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Operator: Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's First Quarter 2026 Earnings Call. This call is being recorded. [Operator Instructions] We will now go live to the presentation. The presentation is available on JPMorgan Chase's website. Please refer to the disclaimer in the back concerning forward-looking statements. Please stand by. At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead. Jeremy Barnum: Thank you very much, and good morning, everyone. This quarter, the firm reported net income of $16.5 billion and EPS of $5.94, with an ROTCE of 23%. Revenue of $50.5 billion was up 10% year-on-year, primarily driven by higher Markets revenue, higher Asset Management and Investment Banking fees and higher NII, driven by the impact of balance sheet growth, predominantly offset by the impact of lower rates. Expenses of $26.9 billion were up 14% year-on-year, largely driven by higher compensation, including higher revenue-related compensation and growth in front office employees, as well as higher brokerage expense and distribution fees. The increase also reflects the absence of an FDIC special accrual release in the prior year. And credit costs of $2.5 billion with net charge-offs of $2.3 billion and a net reserve build of $191 million. And in terms of the balance sheet, we ended the quarter with a standardized CET1 ratio of 14.3%, down 30 basis points versus the prior quarter as net income was more than offset by capital distributions and higher RWA. This quarter's standardized RWA is up $60 billion, primarily driven by the Markets business, reflecting higher client activity, seasonal effects and higher energy prices which resulted in higher RWA across market risk and credit risk ex lending. Now let me spend a few minutes on the recently released Basel III endgame and G-SIB reproposals. I'll start by acknowledging that this has been a long journey and getting it done across multiple regulators and applied to the full set of U.S. banks is unquestionably a difficult task. With that said, we do have some concerns with elements of what's been put forward primarily with the G-SIB proposals. On the left-hand side, we show you our preliminary estimate of the impact on JPMorgan Chase next to what the Fed has disclosed for the Category I and II banks in aggregate. Our results are worse in each category, estimated RWA is higher, G-SIB is worse. And because our CCAR losses are below the floor, the Fed's reduction is not going to apply to us. The result is that under the proposed rules, our CET1 capital would increase around 4%, while the Fed's estimate for large banks is about a 5% reduction. Our long-standing position has been that the agency should calculate each component of the capital requirements correctly without regard to what that may mean for any specific firm or for the broader industry. And to the extent regulators want to add conservatism, they should make that explicit rather than embedding it in methodological choices. Turning to G-SIB on the right. The surcharge from the reproposed rule looks quite high when placed in the historical context as the chart clearly illustrates. As many of you know, we have been on the record for the better part of this last decade, advocating for averaging smaller buckets, GDP scaling and reweighting short-term wholesale funding to 20%, and we were glad to see many of those concepts in the NPR. However, while we have every reason to believe that the Fed's published estimate of a 3.8% reduction in capital associated with the G-SIB NPR is accurate when defined narrowly, it's important to understand that under the current rule, the surcharges for almost all of the G-SIB banks are scheduled to increase meaningfully over the next 2 years, simply as a result of recent growth in the system despite, in our view, no change in real-world systemic risk. In addition to that background increase, the proposed change in the short-term wholesale funding methodology adds about $22 billion of G-SIB specific capital, principally to the money center banks, of which we represent about $13 billion. While in the process, making the methodology less risk sensitive and less consistent with the Fed's original rationale for including it. This could have been addressed by better adjusting for growth in the system, but it wasn't enough. The net result is that we need to plan for 5.2% in 2028, a 70 basis point increase from the current 4.5% requirement, which, when combined with the RWA increase from the Basel III endgame NPR results in a total increase of about $20 billion of G-SIB capital based on our current balance sheet. This persistent miscalibration of the U.S. surcharge is obviously bad for international competitiveness. But more importantly, domestically, this means that the cost of credit from JPMorgan Chase to U.S. households and businesses is likely higher than it is from other domestic non-G-SIB banks. We recognize that we are larger and more systemically important than even large domestic peers. But in the end, the question is, how much more should the cost be? It is very hard to reconcile the principles articulated in the 2015 Fed G-SIB white paper with an outcome where JPMorgan Chase has $109 billion of G-SIB surcharge. Obviously, the rules aren't final yet, and this is what the common process is for. As Jamie wrote in his Chairman's letter, everyone wants to move on. So our comments will be very focused. But we feel strongly that the framework should be coherent and the system would, therefore, be better off with these outstanding points addressed. Now moving to our businesses. CCB reported net income of $5 billion. Revenue of $19.6 billion was up 7% year-on-year, predominantly driven by higher Card NII and largely on higher revolving balances and higher operating lease income in Auto. A few points to highlight. Notwithstanding the recent volatility in market and gas prices based on our data, consumers and small businesses remain resilient with consumer spend growth continuing above last year's pace. Average deposits were up 2% year-on-year and quarter-on-quarter, driven by account growth and moderating yield-seeking flows. Client investment assets were up 18% year-on-year, driven by market performance and healthy net inflows. And in Home Lending, originations of $13.7 billion increased 46% year-on-year predominantly driven by refi performance. Next, the CIB reported net income of $9 billion. revenue of $23.4 billion was up 19% year-on-year, driven by higher revenues across the businesses. To give a bit more color IB fees were up 28% year-on-year, driven by strong performance across M&A and equity underwriting, partially offset by lower debt underwriting. Looking ahead, client engagement and pipelines remain healthy, but of course, developments in the Middle East could have an impact on deal execution and timing. In Markets, fixed income was up 21% year-on-year with strong performance across the businesses, partially offset by lower revenue in rates. Equities was up 17% from increased client activity. Turning to Asset & Wealth Management. AWM reported net income of $1.8 billion with pretax margin of 35%. Revenue of $6.4 billion was up 11% year-on-year, predominantly driven by growth in management fees on strong net inflows and higher average market levels as well as higher brokerage activity. Long-term net inflows were $54 billion with continued strength across fixed income, equity and multi-asset. AUM of $4.8 trillion was up 16% year-on-year and client assets of $7.1 trillion were up 18% year-on-year, driven by higher market levels and continued net inflows. And before turning to the outlook Corporate reported net income of $699 million on revenue of $1.2 billion. In terms of the full year 2026 outlook, we continue to expect NII ex Markets to be about $95 billion. We now expect total NII to be approximately $103 billion as a function of market NII decreasing to about $8 billion, predominantly due to rates, which we expect will be primarily offset in NIR. The adjusted expense outlook continues to be about $105 billion and the Card net charge-off rate continues to be approximately 3.4%. With that, we're now happy to take your questions. So let's open the line for Q&A. Operator: [Operator Instructions] Our first question comes from Steven Chubak with Wolfe Research. Steven Chubak: So maybe to start on the AI cash tool, which, Jamie, you commented on in your letter. There's been lots of focus on this particular at least launch given that this is a tool which could potentially result in some consumer deposit pressure as well as drive some impact on increased competition as well as higher deposit betas. I was hoping you could just speak to how you see deposit competition unfolding as similar smart tools become more widespread? James Dimon: Yes. So it's a great question. And obviously, there's early stages for this particular product. So you have to look at it literally segment by segment, how people manage their money, how they want to manage their money. People are pretty astute at it, particularly the higher net worth. They have tons of choices. They often have money at many different places. And so the question for us is, how can we make it easier for them to manage their money in a way they're comfortable. Most of you on this call, you have in your mind, how much days in a checking account and then you write a ticket to a money market fund or a deposit account, something like that. And that's all we're trying to do. And we provide great values to people. If you're a customer of JPMorgan, I remind people, if you have this product, you have ATMs, you've got branches, you've got advice, you have instant payment systems like Zelle. So we look at the whole basket, how we can do a better job for the client. And yes, it may squeeze some margin somewhere and create more competition somewhere, that's life. Jeff Bezos has always says, your margin is my opportunity. And I kind of agree with that. We're trying to look at the world from the point of view of the customer, what more can we do with them. And this is really early stages. And as you know, there's tons of competition out there for the money. Jeremy Barnum: Yes, exactly. And Steve, the only thing I was going to add to that, it's sort of understandable that's just gotten attention because it has sort of AI in it, and it's kind of interesting. But as Jamie says, like -- and as you highlighted in your question, competition for deposits has always been very intense. It continues to be intense and we have both external and internal competition from higher-yielding alternatives and people sort of optimize that and that's part of running the business. And as also Jamie just alluded to, this thing is like kind of not even live yet and it's sort of targeted at a very small subset of the client base, particularly clients with investments where we think there's an opportunity to take a larger share of the investment wallet as part of this. So I would -- it's understandable the amount of interest that it's gotten, but I think the right way to think of it is sort of as an experiment right now. Steven Chubak: No, that's helpful context. And maybe switching gears just to the Basel III capital proposal. Certainly helpful in terms of how you frame some of the shortcomings, some potential areas for improvement. But maybe just focusing in on the RWA inflationary impacts. Does the guidance that you've laid out contemplate any mitigating actions you might pursue? Is there any potential mitigation that you envisage? And do you have any preliminary views just on the magnitude of SCB relief that you could see from the removal of some of the double counting of markets or operational risk. I recognize that piece is a little bit more opaque. Jeremy Barnum: Yes. I mean those are interesting questions. I think, obviously, we are kind of well-practiced over the course of the last 1.5 decades on understanding the rules in detail. And ensuring that we're using our financial resources efficiently to support the client franchise. And I think the hope is that the rules land in a stage where there is nothing in them, which sort of takes an otherwise good and healthy business and makes it completely noneconomic. I think we've alluded to a couple of areas where if you look at the presentation slide on the bottom right-hand side, we talked about targeted RWA clarifications needed. There's this issue with like high-yield repo collateral and some stuff about advised lines where the proposal is a little bit unclear about what the actual impact would be, and in some versions of the world, we think it creates irrational results. But broadly, I don't think this is a story about optimization at this point. I think this is a story about a rule set that is converging to a place and then we need to just grow the business and deploy the resources to serve our clients. Obviously, we have said a lot about G-SIB on this page. And I guess I don't really have more to say unless you ask a big question on G-SIB, but that is the one area where we think it's kind of a significant disincentive to a particular type of business, in particular some markets business. And I guess I would just make the point that we've often made publicly that the depth and breadth of U.S. capital markets is a key competitive national advantage. And regulatory capital rules that at the margin discourage a dynamic secondary market in the United States with active participation by banks is, in our view, sort of not great. So that's part of the reason that we're so focused on G-SIB because it disproportionately affects that business. Steven Chubak: And anything you could speak to just in terms of the removal of the double counting? Jeremy Barnum: Yes. Sorry, I forgot about that part of your question. Yes. So as you know, like we're currently below the floor, right? So obviously, if that is like the new normal, then if the double count is addressed by removing further things from stress testing, it wouldn't have any impact. If the double count is addressed by modifying the operational risk calculation in RWA, then it might have some impact. And obviously, it's far from guaranteed that we will be a bank that is permanently below the floor. But I suspect that issue is more relevant for institutions whose business mix is such that they're going to tend to structurally be above the floor. It's a little bit unclear for us as things settle down, whether we're going to bounce around above and below the floor or tend to be structurally above the floor. We'll see. But I think removal of the double count is definitely something we support. It's probably not our #1 priority at this point because some progress has been made on that front. James Dimon: Yes. Can I just also just mention on the market -- global market shock, it's never been -- in the real world, all these years, including during the COVID and then before the great crisis is nothing like what they have. And we already have $80 billion or $90 billion of capital for the trading books. So those numbers are just -- they're completely out of whack in reality. And operational risk capital, I can't avoid saying it is another crazy obtuse, one in 1,000-year thing. And then worse than that, in my opinion, they create risk-weighted assets. Every company in the world has operational risk and they artificially create risk-weighted assets, which do not exist. And this locks up a lot of capital and liquidity for eternity for no good reason. And I understand there's operational risk. I think there are real ways to measure it, by the way, which I'd point out, which is not this artificial over-architected academic exercise, but there's operational risk and margin loans that are late and using subprime collateral as opposed to prime collateral and how you process things. And that's what they should really be focusing, reducing actual operational risk as opposed to these calculations but you can't change. Like if you -- if it all come to the mortgage business and you got out of the mortgage business, it still stays there. Like who would do something like that. And so it's time to really look at this stuff and do it right. Operator: Our next question comes from Erika Najarian with UBS. L. Erika Penala: Jeremy, my first question is for you. You modified the Markets NII outlook given the change in rates between end of February and today. I'm wondering, as we think about the ex Markets NII number of $95 billion, you retain that. What are sort of the offsets to higher rates and the asset sensitivity if we don't have cuts for the rest of the year? Jeremy Barnum: Yes, sure. So it's a good question because I think we have said that we're asset sensitive and rates are a little bit higher as a removal of the cuts in the back half of the year. And so you might have otherwise expected us to revise the NII ex Markets up a little bit. But just to do a little mental math, the EAR that we've just disclosed is $1.8 billion. As a result of the fact that the cuts were pretty backdated. The impact on the full year average is only about 20 basis points. So the amount of upward revision that you might have otherwise expected is really quite small when you do that math. And there were some other bits of up and down noise, and some rounding effects. So that is essentially the reason the numbers aren't changed. So I don't think there's too much to read into it. L. Erika Penala: Got it. Perfectly clear. And my second question is for Jamie. Of course, we were all unpacking your Chairman's letter from a few weeks ago. And one of the topics that you wrote about and you've spoken about at length in the past, is on private credit. And I think we fully appreciate what JPMorgan's view here is. But given all of the headlines that this topic has garnered, I guess the question here for you and your team is, if we do have a recession and higher defaults and higher severity and cumulative losses in leveraged lending, what is the ultimate loss back to the banks? Because as we understand, the banks are fairly well protected in terms of structure. And while you addressed this in your letter for those that maybe hadn't had time to read it and that are listening to this call, do you think that if we do have a default cycle in private credit, that it will be systemic? James Dimon: No, I mean I was quite clear, I don't think so, and I gave the big numbers. Private credit leverage lending is like $1.7 trillion, high-yield bonds are something like $1.7 trillion, bank syndicated leveraged loans are like $1.7 trillion, investment-grade debt is $13 trillion, mortgage debt is like $13 trillion, and there's a lot of other stuff out there. And I pointed out that I think there's been some weakening in underwriting and not just by private credit elsewhere. And there will be a credit cycle 1 day. And I think when there's a credit cycle, losses will be worse than people expect relative to the scenario. I don't think it's systemic. It almost can't be systemic at that size relative to anything else. But when recessions happen and values go down and people refi at higher rates, there will be stress and strain in the system. Are people prepared for that? I can't speak for other banks, but these are -- most of these things are on top of -- you have to have very large losses in private credit before at least it looks like banks are going to get hit or something like that. So it doesn't mean you won't feel some stress and strain, and that you might have to do something about it, but I'm not particularly worried about it. I'd be more worried about when there's a credit cycle, how is that going to filter through the whole system? That, to me, is a bigger issue. But I also pointed out, corporations in general, the debt is not too high. Consumers, in general, the debt is not too high. Most of the excess debt is in government debt at this point. And so there are positives and negatives you look at what's going to happen if there's a cycle. And of course, we always worry about what happens in the cycle. And like I said, I think it will be worse than people expect. And you can go look at what happens in other cycles to various credit and industries, et cetera. The other thing which almost always happens is that there's an industry which surprises people. If you go back to the year 2000, people were surprised, there was utilities and telecom, [indiscernible] Grandma stocks that got hit, things changed. And you go into '08, it was media companies and newspapers, Warren Buffett stocks, things changed. This time, you have all the Twitter [ reporting ] about software, which we'll see. It might be software or it might not. But something always happens that people don't expect in credit. Operator: Our next question comes from John McDonald with Truist Securities. John McDonald: I wanted to ask a question about reserves. Could you talk about scenario weighting and how you're evolving views on the macro risks out there factor into your reserve setting process and how that played out this quarter? Jeremy Barnum: Yes, John, good question because I think at a high level, if you look at the allowance, it's like quite small, and you might wonder like what's going on there given everything that's happening in the Middle East, especially given our historical stance about wanting to be conservative and concerns about the geopolitical dynamics. So a couple of things in there. One, as you know, we start the reserve, the allowance calculation process with a sort of model-based approach that's based on economic forecast. And actually, just to make it easier to track, let me start with a little bit the punchline, which is we actually did not change the weights this quarter. And so with that said, on sort of unchanged weights flowing through the economic outlook actually lowered the weighted average unemployment rate in the allowance build up from 5.8% to 5.6%. So that created some tailwinds across the numbers primarily in consumer, but also a little bit in wholesale. And we also had a little bit of a release consumer in Home Lending, I think it was about $150 million, which was an HPI -- or maybe $110 million or something. But anyway, which was an HPI upward revision, so kind of unrelated to everything else. Under the covers, there are some builds in wholesale as a function of loan growth and also some idiosyncratic downgrades here and there, nothing dramatic. But in the place that you would expect to see allowance build, you are seeing some. But at a high level, we did sort of have a very conscious debate about this as a company, like should we add downside skew to the weight this quarter given everything that's going on. And our conclusion was that the existing kind of conservative bias in the allowance was sufficient, and we would just wait and see to see how things developed. And to the extent that things hopefully, they don't. But if we get some of the downside case outcomes with higher energy prices that wind up having an impact on the core global economic outlook, then that would actually flow naturally through the process. And so we'll we can see kind of how that plays out. John McDonald: Okay. And then separately, I was wondering about any changes to your outlook for loan and deposit growth, your balance sheet growth was very strong this quarter, a lot of it seeming to be in the Markets business. So I'm just looking for more color on the drivers of growth this quarter and how it affects your outlook for loan and deposit growth this year? Jeremy Barnum: Sure. So I would say that this quarter's growth, yes, as you said, primarily Markets, primarily low-density stuff that's not contributing a lot to RWA, secured financing of various sorts, and a lot of that is seasonal. So there is a sort of background trend of growth in the size of the Markets business and in the size of the Markets balance sheet, but I don't think that anything happened this quarter that was sort of particularly off trend in that respect. In terms of the firm-wide overall outlook, I think, arguably the single most significant number is the what we said about Card loan growth expectations at Company Update, which is that we said we expected 6% or maybe a little bit more. and that hasn't really changed. That's still kind of our core expectation. In the rest of the franchise, it's really pretty modest growth overall. We actually have some headwinds in Home Lending as a result of some First Republic portfolio roll-off and stuff like that. But to a significant degree, some of that's going to get driven by acquisition financing, that we hold on balance sheet for a while, that some of that's a little bit of a driver this quarter as well. And of course, if things deteriorate, which we very much hope they don't, that tends to produce lower loan demand. So we'll see what happens there, but we're going to be there for our clients for whatever they need. And then the final building block of this is Markets, which, as you know, has been actually, interestingly enough, the primary driver of wholesale loan growth recently. But there, it's going to be very opportunistic. A lot of it is kind of the data center lending type stuff and related things where we're going to participate when the terms make sense, but we're going to be very willing to walk away if we don't like it. And so that's going to be more a matter of just seeing what the opportunity set looks like and how we feel about the risks. Operator: Our next question comes from Manan Gosalia from Morgan Stanley. Manan Gosalia: Jamie, Jeremy, you have one of the best views in -- on the U.S. consumer. You mentioned that the economy is resilient, the consumer is healthy. Could you give us some more color on what you're seeing there? How resilient is consumer spend and credit if energy prices remain high? And are there any signs of cracks that you're seeing at all? Jeremy Barnum: Yes. So it's a good question. It's the right question. It's a question we get a lot, and I sort of struggle to say something new and interesting every quarter. There really is not anything new or interesting to say this quarter. We've looked at it through every angle. Early roll rates, delinquency rates, cash buffer, spend, discretionary spend, non-discretionary spend, it all looks consistent with prior trends and fundamentally, healthy. So let me add maybe just a little bit of nuance in the context of energy prices and what's going on this quarter. So I think gas or energy cost is something like 3% of the typical consumer's expenditure, at least in our portfolio. So it's not nothing, but it's not overwhelming. We've looked to see if there's kind of evidence in there of people trading, decreasing other discretionary spending to adjust for higher gas prices, but it's just kind of not enough yet to be visible. I would caution, though, I think it remains fundamentally the case that the biggest single reason that the consumer credit performance is healthy is that the labor market is strong. And if you get bad outcomes in the Middle East, much higher energy prices or other problems that sort of do eventually [ track ] what has been, I think, from many people's perspective, a surprisingly resilient American economy and a very resilient U.S. consumer, and that winds up having knock-on effects on the labor market, then you will see that come through, clearly. But right now, in the end, the story remains the same, which is resilient consumer that's doing fine despite higher gas prices. James Dimon: Yes. And I would just add, we're really getting too fine-tuned here, but it's being helped right now by higher tax refunds too. Jeremy Barnum: Yes. Exactly. Manan Gosalia: That's really helpful. And then a separate follow-up just on the trading business. One is, are you seeing any signs of bad volatility here? Or are things -- were things in March still pretty good? And then if we look at trading assets that were up pretty significantly quarter-on-quarter. Was there anything specific in the environment that drove that? Was that business as usual? Or is this some of the deployment -- the ongoing deployment of excess capital, Jeremy, that you've been talking about? Jeremy Barnum: Okay. So sorry, I think there are several embedded questions in your follow-up questions. So let me try to do this efficiently. So in short, no, we haven't really seen any so-called bad volatility. I mean, I'm sure there are pockets of that in some markets. But broadly at a high level. I think what we mean by that is the types of extremely gappy discontinuous markets with low liquidity that keep clients on the sidelines. And as I say, I'm sure there have been pockets of that in certain subsegments of certain asset classes. But in general, that has not been a characteristic of this quarter, which is, I think, part of the reason that the performance has been very good. On trading assets, as I said a second ago, I think that was mostly BAU growth, mostly seasonal, low-risk density, and not particularly a function of capital deployments one way or the other. I think to the extent that, that plays out, that will be a longer-term phenomenon. And just to refer you back to my comments at Company Update, I think, to really get that right, you need both to free up capital, but also to free up liquidity to allow banks to deploy against the broadest possible set of opportunities to support the real economy, not just kind of high-risk density opportunities that require less liquidity per unit of capital. Operator: Our next question comes from Mike Mayo with Wells Fargo Securities. Michael Mayo: Jamie, in your CEO letter, it was mentioned, you talked about private credit, and you mentioned the $1.7 trillion private credit market, which didn't really exist 2 decades ago, as you know, how much of that $1.7 trillion would you say is a substitution effect from banks to private credit? And how much of that might be types of credit you never would have originated in the first place? And with the regulatory changes and with what's happening in the market, do you think you can recapture some of that share? And more generally, what are you doing with regard to the collateral? There was news headlines in this past quarter that you're becoming more conservative with that? And lastly, what kind of spreads are you getting? Are the spreads improving on this or staying the same? James Dimon: Yes. So those are all really good questions. So the trillions actually was there before. There was always this, and the banks did it. In some ways it was arbitrage because banks were really discouraged from doing leverage lending over a certain amount of leverage. And then of course, the competitive world finds new ways to do things, which we're not against how they do it. There's a little bit of rate arbitrage and all these various things. But I do think -- I mean it's really hard to say that half of it probably was arbitrage that banks can pick up some of that. Banks also look at relationships differently. When a bank does a loan in middle-market leverage lending, that's what this is. We've been doing this for a long period of time. When we look at the relationship too extensively, not just the loan, but the rest of the relationship, payments, custody, asset management type of services, et cetera. So maybe some will come back. I'm not particularly concerned about it. And the spreads, you can just track how spreads move around. Every bank does it differently. And every bank charges differently and stuff like that. But depending on how concerned they are, they going to raise their spreads and what they're charging for private credit. Private credit spreads themselves and what they charge their clients have gone up and down. And you've actually seen loans go back and forth every now and then from the private credit market, the bank syndicated loan market. So we'll see. And we always had what we call marking rights to look at the underlying collateral, and that's just a right that protects you and gives you certain rights, things like that. Obviously, if you ever see credit getting worse, and it's gotten not terribly worse, the actual credit which a lot of these private equity -- private credit guys are pointing out, the actual credit hasn't gotten that much worse. There are pockets where it has. And credit spreads themselves haven't gotten much worse in general, but there are pockets where it has. So we'll be watching it closely. We think we're okay on all of that. It remains to be seen. I think the big point to me, Mike, I don't think it's systemic, but I do think with the credit cycle, and I'm not referring to private credit here, because of underwriting and leverage and PIKs and competition, and we've had a cycle for a long time. A lot of people are late to this game, I just don't expect every player is going to be the same. I think some will be -- it won't be a bell curve, there'll be something different than that. And people may be surprised that some of the players aren't particularly good at it, and that business will probably come back to banks. Michael Mayo: And then separately, Jeremy, you mentioned no change in the core NII despite being asset sensitive. And in terms of the deposit growth, you had some really amazing deposit growth and then you kind of hit an air pocket for a little while in this quarter, consumer deposits were up 2%. I guess taxes probably helped that out. Is this the start to getting back on that higher deposit growth path or not yet? Jeremy Barnum: Well, I think air pocket is a little bit of a strong word, but fair enough. I recognize the dynamic that you're describing. And I think it's a little bit too early to sort of say, like, yay, like we're back with like super robust consumer deposit growth, partially because of your point actually about tax. I think you're right, that probably is contributing a little bit right now. But at a high level, we talked about at Company Update, our consumer deposit growth expectations being low to mid-single digits. And I think that is still the belief, and I think we'll be a little bit more confident in that, as you say, once we get through tax season. So maybe we'll know a little bit more next quarter. But I will say that through the lens of like net new checking accounts, where I think we said in the EPR that we did over 450,000 this quarter. So that driver of sort of long-term consumer deposit franchise growth is in place. And it just becomes a question of at the margin, how yield-seeking flows develop and what that does to kind of balances per account as we talked about at Company Update. So it's the right question, something we're watching a little bit early, but unchanged expectations and some signs, as you point out, that the trends might be improving slightly. And then just to complete the picture, on the wholesale side, as you'll recall, last year was an exceptionally strong year for wholesale deposit growth. So our expectations for this year were a little bit more modest. Actually, the year is starting out pretty well, some of the typical year-end seasonal increases that we tend to see roll off have not quite rolled off to the extent that we would have expected. So I still think the core view is for significantly less robust growth than last year. But from a core franchise perspective, things feel pretty good there. Operator: Next, we will go to the line of Gerard Cassidy with RBC Capital Markets. Gerard Cassidy: Jeremy, obviously, the first quarter, the expense levels were a little elevated relative to the full year guide, if you annualize it out, of course. Can you give us some color that how you're going to bring down the following 3 quarters to be able to hit the year-end guide that you gave us at about $105 billion? Jeremy Barnum: Yes. So I would somewhat discourage you from like annualizing quarterly expense run rate because there's a lot of seasonality in the volume and revenue-related component of that as a function of the seasonality of the Markets revenue in particular. But I think -- and I think in reality, as you well know, Gerard, that's kind of like not how we manage the company, meaning I don't think you meant this obviously, but the implication of your question is that, like, "Oh, the numbers are a bit high in the first quarter, let's like run around and find some expenses to cut in order to meet our guidance." And that's kind of like not how we do things like we just manage the expenses holistically every day of the week. But at a high level, I think you're actually getting at something important, which is that when you consider the exceptionally strong performance of the Markets and Banking business this quarter, you actually might have otherwise expected us to revise up the full year expense guidance. Because realistically, I think no one could have -- it's impossible to imagine that we would have budgeted the level of performance that we saw this quarter in Markets and Banking and that -- yes, yes. I'm almost done. James Dimon: No. What I'm saying some of it's expected to be quite good. I