explore and develop this asset and move it up the development curve in the next 12, 18, 24, 36 months. Operator: Now the next question. The top 5 ranked critical minerals according to the latest watch list from the Critical Minerals Institute are copper, gallium, tungsten, uranium and rare earth elements. As it stands, your portfolio has significant exposure to copper, which looks like will increase further, which is great. However, I understand your exposure to the rest, top 5 is currently rather insignificant. Uranium and rare earth elements is no more than 10% of the portfolio. And apparently, you have no exposure to gallium and tungsten. Other interesting metals you seemingly have no exposure to are lithium, palladium and aluminum. Could you expand on your plans for exposure to future-facing critical minerals other than copper? Marc Lafleche: Yes. So look, I think the first thing to note here is that when we think about our commodity selection, and when you think about constructing a portfolio, we've taken careful steps to keep the core of our NAV in commodities that have very deep, deep markets and very much to the degree possible that are less impacted by small changes in supply and demand. And I think certain critical minerals, which certainly small -- as a smaller percentage of NAV could be interesting to Ecora as it could have a disproportionate impact should they be too large a percentage of NAV, but just by virtue of small changes in supply and demand in very small markets can have very outsized impact on price swings. So what we've sought to do is build a portfolio that, in aggregate, offsets the volatility and diversifies commodity price movements from one commodity to another. And by no means do we feel that the commodity exposure we have today is complete. We would certainly consider and evaluate many other commodities in addition to those we have exposure to, some of which we've evaluated that have already been named. But really, that being said, our core strategy still remains within the context of having a diversified portfolio of critical minerals to retain copper at the core. Operator: Thank you. A similar type of question that's coming out here, but maybe if you want to expand a little bit more, Ecora has repositioned towards future-facing commodities. How do you decide the optimal balance between bulk commodities like coal and iron ore and transition metals like copper, stroke nickel? Marc Lafleche: I think the question in some ways, is a function of the expected longer-term supply-demand balance for those commodities and the outlook for those commodities over multiple decades. I think you can certainly make the case that the outlook over 2, 3 to 4 decades for copper is much stronger than iron ore -- or excuse me, is certainly much stronger than steelmaking coal and in part why we've allocated the portfolio away from its legacy in coal towards commodities that are expected to perform much more strongly over multiple decades. And secondly, typically trade at much higher valuation multiples. So in that sense, allocating cash flows from coal, which trades at low valuation multiples to buy royalties and commodities that trade at much higher valuation multiples is actually a very accretive way to grow the portfolio. And since we've seen even in the last 5 years, when you look at Ecora's trading multiples as the balance of the portfolio cash flow has diverged towards critical minerals, you have seen multiple expansion. And that's something that we think in time will be very accretive for our shareholders and has already demonstrated that it's the case in part. In terms of the entry point beyond that, I think one of the advantages of having a broader suite of commodities is you do have some flexibility to move between underlying commodities depending on where those are in their commodity price cycles. So in other words, if commodity price A is very expensive, you could pivot and look laterally at commodity price -- at commodity B, which may offer a more attractive entry point. But underneath it all, when we choose commodities, it's fundamentally driven by a long-term analysis of supply-demand balances and what are underlying long-term trends to try to position this portfolio to strong trends that ultimately we hope will benefit in pricing exceeding our investment cases at the time of making the investment. Operator: Next question, are you seeing plenty of opportunities out there? Or are good deals getting harder to find? Marc Lafleche: Yes. This is a pretty frequent question. And I think over time, we've to date anyways, consistently found opportunities. I think we look to the future with confidence. I think there's a clear need for capital. And I think there's a very clear need for the development and incremental supply in light of the demand growth trends we -- that are expected and we're seeing to date. So when we look at our investable universe, we do sense that we're investing into a demand -- a market that has a growing demand and a growing need for capital, which I think is quite positive. And look, I think as a group, we've always advocated patience is key, maintaining our investment -- our discipline and sticking to our investment criteria is key. So I think we -- as we've always done, be very patient and wait for the right opportunity to come along. That being said, we look to the future with confidence and feel as though we have every confidence that in time, we'll be able to continue to grow the business. Operator: Next question, what is the impact the Middle East conflict is having on Ecora now and potentially in the future? Marc Lafleche: It's something, obviously, we've been monitoring very carefully. I think to date, very difficult to see any direct implication, and that's something that we've looked at in our portfolio, but also in terms of engagement with our operator partners. Depending on the length of the conflict, the ultimate form of the conflict, the disruption to global markets, the conflict may or may not eventuate. It's very difficult to assess exactly how it could impact Ecora other than to say this is something that we're clearly monitoring. There's -- obviously, there's the impact from energy and the availability of diesel in the mining sector. But also there's an impact on the availability of sulfur as a precursor to sulfuric acid, which is an important reagent or chemical used in, for example, nickel, copper to some degree, sort of SXEW operations, uranium, cobalt to a degree. So yes, I think globally, it's far beyond just the impact of energy. In some instances, it could create issues for some producers, but the exact impact to Ecora, if any, is we'll have to continue to monitor and evaluate as things progress. Operator: Next question. Net debt peaked at USD 124.6 million in Q2 2025 and stood at USD 85.5 million at the year-end. What's your target leverage level? And at what point do you feel comfortable returning to a more active acquisition strategy? Kevin Flynn: Yes, I'll take that one. I think we don't necessarily have a target level of net debt in the business. I think one of the real virtues of the royalty model is that it does provide a derisked way of gaining exposure to the mining industry. I think to provide that through an overlevered structure dilute some of that virtue. Over the past number of years, we have leveraged our cash flows in order to continue our acquisition journey. We've deployed well over $0.5 billion in that period. But we've always done so with a view to the level of confidence that we've had in the cash being generated from the business to take those levels down to very manageable levels. Most recently was the Mimbula acquisition, where we did increase our leverage as the question rightly points out. But we have some initiatives to bring that down reasonably quickly. And I think if you look at our projections for 2026, based on consensus price forecast, that would bring our leverage -- operational leverage ratio down to about 1x at the end of the year. Those are very comfortable levels, but we don't necessarily have a targeted level of debt that we are comfortable with our operational leverage. Our debt facility is $180 million. We've got a further $40 million through an accordion feature to put on top of that for the right acquisitions. So if we're seeing a path through to about $50 million of net debt by the end of the year, that leaves us a lot of headroom under that facility in order to continue the growth ambitions. Operator: Have the management looked at increasing the 20% to 25% -- sorry, 25% to 35% dividend payout ratio as the latest dividends have been very disappointing with shareholders receiving only about 23% of what they received 3 years ago? Kevin Flynn: Should I take that? I'll take that. I think the capital allocation adjustments that were made a number of years ago was very much in the context of the pivot that we are now experiencing. If we look at where we were, we had an asset in Kestrel running off. And that asset itself had a lot of volatility. So I think where we are now with the growth profile we have in the business, I think it's very important for us that dividend growth is a function of free cash flow growth. And I think we have enough visibility on that going forward to see a path to dividend growth coming in that way. At present, we're comfortable with the 25% to 35% payout range as our assets continue to show their potential. Operator: Are there specific geographies or operators you're prioritizing or avoiding? Marc Lafleche: I think generally, our investment criteria is to target well-established mining jurisdictions and high-quality ore bodies and established operators. So that has been our focus historically, and that continues to be our focus for the future. Operator: And where do you think Ecora has a structural advantage that isn't yet reflected in the valuation? Marc Lafleche: I don't think it's any -- I think the share price at Ecora has obviously performed very strongly in the last 12 -- in the last, call it, 12 months. However, even then, the company trades relative to other royalty companies at quite a big discount. And I think the opportunity for investors that we're very excited about as shareholders of Ecora, Kevin and I, is the opportunity to -- for our revenue complexion to shift from, number one, short-dated cash flows at Kestrel to number two, to multi-decade royalties; and number two (sic) [ three ] to commodities in critical minerals that trade at much higher valuation multiples. When you combine those 2 together, there's enormous potential in the Ecora portfolio that is not reflected in the share price today. And thus, we're very excited for this next phase of growth in Ecora organically, but also as we look to acquire more royalties and diversify our sources of income. Operator: What opportunities are there for direct or indirect investment participation available to international investors? Marc Lafleche: I would say -- well, Ecora has a number of listings. So we're listed on the London Stock Exchange on the ticker ECOR. Ecora is listed on the TSX. The ticker is ECOR. And you can also trade via the OTCQX platform if you're based in the U.S. and would like to sell in U.S. business hours. The ticker there is ECRAF. Operator: And what do you think the market is missing in your valuation today? And what needs to happen for the gap to close? Marc Lafleche: Well, it's amazing what 12 months will do. I think 12 months, the answer would have been this portfolio needs and was -- we would have anticipated in '25, the portfolio demonstrating a portion of its cash generation potential from the critical minerals royalties. And that has happened, and we've seen a very strong share price reaction, almost 200%, just under 200% from 12 months ago roughly to today. So in that sense, I think there's a lot more to come in that regard over the next 5 years, where this portfolio has yet to demonstrate its true underlying cash generation potential. And as Kevin has said, the portfolio in the future is expected to generate this cash flow at a much lower effective tax rate, increasing cash conversion. So beyond that, I think that's the organic growth profile in commodities that are underpinned by really robust fundamental long-term demand trends. And beyond that, we're looking to diversify our sources of royalties and our sources of income and sources of growth. So we're really quite excited, Kevin and I, for what's next. Operator: Super. Well, that is all the questions we've got time for today. Maybe, Marc, I could hand back to you just for some closing remarks. Marc Lafleche: I think the short version to say is we feel that 2025 is a very important year and an important step forward for Ecora. That being said, there's still an incredible amount of work to go. I think we're very excited by this big step forward and the foundation that we've led, but we're highly motivated and energized to continue transport to building on these foundations that we now have to, in time, take this company to far beyond where it is today. So thank you for your interest, and thank you for joining our call. Operator: I'd like to thank both Marc and Kevin today for the presentation. That concludes the Ecora Royalties investor presentation. Please take a moment to complete the short survey following the event. The recording of this presentation will be made available on the Engage Investor. I hope you've enjoyed today's webinar, and thank you for your time.
Operator: Good morning, and welcome to Johnson & Johnson's First Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded. [Operator Instructions] I will now turn the call over to Johnson & Johnson. You may begin. Darren Snellgrove: Hello, everyone. This is Darren Snellgrove, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of business results for the first quarter of 2026, and our financial outlook for the full year. First, a few logistics. As a reminder, today's presentation and associated schedules are available on the Investor Relations section of the Johnson & Johnson website. at investor.jnj.com. Please note that this presentation contains forward-looking statements regarding, among other things, the company's future operating and financial performance, market position and business strategy. You are cautioned not to rely on these forward-looking statements, which are based on the current expectations of future events using the information available as of the date of this recording and are subject to certain risks and uncertainties that may cause the company's actual results to differ materially from those projected. The description of these risks, uncertainties and other factors can be found in our SEC filings, including our 2025 Form 10-K, which is available at investor.jnj.com and on the SEC's website. Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. This slide acknowledges those relationships. Moving to today's agenda, Joaquin Duato, our Chairman and CEO, will discuss our business performance and growth drivers. I will then review the first quarter sales and P&L results. Joe Wolk, our CFO, will then close by sharing an overview of our capital allocation priorities and updated guidance for 2026. Jennifer Taubert, Executive Vice President, Worldwide Chairman, Innovative Medicine. John Reed, Executive Vice President, Innovative Medicine Research and Development; and Tim Schmid, Executive Vice President, Worldwide Chairman, MedTech, will be joining us for Q&A. To ensure we provide enough time to address your questions, we anticipate the webcast will last approximately 60 minutes. With that, I will now turn the call over to Joaquin. Joaquin Duato: Good morning, everyone, and thank you for joining us. We said 2026 would be a year of accelerated growth and impact for Johnson & Johnson and with our strong Q1 performance, including our bid on consensus and raised guidance, you can see we are delivering on that promise. In the first three months of the year, we delivered operational sales growth of 6.4%. Our focus on areas of high innovation, high unmet need and high growth is delivering results today and for the future. Across each of our 6 key businesses: Oncology, Immunology, Neuroscience, Cardiovascular, Surgery and Vision, we have multiple differentiated assets to drive sustained growth and a strong competitive advantage. Our success is fueled by the strongest portfolio pipeline in the history of Johnson & Johnson. We currently have 28 platforms or products that generate at least $1 billion in annual revenue and we are aiming to add even more. Our unique combination of innovative medicine and MedTech, together with strong execution and industry-leading investment in innovation is delivering resilient growth. We are on track to meet our 2026 target of $100 billion in annual revenue for the first time and we are confident our progress will continue to improve into 2027 with line of sight to double-digit growth by the end of the decade. Let's start with Innovative Medicine where we delivered operational sales growth of 7.4% in the quarter with 10 brands growing double digits. In Oncology, we are aiming to cure and treat more cancers with the world's leading portfolio and pipeline. DARZALEX remains the gold standard in multiple myeloma and our #1 product with sales of $4 billion and operational sales growth of 18%. CARVYKTI, TECVAYLI and TALVEY also continued to deliver high double-digit growth reflecting the importance of our multiple myeloma portfolio across the full treatment journey. Progress in our pipeline accelerated in Q1 with the FDA approval of TECVAYLI plus DARZALEX FASPRO for relapsed or refractory multiple myeloma. That positions the regimen as a potential new standard of care as early as second line. In soli tumors, RYBREVANT FASPRO received FDA approval for subcutaneous monthly dosing for patients with EGFR mutated non-small cell lung cancer. RYBREVANT also received FDA breakthrough therapy designation in advanced head and neck cancer with new data showing overall response rate in first-line recurrent or metastatic head and neck cancer when combined with immunotherapy. The treatment is being further evaluated in the ongoing Phase III OrigAMI-5 study. And in high-risk non-muscle invasive bladder cancer, INLEXZO is outperforming all recent launches based on unique patients treated in the first 6 months post approval. In immunology, we continue to raise the bar in a category we have built for more than 3 decades from single innovations like REMICADE and STELARA to now a dual powerhouse of ICOTYDE and TREMFYA. TREMFYA had another very strong quarter with sales up 64%. It continues to be the fastest-growing IL-23 therapy in the U.S. and is now the share leader new patient starts in inflammatory bowel disease. And with last month's FDA approval of ICOTYDE for the first-line treatment of plaque psoriasis, we are once again transforming the standard of care for immunology patients. ICOTYDE is the first and only IL-23 targeted oral peptide and has the potential to fundamentally change how psoriatic disease is treated by offering a convenient once-daily pill. The full launch of ICOTYDE took place the same day as approval with the first patient receiving treatment that very day. While it is just the beginning, we're already seeing strong demand through our patient hub. Together, ICOTYDE and TREMFYA create a complementary category shaping portfolio. ICOTYDE is the first choice systemic treatment and TREMFYA is the first choice biologic treatment for patients with moderate to severe plaque psoriasis. ICOTYDE has the potential to be one of our largest products ever. TREMFYA is projected to deliver more than $10 billion in peak year sales. In neuroscience, we are focused on meaningfully improving outcomes in mental health. The U.S. launch of CAPLYTA in adjunctive major depressive disorder is building momentum and SPRAVATO continues its strong growth trajectory. Now let's turn to Medtech, where we reported Q1 operational sales growth of 4.6% with growth across all of our key focus areas. In cardiovascular, we are investing in the growing need for complex interventions. Johnson & Johnson is the market leader in heart recovery circulatory restoration and electrophysiology and we continue to deliver sustained growth. In heart recovery, Abiomed had another strong quarter as this shows with in circulatory restoration. And in electrophysiology, VARIPULSE our post-field ablation platform for atrial fibrillation keeps building momentum. Our confidence of continued leadership in electrophysiology was further strengthened by our recent launch of VARIPULSE Pro in Europe with 5x faster ablation, which helps streamline procedures and improve efficiency as well as our recent [ VARIPULSE ] 12 months data presented just a few days ago, we show a strong safety profile with zero reported strokes. We also continue to receive strong feedback in Europe for our Dual Energy THERMOCOOL SMARTTOUCH SF Catheter which we expect to launch in the U.S. later this year, having recently submitted a complete platform to FDA. And finally, we recently announced 12-month data for OMNYPULSE, our large focal tip PFA catheter, showing positive outcomes, no safety events and 100% procedural success rate. In surgery, our strong performance reflects the deep levels of trust and our expanding presence in the operating room. In Q1, we made progress on our OTTAVA robotic surgical system, and we are building on our recent de novo filing for approval with a second investigational device exemption trial now underway for inguinal hernia repair. In Vision, we are restoring sight to its healthiest state with expanding access globally for our ACUVUE OASYS MAX disposable lenses for presbyopia and astigmatism and our TECNIS intraocular lenses. Most significantly, we received FDA approval of TECNIS PureSee, the first and only extended depth of focus intraocular lens in the U.S. to maintain contract sensitivity comparable to a monofocal lens. 97% of patients reported no very bothersome visual disturbances like halos or glare. As you can see, we are off to a fast start in 2026, building momentum that will accelerate our impact and growth throughout the year and for the balance of the decade. The depth of our portfolio and pipeline has never been stronger, and I'm confident we'll continue to deliver on our commitments for 2026 and beyond. And with that, I will turn the call back over to Darren. Darren Snellgrove: Thank you, Joaquin. Moving to our financial results. Unless otherwise stated, the percentages quoted represent operational results and therefore, exclude the impact of currency translation. Starting with Q1 2026 sales results. Worldwide sales were $24.1 billion for the quarter. Sales increased 6.4% despite an approximate 540 basis point headwind from STELARA. Excluding STELARA, Johnson & Johnson grew double digits for the quarter. Growth in the U.S. was 8.3% and 3.9% outside of the U.S. Acquisitions and divestitures had a net positive impact on worldwide growth of 110 basis points primarily driven by the Intra-Cellular acquisition. Now turning to earnings. For the quarter, net earnings were $5.2 billion and diluted earnings per share were $2.14 versus $4.54 a year ago. Adjusted net earnings for the quarter were $6.6 billion, and adjusted diluted earnings per share were $2.70 representing a decrease of 1.4% and 2.5%, respectively, compared to the first quarter of 2025. I will now comment on business sales performance in the quarter focusing on the 6 key areas where meaningful innovation is driving our performance and fueling long-term growth. Beginning with innovative medicine where our financial results reflect the depth of our expertise and innovation in areas of high unmet need across oncology, immunology and neuroscience. Worldwide sales of $15.4 billion increased 7.4% despite an approximate 920 basis point headwind from STELARA which underscores the continued strength of our key brands and new launches. Growth in the U.S. was 9.6% and 4.3% outside of the U.S. Acquisitions and divestitures had a net positive impact of 180 basis points on worldwide growth primarily due to the Intra-Cellular acquisition. In oncology, starting with multiple myeloma, DARZALEX growth was 17.8%, primarily driven by strong share gains of 5.9 points across all lines of therapy with nearly 12 points in the frontline setting as well as market growth. CARVYKTI achieved sales of approximately $600 million with growth of 57.4%, driven by share gains and continued site expansion. TECVAYLI growth was 30.1% with sequential growth of 14.2%, driven by launch uptake and share gains from expansion in the community setting as well as the U.S. approval of TECVAYLI plus DARZALEX FASPRO. TALVEY growth was 72.8%, driven by share gains through expansion in the community setting. In Lung Cancer, RYBREVANT plus LAZCLUZE delivered sales of $257 million and growth of 80.5% driven by continued launch uptake in all regions, share gains and rapid uptake in RYBREVANT FASPRO. Share gains in both the first and second lines continue to drive strong sequential growth of 18.8%. In prostate cancer, ERLEADA delivered strong growth of 16.2% due to continued share gains and market growth. Within immunology, TREMFYA delivered impressive growth of 63.8%. Our IBD launch is driving significant momentum, and we continue to see share gains across all indications as well as market growth. STELARA declined 61.7% driven by share loss due to biosimilar competition, increasing adoption of novel classes and unfavorable patient mix. In neuroscience, SPRAVATO grew 44.5% and driven by continued strong demand from physicians and patients. CAPLYTA, which was acquired in Q2 of 2025 as part of the Intra-Cellular acquisition, delivered sales of $270 million for the quarter with continued strong momentum in our aMDD launch. Since aMDD approval in the U.S., CAPLYTA has had its highest ever new patient start volumes across all indications. Now moving to MedTech, where we delivered growth across each of our key focus areas, cardiovascular, surgery and vision. Worldwide sales of $8.6 billion increased 4.6% with a growth of 5.9% in the U.S. and 3.2% outside of the U.S. Divestitures had a net negative impact of 10 basis points on worldwide growth. In Cardiovascular, electrophysiology delivered growth of 9.5%, driven by our newly launched products, including VARIPULSE and commercial execution. Abiomed delivered growth of 14.4%, with continued strong adoption of the Impella technology. Shockwave delivered strong double-digit growth of 18.1% driven by continued adoption of coronary and peripheral products. Surgery grew 1.2% despite a negative impact of approximately 30 basis points from divestitures. Growth was driven by strength of the portfolio and commercial execution in biosurgery and wound closure, partially offset by planned surgery transformation impacts and competitive pressures in energy and endocutters as well as VBP in China across the portfolio. In Vision, contact lenses and other products grew 2.7%, driven by strong performance in the ACUVUE OASYS 1-Day family of products, as well as strategic price actions, further solidifying our leadership position. Surgical Vision grew 6%, driven by new product innovations, robust demand for premium IOLs and strong commercial execution, partially offset by competitive pressures in the U.S. Orthopaedics growth this quarter was 3.2% primarily driven by new product launches and strong commercial execution. Now turning to our consolidated statement of earnings for the first quarter of 2026. I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of goods sold deleveraged by 10 basis points, driven by the impact of tariffs and other operational drivers in the MedTech business, an unfavorable mix in the Innovative Medicine business. This was partially offset by favorable translational currency in the Innovative Medicine business. Selling, marketing and administrative expense deleveraged by 180 basis points, driven by heavier investment in new launches early in the year and increased investment related to the acquisition of Intra-Cellular in the Innovative Medicine business. Research and development remained flat at 14.7% of sales. Interest income and expense was a net expense of $43 million as compared to $128 million of income in the first quarter of 2025. The decrease in income was driven by a lower average cash balance and a higher average debt balance. Other income and expense was a net expense of $294 million as compared to $7.3 billion of income in the first quarter of 2025 with the change primarily driven by the approximate $7 billion talc reserve reversal in the first quarter of 2025. Tax rate on a GAAP basis in the first quarter of 2026 was 12.6% compared to 19.3% in the first quarter of 2025. This was primarily driven by the reversal of the talc settlement accrual in the first quarter of 2025, which did not reoccur and discrete tax benefits associated with employee equity programs in the first quarter of 2026. Lastly, I'll direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now let's look at adjusted income before tax by segment for the quarter. Innovative Medicine margin declined from 42.5% to 39.7%, primarily driven by heavier investment in new launches early in the year. Unfavorable product mix and certain favorable onetime items recorded in 2025, partially offset by favorable translational currency. MedTech margin declined from 25.9% to 22.3% primarily driven by the impact of tariffs in cost of products sold and certain favorable onetime items recorded in 2025. As a result, adjusted income before tax for the enterprise as a percentage of sales decreased from 36.6% to 32.5%. This concludes the sales and earnings portion of the call, and I will now turn the call over to Joe. Joseph Wolk: Thanks, Darren. Hello, everyone. We appreciate you joining us today. As Joaquin noted, we are seeing good momentum across our business, powered by our industry-leading portfolio, sustained investment in innovation and disciplined execution. We continue to advance our pipeline by bringing innovative new treatments to patients, which will meaningfully improve patient outcomes and fortify future performance, giving us a clear line of sight to double-digit growth by the end of the decade. Turning to cash and capital allocation. We ended the first quarter with approximately $22 billion of cash and marketable securities and $55 billion of debt for a net debt of approximately $33 billion. Free cash flow in the first quarter was approximately $1.5 billion. Clearly, this suggests a run rate below our full year projection as Q1 reflects payment timing changes on certain U.S. rebate programs and increased U.S. capital expenditures. However, these were expected, and we remain confident in our full year free cash flow outlook of approximately $21 billion. Our strong financial position and cash flow generation provides a competitive advantage, enabling us to maintain a consistent approach to capital allocation and investment in future innovation. Since announcing our plans to invest $55 billion in U.S.-based manufacturing technology and research and development through early 2029, we are well on our way to reaching that target. Through the end of 2025, we invested roughly $12 billion or 22% of the $55 billion with significant investment already underway in 2026. Our manufacturing investments include facilities in North Carolina and Pennsylvania, and we will have more announcements to come in upcoming quarters. Lastly, we recognize our shareholders value a growing dividend. Today, we were pleased to announce the Board of Directors' authorization for a 3.1% increase to an annual rate of $5.36 per share, our 64th consecutive year of dividend growth. Turning now to full year 2026 guidance. We are increasing our operational sales guidance to be in the range of 5.9% to 6.9%, with a midpoint of $100.2 billion or 6.4%. As noted last quarter, our financial calendar in 2026 includes a 53rd week, which provides a benefit of approximately 100 basis points. We do not speculate on future currency movements and last quarter, we utilized the euro spot rate relative to the U.S. dollar of $1.17. As of last week, the euro spot rate to the U.S. dollar has stayed relatively flat, with modest benefit from other major currencies. As a result, we estimate reported sales growth between 6.5% to 7.5% with a midpoint of $100.8 billion or 7%. Turning to other notable items on the P&L. We are maintaining our guidance for adjusted pretax operating margin to improve by at least 50 basis points in 2026. This will be driven by continued operating efficiencies with a portion reinvested to support new product launches and further strengthen the pipeline. As today's Q1 results reflect heavier investment is planned to occur in the first half of the year. As a reminder, our pretax operating margin guidance takes into account the costs from the 53rd week of operations and the announced voluntary agreement with the U.S. government to improve access to medicines and lower cost to U.S. patients. We are maintaining our guidance for net interest expense, net other income and the effective tax rate for the full year. Turning to adjusted operational earnings per share. We are increasing our guidance by $0.02 to a range of $11.30 to $11.50, representing 5.7% growth at the midpoint. As such, we now expect reported adjusted earnings per share of $11.55 at the midpoint or a growth of 7.1%. I'll now shift to some qualitative considerations on phasing for your models. As noted last quarter, we anticipate fairly consistent operational sales growth throughout the year with a higher fourth quarter due to the benefit from the 53rd week referenced earlier. In Innovative Medicine, the depth and strength of our portfolio will continue to drive accelerating growth this year. We expect contributions from our newly launched products across oncology, immunology and neuroscience to increase throughout the year. As Joaquin mentioned, we are excited by the launch of ICOTYDE as well as that of INLEXZO, our innovative new therapy for certain types of bladder cancer, which had sales slightly above $30 million in the quarter. On April 1, we received a permanent J-code for INLEXZO reimbursement, which will enable broader patient access and serve as an important catalyst for growth. In neuroscience, CAPLYTA continued to build momentum following its FDA approval in adjunctive major depressive disorder with new patient starts and total continuing patient growth outpacing the market. We believe this performance supports CAPLYTA's peak annual sales potential of greater than $5 billion, and we look forward to sharing additional data in bipolar mania later this year. In MedTech, our focus this year is on accelerating the adoption of our recently launched products. ETHICON 4000, our next-generation surgical stapler launched in the U.S. in 2025 is expected to launch in Europe shortly. In Vision, we continue to expand the TECNIS platform globally and look forward to the U.S. launch of TECNIS PureSee intraocular lens, which enables surgeons to address cataract-related vision loss and presbyopia in a single procedure. In electrophysiology, VARIPULSE Pro is an innovative step forward, introducing a new faster pulse sequence that reduces ablation time by 85%. We do anticipate some second half impact from volume-based procurement in China for electrophysiology products, which has been factored into our full year guidance. The Orthopedics business under the leadership of Namal Nawana, delivered a strong first quarter with encouraging momentum across key platforms. We are continuing to make targeted investments in the business and working towards a mid-2027 separation. We look forward to sharing further updates later this year. And as stated last October, we are evaluating all separation vehicles that create shareholder value and set up the DePuy Synthes business for long-term success. Turning to our pipeline. We have many important catalysts that we are looking forward to in 2026. In Innovative Medicine, we expect regulatory approval for TREMFYA for the inhibition of structural joint damage for patients with psoriatic arthritis. As this chart indicates, we also have many important upcoming data presentations across oncology, immunology and neuroscience including ERLEADA in localized and locally advanced high-risk prostate cancer, INLEXZO in high-risk non-muscle invasive bladder cancer; JNJ-4804 in ulcerative colitis and Crohn's disease and CAPLYTA in Bipolar mania. In MedTech, we anticipate the following approvals and regulatory submissions: OTTAVA Robotic Surgical System, VARIPULSE Pro in the U.S.; ETHIZIA in biosurgery and the Dual Energy THERMOCOOL SMARTTOUCH SF catheter in the U.S. Before we move to Q&A, we'd like to thank our colleagues around the world for delivering another solid quarter. Their execution continues to optimize our portfolio, advance our pipeline and deliver on our mission of improving and saving lives. Our diversified portfolio, robust pipeline and strong financial foundation position us to drive accelerating and sustainable growth while creating near- and long-term value for shareholders. Speaking of long term, we look forward to providing an in-depth look at our long-term strategy and the driving forces behind our path to double-digit growth. Please mark your calendars for December 8, the date of our Enterprise business review. With that, we are happy to take your questions. Kevin, can you please open the call for Q&A? Operator: [Operator Instructions] Our first question today is coming from Terence Flynn from Morgan Stanley. Terence Flynn: Great. Congrats on all the progress. I had a 2-part one on ICOTYDE. I was just wondering if you can remind us of how you're positioning that drug in the market now that have full details on the label and pricing? And also, how should we think about the ramp of reimbursement coverage there and any sampling plans? Jennifer Taubert: Thanks. Well Good morning, Terence. Hello, everyone. And I just wanted to start with a big thanks to the entire innovative medicine team throughout the world, really strong results in the first quarter with over $15 billion in net sales 7.4% operational growth really importantly, [ 11k ] brands delivering double-digit growth. And if you take a look at what is now 96% of our business that is not including STELARA, we actually grew at 16.6%. So really nice accelerating growth across the portfolio. So I'm thrilled to talk about ICOTYDE, really one of our outstanding products. And I've got to tell you it's off to a very fast start. The product was approved in March. And we're really, really happy with what we believe is a very differentiated label for the product is the first and only targeted oral peptide that precisely blocks the IL-23 receptor. ICOTYDE, maybe as a reminder, delivers complete skin clearance, favorable safety and the simplicity of a once-daily pill, and we think it's got the potential to become one of our biggest products. So we were day one launch ready for the product. And in fact, first patient was actually on medication within 24 hours of approval. We're seeing very strong early enthusiasm from both physicians and patients that reinforce our confidence in the potential for this product. A number of us were out at the AAD meeting as well. And the KOL receptivity to the strength and the simplicity of the label has been really encouraging things like no lab monitoring, the TV language that reflects the physician clinical judgment, no black box or drug interactions, really is giving us good confidence that this is going to be really the preferred choice and first choice for systemic therapy. In terms of early uptake, we're seeing so far about 1,500 patients already that prescriptions have been written for that are going into access and patient support service center, so already 1,500 and already over 1,000 unique customers that are writing. In terms of payers, our goal is to have both early and broad access. And we're in the middle of a very, very positive conversations with them to try to drive that early and very broad access. So more to come on that. In terms of the positioning. I can't think of a better portfolio than being able to have both ICOTYDE and TREMFYA for our folks and really for patients with ICOTYDE being the first and only targeted oral peptide is really going to become the preferred first-line systemic therapy. We know there are so many patients that keep cycling and cycling on topical therapies. Now the international psoriasis Foundation guidelines have changed so that patients after 2 topicals and trials of 4 weeks each really become eligible for systemic and advanced therapies. And so we think ICOTYDE fits right in this sweetspot as that first choice systemic. Likewise, TREMFYA holds a really unique and distinct position as well. And that really is the first choice biologic. And so TREMFYA is both structurally and functionally different from the other IL-23s. We've been able to demonstrate really durable complete skin clearance and in our case here, it's the first and only IL-23 that's got significant inhibition of structural damage. So we think it's really the first choice biologic, especially in patients that have active or suspected PSA or psoriatic arthritis. So we think that with that 1-2 punch, we have got the portfolio for psoriatic disease in