hope every quarter is this good, and then our expense target, we would be, love to spend more money because we did so well. Jeremy Barnum: Okay. But I still want to make my point, which is that, Gerard, I would discourage you from drawing the conclusion that for the purposes of the whole year, we are going to see the amount of implied internal offset between volume and revenue related and other expenses that is implied in the failure to revise the guidance this quarter. It's just a little early in the year. So let's see how things play out in the next quarter or so. James Dimon: I'd say that if volumes -- and if every quarter was as good as this quarter, we will spend more than $105 billion for a very good reason. Jeremy Barnum: Yes. No question about that. Yes. James Dimon: The $105 billion is not a promise, it's an outcome of business results. Gerard Cassidy: Which you've said in the past, Jamie, good expense growth, we all completely understand. As a follow-up question on digital assets, stablecoin, on the continuum that we're on for adopting these types of new technologies. Can you guys give us an update where you see this moving in terms of deposit impact possibly. But more importantly, payments, obviously, you're a very large payments company. And how are you guys assessing it? Jeremy Barnum: Sure. I mean there's like so much to say on the stablecoin front. Obviously, there's a lot of like legislative and regulatory stuff going on. I think, Gerard, your question is a little bit more about sort of long-term impact on the payments ecosystem. So I guess, through that lens, I would actually start with the wholesale business and talk about all of the innovation that we've done in sort of modernizing payments through Kinexys and the way that some of that is starting to play out and giving a lot of our customers kind of exciting new features like programmable money and different hours and the associated tokenized deposits and all that type of stuff. So we're super excited to embrace this type of innovation and be part of it. And the question a little bit is how does that relate to our existing franchise and in the context of wholesale payments, I think it's just part of an overall product offering. I think sometimes people think that you're going to have some stablecoin thing that's going to like radically disrupt the existing wholesale payments paradigm. And I think that's not quite the right way to look at it, only because wholesale payments is already an incredibly efficient, extremely low-margin business with very sophisticated clients. And so it's not as if -- a little bit to Jamie's earlier comment, it's not like there's one of these like your margin is my opportunity type situation in wholesale payments. It's already a very modern, very technologically sophisticated, pretty low-margin business where we're constantly delivering innovation, including with some of these sort of new technologies. On the consumer side, people talk about like what is the consumer use case for stablecoin. And one version of it, it's like digital cash and there's all the obvious like KYC implications of that. And I think maybe that's where you get a little bit into the legislative and regulatory front where there are some new developments on that whole thing associated with this notion of like, to what extent is the payment of rewards or proxy for interest, and that sort of turns it into, instead of stablecoin being an interesting form of innovation, it's just regulatory arbitrage, so that you can run a bank without being subject to the important regulatory protections, both prudentially and for consumers in terms of KYC and stuff like that. So we're eager to compete. We're eager to innovate. We're innovating all over the place. We definitely support the certainty that comes from this legislation. But as we get close to some form of finalization there, it's very important with the same product be regulated, same risk be regulated in the same way, and it doesn't become the case that you just create a giant arbitrage back door for the prohibition on the payment of interest for stablecoins. So we'll see how that plays out. Operator: Our next question comes from David Chiaverini with RBC Capital Markets (sic) [ Jefferies. ] David Chiaverini: Actually with Jefferies. So I wanted to follow up on the consumer deposits. So interest-bearing deposit costs were down nicely in the quarter. Could you talk about the opportunity going forward in light of the changes in the forward curve? Jeremy Barnum: Okay. That's an interesting formulation. I sort of don't actually know the number you're quoting, but I suspect it's just a function of the rate curve, and at the tops that came through last year. Go ahead, Jamie. James Dimon: I would just keep it simple. The margin would be about what it is today, give or take, a couple of basis points up or down. There are a lot of factors in there, like what kind of accounts you're opening, tax refunds and all that kind of stuff. But roughly the same for now. Jeremy Barnum: Yes. I mean I was going to pivot to the broader question, I guess, which you talked about in terms of opportunity. And I think that there's the -- as Jamie says, there's just the yield curve flowing through the high beta portions of deposit franchise. And then there's the low-beta portion of the franchise, where I wouldn't say there's "a lot of opportunity to price down," because I think as is well known, the price there is already quite low, but it's in the context of an overall service bundle where a lot of clients with relatively low balances are getting a lot of value in the package. So I guess I would leave it there. David Chiaverini: And then shifting over to a follow-up on private credit. So there's still a lot of attention on this in the banks. I think the banks are well protected. But can you remind us of the structure of these loans in terms of typical advance rates and embedded credit enhancement that protects your position? James Dimon: I think you're asking for too much information. They are seeing their loans on top of leveraged loans, so you're senior to the actual loans themselves. And each one is different, the loan-to-value, the triggers on loan-to-value and all the things like that. But you can probably figure those out or if you look at the disclosures on the BDCs, et cetera. Jeremy Barnum: Yes. I do think it's reasonable to sort of remind, I guess, the market of some things that we've said before about this space, right? So yes, each client, each relationship is a slightly different structure. But at a high level, as Jamie points out, it's a senior position. The portfolios are well diversified. There are a number of protections that we have, conservative advance rates, good underwriting, sector concentration caps, cash flow traffic mechanisms, et cetera, et cetera. So as we often say, nothing that we do is riskless, but this is a space that we're quite comfortable with as a function of very close scrutiny on the way that we do the business and ensuring that the underwriting is high quality and then we've got a bunch of structural protection in place. James Dimon: And the BDCs have statutory rules that they can't exceed in terms of loan to -- loans at the parent, which is sometimes one and sometimes a little bit more than that. Operator: Our next question comes from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess just one question on AI, one on the risk side, one on the opportunity side. On the risks, maybe Jamie or Jeremy, if you can just give us a sense of it's very hard for investors and for us from the outside to handicap cyber risk. We saw the headlines last week around LLM-enabled cyber risks being discussed in D.C. Like is this a different level of risk? And how would you characterize the preparedness of the banking system to handle this if something were to happen and we see headlines, I'm just wondering what would be the implications of that as we think about just systemic risks, et cetera. James Dimon: So cyber -- we've been talking about cyber risk for a long time. In fact, I think I said in the Chairman's letter, it is our largest risk. So I think JP -- every industry is different. So in context, I think JPMorgan is very well protected. We spend a lot of money. We've got top experts. We're in constant contact with the government. We're constantly updating things, but AI has made it worse, it's made it harder. Of course, we read about Mythos, which we're testing now and looking at it and it does create additional vulnerabilities. And maybe down the road, better ways to strengthen yourself too. But the cyber risk isn't isolated to banks. It's like you can look at almost any industry. And also banks, of course, are attached to exchanges and all these other things that create other layers of risk, which we work with a lot of people to protect themselves. So it is a complex one. It's a full-time job, and we're doing it all the time. And while we're trying to get the benefits of AI, we also are very cognizant of the risk of cyber. I think the government is aware of it, too. And remember, you have cyber criminals, you have cyber states, you have cyber everywhere, and that's why you have to be quite careful. So I'd say the banks in total are rather well protected, that doesn't mean everything that banks rely on is that well protected. Jeremy Barnum: Yes. And I think there's one just minor extension of what Jamie said that is worth pointing out, which is, obviously, he's specifically been talking about the importance of being prepared for cyber risk for many, many, many years. But I think even more recently, even before this sort of latest set of headlines around the latest Anthropic models, there's been a clear understanding that AI and generative AI, in particular, brings both risks and opportunities from the cyber risk management perspective. So it's not like this is the first time that anyone's thought about the way in which these more recent generative AI tools can both make it easier to find vulnerabilities, but then also potentially be deployed by bad actors in attack mode. So obviously, now you've got an even higher level of attention as a result of the apparently much greater capabilities of the latest models, but that is still happening on a continuum that we've been engaged with for really quite a long time. James Dimon: And then for everyone on the phone, I think it's also important to look at, a lot of it is hygiene is your new software being tested before it goes in place? Did you ask them to do certain things to protect their company? How do you protect your data, how do you protect your networks, your routers, your hardware, changing your pass codes? I mean, a lot of it is just doing all those things right can dramatically reduce the risk. And you've seen a lot of banks they haven't had some of those risks like ransomware and things like that, at least not that I know of. Jeremy Barnum: Yes. Knock on wood. Ebrahim Poonawala: No, that was helpful because I think it's something that investors struggle with. On the opportunity side, I think what -- it feels like the productivity boost, which for us translates into what the long-term efficiency ratio could be meaningful from AI deployment just given the speed at which the technology is evolving. Maybe talk to that, and also, does it create new business opportunities where maybe it's extending the perimeter of JPMorgan's business into new things that were harder to do and are now easier to sort of put together and grow as a business, given AI-driven technologies? James Dimon: So on the first question, I think it's a bad idea to think you're going to deploy AI and improve your efficiency ratio because in the competitive world, I'm going to do it, everyone else is going to do it, and the benefits will be passed on to the marketplace. It's not like you're entitled to have your ROE go to 50%, and that will stay there because you do it better than everybody else. You may get a head start, you want a head start, but I think that's just not a rational thing that somehow that will be the ultimate outcome. But the second question, absolutely, it creates opportunities because if you just take our consumer business, it's true in all businesses, but just take the consumer business with the data you have and now we call it Connected Commerce, where you do travel and offers and all of these various things that people want. So you can use your relations with the clients, the data you have to make the client happier. We do a lot to reduce risk and fraud and scam by using AI. We do a lot better job of prospecting. We offer AI services to clients, et cetera. So it will enhance a lot of things you can do directly, and it will create more adjacencies in my opinion, if you can use it quickly and wisely. Operator: Our next question comes from Matt O'Connor with Deutsche Bank. Matthew O'Connor: I want to start with a big picture question on trading. It's been amazingly strong this quarter, the last few years, really no matter whether markets are good or bad. We've had shocks in commodities this quarter, rates, credit, equities, and it's not just you and others kind of managing well, but it does seem like the client base is also managing it very well. And just wondering if you have any thoughts on that, on why it's been so consistently strong across a variety of environments. James Dimon: Yes. So just to put it in the big picture, first of all, our folks do an excellent job. And if you meet with them, you'd be very impressed with their knowledge, their brainpower. And we buy and sell almost $4 trillion a day. And you make a little bit each time you buy and sell, and then you have to manage the exposure and the risk. So they do a great job in that. Every now and then you're on the wrong side of something in a credit or a commodity or rate side or something like that. And you see that. But to me, that's kind of the cost of doing business. That's like a retailer having inventory that they can't sell. The real question is, do you serve your clients every day with great products and great service and great execution? And the answer is yes. And that's where the real business is. And what you see today is much more volume and the volatility, which generally helps because it makes spreads a little bit wider, all things being equal. There will be times where you're going to be sitting here and we're going to say that volatility killed us, if you were on the wrong side of something. But in general, you're serving huge investors around the world who have $350 trillion with so much products and services. That's the business of trading. And I remind people, it's not that different when you go to Home Depot, they have inventory. They put it in, they put it out, they mark it up. They mark it down. They don't call it trading, but there's that element of risk management there. So fabulous people doing a great job for clients, very conscious of the risk they take. Sometimes they we take a risk that -- we were wrong, and we're okay with that. We never panic over that. And you've never seen us say, "My God, we were on the wrong side of this trade." No, because we're there serving clients. And very often, you're on the wrong side of the trade because the client wants to sell, and you're not really dying to buy, but you do it anyway to serve a client. And so it's a business. It's a very good business. Jeremy Barnum: And just one minor extension of that I think supports the larger point is the thing we've said a couple of times now, which is, yes, the revenues have been great and the performance is very good. We're deploying a ton of capital in this business actually and a lot more over the last few years. And I think the returns that we're getting are good there, they're actually below the 17% for the company as a whole, that's fine, and we're serving clients and it's much better than alternative uses of capital. But I think the important thing to understand is that it's not as if you're getting giant amounts of revenue growth with the same capital base in ways that you might think are unsustainable. Part of what's going on here is that we're deploying more capital and getting healthier returns on it. Matthew O'Connor: That's helpful. And then I guess a good segue into kind of a broader capital management question. Obviously, a lot of comments on the reproposals. And -- but as we think about kind of capital management going forward, any updated thoughts on you still have a big buffer obviously, on today's required levels, 3 years from now or 2 years from now? I mean you generate a ton of capital, obviously, very solid buybacks this quarter. You grew organically, as you mentioned. But just any updated thoughts on how to think about capital allocation going forward? James Dimon: Yes. So obviously, we have a lot of excess capital. Today, we measure around $40 billion. Obviously, that can change depending on ultimate rules and regulations. And we prefer to deploy the capital serving clients. And the way you see us serving clients, we have more bankers, innovation economy, more global banking, doing commercial banking overseas, opening countries, opening payment systems, opening branches, that is ultimately what deploys capital over time, building the client base. It doesn't happen overnight. The outcome isn't deploy capital. I mean the goal isn't to deploy capital, it's build wonderful businesses that use capital intelligently over time, developing with a client, mainly with a client focus on it. And I think when I look at the world today, if you look at the world that is so big and so complex and the capital needs, when you look at the small -- we're one of the biggest small business bankers out there, but look at the capital needs of countries today. The remiliturization of the world, the infrastructure that people need. I think there'll be huge capital needs of companies, a huge mergers. I mean some of these companies, when I look at them, we're not big enough to serve them anymore. And so we think there will be more opportunity to serve large clients in the ways that they need it, over time, and that could be M&A, it could be countries, it could be helping them build the infrastructure they need. And that will happen over time. We're not in a rush. Our preferred way of using capital is not buying back stock today. We're doing it, fair market value and all that, but I'd rather buy back stock when we think it's a real discount, and the ongoing shareholder gets the benefit of buying it cheap. In fact, I want to remove that little thing that says cash returns to investors, which is a dividends and stock buyback. I don't particularly like that because I think it puts you in an artificial position thinking that's always a good thing when it's not. Jeremy Barnum: Very well. I'll add that to list. Next question. Operator: Our next question comes from Glenn Schorr with Evercore ISI. Glenn Schorr: That last comment leads into my question. I'll just merge my question and follow-up together because it's easier. So those things that you just mentioned, Jamie, on the big capital needs, some of those are very long duration. I'm curious on how much you think of that plays into a long-duration private markets balance sheet or can big public banks finance that? And so you mentioned in your letter, the market might be a little too relaxed about higher for longer rates. And I'm curious how you see that playing into all these direct lending double-B and single-B credits that need to get refinanced. And while we're at it, the follow-up is, can you size your private credit exposure? So sorry to smush that all together, but I'll end it on that. Jeremy Barnum: So Jamie, sorry, if you don't mind, let me just answer Glenn's second question first because I think it would be useful for the market to have the size number out there. So I'll do that quickly and then if you want to take the first part of the question. So Glenn, let me just frame this in context because I think the question of private market exposure and the definition of that. It means, as you know, a lot of different things, a lot of different people. So let me just quickly run through. You remember, last quarter, we did a walk in the context of NBFI from the $330 billion in the Call Report to the $160 billion that we consider core NBFI exposure, which we defined in that context, I won't go through that again. So inside of that $160 billion, there's about $50 billion that we would call private credit, and it's essentially the portion of that $160 billion of NBFI, which involves leveraged loan investors. So that's some of the stuff that we've been talking about on this call in terms of back leverage and BDC lending that has all these characteristics in terms of underwriting, diversification, cash flow trapping, et cetera, which is why we're broadly comfortable with it. So I just thought it would be worth sizing that in that context. There are obviously other pieces of that, like direct lending or subscription lines that are variously in or out of various different measures and that you could consider like in a broader definition. But our sense is that thing that the people are interested in is this kind of like leveraged loan, back leverage type stuff and that's about $50 billion for us. So with that, I'll hand it back to Jamie for the first half... James Dimon: Yes. So the way I look at it, so banks aren't going to warehouse very long-dated stuff in their balance sheet. But when you have investment grade, even large non-investment grade, private markets and public markets are going to come together. The people have to make markets on those things, do research and those things. I think it's going to be harder for private credit to do, not all of them, but to do large investment grade stuff, though, they've done it. But like I said, they have to compete with us on that, and we're willing to do it too. We always take the customers too. They want to do a large direct lending, investment-grade deal, we will present that side-by-side with a banks syndicate alone or something different. But I do think you're going to see a lot of creative capital, a lot of creative financing. A lot of the institutions out there need long-dated assets, think of pension plans and social security plans, all these various things like that. So our job is to intermediate, to come with the ideas to turn it over, sometimes put it on the balance sheet. The stuff in the balance will be shorter dated, but it's all opportunity. And I think the requirements of the world are going up fairly dramatically in the infrastructure at large. Almost everything is infrastructure today, you have utilities and roads and bridges and data centers and GPUs and so it's all there, but we're going to do a great job serving clients. And so we're not worried about that. But I do think you'll see in certain categories, private markets and public markets come a lot closer in how they look at value and trading and secondary markets, et cetera. Operator: Does that concludes your question, Glenn? Glenn Schorr: Yes. I just to chime in there, the higher-for-longer part, and if that has an impact on some of that single-B, double-B paper that's coming due for refinancing? James Dimon: Yes. No. Glenn, that's like a basic risk management where when you look at the world, you got to look at what's going to happen in a recession. I'm not talking about -- I'm not forecasting anything, I'm simply saying, for JPMorgan, we have to be prepared for a recession, and that you can have stagflation. You see people mentioned that we have to be prepared for stagflation. Obviously, if you have stagflation, and higher rates for longer and credit spreads gap out, that will put a lot of stress and strain on leveraged companies as they refinance. And those get fixed. Sometimes people put in more capital credit, sometimes reduce their CapEx plans. It's not an immediate disaster overnight, but it would put a lot more stress and strain on people. And I'd pointed out that if there's a credit cycle, I do expect it will be worse than people think relative to the scenario. It's not a disaster. We're used to the credit cycles. We'll be big boys about it. But asset prices will go down, credit spreads will going down. People may get a little nervous about some of those things. We don't think it's systemic. That's more, I would put it in the category of traditional recessionary behavior. Operator: Our next question comes from Jim Mitchell with Seaport Global Securities. James Mitchell: Just maybe a quick question on Investment Banking. It seems like activity held up pretty well in March. But just wanted to get your thoughts on that. Has there been any pushing out of any pause on activity levels and pushing out of the pipeline? Just any thoughts on the pipeline and how you're looking in the near to intermediate term? Jeremy Barnum: Sure. Yes. I mean I think it's true that activity held up well. The other thing that I think is worth noting is that some of the robust result this quarter is the result of actually accelerated timing on M&A deal closure and some of that was as a result of faster-than-expected regulatory approval. So that's obviously all to the good. But I think it's sort of unrelated one way or the other to like overall sentiment. On the question of overall sentiment on the pipeline, I would describe it as resilient, maybe surprisingly resilient, given everything that's going on. But I also think the time lines in the Middle East are kind of quite short. There are deadlines or negotiations. I think it's reasonable for people to kind of proceed with their plans in the hope or maybe expectation that we get relatively quick resolutions. But if things start getting derailed, I would be surprised if you don't see some impact on sentiment and on deal decision-making. But for right now, it seems quite resilient. James Mitchell: Okay. And just a follow-up on the balance sheet growth in markets. It has been strong, I think, up over 20% year-over-year. Would you saying when you think about the impact of the G-SIB surcharge on JPMorgan specifically, does that start to impinge your ability to grow that as much as you want? How is that factoring into your capital decision in the Markets business? Jeremy Barnum: I think the short answer is yes. And that's a big part of the reason that we spent -- the time that we spent today talking about the problem for the surcharge. It disproportionately accrues to the Markets business and disproportionately accrues to the relatively low risk density type of stuff that the client base really needs and wants these days. And that's why we think it's important that regulators think very carefully about what they're actually trying to achieve here. James Dimon: I'll add one other thing. We will obviously use our brainpower to do something I don't like doing, which is trying to find a lot of ways to serve our clients properly and reduce the G-SIB charge, which is usually called arbitrage. So I'm not sure the outcome is great for the system, but we will find ways to do it. Operator: Our last question comes from Kunpeng Ma with China Securities. Kunpeng Ma: This is Kunpeng of China Securities. I have a quick follow-up on private credit. I totally agree with Jamie that there is no systematic risk at this moment, as long as we assume that every type of capital expenditures continue with good yield outlook. So it comes down to the company-specific questions, like how does JPMorgan ensure its capability of selecting the top-tier projects? How do you ensure you stay with those good guys and stay away from those bad guys? James Dimon: Yes. So we are quite disciplined on credit. There are certain things we turn down. We don't like the covenants, the underwriting or the ability to move assets out of the secured company or something like that. And we're perfectly willing to have our balance sheet go down. If in fact, we think credit is getting stretched, you will see us not make loans, not because we don't want to. We're just not willing to meet those terms. And so that's how we do it. We underwrite -- when it comes to most clients, including private credit, we underwrite the company, the loans, the covenants, all those various things. And credit is a discipline. Like I said, loans or all of them are an outcome of doing good business. Sometimes if the loan book drops 10% next year, we would be completely fine if we thought the loans that we were walking away from where irresponsible. Operator: Does that conclude your question? Kunpeng Ma: Yes, yes. Jeremy Barnum: Thanks very much. Thanks everyone... James Dimon: Thank you, everybody. Operator: Thank you all for participating in today's conference. You may disconnect at this time, and have a great rest of your day.
Operator: Greetings, and welcome to the Mama's Creations Fourth Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, Luke Zimmerman of Investor Relations with Mama's Creations. Thank you, and you may begin. Luke Zimmerman: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Mama's Creations Fourth Quarter and Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]. This conference is being recorded today, April 14, 2026, and the earnings press release accompanying this conference call was issued after the market closed today. On our call today is Mama's Creations Chairman and CEO, Adam L. Michaels; and CFO, Anthony Gruber. Before we get started, I'd like to note that some of the statements on this call will be forward-looking statements that reflect management's current expectations about future operating and financial results. Although management believes the expectations and assumptions are reasonable, they remain subject to significant risks and uncertainties. Actual results for future periods may differ materially from what is stated or implied during today's call. For more information, please refer to the forward-looking statements section in today's press release and the risk factors disclosed in the company's most recent Form 10-K and any subsequent reports it files with the SEC. Please also note that today's call will include a discussion of adjusted EBITDA, which is a non-GAAP financial measure. Important information, including required disclosures containing a reconciliation to the most directly comparable GAAP measure is also detailed in today's press release. At this time, I'd like to turn the call over to Chairman and CEO, Adam L. Michaels. Adam, the floor is yours. Adam Michaels: Thank you, Luke, and thank you to everyone for joining us today. I'd like to welcome you to our fourth quarter and fiscal year '26 financial results conference call. Fiscal '26 was, without question, the most transformational year in the history of Mama's Creations. We grew revenue 39% to $171.7 million, expanded adjusted EBITDA over 50% to $15.4 million, completed a transformative acquisition that nearly doubled our manufacturing footprint and capped the year with a record fourth quarter that saw revenue grow 61% to $54 million. But what excites me most is not the numbers. It is the foundation we have built, the team we've assembled and the strategic position we now hold. This organization entered fiscal '26 as a high-growth deli prepared foods company with ambition. We exit fiscal '26 as a scaled platform with the capabilities, capital and conviction to become the leading one-stop shop deli solution in the country. As always, let us start with the macro trends. I learned early in my career that it is much easier and cheaper to ride a wave versus creating your own and the deli prepared space is a tsunami. On the consumer front, the generational shift towards deli prepared foods continues to accelerate. Fresh format grocers saw the largest bump in food traffic in 2025 with double-digit year-over-year increases. Grocery stores are also capturing a growing share of short mid-day visits from quick service restaurants as consumers replace restaurant meals with more cost-conscious and healthier options. For the Supermarket News retailer expectations survey, 55% of retail respondents said deli and food service is the category they expect to have the most success with in 2026 and 2/3 of retailers plan to introduce more grab-and-go or prepackaged prepared foods this year. Meanwhile, meat sales hit a record high of $112 billion in 2025, with 77% of shoppers agreeing that meat and poultry are part of a healthy diet, up more than 20% since 2020. We continue to be in the right place at the right time with the right product portfolio. Now we have the platform to capture far more than our fair share. While we have made substantial progress over the past 3.5 years and built a rock-solid foundation from which to build a market-leading platform in the deli category, our fundamental 4C strategy has not changed. Cost remains our first C, and the Bay Shore integration personifies the work Skip and his team are doing to deliver quarterly improvements in our gross margins. The integration of Crown 1's Bay Shore facility has exceeded our expectations. What started as a 42,000-square-foot acquisition with room for improvement last summer has become a well-integrated third pillar of our manufacturing network. Procurement and logistics are 100% centralized. Production has been rebalanced across all 3 facilities to optimize capacity, reduce overtime and improve absorption. The team at Bay Shore has embraced the Mama's culture. Mama has learned from the Bay Shore team and their premium product capabilities are opening doors to customers we could not previously access. And the results speak for themselves. Bay Shore's gross margin has improved meaningfully since the acquisition, and we remain on track to bring that facility in line with our mid- to high 20s gross margin corporate target. The cross-selling opportunity between our legacy customer base and Crown 1's premium accounts is just beginning to materialize, and we expect this to be a meaningful growth driver in the coming fiscal year. But Bay Shore is not our only location that is shedding costs and strengthening capabilities. As you see in our Q4 numbers, our favorable chicken costing in Farmingdale, coupled with fixed asset absorption in our Costco rotation in East Rutherford improved our gross margins and delivered superior bottom line results. Controls is our second C. And while my wife taught me that I should not have favorites, this C is a little dear to my heart because without controls, we can't have the other Cs. And I could tell you that Q4 did not disappoint. With food safety top of mind in our industry, I am proud to report that not 1, not 2, but all 3 of our facilities achieved a third-party SQF score of 98 recently or excellent, the highest results category. What makes this even more impressive is that 2 of the 3 audits this year were unannounced, meaning while you might wake up on a particular day to a fresh cup of coffee, Mario, Julia and Eric woke up to a third-party inspector for a 2-day inquisition. And all 3 blew it out of the water. Congratulations to the entire team who show us every day what Mama's quality really means. I'm also excited to share that we continue to add more analytical capabilities for our teams because what gets measured gets improved. Q4 saw the introduction of our Power BI platform as well as further expansion of our planning and procurement capabilities. Thank you, John, for leading our technology infrastructure and Alberto for guiding our forecasting capabilities. Controls is not a tagline or a word on a page at Mama's. It's how we run our business every day to ensure we execute with excellence. If Cost and Controls get us to the party, it is our third C, culture that keeps us there. The Bay Shore acquisition brought tremendous management talent to our Mama's family and allowed us to build our first-ever enterprise-wide shared services model. In January, Abby led the design, communication and rollout of a new model for Mama's, increasing responsibilities for leaders, recognizing standouts with new promotions across all 3 sites and driving an overall empowerment culture, solidifying our 1 plant 3 locations mantra. To improve communications and culture, we implemented a new employee one-stop shop portal to share messages across the organization and build community for our nearly 600 associates. Last month, Mama's Pantry, our first intranet site open for business, reinforcing our physical community with a digital extension available 24/7 365. We are even more excited to share next quarter the work we've been doing around learning and development at Mama's University. As my mother, who was a teacher for over 25 years in the public school system taught me, you are truly never too old to go back to school. Our Catapult strategy, our fourth and final C, delivered extraordinarily strong results this quarter and throughout fiscal '26. Let me speak to the Costco journey, which exemplifies our progress. Just 3 years ago, we had approximately $0.5 million in Costco sales, limited to one product in one region. By fiscal '25, thanks to Scott and the team, we have grown that to $10 million in annualized sales with active promotions across multiple regions of the country. In Q1 of fiscal '26, we launched our first digital MVM, which essentially matched all of the fiscal '25's full year Costco business in a single quarter. We continued ramping throughout the year with strong rotations across multiple items, culminating in Q4 with our first-ever national print MVM, a true milestone that set the tone for the types of volumes we can achieve. This was the trophy achievement for volume movement at Costco. Based on this success, capturing new customers and accelerating item velocities, earlier this year, we were informed that we achieved everyday item status in the Northeast, the very region where our Costco journey began. This is a landmark milestone that positions us for a steady-state, repeatable and plannable business, and we expect our everyday success in the Northeast will lead to even more rotations and new item introductions across all 8 of Costco's regions. Our operations team executed flawlessly throughout this growth, delivering on meaningful quarterly builds without a hitch, which solidifies tremendous trust with our retail partners. Beyond Costco, Chris and his team are ensuring our Catapult strategy is delivering across the entire retail landscape. At Walmart, we added another item in Q4 following the breakout success of our 4-count chicken item and are launching 7 new SKUs in up to 2,000 stores, all branded, which represents exceptional penetration. At Target, we're approved for 2 branded SKUs, one already on shelf, launching in 750 stores with plans to ramp up to approximately 2,000 stores. And at Food Lion, we've already expanded to roughly 1,200 stores across the Southeast and Mid-Atlantic with 5 branded SKUs. These placements represent a significant validation of our product innovation, quality and operational excellence. We are growing at 5x the category growth rate, a category that has recently been growing units ahead of dollars, which is rare in food and reflects strong consumer demand and trials. A key driver of our Catapult success is our commitment to quality. Our NAE, No Antibiotics Ever chicken initiative is a significant quality differentiator that resonates with today's consumers. We're also leveraging our Bay Shore acquisition to cross-sell capabilities and new products into both our legacy accounts and our Crown 1 customer base. Another Catapult strength in Q4 was the work Lauren and her team are doing on the marketing front, which accelerated velocities and introduced new customers to Mama's. Our Instacart programming made Costco's MVM the most successful campaign in Mama's history. An unheard of 65% of consumers were new to brand, which creates a flywheel effect that turns trial into repeat. December, the peak of our Costco MVM saw our best month ever on Instacart and the partnership Lauren and Chris built made Mama's the #1 meatball on Instacart for all of Q4. The team's work delivered continued double-digit ROAS with Walmart, and Q4 saw new effective brand partnerships and collaborations with Brooklyn Bread and Mike's Hot Honey, all with the intention of driving trial, awareness and deepening relationships with our consumers. This commitment to quality and visibility is being recognized, most recently in Progressive Grocers 2026 Editors' Picks list for the best new products, where our cheese-stuffed chicken meatballs received worthy recognition. Looking to fiscal '27, we're planning to meaningfully increase our branded sales across our retail footprint through new introductions like at Walmart and Target and by transitioning legacy private label items to branded like at BJ's and Publix. And we have set a strategic goal of adding net plus 2 SKUs or items in each of our top 10 accounts. Our trade and marketing investments are delivering strong returns with digital and in-store programming generating measurable lifts in consumer awareness and retail velocities. As I look to fiscal '27, I see a business that is fundamentally different from where we were even 12 months ago. We have a scaled manufacturing network, a diversified and growing customer base, a strengthened balance sheet with significant M&A capacity and a team that has proven it can integrate with excellence. Our path towards $1 billion in revenue is clearer than ever, and I am confident in our ability to deliver sustained profitable growth for years to come. I'd now like to turn the call over to Anthony Gruber, our Chief Financial Officer, to walk through some key financial details for the fourth quarter and fiscal '26. Anthony? Anthony Gruber: Thank you, Adam. Moving to the financial results. Revenue for the fourth quarter of fiscal '26 increased 60.7% to $54 million as compared to $33.6 million in the same year ago quarter. Revenue for fiscal year '26 increased 39.2% to $171.7 million as compared to $123.3 million in the prior year. The increase was primarily due to item expansion at existing customers, successful high ROI promotional activities that accelerated velocities, initial placements at new customers and the acquisition of Crown 1. Gross profit increased 53.8% to $14 million or 25.9% of total revenues in the fourth quarter of fiscal '26 as compared to $9.1 million or 27% of total revenues in the same year ago quarter. Gross profit increased 41% to $43 million or 25.1% of total revenues in fiscal '26 as compared to $30.5 million or 24.8% of total revenues in the prior year. The fourth quarter gross margin was impacted by the continued ramp of the Crown 1 facility, while the improvement in full year gross margin reflects the operational efficiencies, procurement optimization and stabilized commodity costs across the platform. Operating expenses totaled $10.9 million in the fourth quarter of fiscal '26 as compared to $7.2 million in the same year ago quarter. As a percentage of revenue, operating expenses declined to 20.2% from 21.4% in the prior year quarter. For the full year, operating expenses totaled $35.9 million as compared to $25.7 million in the prior year. As a percentage of revenue, operating expenses were 20.9% in fiscal '26 as compared to 20.8% in the prior year. The change was partially due to the Bay Shore acquisition, new digital strategies and enhanced product marketing, new management hires and further technology upgrades to drive actionable insights faster and deeper into the organization. Net income for the fourth quarter of fiscal '26 increased 37.5% to $2.2 million or $0.05 per diluted share as compared to net income of $1.6 million or $0.04 per diluted share in the same year ago quarter. Net income for fiscal '26 increased 43.2% to $5.3 million or $0.13 per diluted share as compared to net income of $3.7 million or $0.09 per diluted share in the prior year. Fourth quarter net income totaled 4.1% of revenue as compared to 4.8% in the same year ago quarter. Adjusted EBITDA, a non-GAAP measure, increased 77.4% to $5.5 million for the fourth quarter of fiscal '26 as compared to $3.1 million in the same year ago quarter. Adjusted EBITDA increased 52.5% to $15.4 million in fiscal '26 as compared to $10.1 million in the prior year. Cash and cash equivalents as of January 31, '26, totaled $20 million as compared to $7.2 million as of January 31, '25. The significant increase was primarily driven by improved profitability, strong operating cash flow generation and ongoing working capital optimization. As of January 31, '26, total debt stood at $5.4 million. The robust balance sheet, combined with our credit facilities and strong cash flow generation positions us extremely well to pursue the organic and inorganic growth opportunities that Adam described. This completes my prepared comments. Now before we begin our question-and-answer session, I'd like to turn the call back to Adam for some closing remarks. Adam? Adam Michaels: Thank you, Anthony. As I reflect on fiscal '26, I'm incredibly proud of what our team of nearly 600 associates across all 3 facilities has accomplished. We have taken every step deliberately and strategically guided by our 4 Cs framework: cost, controls, culture and catapult. From strengthening our cost structures and controls in the early days to building a world-class culture founded on operational excellence and continuous improvements to now catapulting this company towards its next phase of growth through our disciplined financial management and strengthened balance sheet, we have built a platform for sustained success. Looking ahead to fiscal '27, our strategic priorities are clear and focused. First, we'll continue to optimize our integrated 3-facility network, maximizing efficiency, driving margin expansion and increasing capacity utilization. Our operations team have shown they can scale flawlessly, and this is our core competitive advantage we will continue to leverage. Second, we will deepen and expand our retail distribution through the aggressive ramp of our major new wins at Target, Food Lion and Walmart, while simultaneously expanding our club channel partnerships with Costco, Sam's Club and BJ's. Third, we will deploy our strong financial position and balance sheet to pursue accretive acquisitions that add capacity, capabilities, categories and customer access to our platform. The $40 billion deli prepared foods market is large, growing and fragmented. Consumer preferences are moving decisively in our direction. Retailers need partners who could simplify their deli operations and deliver quality, variety and reliability at a national scale. That is exactly what Mama's Creations does. And our vision is to become the leading national one-stop shop deli solutions provider. With our strengthened platform, balance sheet and track record of execution, we are better positioned than ever to capture this generational opportunity and deliver sustained value for our shareholders. I want to thank our team for their extraordinary dedication and execution. And to our shareholders, thank you for your continued support and confidence. The best is truly yet to come. With that, operator, let's open the line for questions. Operator: [Operator Instructions]. And our first question comes from the line of Brian Holland with D.A. Davidson. Brian Holland: Boring stuff first. Looking ahead to fiscal '27, can I assume that the double-digit growth outlook holds... Adam Michaels: Yes. Thanks, Brian. Yes. Look, I'm proud of the team. The team is just getting started. Hopefully, you're seeing like I am opening new doors. You're seeing getting more average items carried into each of those doors. And the work that Lauren and team are doing on the marketing continues to accelerate the velocities. So yes, I feel -- we feel comfortable that double-digit growth will continue to gain meaningful share for the year ahead, absolutely. Brian Holland: Looking on that, obviously, as you get bigger and you amass these bigger wins, you create tough compares for yourself, obviously, with Costco. So just as we think about modeling sensitivities here, would any of these quarters in 2027 potentially be less than double digits just because of what you have to lap? Obviously, I'm thinking specifically about Q1 or Q4. Adam Michaels: Where is the love, Brian? Come on. Where is that positive mental attitude that I'm looking for? Look, Chris is doing a job. The entire sales team is doing a job. And like I've shared with many of you, we have these lapping charts. Chris absolutely understands that there are some -- there was programming last year that we have to replicate and accelerate. So I will continue to tell you that, first of all, we will continue to gain meaningful share, right? The category is growing in the mid-single digits right now. I think that we can continue to grow that. And yes, it's on Chris and team and it's on Skip and operations to keep up with Chris to ensure that when we see programming ahead from last year, we have to, again, meet that and accelerate it. So I'm going to keep to our double-digit growth aspiration. Brian Holland: On M&A, I believe Skip has final say on when you could pull the trigger on the next acquisition. I think that's tied to Crown 1. What's the latest there as far as M&A readiness? Adam Michaels: Yes. No, I am super proud of the Bay Shore team, Andy and Roger, Tony, everybody, Mario. We're ahead of the plan. Obviously, there's still more to do. We're not fully integrated, right? We have to get the technology in. But I feel like we're in good shape. You know me if I'm not on the road with you guys, I am on the road visiting other facilities, which I've been doing in the past month. I think we're in good shape. Look, let me repeat, this is really important. We want to do acquisitions. We don't need to do acquisitions. The internal team is doing an awesome job. There is so much to invest in to accelerate growth. But with the team doing such a good job here means I got -- I don't got much to do and allows me to go out and look at other opportunities. And if we could find something that is accretive to our business, both in the sense of getting new customers, getting new capacity, accretive in the sense that while it might be dilutive in the gross margin space because we're good at improving things, we're not looking for a turnaround. So they have -- it has to be accretive to our EPS. And if we find something great at the right price and Skip tells me he's ready, then we're ready to go. Brian Holland: Last one for me. It strikes me more than I studied this category, you referenced a $40 billion category. I'm sort of surprised by how immature it is, right? And it kind of interesting, I think your success sort of proves that out the merits of having a branded presence in this category, which historically it didn't have. So as we think about all these wins that you're -- it's great to tack on the wins and more stores and more items per store. But sort of like the next wave after that is kind of category advisory to some of these retailers. And it seems crazy for me to think that a company with less than $200 million could take on a role such as that. But I'm just wondering how your success is manifesting as far as relationship building with these types of large retailers who might be looking at your success and asking you to help them think about because that's really kind of the last action, I think, to retail customer connectivity and relationship solidification, I'll stop there. Adam Michaels: Yes. No, I think I agree with what you're saying. Obviously, the deli category is not as mature as center aisle. The category captain C is not as clear. But look, I will tell you the amount of time that our sales team is on the road not selling per se, but a major customer, the biggest grocers and retailers in the country are calling us to say, "Hey, I'd love for you guys just to come and speak to my leadership team and tell them what you're seeing in the category," I think that's pretty amazing. And what happens is great quality, great service. And when a customer wants a new item, the first call is they're giving us a call. And that's what I think -- I talk about this flywheel effect. That's what continues to accelerate our growth more and more. So I love what the Chris and the sales team are doing to be that category adviser. And that doesn't mean we're going to have $1 billion of sales tomorrow. However, it makes it much more likely that we're going to have that $1 billion of sales a couple of years from now, and that's what we're building towards. We are in this for the long game without a doubt. Operator: Our next question comes from the line of Eric Des Lauriers with Craig-Hallum. Eric Des Lauriers: Congrats on another strong quarter and a really exceptional year here. My first question, I noticed a big step-up in trade promotion spend in Q4. It's great to see. I know it's been sort of an area of focus. You commented on the -- all the success you had on Instacart, around the Costco, MVM. And I'm just wondering how much we should sort of attribute that nice step-up in Q4 kind of specifically to that Instacart, Costco commentary? And how much of it was kind of more broad-based, a result of your improved profitability and cash flow. I guess, ultimately wondering, is this sort of a seasonal kind of onetime Costco MVM thing? Or does this represent a bit of a step-up or a new normal going forward? Adam Michaels: Yes. Thanks, Eric. And again, the credit goes to the team. Everyone is doing an incredible job. Actually, I love, I'm glad you called that out. It's pretty amazing. So if we're at -- what do we had a 26% gross margin with nearly 10 points of trade. I'll let you guys do the math yourself, you know how that works with gross to net. That puts into perspective what the true gross margin could have been if we're not investing in the future. One thing that I've been looking at is overall just the amount of investments that we've been making between more marketing, right? I think we're up like 70% on marketing for the year, literally a crazy amount of what are we like 4x trade. This is huge -- even stuff like I know you can't add the 2 numbers together, but depreciation, right, because we're investing in equipment and everything. It is amazing what we've accomplished from a profitability standpoint while making these massive investments. I'm super proud of the team. Directly to your point, you've heard me say it before, we will continue to invest the trade as long as our gross margins are in the mid- to high 20s. And you saw us being in the mid- to high 20s this time around. We're able to substantially invest in our trade. What do we get for that trade? Crazy success at Costco, already got an everyday item in the Northeast. So clearly, the ROI is there. Also to your point, we look at it every quarter, right? Peter, Chris, myself, Anthony, we look at trade every single day. And if we have the gross margin, we'll lean into the trade. And equally, the good news is trade isn't set quarters ahead, even months ahead necessarily. If things are getting softer, meaning we know chicken is accelerating now. Obviously, freight is a bit more of a challenge now. That means that we have to pull it back. So again, we look at it week-to-week, month-to-month to decide what the right trade rate is for the quarter. Eric Des Lauriers: Very helpful. I appreciate that color. And then just a follow-up for me. You mentioned some new technologies that you're bringing into Bay Shore. Could you just kind of remind us overall how to think about CapEx for 2027? What kind of equipment technologies are you guys looking at? And how to think about dollar amounts and timing here as we update our models? Adam Michaels: Yes. I mean this is where Anthony is so helpful to us, right? So you know our rule, right? You don't get to spend CapEx if you're not making it from cash flow from operations. We spend -- the plan is to spend mid- to high single-digit millions of dollars a year. Again, only if we have the cash flow from operations, we are very structured in that manner. But yes, there's always more equipment. We're doing exceptionally well now with these -- remember, I spoke to you guys about this map technology that extends shelf life naturally. We just bought 2 more of those. But again, we're talking about hundreds of thousands of dollars, a couple of hundred thousand dollar pieces of machinery, this is not like the grills, if you remember a year or 2 back, where the grills are $1.5 million each. So these are still -- these are smaller things. Again, we want to keep investing. Eric, you've toured our plants before. You know that I love buying more stuff that reduces complexity, that accelerates things, that reduces the need for the manual labor that I can now put the people in other places. So the more I can do that, obviously, the happier I am, happier Anthony is. And obviously, that's going to improve our gross margins. Operator: Our next question comes from the line of George Kelly with ROTH Capital Partners. George Kelly: First from me is on input pricing just around chicken and beef. Wondering if you can update us just on what you've seen recently. And I think especially beef continues to be pressured. Adam, I think you just mentioned that chicken has been a little pressured here recently, too. Wondering how you're planning to kind of adjust pricing or what you're planning to do to respond to what you're seeing? Adam Michaels: Yes. Thanks, George. You guys definitely get your money is worth out of us in the sense that there is no dull day. As you mentioned, beef, it's funny, beef, I'm a little happier about because beef has gone up, as you guys have all seen and it's in the paper. But it's been relatively stable. Now relatively stable high, but still, I'm all about stability. Chris and team have done a great job. Again, we're very transparent with our partners, our retail partners. The goal is not for us to get more margin, but we can't lose money because then we can't help you if we're out of business. So we have been successful in getting the price increases in to maintain our margins. There is some delay a little bit. It could be anywhere from 30 days to 60 days. But beef, I do like the stability, but I'm telling you, I don't think it's going to go down and Alberto is the boss here. I don't think it's going to go down anytime soon, certainly not before the end of summer. But again, we have the pricing. We're still working on more pricing, and I think we're in good shape there. Chicken, again, I'll always find the positive. Chicken is just a bell curve, right? Chicken always goes up around this time of year. It has gone up. We were very lucky that Q4 tended to be a little bit lower. The great news about this is we're contracted, right, for close to 70% of our chicken sales. Now that doesn't mean we're immune to it, right? There's also the 30%. There's also some things we have that are -- have a floor and ceiling, so it moves up. But again, the sales team has done a great job at looking -- we're so much more proactive now. We actually show -- I told you guys about Expana, that's money we spent. It's a forecasting system that's all over the -- it's a global forecasting system on commodities. You could see what's going to happen. They're pretty accurate, and we share that with retailers in advance. And the answer is, hey, guys, we think it's going to go up. I'm putting my price increase in now. And if it doesn't go up, I'm happy to pull it back. I'd be remiss, though, pricing is just one piece of it, right? Skip and his team are doing an incredible job. Again, trimming is a big lever. We have to do more of that. We have to sell more of the bottoms. But there's work that Alberto and procurement are doing to and I look at this positively, there's still so much more for us to do, right? We've been in Bay Shore 7 months. So there continues to be efficiencies from a procurement perspective. From a process perspective, I mentioned earlier that 1 plant, 3 locations, you've heard me say that before, we're moving stuff around all the time. And we had excess capacity in Bay Shore. So that's great. That means we got to do the Walmart, the new Walmart stuff there, the new food Lion stuff there. So with Skip helping us by lowering our costs, with Chris helping us by raising our prices, again, I certainly can't sit back with my hands up, but we are very intentional and very proactive in everything that's happening with beef, with chicken. Obviously, you guys know about what's going on in freight, a little pressure on freight. So we're way ahead of it. Freight is another good example where we're increasing our MOQs, minimum order quantities, right? So maybe we don't get all of the pricing we need passed on freight. But if I could make the process more efficient, if I get more in the truck, guess what happens, my costs go down, and then I could offset that increase. So all these things we're thinking of well ahead of them actually happening. George Kelly: Okay. Okay. That's helpful. And then second question for me is on Crown. So I believe you were -- with respect to the legacy product portfolio there and some of the legacy customer base, you were managing that, potentially taking pricing, potentially sort of exiting some of the less productive SKUs. And that was a process that was maybe starting a few months ago, early this calendar year, I think. Just curious how that's gone. And when we think about the sequential growth at Crown, should we anticipate that sequential revenue number to perhaps dip a little bit before stabilizing and growing? Or like now that you've had it longer, how should we think about the sequential build on Crown's revenue? Adam Michaels: Yes. Look, we're right on track. I think I told everybody that just like we did in Creative Salads and like we did with Olive Branch, the first year of Bay Shore is about getting the economics right, and that means getting price increases, changing up the products to improve the margins. There might -- we might have to exit some items, and we're doing just that. The expectation, again, that I believe I've shared pretty consistently is my hope is that Crown is actually flat for the year, right? We're going to lose some stuff, but then add some stuff. And if we can be flat for the year on Crown, that would be a great success because our gross margin is going to be significantly higher on that flat growth. I think it's amazing, again, what Chris is doing, right? We have one sales team. It doesn't matter what facility it's being produced out of. Chris and his team have had great partnerships with our new customers that we're really excited about. Actually, I haven't even shared yet, but I guess I could share now like we're -- we actually have gotten wins already using our Bay Shore facilities and equipment. We have the shredded chicken, which is awesome, which is a big Bay Shore item. We actually sold that into one of our legacy Mama's Albertsons accounts and Shaw's. We're able to -- I mean, the team is amazing. The team has already sold some of our cheese-stuffed chicken meatballs, legacy Mama's products into a Bay Shore customer with Wakefern. So no, I love what the team is doing. And I'm as bullish, if not more bullish, than I was, oh my goodness, I don't know, when I started this process last February, I think it's been like 1.5 years, it's been crazy. But no, the team is doing a great job, really great job. Operator: Our next question comes from the line of Ryan Meyers with Lake Street Capital Markets. Ryan Meyers: Congrats on another quarter of great progress. And just kind of following up on the last question, thinking about gross margins for Q4 actually came in ahead of what I was looking for and expecting. But should we be using what you guys reported here in the fourth quarter in gross margin as a new baseline? And as we progress through 2027, you guys will continue to trend towards the target you gave in the Analyst Day of the mid- to high 20s? Or is there anything gross margin-wise that we should be aware of in 2027? Adam Michaels: Look, overall, I try as hard as I can not to run the business quarter-to-quarter. Brian asked the question earlier around gross margin. And no, I certainly don't think we're going to -- God forbid, we're negative or even below double-digit growth. But there might be some quarters that were much higher, some quarters that were closer to that because just timing of promotions. Gross margin is similar, right? So we know, hopefully, I've been clear with everybody since I think -- I don't know, I think this is my 14th conference call, if you could believe that. We're in the commodity business. So that means that there's ups and downs throughout the year, right? It's always harder in the summer. I think we were -- we had some tailwinds in Q4 with the lower chicken prices, and we had really good absorption with the Costco rotation. We will continue. Again, I -- we're planning for and I feel confident that we will be higher 4 quarters from now than we were this quarter. I feel really good with that. But from quarter-to-quarter, depending on what season we're in, we might have a point or 2 dip up or down. So I wouldn't expect it just to keep going up because, again, we have to take into account the seasonality of chicken and beef prices, depending on particular promotions and rotations. So hopefully, that's helpful. But I will tell you, and I feel confident that we will have -- our gross margins will be higher a year from now than they are today. Ryan Meyers: Okay. Fair enough. No, that makes sense. And then thinking back to some of your prepared remarks that we had talked about on the call, the emphasis on the branded side of the business and the branded products. Can you remind us what the mix between branded and private label is right now? And then maybe are you seeing more demand for your guys' private label products or more demand right now for the branded side of the business? Adam Michaels: Actually, I don't know if it's just the magic of Chris and his team, but I'm seeing a lot more branded. I mean, so think about it, the last 3 wins, first with Food Lion, 5 out of 5 were branded. Walmart, 7 out of 7 were branded. Target, the 2 items that they pulled -- that they're pulling are both branded. So it seems that it's accelerating. I think I've given you guys examples of stuff that was historically private label like Publix or BJ's, they're now asking it to be branded. So I think that there's more momentum. Look, we've -- remember, I spoke to you guys about this flywheel effect. I think what I say, 65% of people that were on the Instacart that bought in Q4 were new to brand. That means that they had never heard of MamaMancini before, Mama's Creations and they bought. Now they're a loyal customer, and now they're going to look out for more MamaMancini products or Mama's Creations products. So I would expect that we're going to accelerate the percentage of branded because just quite honestly, it sells better. We've shown, we've proven. The velocities are higher when you call it MamaMancini's. Why wouldn't the retailer want that? But that said, if a retailer is absolutely adamant that I am only a private label customer, why would I not sell them a private label item. But you don't get a penny discount, right? Same. That's why Anthony allows me to stay here. Margins -- the price is the same price. It doesn't matter whether it's branded or private label. Operator: Our next question comes from the line of Anthony Vendetti with Maxim Group. Anthony Vendetti: Okay. Just a couple of quick questions. I was just wondering the -- if you can give us an update on the progress of transitioning all your chicken products to antibiotic-free. And what's the expectation for that being completed? Adam Michaels: Yes, it's pretty cool. So many people want us to do the NAE chicken, particularly Chris' wife Rachel. She's all into fitness. So she likes the NAE. We're all there. So 100% of what we're purchasing now is NAE chicken. It's going really well. Anthony Morello, remember the guy that started Creative Salads. He's been doing a great job helping us. He's our chickens art. He got amazing pricing for us. I think I told you another reason why Crown was such a great acquisition is it more than doubled our chicken needs and made us a legitimate player in the marketplace that allowed us to have some pricing power. So we got great pricing. And again, when you're up, right, from a sales perspective, when you're head-to-head with somebody and one is conventional and the other one is NAE, and I'll make it even harder for us or harder for Chris. If we're penny more, would you pay a penny more to be able to have an NAE product to be able to claim NAE, that's a pretty good selling point. So I love what we're doing. It's just one more piece that differentiates us in the marketplace and holds us in place. Again, I gave you the example of 2 head-to-head. We're in there with NAE chicken and someone else comes in with conventional chicken. Wow, yes, they're going to try to save a penny, but it's way worth keeping the NAE chicken. So it's another moat that we've created for ourselves, which is great. Anthony Vendetti: No, that's excellent. And in terms of average, Adam, you mentioned average items carried has gone up. Do you have specific or I'm sure you do, but any specific metrics you can share with us, whether it's across the entire portfolio or in particular stores, let's say, Costco, where the number of items carried in those stores have gone up either on a numbers basis or percentage basis over the last 12 months? Adam Michaels: Yes. I think it's -- like I've shared with you, it's harder because we've been concentrating a lot of our sales, which in the club channel, which is where I think consumers are going, and they tend to have fewer items. I'll tell you that in Q4, for last year, I did look -- so 9 of our top 10 customers were either the same, if not more items than they were a year ago. And the other one that wasn't at the time, all I just got another item back in. So it's just bad timing. But I know that every customer, and you heard Chris say at the Investor Day that his goal and actually his bonus, he has to get 2 new items into each customer. Just the Walmart, the 7 items at Walmart has gotten him on a good start, right, and the 5 items at Food Lion. So I feel great. Everything that we said we wanted to do, we are getting more items in on every major customer. So yes, hopefully, that's helpful. Anthony Vendetti: Okay. That's helpful. And then lastly on Costco. So there's 8 regions. How many regions are you currently in? Are you in all 8 regions? And if you're not, what is it going to take to get into the rest? Or can you talk about just the opportunity to expand the Costco relationship in fiscal '27? Adam Michaels: Yes. So remember, so with Costco, we're always in somewhere we're doing lots of different things. I think if you put a gun to my head right now, I think we're in 3 or 4 regions right this minute. But literally, every month, every quarter, it changes. I honestly don't even share with you guys just because I'd bore you to death on every time we get another meatball rotation, right, just because it's happening all the time. Scott and team are talking to Costco. Actually, they had a meeting today. Actually, I couldn't even fake that. Scott and Chris had a meeting with Costco today on another opportunity. So we're constantly speaking to them. We are top of mind to them, all 8 regions. And again, I think what I'm looking for from Chris and Scott and where the 3 of us are aligned is we're looking for some set of -- it's a combination of a couple of things, permanency. I don't know if that's a real word. And an example of that, like we're an everyday item in the Northeast. There are more opportunities to get that, rotations of our existing products. And I very much hope and expect to be able to share with you guys new items that we're getting in. The only thing that I can't tell you guys is we're going to get into a new region because I apologize, we're in all 8 regions. But I definitely want to be telling you guys we're getting new items in that we haven't done in the past. Just as a reminder, last year or the year before, I don't know, 5 or 6 items, we had a meatloaf, [indiscernible] green peppers, 3 different types of sauces, beef meatballs, chickens -- cheese-stuffed chicken meat balls. Those are just items we've had in Costco recently. So I love Costco as a partner. Yes. I just -- and I expect we're always going to be somewhere, and I'd love it at some point this year, just like we did last year, I would hope to share with you guys that for some point in time, we're in all 8 regions at once. Operator: And we have reached the end of the question-and-answer session. And therefore, I would like to turn the call back over to CEO, Adam Michaels, for closing remarks. Adam Michaels: Thank you, operator, and thank you again to each of you for joining us today. Fiscal '26 showed what this organization is capable of when every element of the strategy is aligned and executing. Our revenue growth, margin expansion, successful integration and strengthened financial position have prepared us for what I believe will be an even more exciting fiscal '27. We have the platform, the people and the products to execute on our vision of becoming the leading national one-stop shop deli solution provider. We are riding a wave that is only getting stronger with a shift that has been reinforced with capital and capacity and an embolden crew who are harnessing these new capabilities. Our strategy has charted a course for deli leadership, and we are unwavering in our commitment. As always, we appreciate our shareholders' continued support and look forward to updating you on our progress in the quarters ahead. Thank you. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