patients and are really excited about both agents going forward. John Reed: Maybe I would just add one other thing, John Reed here, our study of ICOTYDE in psoriatic arthritis, should read out later this year. That's important given that about 1/3 of patients with psoriasis also develop psoriatic arthritis. And the studies in inflammatory bile diseases, Crohn's and colitis are often rolling that Phase III program. Operator: Our next question is coming from Larry Biegelsen from Wells Fargo. Larry Biegelsen: Congrats on a nice start to the year here. Tim, sentiment in the medical device space is relatively low right now because of a number of headwinds and concerns. You posted a respectable growth rate this quarter, but it was slightly below the Q4 growth rate and the comp in Q1 was relatively easy. So my question is, what are you seeing in your end markets? And how are you thinking about the remainder of the year? Tim Schmid: Let me jump right in and say that, as you know, we've been very clear, Larry, in articulating our strategy, which is focused on higher growth and higher innovation markets, and that includes our deliberate choice to prioritize our 3 focus areas of Cardiovascular, Vision and Surgery as we separate Ortho. And I can confidently say that, that strategy is working. And in short, while we're navigating a dynamic world and market like everybody else for us, Q1 unfolded as we expected the year to start seasonally quieter but operationally solid, and this was also not a one business or one region quarter, as you've seen by the results, we saw growth across the board. And overall, we're pleased with the 4.6% operational growth, especially given that Q1 is typically our most seasonally subdued quarter. And I think it's also worth noting, Larry, that while there were some easier year-over-year comparisons this by no means throughout the quarter. Specifically, the 210 basis points of onetime impact we referenced in Q1 of last year, which you will recall was a bit of a noisy quarter were almost entirely related to the items that occurred in 2024. And so those prior year events temporarily depressed the year-over-year growth rate, creating a [ lighter comparator ] but they did not affect on the underlying dollar sales. And so onetime items from 2024 fully lapped last year, and our Q1 performance reflects underlying operational execution and normal seasonality rather than any benefit from prior one-timers. So I'd say in summary, Larry, overall, Q1 played out largely as we anticipated, balancing normal seasonality with solid execution. And most importantly, nothing in the quarter changes our confidence in further acceleration as we look towards Q2 and the remainder of 2026. And we've got a lot of growth catalysts to be proud of. What I will say in terms of the underlying market is that it's solid and underlying demand is what we expected. Now we did see some procedural softness early in the quarter, but nothing that we would define really as material while certain regions, particularly here in the U.S., you will recall, we experienced some periods of severe weather in late January and early February. That was largely consistent with normal seasonal patterns and while there was some localized impact on procedure volumes due to poor weather in parts of the business, we would not categorize them as material or meaningful at an overall level. And so what I'm proud of is our teams are highly experienced in managing these types of short-term disruptions and our supply chain, our clinical support and commercial teams work closely with health care providers to maintain continuity of service and support patient care. And so in short, Larry, a strong quarter for us, consistent with our expectations, and we believe strongly in the robustness of our end markets. Thank you. Operator: The next question today is coming from Asad Haider from Goldman Sachs. Asad Haider: Great. Congrats on yet another solid quarter. For Joaquin, just going back to the goal of double-digit top line growth towards the end of the decade, that's still not something that's getting reflected in consensus models. And in light of your comment earlier that ICOTYDE could be one of your largest products ever, that would suggest an opportunity of at least $10 billion. So any updated views on what you see as the key product variances versus the Street looking towards the end of the decade? And related, how important is the BD lever in that growth algorithm? Joaquin Duato: Thank you very much. And look, again, as you can see, we are off to a fast start with momentum that will accelerate throughout the year in 2027. And as you mentioned, with line of sight to double-digit growth by the end of the decade. And I think it's a fair question. How is that possible for a company that this year in 2026 is going to deliver more than $100 billion. This is grounded in reality, as a matter of fact, it's already happening today. If you look at the first quarter of 2026, we are already delivering double-digit growth as total Johnson & Johnson when you exclude the STELARA. So it's already happening today. And it's based on our Pro portfolio and pipeline, the strongest in our history. And also, as the decade progresses we are going to see increasing impact in our revenue of our new product launches that are largely derisked in particular, as you mentioned, there's still an underestimation of the potential of ICOTYDE, in psoriatic arthritis and IBD, the potential of RYBREVANT in non-small cell lung cancer, head and neck, where we got breakthrough resignation on colorectal cancer and finally, the potential of INLEXZO in high-risk non-muscle invasive bladder cancer. By the way, INLEXZO got the J-code earlier in April. So I believe those are 3 particular products that remain underestimated that are already marketed. The same is true in MedTech where launches, especially in cardiovascular, including our next-generation PFA catheters and Impella ECP, along with OTTAVA in robotic surgery are not yet fully reflected as well as the fact that the separation of orthopedics will further lift our growth rates. So I think you -- when you take into consideration all those factors, you are going to get into a similar conclusion of double-digit growth by the end of the decade. Further, I would say that the strong sales growth will also drive operating leverage that will be further amplified when the U.S. DARZALEX royalties roll off in 2029. So taken together, this creates what some of you have called the cleanest growth story in health care. And we are going to be providing additional details in our enterprise review that will take place in December as we have announced today. Regarding BD, let me be clear, all these numbers do not include business development. This is based in the strong portfolio pipeline that we have today that is largely the risk, which increases the confidence in our ability to get there. When it comes to business development, I mean, that remains an important part of our capital allocation. As a matter of fact, I would say we have been ahead of the curve in our investments in M&A with the acquisitions during the last 2.5 years of Abiomed, Shockwave and intracellular. As I have commented in multiple times, our sweetspot remains early-stage deals like the one we did earlier this year with Halda Therapeutics, which brings a new platform in our oncology business. And at the same, I have to say that given the situation that I just described, our priority from a capital allocation perspective, our priority is to invest behind our portfolio of new product launches and our promising pipeline programs. So that's our priority today. We remain opportunistic from a business development standpoint but we do not depend on M&A to be able to deliver on that promise. So in summary, we see both revenue growth and operating margins improving and we reaffirm that we have line of sight to double-digit growth by the end of the decade. Operator: Our next question today is coming from Chris Schott from JPMorgan. Christopher Schott: Congrats on the progress. I just had a two-parter coming back to ICOTYDE. Maybe the first one, you mentioned 1,500 prescriptions so far. Is there any color on where those customers are coming from as we think about new patients versus those switching off orals versus those switching off injectables? And then just on the bigger picture view of ICOTYDE, as you mentioned, potential for the drug to become one of the company's largest ever. The pathway to get there, should we think about this as a similar dynamic to TREMFYA that skews more towards IBD versus psoriasis or is this one that could have more balanced sales by indication given, as you mentioned, the frontline potential of the drug in the psoriasis setting? Jennifer Taubert: Chris, thanks so much for the question. So in terms of the early information on ICOTYDE. Obviously, it is really early. So we're still getting information and I can tell you that there's a broad range of prescribers for ICOTYDE as we look across the medical community. We don't yet have data that is specific to exactly where that's coming from, what is exactly new, what they're switching off of, et cetera. So hopefully, we'll have greater granularity on that at our next call, next quarter. So obviously, it's pretty new and hot off the press. I think as we take a look at ICOTYDE, ICOTYDE is going to fit in psoriasis really firmly in that systemic first-line therapy area. And that is also a great opportunity there for market expansion. If you think there are so many patients that are cycling on topicals, they are resistant to moving into biologics for a number of reasons, whether it's needle phobia, perceptions around safety profile and things. We think not only given the size of the current systemic market and having significant impact there, but really being able to expand that broader is going to be key for ICOTYDE's success. I also think when you think about IBD and having an oral agent, we've got to see the studies pan out. But based on our goals there, we think that, that's going to be a similar very, very large opportunity. I think here, we're going to see maybe more of a balanced scenario given the strength that we really anticipate having in psoriasis, but I think both segments, both psoriatic disease and inflammatory bowel diseases are going to be very big offer a lot of potential and promise for ICOTYDE. John Reed: Yes, Chris, maybe just one other comment on that is that across most autoimmune diseases, about 70% to 80% of patients who are eligible for our biologics are not taking one. And so that's why we really think about this market expansion opportunity to offer patients the convenience of a highly effective very safe once a day pill. Operator: Our next question today is coming from Shagun Singh from RBC Capital Markets. Shagun Singh Chadha: I wanted to touch on some of your growth drivers within the Medical Device business. Abiomed post-ACC, some of our checks are suggesting that within the high-risk population, we could see up to a 30% reduction. How does that compare with your expectation? And it looks like the IDL space is looking to get increasingly more competitive. So how do you manage your market leadership position in that space? And then overall, as I think about all the drivers that you mentioned within medical devices, should we think about MedTech as a high single-digit growth contributor towards the double-digit growth that you've called out for total company by the end of the decade? Tim Schmid: Shagun, thank you for the question. And there's a lot in there. Let me try and unpack it. Firstly, we are really excited to be now significantly embedded in the cardiovascular space beyond the leadership position we hold in electrophysiology and with the acquisitions of both Abiomed and Shockwave, we've added to high-growth, high-margin businesses with tremendous trajectory for the future. And, as you know, grew 14%, almost 15% in the first quarter, and this is really driven by rapid adoption of Impella 5.5 and CP and what excites me most going forward is Abiomed's robust pipeline of not only technologies, but ongoing clinical studies showing the benefits of this technology. And you will know that in August of last year, we saw a new data from the DanGer Shock shop randomized controlled trial published in the New England Journal of Medicine, and this really confirmed the long-term survival benefit of Impella. These results found that up to 10 years when compared to the standard of care, routine use of Impella in patients who had a STEMI heart attack with cardiogenic shock lead to an absolute mortality reduction of 16.3%. And to put this in context, when compared with the control arm of 10 years, Impella CP patients gained an average of 600 additional days alive. I mean that is compelling. And so while you're always going to see new data and new studies come about, we believe that our evidence base for the products we have and the indications we have today are absolutely solid and will continue to drive performance in a category where we don't have line of sight to any significant competitor for the foreseeable future. I'll turn to Shockwave, 18.1% in the first quarter, and we're very pleased with that performance. The IVL market is one we completely have created ourselves through the acquisition of Shockwave and we continue to advance our leadership position. Now clearly, competition is coming. Competition is going to come to any space that is attractive and certainly one as attractive as IVL. But there's 3 reasons that we have confidence in our portfolio and our future. And the first thing really is our portfolio. The second is evidence, and it's our presence. And over the past 7 years, we've had -- we've earned the reputation of an innovative disruptor, launching 9 -- yes, 9 new coronary and peripheral catheters that have introduced a new standard of care when it comes to safely and effectively treating calcified lesions. And as a result, Shockwave IVL has become the preferred treatment strategy in most calcium cases worldwide where it has been used in now more than 1 million cases around the world, and global expansion has also increased since the acquisition as we had transitioned 10 markets to direct sales forces. We've expanded our presence to now cover 17 markets globally with J&J representatives where we can leverage our scale and the broader J&J organization to drive government relations and address any legal and market access opportunities. And while we will never take any competitor for granted, new competitive entrants into the IVL market, validate really Shockwave's robust portfolio in leading specific solutions. And while competitors are introducing some of the versions to our first-generation products from 2017, we're introducing our fifth generation coronary peripheral devices in 2026 and a single catheter offering will be difficult to compete against Shockwave's portfolio strategy and the improvements we've made over the years to reset the standard of IVL. And while new competitors are completing their first regulatory required clinical studies, we're continuing to invest millions in robust real-world clinical evidence with nearly 25,000 patient outcomes published across 600 journals to date, demonstrating our unique safety profile exclusively associated with Shockwave's ultrasonic acoustic platform and what physicians also appreciate is our contact easy-to-use and rechargeable generators, which require minimal capital expenditure. And back to the point of presence, these generators provide widespread access to Shockwave's IVL technology and they're available in almost every cath lab across the United States, and we actually have more than two generators in over 1,700 U.S. hospitals, and so very difficult for competitors to unseat us. Most importantly, I'd say is we remain hyper-focused on continuing to earn our innovative disruptor reputation with plans to launch at least one new IVL catheter per year that we expect will redefine the future of IVL in new indications and new disease states. And this year, we will launch our C2 Aero new coronary catheter, which from the early feedback we've got from physicians is going to be another standout product. I think to your final point around long-term prospects. We're excited about our growth profile and the catalysts we have to continue to accelerate MedTech from a mid-single-digit player into a higher single-digit player as we move towards the end of the decade. I will point to some big catalysts, especially in our surgery business. Surgery is one of our larger portfolios. We are a dominant leader, both in the open and laparoscopic space. And we have an expectation to play a big role in the robotics space. As you know, we've submitted OTTAVA for approval. And assuming everything plays out, we expect that by the end of this year, we will be launching not one but two new surgical robotic programs, both with OTTAVA and MONARCH for urology. Now what we don't expect those programs to be significantly accretive to growth in the short term, they certainly will be accretive as we move to the back half of the decade. So another good example of an important catalyst that will take us from a mid-single-digit player into a higher single-digit player as we look to the back half of the decade. Operator: Your next question is coming from Alexandria Hammond from Wolfe Search. Alexandria Hammond: A few more on ICOTYDE. Can you walk us through the investments you guys are making on prescriber and patient education? And how important do you think advertising will be to kind of engage those new patients who might be nervous to start on a systemic therapy? And then just as a follow-up as well, with ICONIC-ASCEND trial set to read out imminently, how important could this result be those ongoing commercial discussions? John Reed: The study you mentioned in the head-to-head against the TYK2 inhibitor is, I think, just illustrates the best-in-disease profile for ICOTYDE in terms of having both that high-level efficacy combined with safety in the once-a-day pill. How much the direct-to-consumer is going to matter, I'm going to let Jennifer answer that question. Jennifer Taubert: Alex, it's safe to say that we are investing big in ICOTYDE to make sure that this brand can do all that it can do for patients. I think that the ease and the simplicity when you combine the clinical profile, the safety, the efficacy and then the ease of the product, we really believe that we've got a winner. And so we're investing to really get off to a very strong launch, that's with all of the appropriate field teams. Additionally, we've invested and built out what we believe are really best-in-class patient access and support services to help patients get on the medicine both get on and be able to stay on. And then we're continuing to evaluate the best way to make sure that both the clinicians, all the appropriate health care providers patients are aware of this important offering. So probably more to come on that, but please know that we're investing what we believe we're investing to win in this area. Operator: Our next question is coming from Joanne Wuensch from Citibank. Joanne Wuensch: Very nice start to the year. I'm going to pause for a moment on the ophthalmology franchise, in particular, your views on the U.S. surgical and U.S. contact lens market. I'm curious in particular about the almost 3% decline in the U.S. Surgical in the quarter and how to think about that recovery throughout the remainder of the year? Tim Schmid: Joanne, thank you for the question. Vision overall, delivered a solid first quarter with sales growth of 3.6%, which is really consistent with our expectations. You will recall that business tends to be slower in the first couple of quarters and then accelerate throughout the year. We've seen that over the last couple and certainly, 2025 was no exception. Keep in mind that Q1 is typically our lowest quarter, and we're confident that we will see acceleration through the remainder of the year. If you break it down into the two component businesses, contact lens grew 2.7%, driven by the ACUVUE OASYS 1-day family. And especially, as you heard earlier from Joaquin, the MAX multifocal products, and these latest launches really complete our family of daily disposables and are solidifying our leadership in the category with exceptional comfort, clarity and stability. And when I look to surgical vision, we grew 6%, driven by normal seasonality. We continue to see strong global momentum in premium IOLs led by TECNIS Odyssey and PureSee where we're outpacing the market globally, and this premium segment remains a key driver of value and differentiation. I think to your pointed question on U.S. performance, if we look at Surgical Vision growth in the quarter, it was offset in the U.S. due to competitive pressures as new entrants came into the market, which is not unexpected given the fierce stature of this portfolio. We also continue to expect some seasonality in our business as growth won't always be linear. That said, we remain confident in our clinical position with TECNIS Odyssey. And as we prepare for the launch of TECNIS PureSee in the U.S. later this year. And we have seen extremely strong uptake of TECNIS PureSee globally, nearly half -- it's actually almost 0.5 million eyes worldwide have already experienced a clearer uninterrupted vision with this premium IOL and TECNIS PureSee, which received FDA approval, this quarter is the first and only U.S. FDA-approved extended depth of focus IOL with no warning on loss of contrast sensitivity, which is a huge game changer for physicians and the comfort they have in recommending an IOL. In fact, 97% of patients reported no bothersome visual disturbances like halos or glares, which can often occur with other IOLs and we're really excited about the launch of PureSee here in the U.S., which will give surgeons an important new lens option for their patients. And as we continue to focus on the premiumization of our portfolio, we firmly believe that the combination of TECNIS Odyssey, which is in the market and now TECNIS PureSee will be a key driver of value and differentiation. On the back of this, we can confidently say that we expect accelerated growth in the back half of the year for our Surgical Vision business and Vision overall, including here in the U.S. So thank you again for the question. Operator: The next question today is coming from David Risinger from Leerink Partners. David Risinger: So my question is on JNJ-4804 the coantibody. Could you talk about your vision for its role in IBD treatment paradigms and the readouts that we should be focused on? And then since others have asked multiple questions. Joe, could you just share the [ MFA ] sales like you did in the first quarter for INLEXZO? John Reed: Yes. Thanks for the question about 4804. So just to remind the audience, this is our coantibody therapeutic that combines guselkumab, our IL-23 inhibitor, also known as TREMFYA together with our TNF inhibitor, golimumab and we are in a position to potentially be the first with a coantibody therapeutic in the IBD space. Now even with the best of therapies, more than half of patients with IBD do not achieve a complete remission, and so we see for patients where monotherapy is not getting the job done to then offer this dual therapy, the combined therapy is a fixed dose combination. So the Phase II data on that in both Crohn's and Colitis, there were two separate studies will be presented in the coming year at a medical conference. So you'll have an opportunity to see the details of the data there, and that will provide more insights into the specifics around the most ideal patient populations for this kind of co antibody therapeutic. But we're really excited to move this forward now with pace. The Phase III programs are underway and really excited to then try to break through these efficacy ceilings that have limited how many of these patients who battle with inflammatory bowel disease are able to achieve a complete remission and really get that mucosal healing from their therapy. Darren Snellgrove: David, thanks for the extra question there. We actually don't disclose the [ MFA ] sales at this point in time. So more to come on that. We actually have time for one last question. Operator: Certainly, our final question today is coming from Matt Miksic from Barclays. Matthew Miksic: Great. And congrats again on a really impressive quarter and start to the year. So you mentioned INLEXZO a couple of times, and I know you've talked at length about it in the past. Just wondering if you could give us a sense of what the commercialization plan and rollout looks like for that, given it's a slightly different delivery mechanism than many of your other therapeutics and kind of where you are with that? Any metrics you can provide would be great. And thanks again. Jennifer Taubert: Sure. So maybe as a reminder, despite recent advances in bladder cancer, unmet need in that area really remains significant and this is for bladder sparing options. There's almost 600,000 new patients diagnosed each year and another 400,000 that are recurring. So really, really big market opportunity. We've launched INLEXZO into the BCG unresponsive population and are really excited to be able to move forward in the coming years and to be able to broaden that population. As a reminder, we really designed the product to fit seamlessly into urology practice so that, relatively speaking, easy to insert and to retrieve and fits very, very nicely into practice. So how is the product doing? So INLEXZO's outperforming all the recent launches in the non-muscle invasive bladder cancer space. And that's based on kind of the unique patients that were treated in our first 6 months post approval. 1 in 5 eligible patients are starting on an INLEXZO regimen during the first quarter. And then what I think you really want to know is following our J-code approval which came at the beginning of April. What we saw in the first week was actually a over 50% increase in new patient insertions and the second week we that we have under our belt, we actually saw that jump up to almost 90% increase in new patient insertion. So consistent with what we've articulated on our expectations for this product once there's certainty reimbursement following the J-code, we're seeing play out in practice so far in the first couple of weeks. So very, very excited in that -- in the BCG unresponsive space and look to broaden that into broader populations John Reed: Yes. Just to remind with INLEXZO, we achieved the highest complete response rates ever seen for a therapy for non-muscle invasive bladder cancer achieved breakthrough designation from the FDA as well as the rapid review from FDA and in Japan, the PDMA accepted our submission based on the single-arm data, they've never previously accepted a submission based on single arm data just showing how exciting these data are and how much unmet need there is. I would also draw your attention to INLEXZO is just the beginning. Right behind that, we have the IRDA, intravascular drug-releasing system, this has erdafitinib, that is a small molecule targeted therapy that addresses the intermediate risk non-muscle invasive bladder cancer population. There, we achieved in the biomarker-defined population, complete response rates north of 90%. And that device also custom designed to deliver that payload delivers medicine for 3 months compared to INLEXZO, which is 3 weeks. So we just keep getting better and better as we do the next iteration, the next iteration around this intravascular drug-releasing system. Jennifer Taubert: And then in terms of our go-to-market model, this really represents the best of Johnson & Johnson and something that only a company like Johnson & Johnson with both an innovative medicine and a MedTech business. can do and bring to market. So in addition to the product that we've developed and the reimbursement and access support and that the sort of excellence that's coming out of the innovative medicine business, we've really been able to tap into MedTech and their world-class training institutes, their modular training that can literally go to the site of care. And so we're deploying that throughout the United States to make sure that urologists and their practices are up to speed on INLEXZO and fully trained to begin insertion for their patients as they deem fit. So really bringing the best of Johnson & Johnson to bear for this product. Darren Snellgrove: Great. Okay. Thanks, Matt, and thanks to everyone for your questions and your continued interest in our company. I'll now turn the call over to Joaquin for some brief closing remarks. Joaquin Duato: Thank you, everybody, for joining us today. As you have heard, Johnson & Johnson has the strongest portfolio pipeline in our history, and we are relentlessly focused on innovation that is delivering real impact for patients. With our Q1 performance, we are off to a strong start, reinforcing our confidence in the year ahead and our ability to raise the standard of care in our 6 key focus areas. Thank you for your interest in Johnson & Johnson. We'll see you at our late December, too, to give you more details on these new products that you were asking and enjoy the rest of your day. Operator: Thank you. This concludes today's Johnson & Johnson's First Quarter 2026 Earnings Conference Call. You may now disconnect.
Operator: Good morning, everyone, and welcome to the FB Financial First Quarter 2026 Earnings Call. Please note, this event is being recorded. At this time, I'd like to turn the conference call over to [ Rachel Dereski ] with FB Financial. Please go ahead. Unknown Executive: Good morning, and welcome to FB Financial Corporation's First Quarter 2026 Earnings Conference Call. Hosting the call today from FB Financial are Chris Holmes, President and Chief Executive Officer; and Michael Mettee, Chief Operating and Financial Officer. Please note FB Financial's earnings release, supplemental financial information and this morning's presentation are available on the Investor Relations page of the company's website at www.firstbankonline.com and on the Securities and Exchange Commission's website at www.sec.gov. Today's call is being recorded and will be available for replay on FB Financial's website approximately an hour after the conclusion of the call. [Operator Instructions] During the presentation, EFinancial may make comments, which constitute forward-looking statements under the federal securities laws. Forward-looking statements are based on management's current expectations and assumptions and are subject to risks uncertainties and other factors that may cause actual results and performance or achievements of FB Financial to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond FB Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks that may cause actual results to materially differ from expectations is contained in FB Financial's periodic and current reports filed with the SEC, including FB Financial's most recent Form 10-K. Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's earnings release, supplemental financial information and this morning's presentation, which are all available on the Investor Relations page of the company's website at www.firstbankonline.com and on the SEC's website at www.sec.gov. I would now like to turn the presentation over to Mr. Chris Holmes, FB Financial's President and CEO. Christopher Holmes: All right. Good morning. Thank you, Rachel. Thanks to everybody for joining the call this morning. And I'll always thank you for your interest in FB Financial. I want to start today's call by calling attention to a distinguished award the company received recently and what it means first thing. The bank received J.D. Power's Retail Banking Award in the South Central region for placing #1 among the banks in the region for customer satisfaction. J.D. Power surveyed over 100,000 banking customers across our region, surveying them about their satisfaction with their primary bank. And when the results were tabulated, [ FirstBank ] #1 on the list for overall customer satisfaction. FirstBank also ranked #1 in the subcategories of client trust and quality of our people. What made this award even more gratifying was that we weren't even aware that our customers were being surveyed. So the ranking is a result of our natural service behavior and not something that resulted from any special preparation. As bank investors, we watch every basis point of margin efficiency, return, et cetera, and every penny of EPS where we can struggle to find effective relative measures of the actual driver of superior sustainable bank performance, which is our ability to attract, satisfy and retain bank clients. This award is independent tangible verification of what I've known about our team. That's when stacked against the competition, we win. I want to thank our clients, who participated in the process and our associates, who are the FirstBank story and who takes such outstanding care of our clients you are literally the best at what you do, and I'm proud to be on the team with you. So with that, now let me get into the quarter. We reported EPS of $1.10 and an adjusted EPS of $1.12 and have grown our tangible book value per share, excluding the impact of AOCI at a compounded annual growth rate of 11.6% since our IPO back in 2016. Our net income was $57.5 million or $58.3 million on an adjusted basis, and our pretax preprovision net revenue or we may refer to as PPNR during the call, was $77.2 million or $78.2 million on an adjusted basis. So even with 2 fewer days in the quarter, we were able to grow our pretax preprovision net revenue versus the prior quarter. Revenue declined slightly during the quarter, but expenses have had an even greater decrease to keep our net income and profitability metrics in line with our expectations. We kept our PPNR return on average assets near our benchmark range of 2%, coming in at 1.93% or 1.95% adjusted. We're pleased with our returns. And as Michael will cover in his comments, our growth gained momentum during the quarter, giving us optimism about the remainder of the year. We're now [ 1/4 of the ] way through 2026. We continue to believe it's a great time to be a FirstBank. Our strategic pillars of award-winning client experience high associate engagement, operational efficiency and elite financial performance are all working together to grow our franchise and position us for continued success. When you add that to our -- when you add that our geography as one of the best in the country and our size is optimal to allow for both capacity and agility, we're optimistic about our path to creating shareholder value, both short term and long term. So before I turn the call over to Michael, I do want to acknowledge that like all of you, we're following the macro events of the time of our times closely. But most of these things, like geopolitical conflicts, technology disruptions, economic shocks and interest rate volatility are things that we have to react to versus exercise control over. What we do control is our position in preparation for a range of circumstances and risk scenarios with active and prudent management of our robust capital, robust liquidity and our high reserve levels. We remain in a position of strength and believe that we have the ability to perform through the various economic cycles as they come. So that I'll now turn the call over to our Chief Financial and Operating Officer, Michael Mettee, for some more color on the quarter. Michael Mettee: Thank you, Chris, and good morning, everyone. I'll begin my comments this quarter with the balance sheet. While we started the year at a slower pace than we originally anticipated, with annualized loan growth of approximately 4% deposit growth around 5%, we are seeing momentum build across the business in the right areas. Although these growth levels fell at the lower end of our internal expectations, the underlying activity and pipeline trends give us confidence that we are positioned to execute on the core fundamentals Chris outlined and drive improved results as the year progresses. During the first quarter, we began to see a more intense wave of competitive pressure, particularly around pricing. While profitability will always remain central to our decision-making, we're focused on striking the appropriate balance between disciplined returns and sustainable growth. Our strategy remains centered on building deep, long-term customer relationships that create enduring value for our shareholders. We will continue to be disciplined in acquiring new relationships and remain committed to protecting and strengthening our existing ones, always with a focus on delivering value to both our clients and shareholders. The company has the size and scale to compete effectively and win attractive deals when it makes sense to do so and do not hesitate to aggressively [ in competitive ] situations when warranted. Ultimately, our value proposition is not about being the low-price provider, it's about delivering peer-leading customer satisfaction through strong financial advice and trusted services. By keeping the client at the center of everything we do, we believe we'll be -- we will continue to drive improved profitability over time and create the same long-term value for our shareholders. On that front, March was our strongest month of the quarter. with upper [ single-digit loan ] growth and meaningful expansion in our loan pipeline. As we move through the second quarter, we're seeing the momentum continue, with a portion of that activity beginning to translate into on balance sheet growth. We expect second quarter balances to reflect continued improvement with additional pipeline conversion extending into the third quarter and larger volumes building into the back half of the year. On a full year basis, we continue to expect both loan and deposit growth in the mid- to high single-digit range, with growth increasingly weighted towards the second half as momentum builds. Turning to earnings for the quarter. pre-provision net revenue totaled $77.2 million or $78.2 million on an adjusted basis compared to $71.1 million in the prior quarter and $77.1 million on an adjusted basis. Net income also improved quarter-over-quarter despite the shorter reporting period, coming in at $57.5 million or $58.3 million on an adjusted basis. Our net interest margin for the quarter was 3.94%, representing a modest decline, driven primarily by balance sheet mix and the full quarter impact of rate cuts implemented late in the fourth quarter. Total loan yields for the quarter was 6.51%, with yields on new production towards the end of the quarter running a bit closer to 6.6%. On the deposit side, total cost declined to 2.27%, while rates on new production were approximately 2.7% around quarter end. Both loan and deposit yields were modestly lower than the prior quarter, reflecting benchmark rate cuts across the variable rate portion of our balance sheet. As we move deeper into 2026, we expect some additional pressure on margin as competitive dynamics remain elevated, and we continue to pursue targeted growth opportunities in our market. Based on current conditions, we would expect full year net interest margin excluding loan accretion, to be in the range of 3.7% to 3.8%, representing a modest decline from our prior guidance. We would expect second quarter margin to trend towards the lower end of that range before stabilizing as the year progresses. Finally, we would note that the interest rate environment remains uncertain, particularly around the timing and magnitude of future benchmark rate movements. As a slightly asset-sensitive balance sheet, changes in rates can be both favorable and unfavorable, depending on the direction and speed of those moves. While our margin outlook assumes a continuation of current conditions, modest rate actions, either higher or lower the current levels, will impact some of the competitive and growth-related margin pressure we've outlined. We'll continue to actively manage the balance sheet and pricing strategy to position the company as effectively as possible across a range of potential scenarios. Noninterest income declined $2.4 million during the quarter, primarily driven by lower secondary mortgage volume as well as absence of several nonrecurring items recognized in the prior quarter, including a higher BOLI benefit payout. In addition, the quarter reflected fewer calendar days relative to the prior period, which modestly impacted overall fee generation, particularly within mortgage-related activity. With mortgage, we saw a really strong start to the quarter, and that slowed as the quarter progressed due to the increased interest rate volatility and heightened uncertainty in the housing market and really the world economy. Shifting rate expectations and broader market dynamics impacted borrower sentiment and transaction activity, which weighed on production as rates moved throughout the quarter. Mortgage revenue also tends to exhibit some seasonality with activity typically building as we move further into the year. On the expense side, first quarter noninterest expense totaled $95.2 million, representing an approximate 11% decline from the prior quarter or roughly 7% on an adjusted basis. Personnel costs moderated as compensation-related accruals returned to a more normalized run rate. And merger and integration expenses declined as we completed the majority of costs associated with the Southern States combination. We also saw quarter-over-quarter reductions across several other expense categories as the year reset and teams maintained strong expense discipline. As a result, our efficiency ratio for the quarter was 55.2% or 54.3% on an adjusted basis, driven in part by our [ banking ] segment, which delivered an adjusted efficiency ratio of 50.9%. Looking ahead, we remain focused on disciplined expense management, with [ banking ] segment noninterest expense expected to range between $325 million and $335 million for the year and a total company efficiency ratio anticipated to remain in the low 50% range. Turning to credit. Our provision expense for the quarter totaled approximately $3 million, with our allowance coverage ratio ending the period at 1.49% of loans held for investment. Net charge-offs were modest at an annualized rate of 11 basis points, which was a slight uptick for us, but were driven by a small number of isolated borrower-specific situations rather than any deterioration tied to broader economic stress. In evaluating the allowance for the quarter, we gave additional consideration to potential macroeconomic events stemming from the conflict in the Middle East. We reviewed the most relevant economic forecast, assessed our portfolio for direct exposure to the recent increase in energy prices. While it remains early to fully understand the broader downstream impact of operating companies, our analysis focused on a limited set of industries most sensitive to near-term energy price shocks. Our exposure to those sectors remains minimal, and we believe our reserve levels are appropriate given the current risk profile of the portfolio. With respect to capital, we continue to be in a very strong position, supported by solid capital ratios and a robust liquidity profile that provide meaningful flexibility. During the quarter, we were optimistic in repurchasing shares amid purchases or periods of market volatility, and we remain well positioned to deploy capital thoughtfully as opportunities present themselves. Our capital ratios continue to reflect that strength with a common equity Tier 1 ratio of 11.5%, a Tier 1 leverage ratio of 10.4% and total risk-based capital of 13.4%. This strong capital foundation allows us to remain flexible in supporting organic growth, pursuing strategic opportunities and returning capital to shareholders where appropriate. In closing, I want to echo Chris' congratulations to our team on earning the J.D. Power recognition. This award is a direct reflection of our associates' commitment to our core values and the strength of our franchise, and it reinforces our focus on delivering consistent value to our customers, shareholders and communities. With that, I'll turn the call back over to Chris. Christopher Holmes: All right. Thanks for the [ call ], Michael. Thanks again to everyone joining the call this morning and for your interest in FB Financial. And operator, at this time, we'd like to open the line for questions. Operator: [Operator Instructions] The first question today comes from Dave Rochester with Cantor. David Rochester: On loan growth [ than ] the guide for the year sounded positive, but it sounds like you're also expecting those competitive pressures to continue. I was wondering where you're seeing the bulk of those pressures coming from? Is it larger banks, smaller banks? Is there any variance by market that's noticeable? And are you assuming more elevated paydown activity to continue as well? And I guess you'll just originate more to offset that to get to that mid- to high single-digit range. Just any thoughts there would be great. Michael Mettee: Yes. Dave. So some of the optimism, right, is the pipeline continues to build, and you can see the kind of the closing dates and [ site ] for a lot of those deals. I would say on the loan side, competitive pressure, generally larger institutions; we're seeing it really across the board. Nashville is obviously pretty competitive, but we're seeing it in a lot of our large metro markets, so whether that's Birmingham, Huntsville, Knoxville, Memphis; we saw some large payoffs in Memphis, where competition took us out on some deals this quarter. So it really is across the board. On the deposit side, I would actually say it's both large and smaller. We see community banks that have gotten really aggressive, specifically in the kind of 12-month [ CD ] space, but even interest checking rates that will make you blush a little bit, And then for the larger institutions, we're seeing money market rates well above 4 from regional banks that actually we haven't seen advertising market in quite a while. So I'd say it's coming from both sides. The optimism is the team has put in the work, has been working with our clients, both our existing clients and new prospects. There's a lot of kind of economic excitement. Even with everything going on in the world, people are pretty positive about the economic environment. And so deal flow is happening. And I would say that's across the company, whether that's in our communities of 7,000 people or metros of 4 million people. Christopher Holmes: Yes. And Dave, you mentioned paydowns, and we've seen some of those both second half of last year and into this year. And do we think that will continue? We do. There would be some of that, Michael mentioned, a couple of payoffs. We'll continue to see some of those. But it's okay. when we know about them, it's the expected ones that gets you. And so we do expect to continue to see those. But as you've heard, kind of where the pipeline is and what things look like, we're considering that in our -- as we're talking about net growth, we're talking about net growth. David Rochester: Okay. Great. That's great color, guys. I appreciate that. And maybe just one more. Just on the talent pipeline, obviously, a lot of disruption in the market. You guys have talked about this before. It seems like a good opportunity, but of course, everybody is trying to retain their people. Can you just give us an update on on what you're seeing there, the dynamics with conversations that are going on right now? And what -- how confident are you guys that you might be able to pick up some value add there over the rest of the year? . Michael Mettee: Yes, it's a daily topic here, Dave, right, is kind of offense and defense with regard to talent. And so I'd say conversation's heated up. I mean, we added, let's say, 15 revenue producers in the first quarter. We also lost a couple. And some of that is people going to other institutions and some of its retirements, things like that. But yes, these are really waterfall events. It's not necessarily who you think is acquiring your talent. But when one person moves, it opens up a door for someone else. And so you're constantly trying to keep your key players in your key markets, and that's both large and small, too. I think a lot of it, people equate to, I'll call it, Nashville or like a [ hunt fill ], but it's happening across the board in places like Jackson, Tennessee, Birmingham, Atlanta. So I feel good about the conversations. We're hot and heavy on a lot of recruiting. It's more important to me that we have the right people that fit our culture and our business opportunities versus putting numbers on a page, even though [ it's quite ] 15, it's much more important that those are the right people. And so that's where we continue to be focused, And we think we'll get more than our fair share of those right people as we move forward. David Rochester: On a net basis, that sounds really positive in terms of the ads that you just brought in, in the first quarter. What -- just curious, what areas are they in? Are they primarily loan producers, deposit guys? Is it commercial? Where are you seeing those adds? . Michael Mettee: Yes. So one point of clarity when I'm recruiting is I expect all of our bankers to be bankers, loans and deposits. So generally not bringing in just loan people sometimes bring in just deposit people. But even those are equipped to take care of their clients. 8 or so relationship managers, a couple of mortgage people and a couple of people that are focused really on consumer and small business relationship development. So -- and we do have a couple, I guess, loan-heavy businesses, right? So yes, it's positive. And we think we can continue the momentum. Christopher Holmes: Yes, David, and I think it's always, I think, a topic. And it's a little like the customer service topic I talked about. It's important. The one thing I would say about this one, it's kind of hard to get relative measures on talent because folks look at it differently. And for us, it's become something that we know that folks want to try to get their arms around. But it's not really a key performance metric for us in terms of we don't have a goal where we say we're going to hire this many this quarter, this many in the next quarter. We're looking for the right people at the right time. And there is a lot of movement. The one thing I would say is there's probably more movement and more recruiting going on, particularly in our metropolitan markets, [ but ] Michael said that even in some of our smaller markets than we've seen across the board. And typically, you see people going from smaller banks to larger banks, but we're seeing some larger banks, some much larger than we are, that are coming in to recruiting talent from banks even smaller than we are. And so it's just -- I think it's an interesting time. But again, Michael said it, you have to play offense and defense all the time. And defense is best played by making sure you've got a great place to work, making sure you've got engaged folks and making sure that you're taking good care of them, and that's as important as anything. That's how we view it. Operator: The next question comes from Russell Gunther with Stephens. Russell Elliott Gunther: I wanted to ask on the expense side of things, so really strong first quarter results but you guys have reiterated the banking segment expense guide for the year. So it'd just be helpful to get some color in terms of what's driving that sort of pickup over the course of the year. Michael Mettee: Yes. I mean it's a dose of expectation around performance picking up, which obviously impacts -- we're a performance-based company when it comes to [ competition ]. And so we want to expect peer-leading returns. And so that drives that number a little bit higher as we look out over the year. And some of that will come with growth there, [ Russell ]. There's not any expectations of huge like technology investments or anything like that. So it's more just maintaining our run rate expectations and performance-based comp type stuff moving higher throughout the year. Russell Elliott Gunther: Okay. And then just an adjacent follow-up. So curious, deal synergies were fully realized this quarter. In aggregate, did they come in, in line with what you were expecting or maybe better than modeled? And then bigger picture, what's a good kind of core expense growth rate or range to think about [ FB Financial ]? Michael Mettee: Yes. Actually, I would say from a combination perspective, we landed pretty much right on top of our deal expense number, maybe plus or minus [ is 20,000 or so ] . Christopher Holmes: It was really close, except I was just a shame. As Michael said, it's -- the difference is really immaterial because it's like in the -- on a fairly large number, it's down less than [ $1 million ]. And I actually think it may be just a hair under, but it's right on the number. Michael Mettee: Yes. And I'd say for -- we haven't done a real merger in 5 years. So it's good to kind of get set off and resharpen the knife a little bit. So yes, we're around expectations. I think the proof, right, Russell, is getting to that kind of 50% range by year-end as we continue to efficiency ratio to year-end as we get to the combined company make sure the revenue engine is still going, which is really important when you say synergy, I think about revenue as well in maintaining our ability to grow in our legacy Southern States markets. So yes, I think we're in a good spot there. And then I'd say 4% to 5% kind of core expense growth as you look forward, if I think about '27, which is a long ways away. But that would not include, back to Dave's question, talent acquisition and opportunities to really add teams and scale, but we'll maintain our expense discipline as we kind of look forward. Russell Elliott Gunther: Got it. Okay. And then just last question for me. would be circling back to the loan growth side of things, the mid versus high single digits. What are the largest drivers that would get you to the high end versus the low end? Michael Mettee: Yes. I mean [ the Tom ] -- some of it is just the time of the quarter, I guess. But if you think about the year, we have -- it is a competitive environment. And so people stepped in, other companies [ step ] in. And sometimes, we'll get really aggressive, and some customers are more price-sensitive than others. And so you can see large deals move one way or the other. But our pipeline, when I look at it on a confidence interval, and so we're pretty confident about where we are. But you could see some payoffs come in, like Chris said, the unexpected ones. [ What ] you hope doesn't happen. If you're really servicing your clients, you should know. But sometimes we're all surprised. Christopher Holmes: Yes. The other thing I would say, Russell, it goes a little bit like we talked about on the people side, in that as people -- as bankers move, that also makes customers more vulnerable to to move it to changing banks. And so as I think about one of the -- generally, we're looking at -- as we're rolling forward, we're looking at what we have, customers that we have and things that we know or in a pipeline. So part of the optimism is, we also are having more and more conversations with really, really solid customers that have big balances both in loans and deposits that are in play. And so you certainly [ don't about ] 1,000 of those by a long shot. But the more at [ bat ] you get, the more [ hits ] you get. And so we're getting more and more at bats. And so there's some optimism around that as we get into the -- because we're having a lot of those conversations now. And as you get -- you think some of those are going to [ hit ] as you get later into the year and as you get into next year, that seems to be picking up momentum. Operator: The next question comes from Stephen Scouten with Piper Sandler. Stephen Scouten: I guess one other kind of maybe point of clarification on loan growth. Could you give us a feel for kind of maybe the cadence of growth? I mean, obviously, you said the pipelines and growth picked up in the back of the quarter, but still a little bit below your expectations. So was the cadence just that things started off a little slower? Did you see any sort of demand pullback with all the macro, geopolitical events? And then talked about payoffs, but kind of do you have any sort of numbers there in terms of quarter-over-quarter payoffs or year-over-year that if that was part of the driver for the slightly slower-than-expected growth maybe? Christopher Holmes: Yes, on cadence, I don't know that I would -- I think I'd describe things as fairly steady and normal with the exception of a few big balance things. We did have at least couple of payoffs that were just big balance things, but we've talked about that before, and we anticipated some of that. . Other things, you do see a little bit of push down the calendar, if you will, or push forward some. Maybe that's related to just some uncertainty. But I wouldn't say that's a material event. I would just say that as we have continue to do what we do, make changes here and make changes there, remember, we had the disruption second half of last year of integrating FirstBank [ and ]Southern states. And that does create a little bit of distraction. And so as you really get back on a good cadence, use your word there. you just begin to see the momentum pick up. And so I wouldn't say there's anything unusual about it. Rather than you can see things bump a little bit maybe related to, I'll call it, economic uncertainty. But again, I wouldn't read too much into that. Those tend to be small bumps, not big bumps, like I said. But if it bumps, it could bump 30 days, but that could move it between quarters. And so we do see that, but we see that every quarter. Michael Mettee: Yes. And I'd tell you for [indiscernible] we did timing-wise, that's -- if you're sitting here in January, you're saying we really a tough start to the year here coming off... Christopher Holmes: At the end of January, you look at it and go, wow, so [indiscernible] . Michael Mettee: Yes. I mean, especially coming off what I'd say, were elevated payoffs in December. I mean we're running $600 million or so in payoffs and amortization of quarter. Steve. And so then you got -- you also have people paying down lines, and then you got new lines being extended and paying up. So it's a little bit of a moving target. But that kind of that 500 to 600 range is where I expect payoffs and paydowns to occur kind of on a quarterly basis, which means you got to be growing at $600 million, $700 million to get to that mid- to high single-digit plus increases in lines and things of that nature. So it was -- I mean, the first quarter was a bit elevated, but not so much over the fourth quarter because the fourth quarter is also elevated. Stephen Scouten: Okay. Really helpful color. I appreciate that. And then on the updated NIM guidance, only a couple of basis points below kind of where you were previously. Just kind of wondering, what, if any, rate cuts do you have built into that guidance? And kind of -- I know you said maybe not an overly material change one way or the other, but I would expect if we didn't get cuts, maybe that could lead you to the higher end of the range. And then the reason kind of for the decline, would that be just increase in deposit pricing pressure? Is that the biggest delta maybe quarter-over-quarter? Michael Mettee: Yes, you nailed it. So we have a rate cut in our NIM guidance. And that's what we had and when we talked about the full year in January. So yes. And like you said -- I mean it's basically a basis point or 2 lower, so I would call that pretty stable. So the reality is rates or -- yes, if you look at the forward curve, most would say it's probably a market, which has probably rates up at this point, right? We're slightly asset sensitive. It's probably worth kind of 3 to 4 basis points in margin. But then if I think about what you just said, deposit pressure and thinner loans, you kind of get back to the same place. So there's probably a little bit of upside in flat to up rate scenario. I would say any, what I'll call, stair-step rate movement, either direction is manageable, if the elevator is up and down, which really create a lot of volatility in your margin. So the team will be able to manage through either way, but we certainly prefer that stair-step. And Chris has [indiscernible] to our team all the time, it will never get easier than today to get deposits. And so we expect that, that to continue to be challenging in the right environment. Now you've got treasuries are attractive again with where rates are. And so that's a competitive pressure outside of the banking system as well as customers need to -- or companies need to fund loan growth and economic expansion. So it's a competitive market. It always is, but it's been a little bit more fierce as we turn the calendar. Stephen Scouten: Got it. Makes sense. And maybe just one housekeeping question just on the tax rate. Anything to note there? It looks maybe slightly elevated relative to the past this quarter. How to think about that? Michael Mettee: I think it's probably in this kind of 20% to 22% range is the normal operating are. We had some franchise tax that -- in excess tax that's kind of local state related that picked up this quarter. And so that drove the higher number. And so there's community opportunities where we can invest in our communities that can move that number around a bit. And so we do those when the deals make sense, and so you can see that move around, and that's what you saw late last year. But we're a pretty normal range here, maybe slightly lower on a go-forward basis. Operator: The next question comes from Brett Rabatin with StoneX. Brett Rabatin: Wanted to start off with just a strategy question, and you guys are now $16.5 billion in assets, headed to 20, I would guess, over the next couple of years organically. And I know when you think about FirstBank, it's very community bank oriented. And so I wanted just to get an idea, one, from a philosophy perspective, would you guys start to think about specialized lines of business, equipment finance, those kinds of things that might further drive the loan pipeline? And then just secondly, you guys didn't talk about the FirstBank way. I wanted to see where you guys were in your evolution of that and just if there's anything left that you guys were trying to do in terms of the franchise and how you do business? Christopher Holmes: Yes, Brett. So [ many means ] I'm afraid maybe one of our conference room is bugged. You're hitting on some topics that have been heavy topics over the last 2 months. And so let me see if I can just kind of run down and talk about some of those. We are -- you labeled us as a community bank oriented, which I would give a strong indication that, that continues, yes, strong message that, that continues, and that will continue. We think you heard us start off by talking about what our customers think about that. And that was J.D. Power. But if you look at [ Greenwich information ], that's very strong as well. And so we think we have a formula there and sort of a special sauce [ and ] how we run -- and our community orientation is really a key ingredient there. It's not the only only ingredient, but it's a key ingredient. So we'll continue that as we scale. And so we spend a lot of time -- I talked about -- I spend a lot of time strategizing [ moving ] over the last 60 days. But part of that strategy is how do we maintain that as we scale the company. And so that's really important to us, and you're going to continue to see that. You also mentioned specialized lines of business. So part of what we're working through is how we add some specialized lines of business. We have some today, manufactured housing being one, for instance, that we excel at. How do we continue to add some other lines of business like that and continue that community bank orientation, okay? And so that's an important part of the strategy. And what you labeled FB way, sometimes we'll talk about our -- internally, we're talking about our customer-centric business model. And that those two overlap and can even be used interchangeably sometimes. But again, heavy focus on that very thing, and we'll continue to do that in -- because that's just making us better. And again, we look -- literally yesterday, we sat around the conference room, we're talking about where we ranked in customer service, and one of our goals for our executive team, for our executive team to hit our objectives for the year, we have to increase that score. Even though we're #1, we have to increase that score by a certain percentage. And so that is a continuous process for us on how we basically keep that community bank orientation and continue to scale the company. So that's critical to us. And I'll give you another line of business that we've added in the last 90 days is the [ SBA ] line, okay? We haven't had that as a loan in the company. We've got -- we've dabbled. We've got just a few small [ SBA ] things out there that we had before this, but that's now a line when we have an [ oil ] that heads that [ Lane Rod ] who joined us. And so we are -- and so that's another example. So you're going to see exactly what you described, where we continue that orientation. But we do continue to grow certain lines and some certain verticals. Brett Rabatin: Okay. That's helpful. And then the other question I wanted to ask was just around -- there's an obvious expectation that there's going to be some market disruption in the Southeast with some of the recent transactions. Would you guys view -- Chris, would you view M&A as too distracting from here? I've had some color from some banks saying that they're just -- they think, focusing organically and looking to take advantage of maybe some of the other acquisitions that have happened here recently, it was a bigger opportunity. Just wanted to see if your philosophy has changed much, if any, around M&A and potential opportunities, particularly in maybe newer markets like North Carolina, et cetera. Christopher Holmes: Again, man, I'm afraid you got to a you have us bugged here because it's a frequent topic of conversation is exactly that with the organic opportunity, is it -- do we need to or too distracting to do M&A.? The answer for us is no. It's not. But we are very conscious of distractions ourselves. And so that does cause us to look at it strategically a little differently than we traditionally looked at it and probably causes us to be even more careful and picky, choosy about what we do because it needs to be both strategically compelling and financially compelling for us. And you have to be careful about markets. okay? We can generally keep distractions away from markets that don't have any involvement through overlap in a transaction, we can limit the distraction. And so those are all the things we consider. But we will still keep that arrow in our quiver, and we could exercise that on a transaction at any point. Operator: The next question comes from Steve Moss with Raymond James. Stephen Moss: I want to start just following up on the loan pipeline here that you guys spoke is stronger. Just kind of curious, where you're seeing the pickup in demand in terms -- by loan type, if you will? Michael Mettee: Yes, [ David ], I would say it's across the board, but I would say we'll caveat that a little bit more clear, more in operating businesses. That's really where we've been focused, is developing out that strength from a C&I perspective. If you look at the -- where we've gotten smaller, a lot of that is kind of nonowner-occupied [indiscernible] for construction over the last couple of years. And so some of the pressure that we faced in payoffs this quarter and late last quarter was -- if you think back that 2021 time frame, a lot of growth out of the company, a lot of it was in that construction and nonowner occupied CRE space. So you're seeing that kind of roll off. And [ when ] we're replacing it. We're still in those businesses and taking care of quants, and we still like those asset classes. But it's not growing at the same velocity. So it's much more about operating businesses and some owner-occupied real estate type of transactions. Stephen Moss: Okay. Great. Appreciate that color there. And then second question for me here just on the margin. You talked about the core margin. Just kind of curious as to where you're thinking. Any updated thoughts I should say on purchase accounting accretion here for differing quarters? Michael Mettee: Yes, I think it's going to be in that same kind of 15 to 17, 18 basis point range. I don't think you'll see it go up unless we get even faster payoffs. But I think it's going to be pretty consistent here. Stephen Moss: Okay. Excellent. All the rest of my question -- then one more question just on capital here. You guys bought back late in the quarter with the pullback. Just kind of -- should we expect you guys to be -- continue to be opportunistic? Or sitting at [ 99 TC ], more favorable regulatory environment, do you guys press the gas on that a little bit more? Christopher Holmes: Yes. We'll continue to be opportunistic when it comes to [indiscernible]. We're watching the volatility there, but we usually regard that as opportunistic, and we really haven't changed that stance. Operator: The next question comes from Catherine Miller with KBW. Catherine Mealor: I've got one more on the margin, just on deposit costs. Do you have the spot rate of where deposit costs ended the quarter? And let's just say we are in a position where we don't have any more rate cuts until maybe the very end of the year, so basically no more for '26. Do you think that your deposit cost increase from this kind of [ 280 ] interest-bearing level? Or you were just more stable? Michael Mettee: Yes, that's at [ 2 levels ]. So we think about total new originations were 270. That's fine low [ had ] honestly, like I said, of interest-bearing [ 283 ]. I think you probably see those increase a little bit, given where you have to acquire new customers, Catherine. So market rate is significantly higher to acquire new customers. The goal there is to translate that into relationships over time in full operating business and then you get back to more of an equilibrium. There's a bit of a disconnect reality-wise of where you can fund the company either through borrowing or brokered and wholesale versus kind of where I'll call the consumer retail commercial market is. It's actually significantly, I would say, higher to go out and acquire new customers versus funding the bank. So it's a balance. If rates are up or flat, Fed funds, I think you see competitive pressure pushing deposit costs modestly higher. But our goal is always to get the full relationship. Catherine Mealor: Got it. And then new deposit costs of [ 270 ], does that include noninterest-bearing or that's just on new interest bearing? Michael Mettee: That's inclusive. Catherine Mealor: Okay. So that's relative to your kind of [ 2.27 ]. So your cost of new is still higher than where you are today? Michael Mettee: Right, yes. And I will say this too, Catherine, just to clarify, the days, I think, of loading up on noninterest-bearing deposits and not paying your customers a lot of interest or interest is we don't really see that as a long-term. We obviously want all the operating accounts we can, but we also want a fair value proposition. And with all these fintechs and competitive market, we don't expect our customers to be asleep at the wheel, and we're not going to try to [ kick ] them down then to zero. Christopher Holmes: That's right. And as a matter of fact, sometimes we even wake them up. intentionally and say, "Hey, you will give you a better deal." And so that -- the days of -- that's really key back books, we view that as quickly coming to an end, which changes a lot of competitive dynamics. And so just viewing our window strategically and how we're thinking about it. Catherine Mealor: And then by product type, where do you think you see the biggest growth in deposits that just interest-bearing demand? Michael Mettee: Yes. So that's a -- you've obviously been in our treasury meetings and our Pricing Committee. The -- so we saw money market decrease this quarter because what we're talking about the aggressive nature of other rate offerings. So there's probably some work to do there just to get back to equilibrium on money market. CDs, we continue to see CD renewals and new production CDs as a growth opportunity. We saw that in the back half of the year and through the quarter. We've been more in the short and long kind of a barbell approach. We're seeing a lot of competition in that middle ground, which I'll call 12 to 15 months. So CDs are an opportunity, but getting some of our money market business back is probably the biggest lever Operator: [Operator Instructions] The next question comes from Christopher Marinac with Green Capital Research. Unknown Analyst: Can you talk about of securities as another tool to grow NII? I know it's not the focus of loans and deposits as we were all talking about. But just curious if securities are a component of how you continue to grow revenue. Michael Mettee: Yes. Chris, I mean the investment portfolio is about 9% of the balance sheet total assets. And so there -- we've been as high in the past that kind of 14% range, but that really comes down to funding in a lot of cases. And so there's not a whole lot of times where I would sit around and say, hey, we have excess deposits, so -- to go and invest in the investment portfolio. We'd much rather deploy through organic growth opportunities. But that certainly is a lever to do that. We've been mainly in kind of floating rate government-backed stuff from an investment portfolio perspective, it's been a higher-yielding asset than fixed rate mortgages and things of that nature. So we'll continue to do that. It's not top of the list. We want to be organic in nature. And if we stick at 9% to 10% or even if it went down a bit and liquidity levels remained in that 11% on balance sheet liquidity range, I'd be a happy person. I mean we deploying through loan growth. Christopher Holmes: Yes. Chris, I'd just add to this, when we're looking at banks, we're valuing banks, and we see wholesale funding and sometimes the wholesale assets on the balance sheet, we quickly discount that to zero. And so when we're thinking about our own company, we don't do that as a matter of practice. We think, "Hey, to be successful and to continue to be creating value, we've got to be adding what we call customer and that can take a lot of different forms." But I'll broadly call it customer assets and customer deposits, we think that's what we do. And if we don't continue to do that well, we won't continue to be able to sit at this table. And so that doesn't mean that there are times where we -- that doesn't mean that there are times where we might leverage up for some specific reason or if we know something is coming or something leaving. We will use that leverage, but we keep a lot of dry powder there to use. We just don't typically use it for revenue growth purposes. And when we are -- and when we think about our portfolio, we don't keep a very large investment portfolio. And basically, it's simply a liquidity vehicle for us. So if you also look at it in there, it's very vanilla and liquid in terms of its marketability because, again, that fits that same philosophy we're really trying to plow it into the assets that we think really grow our shareholder value. Unknown Analyst: Understood. And then just a quick follow-up on new accounts that you're opening, as you look at it internally, do you see net new account growth? And is there sort of a general pace that you're looking for [ as ] the next several quarters and years play out? Michael Mettee: Yes. We actually have been quite successful in growing consumer accounts over the past year. It's interesting, [ yes ], we're going through some of this generational shift, adding -- I don't know what the youngest generation is now because I'm getting older. But I'm must say adding millennials is a different structure. And you got to add a lot of those accounts for one baby boomer that may be passing away or what have you. So that evolution of your accounts, you got to add a lot of smaller ones. We like that actually. We like granular deposits and granular loans. So we're all for it. It just takes a little bit more time to grow your balances. So the number of accounts has been quite good. but the balance growth comes over a significantly longer period of time than adding $400,000, $500,000 deposit accounts when they're coming in 2,000 to 3,000 chunks. So it's been positive. I'll also say, back to Catherine's question, we've seen some success in savings in our savings account product, which is probably an odd thing for people externally to hear, but it helps add that younger generation. You got a savings account, [ it's ] got a companion checking account, and it's of interest to people that are not quite yet adults, but it's worked well for families as people move into the stages of life. Christopher Holmes: Chris, I want to add one thing that we have had good success in growing accounts. And we are -- we still -- about half our deposits are retail. And so we had a lot of small balance accounts, which Michael said, we love that construction on our balance sheet and the granularity that gives us and all the things, all the positive things that go with that. One of the other things we have done, which is not easy to do, and I won't say we're perfect at it, but we feel like it gives us a leg up as -- traditionally, in banking, we counted accounts even some banks have gotten in trouble for that in terms of how they did that and how they motivate folks to do that. We're very aware of that. And so we actually go through and define a relationship. And so we actually count relationships because you can add accounts. But frankly, some of them aren't very valuable, and they're not really a relationship. And so we have moved into relationship county. And it's paying some dividends. But we think it's going to be big dividends as we roll forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Chris Holmes for any closing remarks. Christopher Holmes: All right. Thank you all for joining us. We always appreciate your participation and your interest. And any further questions from either anybody in the investment community or analyst community, you can reach out to us directly. Everybody, have a great day. Thanks. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. At this time, I would like to welcome everyone to Creative Realities, Inc. 2025 Fourth Quarter Earnings Conference Call. This call will be recorded and a copy will be available on the company's website at cri.com following its completion. Creative Realities, Inc. has prepared remarks summarizing the interim results for the quarter along with additional industry and company updates. Joining the call today is Rick Mills, chief executive officer; Tamara Koshua, chief financial officer; and George Sautter, chief strategy officer and head of corporate development. Ms. Koshua, you may proceed. Tamara Koshua: Thank you, and good morning, everyone. Welcome to our earnings call for the fourth quarter ended December 31, 2025. I would like to take this opportunity to remind you that remarks today will include forward-looking statements. The words anticipate, will, believes, expects, intends, plans, estimates, projects, should, may, propose, and similar expressions, and the negative versions of such words or expressions, as they relate to us or our management, are intended to identify forward-looking statements. Actual results may differ materially from those contemplated by these statements. Factors that could cause these results to differ materially are set forth in our Form 10-Ks and other filings with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. We believe the use of certain non-GAAP measures, such as adjusted EBITDA and several important KPIs, represent meaningful ways to track our performance. A reconciliation of GAAP to non-GAAP measures is included in our public filings and in our earnings release that was issued this morning. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities, Inc. Rick Mills: Thanks, Tamara. Good morning, everybody. We appreciate everyone joining today's call. I would like to start by giving some highlights of our Q4 financials and other recent developments, including our integration of the CDM business which we acquired in November. Given the sizable nature of this transaction and the transformative impact it brings to Creative Realities, Inc., it should come as no surprise that it took longer than normal to close our books for the fourth quarter. But first, I would like to take a moment to introduce our new CFO, Tamara Koshua. Tamara joined our team on December 1 — I know the date because it happens to be my birthday — so, Tamara, welcome aboard. She brings tremendous experience to the organization: thirty years of executing financial strategies across diverse industries, including manufacturing, technology, and services. Her expertise and leadership credentials include a strong dedication to achieving a high level of performance and orchestrating operational turnarounds. We believe Tamara is uniquely qualified to take on the challenges of integrating CDM into Creative Realities, Inc., finding synergies across the enterprise, ensuring margin expansion, and ultimately delevering the balance sheet, which should improve returns for our shareholders. She brings tremendous energy, is driving organizational change, is implementing value-enhancing process improvements, and is working to increase our cash flow. She is off to a great start, and we are excited to have her on board. More recently, we have also added a couple other key executives. On March 30, we added Jackie Walker as our chief experience officer. Jackie is a veteran digital transformation leader with more than fifteen years’ experience designing, operating, and scaling enterprise digital platforms at the intersection of customer experience, product vision, and commercial outcomes. She brings a combination of technical execution and business acumen, having authored the digital menu board and drive-thru strategies for seven of the top ten restaurant brands and two of the largest in-store retail media networks in the U.S. Her appointment marks an important shift for Creative Realities, Inc. as the company continues its transition into a software-first platform powered by data analytics and artificial intelligence. Jackie will be instrumental for our next era of growth. She possesses a unique ability to bridge the gap between complex engineering and the strategic needs of the world's largest brands, and we are very pleased to have her here as well. With Jackie's addition and the prior addition of Dan McAllister as our CRO, this rounds out our management team with industry-leading veterans who have track records of accomplishment at a pivotal time in our history, as we relaunch ourselves as a much bigger, more technology-focused, service-oriented leader in the digital signage space. We believe we now have the talent at the top to accelerate growth, enhance our margin, and deliver improved bottom-line results going forward. A couple other facts of the business: this past February, we completed the repurchase of all of Slipstream's 1.7 million outstanding warrants for $200,000. The repurchase of these warrants provides greater visibility for the future in our total shares outstanding, which we believe benefits the company as well as our shareholders, alleviating potential overhang on the stock. We want to thank Slipstream for their support in finalizing this transaction. Now let us review a few details of our current results. Tamara will go over the financials in greater detail, but some of the highlights: we posted revenue of $23.9 million in Q4 versus $11 million in the prior-year period, including $13.6 million of that revenue from CDM. Our fourth quarter gross profit was $11.5 million as compared to $4.9 million in fiscal 2024, and our consolidated gross margin was 47.9% versus 44.2% in the prior-year period. This reflects both improved mix and the positive impact from CDM joining the company. In addition, as of December 31, 2025, we had an annual recurring revenue run rate, or ARR, of $20.1 million versus $12.3 million at the end of the third quarter. In addition, we have $4.1 million of SaaS under contract that will come online through the balance of this year and be added to the January 2027 SaaS total. Adjusted EBITDA was $5.2 million for the fourth quarter of 2025 versus $0.5 million last year and $0.8 million in the third quarter. And just as a reminder to everybody, we closed the transaction on November 7, so our Q4 includes two months of the CDM performance, not the full quarter. We anticipate both adjusted EBITDA and our ARR will increase going forward due to the synergies and additional opportunities in our pipeline. We have substantially integrated CDM operations into Creative Realities, Inc. and we are making significant progress towards our integration goals this year. As you may recall, acquiring CDM more than doubled the size of our company and significantly increased our market penetration in Canada. CDM serves thousands of quick-serve restaurants, financial institutions, and retail establishments across North America, and the acquisition strengthened our ability to address the growth in retail media networks literally coast to coast throughout North America. In addition, we now own Canada's largest mall retail media network. This digital out-of-home, or DOOH, media network has over 750 screens with exclusive representation and revenue sharing across 95 shopping destinations. These locations include 76 of the 100 most productive Canadian shopping centers and nine of the ten busiest malls in Canada, serving approximately 750 million shopper visits annually. As previously announced, we expect synergies of at least $10 million across North America on an annualized basis by the end of this year, reflecting the operating efficiencies, margin enhancement opportunities, and the cross-pollination of our CMS and AdTech platforms. At present, we are currently north of 60% of the goal, and we continue to anticipate total company revenue to exceed $100 million in 2026, with adjusted EBITDA margin percentage in the mid-teens. Once all synergies are realized, adjusted EBITDA margins are expected to be above 20%, and free cash flow generation should be significant, allowing us to pay down debt and delever the balance sheet once again as we have done in the past after acquisitions. With all our advancements, unique applications, strong customer relationships, and proprietary technology, we have built a strong foundation for a bright future at Creative Realities, Inc. We expect revenue to accelerate, our backlog to grow, and margins to improve as the year plays out, putting us on track for a record performance in fiscal 2026. I will come back in a minute to talk about specific product and customer trends, but I will now turn it over to Tamara to share some additional comments on our financials. Tamara Koshua: Thanks, Rick. I am really excited to be part of the team during such an important time in our company's growth trajectory. An overview of our financial results for 2025 was provided in our earnings release and will be provided in our Form 10-Ks, which include the condensed consolidated balance sheet as of December 31, 2025, the statement of operations and cash flows for the three and twelve months ended December 31, 2025, and a detailed reconciliation of net income to EBITDA and adjusted EBITDA for the quarter ended December 31, 2025, as well as the preceding four quarters. While Rick reviewed our operating results briefly, let me provide more context related to our performance and outlook. In terms of the income statement, fourth quarter revenue more than doubled year over year to $23.9 million as compared to $11 million in the same period in fiscal 2024, with approximately $13.6 million from CDM. Revenue from our legacy Creative Realities, Inc. business decreased approximately 6% year over year, primarily as a result of project timing and decreased FAT. Hardware revenue rose to $6.6 million versus $3.9 million in the prior-year period, while service revenue increased to $17.3 million from $7.2 million in fiscal 2024, largely reflecting the CDM acquisition as well as deployment timing. Consolidated gross profit was $11.5 million for the fiscal 2025 fourth quarter versus $4.9 million in the prior-year period, and consolidated gross margin was 47.9% versus 44.2% in the fiscal 2024 fourth quarter. Gross margin on hardware revenue was 28% in 2025 as compared to 26.3% in the prior-year period, while gross margin on service amounted to 55.7% versus 53.9% in the fiscal 2024 fourth quarter, primarily due to an improved mix of services profit as a result of the CDM acquisition. Sales and marketing expenses in the fourth quarter rose to $2 million versus $1.4 million in the prior-year period, while general and administrative expenses increased to $8.9 million versus $4.2 million in fiscal 2024, again reflecting the acquisition of CDM which contributed approximately $3.2 million in expense. Approximately $1.2 million of G&A costs were one-time in nature, including legal, accounting, and consulting fees, as well as closing costs related to the transaction. As Rick indicated, we are well on our way to achieving the $10 million of synergies previously announced for fiscal 2026, although we are also investing in the Canadian media business and other technology initiatives meant to drive increased growth across the enterprise. The company posted operating income of approximately $0.5 million in 2025 compared to an operating loss of approximately $0.7 million in fiscal 2024. Creative Realities, Inc. reported a net loss of $1.9 million, or $0.19 per diluted share, in the quarter ended December 31, 2025, versus a net loss of $2.8 million, or $0.27 per diluted share, in the prior-year period. Adjusted EBITDA was $5.2 million in 2025 as compared to $0.5 million in the prior-year period. We anticipate adjusted EBITDA and cash flow to improve going forward as synergies are realized and, at the appropriate time, intend to reduce debt to decrease interest expense and strengthen our financial flexibility, as the company has done in the past. In terms of the balance sheet, as of December 31, 2025, the company had cash on hand of approximately $1.6 million versus $1 million at the start of 2025. As mentioned on prior earnings calls, we keep a minimum amount of cash in the bank as the company has set up a sweep instrument to apply funds against our revolving debt facility to better manage interest expense. Our gross and net debt stood at approximately $43.3 million and $41.7 million, respectively, at the end of the fourth quarter, as compared to $13 million and $12 million, respectively, at the start of 2025. The increase of our indebtedness is largely a result of financing the acquisition of CDM as previously discussed. As a reminder, we financed the transaction through a combination of debt and preferred equity, including a three-year $36 million senior syndicate term loan and $30 million of convertible preferred equity with a $3 conversion price provided by affiliates of North Run Capital. Going forward, as I just mentioned, we remain dedicated to using cash generation when possible to lower our debt and migrate to an optimized capital structure to support financial flexibility. However, in the near term, we are investing in the business to drive growth and improve technology applications across the organization. I will now turn it back to Rick for additional comments on the senior executive additions to the management team, reorganization of our sales team, some customer activities, and the CDM integration. Rick Mills: Thanks, Tamara. I have already discussed Tamara's background and unique fit for our business earlier on the call, but I do want to spend a few more moments to introduce Dan McAllister as our CRO and Jackie Walker as our chief experience officer. Dan has been a chief revenue officer at a SaaS company before. He has a history of accelerating go-to-market strategy and reengineering the revenue systems for sustainable growth. His proven track record in aligning sales, marketing, and customer service teams, along with enforcing team structure and process discipline, all lead to revenue growth. The sales organization here has been structured into vertical teams, each led by a senior executive and focused on a vertical market. By the way, this is a team of 42 folks — a sales team that has effectively tripled in size. These vertical teams fall into the following markets: sports and entertainment (also known as IPTV), QSR and fast casual restaurants, retail and financial, retail media networks including AdTech, lottery, and finally, malls and real estate (known internally as MRE). We are now better focused and prepared to go after new customers across the board. More recently, Jackie Walker has joined as our new chief experience officer. She will serve as the internal authority on how digital and physical environments converge. She brings, and will leverage, an outsider's perspective to disrupt legacy thinking, overseeing the strategic what and why of our software revolution while scaling our consulting practice into a high-growth, high-margin engine of the business. Jackie, welcome aboard. Now there is a lot of activity and news to discuss across our various business vertical markets, so let us start with the IPTV division. We have been awarded a new stadium project, which will be completed in the second half of this year. This is a new stadium build from the ground up. This is an $8 million project involving thousands of displays and IPTV throughout the entire venue. In addition, we are in the process of refreshing the entire IPTV system for a Major League Baseball team and several other stadium projects. This division, which is headed by Lee Summers, is expected to double revenue this year to over $17 million. Our QSR and fast casual restaurant division is managed by Natalie Mines, a fifteen-year veteran of Creative Realities, Inc. Our next-gen modular drive-thru digital menu board system, which we introduced in January, is continuing to increase revenue in this division. This drive-thru, version 2.0, is engineered to help operators streamline installation, simplify maintenance, and scale the drive-thru environment over time. This new system allows brands to expand from single digital screen setups to multi-screen configurations without replacing the entire structure. We are currently deploying this product for multiple customers and typically are installing ten new locations on a weekly basis, or over 500 a year. The retail, financial, retail media network, and AdTech team, headed up by Jessica Creases, has been extremely busy since the acquisition. We had a nice jump start on the year by renewing the SaaS contracts of two of the top ten largest financial institutions in North America — congrats to the team for getting that done. Our AdTech solutions are now in test by a number of large customers who are evaluating the monetization capabilities of their installed signage network. We would expect to see three or four deployments in the second half of this year. Today, we are also announcing a $6 million media network project that Creative Realities, Inc. is deploying across the lobbies of AMC Theatres in the U.S. Our partner, National CineMedia (NCM), is the leading cinema platform in the U.S., and the media representative for this new innovative network. We will install this network of 1,200-plus screens and large-format LEDs through the rest of 2026. This media network utilizes the Reflect CMS and our AdLogic AdTech software solutions. One other customer-specific update I would like to mention: North Carolina Lottery. The previously announced ten-year $54 million contract is in the process of deployment and has been migrated to the ReflectView CMS platform. The deployment of all 1,550-plus locations is expected to be completed in Q2, with a few remaining locations in Q3. Finally, let us talk about the start of 2026. We had a significant revenue impact in Q1 from the disruptive weather across the Midwest and Southeast. A major cold wave gripped much of North America from mid-January through mid-February, bringing incredibly low temperatures, snow, sleet, and freezing rain to the eastern two-thirds of the country. In addition, a very rare storm brought historic snowfalls to the Carolinas, specifically North Carolina. This caused $4 million or more of revenue to push to Q2. I want to remind everybody, this is not lost revenue — however, just delayed. Construction on many of our customers' new QSR facilities was suspended for thirty to forty-five days as the weather passed through. As a result, the February and March new location openings for these QSR customers were delayed until April, May, and some in June, including the installation of 500 locations for our lottery customer. This will shift revenue from Q1 into Q2 and maybe some into Q3. With that said, I want to be very clear. We continue to be bullish on our revenue and stand behind our earlier statements that our revenue in 2026 will exceed $100 million and our adjusted EBITDA will reach a run rate of 20% by year-end. Our pipeline remains robust. We expect to continue to land many new opportunities. We are in an excellent position to post higher growth and improved operating results going forward, and we remain on track for our best year ever. We will now open the call for questions. Operator, please go ahead. Operator: Thank you. To ask a question, please press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Our first question comes from the line of Jason Michael Kreyer with Craig-Hallum. Your line is now open. Jason Michael Kreyer: Wonderful. Thank you, gentlemen. Rick, can you talk about scale gains and how that has changed the go-to-market over the last several months since the acquisition, or just maybe the tone of customer conversations and how that has changed? Rick Mills: Great question, Jason. The tone of conversations is totally different. Number one, most customers recognize — particularly in some of our verticals, QSR specifically — we are absolutely at the top of the food chain, and so we are now in conversations that we would never have been in before. That is number one. Number two, those conversations are very serious because they understand we are now a true leader in the QSR and drive-thru space and approach us with a very different message than we experienced in the past. Jason Michael Kreyer: Good to hear. Thank you. Rick, we have talked for the last few quarters about deals that are sitting at the one-yard line — or I think you have even talked about the one-inch line. Any updates on that? I am also curious how you see the pipeline building with your AdTech capabilities. I know the last several wins that we have discussed have been more slanted to the QSR side, so I am curious how deal flow looks on deals that have advertising embedded in them. Rick Mills: Deal flow continues to be strong. Let us go back to the one-inch-line comment. First thing I would tell you is, we pulled one across the one-inch line with an $8 million stadium project — finally got that done. Number two, we announced on a prior call a large QSR had gone through an entire RFP — over 4,000 locations in North America — and they had selected us. We have been negotiating the contract, and we expect to actually sign that contract in the next couple of weeks. It has been a long time coming, but the contract is getting ready to get executed, and that will result in additional drive-thrus, etc., moving along. Retail media networks: primarily, we have had a couple of C‑store customers — one specific large C‑store customer — that has been in test for at least five to six months and is now moving to deployment. We are in conversations with three or four other customers who are interested in retail media networks. One is a large grocer — one of the largest grocery chains in the U.S. — so we are in significant conversations. Another is a significant C‑store chain. And I would say two or three what you would call traditional retailers that tend to be more in the luxury beauty area. We are having substantive conversations with a number of them. Last but not least, our sales force has literally tripled in size. We have 40-plus folks on the sales team who are out talking to customers every day. The number of folks we are actively engaged with has increased significantly. Part of that is due to our new position and stature in the industry — as one of the big guys. Number two, it is also the fact that I have 40-plus experienced folks out beating the streets, contacting customers every day across North America. A combination of all those things is really coming into play, and we feel very bullish about the next twelve to eighteen months. Jason Michael Kreyer: That was a solid recap there, Rick. Thank you for that. Last one for me: just want to touch on the lottery sector. I think the last time we talked, you have the big deployment right now in North Carolina, but I thought there was some potential momentum with other RFPs that were coming to market. Can you give us a recap of what you think that RFP landscape looks like today? Rick Mills: That is a solid question, Jason. Unfortunately, I do not have a solid answer other than we expected in 2026 seven to eight large RFPs coming out. We have yet to see that happen. We have one that we are actively participating in. We have a couple large West Coast opportunities that we are in discussion on, but I would not call them active RFPs. We are well positioned and we are certainly talking to every lottery that is interested. One thing I would tell you about the lottery market and what we have done with our current lottery customer is we are showing significant lift, and we have results of that to show other lottery customers and potential customers — that we can achieve substantial lift which results in significantly increased lottery ticket sales. Jason Michael Kreyer: On that point, your ability to take that lottery solution into C‑stores and create a cross-sell opportunity — does the rollout of lottery help build out a greater rollout in C‑stores? Do you see a network effect there? Rick Mills: Still unproven. Today, when we have rolled out lottery, it has been dedicated to lottery. We have not done a mix of in-store promotion and then layered in lottery, like a 50/50 mix. It has been 100% lottery. We are talking to some of our C‑store customers who have networks already deployed about improving their schedule and adding lottery on those screens to increase lift, but we have no results yet to talk about. Jason Michael Kreyer: Got it. Thank you. Keep up the good work. Rick Mills: Thanks. Operator: Our next question comes from the line of Brian David Kinstlinger with Alliance Global Partners. Your line is now open. Brian David Kinstlinger: Great. Thanks so much. Solid fourth quarter results. Prior to the announced partnership, had AMC been a customer of Creative Realities, Inc. or even CDM? If so, how much revenue did AMC generate last year? And then the second part of that question is, what is the installation revenue on this contract versus the potential recurring revenue based on your AdTech and media solution? Rick Mills: Great question, Brian. How are you, sir? Brian David Kinstlinger: Great. Thanks. Rick Mills: Good. Yes, AMC has been a longtime customer of CDM. Today, I would tell you it is a seven-figure customer in terms of deploying our software and managing all of the screens throughout every AMC theatre in the U.S. They are not a hardware customer — they have always procured hardware internally — so they are a software and content customer. When the opportunity came to build out a network, it made sense that Creative Realities, Inc. was already deployed throughout their locations, and we were doing a great job, so it was a natural fit for us. In terms of the hardware and installation revenue on this particular network, I am assuming it is going to be in the typical 70/30 range of hardware and installation, out of the $6 million bucket. Then there is ongoing revenue: it is our software and AdTech that will be running it — our CMS and our AdTech — and there is a revenue share for the next five years on that screen. Brian David Kinstlinger: Great. That is helpful and a great deal. This week, I think, 7‑Eleven announced store restructuring where it is going to close something like 600 stores and open almost 300 stores over the course of maybe two years. Is there any impact on your business from the store closings? And then, you have been a preferred vendor there — will there be a new RFP, or is that under your existing contract? Just talk about 7‑Eleven and what is going on there. Rick Mills: Great question. If there is an effect on Creative Realities, Inc., it would be de minimis or minimal. The closing of the 600 stores — if those stores had digital, which we do not know — they may have us uninstall digital and reinstall it in some other stores. In the 300 new locations, those typically are going to be full-size 7‑Elevens that are likely to include at least one if not two food concepts, and we would expect to do a number of screens there. Our contract with 7‑Eleven is in the process of renewal. It has not been signed, but we are at the end game for another three-year renewal with 7‑Eleven. We do not anticipate any change — that customer continues to grow. Brian David Kinstlinger: You mentioned it was helpful that the first quarter was impacted by weather. Clearly, that is going to be the worst quarter of the year. Any thoughts on which are the strongest — maybe the second and the third quarter — based on known installs at places like AMC and North Carolina? Rick Mills: I would tell you Q3 is setting up to be a significant quarter because, with the stadium install, a bunch of hardware will ship in Q3. A bunch of drive-thrus will go in during Q3 because that is the end of the construction timeframe across the eastern half of the U.S. They want to get those restaurants open in September–October, before it gets into bad weather. So, generally speaking, that is what we expect to be significant. Then we have this 4,000 locations across North America. Tamara Koshua: The other thing that I will add is that Q4 has the largest percentage of our media revenue with the CDM acquisition, so that automatically will increase the value in Q4. We do expect Q4 to be the largest quarter of revenue. Rick Mills: Great callout — I forgot that portion about a bunch of media revenue in Q4. Thank you. Brian David Kinstlinger: Already adding value. Last question for me: remind us of the expectations for interest expense and how much is cash obligation this year? Rick Mills: That is a great question. George or Tamara, any input on what that would look like? Tamara Koshua: It will depend on the debt levels of the revolver, but generally, the term loan is going to drive the lion's share of the interest expense we would expect to see, and that generally is somewhere between $0.5 million and $0.75 million a quarter. Brian David Kinstlinger: Thank you. Rick Mills: Brian, happy to go through that in detail on our one-on-one call. Brian David Kinstlinger: Great. Thank you, guys. Operator: Our next question comes from the line of Jon Robert Hickman with Ladenburg. Your line is now open. Rick Mills: Hello? Jon Robert Hickman: Hi. Can you hear me okay? Rick Mills: I can hear you just fine, John. Jon Robert Hickman: Most of my questions have been asked and answered. I wanted to drill down a little bit on the restaurant chain that you landed last year, and then there were some issues with installation because of the size of the screens. Where are you with those guys? Did you do business with them in the fourth quarter, and what is going on? Rick Mills: There was some SaaS revenue because we had some of their locations on our SaaS platforms. However, they have halted all hardware procurement and installs until the new contract was finalized. The new contract — we and the customer had internal dates to get it done by March 15. Here we are April 14, and we still do not have it signed. We do expect it to be signed in the next couple of weeks. We thought this was a brand-new win last year, and it is — they did an RFP, we won, and it is a contract that we had to create from the ground up. Jon Robert Hickman: There are a lot of franchisees in this particular customer. Has that been an issue? Rick Mills: It has not been an issue as we have started to deploy the SaaS across the franchisees. The franchisees are responsible for hardware updates, and should they desire to upgrade to a digital drive-thru, they would be responsible for that. We attended the franchisee show in January. The verbal indications we received from the folks who came by our booth indicated significant interest. I have talked to two or three franchisees that own 30 to 50 locations each that indicated they wanted to put digital drive-thrus in all locations. As you know, we have to take that with a grain of salt, because when it is time to write the check, who knows. But we do expect to see some growth in Q3 because, even if they turned it on today, we would not be installing drive-thrus in the next sixty days — it would be Q3 or Q4 revenue once we sign this contract. That is realistically the impact. Jon Robert Hickman: Out of the total addressable market — not including the AdTech side — do you have any estimate of your market share right now? Rick Mills: Really hard number to pin down. I would tell you in North America today, we are not 2%. If we were 1%, I would be surprised, at $100 million. George, any input? George Sautter: And, John, just to clarify, are we talking about market share or market penetration? Jon Robert Hickman: Maybe we can talk about both later today. Different question: now that you are combined with CDM and can get into a different level of contracts and opportunities, has your competitor outlook changed? Are the entities you are competing with different now? Rick Mills: We have always competed against the same three, four, or five competitors. Some were larger than us. Today, they are not larger than us. We occupy a different, unique position, and in some cases I am significantly larger than they are. We represent a real strategic advantage for the end-user customer to align with Creative Realities, Inc. as a supplier. Jon Robert Hickman: That makes sense. I will talk to you later then. Thank you. Operator: Our next question comes from the line of Kevin Sheldon, Private Investor. Your line is now open. Rick Mills: Kevin, how are you? Operator: Kevin, please check your mute button. I am currently showing no further questions from the phone lines. Mr. Sautter, are there any email questions? George Sautter: No. There are not. Operator: Thank you. I would like to turn the call back over to Rick Mills for closing remarks. Rick Mills: Let me conclude the call by thanking all our shareholders, clients, partners, and specifically the Creative Realities, Inc. and CDM employees for their continuing efforts, commitment, and support. We continue to work to transform Creative Realities, Inc. into the leading brand in digital signage solutions, and for many of you who have been on these calls for the last couple of years, you have seen us really execute in the market and continue to grow. Thanks for joining the call. We look forward to speaking with you again next quarter. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Greetings. Welcome to the SurgePays Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Valter Pinto, Investor Relations at SurgePays. You may begin. Valter Pinto: Thank you, operator, and good afternoon, everyone. Welcome to the SurgePays 2025 Fourth Quarter and Full Year Financial Results Conference Call. Today's date is April 14, 2026. And on the call today from the company are Brian Cox, President and CEO; and Chelsea Pullano, Interim Chief Financial Officer. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see SurgePays' most recent filings with the SEC. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the events that occur after this call. Copies of today's press release are accessible on SurgePays' Investor Relations website, ir.surgepays.com. And SurgePays' Form 10-K for the year ended December 31, 2025, will also be available on SurgePays' Investor Relations website. And now I'd like to turn the call over to President and CEO, Brian Cox. Kevin Cox: Thank you, Valter. Good afternoon, everyone, and thank you for joining us. Today, I will walk through our 2025 performance and what we proved operationally and how that directly translates into our outlook for 2026. For the full year 2025, we generated approximately $57 million in revenue, including $16.2 million in the fourth quarter. As you review our results, it's important to understand the progression of the year. We saw steady growth from Q1 through Q3, with revenue increasing from approximately $10.6 million in Q1 to $11.5 million in Q2 and then reaching $18.7 million in Q3. That third quarter was an inflection point that demonstrated the scalability of our platform when capital is deployed into subscriber growth. Q4 of 2025 is best understood in the context of what we demonstrated in Q3. In Q3, we deployed capital into subscriber acquisition and saw a clear step-function and increase in revenue. That quarter proved the scalability of our model when capital is applied. In Q4, we made the decision to pull back on that level of spend and focus on capital discipline and efficiency. As a result, revenue in Q4 declined sequentially from Q3 but remained significantly higher than Q4 of 2024. That is the key point. We proved we can scale, and we demonstrated discipline in how we manage that growth. Just as importantly, Q4 included items that are not indicative of our current operating run rate, including legal and certain noncash expenses. For the full year, total general and administrative expense declined to approximately $20.1 million from $27.5 million in 2024. That reduction reflects the cost actions we began taking as we exited the ACP period and repositioned the business. At the same time, we continued to invest in the core infrastructure of the business, including our retail distribution network, our wireless platform and our digital acquisition capabilities. Today, we are not reliant on a single subsidized program. We have multiple revenue channels, including government-subsidized wireless, LinkUp Mobile prepaid, wholesale MVNE relationships and our point-of-sale fintech and data platforms. We believe that diversification fundamentally changes the quality and durability of our revenue. We are not demand constrained. We are capital disciplined. This leads directly into how we are thinking about 2026. Many of our investors remember what occurred during the ACP period. We leveraged existing capital relationships to fund subscriber acquisition, and the result was revenue growth and meaningful stock appreciation. We are now executing a similar strategy but with a materially stronger foundation. We have multiple independent revenue streams. We have an established retail footprint of more than 9,000 locations. We have a customer acquisition engine through ProgramBenefits.com, and we have additional monetization layers, including wholesale and in-store media platforms. That combination should allow us to deploy capital into growth while also improving the underlying economics of the business. Turning to the balance sheet. We ended 2025 with approximately $1.7 million in cash. Since year-end, we have taken additional actions to reduce our operating expense base and improve efficiency across the organization. Based on actions already taken, we estimate our current monthly cash burn at the end of Q1 2026 to be approximately $250,000 to $300,000. This is a meaningful shift from the cost structure exiting 2025 and reflects an even more disciplined operating model as we move forward in 2026. The key takeaway is this. We have already demonstrated that when we deploy capital, we can scale revenue quickly. Now we are combining that capability with a more efficient cost structure and multiple revenue streams. We believe that positions us to drive growth in a more controlled and repeatable way. With that, I will turn the call over to Chelsea to walk through the financials in more detail. Chelsea Pullano: Thank you, Brian, and good afternoon, everyone. I'm honored to step into the role of Interim Chief Financial Officer at such an important time for SurgePays. I want to thank Brian and the Board for their confidence. I'm excited about the opportunity to help support the company's next phase of growth by strengthening financial discipline, improving transparency and helping drive our path towards profitability. Now turning to the results. For the year ended December 31, 2025, total revenue was approximately $57 million compared to $60.9 million in 2024. The decrease was primarily driven by the expected decline in subsidized revenue following the expiration of the Affordable Connectivity Program in mid-2024. Despite that, we saw strong performance in our point-of-sale and Prepaid Services segment, which increased by approximately $26.1 million year-over-year, partially offsetting the decline in MVNO revenue. Cost of revenue for 2025 was approximately $67.6 million compared to $75.2 million in 2024. Gross loss improved to $10.6 million compared to $14.3 million in the prior year. We expect continued improvement in gross margins as we scale higher-margin revenue streams and benefit from the cost structure already put in place. Selling, general and administrative expense, excluding depreciation and amortization, declined to approximately $19.2 million from $26.3 million in 2024. This reflects reductions across multiple expense categories, including compensation, professional services and contractor expenses. Net loss from operations was approximately $30.7 million compared to $41.8 million in 2024, representing a significant improvement year-over-year. Net cash used in operating activities was approximately $21.3 million for 2025, reflecting the transition period following the end of ACP and the investments made to reposition the business. Net cash provided by financing activities was approximately $10.5 million, primarily from the use of our at-the-market facility and additional capital raises during the year. As Brian mentioned, we've taken meaningful actions since year-end to reduce our operating expenses, and we are seeing those improvements reflected in our current run rate as we move through the first quarter of 2026. It's important to note that in the fourth quarter, our SG&A included approximately $2.3 million of nonrecurring expenses, including legal costs and noncash items, which are not indicative of our ongoing operating expense run rate. At December 31, 2025, we had a working capital deficit of approximately $16.2 million compared to a surplus of $11.8 million at the end of 2024. This reflects a shift in the business following the expiration of ACP and the timing of liabilities and capital deployment. We continue to actively manage our liquidity and capital structure with a focus on supporting growth initiatives while maintaining financial discipline. Overall, 2025 was a transition year for the company. We repositioned the business, reduced operating expenses and established the foundation for a more diversified and scalable model. As we move into 2026, our focus is on executing against that foundation, improving margins and driving growth across our core revenue channels. I will now turn the call back to Brian for closing remarks. Kevin Cox: Appreciate it, Chelsea. I want to close with this. 2025 was about proving the model and resetting the foundation of the business. We demonstrated that when we deploy capital, we can scale revenue quickly. We also made the necessary adjustments to operate more efficiently and build a more durable business. We are now moving forward in 2026 with multiple revenue streams, a significantly improved cost structure and a clear path to growth. We understand the market's concerns around capital and execution. Our focus is on showing, not telling. You will see that in how we manage expenses, how we deploy capital and how we grow the business. We believe we are positioned to execute, and we look forward to updating you on our progress throughout the year. Thank you for your time and continued support. I will now pass it back to the operator for questions. Operator: [Operator Instructions] Our first question comes from Ed Woo with Ascendiant Capital. Edward Woo: Congratulations on all the progress, Brian. I had a question. I know you're not giving out guidance, but what should we be most excited about of the various products you have that's going to be the biggest driver for revenue this year? Kevin Cox: Ed, thanks for the question. I think as we look forward, interestingly enough, we've got the subsidized wireless. We've got LinkUp Mobile, and we've got some other kind of exciting things we've talked about that are going to start showing up on the financials. If you had to pin me down right now, LinkUp Mobile is doing really well. Starting an MVNO, a prepaid wireless company from scratch, the team has done a phenomenal job. It's definitely a grind getting traction in the market. And keep in mind that while some of that is sold online, the majority of it is sold through dealerships and setting up relationships with dealers and sending out point-of-sale materials, getting SIM cards, training folks and then that store has your product and usually, let's say, 3 other prepaid companies as well. So that's a big deal for us, and it's staying power, and that's cash flow. And I think that's going to be the one that you'll start seeing some pretty significant numbers off of. And there's some -- I think we've got some pretty exciting news coming up with LinkUp Mobile that I wish we had crossed a couple of thresholds before today, so we can talk about it today, but it will give us something to talk about in the upcoming months. Edward Woo: Great. And one last question I have is, you guys, like I said, serve the underserved markets through your convenience store operators. What are you hearing from these operators in terms of the economy is how are their customers? Are they doing better? Are they worse? Are they open to new products, et cetera? Kevin Cox: I love this question. As you know, most of the folks on our team have been in this prepaid subprime, underserved, underbanked. There's a lot of words for it, and there's different scopes. The largest scope would be the subprime market. But our market at a time of where things are difficult and may be more expensive in the economy as they say, too much month, not enough check, there's always going to be a segment on the lower end of that socioeconomic that's not really affected. They're already lower income. It doesn't really hit them as much. I mean when certain things -- your essential services are taken care of by the government, you're kind of below the water break line. If you think about the ocean where waves are crashing, the ups and downs, you're a little bit below that break line. But what's interesting as we've expanded the scope of our company and our target market into the subprime market, we do push up into people that do spend money that do have money that don't specifically rely on the government who are getting squeezed. And I think what we're seeing, the ebbs and flows of all the folks on our team that we talk about this often, 20 years we've been doing this. And when times in the economy get a little difficult, that's when people take a step back and are more aware of their spending, more aware of value. So we've always done the best and had our best runs when things in the economy were tough because that's when people will listen to you if you're offering a better value. Otherwise, it's just a rut in the road, I'm going to pay $40 a month for my wireless service because that's just what I do and I just pay it and I do it 2 20s on the countertop, boom. But when things are tough and putting 2 20s on the countertop at the convenience store kind of pulls a little bit more for me. It feels a little heavier when I lay it down. Well, then if I look over and say, "Hey, wait a minute, I got a company here that will give me the exact same thing for $30. What is that? Well, tell me about LinkUp." So I think that it's actually an opportunity for us, and it opens people's eyes. They're looking up. They're aware of their finances. They're aware of other value. So -- and we look to capitalize on that. We never wish ill on the economy. But historically, we've done our best and had our best runs when there's -- I don't want to say blood on the street, that's not accurate, but when the economy is going through a difficult time. Operator: [Operator Instructions] We have reached the end of the question-and-answer session. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. Welcome to the Gloo Holdings Fiscal 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, Oliver Roll, Chief Marketing and Communications Officer. Please go ahead, sir. Oliver Roll: Thank you, operator. And thank you to all of you for joining our fiscal fourth quarter and full year 2025 earnings conference call. We will be discussing Gloo's performance for the fourth quarter ended January 31, 2026, as well as our results for the full year 2025. We'll also be providing guidance for our Q1 and full year 2026. Joining me on today's call are CEO and Co-Founder, Scott Beck; and CFO, Paul Seamon. Our Executive Board Chair and Head of Technology, Pat Gelsinger, will also join the Q&A session. Before we begin, please be reminded that this call will contain forward-looking statements, which are based on Gloo's current expectations, but which are subject to risks and uncertainties relating to future events and/or the future financial performance of Gloo. Actual results could differ materially from those anticipated in these forward-looking statements. A discussion of some of the risks that could cause actual results to differ materially from our forward-looking statements can be found in today's press release and elsewhere in our filings with the Securities and Exchange Commission, including our prospectus dated November 18, 2025, and our annual report on Form 10-K that we expect to file later this week. Our SEC filings are also available on Gloo's Investor Relations website at investors.gloo.com and the SEC's website. In addition, during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP metrics to the most directly comparable GAAP metrics as well as the definitions of each measure, their limitations and our rationale for using them are included in today's press release and in our Form 10-K. And now, I'll turn the call over to Scott. Scott Beck: Thank you, Oliver, and thank you for joining our 2025 fourth quarter and year-end earnings call. Q4 was a strong quarter for Gloo that exceeded our guidance and capped a strong year in 2025, our first year as a public company. In Q4 2025, we more than quadrupled our revenue compared to the prior year period. We also exited 2025 with a much stronger balance sheet following our November IPO and the conversion of a significant majority of our debt into equity. We're also making good progress towards adjusted EBITDA profitability as reflected in our Q1 guidance of more than 30% improvement in adjusted EBITDA from Q4. We remain confident in achieving adjusted EBITDA profitability in Q4 2026 and continue to expect to approach adjusted EBITDA profitability in Q3. These results and our confidence in the future reflect the unique value that we are delivering against 2 mission-critical needs across the faith and flourishing ecosystem, the need to modernize technology and the need to expand reach. Our growth is driven organically as well as through continued expansion from accretive, strategic acquisitions that strengthen our platform. Before I go deeper into our strategy, I want to briefly revisit the ecosystem that we serve because that context is important to understanding both our opportunity and our results. Gloo is building the leading technology platform for the faith and flourishing ecosystem. This is one of the oldest and largest sectors in the world, yet one that remains highly fragmented and materially underserved by modern technology. At the center of this ecosystem are 2 interconnected groups. First are churches and frontline organizations, or CFLs, which serve people and communities directly. The second are network capability providers, or NCPs, which equip them with the tools, services, resources and infrastructure that they need to succeed. At the heart of the ecosystem, we also see 2 mission-critical and unmet needs. One is the need to modernize technology, including systems, data, workflows and core operating infrastructures. The other is the need to expand reach, deepen engagement and increase donor support in more effective and scalable ways. The Gloo platform is built to address those needs through 2 core areas of focus, powering technology and powering reach. Our solutions that power tech help organizations modernize their operations and build the foundation required to adopt new technologies effectively. Our solutions that power reach help organizations expand awareness, strengthen engagement and grow support through differentiated marketing, media and fundraising. Underpinning everything is the company's growing leadership in applied AI. We're leveraging the latest innovations in agentic AI, foundational models and services from top AI companies. We're combining that with the AI advancements across our own platform. As part of this strategy, we're taking over more of our customers' work that can now be executed by AI. We take over a customer's technology operations, we modernize them, and then we apply agentic AI to deliver significantly better outcomes at lower costs, while also creating higher margins for Gloo and highly durable revenue streams. This allows AI to be uniquely applied to the real operations, workflows and mission-critical activities of churches, ministries and not-for-profits in ways that protect theological integrity, strengthen relational ministry and advance human flourishing. This approach is supported by forward-deployed engineers, similar to the models used by Palantir. We understand customer operations and build tailored agentic solutions that create meaningful, repeatable value. Over time, we believe that expands our opportunity well beyond software spend into the much larger labor budgets that sit behind it. We believe Gloo is uniquely positioned to lead applied AI in the faith and flourishing ecosystem by helping customers harness those capabilities in practical, mission-aligned ways. I now want to turn to our broader platform strategy and how we continue to strengthen it over time. As the platform expands, it benefits from a powerful flywheel effect. Each new capability, solution and network capability provider makes the platform even more valuable to the churches and the frontline organizations that we serve. And as more of these organizations engage, the platform becomes more valuable to the network capability providers and the partners serving them. Strategic acquisitions are a key part of strengthening that flywheel, enhancing our ability to power tech and power reach for our customers. Earlier today, we announced our latest example of that flywheel in action. Today, we announced a definitive agreement to acquire Enterprisemarketdesk, known as EMD, a leading Workday Service Partner that provides consulting, implementation and operating services to small and midsized organizations and not-for-profits. This is an important addition to our solutions for powering tech. Workday is a leading ERP platform in the faith and flourishing ecosystem and often the preferred solution for many of the Gloo enterprise customers, creating clear synergies between the 2 companies. EMD offers a full suite of services, including Workday deployments, application management services and staff augmentation. This strengthens the Gloo 360 value proposition and expands our ability to help customers modernize core systems and transform IT in more strategic ways through our applied AI. This aligns with our core strategy of taking over and modernizing the work of an organization, using forward-deployed engineers, then applying agentic AI, thereby delivering better results at lower cost while at the same time creating higher margins for Gloo. Workday offers a major set of capabilities that we see many of the organizations in the faith and flourishing ecosystem using more often. Workday implementations are long-cycle engagements that will lead to larger digital transformation mandates that Gloo 360 is uniquely able to support. In addition, we successfully completed the acquisition of Westfall Group during the quarter. Westfall is the leading platform for major donor engagement in the faith and flourishing ecosystem. Its addition has expanded our donor development capabilities and strengthened the strategic fit and synergies with Masterworks, which we acquired in 2025. Together, these moves reflect our disciplined approach of adding best-in-class network capability providers as Gloo Capital Partners, strengthening the platform and reinforcing the flywheel. Westfall Group has been immediately accretive since close, and we anticipate EMD will be immediately accretive upon close as well. Now let me turn back to the importance of AI to our strategy. Underpinning everything we do is our growing leadership in applied AI. Our applied AI strategy is focused on 3 areas. First, we're building the core AI capabilities we believe the ecosystem needs, including agents, values-aligned AI, unified data infrastructures and trusted chat-based interfaces. Second, we're embedding AI across our solutions to improve automation, personalization, data integration and overall customer outcomes. Third, we're helping both our customers and Gloo itself put AI agents to work and evolve toward more agentic operating models so that the ecosystem can focus more time, energy and resources on mission. We believe this strengthens our platform, accelerates innovation across our portfolio and reinforces our leadership in applied AI for the faith and flourishing ecosystem. Let's turn to customer momentum. We're seeing strong customer momentum across our portfolio. We continue to close larger strategic deals with 2 customers now expanding to almost $10 million of annual revenue. We also closed several agreements valued at more than $1 million, including an exciting expansion in the university segment through our work with Jessup University. This is the first example of us bringing the full breadth of the Gloo platform to a large university, and it's a strong validation of the value that we can provide this very large market segment. We also announced a new strategic technology partnership with InterVarsity Christian Fellowship/USA with Gloo's 360 powering its enterprise technology operations. That will enable InterVarsity to spend less time managing systems and more time engaging students and faculty across more than 700 campuses in the United States. It's a strong example of how, by powering their technology, we can help organizations modernize operations while increasing mission impact. Separately, we also expanded our partnership with YouVersion in Brazil, establishing a co-located engineering presence alongside their regional hub to strengthen the cultural alignment with their team while building engineering capacity in the region. In a moment, Paul will take you through our guidance for Q1 and the year ahead. We remain super confident in our strategy and our outlook for 2026. Our confidence reflects the strength of the platform that we're building, the flywheel to continue to strengthen as we scale and the momentum that we're seeing across the business. It also reflects the role AI is increasingly playing as an accelerator across both powering tech and our powering reach solutions. We believe our AI is unlocking enormous possibilities for ministries, churches and network capability providers to grow their reach and to expand their impact. Our focus on applied AI and bringing agentic workflows into the faith and flourishing ecosystem in practical mission-aligned ways uniquely positions us to capture that opportunity. Taken together, that gives us confidence in our guidance, our path to profitability and the long-term value that we believe we are delivering to our customers and to our shareholders. Paul, over to you to talk about our numbers in more detail. Paul Seamon: Thank you, Scott. Our fourth quarter 2025 results were strong, with revenue beating our guidance and adjusted EBITDA at the upper end of our guidance range, giving us solid momentum as we ended the year. Revenue for the quarter was $33.6 million, an increase of 418% compared to the same period last year, and 3.3% sequential growth compared to Q3, which is good performance given the seasonality characteristics of our industry. Year-over-year results were driven by solid organic growth across our portfolio as well as the acquisitions of several capital partner businesses, most notably, Masterworks and Midwestern. Platform revenue totaled $20.1 million, an increase of $13.8 million from Q4 of last year, and 1.6% sequential growth. As a reminder, platform revenue includes advertising, marketplace and subscription offerings. Much of the sequential growth was driven by Gloo 360 and Igniter, partially offset by some Masterworks advertising revenue that shifted into Q3 as we previously discussed. Platform solutions revenue was $13.5 million, up 6% sequentially, supported by strong performance from Barna and the addition of Westfall Group. Going forward, Westfall's donor events and design business will primarily contribute to Platform solutions revenue, and together with Masterworks, will strengthen our solutions for powering reach by supporting customers' fundraising throughout the year and around key events. Cost of revenue in the quarter was 76.5%, an improvement from 83.4% in the prior year period. That improvement was driven by growth in higher-margin business lines and improved pricing in some areas. We expect improvement to continue throughout the year. Adjusted EBITDA improved $0.7 million sequentially to negative $18.6 million. This improvement reflects incremental gains across nearly all of our Gloo businesses and capital partners and includes acquisition costs related to the Westfall Group acquisition, which we do not adjust out. Westfall did not contribute to adjusted EBITDA as January is seasonally slower for fundraising activity. There are also 2 important noncash items to note that significantly reduced net income in the quarter. First, share-based competition was higher than normal due to nonrecurring IPO-related award activity as noted in our Q3 10-Q. Second, the line item loss from the change in fair value of financial instruments reflects derivative calculations affected by our share price. If our price declines in a quarter, we will generally record a loss in this line, and if our share price increases in a quarter, we will generally record a gain. In Q4, this number pressured net income and therefore, EPS. As of January 31, 2026, we had $57.3 million of cash and cash equivalents. I'd like to now turn to our Q1 and full year 2026 outlook. As Scott mentioned, we continue to guide to first quarter revenue of $36 million. For the quarter, we expect adjusted EBITDA loss to narrow to negative $12 million, representing more than $6 million of sequential improvement as we grow revenue, improve cost of revenue and continue to aggressively manage operating expenses. We remain focused on progressing towards adjusted EBITDA profitability in Q4. Our full year 2026 revenue outlook is now $190 million, which includes the addition of EMD. While we continue to see M&A opportunities, we are confident in our ability to achieve this guidance without any additional acquisitions. As we move through 2026, we continue to expect meaningful sequential improvement each quarter and expect profitability in Q4 2026. For Q1, we expect a weighted average share count of approximately 80 million shares. Looking ahead, we're excited about scaling the business and applying Gloo AI internally as we become more efficient and using it externally to help customers better serve their constituents. With that, back to you, Scott. Scott Beck: Thanks, Paul. With that, operator, we're ready to take the first question. Operator: [Operator Instructions] And our first question comes from the line of Richard Baldry from ROTH Capital. Richard Baldry: You probably don't want to name them, but I'm curious if you can maybe just broadly describe the 2 customers that are nearing $10 million a year in revenue and maybe how replicable that could be across the total addressable market you're looking at? Patrick Gelsinger: Yes. Thank you. This is Pat. And we see that these customers are now taking more of the different offerings of Gloo. And that's part of what's making these accounts larger, right, is that they're Masterworks, Westfall Gold, Gloo 360, AI customers. So as we're aggregating more of those capabilities, these account relationships are becoming very large. Obviously, these are some of the larger customers in the ecosystem, but we continue to win more customers at the million level, a number of those are maturing. I mean multimillion customers, and we do see that these are very large customers in the ecosystem. So we do think there is replicable to having more customers get to that level of relationship. Overall, the key point is that these are big accounts, and we're establishing big, trust and deep, enduring relationships with them across the increasing breadth of the portfolio of our offerings. Richard Baldry: Then maybe you addressed it a little bit, but can you talk about sort of the funnel for $1 million-plus deals, how that's changing now that you're a public entity with sort of greater visibility, how that's changed as you've rapidly scaled the portfolio and your revenues? Sort of is that pipeline like sort of picking up because of the capabilities you have now? Patrick Gelsinger: Yes. I'll say there's probably 3 aspects to the pipeline to just highlight. So one is, it is just getting bigger, right? The more we're building our sales capacity, we're seeing more accounts that we are engaging with, more salespeople have reference accounts that they can. Secondly, move horizontally. And that's one of the things that's exciting. We do see that we're able to move to other customers in that segment. So we're able to land and expand within an account. We're able to land and expand within the segment. We're also seeing the sales cycle, if anything, shorten. And that's probably maybe the most exciting aspect of the growing momentum in sales, that the more reference accounts that we have, the more we're able to then replicate that into other segments. And like we saw this quarter, we closed our first major multi-offering university, and we expect that we'll have many other universities that will be able to replicate that kind of sales motion, with InterVarsity, one of the reference customers. The campus ministry segment is showing replicability as well. So it really is a very positive aspect to the business. As the accounts get bigger, we're able to see the sales funnel increase and the acceleration in those accounts as well. Richard Baldry: Switching gears, if we look at the AI part of the business, can you talk about how far into it you feel you are in terms of rolling out products and services based upon it? And then maybe second stage, how far you're into adopting internally tools for efficiency purposes operationally? Patrick Gelsinger: Yes. And maybe I'll start and ask Scott to add to this one. The first would be is, I see AI, overall, in the first inning period for the industry writ large. So there's a lot to go. And for most of our accounts, we're even earlier than the first inning, right? We're just getting started because in many cases, we're just starting the 360 engagement. We're about to turn on some of the first agentic capabilities. So I'd say this is very early, and we see tremendous opportunity to build on those offerings for the accounts, internally or further along. And we have more of our internal businesses, our capital partners, taking advantage of our AI capabilities today. We're using it across many different aspects of our business today. But again, we see a lot more opportunity, which will only improve our speed of operation and the margin of the business. This idea of applied AI was one that we really believe that we can be operating in that space for many, many years to come because the market is large, the customer needs are large, the gap in technology is large and the benefits of AI and particularly this idea of agentic applied AI that it's not just addressing how to do things better, but it's also literally turning people and manual processes in the service offerings in the future, this is something we think is an industry trend and what we're uniquely applying to the segment of the market. Scott? Scott Beck: Yes. Thanks, Pat. Yes, Rich, in addition to that, AI is actually driving a lot of demand for Gloo 360. It's one of the reasons that we're seeing these bigger deals come in because it's just now gotten to the point with keeping up with technology for ministries where their primary job is not to be a technology company. Their primary job is to go out and do mission, to translate Bibles, to work on campuses to be able to help people and their communities. And now all of a sudden that AI has come on the scene, it's just accelerated the reality of not being able to fully keep up. And so us being able to show up and to be able to help them with that is, I think, a big driver for overall demand. Now as I stick with 360 for a second, in addition, what we've been able to do is pull work out of these different organizations, literally pull the SaaS technologies as well as the people out of the organization, being able to help that move to a whole next level and then applying AI to that to be able to deliver better results to the organizations that we're serving at a lower cost and then being able to keep applying the AI to that, which allows us to be able to improve margins and pass that along to the rest of the system. So there's a lot happening there. And then we also announced this quarter or just this last month, our Gloo AI Studios. And Pat, you can just chime in for finishing up here, but really providing developers infrastructures that can be used beyond Gloo. Patrick Gelsinger: Yes. And just to add to that, we just finished Missional AI, a major AI conference for the faith and flourishing industry. And at it, we announced Studio AI (sic) [ AI Studio ], now a full set of API services, pay for services. We have a growing set of developers now taking advantage of that because we really see part of our mission is not just what we do in our offerings, but enabling a broad ecosystem to build on the foundational capabilities that Gloo AI provides. Richard Baldry: Maybe last for me. Could you just generally discuss the M&A environment? Sort of curious how it's impacting the faith and flourishing world. It's obviously been valuation is pretty depressed in the open market as people are fearful about the disruptions of generative AI. And sort of if you can walk through a backdrop of that, it would be helpful. Scott Beck: Sure. I'll take that. It basically goes back to what I was just talking about. AI, from our standpoint, is definitely a friend in that entire process. As the SaaS tools out there, big system of record tools, for us to be able to take on those tools, to be able to integrate with them, to be able to build workflows, AI-powered agentic workflows on top of those historical infrastructures, whether it's a church management system in a church or whether it's a Salesforce or a Workday in some of these big enterprise customers, our ability to basically build the workflows on top of that and then to be able to power that back into the ecosystem, that's just a great thing for us. So we don't see ourselves being negatively impacted at all as a result of some of the conversations around SaaS. In fact, we see it as basically being able to further power our business and power our strategy. Richard Baldry: Thanks. Congrats on a great quarter and a great outlook. Scott Beck: Thanks, Rich. Operator: And our next question comes from the line of Yun Kim from Loop Capital. Yun Suk Kim: All right. Congrats on the quarter, Scott, Paul and Pat, and also on the EMD acquisition announcement. First, maybe, Paul, can answer this, but obviously, Gloo 360 is doing very well. Is scaling that business a key driver behind your margin improvement this year? Or is there other parts of your business that's even bigger margin driver than Gloo 360? Paul Seamon: Gloo 360 is definitely key each quarter. It steps up incrementally, both on the growth side and on the margin side. So it's a big contributing factor along with AI rolled into that. So I'd say those are #1 and #2 together. Yun Suk Kim: Okay. And then on the EMD, any additional details you want to share with us, like the revenue run rate and then also the margin profile? Patrick Gelsinger: Yes. Just a few things on EMD to start with. Overall, we just have seen and part of what motivated us to do this acquisition was that Workday was already being well adopted by our ecosystem. In fact, some 40-plus percent and growing of 360 customers are already using Workday. So we saw it as a great fit for our offerings and acceleration of what we're doing with areas like 360 already. So super great fit for that, and we see ourselves having these deep relationships with customers only enhanced. We're, as Scott mentioned in his formal remarks, accretive from day 1. So we do see that as being beneficial to our journey. As we indicated at the beginning of the year, we saw a couple of M&A. We've now completed both of those. So we're very confident and we raised our guidance as a result financially. We're not giving specific sizes on the deal itself, revenue. But between this and Westfall Gold now being completed, we satisfied that portion of the growth that we had indicated of our inorganic growth for the year. Overall, we see great synergies as well. Then we're supplying many of the customers we are already engaging with. So we do see synergy sales being a benefit to our ecosystem. And finally, this is a path for improving margins over time. As we expand our unique relationship with Workday and the benefits that it brings to the ecosystem, this will only be more accretive over time as we get deeper and deeper on these key assets that provide value. And finally, building our AI capabilities, as Scott already indicated before, it will only enhance what we can do and use the unique capabilities, both at Workday and the broader capabilities of Gloo AI. Yun Suk Kim: Okay. Great. I just want to better understand the cross-sell opportunity with EMD. Is that primarily selling Workday and related services to your current installed base or even more around converting certain customer segment of EMD to Gloo 360? Patrick Gelsinger: Yes. And it's actually quite a bit both because some of the accounts that were in the Gloo 360 pipeline were already being serviced by EMD. And that's part of what got us actually quite excited because some of those accounts that we hadn't yet broken into were now becoming Gloo customers, and we expect that the land and expand opportunity as a result has only accelerated. We also see, because of their depth of capabilities, that we'll be introducing it into accounts where we already have activities, and that will have a much richer set of capabilities to accelerate Workday deployments into a number of Gloo accounts already. Finally, EMD was servicing customers that weren't even in our pipeline today. So we do see some market expansion opportunity for us. So I'll say, it's yes, yes, and yes, for the synergy opportunities. Yun Suk Kim: And then just lastly on Gloo AI Studio. I know you already mentioned it, but is that targeted at customers wanting to customize their Gloo AI solutions? Or is that a precursor to potentially opening up your platform and maybe getting into the partner ecosystem where you try to develop a ISV ecosystem? Patrick Gelsinger: Yes. We unquestionably see this as building an ecosystem of developers that are aligning with faith and flourishing. Some of the accounts that are already doing these type of AI app development and they might be looking at whether they would want to do that on Anthropic or Google or Amazon or Microsoft, well, we offer all of those models through the Gloo AI Studio, but we add guardrails, protections and testing to validate that it meets the values and expectations of these customers. And those are part of what the Gloo AI Studio provides. So we're finding increasing resonance for people to say, yes, I want the best models that are there in the industry, but I also want them to be safe and trusted. And that's the value that Gloo 360 is adding on top of enabling the best AI capabilities in the industry. So we expect that this ability for us to service big customers like YouVersion and we're partnering with them on many AI builds but a much broader set of customers as they want to build their own applications but doing it with a trusted partner like Gloo. Operator: [Operator Instructions] Our next question comes from the line of Matthew Harrigan from Benchmark. Matthew Harrigan: I'm curious what the reaction right out of the blocks is on Gloo AI Studio in terms of partners who have used it. I mean in February, you saw this rapturous reaction to Seedance in terms of the implications for the entertainment industry, and I imagine that's kind of an overreach comparison. But do you think the ease of use is good? I mean do you think -- are people really interested? Are people getting utility out of it right away? Patrick Gelsinger: Super early. And I'm sure in a quarter or 2, when we've been in market for more than just a couple of weeks, we're going to have a much better signal. But the response so far is we're getting mails that people were using other people's platforms and tools, very excited to move their apps over on top of Gloo AI Studio. So we definitely have some early positive anecdotal signals that give us a lot of confidence. We're also coming into a developer season for Gloo, right? We just had Missional AI and we launched Studio just in front of that on purpose. We have a virtual developer event over the summer. And then we have our big Hackathon in the fall. So we -- every 2 months, we have a major developer event over the next 4 months. So it's going to be an exciting time for us to build that momentum. We're measuring the results of this on a daily, weekly basis as we're starting to see token count rising, API calls, revenues start to materialize. So it's just the beginning of an exciting new capability for Gloo. Matthew Harrigan: And that since we have kind of a 2-headed monster here between myself and Dan, a question from Dan. When you add these capabilities, and clearly, you're getting a lot more pull demand, as you get more awareness in the marketplace, when you look at the sales cycle, when you get a big contract in a given vertical, does the next win come pretty quickly in a tighter sales cycle? Or are people looking to emulate what other guys are doing and they don't want to be left behind in a certain sense in terms of the implementation of the software and the AI capabilities that you offer? Patrick Gelsinger: Yes. We're definitely seeing that, and that's very much what I was trying to indicate earlier that we're able to see the sales cycle close, particularly for the next account within a segment, right? And as we saw with InterVarsity this quarter, it was in the same segment where we also had other activities with campus ministries. We do expect that we'll see very similar within the university segment. When we have reference accounts, we're able to move across those segments quite effectively. So it's land, expand and expand, expand in the segment, expand the offerings from Gloo as though we build more of our capabilities for those customers. And overall, I'll say the sales cycle and having led major software and SaaS model, how rapidly we're able to convert accounts is really pretty impressive so far. Matthew Harrigan: I'd rather suspect that sales number is going to be light. You won't refrain from more M&A activity, but congratulations, lots of momentum. Operator: And our next question comes from the line of Jason Kreyer from Craig-Hallum. Jason Kreyer: I'll echo my congrats on the quarter. Wanted to maybe start on the M&A front. We went into the year expecting a couple of deals and kind of a defined revenue contribution. You've done a couple of deals. It seems like we're in the vicinity of that revenue contribution. Just curious, we're pretty early in fiscal '26 yet, so what are your thoughts on other M&A opportunities that might present themselves over the duration of the year? Scott Beck: Yes. Thanks, Jason. We've got a significant pipeline from an investment standpoint -- from an acquisition standpoint. However, we've been really focused on getting the synergies out of the current transactions that we've done. That's been a big focus of us so far this year, and it's going to be a really important driver to get into that EBITDA profitability by Q4. That being said, we do have a pretty significant pipeline. We will be super disciplined as a result of that. There may be more this year, but we need no more to be able to hit the numbers that we've got for guidance, and we need no more to be able to get to the EBITDA profitability. We are -- we've had the good fortune of being able to be best in breed for this ecosystem, been very picky in terms of the transactions that we've entered into. But a great example is the work that we did last year as a result of Masterworks and the great boost that, that's been able to give us in terms of massive synergy across the reach. And as Paul was talking about a little bit earlier in terms of the organic growth from 360 and the improvement in the margins from 360, we're seeing the same thing in Masterworks. So one is powering tech. The other one is powering reach. But we can continue to be very disciplined as the year goes forward, even though we do have a good pipeline. Jason Kreyer: Thanks, Scott. I want to build on that. You're seeing more profitability flow earlier in the model than we anticipated. Nice guide in terms of improvement for Q1. You're moving forward that profitability for FY '26. Maybe just talk about the drivers there. Are you finding you don't need as much OpEx as you thought? Or is it more a product of the revenue outperformance and getting scale there? Just any way to define it would be great. Paul Seamon: Great question, Jason. It's a combination of both. So first of all, as we talked about or announced in December, we took a look at our cost structure, removed some redundancies there, and that flows through first quarter as it begins to hit, which helped our guide in the incremental EBITDA improvement. And then secondly, the businesses are scaling really nicely across everything we talked about, reach, tech, Masterworks, 360, all the different businesses. So as those take steps each quarter, you start to see it in first quarter and then each incremental one going forward as we work towards adjusted EBITDA profitability in the fourth quarter. Scott Beck: Yes, I'd jump in and add just a lot of operating discipline as well, which we're excited about. We couldn't be more proud of our capital partners, the organizations that we've made investments in and the organizations that we've acquired. I mean it's just like the leadership have stayed. They've -- they're invigorated. We're bringing synergies to the table in terms of on technology and in terms of cross-selling and channel, but the capital partners are doing great. It's super exciting to see the synergy that's coming from that, the enthusiasm that continues to be there, and we're super grateful for them. Operator: And our next question comes from the line of Ryan Meyers from Lake Street Capital Markets. Ryan Meyers: I guess the first question, are there any material cost pressures or risks we should be aware of in fiscal year '26? Paul Seamon: I don't think anything significant that we haven't talked about before that's not normal. Nothing stands out in terms of cost pressures. Ryan Meyers: Got you. And then I know you don't disclose the actual number, but are you seeing more of the revenue base becoming recurring? Or how is that shaping up? Scott Beck: Yes. I mean as you look at the work that we're doing with Gloo 360, as you look at the work that we're doing with Masterworks, I mean, more and more of that is just locked-in recurring revenue. And I just love what we've been doing in terms of this idea of taking over work. There's been some really good commentary on that as well. Recently, there's been an article that some research published by Julien Bek, a Partner at Sequoia, and it was really the title of that is Services: The New Software. And what he's pointing out there is a little bit of the older model was sell tools in and let people do work on top of those tools. Whereas at this point, what you're able to do is actually pull work out, and when you pull that work out, you pull those tools and you pull that work out and then you're able to be able to sell that work back into the organization. Well, not only is it much bigger because you got the tools revenue and you've got the work revenue, you got that labor revenue on top of it, but it is incredibly sticky, right? It's very, very durable, which we like to see. He makes a quote that says, "A company might spend $10,000 on QuickBooks and $120,000 on the accountant to close the books. The next legendary company will just close the books, right?" And that's really what we're focused on with a lot of what we're doing, not just the 360 but also at Masterworks, where we're forward-deploying people into those organizations, we're pulling work out of those organizations, being able to deliver them better results at a lower cost, being able to then set ourselves up for really good long-term relationships, very recurring in their nature and then really freeing them up to be able to focus more of their energy on going out and chasing and scaling their mission, which is what it's all about at the end of the day. It's about helping those organizations help people flourish, help communities flourish and be able to enable those organizations to thrive. So -- and all of that then becomes more recurring by its very nature. Even if some of that you think of as a service, it is a very deeply embedded long-term agreement that delivers services or work back into those organizations. Operator: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Scott Beck, Co-Founder and CEO for any further remarks. Scott Beck: Yes. Thanks a lot. Let me start by saying, I couldn't be more excited by where we're at today. We've been on a long journey here. We spent more than a decade building the foundation for this business, investing in the platform and the trusted relationships in the mission that continues to guide our work. And today, I believe that Gloo is better positioned than ever as the leading technology platform for this ecosystem and as the leader in applied AI for this ecosystem. And all of this is pointed toward being able to use technology as a force for good. Our aim has always been that. And it's just we've made tremendous progress toward that. Also super thankful. I just got to say, we're super thankful for the organizations that have -- that trust us with that. We do this wholly and perfectly, right? And we're getting better every day. But they trust us with it, they journey with us on it, and we're super grateful for that. Also thankful for the team, for our capital partners, I talked about them earlier, as well as the investors. We've got a lot of investors that got us to this point and new investors that are on the journey. But with all of this, our goal remains really clear, to build a large, profitable mission-driven business that serves those who served. And we're committed to doing that with discipline, transparency and a focus on long-term value creation for our shareholders but also for the customers that we serve. Personally, I thank God for the opportunity to be able to serve this ecosystem to best ensure that the organizations can thrive and so that they can go into their communities, they can work with the people and help them flourish to become all that they're born to be. Thank you all for taking time today to listen to our call. As always, we remain available to answer questions. Feel free to reach out at any time. With that, operator, that concludes our time. 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.