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: Greetings, and welcome to Rent the Runway's Q4 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cara Schembri, Chief Legal and Administrative Officer. Thank you. You may begin. Cara Schembri: Hello, everyone, and thanks for joining us today. During this call, we will make references to our Q4 fiscal year 2025 earnings presentation, which can be found in the Events and Presentations section of our Investor Relations website. Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include guidance and underlying assumptions for the first quarter and fiscal year 2026 and statements regarding our 2026 business plans and initiatives and financial position. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially. These risks, uncertainties and assumptions are detailed in today's press release as well as our filings with the SEC, including our Form 10-K that we plan to file shortly. We have no obligation to update any forward-looking statements or information, except as required by law. During this call, we will also refer to certain non-GAAP financial information. This presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in our press release, slide presentation on our investor website and in our SEC filings. And with that, I'll turn it over to Jen. Jennifer Hyman: Thanks, Cara, and thank you, everyone, for joining today. One year ago, we announced that we were making our biggest inventory investment in Rent the Runway history to drive growth. We made a calculated bet based on over 15 years of data and experience that increasing our inventory investment was the strongest lever to unlock customer growth. Today, I am proud to report that this strategy has been successful. In fiscal year 2025, we grew our active subscriber base by 20%, ending the year with 144,000 subscribers. Our goal -- our growth was primarily a result of our inventory strategy and a return to customer obsession throughout the company, marked by a year of continuous transformation of our customer experiences and marketing to make Rent the Runway easier to use, more personalized and more centered around our community. Our customers have responded with record levels of enthusiasm. Our subscription Net Promoter Score grew 39% versus last year and has more than tripled since 2022. We also improved the health of the Rent the Runway model by completing a strategic recapitalization that reduced our total debt from approximately $319 million to $120 million, strengthening our balance sheet and adding investors around the table who are focused on equity value creation. We believe that the data is clear. More choice leads to higher customer loyalty. Inventory-related cancellations dropped 7.6% year-over-year in Q4, and our engagement metrics from app visits to hearts per subscriber have accelerated throughout the year. Today, our average subscriber visits our app 15 times per month, an almost 50% increase over 2024 levels. As we enter fiscal year 2026, we remain committed to our inventory focused strategy and are continuing to make large investments in inventory, but are taking it to the next level. If 2025 was about inventory acquisition, 2026 is about discovery. We are working to move beyond the traditional e-commerce grid and leveraging AI technology to deliver the closet of her dreams with more choice and flexibility than ever before. We are also embarking on a new set of revenue-generating strategies to expand the services we bring to our customers and brand partners, including piloting an online marketplace, launching B2B dry cleaning services, expanding our advertising revenue program and more. First, I want to take you through our 2026 inventory plan, which is built on three pillars. One, opportunistic procurement. In a tumultuous retail environment, premium brands are seeking immediate liquidation of inventory. We see a rare opportunity for Rent the Runway to access high-cost categories and elevated brands at attractive economics. Two, exclusive design momentum. Building on the success of 2025, we are expanding our exclusive design partnerships. These collections are designed to provide our customers with brands they demand at roughly 40% lower cost on average; three, revenue share growth. We also expect a significant increase in the number of brands and the overall percentage of inventory in our Share by RTR program, which allows us to scale inventory with lower upfront costs. To maximize the value of this inventory, we aim to revolutionize the way our customers explore it, reimagining the front-end experience through AI-driven enhancement. Over the next few quarters, we are planning a series of innovative launches designed to improve the customer experience. One, via outfit groupings. Traditional e-commerce often makes you search for one unit at a time in a sea of endless grid pages, which can exhaust the user and drive online conversion to be lower than off-line conversion in retail. We're working to transform our experience to help our customers discover complete looks and curated aesthetics. Our customer will no longer have to do the work of imagining what combination of items they should rent together or how one would wear a specific item to make it more dressy, more casual, appropriate for the office or vacation ready. Think of this as having a stylist in your pocket at all time. Two, via a robust PDP. We are also transforming the product detail pages from a traditional landing page into a living experience. This includes adding more visual versatility, seeing items on different models and sizes, images and motions and AI-driven styling and fit advice so customers feel like renting the item is less of a risk for them. And, three, via conversational search, improving use case search functionality. Ultimately, our vision is a state-of-the-art conversational agent that allows her to search for what to wear to a destination wedding in Italy rather than just moral dress. While our customer-facing AI investments prioritize discovery, we are also focused on leveraging machine learning to improve our back-end operations, which we expect to drive team productivity and margin efficiencies. Via one, quality control. We are integrating AI technology into our quality control processes, which is intended to optimize quality and cost in our operations. By utilizing computer vision to identify wear and tear, we believe we can better salvage inventory, ensuring more units remain in peak rotation for longer while reducing manual labor costs. Two, via dynamic pricing. We also plan to leverage machine learning to move toward even more efficient dynamic pricing, which we expect to better maximize the yield of the units in our ecosystem. And three, via team productivity. We are also infusing AI into how we work. For example, we are utilizing AI-assisted coding to increase the velocity of our technical team. We expect that this will enable us to ship more product updates and new features like our recent back in-stock notifications faster and more efficiently. Alongside our technical evolution, our goal is to drive growth in fiscal year 2026 through bold authenticity. The paradigm for brand expansion has shifted. While acquisition via paid ads was once the primary lever, we believe that today's consumers demand more genuine connection. In 2025, we successfully piloted an expansion of our organic community-led channels. Our Muse Program, a community-generated content engine, surpassed 13 million impressions in Q4 alone, while our City Ambassador Program that we launched in October 2025 has scaled rapidly to over 1,000 on the ground evangelists. In full year -- fiscal year 2026, we are reallocating a significant portion of our paid marketing budget to further scale this word-of-mouth engine. Furthermore, we're leaning into answer engine optimization and SEO strategies designed to ensure Rent the Runway is the top destination for discovery online. By optimizing for how the next generation discovers fashion on TikTok, Instagram and AI search interfaces, we want Rent the Runway to be the premier destination for fashion. Membership flexibility and revenue optimization. We will also aim to drive higher revenue per customer in 2026 by expanding membership flexibility. In fiscal year 2025, we saw significant success with our subscription add-on business, which accelerated throughout the year, driven by the launch of back-in-stock notifications in Q1, followed by add-on pricing transparency and instant gratification one-off shipments in Q3. In Q4 2025, our add-on revenue was up 67% versus the prior year. In 2026, we plan to build on this traction by scaling our resale and reserve businesses for our customers through smarter pricing and discounting. Our customer wants more from Rent the Runway, and our goal is to give her the freedom to get exactly what she wants precisely when she wants it. Lastly, this year, we are aggressively pursuing revenue diversification by leveraging our existing infrastructure and high-value customer base to build a more robust ecosystem. In March, we launched a pilot of our Rent the Runway marketplace with a small subset of our most loyal subscribers. The marketplace is designed to fill the gap that exists in our customers wardrobe between her rental assortment and the total look she desires by providing a highly curated assortment of shoes, shapewear, basics, beauty products and more available for purchase. The goal is to increase the attach rate of orders by providing the wardrobe essentials that complete her rental book. Our research shows the demand. 86% of members surveyed are interested in purchasing these complementary items from us. Beyond the closet, we are also focused on scaling our advertising and media business, which we expect to grow significantly this year. While we've tested various iterations of what our media business could look like in prior years, we've seen success with 360-degree brand partnerships, connecting our customers with significant brand partners like Air France, who recognize the value of our highly engaged, high net worth customer who's often at a pivotal life moment where she is making meaningful financial and lifestyle decisions. Finally, we are taking steps to monetize our best-in-class logistics infrastructure through initiatives like B2B dry cleaning services, which we launched with one partner in March. While these initiatives are all still in early stages, we aim to lay the groundwork to realize meaningful revenue and margin expansion over the coming months and years with this diversification. In short, we are not sitting still, we are actively working to build a durable multifaceted platform that defines the future of fashion consumption. To conclude, I firmly believe that Rent the Runway is in the strongest position in years, operating from a foundation of financial stability and renewed growth. As we look forward to fiscal year 2026, we are committed to staying at the forefront of the modern consumer experience with a laser focus on defining the next era of fashion discovery by leveraging AI technology, doubling down on authenticity through our community and providing unrivaled flexibility for our customers. With that, I'll hand it over to Sid. Siddharth Thacker: Thanks, Jen, and thank you, everyone, for joining us. I believe that fiscal year 2025 marked an important turning point for Rent the Runway. As Jen mentioned earlier, we accomplished a return to strong ending active subscriber and revenue growth by Q4 and significantly improved our balance sheet. Further, we believe we've set a solid foundation for future growth by adding almost double the new receipts in fiscal year 2025 compared to fiscal year 2024. Units with inventory per subscriber grew over the course of the year, and we expect that our subscribers will continue to feel the benefits of this inventory investment in the years to come. Fiscal year 2025 also provides a playbook for future growth that we intend to execute on in fiscal year 2026 and beyond through a combination of product and inventory-driven initiatives. I'd like to take a moment to discuss free cash flow for fiscal year 2025 and why we believe we will see improving trends in fiscal year 2026. The accomplishments described above were accompanied by higher cash consumption with free cash flow declining to negative $46 million in fiscal year 2025 from negative $7.2 million in fiscal year 2024. The primary reason for this decline is our decision to front-load inventory investments in fiscal year 2025 to more rapidly improve the customer experience and ignite growth. We typically monetize our inventory over several years, and I'm pleased with the results of the additional investments we have seen so far. As a reminder, subscriber growth is highly free cash flow accretive in the years after a subscriber is acquired, given we only need to replace inventory that is lost, damaged or sold to a subscriber in subsequent years. The replacement cost of that inventory is typically a fraction of the initial investment in inventory we need to make for growth. We expect to make good underlying progress on both growth and free cash flow in fiscal year 2026. Given the step change in inventory purchases in fiscal year 2025, we don't anticipate significant increases in new inventory receipts in fiscal year 2026. Despite this, we believe that the combination of a large inventory buy in fiscal year '25 and our fiscal year '26 purchases will result in continued improvement in the inventory experience of subscribers in fiscal year 2026. While we do expect higher revenue share payments in fiscal year 2026 as the base of revenue share inventory increases, we expect significantly lower capital expenditures for rental products. This, combined with a higher subscriber base and the remaining impact of our August 2025 price increase is expected to result in improved free cash flow in fiscal year 2026 as outlined by our adjusted EBITDA and rental product acquired guidance. In summary, we feel good about our accomplishments in fiscal year 2025 and look forward to continued progress this fiscal year. Let me now review results for the fourth quarter before turning to Q1 and full year 2026 guidance. We ended Q4 '25 with 143,796 ending active subscribers, up 20.1% year-over-year. Average active subscribers during the quarter were 146,356 subscribers versus 126,148 subscribers in the prior year, an increase of 16% year-over-year. Subscriber growth was driven primarily by a higher base of active subscribers at the end of Q3 '25 versus the same period in fiscal 2024, higher subscriber acquisitions due to higher marketing and promotional activity and improved subscriber retention versus Q4 '24. Ending active subscribers decreased 3.4% from 148,916 subscribers in Q3 '25, primarily due to seasonal factors. Total revenue for the quarter was $91.7 million, up $15.3 million or 20% year-over-year and up $4.1 million or 4.7% quarter-over-quarter. Subscription and reserve rental revenue was up $13.2 million or 20.4% year-over-year in Q4 '25, primarily due to higher average subscribers and higher average revenue per subscriber due to the subscription price increase effective August 1, partially offset by lower reserve revenue versus Q4 '24. Other revenue increased $2.1 million or 17.8% year-over-year. Fulfillment costs were $21.6 million in Q4 '25 versus $20.2 million in Q4 '24 and $24 million in Q3 '25. Fulfillment costs as a percentage of revenue was 23.6% of revenue in Q4 '25 compared to 26.4% of revenue in Q4 '24. Fulfillment costs declined as a percentage of revenue primarily due to higher revenue per order driven by our August price increase, partially offset by higher transportation costs as a result of carrier rate increases and higher warehouse processing costs. Gross margins were 38.6% in Q4 '25 versus 37.7% in Q4 '24. Q4 '25 gross margins reflect lower fulfillment and rental product depreciation and write-off costs as a percentage of revenue, partially offset by higher revenue share costs as a percentage of revenue due to greater Share by RTR inventory levels. Q4 '25 gross margins increased quarter-over-quarter from 29.6% in Q3 '25, primarily due to lower fixed revenue share costs as a percentage of revenue due to seasonally lower receipt of Share by RTR inventory, the impact of higher revenue per order and fulfillment expenses as a percentage of revenue and the impact of a full quarter of the price increase implemented last quarter. Q4 '25 operating expenses were 3.6% higher year-over-year due primarily to higher technology expenses. Total operating expenses, which include technology, marketing and G&A were 37.9% of revenue in Q4 '25 versus 44% of revenue in Q4 '24 and 45.1% of revenue in Q3 '25. Adjusted EBITDA for Q4 '25 was $18.3 million or 20% of revenue versus $17.4 million or 22.8% of revenue in Q4 '24. Note that adjusted EBITDA margins for Q4 '25 were positively impacted by 2.1% due to the reversal of incentive compensation accruals during the quarter. The decrease in adjusted EBITDA as a percentage of revenue versus the prior year is primarily a result of higher revenue share expenses as a percentage of revenue due to greater Share by RTR inventory levels, partially offset by lower operating expenses as a percentage of revenue and lower fulfillment costs as a percentage of revenue. Free cash flow for Q4 '25 was $0.5 million versus $2.1 million in Q4 '24. Free cash flow decreased versus the prior year, primarily due to higher purchases of rental products on account of our inventory strategy for fiscal year 2025. Free cash flow for fiscal year 2025 was negative $46 million compared to negative $7.2 million in fiscal year 2024 on account of the significant investment in inventory to improve customer experience and drive revenue growth. I will now discuss guidance for Q1 2026 and fiscal year 2026. For Q1, we expect revenue to be between $85 million and $87 million, representing growth of between 22% and 25% versus Q1 '25. The sequential decline in revenue from $91.7 million in Q4 '25 is primarily expected to be driven by lower resale revenue in Q1 '26 versus Q4 '25. Note that this sequential decline in retail revenue is consistent with prior years and reflects higher sales of inventory during the holiday season. We expect Q1 '26 adjusted EBITDA margins to be between negative 5% and negative 7% of revenue compared to negative 1.9% of revenue in Q1 '25. The decline in adjusted EBITDA margins year-over-year despite higher revenue and the impact of our August '25 -- August price increase primarily reflects significantly higher revenue share expenses. Fixed revenue share payments are expected to be higher in Q1 '26 due to a much larger proportion of inventory receipts from our revenue share channel versus Q1 '25. We also expect higher variable revenue share expenses due to the higher base of revenue share inventory acquired throughout fiscal year 2025. For fiscal year 2026, we expect double-digit growth in revenue versus fiscal year 2025. I wanted to point out a few factors to keep in mind when thinking about revenue growth this year. First, revenue growth beginning in Q3 '25 was positively impacted by the price increase enacted in August of 2025. As a result, we expect stronger year-over-year revenue growth in the first half of fiscal 2026 compared to the second half when we begin to face comparisons against prior periods that already have the impact of the price increase. Second, ending active subscriber growth in Q4 '25 of 20.1% versus Q4 '24 was influenced in part by the significant decline in active subscribers towards the end of fiscal year 2024 on account of reductions in marketing spending. We expect to see a deceleration in year-over-year ending active subscriber growth versus the 20.1% growth seen in Q4 '25 in subsequent quarters as we compare against periods with more robust subscriber additions in fiscal year 2025. Regardless, we feel good about the underlying progress of the business and expect, as mentioned earlier, double-digit revenue growth for the full year. For fiscal year 2026, we expect adjusted EBITDA to be between 4% and 7% of revenue compared to 7.5% of revenue in fiscal year 2025. We expect full year 2026 adjusted EBITDA as a percentage of revenue to be negatively impacted by a significantly higher mix of revenue share units as a percentage of the new buy versus fiscal year 2025. This, combined with higher revenue share units received throughout fiscal year 2025 will result in higher revenue share expenses as a percentage of revenue in fiscal year 2026 versus fiscal year 2025. As outlined in our press release, we expect rental products acquired in fiscal year 2026 to be between $45 million and $50 million compared to $74.9 million in fiscal year 2025, a decline of approximately $25 million to $30 million year-over-year. It is important to think about adjusted EBITDA margins in conjunction with our guidance for rental products acquired through our non-revenue share channels when thinking about the cash impact of our adjusted EBITDA margin guidance for the fiscal year. As you know, revenue share payments are expensed and affect adjusted EBITDA, whereas payments for non-revenue share inventory are reflected as capital expenditures and don't affect adjusted EBITDA. As our inventory mix continues to shift towards revenue share, our guidance for adjusted EBITDA margins and rental products acquired should be considered together to understand the impact on cash. We feel good about the underlying progress on cash consumption in fiscal year 2026 versus fiscal year 2025. Finally, I would emphasize that the macroeconomic and geopolitical environment remains highly uncertain with potential impacts on transportation costs, fuel surcharges and consumer confidence. Our guidance is based on current conditions and assumptions, and does not contemplate material deterioration or volatility in these factors. Accordingly, actual results may differ materially if such conditions change. In conclusion, we're pleased with the improved growth momentum we have seen. I echo Jen's conviction that Rent the Runway is in the strongest position it has been in several years. We look forward to continuing to delight our customers and to driving sustainable growth along with improving free cash flow in the years ahead. Thank you, everyone, for joining us. We look forward to speaking to you next quarter. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter Fiscal Year 2026 CarMax, Inc. Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Lowenstein, Vice President, Investor Relations. Please go ahead. David Lowenstein: Thank you, Nikki. Good morning, everyone, and thank you for joining our fiscal 2026 first quarter earnings conference call. I'm here today with Bill Nash, our President and CEO, Enrique Mayor-Mora, our Executive Vice President and CFO, and Jon Daniels, our Executive Vice President, CarMax Auto Finance. Let me remind you, our statements today that are not statements of historical fact, including, but not limited to, statements regarding the company's future business plans, prospects, and financial performance, are forward-looking statements we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our current knowledge, expectations, and assumptions and are subject to substantial risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, we disclaim any intent or obligation to update them. For additional information on important facts and risks that could affect these expectations, please see our Form 8-Ks filed with the SEC this morning and our annual report on Form 10-Ks for fiscal year 2025 previously filed with the SEC. Should you have any follow-up questions after the call, please feel free to contact our Investor Relations department at (804) 747-0422, Extension 7865. Lastly, let me thank you in advance for asking only one question and getting back in the queue for more follow-ups. Bill? Bill Nash: Thank you, David. Good morning, everyone, and thanks for joining us. Our first quarter results highlight the strength of our earnings growth model, which is underpinned by our best-in-class omni-channel experience, diversity of our business, and a sharp focus on execution. Across the company, we are operating with a continuous improvement mindset. We are focused on growing sales and gaining market share, expanding gross profit, managing CAF's credit spectrum expansion, leveraging SG&A, and buying back shares. This focus, combined with our ability to provide a unique customer experience across our large total addressable market, provides a long runway for profitable growth. In the first quarter, on a year-over-year basis, we grew retail and wholesale unit volume. We delivered robust retail, wholesale, EPP, and service GPUs. We bought more vehicles from both consumers and dealers, achieving an all-time record with dealers. We grew CAF's net interest margin and continued to advance our full credit spectrum underwriting and funding model. We materially leveraged SG&A as a percent of gross profit. We doubled the pace of our share repurchases, and we achieved 42% EPS growth. This marks our fourth consecutive quarter of positive retail unit comps and double-digit year-over-year earnings per share growth. During the period, we delivered total sales of $7.5 billion, up 6% compared to last year, reflecting higher volume partially offset by lower prices. In our retail business, total unit sales increased 9%, used unit comps were up 8.1%. Average selling price was $26,100, a decrease of approximately $400 per unit year over year. First quarter retail gross profit per used unit was an all-time record driven by strong demand and operating efficiencies across our logistics network and reconditioning operations. Wholesale unit sales were up 1.2% versus the first quarter last year. Average wholesale selling price declined approximately $150 per unit to $8,000. Wholesale gross profit per unit was historically strong and similar to last year. We bought approximately 336,000 vehicles during the quarter, up 7% from last year. We purchased approximately 288,000 vehicles from consumers, with more than half of those buys coming through our online instant appraisal experience. Enrique Mayor-Mora: With the support of our Edmund sales team, we sourced the remaining approximately 48,000 through dealers, which is up 38% from last year. Our digital capability supported 80% of our retail unit sales during the first quarter, 66% were omni, and 14% were online. Relative to traditional and online-only dealers, we are the only nationwide retailer to offer an integrated, simple, seamless, and personalized experience to meet the largest and growing segment of used car buyers. According to Cox Automotive Research, as well as our own, the majority of customers shopping for used cars intend to transact via an omni experience. The combination of our associates, stores, technology, and digital capabilities all seamlessly tied together is a key differentiator that gives consumers the optionality to shop online, in-store, or a combination of the two. Our Net Promoter Score is the highest it's been since rolling out our digital capabilities nationwide. Supported by new record-high online and omni scores, reflecting that this experience is resonating well with customers. Our differentiating offering gives us a unique opportunity to reach more customers. To further capitalize on this opportunity, we're excited to launch a new marketing campaign later in the summer that will bring our omnichannel experience and our digital capabilities to the forefront for a broad set of consumers. And now I'll turn the call over to Jon to provide more detail on CarMax Auto Finance. Jon? Jon Daniels: Thanks, Bill, and good morning, everyone. During the first quarter, CarMax Auto Finance originated over $2.3 billion, resulting in sales penetration of 41.8% net of three-day payoffs, which was 150 basis points below last year. The weighted average contract rate charged to new customers was 11.4%, in line with last year's first quarter. Cash reduction in penetration was primarily driven by an influx of self-funded higher credit purchasers seen during the initial announcement of tariffs, and to a lesser degree, higher Tier 3 penetration, both of which more than offset our expansion since Q4. Third-party Tier 2 penetration in the quarter was down 100 basis points year over year to 17.7% of sales, while third-party Tier 3 volume accounted for 8% of sales, up from 7.5% last year. CAF income for the quarter was $142 million, which was down $5 million from FY '25. Net interest margin was 6.5%, up over 30 basis points from last year as customer APRs outpaced the increase in our funding costs. CAF's loan loss provision of $102 million was impacted by several notable items. First, Q1 is a seasonally higher sales and lower credit quality period, requiring a larger provision for newly originated volume. Second, loss performance within the quarter, particularly within 2022 and 2023 vintages, along with the uncertain economic outlook, necessitated additional loss reserves. Note that 2024 vintages remain largely in line with our original loss expectations. The last noteworthy item impacting the Q1 provision relates to CAF's continued build-out of our full spectrum lending capabilities. While we remain focused on increasing our penetration across the credit spectrum, we also want to carefully manage future risk from higher profit, higher loss receivables. To that end, during the quarter, we earmarked a held-for-sale pool of loans with a $632 million principal balance from our non-prime portfolio. That loan pool is intended to be fully sold off our balance sheet as a part of a non-prime securitization transaction. In the immediate term, this treatment removes the requirements to reserve for future losses expected on this pool of receivables. In the period in which the ABS transaction closes, capital book any gain realized by selling the financial interest in the loans. Also, risk of any financial impact from this pool due to future deterioration is removed once sold. This additional funding lever, as well as other off-balance sheet funding vehicles under consideration, will provide CarMax with significant flexibility, allowing us to mitigate risk while focusing on our growth plan. Loan loss provision of $102 million results in a total reserve balance of $474 million or 2.76% of managed receivables exclusive of auto loans held for sale. Note there was a reduction on this quarter's provisions stemming from $26 million in the reserve allocated to loans booked prior to the first quarter now classified as held for sale. As we reflect on the bigger picture, CAF has delivered solid income for yet another quarter. We see tremendous potential for the future. Now I'd like to turn the call over to Enrique to discuss our first quarter financial performance in more detail. Enrique? Enrique Mayor-Mora: Thanks, Jon, and good morning, everyone. As a reminder, last quarter, we provided a view into the strength of the earnings model that we have built as part of our omni transformation. This model is designed to deliver an annual earnings per share CAGR in the high teens when retail unit growth is in the mid-single digits. First quarter results delivered net earnings per diluted share of $1.38, up 42% versus a year ago. Total gross profit was $894 million, up 13% from last year's first quarter. Used retail margin of $554 million increased by 12%, with higher volume and per unit margin. Retail gross profit per used unit was $2,407, up $60 from a year ago, and a record high. Wholesale vehicle margin of $157 million was flat from a year ago, with an increase in volume offset by a slight reduction in per unit margins. Wholesale gross profit per unit was $1,047, which was historically strong, though down slightly from a year ago. Other gross profit was $183 million, up 31% from a year ago. This was driven primarily by a combination of EPP and service. EPP increased by $13 million or $9 per retail unit as we fully comped over margin increases taken in the prior year. Service recorded a $33 million margin, which was a $30 million improvement over last year's first quarter. We achieved this performance improvement through cost coverage, volume-based leverage, and efficiencies. On the SG&A front, expenses for the first quarter were $660 million, up 3% or $21 million from the prior year. SG&A to gross profit leveraged by 180 basis points to 74%, driven by the growth in gross profit and our ongoing actions to improve expense efficiencies. SG&A dollars for the first quarter versus last year was mainly impacted by compensation and benefits increase of $19 million. The majority of this increase was related to unit volume growth. We continue to deliver efficiency gains across the business. We are off to a strong start in achieving our goal of omni cost neutrality in fiscal year 2026 for the first time across three key metrics. In the first quarter, we were both more efficient versus pre-OMNI and versus last year per used unit, per total unit, and as a percent of gross profit. Recall that this compares the variable commission cost of selling and buying vehicles in our pre-Hyundai model to our cost now, which includes a new per unit commission as well as the cost of running our customer experience centers. A key driver of these efficiency gains and experience enhancements has been our strategic deployment of AI technology across our operations. A few key metrics that illustrate the progress we are making year over year include Sky, our AI-powered virtual assistant, realized a 30% improvement in containment rate. Our customer experience consultants' productivity improved by 24%. And phone and web response rate SLAs improved by double digits. We see tremendous opportunity to continue expanding AI applications across our business to drive both the top-line growth and operational excellence. Turning to capital allocation, we remain committed to creating long-term shareholder value. Our priorities are clear: invest in the core business, primarily through the reallocation of resources, evaluate new growth opportunities through investments, partnerships, or acquisitions, and return excess capital to shareholders. During the first quarter, we accelerated the pace of our share repurchases, buying back approximately 3 million shares for a total spend of $200 million. As of the end of the quarter, we had approximately $1.74 billion repurchase authorization remaining. Looking forward to the balance of the year, I'll cover a few items. We expect service margin to grow year over year predominantly in the first half of the year and to deliver a positive profit contribution for the full year, as governed by sales performance, given the leverage/deleverage nature of service. Recall that the first quarter is typically the strongest for service margin due to higher seasonal sales volume. Turning to marketing, we expect for the full year that our spend on a total unit basis will be flat year over year. Regarding CAF's funding strategy, our current plan is to execute the programmatic off-balance sheet sale of the financial interest in the non-prime securitization once a year. As Jon noted, we will also be assessing additional off-balance sheet funding levers to further accelerate CAF penetration while continuing to learn from our full spectrum models. Now I'll turn the call back over to Bill. Bill Nash: Great. Thank you, Enrique and Jon. Before I open it up for questions, let me summarize what you heard from us today about our strong first quarter. We delivered our fourth consecutive quarter of positive retail unit comps and double-digit earnings per share growth. We grew both retail and wholesale unit volume. Our sourcing efforts hit another milestone with a record dealer volume through Max Offer, and we continue to leverage our cost structure with meaningful SG&A improvement. Our digital capabilities and overall experiences are resonating with customers, as evidenced by our Net Promoter Score. We're also continuing to leverage AI across the business to further enhance the experience for both customers and associates and to increase operational efficiencies. We're taking the next steps in our credit expansion by delivering a new funding method for a portion of our non-prime portfolio that mitigates risk, gives us more flexibility, and supports the growth of CAF income. And we doubled our share repurchase pace. Our associates, stores, technology, and digital capabilities all seamlessly tied together enable us to provide the most customer-centric car buying and selling experience. This is a key differentiator in a very large and fragmented market that positions us to continue to drive sales, gain market share, and deliver significant year-over-year earnings growth for years to come. I want to thank our associates across the country for their dedication in delivering these results and providing an unmatched experience for our customers. With that, we'll be happy to take your questions. Thank you. Operator: Thank you. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question by pressing star 2. Once again, to ask a question, please press star and 1 on your telephone keypad. And your first question comes from the line of Brian Nagel with Oppenheimer. Your line is open. You may now ask your question. Brian Nagel: Nice quarter. Congratulations. Really nice quarter. Bill Nash: Thank you, Brian. Thank you. Brian Nagel: So I guess the question I want to ask, we've seen a nice acceleration here in your used car business. I know you don't typically talk much about intra-quarter trends or into the following quarter. But I would love to the question I ask is, I mean, how are you viewing sustainability here? You look at this, is it the business coming back? Is there anything unique to this reacceleration? And then a, you know, follow-up to that is, and you showed again in this quarter nice SG&A leverage, but as we're thinking about sales continuing to restrain in here, how should we consider expenses coming back into the model? To what degree expenses need to come back to the model to support those sales? Thanks. Bill Nash: Sure, Brian. I'll take the first one. Then Enrique, you want to talk about the expenses. As far as, you know, acceleration, look, Brian, we feel really good. I mean, first of just back up a second. We're really pleased that this is the fourth consecutive quarter of comp growth. Obviously, this quarter, we're pleased with the comps. Especially, you know, all three months were positive. As I think about the acceleration and we talked a little bit about this last quarter. I know, I think this month's quarter's performance is driven some by the macro factors, but I also think it's driven some by what we have control. And I would go back to some remarks I made in the last quarterly call, which is, you know, the quarter started off strong, and then we saw an uptick at the end of the quarter when there was speculation about the tariffs. And then I talked about that uptick towards the latter part of March, and then rolling into April, we saw another little uptick. And so April ended up being the strongest month for us. But would just go back to even before we saw that the initial uptick, the business was growing, was doing well. And I think that's a reflection of a lot of the work that we've done, you know, internally, whether it's the inventory management, it's our pricing, it's our savings, it's the omnichannel experience, continue to make that better. So I think this performance is both part market-driven. I think it's also driven by us. So, you know, we feel great about the rest of the year. As I said, at the beginning of the end of last year, that we expect to grow sales and gain share this year, and there's nothing that's changed that outlook. Enrique? Enrique Mayor-Mora: Yeah. For SG&A, you know, Brian, we spent the past couple of years being able to lever SG&A, and that's really given all the actions we've taken on focusing on efficiency. And, you know, we're committed to continuing to lever the business. I do think this quarter is really illustrative of the power of the model that we built. So strong comps, and we levered SG&A almost 700 basis points this quarter. And when you look at the increase in SG&A for this quarter, primarily, it was driven by variable cost. But, again, with those variable costs, we were able to lever again, by almost 700 basis points, taking us to the mid-70% in the first quarter. So, you know, we're committed to continue doing that, and you can see the power of the model here. Bill Nash: Yeah. And, Brian, the only thing I would add to that is that's a big focus for us is continuing that leverage and just we certainly like the additional volume and how it helps that, but we're also very much focused on continuing to find efficiencies, continuing to take SG&A out. And we just think there's a lot of opportunities still there. Brian Nagel: Thanks, guys. Again, congrats. Enrique Mayor-Mora: Thanks, Brian. Bill Nash: Thank you. Operator: Our next question comes from Scot Ciccarelli with Charisse. Please go ahead. Your line is open. Scot, your line is open. Scot Ciccarelli: Good morning, guys. Bill Nash: I apologize. Good morning. Bill, I know you guys don't guide, but with comp growth kind of bouncing around a bit the way it has, and comparisons getting much more difficult in the balance of the year, how should we, from an outside modeling perspective, be thinking about that comp growth on a go-forward basis? Are we thinking about stacks? Is that something that like two-year stacks or three-year stacks, is that relevant? I know, obviously, there's a lot of moving pieces on the macro, and you guys are making all the changes that you've already cited. But just from a broader perspective, like, how should we be thinking about this? Comp growth for the balance of the year? Bill Nash: Yeah. I'll tie it back a little bit to what I talked about and Brian, but, you know, as far as, like, you can look at two-year stacks, three-year stacks. They tell a little bit of a mixed story. I think that's you can't rely 100% on that because there's lots of dynamics that happen over the years. And you know, as far as the outlook for the rest of the year, look, we feel like we put ourselves in a good position. And as I said in to Brian's question, we don't we're not changing our outlook for the year based off of what we laid out there for the beginning of the year. And so we expect to continue to grow sales and continue to gain market share and nothing has changed that outlook. So okay. Scot Ciccarelli: And then I'll take a quick follow-up if I can. Can you just provide a little bit more color on the shift on the non-prime like if I heard you correctly, it sounded like there was going to be another $26 million provision. But you don't have to count it because it's now being held for sale. Was that correct interpretation? Bill Nash: Sure. Yeah. I can take that question, Scot. So first, overarching, let's just talk about the Help Yourself transaction. Broader picture, like, are super excited about our full spectrum strategy. You look at what we put in place, we bifurcated our securitization program. We've implemented our new models. We've executed two transactions where we held the future cash flows. This is the next step. The sell-for-sale transaction is something we have been thinking about along with other off-balance sheet transactions, but it was just the right time to move on this thing. So the mechanics of it is ultimately, for those receivables, you do not need to hold any loss reserve because you have intent to sell them. So those $630 million we're able to not have to put dollars into the reserve. So that works for you and your provision line. Beyond that, there's no future risk there associated with those receivables if there were deterioration. Mentioned that in the prepared remarks. So that, again, is a risk mitigant there. Especially really well targeted to this non-prime space, which we're looking to really drive growth in. On top of that, you're gonna capture the gain when this sale closes. Know when the sale will close, but you can imagine it's probably not in Q2, but sometime after that. Which is gonna bring all of those cash flows upfront for us. So rather than earning them over time, we get them right upfront. So, again, a really pivotal thing for us in our strategy and just an extra tool in our toolkit. Regarding the provision in the quarter, just as you mentioned, just to play that out, So, again, you had your origination volume, We signaled about a $100 million provision, at the in the Q4 call. We landed on that number, but there were puts and takes there. You had some increase in the provision from the true-up 2022 and 2023 vintages, which we've mentioned. The economic view that we have, we've put aside not an insignificant amount of dollars for that as well. But, again, this held for sale, you're able to offset some of that with dollars you no longer have to hold in the reserve. So long answer, wanna lay out the entire transaction. How it plays out, and how the provision was impacted by that. So, hopefully, that's clear. Bill Nash: I think, Scot, you know, I would add to that is we're really excited about the program. I think a simple way to think about it is that it really enables full spectrum and cap income growth mitigating risk. So it's a tool that we're excited about. As Jon had mentioned in his remarks, we're also looking at other ops balance sheet potential funding vehicles as well. To further accelerate and help us grow our full spectrum strategy. Scot Ciccarelli: Okay. Super helpful. Thanks, guys. Enrique Mayor-Mora: Yep. Operator: Thank you. Our next question comes from Michael Montani with Evercore. Please go ahead. Your line is open. Michael Montani: Yes. Hey, guys. Good morning. Bill Nash: Thank you. Michael Montani: Just wanted to ask, I guess, a two-parter, but the first part was you made a really interesting comment in the prepared remarks about doing a marketing campaign to kind of aware folks to your multichannel capabilities. So I'm just kind of wondering, can you share some basic levels of awareness kind of prior to that campaign and what exactly it is you're doing differently there. Enrique Mayor-Mora: And then I guess the follow-up was just also related to credit, which was, you know, does this signal that you'll be kind of increasing subprime penetration as a percentage of the loans that you're issuing as well? Michael Montani: And just how should we think about that? Bill Nash: Yeah. Great. I'll hit the marketing, then I'll pass it to Jon to talk about the subprime question. As far as the marketing goes in kind of awareness there, like, we've had we've built up our awareness on both digital capabilities and the fact that we can do an online sale. So that's been increasing through our marketing campaigns in the past. I think I talked about the last call, you know, we've gone with a new ad agency, seventy-two and Sunny, and we're really pleased with how the relationship is going. And you know, I cited some Cox information, and I did that purposeful because if you look at how customers want to buy, they intend to buy omni. But if you look at how the vast majority of them still buy today, it's all in-store. And I think what happens is consumers they want to buy a certain way, but then they settle. They go into a dealership and they're forced to buy a certain way. And what we want to make sure that we educate the consumers on is that, look, you don't have to settle. You don't have to go for the one way a deal has. You have optionality. So I think the campaign build-out is, like, don't settle. Like, you know, CarMax has the best no matter how you want to buy. And I think that is really gonna start to resonate folks as they're looking for options in the future. Jon, I'll turn over to you on the subprime. Jon Daniels: Yeah, Michael. I'll take that take your question on the subprime growth. And yeah. Fair question. Short answer is absolutely, we are looking to grow. We've signaled that very clearly. We made adjustments at the beginning of Q1 taking volume back. We signaled 100 to 150 basis points of growth. Now that was muted because of a lot of stuff that happened in the first quarter tariffs, etcetera. We cited that in the prepared remarks. But, yes, we are if you look at what we're doing from our full spectrum strategy, we're putting things in place that allow and fuel that growth, especially we think this hub for sale supports that. So if I were signaling, you know, a level to you of penetration, because, again, we're at 42, 43% historically, We said we want to grow that. I put the a great first step for us at 50%. We're not gonna get there this year. We will tell you as we grow that. But, yeah, that is our plan, and we're really excited about it. A tremendous amount of value as we grow this in the quarters and upcoming years. Thank you. Operator: Our next question comes from Chris Bottiglieri with BNP Paribas. Chris Bottiglieri: Hey, guys. Thanks for taking the question. So first off, congrats on the mental agility around the subprime funding. I think it's an interesting structure. Just have one clarifying question on that, but just a broader question on credit. What percentage of new originations were classified as held for sale? Were those part of the $26 million you cited or would that be incremental? And then my broader question is just, obviously, you elaborate on the, you know, the allowance stepping up and some of the factors that drove that. Much of this is, like, the macro environment with student loan lending? Like, are you seeing, like, as the credit scores have dropped and credit performance in the broader economy has worsened a bit, is that impacting capital? Is that measurable? Like what percentage of your customers have student loan debt? Just curious if that's having an impact at all. Jon Daniels: Sure. Yeah. Appreciate the questions, Chris. Sorry. Take them in order. So, you know, how do we think about the provision takedown from the held for sale? How much was it? From new originations versus the fourth quarter or previous originations we had on the books? That were already in the reserve. I'll just tell you the majority of it was from receivables that were already in the reserve. So, yes, certainly, some of it from Q1, but the majority, were already in the reserve. So it handles that one. Second question, give a little more flavor around what we're seeing in the step up in the reserve, the 2.76%. What we're seeing in performance and as it relates to student loans. Yeah. As I said in the prepared remarks, I think, you know, the twenty-two and twenty-three vintages certainly were, ones that performed more unfavorably in the quarter. We think we have appropriately reserved and adjusted accordingly. I did say in our prepared remarks, actually, 2024, we feel real good about. We're kind of on the mark there, you know, a year in on that stuff. A year plus in on that stuff. Regarding student loans, you know, let's give you some statistics there. In the cap portfolio, about 30% of that we can see the credit bureaus. 30% of our customers have student loans. We've been watching them as you might imagine, for, you know, for years now. With the thought of our payment's gonna be made, what forgiveness is done for those perform and how they performed. Ultimately, what I'll tell you is we have not seen a material change in those customers in the recent year as compared to what we've normally seen. So we're watching this very, very closely as payments are expected as it may impact their credit report, etcetera. We would hope that auto still remains top of wallet share for them. But we'll watch them closely, but no change today. Bill Nash: And, Chris, the only thing I would add there, when you think about kind of what I call the true-up, that was primarily driven by the '22 and '23 vintages. And I just want to remind everybody, even with that, they're still super profitable. And then to a lesser degree, the kind of the economic factors as you lean forward, not immaterial, but I want to make sure everybody understands it's more of the '22, '23s that are driving that. And even with that, they're still very, very profitable. Jon Daniels: Yeah. And to clarify that, last thing I'll tackle on there is unemployment rates, the big one that's driving that. Yeah. Again, not insignificant contributor. Chris Bottiglieri: But not the majority of it. On the economic factors? Correct. Yes. Bill Nash: Helpful. Thank you. Jon Daniels: Yep. Thank you. Operator: Thank you. Our next question comes from Sharon Zackfia with William Blair. Sharon Zackfia: Hi. Thanks for taking the question. I wanted to ask a question on CAF. With the move to full spectrum lending. How far have you gone into kind of the full spectrum so far? Like, how do we think about that for the second half of the year? And then in terms of increasing that cap penetration, I know there was, you know, there were moving parts in this quarter, but do you expect CAF penetration to increase, you know, year over year in the August quarter. Thanks. Jon Daniels: Yeah. Sure. Appreciate the question, Sharon. So let's just break down penetration as it typically sits. You know, CAF has been historically sitting in where it's originally where it's normally originated at 42 to 43%. We've cited our tier two and tier three players taking combined cost 26% of volume. As we grow, is definitely where we're looking to grow. So, we're looking to penetrate that. We think about I think really, yeah, since your question is, you know, how fast will we grow, where, you know, that's really where we're looking to grow down there. I think key for us will be we've got discretizations in play. Looking for the help for Sam transaction that we need to close. That's gotta happen. Just coming up anniversarying all our models. We put in place a 100 to a 150 basis points of growth at the beginning of the quarter. Now as we stated, tariffs really threw a bit of a snafu in that in showing that growth that we realized. But we have made move we have we have made progress as sort of that volume normalizes because so much of it came with none you know, it's coming up with our own financing. As that normalizes, you're gonna see that we have made progress on that. Again, we're gonna look to grow that. We will signal when that when that happens. But I think you're gonna see material growth. We would expect in the not gonna get there this year, Sharon, at that 50% number I labeled, but you're gonna see hopefully, material growth in the quarters to come. Bill Nash: Sharon, the only other thing I you know, when you think about the penetration speed, there's really two governors on that. One is having your funding available and that's certainly taken care of. The other one to to Jon's point, is is your credit model. Remember, you know, we had a lot of experience at the top. We had a lot of experience at the bottom, but then we put full spectrum credit model in there, which we're still testing. I mean, Jon, how long has that been in play that, you know? Jon Daniels: Yeah. August, we launched it. Yeah. So it just takes time to make sure your model is exactly the way. So those are the two governors. Sharon Zackfia: Thank you. Enrique Mayor-Mora: Sure. Thank you. Operator: Thank you. Our next question comes from David Bellinger with Mizuho. Please go ahead. Your line is open. David Bellinger: Hey, everyone. Good morning. Nice results, and thanks for the question here. Another one around the marketing spend in the new campaign and understanding the flexibility for consumers will be front and center. But is some of that new push being driven by this Omnicost neutrality that you mentioned in the prepared remarks? And suggested that CarMax is now ready to flow more digitally initiated volumes in a more profitable way going forward. We're just trying to gauge whether you're seeing a step change within the digital economics of the business and or opting to put more marketing dollars behind that now. Enrique Mayor-Mora: Yeah. I mean, that definitely enables, you know, the push on efficiency, the productivity, customer service, all of those things, again, fueled by AI, fueled by our associates, definitely enabling a better experience, but then makes us feel a lot better. About going out there and advertising and letting letting our customers know incredible experience and highly differentiated experience that they're gonna get through CarMax. Bill Nash: Yeah. I think, you know, David, the way I think about it too is, you know, FY twenty-five was a big year for most from an experience standpoint and really closing some of the last big gaps, you know, with the rollout of order processing and shopping cart. And so we feel like we're at a point where you're gonna go out and celebrate this and really point direct, you know, customer this fact that, like, you don't have to be forced into a fixed path. You better have best in class in store. You better have best in class omni. You better have a best in class online-only experience. And we feel like we're at that point where, like, we need consumers to understand you don't have to settle. So that's a lot of the thrust why we're thinking about it now in addition to the efficiency stuff that Enrique has already mentioned. David Bellinger: Great. Thank you both. Bill Nash: Thank you. Operator: Thank you. Our next question comes from Rajat Gupta with JPMorgan. Rajat Gupta: Great. Thanks for taking the questions. Just had, like, a couple of clarifications. Clarifications from like some of the commentary. Firstly, any color on how the second quarter might have started? We were anecdotes just your broader macro around, you know, some meaningful pullback from, like, just the pre-buy ahead of tariffs. Curious if your business has sold any of that here in June, any color you could give on there? And then just on CAF, I mean, obviously, a lot of discussion there. In the last quarter, you had given us some guidance around the provisioning. Cadence for the year. Any color you could give us on how the second quarter might look like especially in context of all the changes that are happening? You know, that would be helpful. Thanks. Bill Nash: Okay, Rajat. On June, look. We're nineteen days into it. We'll talk about June when we talk about the second quarter at the end of the second quarter. The only thing I would add to that is just you know, remember, or you may not know this, but the second quarter, we do lose a Saturday and it happens to fall out in the month of June and then you don't pick it up for the rest of the quarter. You won't pick Saturday up until the rest of the year. Jon, I'll toss you on the provision. Jon Daniels: Sure. Yeah. Yeah. For just think about the cadence of provision for the year. We would expect Q1 to be the high watermark here. We've made the adjustment that we believe needs to be made on those older vintages. We feel good about the twenty-fours. Obviously, notwithstanding the consumer and all that could happen in the future. But, again, we feel good about our reserve. Ideally, this just beer provisioning for new originations. The only thing that could throw that is what is our growth plan. Obviously, if we grow, you're gonna have to add provision accordingly for that non-prime space, but we'll signal that when we're gonna do any material more growth there. So Bill Nash: Yeah. I think the way you should think about it is what he talked about last quarter is we're going in the near term after the 100 to 150 basis points where we're well on our way there. Just got a little bit masked this quarter. Rajat Gupta: Understood. Great. Thanks for the color. Thank you. Thank you. Operator: Thank you. Our next question comes from Craig Kennison with Baird. Please go ahead. Craig Kennison: It's been a helpful call. I appreciate it. I wanted to ask a question. In the press release, you talked about digitally supported sales at 80%. That was down from 82% in the February. So I think you lost a point in Omni and a point in online. Know you're really focused on the omnichannel, but digital had been gaining share and clearly feels like the future. So I'm just curious if you can explain why that might have stepped back in this quarter. Bill Nash: Yeah. I think I think part of it is just is just seasonally. Craig. I mean, I don't really I mean, I think may I think Omni is actually up point and maybe online's flat or or or you know, maybe down point. But, I mean, I think it's more seasonally driven. I think the more interesting and the more relevant point is that we continue in the omni bucket. We continue to see more transactions, more pieces of these digital capabilities being used. And I think that's the more relevant point than, oh, did everybody go to online or did everybody go to omni? It's like, okay. Of your omni bucket, you're seeing that the number of steps that they're doing is continuing to increase. Craig Kennison: And then just to follow-up on the marketing comments you've made, how is AI changing the way you think about search engine optimization as part of this new marketing campaign? Bill Nash: Yeah. Well, I think, you know, I think the big new buzzword is GEO instead of SEO. And, you know, it's that generative engine optimization. That's what it's all about. It's like, how do you show up well? So it's critical. I think if you're only focused on SEO, you're gonna miss the boat. SEO is still super important. You still gotta focus that. But now you have to kind of also be really good at GEOs. So it'll play a big role in the marketing campaign. And I just think in marketing in general, I think, you know, generative AI there's just a lot of potential there. Craig Kennison: Thank you. Bill Nash: Thank you. Operator: Our next question comes from Jeff Lick with Stephens Inc. Jeff Lick: Good morning. Congrats on a great quarter, and thanks for taking my question. There was obviously this quarter's a lot of puts and takes in terms of you expanding the credit spectrum, you know, kind of the tariff surge, and then also, you guys have kind of been, you know, you indicated in your annual state leaning into a bit more the, you know, the value cars, you know, six to seven plus years. Maybe if you could just kind walk us through anything any callouts as the quarter progressed and you know, and how those buckets influenced your impressive comp? Bill Nash: Yeah. I appreciate the question, Jeff. Look, think take some of the noise like the credit spectrum expansion. Take that out. It's still a great quarter. Okay? Know? We're really pleased with it. And I think the credit expansion look. It's the next step. We've been working through that. It didn't we didn't contemplate the provision of the fourth quarter, but it's something we've been working on. So we're excited about that. I think you brought up an interesting point on just the age, you know. We did sell if I look at our let's call it, ten plus year old cars, you know, we increased we probably sold roughly 25,000 more of those cars. When I say it's like think about the ten-year-old, the 11-year-old, the 12-year-old. And that's by continuing to really kind of push in that area because we do know customers they're interested wanna buy. But even, like, this past quarter where we saw this higher no finance, those are folks that have higher credit, but interestingly, if you look at how they bought, they bought vehicles across the spectrum. In fact, our biggest growing contributor to sales this quarter was kind of bar it was the under $20,000 cars and the over $40,000 cars. And so I think having a good answer there for all those is gonna be critical. And that's an area that we'll continue to focus on without sacrificing the quality standards of CarMax. But that is a work track that we're definitely focused on. Enrique Mayor-Mora: And between those two is really the under 20,000 increase in under 20,000 that drove our comp. So that focus on affordability and internally, as you know, we just collar certain cars or older cars and more of a value max car. That was up five points. Year over year on the quarter. As well. So those that bleeds into under $20,000 car, so focus on affordability ability to meet the customer where they wanna be met. Met. Jeff Lick: Great. I'll get back in the queue. Let someone else ask a question. Congrats again. Bill Nash: Thank you. Enrique Mayor-Mora: Thank you. Operator: Our next question comes from David Whiston with Morningstar. Please go ahead. Your line is open. David Whiston: Thanks. Good morning. Curious if you can talk at all about how you see buyback spending trending the rest of the fiscal year relative to Q1 spend? And how financially stressed is the consumer right now in your opinion? Enrique Mayor-Mora: Yeah. On the share buyback, you know, what I'd tell you is our intent entering this year was to modest accelerate the pace of our buybacks as compared to last year. In the first quarter, based on valuation, based on cash flow dynamics, we saw an opportunity to sizably increase the amount of share we post clearly. So when determining the pace for Q2 and beyond, you know, we'll have the same considerations. Evaluation, cash flow dynamics, as well as the broader macro backdrop. Bill Nash: Yeah. And I think as far as the consumers you know, how stressed that look. I wouldn't categorize it as way more stressed than the last, but I certainly wouldn't say they're less stressed. And I think what you're seeing is some of the consumers are you know obviously, talked about the student loans. You can see some default on folks that have got student loans. We haven't seen any impact on our business. But I think there's also a little bit of kind of weight and see on tariffs, you know. While tariffs have impacted some prices, I think there's a lot of stuff was already a lot of things were already in the US before tariffs kicked in. So I think really, we'll you just need to watch going forward as prices go up on for everyday consumables, how that might push them. But I would say from a consumer sentiment standpoint, you know, they're probably a little less positive about the future, but I don't think it's necessarily showed up so much in the buying habits at this point. David Whiston: Thank you. Operator: And once again, that is star and one on your telephone keypad if you would like to join the queue. We will move next with Chris Pierce with Needham. Please go ahead. Your line is open. Chris Pierce: Hey. Good morning, everyone. You just walk me through cost avoidance and other cost of sales? I just I'm not sure what the model going forward. It was down $33 million year over year, and drove a pretty high. Yeah. I just love to hear about cost avoidance there and what to think about going forward. Bill Nash: Well, I'm sorry. Which line are you talking about? $7 million in other cost of sales versus 40,000,000 year over year? Enrique Mayor-Mora: Other I'd I know you're talking about service. We had an improvement of $30 million in service line in our in our gross margin. If that's what you're talking about, then, again, we had benefits coming there from cost coverage that we had taken, meaning we had taken some fees. To overcome some of the cost pressures we had last year. We saw a leverage on our on our largely fixed cost base in service. Right? So positive sales will create some leverage. And then we continue to go after efficiencies in that business as well. And we continue to deliver on those like we've committed to on an annual basis. That's why we saw the improvement, $30 million improvement in the service. Chris Pierce: So those that 95% other gross margin, that's something I mean, I guess, how should we think about other gross margin going forward given the impact it has on EPS? Enrique Mayor-Mora: Yeah. Other gross margin is certainly in line when when I talked about our our earnings model and our focus on being able to deliver high teen EPS growth over time and on know, mid single digit comps. That is something that we're focused on is continuing to grow that that margin, that other margin and key components in other margin are gonna be service like I just talked about, And the other component is our EPP products. Right? We saw our EPP margin go up again this quarter. I talked last quarter about we're we're undergoing some tests. In terms of product enhancements in our in our EPP products. We've been pleased with the results of those tests. In terms of product enhancements, those have to do with deductibles, terms, and we would expect to see a modest rollout in the back half of this year. And then with the full financial impact or more full financial impact as we head into FY twenty-seven. You know, we are laser focused on other gross profit as a as a vehicle for growth. In terms of fueling our EPS growth. Bill Nash: Yeah. I think, Chris, for your for your modeling standpoint, I think it goes to some comments earlier because a lot of that's being driven by service. And you know, the the the service in the first quarter is always the strongest we would expect, as we said last quarter, to to be profitable for the year. But you shouldn't expect the the the service gains equal like you saw in the first quarter for the for the rest of the year. Enrique Mayor-Mora: Yeah. And I can and yeah, I made a note of that in my prepared remarks as well. The first quarter is usually the strongest when it comes to service just because it's the highest volume. Quarter that we have just seasonally. And, again, you're levering on somewhat fixed cost basis, and so you're gonna lever more strongly there. But, again, we're committed to growing our other gross profit in totality. As part of our earnings model moving forward. And that's what you've seen now for the past couple of years. Chris Pierce: Okay. And then just lastly, going back to the first question, SG&A per retail unit was down mid single digits year over year, but it was sort of flattish if we look back two years ago. I just kinda wanna get a sense of where we are in fully levering, you know, Omnicost and how should you think about this kind of going forward? Bill Nash: Yeah. I don't we have have opportunity to continue to to lever our our costs, whether it be specific on the the sales side, when you're thinking about CEC expense, that kind of thing. Or just across the across the business. And we have initiatives in pretty much every single area. So we still feel like there's there's additional opportunity there. Enrique Mayor-Mora: Yeah. And what you certainly see from us is a commitment to doing that. It's been a couple years now where we've been levering and levering our SG&A. As a percent of gross profit. Whether comps were positive or whether comps were negative. We've been able to successfully lever our SG&A, and we intend on continuing to do that. Chris Pierce: Okay. Thank you. Bill Nash: Thank you. Enrique Mayor-Mora: Thank you. Operator: Our next question comes from it's actually a follow-up from Rajat Gupta with JPMorgan. Rajat Gupta: Great. Yeah. Sorry for the I just wanted to follow-up on the new off-balance sheet approach. And is it fair to assume that a lot of the incremental penetration that you see in the CAF of, you know, from 42 to 50% all of that will go through this off-balance sheet approach, you know, basically trying to understand, like, what's the mix gonna be what you are targeting in terms of on versus off-balance sheet forecast. Operator: Thanks. Jon Daniels: Yeah. Appreciate the question, Rajat, and a fair follow-up. So I think one of the things I wanted to drive home here was we think this is a periodic play for us. You know, it's it's obviously, we have our prime our higher prime deals. We don't think it's necessarily set up for this approach. Less volatility there, less risk in those customers. And the non-prime approach is especially as we grow from 42 to 50%, which you've which you cited and I think it really does set itself up to at some points in time, maybe we do wanna retain that risk and all the additional cash flows that come with it because there is additional value there. We're willing to to offload some of that risk take the cash upfront, And, again, maybe there's a little bit of a haircut there. But it I think it's an opportunistic play as we're gonna see. So maybe it's once a year. We'll see how it plays out, but I wouldn't think about it as an all or nothing play here at Bill Nash: Yeah. I definitely wouldn't think about it that way. There's, you know, there's you look at the tier one business, we aren't changing that. I mean, that we we hold on to think about it more being able to to expand on some things that, hey. At the end of the day, wanna carry you know. And so to Jon's point, it's don't think about it as all in one bucket or the other. It's gonna be a nice complement of the two. Jon Daniels: Yeah. They're definitely subprime receivables that we wanna keep. And hold for investment, and we'll continue to do that. Absolutely. And think of this play, and I mentioned it earlier, this kinda simplistically, you know, it's gonna enable our full spectrum and cap income growth over time. While mitigating some of that risk. So we're really excited for this program. But, yeah, you know, that's how I think about it. Rajat Gupta: Understood. That makes a lot of sense. And thanks for taking the question. Jon Daniels: Sure. Thank you. Operator: We have another follow-up from Jeff Lick with Stephens Inc. Please go ahead. Jeff Lick: Great. Thanks for taking the follow-up. I just wanted to double back or ask about retail GPUs. Surprised we actually haven't hit on this. It's a record twenty-four zero seven. First time we've seen that 2,400. You know, last quarter, you talked a little bit or and highlighted the improvements in logistics and then also recon, if we could get into the if you wouldn't mind elaborating on standalone recon centers to do that. Do those have an immediate impact, or does it is it actually dilutive for a few quarters or a year before they show up? And then I guess lastly, on GPUs, are the ten plus year old vehicles I'm assuming those might have higher GPUs than the chain average. So if you could just kinda talk about the improvements you're seeing there and where the trajectory might be? Bill Nash: Alright, Jeff. I'm gonna try to hit it. There's a lot in that question. I'm gonna try to hit it all, but you can keep me honest at the end. So then yeah. We're pleased with the retail GPUs. And I think the big the big thing there you should be thinking about and I talked a little bit about this last quarter. Because someone asked, hey. How do you think about reteach GPUs? And said, look. If you're modeling it, think about it on a yearly basis. And think about it being similar to what it was last year. But I also said, that, you know, on any individual quarter, it's gonna be up or down. And the reason I said that is you gotta look at the factors in the quarter. And you know, sometimes it's you know, if you think about all the different things that go into the decision, you know, think about elasticity and price competitiveness and variable cost and how you're improving on that and ancillary services that you attach or products that you attach there's gonna be some quarters where you know what? And this is one of those quarters. Like, look. We're gonna we're gonna take some of those savings you're talking about from the reconditioning and logistics, and we're gonna just flow them through to the bottom line. Now as far as the standalone reconditioning centers, look, our the benefits that we're getting from reconditioning and logistics, I just want to remind everybody, we've had large reconditioning centers all up until now. Because if you think about it, we have 250 plus stores, but we only have a little over a 100 places where we produce cars. We're seeing the benefits across the board. And it's so early on the reconditioning side. You know, we just opened up a couple more large recon centers. We are seeing some improvements there, but that's more towards the logistics because we're having to ship cars from, you know, less out of market and being able to put them right there in the market. They're not they're not I think we've got one that's probably fully ramped to capacity. I would expect to continue to get synergies outside of those, but you know, we're getting synergies across the board when you think about the reconditioning, and I would expect to continue to do that as we go forward. Did I miss anything? Okay. Oh, yeah. I did. I did. You asked about the six ten-year-old cars. Yeah. I yeah. The ten-year-old cars. I mean, hey, know, historically, we've talked about older cars. You bring them up to CarMax. Standard. They're generally a little bit of a unicorn. They will get a little bit more margin there. You're able to make a little bit more margin on those vehicles. So that's fair. Jeff Lick: Great. Well, nice progress there. Bill Nash: Thank you, Jeff. Jeff Lick: Thank you. Operator: We don't have any further questions at this time. I will hand the call back to Bill for any closing remarks. Bill Nash: Great. Thank you. Well, listen, thank you all for joining the call today and for your continued questions and your support and as always, I just want to thank our associates for everything that they do. And how they take care of each other and our customers. We will talk again next quarter. Thank you. Operator: Thank you. Ladies and gentlemen, that concludes our first quarter fiscal year 2026 CarMax, Inc. earnings release conference call. You may now disconnect.
Operator: And welcome to Citigroup Inc.'s First Quarter 2026 Earnings Call. Today’s call will be hosted by Jennifer Landis, Head of Citigroup Inc. Investor Relations. We ask that you please hold all questions until the completion of the formal remarks at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Ms. Landis, you may begin. Thank you, operator. Jennifer Landis: Good morning, and thank you all for joining our first quarter 2026 earnings call. I am joined today by our Chair and Chief Executive Officer, Jane Fraser, and our Chief Financial Officer, Gonzalo Luchetti. I would like to remind you that today’s presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements which are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filings. And with that, I will turn it over to Jane. Jane Fraser: Thank you, Jen, and good morning to everyone. We picked up right where we left off last year, with an exceptionally strong start to 2026. This morning, we reported net income of $5.8 billion for the first quarter with EPS of $3.06 and ROTCE of 13.1%. Four of the five core businesses saw revenue up double digits. Revenues were up sharply at 14% and we had another quarter of very healthy positive operating leverage. We continued strong performance across our lines of business, showing the benefit of a diversified model which continues to drive consistent, predictable revenue growth. Services, our crown jewel, had an exceptional first quarter. New mandates were up 40%, while the combination of client-driven growth and fees underpinned a 17% increase in revenues. Cross-border transactions were up 12%. Deposits grew by 16%, and assets under custody and administration were up over 20%. Markets crossed $7 billion in revenues for the first time in a decade. Equities was up nearly 40%, surpassing the $2 billion revenue mark driven by derivatives, prime services, and cash. And FICC, up 13%, saw notable performance in commodities and FX. Banking continued to build momentum, with fees up 12% amidst a record first quarter for us in M&A. ECM was up over 60%, while we continued to gain share with sponsors. We advised on the three largest deals so far this year—Paramount, McCormick, and EQT/AES—demonstrating how we are far better penetrating the C-suite. Supported by continued investment in talent, clients are increasingly looking to Citigroup Inc. for our advice in addition to our execution capabilities. With revenues up 11%, Wealth saw its eighth straight quarter of growth, and its returns continue to improve. As you know, its results now include U.S. retail banking. Citi Gold and retail banking were up 13% as we leverage our branch footprint to capture assets that our clients have with other firms. Investment revenue grew 11% with client investment assets up a pleasing 14%. U.S. Consumer Cards saw 4% revenue growth, with spend up 5%, and delivered a 19% ROTCE, as American consumers remained resilient. With our portfolio heavily weighted to prime, delinquencies and credit losses declined and are well in line with expectations. You can now see how we have lined up the reporting of this business with our strategy, as we focused on growing our general purpose portfolio and optimizing our private label portfolio. In the quarter, we demonstrated our continued commitment to returning excess capital to our investors with the repurchase of $6.3 billion of shares, and we are close to completing our $20 billion share buyback plan. We ended the quarter with a CET1 ratio of 12.7%, which is 110 basis points above our regulatory capital requirement, and our tangible book value grew by 8% from a year ago. As we look towards a new capital regime, whilst the latest NPR is an improvement upon the 2023 version, it is not yet where it should be, and we will be active in advocating for necessary changes in the comment period. These quarterly results reflect the execution of some of the most consequential changes in our firm’s history: our business investments, the transformation, the simplification, divestitures, delayering, and modernization. That said, and I know I have said this many times, we have not yet reached our destination. We will continue to be solely focused on executing our vision and relentlessly driving our business into the final phase of our divestitures, and we continue to drive down our stranded costs. In February, we completed our exit from Russia. We have entered into agreements with several prominent investors to sell 24% of Banamex in transactions that are expected to close in the coming months. And we are on track to close the sale of our consumer business in Poland this summer. The momentum we have established in our businesses can also be seen in our transformation, which remains our other top priority for the year. Ninety percent of our programs are now at or near our target state, and our firm is materially safer and sounder as a result of this work. We have started to reduce the spend on our transformation programs, resulting in an improvement in our operating efficiency this year and beyond. We are methodically deploying AI at scale across the firm and strengthening our defensive capabilities, and you will be hearing much more about this on Investor Day. Switching gears, the global macro economy today has weathered shock after shock. However, the impact of the Middle East conflict is hitting Asia and Europe harder than countries such as the U.S. and Brazil, which are more insulated from energy shocks. Clearly, the longer this goes on, the more pronounced the second- or third-order impacts are going to be around the world. And inflation is now a greater risk to growth and will likely cause central banks to lean towards more restrictive monetary policies. Consistent with our position throughout the last decade, we continue to be a source of trust and financial strength for our clients during turmoil. We intentionally designed a very resilient strategy that performs in different environments, and the last few years have borne that out. You can see it in deposit and loan growth, in our high-quality loan portfolios, and in our robust balance sheet, built on the foundation of disciplined risk management. And we have the capital we need to continue to grow as we support our clients. So with a very strong first quarter behind us, we remain well on track to deliver the 10% to 11% ROTCE for the year. At our Investor Day next month, we will lay out a clear vision for how we will continue to grow each of our five businesses organically and deliver sustainably higher returns over time. This is an exciting time for our firm. We have momentum behind us, and we are looking forward to sharing the path ahead with you next month. I will turn it over to Gonzalo, and then we would be happy to take your questions. Gonzalo Luchetti: Thank you, Jane, and good morning, everyone. Before I begin, I would like to start by thanking Jane and Mark for their support and providing a very smooth transition to my role as CFO. I am excited to build on the momentum they have created as we focus on delivering higher sustainable returns and value for our shareholders. As I step into the role, three elements stood out to me quite distinctively. First, we have a formidable foundation, underscored by a robust balance sheet, rigorous risk management, and a well-diversified business model. That gives me confidence in our ability to produce durable results. We are a source of resilience and strength for our clients in a range of environments. Second, I am excited about the opportunity to help deliver significant return improvement over time by driving client-led growth, continuously pursuing productivity improvement, and deploying capital to accretive return opportunities. Finally, I am highly energized by our relentless focus on execution. I see how each of our businesses and teams operate with urgency, focused on driving performance every single day, and my role will be to ensure we are strategically purposeful, tactically disciplined in resource allocation, and firmly in execution mode. I feel it is time to continue to elevate Citigroup Inc. and leave an indelible mark on a 200-year-plus iconic firm. With that, let me remind you that on April 3, we published a recasted historical financial supplement for our reportable business segments to facilitate comparability with the results this quarter and going forward. Additionally, results for the segments this quarter reflect the TCE allocations for this year, and we have included additional details on this in the appendix of the earnings presentation. Now turning to the quarter, I will start with the firm-wide financial results focusing on year-on-year comparisons unless I indicate otherwise, then review the performance of our businesses in greater detail. On slide six, we show financial results for the full firm, which demonstrate the progress we have made and the momentum of our strategy. This quarter, we reported net income of $5.8 billion, EPS of $3.06, and ROTCE of 13.1% on $24.6 billion of revenues, generating positive operating leverage for the firm and the majority of our five businesses. Total revenues were up 14% with growth driven by each of our businesses and legacy franchises, as well as the impact of FX translation, partially offset by a decline in Corporate/Other. Net interest income, excluding Markets, was up 7%, driven by growth across all businesses and legacy franchises, partially offset by a decline in Corporate/Other. Non-interest revenues excluding Markets were up 29%, driven by growth across all businesses and Other. Total Markets revenues were up 19%. Expenses of $14.3 billion were up 7%, with an efficiency ratio of 58%, which I will provide details on shortly. Cost of credit was $2.8 billion, primarily consisting of net credit losses in U.S. Cards as well as a firm-wide net ACL build of $597 million. On slide seven, we show the expense and efficiency trend over the past five quarters. As I just mentioned, expenses increased 7%, and you can see on the bottom of the slide we incurred nearly $500 million of severance as we target efficiencies across our expense base and bring down headcount. Excluding severance, the increase in expenses was 4%, primarily driven by FX as well as volume- and revenue-related expenses, including compensation and transactional and product servicing expenses, partially offset by lower legal expense. As you can see on the bottom right side of the slide, in addition to severance, growth in compensation and benefits included investments we have made to support growth in the businesses as well as performance-related expenses, partially offset by productivity saves, stranded cost reduction, and lower transformation expenses in Corporate/Other. It is worth noting that this expense increase was against 14% revenue growth, resulting in an improvement in our efficiency ratio of approximately 400 basis points. On slide eight, we show U.S. Cards and Corporate credit metrics. As I mentioned, the firm’s cost of credit was $2.8 billion, primarily consisting of net credit losses in U.S. Cards as well as a firm-wide net ACL build. Embedded in the firm-wide net ACL build is a farther skew to the downside scenario, reflecting the increased uncertainty in the macroeconomic outlook. Our reserves now incorporate an eight-quarter weighted average unemployment rate of approximately 5.4%, which continues to include a downside scenario average unemployment rate of nearly 7%. At the end of the quarter, we had nearly $22 billion in total reserves with a reserve-to-funded-loans ratio of 2.6%. We continue to maintain a high credit quality card portfolio, with approximately 85% of balances extended to consumers with FICO scores of 660 or higher, and a reserve-to-funded-loan ratio in our U.S. Cards portfolio of 8%. Looking at the right-hand side of the slide, you can see that our corporate exposure is 78% investment grade, and in the quarter corporate nonaccrual loans as well as corporate net credit losses remained low. We are confident in the high-quality nature of our portfolios, which reflect our robust risk appetite framework, rigorous client selection, and our focus on using the balance sheet in the context of the overall client relationship. This quarter, we included a slide in the appendix of the presentation that shows Citibank’s loan to non-bank financial institutions, including $22 billion of corporate private credit, which is 100% securitized, 98% investment grade, and not a significant component of our overall exposure. Turning to capital and the balance sheet on slide nine, I will speak to sequential variances. Our total assets of $2.8 trillion increased 5%, driven by growth in trading-related assets, cash, and loans. Net end-of-period loans increased 1%, with client-driven growth in Banking and Markets partially offset by a seasonal decline in U.S. Cards. Our $1.4 trillion deposit base remains well diversified and increased 3%, driven by growth in Services as we continue to deepen with clients with a focus on high-quality operating deposits. We reported a 114% average LCR and maintained over $1 trillion of available liquidity resources. In the first quarter, we continued to deploy capital to support client-driven growth while at the same time prioritizing the return of capital to common shareholders, as evidenced by the $6.3 billion in buybacks executed, which includes the benefit from the sale of the remaining operations in Russia. We ended the quarter at a 12.7% CET1 ratio under the binding standardized approach, approximately 110 basis points above the 11.6% regulatory capital requirement, including a 100 basis points management buffer. Turning to the businesses on slide 10, we show the results for Services in the first quarter. Revenues were up 17%, the best first quarter in a decade, driven by growth across both TTS and Securities Services. NII increased 18%, driven by higher average deposit balances and deposit spreads. NIR increased 15% as we continue to see strong activity and engagement with both corporate and commercial clients and across key high-growth segments, including e-commerce and fintech, driving momentum across underlying fee drivers with cross-border transaction value up 12% and assets under custody and administration up 21%, which includes the impact of market valuations as well as new assets onboarded. Expenses increased 14%, primarily driven by higher volume- and revenue-related expenses, higher compensation, as well as higher technology costs. Average loans increased 14%, largely driven by export agency finance and working capital loans. Average deposits increased 16% with growth across both North America and international, largely driven by an increase in operating deposits as we continue to deepen relationships with existing clients and onboard new clients. Services generated positive operating leverage and delivered net income of $2.2 billion with an ROTCE of 27%. Turning to Markets on slide 11. Markets had its best quarter in over a decade with revenues up 19%, driven by growth in both Fixed Income and Equities, with strong momentum across client segments, including corporates, asset managers, hedge funds, and banks. Fixed Income revenues were up 13% with growth across spread products and other fixed income as well as Rates and Currencies. Rates and Currencies was up 6%, driven by FX on higher volumes and optimization of the balance sheet, largely offset by Rates. Spread products and other fixed income were up 27%, primarily driven by strong growth in commodities. Equities revenues were up 39%, driven by continued momentum across derivatives, prime services, and cash. We grew prime balances by more than 50% with growth across both new and existing clients as well as higher market valuations. Expenses increased 11%, primarily driven by higher performance-related compensation as well as higher volume-related and legal expenses. Average loans increased 27%, primarily driven by financing activity in spread products. Markets generated positive operating leverage and delivered net income of $2.6 billion with an ROTCE of 18.7%. Turning to Banking on slide 12. Revenues were up 15%, driven by Investment Banking and Corporate Lending. Investment Banking fees increased 12%, driven by growth in M&A and ECM, partially offset by a decline in DCM. M&A was up 19% and represented our strongest first quarter in a decade, with continued growth in sell-side fees and strong performance with sponsors. ECM was up 64%, reflecting growth in follow-ons and convertibles against the backdrop of an active market. While DCM fees were down 6% amid lower non-investment-grade activity, we maintained our overall market share versus year-end 2025. Corporate Lending revenues, excluding mark-to-market on loan hedges, declined 3%. Expenses increased 20%, primarily driven by higher compensation and benefits reflecting performance and investments, and higher volume-related transaction expenses. Cost of credit was $132 million, consisting of a net ACL build of $126 million reflecting the increased uncertainty in the macroeconomic outlook and exposure growth, largely offset by refinements to loss assumptions. We continue to feel good about the high-quality nature of our Corporate Lending portfolio, with nonaccrual loans and net credit losses remaining low. Banking delivered net income of $304 million with an ROTCE of 15.8%. Turning to Wealth on slide 13. Revenues were up 11%, driven by growth in Citi Gold and Retail Banking as well as the Private Bank, partially offset by a decline in Wealth at Work. NII increased 14%, driven by higher deposit spreads and average balances, partially offset by lower mortgage spreads. NIR increased 5%, driven by 11% higher investment fee revenues, partially offset by the sale of the trust business. Net new investment asset flows were approximately $15 billion in the quarter, contributing to approximately $43 billion in the last twelve months, representing approximately 7% organic growth. This contributed to client investment assets being up 14%, which also includes the impact of market valuations and was partially offset by the sale of the trust business asset. Expenses increased 1%, driven by investments in technology and higher volume-related expenses, partially offset by lower compensation and benefits, including the impact of the sale of the trust business. Average loans were up 6%, as we continue to grow securities-based lending and deploy balance sheet to support clients and drive client investment asset growth. Average deposits were up 4%, largely in the Private Bank, as net new deposits were partially offset by outflows and a shift from deposits to higher-yielding investments, including on Citigroup Inc.’s platform. Wealth had a pre-tax margin of 18%, generated positive operating leverage, and delivered net income of $432 million with an ROTCE of 10.8%. We remain confident in the path to higher returns from here, as we continue integrating our retail banking business within Wealth and building on its improved performance this quarter. Turning to U.S. Consumer Cards on slide 14. As we have said in the past, customer preferences have continued to shift toward general purpose cards and as such, we have provided disclosures for this segment to show metrics split between our general purpose and private label portfolios. This quarter, revenues were up 4%, driven by growth across both NII and NIR. NII was up 3%, driven by higher interest-earning balances and spreads. NIR was up 14%, driven by lower partner payment accruals and higher annual fees. We saw momentum in underlying drivers supported by growth in general purpose cards, with acquisitions up 12%, spend volume up 6%, and average loans up 4%, partially offset by declines in private label cards. Expenses increased 1%. Cost of credit was $2.1 billion, consisting of $1.7 billion of net credit losses, which declined 11%, as well as a net ACL build of $350 million reflecting seasonal portfolio mix changes, the forward purchase commitment of the Barclays American Airlines co-branded card portfolio, as well as increased uncertainty in the macroeconomic environment. This was largely offset by lower seasonal volumes and refinements to loss assumptions. U.S. Cards generated positive operating leverage and delivered net income of $732 million with an ROTCE of 19.2%. Turning to slide 15, we show results for All Other on a managed basis, which includes Corporate/Other and Legacy Franchises and excludes related items. Revenues were up 15%, driven by growth in Legacy Franchises, largely offset by a decline in Corporate/Other. Growth in Legacy Franchises was driven by Mexico Consumer, which included the impact of Mexican peso appreciation, momentum in underlying business drivers, and a gain on the sale of an investment, partially offset by the impact of continued reduction from our closed exit and wind-down markets. The decline in Corporate/Other was driven by lower NII, which included a lower benefit from cash and securities reinvestment resulting from actions taken to reduce Citigroup Inc.’s asset sensitivity in a lower interest rate environment, partially offset by higher NIR. Expenses were down 4%, driven by lower legal and transformation expenses as well as expenses related to closed exits and wind-downs and professional services expenses. This was primarily offset by higher severance and the impact of FX translation. Cost of credit was $400 million, primarily consisting of net credit losses of $371 million driven by loans in Mexico. To close, we have included our full year 2026 outlook on slide 16. While there remains a lot of uncertainty at this point, our overall expectations are unchanged. Subject to macro and market conditions, we expect NII ex Markets up approximately 5% to 6%; NIR ex Markets growth driven by momentum in Services, Banking, and Wealth; and an efficiency ratio of around 60%. In terms of credit, we expect a total U.S. Cards NCL rate of between 4% and 4.5%, which is lower than the aggregate of the expectations that we provided previously for Branded Cards and Retail Services, reflecting the delinquency trends and loss performance we have seen year to date. The ACL will continue to be a function of the macroeconomic environment and business volumes. Additionally, we remain well positioned to return capital to shareholders and plan to provide more detail on our expectations for share repurchases going forward at our Investor Day in May. As we take a step back, the results in the first quarter represent significant progress towards our goal of improved firm-wide and business performance. We remain steadfast and focused on executing our transformation and confident in delivering our ROTCE target of 10% to 11% this year, and we look forward to laying out the path to delivering higher returns beyond that at Investor Day. With that, Jane and I would be glad to take your questions. Operator: At this time, we will open the floor for questions. If you would like to ask a question, please press 5 on your telephone keypad. You may remove yourself at any time by pressing 5 again. Please note, you will be allowed one question and one follow-up question. Again, that is 5 to ask a question. We will pause for just a moment. Our first question will come from Glenn Schorr with Evercore ISI. Your line is now open. Please go ahead. Glenn Schorr: Hi. Thanks very much. I think we get the great Trading and Banking results. I want to talk about Services if we could. One is if you could give any color on the $4 trillion win on the BlackRock middle office servicing ETF platform or portfolio. And then, two, maybe bigger picture, talk about what you think maybe I and the rest of us could be underappreciating in terms of the growth outlook in Services—tokenization as a good thing as opposed to maybe the threat that people might think it is? Thanks. Jane Fraser: Hey, Glenn, good to hear from you. Look, Services’ exceptional performance this quarter comes from successfully executing the strategy that Shamir and his team precisely outlined at our Investor Day two years ago—and then going beyond it. We have told everyone this is a through-the-cycle business which consistently delivers strong returns in a range of environments, and this quarter the team did just that. Revenues up 17%, deposits up 16%, fees up 14%, returns at 27%. This is firing on all cylinders. To your question, why is this business growing so much? The growth is coming from deepening with existing clients, new client acquisition, and new product innovations. Our investments over the last few years, I think, are best demonstrated by the 40% growth in new client mandates. We have a very high retention of existing client business, and we have what can only be described as exceptional win rates. We are the leading franchise not only in share but in innovation. You are seeing momentum across the board. For example, as you point out in digital assets, we are leading in tokenization. We have been investing in this for many years. I have talked about it on many of the recent calls. This is a benefit for us in driving and meeting more of our client needs in an always-on, real-time world. You are seeing us in real-time payments, where we are doing a lot of business with the global e-commerce juggernaut. And as you say, in Securities Services, we laid out a strategy of growing share with North American asset managers, ETF, and in other spaces. Frankly, BlackRock is the most recent win we have had; it is far from the only one. We are also benefiting from our focus on fee generation, which continues to make over 30% of our revenues across different macro environments. There is a reason we call Services our crown jewel. It is incredibly durable. Our offerings are deeply embedded in our clients’ operations; that creates lasting relationships and stable deposits. There is always a flight to quality when there are things going on in the world, and we are quality. Glenn Schorr: Maybe we could just follow up—there is a lot going on in the world. There was some conversation about linking you to some interest in being a bigger retail bank in the United States. Watching you fold the business into Wealth and tweaking the strategy, I know that lack of low-cost deposits has been a thing in limiting your profitability in the past, but you seem to be getting by now without that. I wonder if you could just comment in terms of just aspirations or not on that front. Thanks. Jane Fraser: Let me kick off. I want to be crystal clear: we are only interested in and focused on organic growth. Period. End of story for the whole firm. We have achieved a lot in the last five years; we have a lot more to do. There is a large organic growth opportunity ahead of us across all five of our businesses. That is what we are focused on, and we are excited about it. I would say, Glenn, and for everyone listening on the call, if you walk away from this call thinking of nothing else, let it be this: Citigroup Inc. has a lot of momentum, and we are not going to be distracted from it. Now, on the retail bank and what we are looking at there: the retail branch network is 650 branches. The deposit base that we have across Wealth and the retail bank in the U.S. is about $284 billion. The footprint is a targeted one. It is in six of the markets with an affluent client base, covers a third of the nation’s high net worth and affluent households, and 40% of the ultra-high net worth households. So it is highly aligned with the Wealth business. It is an important source of clients for our investment franchise. We saw a lot of top-line momentum from the franchise—last year, it was up 21% in the retail bank—and we look forward to continuing to improve its profitability and performance and realizing the synergies between it and Wealth. Organically. Operator: Our next question comes from Mike Mayo with Wells Fargo. Please go ahead. Mike Mayo: I just want you to be even more clear than you were already. So you are only pursuing organic growth. Does that mean that Citigroup Inc. is not pursuing a deal or an acquisition? There have been so many articles about Citigroup Inc. pursuing an acquisition. So are you saying Citigroup Inc. is not pursuing a deal, you are not thinking about Citigroup Inc. pursuing a deal, and that is a thousand percent off the table? Jane Fraser: I am always transparent. I am always straightforward with you. I want to be crystal clear: we are not interested in anything other than organic growth. Mike Mayo: Okay. And then a separate question, as it relates to the transformation. You are now up to 90% done. Since you are done with the safety and soundness part of the transformation, I have a tough time reconciling why the consent order is still on when regulators are focused on safety and soundness, but I am sure you put your best foot forward in that argument. What you can answer is the last 10%. Is there a last-mile problem with the last 10% of the transformation, or is this continuing to move forward? What is that last 10%? What is left? Jane Fraser: There are no challenges for us ahead that are inconsistent with our plan. 2025 was a real turning point for us on the transformation, and we just continued the strong execution into 2026. We have finished the vast majority of the work. As I have said earlier, 90% of the transformation programs are now at or mostly at Citigroup Inc.’s target state, and they are operating in BAU mode. What does that mean? For each major body of work, we defined our target state and the work that needs to be done to achieve that target state. We are at or nearly at those Citigroup Inc.