Christopher J. Meade: Good morning, everyone. I am Chris Meade, the General Counsel of BlackRock, Inc. Before we begin, I would like to remind you that during the course of this call, we may make a number of forward-looking statements. We call your attention to the fact that BlackRock, Inc.’s actual results may, of course, differ from these statements. As you know, BlackRock, Inc. has filed reports with the SEC which list some of the factors that may cause the results of BlackRock, Inc. to differ materially from what we say today. BlackRock, Inc. assumes no duty and does not undertake to update any forward-looking statements. With that, I will turn it over to Martin. Martin S. Small: Thanks, Chris. Good morning, everyone. It is my pleasure to present results for the first quarter of 2026. Before I turn it over to Larry, I will review our financial performance and business results. Our earnings release discloses both GAAP and as-adjusted results. A reconciliation between GAAP and our as-adjusted results has been included in the table attached to today’s press release. I will be focusing primarily on our as-adjusted results. It has been a standout start to the year for BlackRock, Inc. Our first-quarter revenue, operating income, and earnings per share grew double digits. We expanded margins by over 100 basis points and we delivered 8% organic base fee growth. That is our seventh consecutive quarter at or above 5%, bringing the last twelve months’ organic base fee growth to 10%. What is driving that performance is deep engagement with clients. We are providing advice, insights, and access across the whole portfolio, allowing clients to efficiently implement both long-term strategic asset allocation moves and tactical exposures to navigate near-term themes in markets. These higher-velocity markets bring clients closer to our firm. BlackRock, Inc. is winning mindshare and wallet share reflected in $130 billion of net inflows in the first quarter. Organic growth is durable and broad-based. It is consistent across product, region, and client type. Firms we brought together deliberately are now compounding in our results and with our clients. You see it across the BlackRock, Inc. portfolio. Aperio flows are accelerating, as advisers bring tax-aware direct indexing into the core of accounts. iShares is leading the industry across active and index. Infrastructure fundraising and deployment are ahead of plan. 2026 unfolded in a more volatile market environment. Markets showed heightened sensitivity to incremental economic data, with volatility rising across rates, equities, and currencies. There is real, impactful geopolitical uncertainty. There is both excitement and anxiety about how artificial intelligence will impact day-to-day lives and business models. As capital reallocates and assumptions are challenged, markets can feel unsettled even when underlying fundamentals are sound. That dynamic is evident today. While headlines and sentiment remain uneven, BlackRock, Inc.’s performance tells a very different story. Our fundamentals are strong. Organic base fee growth remains well above target, and margin expansion continues to reflect the operating leverage built into our model. Momentum across our business continues to accelerate. That momentum is rooted in clients wanting to partner with scaled, trusted platforms, and they are consolidating more of their portfolios with BlackRock, Inc. Turning to our financial results, first-quarter revenue of $6.7 billion increased 27% year-over-year, driven by organic growth, the impact of higher markets on average AUM, the acquisitions of HPS and Preqin, and higher technology services and subscription revenue. Operating income of $2.7 billion was up 31%, and earnings per share of $12.53 was 11% higher versus a year ago. EPS also reflected lower nonoperating income, a higher effective tax rate, and higher share count in the current quarter linked to the closing of the HPS transaction on July 1, 2025. Nonoperating results for the quarter included $66 million of net investment gains, driven primarily by equity method earnings and noncash valuation gains on our minority investments. Our as-adjusted tax rate for the first quarter was approximately 23%. This reflected $57 million of discrete tax benefits related to stock-based compensation awards that vest in the first quarter of each year. We continue to estimate that 25% is a reasonable projected tax run rate for the remainder of 2026. The actual effective tax rate may differ because of nonrecurring or discrete items, or potential changes in tax legislation. First-quarter base fee and securities lending revenue of $5.4 billion was up 24% year-over-year, driven by the positive impact of market beta on average AUM, organic base fee growth, and approximately $230 million in base fees from HPS. On an equivalent day-count basis, our annualized effective fee rate was 0.2 basis point higher compared to the fourth quarter. Our fee rate benefited from outperformance of international equity markets relative to the U.S., along with client demand for international iShares exposures, and our structural growers in systematic equities, private markets, Aperio, and active ETFs. Performance fees of $272 million increased from a year ago, reflecting higher revenue from alternatives, which includes $121 million of performance fees from HPS. Quarterly technology services and subscription revenue was up 22% compared to a year ago. Growth reflects sustained demand for our full range of Aladdin technology offerings, and a full-quarter impact of the Preqin transaction which closed on March 3, 2025. Preqin added approximately $65 million to first-quarter revenue. Annual contract value, or ACV, increased [inaudible] year-over-year. We remain committed to low- to mid-teens ACV growth over the long term. Total expense increased 24% year-over-year, reflecting higher compensation, sales, asset and account expense, and G&A. Employee compensation and benefit expense was up 27%, reflecting higher incentive compensation linked to higher operating income and performance fees, and higher headcount associated with the onboarding of HPS and Preqin employees. Sales, asset, and account expense increased 25% compared to a year ago, primarily driven by higher distribution and servicing costs, and direct fund expense. G&A expense increased 14%, primarily driven by the impact of the HPS and Preqin acquisitions. Excluding the impact of the HPS and Preqin acquisitions, G&A would have increased a mid-single-digit percentage from a year ago. Our first-quarter as-adjusted operating margin of 44.5% was up 130 basis points from a year ago, reflecting the positive impact of markets on revenue and strong organic base fee growth. We continue to deliver higher margin expansion on recurring fee-related earnings. Excluding the impact of all performance fees and related compensation, our adjusted operating margin for the first quarter would have been 45.6%, up 180 basis points year-over-year. We repurchased $450 million worth of shares in the first quarter. At present, based on our capital spending plans for the year, and subject to market and other conditions, we still anticipate repurchasing at least $450 million of shares per quarter for the balance of the year, consistent with our January guidance. In the first quarter, BlackRock, Inc. generated total net inflows of $130 billion, led by strength across ETFs, active, and private markets. Record first-quarter ETF net inflows of $132 billion were led by index bond ETFs with $41 billion of net inflows. Precision exposures, core equity, and active ETFs added $39 billion, [inaudible], and $19 billion, respectively. Client demand for international diversification presents meaningful upside for BlackRock, Inc., particularly in areas like emerging markets and precision single-country allocations. This demand for premium exposures that are specific to iShares resulted in double-digit organic base fee growth for ETFs in the quarter. Retail net inflows of $15 billion reflected continued strength in our systematic liquid alternatives, active fixed income, and evergreen private markets offerings. Subscriptions for HPS’ flagship non-traded BDC continue, with approximately $150 million of subscriptions for the April window. Demand for Aperio and Spider Rock is also accelerating as financial advisers turn to these platforms for customized and tax-aware strategies. Aperio generated a record $13 billion of net inflows and Spider Rock added over $1 billion in the quarter. Aperio’s AUM has more than tripled and Spider Rock’s AUM has more than doubled in the five and two years, respectively, since their closings. Institutional active net inflows were $24 billion, driven by our LifePath target date franchise, private markets, and systematic strategies. These inflows were partially offset by a few client-specific active fixed income redemptions. Institutional index net outflows of $35 billion were concentrated in low-fee index equities. In private markets, we continue to see strong momentum supported by investment performance, differentiated deal flow, and the breadth of our client relationships. We saw an aggregate $9 billion of net inflows led by private credit and infrastructure and primarily driven by deployment activity. Finally, BlackRock, Inc.’s cash management platform saw $6 billion of net outflows in the first quarter. Cash management results reflected seasonal redemptions from U.S. government funds, partially offset by growth in customized cash mandates. BlackRock, Inc. is at its best helping clients navigate intense periods of transformation across industries, markets, and geopolitics. Capital is moving. Wealth management platforms, institutions, and consultants are evaluating their providers of asset management services. Our whole-portfolio model has a proven track record of capturing momentum and gaining share in these environments. BlackRock, Inc. is simultaneously a leading public markets manager, a scaled private markets platform, and a global technology company. That is not something that can be replicated overnight. Our clients know it. Our results prove it. We generated 8% organic base fee growth in the quarter and 10% over the last twelve months. At the same time, we grew revenue and operating income double digits and expanded margins by over 100 basis points. When clients are making big decisions about their portfolios, they are choosing BlackRock, Inc. because we can meet them across public markets, private markets, and technology all on one platform. We have the investment expertise, the technology, the global reach, and the track record. And we have nearly 25,000 colleagues—One BlackRock—working together to deliver excellence for our clients and growth for our shareholders. With that, I will turn it over to Larry. Laurence D. Fink: Thank you, Martin. Good morning, everyone, and thank you for joining the call. This was one of the strongest starts to a year in BlackRock, Inc.’s history. Clients awarded us with $130 billion of net inflows in the first quarter. That drove 8% organic base fee growth, representing our highest first quarter in the last five years. Technology services ACV grew 14%. Our margins expanded by over 100 basis points to 44.5%, and our firm’s effective fee rate moved upward. Over the last twelve months, clients entrusted BlackRock, Inc. with $744 billion in net new assets, powering 10% organic base fee growth. Our results reflect a global business with accelerating momentum, deep client engagement worldwide, and a platform built to compound through cycles. But our position reflects something larger than one quarter or even one year of results. The conversations I am having with clients around the world confirm what our results already show. Our business is becoming more global and more connected. Our brand is strengthening in every region in which we operate. I have seen it deepen even in the last few weeks in my trips to Mexico and Europe, and my conversations with colleagues and clients in the Middle East. I want to recognize the resilience and partnership from our employees, our clients, and our board members in the Middle East. We will continue to do everything we can to support them. In a world where capital is moving and provider relationships are being reevaluated, BlackRock, Inc. is a trusted destination. A major part of my role has always been spending time with clients. My 2026 schedule has already been filled with rich dialogue with CEOs, sovereign wealth funds, pension funds, insurance CIOs, wealth managers, and governments. In these conversations, I hear a consistent theme. The world feels different—not just uncertain, but different. The world is reorganizing around self-reliance. AI is reshaping how we live and how we work. Private markets are a large and growing part of the capital markets. Clients are turning to BlackRock, Inc. to help them understand what this means for their portfolios and for their beneficiaries. We are engaged with clients across every channel, geography, and asset class. Many of these conversations would not have been possible five years ago because the platform we now have built did not exist. We built it by bridging public and private markets, by expanding iShares into new regions and asset classes, by unlocking personal SMAs through Aperio, and by making active a true scale business through systematic alpha. BlackRock, Inc. is playing a role that goes beyond asset management. We are partnering with governments and clients to help more people grow with their economies and with their countries. Through iShares and our local platforms, we are helping turn citizens into investors in their local economies in India, Mexico, Japan, Europe, and beyond. Much of our work is focused on making retirement investing more accessible. Strong retirement systems depend on deep, functioning capital markets, and deep capital markets are built in part by the savings of people planning for retirement. BlackRock, Inc.’s role in retirement is resonating in every conversation I have with governmental leaders. Retirement is foundational to BlackRock, Inc. Our platform spans defined benefit and defined contribution and brings together public and private markets, active and index, and technology at a global scale. That combination differentiates us in the U.S. as plan sponsors consider the role of private markets in 401(k)s, but it is also shaping how we partner with clients in regions like the Middle East and India to build more durable retirement systems and local capital markets. We are invested ahead of our clients’ needs and secular forces driving growth in capital markets. We are more confident than ever in our model, and the breadth of our pipeline has never been greater. BlackRock, Inc.’s diversified platform is an advantage. We develop whole-portfolio solutions at scale. We are deepening client relationships and enabling more durable growth. It provides resilience and it gives us upside capture when market conditions shift. When clients rotate towards international exposures—as they did this quarter—BlackRock, Inc. benefits. iShares is a differentiator in that it indexes virtually every slice of global equities and bond markets, from broad benchmarks to emerging markets to single-country precision exposures. Demand for these premium exposures drove record iShares first-quarter net inflows of $132 billion, with net base fees double what they were compared to this time last year. Our active ETF platform has grown four times in the last two years to more than $110 billion in AUM. Net inflows of $19 billion led the industry. We said that we believe that active ETFs can be a $500 million or greater revenue generator by 2030, and we are already more than halfway there. Strong client engagement drove $3 billion of active equity net inflows. For BlackRock, Inc., active equity is a growth area. Our systematic equity offerings remain one of the leading investment performance engines. We are working on a number of other systematic equity assignments with clients around the world. Clients want to harness AI, decades of proprietary data, and BlackRock, Inc.’s track record of turning quantitative rigor into long-term investment performance. In retail active fixed income, we raised $2 billion, led by our top-performing unconstrained Strategic Income Opportunities Fund. We are firmly in the era of whole portfolios. Clients want advice. They need allocation and implementation across public and private markets together, at scale. A decade ago, fiduciaries’ best practice often meant diversifying across a number of managers. As portfolios and governance have grown more complex, our clients are increasingly choosing to work with fewer strategic partners—many times, just one. We see that shift reflected in the industry. Outsourced CIO assets have more than doubled over the last five years. This movement towards whole portfolios is playing directly to our strengths. Clients are choosing BlackRock, Inc. because we build together asset management and technology across public and private markets seamlessly in one integrated platform. The whole-portfolio construct has resonated for years in our institutional channel, where we have been entrusted with approximately $300 billion in large-scale outsourcing mandates over the last three years. In wealth, we are also opening new avenues of growth as demand for public/private, tax-aware investing reshapes how investors build their portfolios. BlackRock, Inc.’s wealth platform spans over $1 trillion in AUM, with global distribution across tens of thousands of financial advisers. It delivers seamlessly integrated public and private market solutions, model portfolios, and practice management capabilities. That is significant value as wealth management firms rethink their product shelves and look to do more with fewer partners. We are seeing demand across our wealth offering. That includes a record quarter in Aperio and Spider Rock, outsourcing mandates, and net inflows into liquid active and private market strategies, including net inflows into our LTIP 2.0 funds in Europe and our flagship non-traded credit BDC. The combinations of GIP and HPS with BlackRock, Inc. are surpassing the highest expectations we underwrote. GIP V closed above its $25 billion target and is already majority committed through recently announced deals like TCR, AES, and Aligned. Joining HPS’ origination and structuring expertise with BlackRock, Inc.’s relationship network has supercharged our combined origination capabilities. That has allowed us to be more selective while still actively deploying capital at scale. These businesses are not just integrating; they are accelerating. There has been a lot of attention on private credit, but the headlines do not reflect what clients are telling us, what our portfolio data shows, or where we see the market going. Demand is structural. Private credit serves an important role in the financing ecosystem. Banks, governments, and public capital markets cannot fully address the world’s growth and investment capital needs. That is not changing. Much of the focus has been on wealth vehicles like BDCs, interval funds, and tender funds. These funds make up around $550 billion in AUM—or about 25%—of the $2.2 trillion private credit industry. Institutional demand is actually accelerating. Institutions are increasing allocations to private credit as wider spreads are enhancing return potential and defaults—while normalizing—are still within historical standards. Private credit has historically offered asset-level yields approximately 150 basis points higher than comparable weighted traditional fixed income. New activity levels have been somewhat lower in the first quarter, which is seasonal and reflects market uncertainty. But new, regular-way direct lending is being quoted 25 to 50 basis points wider than where the market was in the fourth quarter, with select opportunities over 100 basis points wider. Periods of market dislocation are when private credit investment opportunities are most compelling. BlackRock, Inc.’s Private Financing Solutions platform benefits from a balanced and diverse client base across investor types and geographies. We have particularly strong representation among insurance companies and pensions as well as sovereign wealth funds and private market relationships. About 85% of Private Financing Solutions’ investor base is institutional-focused, leading to greater capital durability across market cycles. This enables us to remain active investors across markets, which should ultimately lead to better long-term risk-adjusted returns. Over the last five to seven years, relatively benign credit markets have lifted all boats. As the overall market environment becomes more complex, we expect to see much more dispersion in performance among private credit managers. That is an environment we like to compete in. We believe that HPS’ strong underwriting discipline and proactive risk management will compare favorably and ultimately will result in differentiated returns and share gains. Private credit has scaled rapidly, and the risk management infrastructure supporting it has not kept pace. That is a meaningful opportunity for Aladdin. We already have a comprehensive public-private workflow and data offering through Aladdin, eFront, and Preqin. We are positioning BlackRock, Inc. and Aladdin to be the language of private credit portfolios for transparency and risk analytics. We believe that the combination of Preqin and eFront data represents the broadest universal available in the markets. Aladdin’s value as an enterprise-wide operating system is only amplified in a world with more need for real-time, verified data on one single platform. We have visibility on strong future fundraising and deployment across multiple dimensions of our private credit platform. Institutional client demand for private credit continues to grow, particularly with insurance companies. This quarter, we signed a multibillion-dollar rotation into high-grade private credit from an existing insurance client. This will drive revenue growth as it is deployed over future quarters. We have a multibillion-dollar notified insurance pipeline for a similar mandate. Fundraising in HPS’ junior capital strategy is tracking well, and we saw approximately $150 million in HLEND April subscriptions. BlackRock, Inc. is at the forefront of innovation and advocacy in retirement. That includes reimagining how people save and spend across longer lives and working with plan sponsors and policymakers to deliver better retirement outcomes. The Department of Labor’s proposed rule is a major development towards a framework to include private assets in target date funds. BlackRock, Inc. will be at the forefront of this opportunity. We have a $600 billion LifePath target date franchise, where we saw $15 billion of net inflows in the quarter. That included $4 billion into LifePath Dynamic, our active solution. Our LifePath Dynamic range is well positioned to eventually include private markets exposure alongside public equities and fixed income. As private assets potentially enter the defined contribution market, plan sponsors need to partner with a target date provider with a long-term track record, private market scale, and technology and data to satisfy their fiduciary oversight. BlackRock, Inc. delivers on every one of those points. We have our leading DCIO business, a top-five alternatives platform, and a public and private technology and data platform. The DOL’s proposed rule is clear that fiduciary standards will demand rigorous data and performance benchmarking for private assets. It reinforces what we have been saying all along: plan fiduciaries will need institutional-grade data and performance benchmarks to make defensible allocation decisions. That is exactly what Preqin provides, and our leadership in target date, private markets investing, and data clearly differentiates BlackRock, Inc. with all our plan sponsors. This has been one of our strongest starts in BlackRock, Inc.’s history. It is not that we are benefiting from a favorable moment; we are benefiting from a durable platform—one that has been built over decades and is equipped for this type of environment, an environment where capital is moving and fundamentals are being reevaluated. The pipeline ahead of us is among the broadest I have seen at BlackRock, Inc. Momentum is accelerating. We are energized by the opportunities ahead. Most importantly, I would like to thank all of our BlackRock, Inc. colleagues for the work they do each day to deliver for our clients and our shareholders. With that, Operator, let us open it up for questions. Operator: We will now open the call for questions. To ask a question, please press star, then the number one on your telephone keypad. If you do ask a question, please take your phone off its speaker setting and use your handset to avoid any potential feedback. Please limit yourself to one question. If you have a follow-up, please re-enter the queue. We will pause for just a moment to compile the Q&A roster. Your first question comes from Michael Cyprys of Morgan Stanley. Michael Cyprys: Good morning. I wanted to ask about the wealth channel penetration. I was hoping you could update us on the progress penetrating U.S. and international wealth channels, particularly for alternative products. What milestones should we be tracking over the next 12 to 24 months? And what impact might we see from the uptick in redemptions across evergreen private credit products? Martin? Martin S. Small: Thanks, Mike. We are proud to manage more than $1 trillion of assets for wealth managers across the BlackRock, Inc. platform. It really covers every corner of a client portfolio—from models, separately managed accounts, ETFs, to private markets. We are also a technology provider. Our Aladdin technology sits on the desk of financial advisers, bringing institutional-quality portfolio construction right to their desktops. We have the largest client-facing team in the industry covering every corner of the U.S. marketplace—from full-service brokerage and wirehouses to independent broker-dealers and RIAs. We also have very strong relationships with private banks across the U.S., Europe, and Asia. We have a diversified product business, strong track records, and great distribution. You really see that come through in the first quarter: retail net inflows of $15 billion, driven by a record $13 billion into Aperio, $3 billion into liquid alternative strategies, as well as demand for Strategic Income Opportunities, active fixed income, and our evergreen private markets. That is nine consecutive quarters of retail net inflows, so this continues to be a durable, strong growth channel for us. Two areas are worth highlighting. First, growth in this channel is being driven by demand for whole-portfolio services and the move from brokerage to advisory, which has led to growth of ETFs and SMAs—two places where BlackRock, Inc. is an industry leader. It has also put a big focus on after-tax investing. For a long time, the language of the industry was pre-tax or asset-class-level returns. The fact is our clients pay for college, health care, and mortgages with after-tax dollars. Putting after-tax portfolio construction at the heart of what we do at BlackRock, Inc. for taxable investors around the world was core to the rationale for the Aperio acquisition, and it is really driving growth. Aperio net inflows were record levels for a fifth straight year in 2025, and we set a new quarterly record in the first quarter with $13 billion. Spider Rock added a quarterly record of $1 billion of flows with options overlays on top of SMAs. Within that $13 billion of direct indexing flows, about $9 billion was long-only traditional direct indexing, and $4 billion was in long-short strategies that can create additional tax-loss harvesting opportunities. We continue to believe long-short direct indexing with options overlays is going to be a great growth area, and we aim to double or triple that business in the near term. Second, model portfolios. In the wealth management segment, model portfolios are the same as OCIO in the institutional segment. They bring professional management, scale, convenience, and customization. ETF-based models are a huge part of an adviser’s growing practice. Roughly 40%+ of our iShares flows—particularly in the U.S.—come from model portfolios. We are expanding those solutions to include private markets within the convenience of a model portfolio. On evergreen, evergreen wealth strategies are a big part of retail access vehicles for wealth management platforms. Even with some moderation of private credit BDC flows, overall evergreen flows are pretty stable and steady. You see that in the industry data—interval funds, tender funds, private equity, real estate, secondaries, infrastructure, and so on. We think there is a great opportunity to continue to expand our evergreen lineup. We have our HLEND flagship, and we are on track to bring an “H” series of vehicles to market for private wealth over the course of 2026. You can find registration statements on the SEC’s EDGAR website for real assets (HREAL) and net lease strategies with HLEND (HNET). We launched HLEND E in Europe and are bringing a new GIP core infrastructure fund to market in Europe as well, which we think will be a great jumping-off point for private wealth. We have many ways to grow in wealth, and we remain very optimistic about our opportunities in ETFs, SMAs, liquid alts, private markets, as well as Aladdin, Aladdin Wealth, and models. We look forward to keeping you updated on our progress. Operator: Your next question comes from Craig Siegenthaler with Bank of America. Craig Siegenthaler: Good morning, Larry. Hope everyone is doing well. Two weeks ago, we received a proposal from the Department of Labor to help support DC plan sponsors’ decisions to select private assets in the $14 trillion 401(k) channel. Given your size with your target date franchise, what are your initial thoughts on the proposal? Also, any thoughts on whether you could launch a new series of target date strategies or use your existing strategies and just have a private allocation? Laurence D. Fink: Let me have Martin start with that, then I will finish it up. Let me just say one thing importantly. Every country we are talking to is refocusing on how they can expand their capital markets through retirement. More and more countries are focusing on becoming more self-reliant—whether in the form of technology or energy—and there is more conversation about being more self-reliant on their own fundraising needs. To do that is to move money from bank accounts into investable assets. Retirement is a conversation in every country. Let me turn it to Martin specifically with the DOL question. Martin S. Small: Thanks, Larry, and thanks, Craig. We are energized by the activity we have seen from policymakers, consultants, and plan sponsors. I have been doing this for 20+ years. We have seen more advancements on private markets in 401(k)s in the last 12 months than in the prior 20 years. I applaud the Department of Labor leadership for huge engagement with the industry, trade associations, consultants, plan sponsors, and companies. They have really sweated the details. The notice of proposed rulemaking the Department released is better than we expected and really paves the way for healthy engagement in this comment period about opportunities to make this even more compelling for plan fiduciaries and, most importantly, to deliver diversified professionally managed portfolios that bring together public and private markets for long-dated retirement portfolios. More than half the assets we manage at BlackRock, Inc. are related to retirement. As Larry mentioned, we are the number one DCIO firm with over $600 billion in target date funds, and we are a top-five private markets manager. We see a great opportunity to deliver for clients. The DOL’s notice emphasizes ERISA and a process-based review of six factors: performance, fees and expenses, liquidity, valuation, benchmarking, and complexity. Larry has been very clear about the value of data—especially Preqin data—on benchmarking and how plan sponsors and consultants can make good, fiduciary, process-based decisions under ERISA by leveraging institutional-grade data. We think that is a huge opportunity to do good while we do well—for plan sponsors and participants. We also think delivering performance, value for money, liquidity, and sound valuation within a target date fund is the best way to do this for DC plans. Inflows into 401(k)s almost all come through QDIA—target date funds, balanced funds, and managed accounts that look like those. As and when the new DOL rule takes hold, we believe a broader range of target date funds will benefit from the diversification of private markets in a professionally managed vehicle with fiduciary-sound decision-making. We have product coming to market with our partners this year—we are going to be launching LifePath with privates—all to build a track record so plan sponsors can get more comfortable with these structures as the DOL rule hopefully takes hold towards the back half of the year and we get really running in 2027. Laurence D. Fink: I would add a macro view. If we are going to really excel as a country—and across all countries—the need for more citizens to grow with their country by utilizing savings and translating that into investing, and having a complete range of investable products—whether passive or active, public or private—is very important. These are the types of conversations we are having across the spectrum of countries. There is a huge awakening of understanding the power of retirement and those flows through the capital markets. This is not just a U.S. phenomenon; it is being discussed in all corners of the world. Operator: Your next question comes from Alex Blostein of Goldman Sachs. Alexander Blostein: Good morning. You mentioned in your prepared remarks that in prior periods of dislocation, BlackRock, Inc. tends to gain share. We have seen it in multiple cycles when there is more money in motion. Does that happen again this time around? If so, could you add more specificity in terms of which products or asset classes BlackRock, Inc. is best positioned to gain share in if we do see more money in motion on the back of all this, and the implications for the firm’s organic base fee growth over the next 12 to 18 months? Laurence D. Fink: We have said it in different snippets, but I do believe our positioning in retirement, our positioning in infrastructure and privates, and our positioning in iShares—and the breadth and global footprint we have—are creating more and more opportunities. The speed at which we are deploying capital in GIP V in infrastructure speaks to that. More countries have a greater need to build out their infrastructure, especially with the AI revolution. More countries are getting back to self-reliance, including finding different sources of power and reducing dependence on energy imports. The need for building out solar, which I talked about in my Chairman’s letter a few weeks ago, is one example. It is our positioning across ETFs, the scale and granularity of our ETFs—unmatched by any other ETF provider—and the entire footprint that allows us to have these conversations globally. In the U.S., as Martin discussed, the role of Aperio in terms of tax-advantaged portfolios—especially as the threat of higher taxes and other issues rise—is strengthening the platform that BlackRock, Inc. systematically built over the last 20 years. If you think about the platform we built across public and private markets, and overlay investment technology, it has given us a unique ability to have conversations in all corners of the world. I cannot underscore enough the conversations we are having related to the growth and role of capital markets. I have had conversations even this week about the need for Europe to have a Capital Markets Union. We are having conversations across Japan and the Middle East and other regions. I was in Mexico last week talking about that role and opportunity. We are involved in these conversations at the government level and at the institutional level, and our platform also speaks to the wealth platforms worldwide. Martin? Martin S. Small: Larry captures the client perspective well. Alex, I would note that March 2026 was the worst month for broad markets since September 2022. In September 2022, broad stocks were down 10% and broad bonds were down 4% to 5%. In March 2026, stocks were down 7% to 10% and broad bonds traded down 2% to 3%. BlackRock, Inc. is getting better through market environments at taking share and delivering more sustained organic growth. We think we can confidently and consistently deliver 6% to 7% growth from our structural growth segments, with higher outcomes when markets are especially supportive or when clients rotate into higher-fee segments in any quarter. There are two broad vectors for this growth. First, structural growers—the all-weather growth products and services like ETFs, private markets, models, tax-aware strategies like Aperio and Spider Rock, and systematic. These are areas where we take disproportionate share as those structural trends advance. Second, whole-portfolio relationships. Clients want to consolidate business with fewer providers and are looking for more from the platforms they do business with. Share gains are a source of organic growth for scale players like BlackRock, Inc. If you look at industry flows for the last several years, the top five asset managers are 80%+ of flows. Yet this is still an extraordinarily fragmented business by assets and revenue. That ability to consolidate share is another avenue of sustained organic growth. My sense of today’s markets, across some of the private credit tumult, is that this is an opportunity for BlackRock, Inc. to take share—particularly in private markets across wealth platforms—where clients want more whole-portfolio relationships to put public and private markets together and manage practices through cycles. We think some of this shakeout in credit is good for our organic base fee growth profile, alongside the structural growers we are already confident in. Operator: Your next question comes from Mike Brown of UBS. Michael Brown: Good morning. A macro question: The Middle East conflict presents some geopolitical and macro challenges that could shift capital priorities. Are you seeing any change in sovereign wealth behavior as they think about allocations? Any read on Asia given added pressure to their economies from higher energy prices? Operator: Thank you. Laurence D. Fink: Specifically in the Middle East, we have not seen changes in behavior. This week I am meeting two finance ministers from the Middle East. In some of the co-investments we have done in the last few months, the Middle East has participated quite largely. We have an announcement forthcoming in the next week or so related to a retirement win we have in the Middle East. We see very little behavior change. Our dialogues are more constant, talking about how they should play this and what they should do. At this moment, we have not seen withdrawals from sovereign funds to the treasuries of these countries. If anything, money is continuing to flow into their sovereign funds; their investment behavior has not changed. Obviously, things could change if there is prolonged uncertainty and violence in the region. We are working closely with our friends and employees affected by this conflict. Over the course of last year, we built out our offices in almost every country in the Middle East with the idea that we see huge opportunities, and we are continuing to build those offices. There is stress at the moment related to the conflict, but we see no behavior changes at all. If anything, they are articulating more opportunities, not fewer. Related to places where higher energy cost is a tax: in some places, increases in energy costs are being absorbed by governments—happening in parts of Europe and Asia. That implies deficits likely rising and a need to build out infrastructure, and a need for more public-private partnerships—more realistic opportunities. I would argue this presents bigger and better opportunities across the board. That said, we do not have any insight as to how and when the conflict will end. We are in constant dialogue with our partners and friends in the Middle East. We probably have had more client calls and calls with leadership and governments than ever before. We are making sure we stay in front of our clients and remain a trusted partner. The evidence speaks loudly that we are one of their key trusted partners. Operator: Your next question comes from Brian Bedell of Deutsche Bank. Brian Bedell: Good morning. A two-parter around organic base fee growth and scaling that. Beta has always been your best incremental margin opportunity. As you grow organic base fee growth faster, do you see a better ability to scale that over time? Are you seeing more demand from outside the U.S.? You mentioned an incremental shift towards non-U.S.