-defined target states for all the bodies of work except our data programs, and the remaining work of that 10% is primarily related to data used in our regulatory reporting. Mike, I am pleased with our progress on this. We are executing well. However, once we are operating well at our target state, what happens next? We pass that work over to our independent audit team for validation. Once it is validated, each major body of work is then handed over to our regulators; they go through their assessment and move to their closure process when they are satisfied with the work. This takes time, and let us be very clear: they control the timeline. So completing the work is just the beginning of the end. From an investor point of view, you can see the transformation expenses have started to come down as we complete the different bodies of work. This is helping create capacity for investments in AI and other strategic business priorities. At Investor Day, Mike, I will detail the many benefits that we have been gaining from the transformation. Operator: Our next question comes from John McDonald with Truist Securities. Please go ahead. John McDonald: Hi, good morning. Gonzalo, I was wondering if you could give a little bit of a take on the new Basel and GSIB proposals and what they mean for Citigroup Inc. Any initial estimates on the impact if they were approved as proposed? Gonzalo Luchetti: Thank you, John, and good morning to everyone. As we look into the rules, our expectation is that overall there will be a net benefit to Citigroup Inc. You have seen that in the estimates from the regulatory agencies as it relates to the Category 1 and 2 banks, and we see a moderate net benefit on what has been published. Of course, when you look at the full stack with the stress capital buffer, we expect an additional benefit there. Some puts and takes, of course. When you think about RWA and those pieces related to Basel III, you have components of retail and corporate credit providing a benefit, mitigated by operational risk, CVA, and market risk, as you probably would expect. On the other side, on GSIB, even if we probably have feedback for regulators there, at the same time you can see in this case that there is benefit from the reversion to the 2019 methodology as we have been advocating for. John McDonald: So does that result in a net benefit to Citigroup Inc. at this point, Gonzalo, in terms of the RWA presumably up a little bit and the GSIB down a little bit? Is there a net benefit that you see on the initial proposal? Gonzalo Luchetti: Moderate net benefit, yes. Thank you. John McDonald: Then just a question for you also on the efficiency ratio. You started off very strong at 58% even with the big severance in the quarter. Could you give some context to the target for 60% for the full year? What are the puts and takes if you are starting at 58%? I assume there is some seasonality from the first quarter, but just walk through the 60% target versus starting so strong at 58%? Gonzalo Luchetti: Thank you very much, John, and I am glad you kind of answered your own question there given how much you know about us. Maybe before I get into the specifics, it is worth grounding in how we think about expenses. Our approach is to maintain very strong cost discipline on a tactical basis and, in addition, to be driving structural efficiencies over time so that we can enable and allow ourselves to make the targeted investments that we think are necessary in order to drive our returns consistently to a higher place. That is really our mantra and what we are focused on. When you break down those expenses for the quarter and you have that 7% growth—obviously anchored by the 14% revenue growth, which drives that 400 basis point improvement in operating efficiency—you have the effect of the severance that you mentioned. You can see FX playing a role, revenue-driven transactional costs, and some compensation pieces. We are also making targeted investments. We have done it in Services; we are doing it in Banking; we are doing it in Wealth. For us, it is important to balance. As we look through the year, we are comfortable with around 60% for operating efficiency. It is primarily on the basis of, yes, seasonality—Markets usually has the strongest quarter in the first—and we also think it is important to balance that seasonality as well as recognize that we are making targeted investments so that we can get our returns to be higher. Our objective is very simple: we are focused on driving sustainably improving returns over time, not just short-term upside. Operator: Our next question comes from Ebrahim Poonawala with Bank of America. Please go ahead. Ebrahim Poonawala: Good morning. Following up on that, Gonzalo and Jane, appreciate the seasonality in the business. But when putting together the momentum you have, the way you are talking about just across businesses, we look at the 13% return on tangible equity that you earned this quarter. I have a hard time thinking why it should go down to the 10% to 11% range, even adjusting for some of that seasonality on expenses and Markets revenue. Maybe frame it—are there areas where Citigroup Inc. may be over-earning in any given quarter that is boosting the 13%, and if that logic is missing something? Jane Fraser: Let me jump in with one point, and I am going to go British on you. One good first quarter does not a full year make. The first quarter is always the strongest, and we do have an unclear macro environment ahead. We want to continue investing. I think what you are hearing from us clearly is we have confidence in being able to deliver the 10% to 11%. We want to keep investing in the business, as Gonzalo was just talking about. Revenue growth is important. We will be talking through the investments we want to make to continue the pretty impressive revenue growth we have had the last few years and intend to continue having. I would just make it as simple as that. Ebrahim Poonawala: Got it. Maybe just quickly on the capital front. It is good to see buybacks ramp up this quarter. As we look forward, do you think we stay in a holding pattern in terms of the CET1 ratio where it ended this quarter? How do we think about incremental capital leverage at Citigroup Inc. beyond just optimizing how capital is deployed? Gonzalo Luchetti: Thank you, Ebrahim. Good morning, and good to hear you. We have guided in the past that our objective through this year was to be at around 12.6%, and we are basically there as it relates to Q1. Let me walk you through what has been driving that. First, you can see us this quarter reducing the excess that we had above our regulatory capital and the management buffer that we have carried for some time. That gives you a signal that we are at or around where we want to be. We came at this from a couple of angles. First, the earnings power you saw in the quarter, which was very strong. In addition, we closed the sale of our Russia entity in the middle of the quarter; that released about $4 billion of capital. We have been very thoughtful and active in deploying that capital. You can see it in the results—the RWA deployment is to anchor the activities that we are driving with our clients and the intense engagement that we have with them. It is not a surprise that Markets also had a very strong quarter on the back of the support that we gave. So as you see us, a part of that goes to support accretive growth opportunities for our businesses, and another piece goes into the buybacks that we executed in the quarter, which are a high watermark at $6.3 billion. There will be more to come as we go into Investor Day. Jane Fraser: I would jump in with just three observations as well. First, GSIB is still gold-plated relative to the Basel standard. The economy has grown significantly since the original framework was created, but the current proposal does not fully account for that growth. We will be very active in advocating for that, as you have been hearing from some of the other bank CEOs. Secondly, there is still material duplication between the NPR and the current stress capital buffer—operational risk, market risk, and CVA—and that needs to be eliminated in the revised Fed SCB models. Third, our SCB still does not fully reflect our strategy, the divestitures we have made, and the risk profile the bank has today, which is so different from what it was in the past. Those three elements are things that we will be active on and, I hope, will help us going forward. Operator: Our next question comes from Jim Mitchell with Seaport Global. Please go ahead. Jim Mitchell: Hey, good morning. I think we all appreciate the breakout of the card business on its own, and we can see some solid profitability there. But it does also highlight the low profitability of the consumer branch banking segment. I know we will hear more of this at Investor Day, but can you just discuss what the issues are there and what you see as the opportunities to improve efficiency and returns in that segment? Gonzalo Luchetti: Thank you, Jim, and good morning. On the retail bank and how we think about the return profile: if you look at our ROTCE for the quarter at 10.8%, it is not where we want it to be, and we have more work to do. But if you think about it going back a year, it has almost doubled. We have made progress both in our retail bank franchise as well as in our Wealth franchise in terms of driving revenue growth and positive operating leverage, and that will take us home. The simplest version is: last year the Wealth business in aggregate with this new recast element was growing at 15%–16% revenue and 1% expenses—that is 15 points of operating leverage. This quarter you can see the 11% and the 1%, so another quarter of very strong operating leverage. That comes on the back of good momentum on deposit volumes, mix management, and pricing management, which give us confidence there is sustainability, as well as good levels of activity and focus on NIR and driving client investment assets so that we can, over time, balance the business between investments and deposits. The more quarters we can put together with solid revenue growth and discipline on expenses—while still investing for growth—the closer we will be to the ranges that you and we expect. I have good confidence; you can see the momentum. We know we have to show it still, but we have made progress and I have confidence in the immediate future. Thank you. Jim Mitchell: Great. And maybe just as a follow-up and pivoting to private credit. Any thoughts and detail on your exposures and how you are thinking about the credit risk there would be helpful. Gonzalo Luchetti: Sure. Thank you. A couple of thoughts. First, I feel very good about our position. We wanted to provide additional transparency and disclosure; you can see that on page 23. What gives me comfort: we have a very strong risk appetite framework. We are rigorous on customer selection. We do business with global multinational companies, sponsors, and asset managers—folks that have strong balance sheets and the ability to withstand different environments. Secondly, we are not one-product relationships; we are, in most cases, multi-country, multi-product, multi-year relationships. We have strong protections and look at concentrations—single name, country, geography, sector, industry—and correlations to make sure we are not missing things. You have seen great performance with NCLs and NAOs, both low and stable. You have seen us be very prudent in terms of reserves, and we feel we are adequately reserved. We are constantly stress-testing our portfolios, in private credit and elsewhere, to ensure that under a range of macroeconomic environments and event-driven aspects, we are passing our own tests. On the specifics: it is not a significant exposure for us—about $22 billion of loans; 98% investment grade because we have ample subordination in terms of position and protections. We have additional protections in terms of collateral; we have fraud controls; we utilize third parties where appropriate so that we do not rely solely on attestations and warranties. We feel very comfortable that we can navigate a range of environments with the portfolio, anchored in the strength of our risk appetite that we have built over time. Operator: Our next question comes from Analyst with Morgan Stanley. Please go ahead. Analyst: Hi, good morning. Gonzalo, I just wanted to clarify, as you have some of these business exits, I know you get a temporary benefit from CTA. Are you saying that gives you the opportunity to be more nimble on your capital deployment strategy, whether it is in buybacks or in the Markets business, as you get that benefit between the announcement and the actual deconsolidation? Gonzalo Luchetti: Thank you for the question. What I would say is, we always look for opportunities to deploy that capital constructively in accretive ways to support our businesses and our clients. Q1 gives a very good example of our behavior so you can see it in real life. On the back of the Russia event, with about $4 billion of relief, you have seen us both support our businesses—anchoring some of the results that you saw in Markets and a couple of other businesses—and at the same time execute the highest level of buybacks we have done in any quarter at $6.3 billion. As it relates to Banamex, as we have alluded in the past, there is a temporary capital benefit that happens both on the 25% sell-down that we executed during the fourth quarter last year as well as one to come when we complete the closing of the second tranche of the 24% that we announced recently, which will happen over the next few months. That is temporary in nature. Clearly, upon deconsolidation, you can expect the CTA to come back. We have been clear in the past that that will attract about an eight-and-a-half percent PPA adjustment that will flow through P&L, but in aggregate it is capital neutral. Analyst: Got it. Okay, great. And then maybe just pivoting over on the expense side. You have been pretty clear that as part of the transformation projects, Citigroup Inc. is not just delivering on the asks from the regulators, but also taking the opportunity to invest in modernizing. Beyond the transformation, how do you view your current tech stack versus where you want it to be, and how are you thinking about tech spend going forward? Jane Fraser: We will go into a lot of detail about this at Investor Day, including AI and the structured, strategic approach we are taking firm-wide. In three weeks, you are going to get a lot around all of this. We feel good about the modernization we have done, as we have moved our tech stack from a multiplicity of different platforms into singular platforms, and at the same time made sure that we have good, simple, singular processes end-to-end that we have been simplifying and automating over the last few years. We feel good about those investments, and about leading-edge innovations like Citi Token Services and Payment Express in Services; I could give you a long list in Wealth, in Markets, etc., but we will leave that for the 7th. Above everything, we also feel good about the investments we have made in our data and architecture, where we are on a single repository for all of our data for Institutional and a single one for Consumer—enormously beneficial in the world of AI that we are living in. Thank you. Operator: Our next question comes from Ken Usdin with Autonomous Research. Please go ahead. Ken Usdin: Thank you. Just a follow-up on the NII side. First, seeing the very strong end-of-period and average loan growth, and I know looking at the supplement there is a little help from FX translation in there. But upper single-digit growth—just wondering how sustainable that is, especially on the deposit side, and if you saw any environment-related benefits that possibly might not continue. Gonzalo Luchetti: Thanks very much, Ken, and good to hear you. On NII, what we guided for the year—on the deck—is 5% to 6% NII ex Markets growth, anchored by mid-single-digit growth for both loans and deposits. We are pleased that Q1 is a good showing against that. As you highlighted, there is a bit of FX playing a role for the 7% that we delivered, but we are comfortable with that guidance. The part I like the most is that most of that growth is anchored on client-driven activity—our commercial intensity, winning in the market with our customers. In Services and in Wealth, both are driving deposits—Services up 16% deposits, Wealth up 4%—all of that blends to the 11% that I think you were marking. In terms of loans, ex Markets, we are growing at about 5%, which is in line with our guidance. You can see that coming through in Wealth, in U.S. Cards, and also in Services with export financing and working capital. Most of the growth is driven by client activity. Pricing discipline helps—betas are quite stable for us, a proof that our value proposition is performing and how embedded we are with clients, our global network on Services, and the quality of our advice and engagement on the Wealth business. Our investment securities portfolio, as it rolls off through the year, can be reinvested at higher rates than before. Those also help, but it is really client activity that drives the bus here. Thank you. Ken Usdin: Great, thank you for that. As a follow-up, the first quarter also started above the range—7% ex Markets year-over-year. I know you are being conservative with the 5% to 6%. Can I assume that the American Airlines card is in the guidance? Why would you not continue at 7% if the volume side you just went through is pretty sustainable? Gonzalo Luchetti: Thanks very much, Ken. I give you points for a sneaky and smart way of asking if I want to update the guidance, and the answer is no at this stage. We are comfortable with the guidance. The American Airlines Barclays portfolio that is coming in in the second quarter is, of course, fully factored in. We feel confident in the client activity we are seeing, and at the same time, as Jane said earlier, for all those models out there, do not just do one times four. We have to manage through uncertainty in inflation, growth, and other pieces. Operator: Our next question comes from Analyst with Wolfe Research. Please go ahead. Analyst: Hi, good morning, and thanks for taking my questions. Jane, you have been crystal clear—using your words—on the commitment to focusing on organic growth. One factor which has contributed to below-peer returns is the large DTA or unallocated capital base. It remains stubbornly high. The pace of DTA utilization remains pretty tepid—about $1 billion or so over the last five years. I was hoping you could speak to drivers that would potentially support some acceleration in that DTA consumption, especially given your aversion to solving for it with higher North America earnings inorganically. Jane Fraser: I feel very good about our organic growth opportunities in North America. You are right, it is very simple: the driver of accelerating the DTA consumption is driving North American earnings. We are very focused on it. Every single one of our businesses is focused on it. It is also where we have been investing to support that growth. This will come the good old-fashioned way, and I feel confident that we are going to make very good progress. We will talk a bit about that in a couple of weeks’ time. Analyst: I anticipate a similar response in terms of additional color at Investor Day, but if you will indulge me, on the headcount reduction targets which you had spoken about a few years ago. Post the consent order, headcount increased from about 200,000 to 240,000; you had indicated that you would look to drive that closer to 220,000 or so employees. You are two-thirds of the way there. We are in a very different environment where AI-driven efficiency gains are much more tangible than they were a few years ago. Could you speak to your approach or philosophy to headcount management and resourcing in light of this new AI regime? Gonzalo Luchetti: Thank you. First, you saw this quarter a severance of about $500 million. That will enable us to take earlier actions in the year to contribute to our productivity and efficiency journey. On headcount, you can see it coming down quarter-on-quarter from about 226,000 down to about 224,000. Through the year, you would expect us to be coming down on headcount. As I said earlier, not only do we expect to drive expense discipline day-to-day, but in addition we are focused on structural efficiencies over time—benefiting from the investments we have already made in our transformation, where we modernized platforms; and continuing to drive automation with technology, as well as leveraging AI to further turbocharge self-funded investments. Operator: Our next question comes from Erika Najarian with UBS. Please go ahead. Erika Najarian: Hi, thank you. Just one follow-up for me because I appreciate that we are going to have quite a day in a few weeks. Jane, you talked about your stress capital buffer not reflecting your true risk profile. Obviously, we are not going to hear more on that until next year. You have also talked about Basel III endgame reform and GSIB reform being fine but not going quite far enough. I am wondering about that green bar on slide nine that represents your 110 basis point management buffer. Even after adjusting for seasonality and Wealth not hitting the marks quite yet and All Other, it implies a much higher return profile, even with this 12.7% CET1. I am wondering, as we think about the denominator and we get more clarity on reg reform, does that make a management buffer redundant? Jane Fraser: No. I am pretty clear, and I think Gonzalo has been as well, that what we are looking at for CET1 for the rest of the year is about 100 to 110 basis points above the regulatory minimum. That is the 100 basis points of management buffer. I think that is a good number for us at the moment, and I do not have plans to change it in the immediate future. Erika Najarian: Got it. Thank you. Operator: Our next question comes from Analyst with Jefferies. Please go ahead. Analyst: Hi, thanks for taking the question. I wanted to start with capital markets. Can you talk about the pipeline looking out to the second quarter and the rest of the year following a very strong first quarter? Gonzalo Luchetti: Thank you. Let me clarify—are you thinking more of Banking (M&A, ECM, DCM) or the Markets business? Analyst: The former rather than the latter. Gonzalo Luchetti: Thank you. The engagement with clients in the first quarter has been very robust. Jane alluded to this—we were advisors in the top three deals on the street, and we are pleased with the progress we made. We know we have more to go; that is why we are making the investments we are making. The M&A pipeline continues to be quite strong. We engage with global multinational corporations with resilient balance sheets; we are seeing good levels of engagement and activity. If the conflict were protracted and deeper over a longer period of time, that may introduce some risk of deferrals into the second half. In the sponsor space, it is a little less active and more cautious than on the corporate side. You see selectivity—good quality deals getting done in IPOs and in debt capital markets. There is a bit of flight to quality in an environment like this—more momentum and activity in M&A and in high-grade debt, more caution and moderation in high yield and IPOs, where quality is still happening but there is some risk-off. Jane Fraser: I would just add that most corporates have watched for and are not passive. We have been very actively engaged with clients—rerouting supply chains, hedging programs, liquidity. The pipeline goes well beyond capital markets. We benefit in North America from greater resiliency than other parts of the world face given the macro environment and the conflict in the Middle East. Analyst: Great, thanks for that. My follow-up is more housekeeping: can you provide us with an update on the expected timing of the Banamex IPO? Jane Fraser: We have made significant progress on the divestiture. First step is closing the latest tranche in the coming months, which will mean we have successfully divested 49%. That substantially advances our ultimate full exit. Given the accelerated pace of the sell-down we have just done, we do not anticipate any additional stake sales in 2026 ahead of deconsolidation in early 2027. The IPO most likely would be after that, when market conditions are favorable and when the regulatory requirements are met. As always, we will ensure that we exercise the ultimate full exit of Banamex in a way that optimizes value for all stakeholders, as we have done so far successfully. Operator: Our next question comes from Gerard Cassidy with RBC. Please go ahead. Gerard Cassidy: Hi, Jane. Hi, Gonzalo. Can you share just a follow-up on your advisory business and your talk about pipelines? As we all know, the regulators changed their leveraged loan restrictions back in November, giving banks more opportunities to finance higher leverage deals. Can you share your color—have you been able to use that yet? Will you use it? What opportunities does that provide to help you in the advisory business? Jane Fraser: The Fed has not changed their guidance on this, so we are still bound by that. Gonzalo? Gonzalo Luchetti: Not related to regulatory guidance, as Jane alluded to, but in that space we have been deliberate and very disciplined in our risk management. You have seen us expand our momentum there a bit—we were not very active a couple of years ago—and we have done it with a lot of care. We are seeing very good loss trajectory there. It comes in two parts: the left-hand bit in terms of distribution, where it is functioning well and operating normally; and on the hold book, where we see minimal NPLs, really performing well, and we are being very thoughtful and disciplined. Gerard Cassidy: Thank you. And, Jane, have you heard any word from the Fed whether they are going to follow suit with the OCC and the FDIC on these changes? Jane Fraser: I have not. Gerard Cassidy: Thank you. Then moving to consumer cards, Gonzalo, you pointed out how you break out the general purpose versus the private label card. Going back to earlier years, retail services were 33% of U.S. card loans—now they are much lower. With the advent of buy now, pay later and AI, is the retail private label credit card business a business that is going to have challenges in reaching profitability levels that they need to reach because of this competition? Gonzalo Luchetti: Thank you, Gerard. What we are seeing in the private label space—I would attach it more to changing customer behavior as it relates to borrowing preferences than to BNPL per se. That change has been underway for a number of years. That is why our investments are really in the general purpose card space—because that is where our clients are taking us. Over time, many retailers themselves are pivoting into co-brand relationships, and some of the more successful ones like Costco—which we have—and many others have made those pivots because they are following customer behavior. On discipline, you have seen us be very disciplined in terms of exits. Scale relationships work very well as it relates to returns. But where relationships have low scale, Jane has been the first to impress upon me that we are not in the business of hobbies. We have been very disciplined about exiting smaller portfolios where we did not see a path to improved returns, and we will keep that discipline. Operator: Our next question comes from Vivek Juneja with JPMorgan. Please go ahead. Vivek Juneja: Hi, thanks. A couple of clarifications. One is, what do you mean by “moderate” capital benefit, Gonzalo? Are you talking about 3%–5%? Any range in terms of under the current proposal for capital benefit? Gonzalo Luchetti: Vivek, thank you. The modeler in me appreciates the question, but we are not giving specifics at this time. Jane Fraser: We will be able to do that when we get the final proposal. Vivek Juneja: Okay. DTA—Jane, since you talked about it, any sense of the pace over the next couple of years? The pace has been very slow. Jane Fraser: I will give the CEO answer—which is “better”—and then pass it over to Gonzalo. Gonzalo Luchetti: Vivek, in the first quarter, the disallowed DTA increased by about $200 million quarter-over-quarter. That is attributable to higher U.S. income offset by seasonality of the carryback support—this usually happens. As you see us go through the year, and we have been clear on trying to increase U.S. earnings over time, we would expect that the disallowed DTA would reduce this year in the range of about $800 million. We are very focused on the multi-year path to accelerate that trajectory and really burn down that disallowed DTA. We will share more at Investor Day. Vivek Juneja: Okay. We will look forward to hearing more at Investor Day. Thanks, Gonzalo. Operator: The final question comes from Christopher McGrady with KBW. Please go ahead. Christopher McGrady: Great, thanks for squeezing me in. Going back to the tech/AI conversation for a moment, I am interested in how today’s outlays could ultimately yield ROE benefits and how you are thinking about that when putting together this Investor Day over the next few weeks. How does that influence the medium-term ROE outlook? Jane Fraser: You are going to hear a lot more about AI at Investor Day and how we are approaching it. With the rapid advances of the models and generative AI, we have established a more strategic, structured firm-wide approach that looks at four different buckets, which will ultimately yield ROE benefits. One is business strategies—covering revenue generation, client experience improvements, and potential changes to our business model—many with a direct driver to either revenue growth or ROTCE. The second—one I talk about often—is productivity and end-to-end process improvement. That work is simplifying our most complex and manually intensive processes leveraging both AI and automation. That is a direct operating efficiency benefit, with investments needed to get there, which we are making. A third area is defensive capabilities—covering cyber, fraud, AML, and general risk management—issue avoidance. We are also looking at longer-term talent and workforce implications. Our approach is structured and deliberate. It is not just about tech; it is about people, processes, and our business model. That is the framework we will run through in three weeks and how that translates into growth, ROTCE benefits, wallet capture, etc. Christopher McGrady: That is helpful, thank you. Follow-up: global rates are moving in various directions at any moment. Interested in the broader rate sensitivity—domestic, international—and how we should think about the whole Citigroup Inc. entity. Thank you. Gonzalo Luchetti: Thanks very much. We provide disclosures on IRR—which, even though it is a static measure, gives you a sense from a risk management perspective. On NII ex Markets—the vast majority of the growth we have baked in for the year is driven by client engagement and momentum reflected in deposit and loan volume growth. On interest rate sensitivity, you have two pieces. One is U.S. dollar sensitivity. You have seen us actively manage our balance sheet, bringing down our asset sensitivity over time to be more or less relatively neutral today as it relates to U.S. rates. We like that position given what is going on out there. On non-USD rates, we are structurally more asset sensitive. That has to do with our strategy. It is well-diversified sensitivity across 65-plus currencies, very much anchored by our Services and Wealth businesses around the world. Thank you. Operator: There are no further questions. I will turn the call over to Jennifer Landis for closing remarks. Jennifer Landis: Thank you all for joining the call. We look forward to talking to you this afternoon with any follow-up questions. Thank you. Operator: This concludes the Citigroup Inc. first quarter 2026 earnings call. You may now disconnect.
Operator: Greetings, and welcome to the Data Storage Corporation Fiscal Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ms. Alexandra Schilt, Investor Relations. Thank you. You may begin. Matthew Galinko: Thank you. Good morning, everyone, and welcome to Data Storage Corporation's 2025 Fiscal Year Business Update Conference Call. On the call with us this morning are Chuck Piluso, Chairman and Chief Executive Officer; and Chris Panagiotakos, Chief Financial Officer. The company issued a press release this morning containing its 2025 fiscal year financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. Before we begin, please note that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to various risks and uncertainties described in the company's filings with the SEC. Except as required by law, the company assumes no obligation to update or revise forward-looking statements. I'd now like to turn the call over to Chuck Piluso. Please go ahead, Chuck. Charles Piluso: Thanks, Allie. Good morning, everyone, and thank you for joining us. First, I would like to acknowledge the delay in reporting our fiscal year 2025 results. which was necessary to allow additional time to complete our year-end audit. This was primarily driven by the complexity of several significant transactions during the year, including the sale of our CloudFirst subsidiary, the classification and settlement of many of our outstanding warrants and the completion of a tender offer. However, we are pleased to be here today to discuss our results in more detail. 2025 was the most consequential year for Data Storage Corporation's 25-year history. It was a year defined not just by strong financial results by decisive action. Action that fundamentally reshaped our company, strengthened our balance sheet and positioned us for a new phase. Over the past year, we made deliberate choice to unlock the value we had spent more than 2 decades building and redirect that value towards what we believe is a significantly larger opportunity ahead. We executed on that strategy in 3 critical ways. First, we monetized CloudFirst for a total transaction value of $40 million. That transaction generated approximately $31.6 million in net proceeds and a $20.1 million gain. We sold a strong asset at full value because we believe that capital could be deployed into opportunities with greater long-term potential. At closing, we had an estimated $41 million in the bank based on our cash balance of $10 million plus the sale of CloudFirst. Second, we returned $29.3 million of that capital directly to shareholders through a tender offer at $5.20 per share, reducing our outstanding share count by approximately 72%. That level of capital return is rare for a company of our size and reflects a core principle of ours, capital belongs to the shareholders. And when we generate it, we allocate it responsible, whether that means returning it or investing it for growth. Third, we reset the company. We entered 2026 debt-free with over $10 million in capital, a clean balance sheet and at this point, a simplified operating structure. From a financial standpoint, these actions resulted in record performance. We reported a net income of $19.2 million for the year compared to $500,000 for 2024. At the same time, I want to be very clear with investors this level of profitability reflects the CloudFirst transaction and other nonrecurring events. It does not yet represent earnings power of DTST, and we are being intentional and transparent. What it does demonstrate is our ability to create value and recognize and to realize that value and to act with discipline in how we allocate capital. Today, our core operating business is Nexxis and it's performing. In 2025, Nexxis generated $1.4 million in revenue, representing a 13.4% year-over-year growth. Gross margins expanded to 44.4%. And importantly, we improved the quality of the business by reducing customer concentration, with no single customer accounting for more than 10% of the revenue. Nexxis is lean, subscription-based recurring revenue business with improving margins and real operating leverage. And that brings us to the most important part of our story. What comes next? We have deliberately positioned DTST as a NASDAQ-listed acquisition platform with capital, flexibility and a clear mandate to identify, acquire and scale high-quality businesses in large and growing technology markets. We are actively evaluating opportunities in areas where we believe we have both a strategic alignment and the ability to add value, including AI-enabled vertical SaaS GPU infrastructure, cybersecurity and SOC-related services as well as scalable technology businesses with recurring revenue models. These are not abstract targets. These are markets with significant tailwinds where disciplined capital deployment can drive meaningful long-term returns. In fact, we've already identified and are actively pursuing a number of strategic opportunities with an emerging GPU infrastructure segment in enterprise technology. These areas are being shaped by strong tailwinds, including a rapid adoption of AI-driven workloads, ongoing data architecture, modernization and increasing demand for scalability, resilient digital infrastructure. Our focus remains on large evolving markets where demand visibility is high, and we believe we can deploy capital in a disciplined, accretive manner with an emphasis on opportunities that are offering compelling, risk-adjusted returns and clear avenues for long-term value creation. We are actively advancing these initiatives, positioning ourselves to stay agile and selective as they're developed. We expect to provide meaningful updates in the near term as these opportunities evolve. Importantly, we are only pursuing opportunities where we understand the consumer behavior and business deeply, and where we see a clear and credible path to value creation. At the same time, we are focused internally on improving efficiency. As we move through 2026, we expect corporate overhead to decline meaningfully as we transition from CloudFirst divestiture is completed. Our objective is to ensure that the earning power of this company is driven by operations, not onetime events. So when you step back and you look at DTST today, what you see is a company that has undergone a complete transformation. We have moved from a traditional cloud-based managed service model to a streamlined, well-capitalized platform with flexibility to pursue higher growth, higher-margin opportunities. We have demonstrated that we can build value that we are willing to realize it when the timing is right. And now we are focused on the next phase, building a company defined by our sustainable growth, disciplined execution and long-term shareholder returns. 2025 was about realizing value. 