—do you see that continuing? And could you comment on the nice mix in the base fee rate? What are you seeing as the exit base fee rate for the quarter? I do not think I heard that. Martin S. Small: Thanks, Brian. We continue to deliver industry-leading margins over the cycle. As I laid out at our 2025 Investor Day, we continue to target a 45% or greater adjusted operating margin, with our margin on recurring fee-related earnings running higher. We expanded both operating and recurring FRE margins by over 100 basis points in the quarter. We did that in an environment where AUM actually finished on a spot basis lower than average. Our operating margin for the quarter was 44.5%, while the margin excluding performance fees and related comp was 45.6%. Looking forward, we have run BlackRock, Inc. at margins north of 45% before—close to 47% back in 2021. We did that at a time when we did not have a large-scale private markets franchise. Now we have added engines of infrastructure and alternative credit with our colleagues from GIP and HPS. Both franchises were north of 50% FRE margins when they joined BlackRock, Inc. Over time, we see two things. One, the margin on recurring fee-related earnings can trend upwards toward the trajectory of best-in-class private markets names—north of 50%—driven by the acquired businesses and highly scaled franchises in ETFs, digital assets, and systematic equities. Two, with constructive markets, a higher fee rate on flows—which we have been driving—and strong organic growth, we can pull the fully burdened operating margin of the company up as well. We have run the company at 47%, so I do not see 45% or 46% as a ceiling. As you mentioned, we had 8% annualized organic base fee growth in the quarter and 10% over the last twelve months—that is seven consecutive quarters over 5%. The fee rate was up 0.2 basis point sequentially, driven by strong market performance in our higher-fee public markets book, particularly EM and international equities, along with client demand for international iShares exposures and structural growers like systematic equities, private markets, Aperio, and active ETFs. Global equity markets improved in April. We always disclose the revenue-weighted index in the supplement, but the BlackRock, Inc. equity index is up about 5% in the first two weeks of April. At March, our base fee entry rate was approximately 2% lower than first-quarter base fees, but that has basically been recovered with April market performance. Operator: Next question comes from Dan Fannon of Jefferies. Dan Fannon: Thanks. Good morning. Could you expand upon some of the trends at HPS and private credit broadly, distinguishing between institutional conversation and activity versus what you are seeing in retail? Also, could you comment on deployment in this type of market? Martin S. Small: HLEND is one of the best-performing non-traded BDCs in the market. It has logged a 10.4% annualized total return since inception. It is one of the only funds among major peers with positive performance in 2026, with $840 million of Q1 subscriptions including the DRIP, and approximately $150 million for the April window. We continue to see good engagement with the HLEND base and across wealth clients for evergreen structures, and we believe we can grow there through time. I would offer that BlackRock, Inc. is in a different place than other firms on these questions. Our 2030 strategy is to drive organic base fee growth at 5%+ through a broad public and private markets platform, and our track record shows we can more consistently generate 6% to 8%. We are not reliant on any one engine or product. We may or may not go through a period of elevated redemptions relative to historical levels and more muted subscriptions in wealth channels for private credit funds—we do not know for certain. We see long-term demand for institutional-grade private credit as intact. HLEND flows and fee rates are generally accretive to our 2030 plan whether they are at 25%, 50%, or 75% of historical levels. We are broadening the evergreen lineup as mentioned—with real assets, net lease strategies, and Europe—so we think we have great opportunities to grow in wealth. The business is generally about 10% retail private markets at BlackRock, Inc., so call it 85% to 90% institutional. There, we have seen strong demand. If anything, with some of the retail pullback, we have seen stronger institutional fundraising and deployment. Some of the spreads we see today in direct lending and asset-based finance are among the most attractive on this market pullback. We are generally very constructive on institutional fundraising in and around private credit strategies. Operator: Your next question comes from Brennan Hawken of BMO Capital Markets. Brennan Hawken: Good morning. Thank you for taking my question. Curious to hear your plans—you filed for the IQQ. Curious to hear your plans around that and the NASDAQ complex, and whether you are considering a fee holiday to help your product gain scale. Looking at the S&P complex, it is much larger. If we see a chance for competing products to get launched there, do you think it would expand the pie versus cannibalize? Laurence D. Fink: Martin? Martin S. Small: Thanks, Brennan. We filed a registration statement with the SEC on the NASDAQ 100 Index ETF, the IQQ. Due to regulatory filing restrictions, we are not able to provide a lot of detail beyond what is in the filing. What I will say is that BlackRock, Inc. has a long-standing and continuously growing partnership with NASDAQ. We are already the largest manager of NASDAQ 100 ETFs outside the United States. We manage $25 billion across ETFs listed in Europe, Canada, and Hong Kong. In the U.S., we also have the NASDAQ Top 30 and Next 70 Index ETFs, as well as the NASDAQ Premium Income ETFs. IQQ is similarly trying to facilitate access for U.S. investors with an iShares quality option in one of the most widely tracked indexes. We are differentiated at BlackRock, Inc. with two distinct global ETF ranges—the U.S. and Europe. These scaled platforms enable us to port proven growth franchises and distribution approaches across geographies, which is a meaningful differentiator. We believe we can continue to grow access to these exposures with high-quality iShares institutional-grade management, and we look forward to keeping you updated on our progress once we get through the registration period. Operator: Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks? Laurence D. Fink: Thank you, Operator. Thank you all for joining us this morning and for your continued interest in BlackRock, Inc. We opened 2026 with one of our best starts to the year on record. We are aligning our platform alongside long-term client needs and structural growth drivers, and it is showing up in a meaningful way in our results. The strength of the firm—our breadth, our scale, our connectivity—positions us well to continue delivering value for our clients and differentiating long-term growth for our shareholders. Thank you, and have a good quarter. Operator: This concludes today’s teleconference. You may now disconnect.
Operator: Welcome and thank you for joining the Wells Fargo & Company First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to withdraw your question, press 2. Please note that today's call is being recorded. I would now like to turn the call over to John Campbell, Director of Investor Relations. You may begin. John Campbell: Good morning. Thank you for joining our call today where our CEO, Charles Scharf, and our CFO, Michael Santomassimo, will discuss first quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our first quarter earnings materials, including the release, financial supplement, and presentation deck, are available on our website at wellsfargo.com. I would also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-Ks filed today containing our earnings materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings and the earnings materials available on our website. I will now turn the call over to Charles Scharf. Charles Scharf: Thanks, John. I am going to provide some brief comments about our results and update you on our priorities. I will then turn the call over to Michael Santomassimo to review first quarter results in more detail before we take your questions. Let me start with our first quarter financial highlights. We saw continued positive impacts from the investments we have been making with diluted earnings per share increasing 15%, revenue increasing 6%, loans growing 11%, and deposits up 7% compared to a year ago. Revenue growth was driven by a 5% increase in net interest income and an 8% increase in noninterest income. Our consistent focus on investing across all of our businesses helped contribute to broad-based revenue growth with each of our operating segments increasing revenue from a year ago. Consumer Banking and Lending revenue grew 7% and Commercial Banking revenue grew 7% as well. Within our Corporate and Investment Bank, we saw an 11% increase in banking revenue and a 19% increase in markets revenue. Wealth and Investment Management grew 14%. While expenses increased, driven by higher revenue-related expenses, we remain focused on expense discipline. At the same time, we are increasing our investments in areas like technology, including AI, as well as in advertising, while continuing to execute on our efficiency initiatives which has resulted in 23 consecutive quarters of headcount reductions. With revenue growing faster than expenses, pre-tax, pre-provision profit grew 14% from a year ago. Credit performance remained strong, and our net charge-off ratio was stable from a year ago at 45 basis points. Given that nonbank financial lending has generated a lot of interest lately, Michael will do a deep dive into that portfolio later in the call. But I will say we like the risk-return profile of the portfolio, given our deep understanding of the collateral, the diversification across both clients and asset types, and structural protections in place. And finally, we returned 5.4 billion dollars to shareholders in the first quarter, including 4 billion dollars in common stock repurchases, while continuing to operate with significant excess capital. Turning to the progress we made during the quarter on our strategic priorities. Last month, we closed our final outstanding consent order, bringing the total to 14 terminated since 2019. We are incredibly proud of the hard work and unwavering commitment that was required to reach this milestone and understand the importance of sustaining our risk and control culture. With this work behind us, we are now focusing more fully on accelerating growth and improving returns. We are seeing momentum across many business drivers, which we highlight on Slide 2 of our presentation deck. Let me share some of them starting with our consumer franchise. In the first quarter, we launched two new travel-focused reward credit cards available exclusively to new and existing Premier and Private Wealth clients. Over the past five years, continued enhancements to our credit card offerings have driven higher purchase volume and loan balances, which were both up from a year ago. New account growth remains strong, increasing nearly 60% from a year ago, driven by higher digital and branch-based openings. We also had continued strong growth in our auto business. Originations more than doubled from a year ago, benefiting from being the preferred financing provider for Volkswagen and Audi vehicles in the United States as well as our methodical return to broad-spectrum lending. Importantly, credit performance has remained strong and in line with our expectations. We have continued to invest in marketing to help drive new primary checking accounts, and consumer checking account openings increased over 15% from a year ago. While this momentum is encouraging, we are not yet growing accounts at the pace we expect to over time. As customer expectations evolve, we continue to modernize our digital offering, complementing our in-person service with seamless mobile experiences. The momentum continued in the first quarter, as mobile active users surpassed 33 million, Zelle transactions increased 14% from a year ago, and Fargo, our AI-powered virtual assistant, reached over 1 billion customer interactions less than three years since its launch. We had continued momentum in our Wealth and Investment Management business, with client assets growing 11% from a year ago to 2.2 trillion dollars. Company-wide net asset flows accelerated in the quarter, reaching their highest level in over ten years. Turning to our commercial businesses. In Commercial Banking, we continue to hire coverage bankers to drive growth, and we are seeing the early signs of success with higher new client acquisition as well as loan and deposit growth. Average loans and deposits both grew by approximately 5 billion dollars in the first quarter, demonstrating accelerating momentum. We are also continuing to grow our Banking and Markets capabilities while not significantly changing the risk profile of the company. We continue to invest in senior talent to improve client coverage and broaden our product capabilities in investment banking. These investments helped drive 13% revenue growth from a year ago. While market conditions can change, the outlook for investment banking remains strong, and we entered the second quarter with a strong pipeline driven by M&A and equity capital markets. We continue to grow our Markets business amid a mixed and volatile trading environment, with revenue up 19% from a year ago. Client sentiment is cautious but engaged as macro and geopolitical uncertainty has increased, and clients have largely shifted to a more selective and defensive posture. Finally, we completed the sale of our railcar leasing business at the beginning of the quarter. We have now substantially completed our efforts to refocus and simplify the company by exiting or selling 12 businesses since 2019. Let me now turn to the future. I want to start by highlighting what we are watching in the economic data. The U.S. labor market continues to cool in an orderly but uneven fashion, with few signs of systemic stress. Layoff activity remains contained. Weekly jobless claims reinforce this picture and are not signaling labor stress. The unemployment rate dipped to 4.3% in March, but this continues to reflect slower rehiring and longer job searches, not renewed labor market strain. Despite slowing employment momentum, U.S. economic growth has held up. The U.S. consumer remains resilient in the aggregate but increasingly bifurcated beneath the surface. Spending has held up into early 2026 despite slower job growth, supported by higher-income households, steady wage growth for incumbent workers, and continued access to credit. However, confidence indicators and underlying balance sheet trends point to rising stress for less affluent consumers. Upper-income consumers continue to benefit from elevated equity prices, home equity, and cash buffers accumulated earlier in the cycle, allowing discretionary spending to remain firm. By contrast, lower-income households are more exposed to higher interest rates and energy prices. Financial markets have absorbed these crosscurrents with resilience, but we expect continued volatility driven by geopolitical headlines and outcomes as well as the unfolding impact of higher commodities prices. Turning to what we are seeing from our customers. The financial health of consumers and businesses remains strong. Consumers are spending more than a year ago, which includes spending more on gas, but they have not slowed spending on everything else. Gas represented 6% of our total debit card spend and 4% of our total credit card spend before the rise in oil prices. They now represent 75% of debit and credit card spend. Note that these numbers are higher for low-income households. We have seen historically that it often takes consumers several months to reduce their spend levels on other categories to adjust for higher oil prices. And while we do not know the exact timing, we would expect to see the same in the second half of the year. We also expect that higher energy prices will impact other goods and services. The duration and severity will be driven by the level and duration of higher oil prices. The ultimate impact on credit performance is not yet clear due to the uncertainties I just mentioned, but the strength across our consumer portfolios, including lower charge-offs and improved early-stage delinquencies in our auto and credit card portfolios from a year ago, provide time for consumers to adjust their behaviors. Having said that, at this point, it is likely there will be some economic impact based on what has already occurred, but there are both risks and potential mitigants, so it is hard to predict the ultimate impact. Middle market and large corporate clients are in a similar position. They have been resilient, and balance sheets are strong, but they tell us they are approaching the remainder of the year cautiously. As we grow our balance sheet, we are cognizant there are risks that we do not yet see in our data and will respond accordingly. Putting all of this together, it is likely energy prices will have some impact on the economy, but we feel good about where our customers and our company stand today. We have managed credit well over many cycles and are well-positioned to support our customers and navigate a variety of economic scenarios. Turning to the recently proposed capital rules. We appreciate that the work our regulators have been doing is based on analysis, interagency coordination, public comment, and a focus on reforms that unlock economic potential. Importantly, the proposals are designed to maintain a strong and resilient banking system that allows the industry to support the flow of credit and help grow the broader economy. We continue to work through the details, but view the proposals as a constructive step in supporting our role in serving households and businesses. If the proposals do not change, and based on our current balance sheet composition, we estimate that under the new rules, our risk-weighted assets could decrease by approximately 7%. Regarding the G-SIB surcharge, under the current proposal, we expect to remain around 1.5% for the foreseeable future even as we continue to grow. In closing, we delivered solid financial results in the first quarter that were consistent with our expectations. We have clear plans in place and are focused on driving continued organic growth and increasing returns across the franchise using our broad set of capabilities. We are executing our plans, and I am encouraged by the momentum we have built and continue to have confidence that we can continue to deliver stronger results in all of our businesses. I will now turn the call over to Michael. Michael Santomassimo: Thank you, Charlie, and good morning, everyone. Since Charlie covered the key drivers of our improved financial results and the momentum we are seeing across our businesses on Slide 2, I will start my comments on Slide 3. Our first quarter results included 135 million dollars, or 0.04 dollars per share, of discrete tax benefits related to the resolution of prior period matters. Income taxes also benefited from the annual vesting of stock-based compensation, and the amount of the benefit in the first quarter was similar to the amount in the first quarter of last year. Turning to Slide 5. Net interest income increased [inaudible] or 5% from a year ago and decreased 235 million dollars, or 2%, from the fourth quarter. Most of the decline from the fourth quarter was driven by two fewer days in the first quarter. The reduction also reflected the full-quarter impact of the rate cuts in the fourth quarter of last year on our floating-rate loans and securities. This decline was partially offset by higher markets net interest income, higher loan and deposit balances, as well as continued fixed asset repricing. I also wanted to explain the 13 basis point decline in net interest margin from the fourth quarter. As expected, the largest driver of the decline was the growth in the balance sheet in the Markets business. As we have highlighted in the past, while the majority of these assets are lower ROA, they also have lower risk and are less capital intensive. Our ability to support this client activity should lead to more business. Second is the growth in interest-bearing deposits and other short-term borrowings. And lastly, the impact of lower interest rates. When we provided our full-year guidance last quarter, we anticipated some margin contraction for these reasons, and I would expect additional margin compression next quarter. I will update you on our full-year net interest income expectations later on the call. Moving to Slide 6. We had strong loan growth with both average and period-end loans increasing from the fourth quarter and from a year ago. Period-end loan balances grew 11% from a year ago and exceeded 1 trillion dollars for the first time since 2020. Average loans increased 87.8 billion dollars, or 10%, from a year ago, driven by growth in commercial and industrial loans as well as growth across our consumer portfolios, except for residential mortgage. Turning to Slide 7. Last quarter, we provided more detail on our financials except banks loan portfolio. Today, I want to build on that by giving you an even deeper look into the portfolio's composition and risk profile. I will be anchoring my comments on how these loans are reported in our 10-Qs and 10-K, which we think is a better way to understand our portfolio. We also report loans to nondepository financial institutions in our call reports. Since we often get questions on how these disclosures differ, we have included a reconciliation in our appendix to illustrate the differences. At the end of the first quarter, financials except banks loans totaled approximately 210 billion dollars, or 21% of our total loan portfolio. While our financials except banks category is large and has been growing, it is comprised of many different types of lending and collateral. We have been making these types of loans for many years, and we typically have broader relationships with these institutional clients. As with any loan portfolio, there are inherent risks, but we are comfortable with our exposure based on the profile of borrowers, the diversity of collateral, our historical loss experience, and our underwriting practices and lending structures. The lending structures and overall risk management are run by specialist groups with expertise in assessing and structurally mitigating the risks associated with these types of customers, products, and collateral. Our underwriting reflects the specific risk profiles of the counterparty, as well as our assessment of the collateral. These loans are generally secured with advance rates that provide significant margins of protection against expected losses during periods of stress. From a year ago and increased two basis points from the fourth quarter. Commercial credit continues to perform well, and we are not seeing signs of systemic weakness. Commercial net loan charge-offs increased modestly from the fourth quarter to 24 basis points of average loans. Lower commercial real estate losses were offset by higher losses in our commercial and industrial portfolio, driven by a single fraud-related loss in the real estate finance category in the financials except banks portfolio. After this issue emerged, we reviewed the portfolio and believe this was an isolated incident. Consumer net loan charge-offs increased modestly from the fourth quarter to 78 basis points of average loans, reflecting seasonally higher credit card losses. Compared to a year ago, consumer net loan charge-offs declined eight basis points with improvements across our consumer portfolios as well as continued net recoveries in our residential mortgage portfolio. As Charlie highlighted, consumers remain resilient. We continue to closely monitor our portfolios for signs of weakness but have not observed recent deterioration or meaningful shifts in trends. Nonperforming assets as a percentage of total loans were stable with the fourth quarter and declined modestly from a year ago. A modest increase in our allowance for credit losses for loans was driven by higher commercial and industrial and auto loan balances, largely offset by lower allowance for commercial real estate office and credit card loans. As we highlighted last quarter, if loan growth remains strong, all else equal, we will have to continue to add to the allowance to support higher loan balances. Turning to capital and liquidity on Slide 15. Our capital levels remain strong with our CET1 ratio of 10.3%, within our stated 10% to 10.5% target range, and well above our CET1 regulatory minimum plus buffers of 8%. We repurchased 4 billion dollars of common stock in the fourth quarter, and common shares outstanding were down 6% from a year ago. We continue to have excess capital to support clients and to repurchase shares. Moving to our operating segments, starting with Consumer Banking and Lending on Slide 16. Of note, to better align branch-based activities, the financials associated with Wells Fargo Premier clients that primarily receive wealth management and financial planning services in our consumer bank branches are now included in Consumer, Small, and Business Banking results instead of Wealth and Investment Management. Prior period results have been revised to reflect this change. Consumer, Small, and Business Banking revenue increased 9% from a year ago driven by lower deposit pricing, higher deposit and loan balances, as well as growth in noninterest income. Credit card revenue grew 5% from a year ago due to the higher loan balance driven by higher purchase volume and new account growth. Home Lending revenue declined 9% from a year ago. Third-party mortgage loans serviced for others was down 18% from a year ago as we continue to reduce the size of our servicing business. While originations increased from a year ago, loan balances have continued to decline. The rate of reduction has slowed and should continue to moderate throughout the rest of the year. Auto revenue increased 24% from a year ago due to higher loan balances, and auto originations more than doubled from a year ago. Turning to Commercial Banking results on Slide 17. Revenue increased 7% from a year ago, driven by higher revenue from tax credit investments and equity investments. Loans grew 4% from a year ago with broad-based growth from new and existing customers. As a reminder, the growth rate was impacted by the business customers that were transferred to Consumer Banking and Lending in the third quarter of last year. Absent this impact, the growth rate would have been 7%. Turning to Corporate and Investment Banking on Slide 18. Banking revenue increased 11% from a year ago, driven by higher loan and deposit balances and growth in investment banking revenue. Commercial Real Estate revenue declined 21% from a year ago, reflecting the gain from the sale of our commercial mortgage servicing business included in our results last year. Markets revenue grew 19% from a year ago, driven by higher revenue across most asset classes, reflecting disciplined balance sheet usage, supportive market conditions, and higher customer activity. Average loans grew 23% from a year ago with strong growth in Markets and Banking. On Slide 19, Wealth and Investment Management revenue increased 14% from a year ago, driven by growth in asset-based fees from increased market valuations as well as higher net interest income due to lower deposit pricing and growth in deposit and loan balances. As a reminder, the majority of WIM advisory assets are priced at the beginning of the quarter, so second quarter results will reflect market valuations as of April 1, which were down from January 1 but up from a year ago. Turning to our 2026 outlook on Slide 21. So far, our net interest income for 2026 is largely playing out as expected. We are retaining our guidance of 50 billion dollars, plus or minus, of net interest income this year. As I pointed out earlier, we had strong customer engagement in the first quarter with growth in both loans and deposits as we continue to transition back to growth, which we have supported with investments in marketing and bankers. In addition, similar to last year, we expect net interest income to grow over the course of the year, including Markets. Looking at the key drivers of NII, starting with loans, our outlook was based on average loan growth of mid-single digits from fourth quarter 2025 to fourth quarter 2026. Average loans grew 4% in the first quarter from the beginning of the year, and if demand remains strong, average loan growth could be higher than the mid-single-digit increase we had previously assumed. We have also grown deposits, and as we said when we provided our outlook last quarter, much of the growth was from interest-bearing deposits, particularly in our commercial businesses. As a reminder, when the asset cap was in place, these deposits were limited, and now that it has been lifted, we are successfully growing these deposits. While they are higher cost, they are important to our strategy of deepening relationships with our clients. We expect this trend to continue throughout the year. We have also successfully grown interest-bearing deposits in our consumer businesses, while we are enhancing marketing and increasing activity in the branches to drive stronger, low-cost checking account growth. Balances in these accounts are smaller than commercial balances and can take longer to grow. If interest rates stay higher for longer, we will have to monitor deposit mix trends to see if there is any impact on noninterest-bearing deposits, which could put some pressure on net interest income, excluding Markets. In terms of interest rates, our outlook assumed two to three cuts by the Federal Reserve. The market currently expects fewer cuts, which, all else being equal, is positive for NII excluding Markets. However, interest rate expectations are constantly changing. The rate cuts we assumed were expected to occur later in the year, so if we get fewer cuts, it would be beneficial but would only have a modest impact on this year's net interest expectations. Also, longer-term rates are currently a little above the expectations at the beginning of the year but have been volatile year to date, so that could be a small positive if rates remain elevated. In terms of Markets NII, as we all know, it is always hard to forecast but even harder in a dynamic macroeconomic environment like the one we are in now. Higher rates could result in lower Markets NII from what we expected at the beginning of the year, but as of now, our expectation of approximately 2 billion dollars in 2026 seems appropriate. Regarding our expense outlook, first quarter expenses were in line with our expectations, and therefore, our guidance has not changed, and we still expect 2026 noninterest expense to be approximately 55.7 billion dollars. In summary, our improved first quarter financial results reflect the continued momentum across the company. We delivered broad-based revenue growth with increases in both net interest income and noninterest income from a year ago. We maintained strong credit discipline, grew loans and deposits, returned capital to shareholders, and maintained our strong capital position. I am encouraged by the growth we are seeing across key business drivers in both our commercial and consumer businesses and excited to continue building on this momentum to deliver even better results going forward. We will now take your questions. Operator: At this time, we will begin the question and answer session. If you would like to ask a question, please first unmute your line and then press star 1. Please record your name at the prompt. If you would like to withdraw your question, you may press star 2 to remove yourself from the question queue. Once again, press star 1 and record your name if you would like to ask a question at this time. We will now open the call for questions. Our first question will come from John McDonald of Truist Securities. Your line is open. John McDonald: Hi, thanks. Good morning. Mike, I was hoping you could give a little more color on the estimated impact of the new regulatory proposals. I think you said your initial estimate is a 7% decline in RWA. Could you give us a sense of the breakdown there between credit risk RWAs and what is driving any potential improvement there, as well as your initial take on op risk and market risk? Michael Santomassimo: Sure, John. Thanks for the question. If you just take the big broad categories, market risk is not a big driver. It is not moving much for us in the proposal, so it is kind of flattish. Op risk is going to go up for sure, but much less than we thought from the original proposal. The big decline is on credit risk, and that is given the nature of our portfolio. The biggest driver in the credit risk portfolio is getting the benefit for investment-grade credits, both public and nonpublic investment-grade credits. That is going to be the biggest driver in the commercial loan space. Then you do get a significant benefit on the mortgage portfolio and to a lesser degree on auto and a couple other portfolios. That is how you get to about a 7% decline overall. Obviously, you did not ask about it, but also on G-SIB, it feels like we will be around where we are, plus or minus a little bit depending on how the proposal plays out for a period of time, given the recalibration that was done there. So net-net overall, very constructive for us, and it seems like it is heading in the right direction and allows us to continue to do really smart things to support clients across all of the portfolios. John McDonald: Okay. Thanks. And then on a related note, the outlook for ongoing NIM compression presumably continues to weigh a bit on ROA. So kind of wondering how does that interact with your goal of improving the ROTCE towards your medium-term goal? And do you expect to be able to lower the TCE because of these possible changes and the mix in your balance sheet? Michael Santomassimo: There is a lot in there, so let me try to unpick some of it. As we came out of the period when the asset cap was in place, we knew that the place we were going to see the growth first is in repo, for the vast majority of it Treasury repo, and then there are other aspects to it. It is low ROA, low risk, good returns, and it then allows us to do much more with those clients as we provide them what they think of as valuable financing capacity. I think as we go through this period, you are going to see ROA come down. As that stabilizes and matures and we get a little further into this growth period, that will start to moderate and you will start to see it either stabilize or start to grow as we start to add in the other business activity that we expect to see. It should not be dilutive to our TCE. We are starting to see some of the onboarding come to a conclusion. Some are in process. Some of the clients that are going to do more with us as a result of the financing take time to ramp up. They do testing with you, and we are starting to see that come through, whether it is prime, other trading that they do with us, and across a number of the asset classes. You will start to see that incrementally get added into the mix overall. I will point out we are seeing some of it. Markets revenues are up 19% from last year, so we are starting to see some of that come through. And as Charlie noted, we expect to grow the Markets business in the context of also improving overall returns for the company and do not believe it will be dilutive or get in the way of us getting to that 17% to 18% return. We are either going to get the increased flows at a strong ROTCE or we are not going to use the balance sheet for it, and we are very confident at this point that we will get the returns for it based on the conversations and the things we have seen with our clients so far. There is a lag in terms of adding the customers and then them building up the business, whether it comes in NII or fees. It takes a while to do the onboarding with a lot of the brand name clients that you would all recognize. It generally comes in and then kind of chunks along the way once you are onboarded. But all of it is going pretty smoothly right now, and we are expecting to start to see more of that come through over the coming quarters. So you will see that incrementally come in each quarter. Operator: The next question will come from Ken Usdin of Autonomous Research. Your line is open. Ken Usdin: Thanks. Mike, I was just wondering if you could follow that point that you talked about and John mentioned about the NIM going forward. Is it just a mix of assets that you are seeing in terms of on the commercial side related to your Markets business versus commercial? Can you talk us through what you are seeing in terms of earning asset mix going forward and the types of loans and if that is what is weighing on the NIM? Michael Santomassimo: Sure, Ken. On the NIM, what you really saw are three things in the quarter. First is the impact of the growth in the Markets balance sheet impacting the NIM. Again, that is not going to grow at the same pace forever, so you will see that moderate. We are getting some netting benefits now as it gets bigger, and you will start to see some of that come through in a little bit of a different trajectory as you look at the coming quarters. Second, you see interest-bearing deposits grow, so they become a bigger percentage of the overall deposit mix, and that is exactly what we expect to be seeing right now. As we came out of the asset cap, we knew that was the place we were going to be able to grow first. So they become a bigger percentage of the overall mix. It is great to see that clients across the Commercial Bank and the Corporate and Investment Bank are moving business, in some cases back to us that we had pre-asset cap, and the engagement has been really good. Those deposits are priced where the market is, which is competitive, but we are not leaning in on price to grow there. Third, you got a little impact from rates coming off the back of the fourth quarter. You will see a little bit more compression from the first two drivers, but it will be less as we go into the second quarter. That will start to moderate as we go and we see other parts of the balance sheet grow and repo growth trajectory slow a bit. When you look at the loans side of things, while there is always a little compression happening across different pockets of the portfolio, that is not the place that is driving the NIM compression. It is a competitive environment for loans, but we are not seeing irrational things, and we are not chasing spreads across the loan portfolio just to see growth. I think that is really important to note. Ken Usdin: Okay, great. And follow-up on your point you made about taking a deeper look through the finance portfolio and thinking that that one-off item was a one-off. Can you talk to us about what you went through there? And thank you for all the color you gave on those extra slides. Your relative confidence that that one got caught and that the rest of the book looks pretty good underneath it. Any comment on any migration you might be seeing at all? Michael Santomassimo: I will reiterate that was a fraud situation. We took all of the lessons we saw coming off the back of that individual circumstance and sent teams in to all the clients, particularly in the European portfolio, and did an in-depth review of the procedures within the firm and the collateral perfection that we have across the different portfolios. We spent a lot of time and effort across the different teams. We brought in independent people and teams. We have done a lot of work to revalidate the processes, and then as you do in these things, you follow the money trail and trace back all the flows that you expect to see coming through the different bank accounts. At this point, we feel confident that was an isolated event. Operator: The next question will come from Scott Siefers of Piper Sandler. Your line is open. Scott Siefers: Really appreciate the expanded disclosures on the NDFI exposure, and then it looks like the credit performance and overall risk profile certainly seem to be holding up. In a sense, NDFI reminds me a little of where we might have been with office CRE a few years ago, not necessarily in the actual quality, but in that for most banks, it does not have the potential to do meaningful damage, yet it generates so much distraction that a lot of banks a few years ago decided it was not worth participating in that CRE given the distraction caused from other good things that were going on. I wonder if you can maybe add a thought or two about with NDFI, how you balance the good quantitative risk-reward against the qualitative aspects of the amount of airtime it consumes and how that discussion goes, if at all. Charles Scharf: Thanks for the question. I think it is totally different than CRE exposure. When you look at the risk characteristics of a CRE loan and what our protections are, what the attachment points are, all that kind of stuff, and then go through a lot of the stuff Michael walked through in terms of the different pieces of lending we have here, really bad things need to happen for us to lose money in most of these portfolios. We can go deeper on some of these things to the extent you want to do it. We feel really good about the way these things are structured and the client selection we have. I would say I would put your question into two categories. Number one, we are not reacting today relative to where we are lending to the amount of airtime it is getting. Over time, we do have to be thoughtful about how large any one asset class should be, including who the borrowing base is and things like that. Those are the types of conversations we are very much engaged in, as we are in everything that we do, to make sure as a company we have the right kind of diversification. Hopefully, by providing the kinds of disclosures we did here and continuing to be as transparent as we can, investors will feel as good about what we are doing as we do. Scott Siefers: Perfect, thank you very much for that. Then, I think we have all been surprised at how well lending momentum has performed year to date for the industry, particularly on the commercial side. It certainly seems to be the case for you all as well. If anything, Mike, from your comments it sounds like you are feeling better about how the full year could play out. Maybe a thought or two about what it would take for customers to start to pull back on some of their borrowing plans given all the volatility, macro concerns, etc. It has been kind of confounding to see how well trends have held up. Michael Santomassimo: It is an interesting point. We are not actually seeing utilization increase in people’s revolvers yet. A lot of the growth we have been seeing is coming either from some growth in the nonbank financial space, some growth from new clients we have added, and some other drivers that then spread across the commercial book. What we have not really seen yet is that increase in the utilization of revolvers. It is not necessarily that we expect a pullback. It could be quite the opposite. If people start to get more comfortable, then you could see some growth come from the core commercial banking middle market-type client who has been somewhat cautious now for the better part of a year plus, waiting to see how the environment develops. So I think the probabilities are maybe more weighted that way than a pullback, given we have not seen a lot of utilization increases so far. Operator: The next question will come from Ebrahim Poonawala of Bank of America. Your line is open. Ebrahim Poonawala: Hey, good morning. Just wanted to follow up very big picture, Charlie and Mike. The path to the 17% to 18% ROTCE is looking quite tough given what is happening with the margin. I get the repo book growing and the deposit mix on interest-bearing. But as investors think about the stock and how realistic it is that over the next, let us say, a year or two, Wells can be a 17% to 18% ROTCE company, that feels a bit tough. I am not sure if you agree, and maybe that two-year timeline was super aggressive. Would love some context around how you are thinking about this today. Michael Santomassimo: Thanks, Ebrahim. We are actually really confident in the path to get from where we are, roughly 15%, to 17% to 18%. If you think about some of the key drivers: on the consumer side, our credit card business has seen really good growth across originations and balances, but it has not contributed a lot to profitability given the upfront cost of marketing and the allowance you have to put up. As long as we get the credit box correct, which we believe we do given the performance we are seeing, it is just a matter of time before that more meaningfully contributes to profitability, and you will start to see a little of that this year as the earliest vintages mature. As more vintages mature, that will incrementally come into the P&L. We continue to grow the wealth business. Our Wells Fargo Premier offering that offers wealth management advice through the branch system will continue to add high-return fees, and we are seeing really good flows there. We have roughly 2,500 advisers across the branch system already, and that momentum is building. As we increase branch productivity and grow core checking accounts again, you have a lot of growth drivers across the consumer side. In the wealth business, as that business grows through improving net flows and recruiting, you will see contribution as well. On the commercial side, in the Commercial Bank, we have been adding roughly a couple hundred commercial bankers over the last 18 to 24 months. We are really starting to see traction as we add new clients. A bunch of the loan growth in the Commercial Bank is actually driven by those new clients. As we add payments and deposit work with them, that will grow. In the Corporate and Investment Bank, investment banking is making incremental progress, but we have a long way to go to monetize the investments we are making. We see really good progress quarter after quarter in terms of the deals we are involved in. As we talked about, the Markets business will be a contributor. We are not overly reliant on any one thing to get us there. As we continue to have good expense control and optimize capital, including how Basel III is playing out, there are a bunch of different paths to get us to that 17% to 18%, which should give you a lot of confidence it is achievable in a reasonable amount of time. Once we hit that, we think there is more to do. Charles Scharf: Let me just add a couple of things. We feel as confident as ever in that target. There is absolutely nothing that has changed. We do not have a business model where points of view like that should change quarter on quarter. The only thing that would create dramatic changes is if we thought we got something very wrong or if there was some huge event that we missed. None of that is the case. We are building the underlying organic growth business by business. The reason we have confidence is because we are seeing KPIs across every one of our businesses growing in a reasonable way. You do not want to grow too quickly. We want to see this consistently, business by business. We are transparent that we have room to improve performance in every one of these businesses. We are very confident the things we are doing will ultimately lead to increased profit, faster growth, and higher returns. Nothing has changed from last quarter or the quarter before that in terms of how we feel about that. Ebrahim Poonawala: That is very comprehensive. Thank you. Just one quick follow-up. On and off, there is a lot of chatter on what Wells can do on M&A in banking and wealth. I am not sure there are too many financially attractive deals available today given where the stock trades. Give us a mark-to-market on how you are thinking about deals. Charles Scharf: We spend more time answering questions about it than we do actually thinking about doing deals. We are focused on organic growth. We think we have a differentiated opportunity versus the people we compete with because of where we have come from, being so constrained, and match that with the quality of the business and the opportunities that we have. We are entirely focused on that. It does not mean that we will not look at smaller things, and you can never say never, but we are not spending time on it. We are not focused on it. This is the opportunity that we are focused on, and we feel really great about it. Operator: The next question will come from Erika Najarian of UBS. Your line is open. Erika Najarian: Hi, good morning. On the Basel III endgame estimate, the 7% RWA decline, all else being equal, we are calculating that would give you about 80 basis points of net new excess capital. A couple of questions: is that the right way to think about it? If so, combined with the G-SIB of 1.5%, and assuming you sustain the floor on SCB, Wells would be at a minimum of 8.5%. Contemplating all of that, would you run this company at lower than 10% CET1? Michael Santomassimo: We are not at the point where we are going to put a new target out. We have to see how the rule gets finalized, and it is going to be a year plus before it gets implemented. In the future, if our capital requirements change, there is no floor at 10%, and blocks can change. We are still going to stick with the 10% to 10.5% target for now. Charles Scharf: There is no magic to 10% to 10.5%. We do not want to put the cart before the horse and start talking about something before it is finalized. Things can change, but when these rules are finalized, we will look at what our requirements are. We will have the conversation about how much excess we want to run now that there is more certainty and then make a decision. The trajectory is very favorable for us. We just do not want to get ahead of ourselves and say we are going to change where we are running at this point before things are finalized. Directionally, there is a place to go here. Erika Najarian: Got it. Just wanted to add clarity to the RWA discussion given the positive direction on the denominator. My follow-up is thinking about the net interest income questions another way. You reported a year-over-year increase in net interest income of 5% despite 20 basis points of year-over-year net interest margin compression. If we think about year-over-year net interest income growth as balance sheet-driven at the same pace, say 4% year over year, with maybe a little bit of stability in the NIM in the second half of the year, we get to that 50 billion dollars plus or minus. Is that the right different way to think about it rather than just the quarterly cadence? Michael Santomassimo: Let me give you some of the drivers underneath it and see if that gets to what you are asking. As you look to how we get from where we are to the 50 billion dollars plus or minus, we expect to continue to see loan growth each quarter. Break that down: on the consumer side, mortgages should stop declining, you will see growth from the first quarter in card—first quarter has some seasonality coming off the holidays—and we expect continued growth in auto. Overall, consumer loans continue to grow throughout the year. We expect growth in deposits, again largely interest-bearing. We are not relying on significant growth in noninterest-bearing this year. That will build over time as we are more successful growing checking accounts. We have not assumed a big deployment into securities; if we see we have a good amount of excess cash, we could do more in securities as well to pick up some extra NII. Then you have the path of rates. If rates stay higher for longer than people expected at the beginning of the year, that alone will be a net positive. We will see how that plays out across all the other variables, including any change in deposit mix. Ultimately, we have a really achievable path to 50 billion dollars, and if all works out, it could be better than that depending on how it all plays out through the rest of the year. Markets-related NII will swing around a bit depending on the path of rates, but largely offset on the fee side. Operator: The next question will come from John Pancari with Evercore. Your line is open. John Pancari: Morning. On the expense topic, I know you saw about a 3% year-over-year increase. You cited investments in technology and advertising and ongoing business investments. You are confident in the 55.7 billion dollars guidance. Can you talk to us about any pressures that you are seeing that may move you off that target, or give more detail on your confidence in attaining that target despite somewhat pressured levels in the near term? Michael Santomassimo: The only real pressure we see would be revenue-related expenses to the extent that in our asset and wealth business we generate higher levels of revenues and have commissions tied to that. Everything else is continuing to track relative to what we thought in the guidance, and the revenue-related comp is still tracking to that. Nothing has changed relative to our views on overall expenses. It is a continuation of the story we have been talking about: we are increasing the level of investment in areas important for the franchise, and we are driving efficiencies in other parts of the organization. We still see the opportunities to do that and contain the expense base while we are able to grow revenues and increase pre-tax, pre-provision profit. Charles Scharf: Your question might have implied pressure relative to consensus, but in reality we are exactly where we thought we would be relative to the guidance we gave. We feel really confident about what we have given. The bulk of the roughly 440 million dollars year-over-year increase is really revenue-related comp in WIM. The rest is very small on a net basis across the company. We feel good about the guidance we have. John Pancari: Got it. Thanks for that. And then on the additional NDFI disclosures, appreciate the detail and the quantification of the BDC exposure at about 8 billion dollars. Can you help us frame the broader private credit exposure and any impact of regulatory input around this? Michael Santomassimo: The short answer on the last piece is no. We are comfortable with our exposures, and that is where the conversation starts. The majority of our private credit exposure sits in the Corporate Debt Finance bucket, which is on page 10 of the presentation—about 36.2 billion dollars. That is the vast majority of the exposure. Operator: The next question will come from Manav Gosalia with Morgan Stanley. Your line is open. Manav Gosalia: One clarification on your response to Erika's question. Just given the clarity on the capital rules, you are suggesting that the bias would be to eventually take down the 10% to 10.5% CET1 target. In other words, as you get the benefit of the lower RWAs, the excess capital you free up would be something available to deploy quickly? Michael Santomassimo: What we said was that we are running our excess today based upon today’s capital rules. When the capital rules get finalized, we will reevaluate what that is and how big a buffer we think we need at that point in time. Period. End of story. Charles Scharf: That is a positive. If our RWAs go down, we have to think about what is going on in the environment at that point in time and what we are comfortable doing, but directionally it is constructive for us relative to how much capital we ultimately need to hold. Michael Santomassimo: All else equal, if our CET1 percentage goes up as a result of lower RWA, that gives us more capacity to deploy to support clients or return to shareholders. We are mixing RWAs, capital requirements, and dollars of excess capital. It will come down to how much dollar excess there is and how we expect to use it. Manav Gosalia: That is clear. Thank you. As we get some of these changes that benefit the mortgage banking business both on originations and servicing, is there anything that Wells would do to lean in, and is there more long-term opportunity for either of those businesses? Charles Scharf: We are very comfortable with the plan we have in our Home Lending business today, which is focusing on people who are broader clients within the bank. It is not just capital levels that drive our desires in this business. It is the operational risk embedded in there. It is the reputational risk. There is a note relative to making mistakes—foreclosing on behalf of others, following the rules, and whatnot. There is a certain level of sizing that we are comfortable with, and we do not see that changing. On the servicing side, the capital rules are not really changing much other than removal of a penalty rate if you get too big. That does not change much there on the servicing side of the capital. Operator: The next question will come from Gerard Cassidy of RBC Capital Markets. Your line is open. Gerard Cassidy: Thank you. Good morning, gentlemen. Mike, can you share with us what the scenario weighting was this quarter when you look at your loan loss reserves, including macro risks with the hostilities in the Middle East, and how that may have affected how you addressed the reserves this quarter? Michael Santomassimo: For a while, we have had a significant weighting on our downside scenarios, and that weighting has not changed. Every quarter, the scenarios change a little. In this quarter, if you look at the unemployment rate as one example, the peak unemployment rate went up four basis points in our scenarios to a little over 6%—6.01% to be exact. When we look at all the different scenarios, as we know it today based on what we think can happen as a result of what we are seeing, we think the scenarios cover anything that is probable at this point. Other variables moved around a little bit, but not a lot. We have maintained that significant downside weighting, and we will keep it that way at this point for the quarter. We think that is appropriate for where things stand. Gerard Cassidy: As a follow-up, possibly for you, Charlie. You talked about organic growth—that is what you are focused on. You finally closed on the rail leasing deal, and all the regulatory orders with the exception of the one for BSA are behind you. Putting that one regulatory order aside, can you share with us this organic growth—are we going to see it really start to materialize more on the consumer side, commercial side? What are you seeing over the next 12 to 24 months? Michael Santomassimo: I will take that and Charlie can chime in. We are starting to see it everywhere. If you go back to page 2 of the presentation, we tried to summarize some of the key things we are seeing across each of the businesses. In Consumer Banking and Lending: new checking account openings up 15%, credit card accounts up 60%, auto originations up 2x what they were last year. In the CIB, we saw banking revenue up 11%, markets up 19%. Our share was stable, but we had good growth in equity capital markets on the investment banking side. In Wealth, we continue to have really strong recruiting across the different channels, client assets up 11%, revenue up 14%. We saw good loan growth and deposit growth in that business. In Commercial Banking, we are seeing the benefit of the investments we have been making come through with both loans and deposits up, and even better, new clients added to the platform are up substantially from prior years. These things take time. We are not claiming victory. We have a lot more to do to improve performance across each of these businesses, but a lot of that organic activity is coming through in the numbers, and you can see it in many of the metrics we put out. Operator: The next question comes from Chris McGratty of KBW. Your line is open. Chris McGratty: Good morning. Thank you. Mike, on the NII, when you talk about the fluidity of the cuts in the forward curve—two to three cuts last quarter and maybe nothing now—how much of an impact does it have on the fourth quarter exit run rate? It is more of a jumping-off question for 2027. Michael Santomassimo: That is going to have a bigger impact for next year than this year. Where we end the year will matter a lot more as we go into 2027. You can annualize it. When you look at our 10-Q and see the sensitivities there, that is a good way to start to dimension what it means for a full year, particularly coming out of the fourth quarter. I would start there with your modeling. Any changes in the forward curve will have a little bit of an impact this year, but not super big because they were all back-weighted. Chris McGratty: Thanks for that. And the 7% reduction in risk-weighted assets—was that better or worse than you thought you might see from the proposals? Michael Santomassimo: It is hard. We had a bunch of stuff we made up anticipating what we might see, but as others have put it, it is like a 1,200-page proposal, so any of those estimates we had going in were kind of meaningless. The areas that we benefit from are the areas we had commented on, and we believe they got it right. Do we think it is perfect and they got everything exactly right? No. But it was directionally where we thought. Operator: The next question will come from Vivek Janaeja of JPMorgan. Your line is open, sir. Vivek Janaeja: Mike, a quick clarification. The private credit exposure—majority of it is in the Corporate Debt Finance of 36 billion dollars. Is that all private credit exposure, and the BDCs are a subset of that? Michael Santomassimo: Vivek, that is all private credit exposure, and it is the vast majority of our private credit exposure—the 36 billion dollars. The BDCs are a subset of that. Vivek Janaeja: Got it. That is all I wanted to check. Thanks. Operator: The next question will come from Saul Martinez of HSBC. Your line is open. Saul Martinez: Hey, thanks for squeezing me in. Sorry to beat a dead horse with the net interest income, but NII ex-Markets was only up 2% year on year. If I look at loan growth excluding Markets lending, it was up 8%. Deposit growth has been good. It does seem like you are seeing some core margin pressure there. More color on what is driving that? Is this competitive dynamics in deposits? Are you competing on pricing on lending and deposits? Is there a risk that you are pricing loans and deposits in a way that is sacrificing returns in order to foster growth? Michael Santomassimo: Rates are driving it, number one. Interest rates coming down year on year is driving it. We saw rate cuts last year. We are seeing growth in the interest-bearing deposit side. Noninterest-bearing are slower to grow as we build the checking account growth we talked about. On the lending side, on the consumer side we are not seeing compression there. Spreads are in a little bit on loans across some of the commercial side, but nothing super significant. We are not out there competing on price to try to grow the balance sheet. You are seeing those things come through in the underlying results, which is exactly what we thought would be happening as we rolled out the guidance in January. On competition on pricing in deposits, we are not seeing competition on pricing that is unusual. We are growing interest-bearing stuff faster than noninterest-bearing, but it is all at rates within where we thought they would be. If we do a good job, as I alluded to, we should be growing the noninterest-bearing further down the line as we bring on more of these relationships and have more balances to work with customers both on the consumer and business side. Saul Martinez: Got it. On reserving, maybe a follow-up. Your reserve rate for C&I is about 1%. It has been about 1% for a while. NDFI is a big part of that. It sounds like the NDFI portfolio generally has a lower loss content than the balance of the book. Do reserves reflect that? Has there been any change in your views of loss content in those portfolios which would influence how you are reserving for those books? Michael Santomassimo: No change in our thinking as we look forward in terms of loss content. In most of those portfolios, losses have been virtually nothing for a long period of time. The allowance is lower and not changing materially at this point. Operator: Our final question will come from David Chiaverini with Jefferies. Your line is open. David Chiaverini: Hi, thanks for taking the question. Starting on the capital markets outlook and the pipeline, can you frame the outlook following a strong first quarter here? Michael Santomassimo: We still expect that the financing markets are wide open, so we expect to see a lot of activity on the debt side—both investment grade and leveraged finance. There is plenty of money on the sidelines to be put to work there, and that has been the case for a while. On the equity capital markets side, you have seen some delay in IPO activity in the latter part of the first quarter. Assuming some of the volatility subsides or stabilizes, you may see some of that start to come back. There is certainly a pipeline of companies waiting to go. In the meantime, you have seen a lot of activity on convertibles and other parts of the ECM wallet. Overall, the pipeline and the expectation is still to see a pretty active rest of the year. David Chiaverini: Great, thanks for that. Shifting over to your credit card account growth, which is very strong. What are the drivers behind that? Is it more rewards, more marketing, better rate? What are some of the drivers there? Michael Santomassimo: It starts with really good, compelling, simple products. Over the last five years, the team has replatformed every product we had in the market, starting with our Active Cash card, which is a very simple 2% cash-back value proposition, and then adding a series of products since then. We have had really good reception from both existing and new clients to the bank for products that are very easy to understand and compelling. Over the last three quarters, we have seen an uptick in originations as our branches become more productive in helping customers get the right card. We have also seen an increase in customers coming to us directly looking for the cards as awareness grows and the size of the portfolio increases. We are increasing advertising—both targeted and more general—in the card business and the broader consumer business. That, plus more targeted efforts in digital, is driving increases. It is a combination of the products we have and us getting better at targeting originations, and our credit quality is still really strong. Michael Santomassimo: Thanks everyone for the questions. We will see you next time. Operator: Thank you all for your participation in today's conference call. At this time, all parties may disconnect.
Operator: Welcome to Bank7 Corp. First Quarter 2026 Earnings Call. Before we get started, I would like to highlight the legal information and disclaimer on Page 25 of the investor presentation. For those who do not have access to the presentation, management is going to discuss certain topics that contain forward-looking information which is based on management's beliefs as well as assumptions made by and information currently available to management. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties, and assumptions including, among other things, the direct and indirect effect of economic conditions on interest rates, credit quality, loan demand, liquidity, and monetary and supervisory policies of banking regulators. Should one or more of these risks materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected. Also, please note that this conference call contains references to non-GAAP financial measures. You can find reconciliations of these non-GAAP financial measures to GAAP financial measures in an 8-K that was filed this morning by the company. Representing the company on today's call, we have Brad Haynes, chairman; Thomas L. Travis, president and CEO; JT Phillips, chief operating officer; Jason E. Estes, chief credit officer; Kelly J. Harris, chief financial officer; and Paul Timmons, director of accounting. With that, I will turn the call over to Thomas L. Travis. Please go ahead. Thomas L. Travis: Thank you. As you can see, we are happy with our results today. We regularly say, probably a little boring in this area, but we have to thank our team of bankers, and I know some of them listen to these calls, and if you are on the call, thank you. We have a great group that has been together for a few decades, and it is very comforting to have such a strong, deep, broad team. That is why we produce the results that we do. I suppose it is a little boring for some people quarter after quarter where we are always putting up these fantastic results, but it takes a lot of effort, and we do not take many days off around here, and we do it the right way, and the results speak for themselves. Last quarter, I think the markets were expecting rate cuts in this quarter. Now the market is thinking maybe the rates will go the other way due to the increase in commodity prices associated with the Middle Eastern conflict. Who knows? The reason I bring it up is that we are really proud of our ability to manage our NIM and to properly mix our balance sheet, and we are not concerned about rates going down or rates going up. We are positioned either way. With all of that said, you can see the major metrics in the deck, and we are here to answer any questions. Thank you. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw the question, please press star then 2. Operator: At this time, we will pause momentarily to assemble our roster. Operator: Our first question comes from Nathan James Race with Piper Sandler. Please go ahead. Analyst: Hi. Good morning. This is Adam Pearl on for Nathan James Race, and thanks for taking my questions. Thomas L. Travis: Hey, Adam. Good morning. Analyst: Yeah. So maybe just starting on loan growth, it looks like average loan growth was pretty solid while some payoffs later in the quarter dragged down end-of-period balances. So I am curious if your expectations for loan growth have changed for the remainder of the year and, along with that, if you are seeing any noticeable change in demand within your energy portfolio. Jason E. Estes: Thanks for the question. This is Jason. I think our goals for the year remain intact. We are still thinking moderate single-digit, but I would say that coming off of the third and fourth quarter we had last year, where we had really robust growth that exceeded expectations in both quarters, we are not at that pace, so I would say it has slightly slowed down, but we had really nice bookings in the first quarter. Just expect the same from us this year. I do think, like last year, we offset really sizable early payoffs throughout last year. That is a routine thing for us. I think you will see more of that this year, in the second quarter in particular. We expect pretty sizable payoffs, and then we will just offset that with new loan bookings throughout the rest of the year. As it relates to the energy portfolio, I believe it is at a 10-year low. It was a little over 8% of the portfolio. In the energy space, most of your well-capitalized professional organizations really are not changing a lot as it relates to rushing out to drill, so to speak, just because this spike in energy prices, I do not think anyone believes that there is any stability in oil prices when it goes up due to what is going on in the Middle East. For us, we are opportunistic when those energy loan opportunities come along, but it is not a huge driver for our company. We are active and we like the portfolio we have, but I would not expect the energy piece to be causing a lot of dynamic change one way or the other. Analyst: Got it. That is super helpful color. Maybe shifting to the net interest margin. Some really nice expansion during the quarter. Wondering if you could provide some color on how you expect the net interest margin ex loan fees to trend assuming rates remain here through 2026. Kelly J. Harris: Hey, Adam. This is Kelly. We did make some really good progress on the liability side, cost of funds, and that was related to our talented bankers continuing to bring in some quality core deposits. That said, we are modeling core NIM in that same range, 4.40% to 4.45% from a core NIM perspective. On the loan fee side of things, kind of reverting back to the normal of 28 to 35 basis points. Analyst: Got it. And then lastly for me on capital management, given the strong profitability metrics, you should be building capital at pretty strong clips. I would be curious to hear your updated thoughts on M&A and just overall comfort level in letting capital levels build from here if the right partner does not come along. Thomas L. Travis: Well, clearly, as we sit here today, I think we ended the quarter at 15.96% on risk-based capital. Kelly J. Harris: We are probably over 16% today. Who knows? Thomas L. Travis: The need for us to accumulate more capital is not on the top of our minds, and we are more into growing organically, and then on the M&A side. We have always been active in the M&A space, and for the right strategic opportunities, we are going to continue to pursue those, and we think that would be an efficient use of the capital. Analyst: Got it. Thanks for taking my questions. Operator: Our next question comes from Will Jones with KBW. Please go ahead. Analyst: Yeah. Hey. Thanks. Good morning, guys. Jumping in for Wood Neblett Lay. I wanted to follow up on the margin discussion and specifically just talk about product cost. To Thomas L. Travis, you alluded that the market has all but pulled cuts out of the forecast. Maybe even we see up rates this year, but you guys see the margin more stable in that setting. Specifically with deposit costs, how would you characterize the competitive environment right now? In that scenario, is there a chance we actually see deposit costs trickle up toward the back half of the year just as competitive dynamics increase? Thomas L. Travis: I do not think you are going to see that. I do not think it is that dynamic, so to speak. It is really kind of a two-part question you ask. I do not see a massive fluctuation or any meaningful fluctuation in deposit costs, and that is absent a rate increase, so I am assuming that there is no rate increase. As far as the margin goes related to that, we provide that in the deck on the stability and the lack of volatility in the margin, so we do not expect anything materially different. Analyst: Okay. Got it. That is helpful. Could you call out some interest recoveries you saw this quarter? Would you be able to do that so we can think about a clean, more recurring margin run rate this quarter? Kelly J. Harris: From a core NIM perspective, I think the nonaccrual interest net-up was a little under $1.1 million. Analyst: And then on a fee perspective, was it closer to $1.07 million? And so, again, that reverts us back to that normalized— Thomas L. Travis: Core NIM of 4.40% and then 28 to 30-plus basis points on the fee side. Analyst: Got it. Okay. Very helpful there. I wanted to pivot to the credit discussion. I know there are puts and takes on credit each quarter, very little migration, generally speaking, and asset quality is strong, and you guys have really hit a zero provision for, call it, four out of five quarters. What is the messaging on the provision and reserve levels going forward? It feels like at some point that trend may have to give a little bit. I just wanted to get your views on the provision and where you see the credit story today. Jason E. Estes: It is a little bit challenging of a question to answer when we really do not know what the economy is going to do for the rest of the year. What we are looking at today—I think our credit book is as clean as it has ever been. There was some migration during the quarter. When you see that nonaccrual interest recovery, those loans were paid in full, and so we had multiple credits transition out with full payoffs. We had a couple of downgrades during the quarter, but on the surface, it looks like the numbers were fairly neutral. I cannot overstate how active we are in managing the loan portfolio from a credit quality standpoint. Let us say we grow the book again a pretty sizable amount and the economy stays the same—yes, we will have to provision a little bit more. If the loan growth is more timid—think low single digits—then we may not have to provision more. Let us see what is going on. There is quite a conflict going in the Middle East. Does that intrude into our daily lives here in a bigger way? So far, it has been a nonevent, especially within our credit book. We are going to stay true to our fundamentals and do the same things we have done for the last decade. Thomas L. Travis: I would also add that we have quoted a payoff for this Friday for the only really material remaining NPA that we have. We have a high confidence factor that that is going to happen. If that happens, the net effect would be NPAs of somewhere in that $4 million to $5 million range. When you look at $4 million or $5 million on our portfolio, I think that equates to about 25 bps or something like that. To echo Jason E. Estes’s comments, we certainly do not feel any pressure, absent the macro, to build more ACL, loan loss reserve. Analyst: Yeah. Okay. I appreciate all that context, and I am asking you to look into a crystal ball a little bit there. One last one for me on capital. We have talked about buybacks not really being an efficient use for you guys through your lens. Could you remind us—is that still how you are viewing the buyback, and does it look any more attractive today than it did, say, 90 days ago? Would love your thoughts there. Thomas L. Travis: Well, look, buybacks—we have often said this—that we are blessed with a very top 1% return on equity in our company. Because of that, we produce really good earnings per share, and we are not driven to reach for increasing EPS by doing share buybacks. We have been beneficiaries of strong earnings and growth. With that said, as we have said the last few quarters, we recognize that we are very, very capital heavy, especially for a company with no debt. At some point, the rubber meets the road. Generally speaking, our view is that share buybacks really do not add franchise value, and it is more of a short-term mechanism. I am not suggesting that we would never do one. What I am saying is that it has not been a critical need for us in the past. Clearly, if there were ever a time in the future where we felt like buybacks would make sense, it would probably be driven by a good share repurchase price and no other alternatives. Analyst: That is all fair enough. I appreciate all the color, guys. Thank you. Operator: Our next question is from Jordan Gendt with Stephens. Please go ahead. Jordan Gendt: Hey, good morning. Thanks for taking my question. I just had a follow-up on the migration on those downgrades during the quarter. Is there any additional detail you could give on the type of credits they were and the loan type and things like that? Jason E. Estes: Yes. We had a large builder/developer that we downgraded during the quarter, and that was the one Thomas L. Travis referenced that we think will pay off this week. That is the only industry-specific thing that I could get into. Jordan Gendt: Okay. Got it. And then just one more follow-up for me around the M&A discussion. Previously you have brought up the idea of doing an MOE. Is that still on the table, or would you be looking more toward downstream partners? Thomas L. Travis: I think the answer is both. Strategic matters are inherently long term in nature, and we have not deviated from our thinking on that. Jordan Gendt: Perfect. And then, actually, just one more. Could you touch on the fees and expense guidance going forward and maybe, you know, excluding the oil and gas impact? Thomas L. Travis: Q2 on the expense side, we are projecting internally in that range of $9 million to $9.25 million. On the fee side— Kelly J. Harris: Low end is $750 thousand, upwards of $850 thousand. Noninterest income. Jordan Gendt: Perfect. That is it for me. Thanks for taking my questions. Operator: Our next question comes from Nathan James Race with Piper Sandler. Please go ahead. Nathan James Race: Hi. Yes, maybe just a follow-up for Kelly J. Harris, on updated expectations for the impact of fees and expenses from the oil and gas. Kelly J. Harris: I think it will be continued expense offsetting the income, so not really material to the bottom line, but temporarily grossing up both sides of the P&L. Thomas L. Travis: And, Nate, this is Thomas L. Travis. As we mentioned last quarter—and I think the last two quarters, perhaps three—we have accomplished our goal. As you recall, the goal was to reduce the hit that we had on an energy loan, and we are delighted with the results. We are, what are we, 20 months into it? Kelly J. Harris: Yes, 20 months. Twenty months into it. Thomas L. Travis: We have accomplished our goal. I think that for us to continue to hold that asset is just not something that we would plan to do. As a reminder, we have signaled to the market that we look at it as a cash recovery versus a GAAP income item. If we do exit that portfolio, then we may have a very slight adjustment on the GAAP basis of recognized income, but on a cash basis, we already have accomplished what we wanted to accomplish. I bring all that up to say that it is a really small item. It is a real outlier item. We are delighted with what we have done and what we have accomplished, and I would expect that to be either gone altogether or diminished quite a bit over the next few months. Nathan James Race: Got it. Thanks for taking my questions. Operator: This concludes our question and answer session. I would like to turn the call back over to Thomas L. Travis for any closing remarks. Thomas L. Travis: Again, thank you for joining the call. We are delighted to be where we are and continue to produce these results. We are mindful of the macro Middle Eastern situation. When the inflation starts fighting as predicted because of the higher oil prices, we are prepared as much as anybody can be for it. In the meantime, it is steady as she goes for Bank7 Corp. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.