2026 and beyond will be out seeking opportunities, bringing together synergistic companies and creating shareholder value. Now I'd like to turn the call over to Chris Panagiotakos for a review of our financial results. Chris? Chris Panagiotakos: Thank you, Chuck. Good morning, everyone. As discussed on our last call, on September 11, 2025, we closed the sale of our CloudFirst business for $40 million. As a result of the transaction and in accordance with auditing and reporting standards, our ongoing financial reporting now reflects only our continuing operations, specifically our Nexxis subsidiary. Sales from continuing operations were $1.4 million for the year ended December 31, 2025, an increase of $164,000 or 13.4% compared to $1.2 million in the prior year. The increase was primarily attributable to continued growth in our Nexxis Voice and Data Solutions business driven by the addition of new customers and increased spending for existing customers. Revenue growth during the period reflects continued demand for our voice and data connectivity solutions and expansion of services within our existing customer base. Selling, general and administrative expenses for the year ended December 31, 2025, increased $348,000 or 9.1% to $4.2 million from $3.8 million for the year ended December 31, 2024. The increase was primarily driven by a $507,000 or 101.6% increase in noncash stock-based compensation primarily related to the accelerated vesting of equity awards in connection with the sale of the CloudFirst business, which triggered a fundamental transaction clause in equity award agreements with employees. Salaries and director fees increased $166,000 or 9.8% attributable to annual merit-based salary adjustments and bonuses. These increases were significantly offset by a $301,000 or 22.8% decrease in professional fees, primarily related to lower legal and consulting expenses in the current year. We expect expenses to decrease for the year ended December 31, 2026, as compared to the year ended December 31, 2025, since a significant number of its employees are no longer working for us and instead are working for the buyer of CloudFirst business, and we anticipate having lower legal and accounting costs. Net income attributable to common shareholders for the year ended December 31, 2025, was $19.2 million compared to net income of $523,000 for the year ended December 31, 2024. The significant increase in net income for the 2025 fiscal year was primarily driven by the gain recognized on discontinued operations. We ended the quarter with cash, cash equivalents and marketable securities of approximately $41 million at December 31, 2025, compared to $12.3 million at December 31, 2024. Thank you. I will now turn the call back to Chuck. Charles Piluso: Thanks, Chris. Before we open the call to questions, I just want to reinforce what we believe we're entering into an exciting new phase. We attended the NVIDIA conference a few weeks ago, which reinforced the magnitude of the opportunity emerging across both technology and business. The pace of innovation and the scale of investment underway are substantial, signaling a transformation shift across industries. At the same time, it sharpened our approach rather than competing directly in a capital-intensive area, such as the billions being deployed into GPUs and core infrastructure, we are focused on a disciplined participation. We have identified several key areas to focus to pursue that -- and we are advancing them deliberately allocating capital thoughtfully and concentrating on opportunities we see a clear differentiation and the potential to drive meaningful long-term value. Now I'd like to open it up for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Matthew Galinko with Maxim Group. Matthew Galinko: And congratulations on getting to this point in the transition. Maybe can you give us some sense of what valuations look like? Is it kind of what you expected when you started this process, particularly as you look towards some of the AI and HPC opportunities? Is there -- is it kind of within reason? Or is it over overheated at all? Charles Piluso: Thanks, Matt, and it's good hearing your voice. What's going on is after attending that conference, Matt, is that this is like nuclear energy. Some people are frightened, but most people are very, very excited. And what's happening on the equipment side of things, you can put your hands on and it's very, very tangible. On the software side, everyone uses the term, they're training. They're training their platforms, their software and all. So when we see the valuations really you hear things like someone that's not even at a beta side of the software, people are hoping to get $700 million and their pre-revenue. But for the most part, as I walk through the conference, I would say that NVIDIA has paid for everyone at that conference. It was huge out of San Jose. It was just amazing on it. But after spending 25 years in disaster recovery and business continuity, I went there with, Matt, one of our Board members. And we think we have an idea on a potential opportunity to be able to cost something out. That's something that we know pretty well. We're still testing the waters. We still have a lot of research to do on it over a period of time. But there are parts that you can play in that you're not going to get crushed or playing with someone that's raising or spend $50 billion on GPUs. So there are some opportunities given that based on our past experience that we see. So the valuations are all over the place. Most of the people that we spoke to -- and by the way, Matt, over the -- since September and we closed, we've spoken to 21 companies that we either have passed on, we've passed on, that are everything from a SaaS AI offering to an MSP to VoIP companies. And we're both basically seeing on the MSP side, you're looking really it's nonrecurring usually for the most part, unless it's software renewals. They're trading at 1x, but they're trying to get 2.5x revenue. It's according to the size that they really are. And on some of the AI stuff, I just have to say that 95% of everyone we've spoken to either at that conference and all, they're waiting to go buy their 120-foot yacht. So it's not there yet. But the excitement of what's going on is incredible. I think we potentially have some ideas on where we can play that separates us a little bit. But An answer to your question, Matt, it's just all over the place, you're hoping to, like I say, get a $700 million value. I mean, I'm sitting in a -- not that I'm a bar goer, but sitting in a hotel bar locked in with around 15 to 20 people that have pass-through that a lot of people kind of knew. And one guy was working on the software and his laptop sitting next to me, and they're going literally for a $700 million valuation. So I think it's all over the place. Everybody is trying to create water. It's a long answer, but it's that incredible, Matt. It's that incredible what's going on. Matthew Galinko: No, I appreciate the color. And maybe does having cash in the bank ready to deploy, get the counterparties a little more interested in the conversation? Or is that helping to kind of move things along in some of these conversations? Charles Piluso: Two of the things that we're kind of looking at, well, 3 things, which we always laid out. Oh, is there a reverse merger out there that will give stockholder value great value and all. We're not rushing to that, but people are approaching us and we're saying, well, gee, why can they do that and we can't. Why can they build something that has a $100 million market cap and more why can't we? So we're really not so focused on that now. We'll look at opportunities because they're approaching us. But there's also -- I'm going to call it the medium tech, the stuff that's not on fire, you could get burned. So there are some really good MSPs out there, and some of them have developed some AI software. So we've been talking to them, some of these companies about, well, how about we separate it and what's the meat and potatoes that your MSP and we look at doing something there. And then anything on the software side that for the term that everybody is still training still working on we'll create something as a joint venture or something where we have the opportunity to buy it if you actually deploy it. So you need to really get creative because most of the folks that are in this MSP space as well as VoIP companies as well. They caught on, and they're trying to develop the software so they can roll it out to their customer base that they have. And I think that's pretty good. But I don't think we have to give any value yet to that software. But it might be something that's good because organic growth is very tough and there might be some good cross-selling that goes on. So that's some of the stuff that we're looking at, let's go medium tech. Let's not -- while we're still looking at this other thing that we kind of feel that might be a good opportunity in the AI infrastructure GPU space. Matthew Galinko: Got it. And then maybe just last question for the existing business. Can you -- is it possible to give us a sense of what the quarterly run rate or burn would look like operating without a transaction currently? And generally, what your expectations for Nexxis are over the next year operating independently? Charles Piluso: Sure. I'll handle the Nexxis. I'll turn the [ burn ] over to Chris. Go on Chris, you have an idea of what our run rate was typically where a range of where you think it might be? Chris Panagiotakos: So I think the burn rate for 2026 will be probably about $2 million for the year. being a public company. Charles Piluso: Yes. So we think we can reduce some of that, Matt, in certain areas because the legal fees were pretty high. and we're still incurring some of them as we go through it. So we'll give it a range, that's an estimate. Don't hold us to it, but that's kind of what we're expecting on that. On the Nexxis side of things, they're growing. We own 80% of Nexxis. John Camello runs that does a great job. He has a small staff. He's adding some folks to it. I think he has to -- I don't want to say he has to, we have to allocate a little bit more money, not much, but to improve his inbound leads. He does a great job with agents and with shows, associations and all of that. But I think we have to spend a little bit of money not much to improve the SEO side of things. But he's profitable, he turned to profit. We never really allocated a lot of money in this sense to growth. It's been around for a while. We put money in as we needed it. But we haven't said, here's $100,000 get a digital marketing agency, get the lead flow going. We're trying to hold on to the cash we have, be very disciplined for the first acquisition, along with -- we have 2.1 million shares outstanding, give or take, it's a little bit more than that. But we want to be careful with that, that if we're going to say, hey, we're going to go raise money, which we would, that it's going to be an increase in value. Operator: [Operator Instructions] Mr. Piluso, I see no other questions at this time. I'll turn the floor back to you for final comments. Charles Piluso: Thank you. Thanks for the questions, Matt. As we enter this next phase from a position of real strength with capital on the balance sheet and a clean simplified structure and a clear strategic mandate. That combination gives us the ability to be selective, to be disciplined and to focus only on opportunities that we believe can create meaningful long-term value for our shareholders. At the same time, we remain grounded in execution. Our priorities are clear: Continue improving performance of Nexxis, deploy capital thoughtfully into areas that enhance our scale, expand our margins and strengthen the overall quality of our earnings. We are building with intention, and we are building for durability. And we do appreciate the trust and support of our shareholders. We look forward to updating you on our progress as we move through 2026 and execute on the opportunities ahead. Thank you. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter Fiscal Year 2026 CarMax Earnings Release Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Lowenstein, VP, Investor Relations. Please go ahead. David Lowenstein: Thank you, Angela. Good morning. Thank you for joining our fiscal 2026 fourth quarter earnings conference call. I'm here today with Tom Folliard, Interim Executive Chair of the Board; Keith Barr, President and CEO; Enrique Mayor-Mora, Executive Vice President and CFO; and Jon Daniels, Executive Vice President, CarMax Auto Finance. Let me remind you our statements today that are not statements of historical fact, including, but not limited to, statements regarding the company's future business plans, prospects and financial performance are forward-looking statements we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our current knowledge, expectations and assumptions and are subject to substantial risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, we disclaim any intent or obligation to update them. For additional information on important factors and risks that could affect these expectations, please see our Form 8-K filed with the SEC this morning, our annual report on Form 10-K for fiscal year 2025 and our quarterly reports on Form 10-Q previously filed with the SEC. Please note, in addition to our earnings release, we have also prepared a quarterly investor presentation, and both documents are available on the Investor Relations section of our website. Should you have any follow-up questions after the call, please feel free to contact our Investor Relations department at (804) 747-0422, extension 7865. Lastly, let me thank you in advance for asking only 1 question and getting back in the queue for more follow-ups. Tom? Thomas Folliard: Thank you, David. Good morning, everyone, and thanks for joining us. Today, I'm going to provide some brief commentary on our performance during the quarter. I'll also introduce our new President and Chief Executive Officer, Keith Barr, before turning the call over to him to say a few words. After that, Enrique and Jon will speak to our fourth quarter results in more detail as well as highlight a few key expectations for fiscal year '27 before we open the line for your questions. During the fourth quarter, we made solid progress on the priorities outlined last call to strengthen the business. We improved sales trends by lowering our prices, investing in acquisition marketing and deploying an initial set of digital enhancements designed to drive conversion. We also continued streamlining our cost structure and lowering the cost to bring cars to market, helping us offer more affordable vehicles. Concurrently, we made meaningful progress on our SG&A reduction goals, CAF full spectrum ambitions and extended protection plan redesign. Before I get to Keith, I'd like to thank David McCreight for stepping into the role of Interim President and CEO over the past several months. As we search for the right leader to guide CarMax through its next phase of growth, David's leadership was critical in strengthening the business in the near term and solidifying the foundation for growth ahead. David will continue to be a tremendous asset to the company, serving as an independent Director of the Board. Well, the Board and I are thrilled to welcome Keith to CarMax. In searching for a CEO, we were looking for several attributes. First and foremost, a people-first leader who will fit well with CarMax's award-winning culture, an established proven leader with experience leading a complex business, someone with a strong customer focus and a track record of driving growth and strengthening brands, experience maximizing the benefits of an integrated omnichannel model and finally, experience leading digital transformation. Keith embodies each of these characteristics, making him the right choice to lead CarMax through a critical juncture and drive the company's next chapter of growth. I'll now turn the call over to Keith to introduce himself and say a few words. Keith? Keith Barr: Thanks, Tom, and good morning, everyone. I want to thank the Board for their trust in me. I am honored to join CarMax and lead this iconic organization alongside our talented associates. For more than 30 years, CarMax has helped shape the way people buy and sell used cars and in doing so, has earned something rare, the trust of its customers. A customer and associate-centric approach is central to how I lead, and I recognize right away that it is central to CarMax as well. This is one of the many things that attracted me to this team. CarMax has built something truly exceptional, a beloved brand, the combination of an unmatched physical footprint and strong digital infrastructure and an award-winning people-first culture. I am confident that we can build on this strong foundation and better serve our customers and unlock the significant opportunity ahead of us. Before joining CarMax, I spent my career in hospitality, holding numerous leadership roles in commercial, operations and technology and ultimately serving for 6 years as CEO of IHG Hotels & Resorts. I led a successful transformation that created value for shareholders through empowering associates and pioneering a better experience for customers that has become the industry standard. On the surface, hotels and used cars may seem different, but at their core, both businesses succeed by delivering the right product at the right price in the right way for the customer. My time in hospitality was defined by placing the customer at the center of every decision. The auto market is evolving quickly, and I believe a fresh outside perspective can be a real advantage, especially when it's grounded in respect for the complexity of the industry, a deep understanding of the competitive landscape and a clear focus on changing customer expectations. I believe there's a tremendous opportunity ahead to better meet the needs of today's consumer. CarMax's scale, including the fact that we reach 85% of the U.S. population is a competitive advantage in this market. Paired with our brand and culture, we are well positioned for success. Our recent performance has not reflected our potential and closing that gap is exactly what we are focusing on. I have been spending my first few weeks deeply familiarizing myself with every aspect of the business. This has included meeting many talented associates across the organization, both in our corporate offices and in the field, studying our customer and associate experience in both the buying and selling journeys, assessing our omnichannel capabilities and understanding our approach to reconditioning, inventory, pricing, marketing and CAF. In addition to the actions that Tom and David initiated during the fourth quarter, we're working hard to identify where we can improve. And when we have more detail, we will communicate our plans with you. What I can already say with absolute certainty is that we will put the customer at the heart of every decision we make to drive better performance. Through that lens, this is what we will prioritize. First, make CarMax the obvious and easy choice. That starts with consistently delivering 3 things that matter most to customers: a competitive price they trust is fair, access to a broad selection of high-quality vehicles and an end-to-end experience that meets the needs of today's consumer. Second, use technology to drive more differentiated experiences and efficiencies. We'll use software, data and AI in practical ways that make it even easier for customers to buy and sell cars and easier for our associates to serve them. That means reducing friction across the journey, personalizing the experience, improving how we match inventory and pricing to meet customer demand and ensuring a great experience both in our stores and online. Third, act with more urgency and intention while ensuring there is alignment across the organization. We will change what is not working, double down on what is and keep evaluating opportunities and risks as we move. We'll be bold, hold ourselves accountable and move with the speed as we build a durable long-term growth engine. These 3 priorities are where we'll begin. And I expect our work to evolve as I continue to listen, learn, engage with our teams and investors. We have a meaningful opportunity ahead of us as we strengthen the business and improve our execution to drive growth and returns. I look forward to sharing more about our strategy and long-term objectives in due time, and I'm confident in what we can accomplish. Now I'd like to turn the call over to Enrique to discuss our fourth quarter financial performance in more detail. Enrique? Enrique Mayor-Mora: Thanks, Keith, and good morning, everyone. During the fourth quarter, we improved our sales trends and made progress toward our SG&A reduction goal, which we now expect to be greater than the FY '27 exit rate reduction targets we had previously set. Our EPS during the quarter was impacted by restructuring costs as well as by a noncash goodwill impairment, while our margins decreased from the prior year quarter as we continue our focus on targeted price reductions and driving sales. During the quarter, we delivered total sales of $5.9 billion, down 1% compared to last year. Across our retail and wholesale channels, we sold approximately 304,000 vehicles combined, up 1% versus the fourth quarter last year. In our retail business, total unit sales declined 0.8% and used unit comps were down 1.9%. This marked a strong positive change in trend relative to the second and third quarters, which saw used unit comps of negative 6.3% and negative 9%, respectively. Sales performance in our fourth quarter was supported by the actions that Tom noted. Average selling price was $26,019, a year-over-year decrease of $114 per unit. Wholesale unit sales were up 3% versus the fourth quarter last year. Average wholesale selling price declined by $268 per unit to $7,776. We bought approximately 270,000 vehicles during the quarter, up slightly from last year. The actions that we implemented also supported a strong positive change in trend as compared to the third quarter, which was down 12% year-over-year. We purchased approximately 229,000 vehicles from consumers, with approximately half of those buys coming through our online instant appraisal experience. With the support of our Edmund sales team, we sourced the remaining approximately 41,000 vehicles through dealers, which is down 9% from last year. Fourth quarter net loss per diluted share was $0.85 versus $0.58 in earnings in the fourth quarter of last year. Adjusted earnings per diluted share, a non-GAAP measure, was $0.34 in the quarter compared with $0.64 a year ago. Our EPS this quarter was impacted by a few items. This includes a noncash goodwill impairment of $0.99, driven by a combination of a decline in our market capitalization, which coincided with a prescriptive impairment measurement period and pressured financial performance and restructuring charges of $0.20 related to corporate workforce reductions and the early abandonment of the underutilized space associated with our Edmunds office. Altogether, these items reduced EPS by $1.19 this quarter. Total gross profit was $605 million, down 9% from last year's fourth quarter. Used retail margin of $383 million decreased by 10%, driven primarily by lower profit per used unit of $2,115, which was down $207 per unit from last year's record high fourth quarter. Wholesale vehicle margin of $115 million decreased by 7% from a year ago with lower wholesale gross profit per unit of $940, a decline of $105 per unit, partially offset by higher volume. Other gross profit was $107 million, down 11% from a year ago. This was driven primarily by service. In line with the outlook we gave in the third quarter call, service was pressured by seasonal sales and the annualization of cost coverage levers taken last year. For the full year, service returned to profitability despite sales headwinds. CarMax auto finance income of $144 million was down 10% year-over-year. John will provide detail on CAF in a few moments. On the SG&A front, expenses for the fourth quarter were $611 million. When excluding the previously noted restructuring costs, SG&A was $577 million, down 5% from the prior year. SG&A dollars for the fourth quarter versus last year were mainly impacted by 3 factors. First, total compensation and benefits decreased by $31 million, driven by lower corporate bonus and stock-based compensation as well as lower CEC payroll following the actions taken last quarter. These savings were partially offset by $12 million in restructuring charges tied to our SG&A cost reduction efforts. Second, occupancy costs increased by $27 million, including a $21 million charge related to the exit of our Edmunds office lease. That action will support lower SG&A moving forward. The balance of the increase was primarily timing related. Third, advertising expense increased by $6 million, reflecting higher acquisition marketing spend. Turning to capital allocation. During the fourth quarter, we repurchased 1.3 million shares for a total expenditure of $50 million. As of the end of the quarter, we had $1.31 billion in repurchase authorization remaining. As we look ahead into FY '27, I'll highlight a few key areas. We expect to take a more dynamic approach to margin management as we run the business. As a guidepost for FY '27, we currently expect used margins for the full year to decline at a rate broadly in line with our fourth quarter year-over-year trend, although actual results may vary as we continue to optimize performance. We expect the first quarter to reflect the largest year-over-year decline at closer to $300 per unit as we lap record margins. This outlook reflects our pricing actions and our ongoing efforts to reduce logistics and reconditioning COGS in support of more competitive pricing and stronger sales. We have completed our EPP product redesign and testing and have begun our national rollout, which we expect will drive approximately $35 per unit in margins in FY '27. We will ramp throughout the year driven by the rollout plan. Regarding SG&A, we expect FY '27 exit rate reductions of $200 million, an increase over the previous guidance of $150 million. However, the year-over-year savings within FY '27 are expected to be offset primarily as we annualize over the materially reduced corporate bonus and share-based compensation in FY '26, which offsets approximately half of the FY '27 in-year savings, inflationary pressures and new location growth. With our focus on lowering vehicle pricing through lower GPUs and COGS efficiencies, we will be transitioning our SG&A efficiency metric to a per total unit ratio, which will consist of retail plus wholesale units. We expect SG&A to lever in FY '27 when excluding the restructuring charges incurred in FY '26. Regarding capital expenditures, we anticipate approximately $400 million of spend in FY '27, down materially from the past 2 years. The largest portion of our CapEx investment continues to be related to the land and build-out of facilities for long-term growth capacity in off-site reconditioning and auctions. In FY '27, we plan to open 4 new stores, 2 new off-site reconditioning and auction locations and 2 new off-site auction locations. Regarding capital structure, our priority remains funding the business and maintaining financial flexibility. We continue to take a disciplined approach to our capital structure, including managing our net leverage to preserve efficient access to the capital markets for both CAF and CarMax overall. With leverage slightly above our targeted range and as we focus on improving the business during this transitional period, we have paused our share buybacks. Our $1.1 billion authorization remains in place, and we remain committed to returning capital to shareholders over time. At this time, I will now turn the call over to John to provide more detail on CarMax Auto Finance and our continuing focus on full credit spectrum expansion. Jon? Jon Daniels: Thanks, Enrique, and good morning, everyone. During the fourth quarter, CarMax Auto Finance originated almost $1.9 billion, resulting in sales penetration of 42.8% net of 3-day payoffs versus 42.3% last year. The weighted average contract rate charged to new customers was in line with last year at 11.1%. Third-party Tier 2 and Tier 3 penetration in the quarter combined for 25.6% of sales, which was also in line with last year. The year-over-year increase in CAF penetration in the fourth quarter reflects our continued focus on expanding in Tier 2, supported by our flexible funding strategy and newest underwriting models. We expect our penetration growth targeting the top half of Tier 2 will accelerate in FY '27. CAF income for the quarter was $144 million, down $16 million from the same period last year. The loan loss provision was $74 million as compared to $68 million last year. Net interest margin on the portfolio was up slightly both sequentially and year-over-year at 6.3%. Consistent with the third quarter, credit losses in the fourth quarter were in line with our expectations. CAF's $74 million loan loss provision largely reflects expected charge-offs on newly originated loans, including those tied to our credit spectrum expansion primarily into the top half of Tier 2. Total reserves ended the quarter at $453 million or 2.78% of auto loans held for investment. We also designated a $100 million pool of nonprime loans as held for sale during the quarter, which does not require a loss reserve. As signaled previously, we anticipate leveraging future off-balance sheet funding transactions strategically as it supports our full spectrum growth strategy by balancing income and future provision risk. While CAF income was down year-over-year in the quarter, this is largely reflective of a reduced held-for-investment receivable base impacted by the $900 million 25-B transaction executed in Q3, coupled with lower origination dollars over the last few years. CAF realized approximately $5 million in servicing fees during both the third and fourth quarters. The third quarter also included a $27 million gain on sale as a result of the 25-B transaction. As we grow our volume in Tier 2, we will continue refining our funding strategy and earnings model throughout the year. We believe a diversified funding approach gives us flexibility to optimize returns beyond traditional third-party lender fees while maintaining appropriate risk discipline. More broadly, we see CAF penetration growth as a contributor to the larger strategic goal of retaining a higher percentage of finance income. As always, we will carefully consider the current state of the economy and consumer as we shape our strategy. I also want to provide an update on our redesigned extended service plan, MaxCare, which focuses on mechanical coverage and our new MaxCare Plus offering, which adds cosmetic protection. The redesign of these products is aimed at increasing penetration by improving affordability amid higher vehicle prices and has shown encouraging results across multiple markets to date. As Enrique mentioned, we have completed our product enhancement testing and expect to achieve nationwide rollout by Q2 of FY '27. Now I would like to turn the call back over to Keith. Keith? Keith Barr: Thank you, Jon. Before we open the line for questions, let me leave you with a few final thoughts. I want to thank Tom, David and all our CarMax associates for the foundation they have built. We made progress in the fourth quarter to improve affordability and streamline our cost structure. The time I have spent with associates in our offices and in the field has only reinforced my confidence in the opportunity ahead. We have a strong foundation, a powerful brand and our focus is clear: make CarMax the obvious choice for customers, use technology to create more differentiated experiences and efficiencies and operate with greater urgency and intention. If we do that well, we will build a stronger, more efficient business with the customer at the center of every decision we make. Before I close, I want to recognize a point of pride for CarMax. We were once again named by Fortune as one of the 100 Best Companies to work for, marking 22 consecutive years on that list. Even in my first few weeks here, I have seen the culture behind that recognition firsthand. The trust, care and support associates show for one another every day are real strengths of this company. I'm honored to be part of this team. I look forward to updating you on our progress in the quarters ahead and to sharing more about our strategy and long-term objectives in due time. Thank you for your continued trust and confidence in CarMax. With that, we will open the line for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Craig Kennison with Baird. Craig Kennison: Keith, congratulations on the new role. I guess I'd start with what are your general observations after the first few weeks in the role? And then more specifically, as you draw upon your experiences in the hotel industry, what are your thoughts on how to streamline the click-through experience at CarMax? It feels like that's an area where you lag the best-in-class experience. Keith Barr: Thanks, Craig. And yes, I'm thrilled to be here, and it's a pleasure to meet you. I think it's been great to get to know the team in the first few weeks. And what really stood out to me so far has been the caliber of our associates, both in the corporate office and in the field and the culture that's really, really palpable. I mean there's an amazing culture here in the company. And right now, we're focusing on sharper execution on the fundamentals of the business, about pricing, about selection, availability and experience. And so it's an amazing team. I think you're right, on the hotel experience, one of my rallying cries in my old role was how do we reduce friction in the customer experience. If it takes us 6 clicks to do something, how can we make it 3? What are the things that really matter most to customers and really understanding that end-to-end customer journey, both online and in-store and how we can streamline those processes. So that's going to be one of my main focuses in the omnichannel experience. It is just streamlining the experience and really making it easier for our customers. Operator: Our next question comes from Brian Nagel with Oppenheimer. Brian Nagel: Keith, welcome. Look forward to working with you. So my question, just looking at this quarter, I think one of the big efforts here has been the price -- I guess, price investments, so to say, in the used car business. So maybe you can discuss further what you saw in terms of elasticity and demand as you adjusted prices. How much of the -- while used car unit comps were still down, they did improve rather significantly from the prior couple of quarters. I mean how much of that could you attribute to these price investments? And I know you gave us the guidance for -- at least some guidance for the first quarter. But I mean, how should we think about these price investments going forward? Enrique Mayor-Mora: Yes, Brian, thanks for the question. The impact that we had on the quarter was really -- there are several things that we did, right? So we took our prices down. You can see that in the GPU. We increased our acquisition marketing spend as well. And we also made improvements to our online selling capabilities just through our website experience. I would tell you, out of those 3 things, pricing certainly, we believe, had the biggest impact, although we think all of those levers impacted our trend positively. And I'd tell you the results that we saw this quarter were pretty much in line with what we had expected given the actions that we took. And so we are really pleased with the change in direction. We are able to -- coming out of the third quarter, we made it very clear, like our objective right now is to get the sales flywheel going, and we're pulling these levers, and that's exactly what we saw. And we have those levers in place here moving forward as well. Brian Nagel: So could I follow up quickly, David, on that topic? I mean just is there a way to quantify, again, looking at the improvement, so to say, that we saw in used car unit comps here in fiscal Q4 versus Q3 and Q2. Is there a way to quantify, I mean, how much of that was a direct result of these efforts you took? Enrique Mayor-Mora: Yes. It's not really -- we haven't really talked externally about the price elasticity. We have a very deep understanding of price elasticity of -- it's not something we've necessarily communicated externally exactly what it is. But again, what I'd tell you is that change in trend and that change -- a positive change in direction, those 3 items drove it, lower prices, increased marketing, better selling capabilities online. But of those items, we do believe that our lower pricing had the biggest impact on the quarter. Thomas Folliard: Brian, it's Tom. I think it just proves price matters in this business. And we had let our -- as we said at the beginning of last quarter, we kind of had let our prices drift up where we weren't as competitive as we'd like to be. And so as Enrique mentioned, we took several actions immediately at the beginning of the fourth quarter. And as you noted, we saw a significant change. But clearly, the biggest one was price. And now as you've heard the team talk about cost, if we could get sales moving in the right direction and we can address some of the cost issues behind it, whether it's COGS or SG&A, we're going to have a fantastic business. But price really matters to the consumer. Operator: Our next question comes from Rajat Gupta with JPMorgan. Rajat Gupta: Look forward to working with you, Keith. I had an initial question, just to follow up on Enrique's comments around SG&A. How much of the $200 million do you expect to hit this year's P&L? And could you double-click a little bit more on some of the commentary around accruals and stock-based comp and how we should think about the magnitude there? And maybe any other guardrails around SG&A with respect to ad expense per unit, that would be helpful. Enrique Mayor-Mora: Yes. No, absolutely. Thanks for that. So a couple of things. I think one way to think about it is the exit rate dollars we have coming out of FY '26. And between the CEC actions we took last quarter, the home office actions we took this quarter that we talked about on the call as well as the Edmunds lease, all those things combined mean FY '26, we're exiting the year with about $100 million in savings. And as we said, we have a line of sight to another $100 million exit rate FY '27. So some of those will be recognized within FY '27, but really, you're looking at a full realization in FY '28 for the full annualization. What I would say, though, and as I said in my prepared remarks, in FY '27, the in-year savings, we do expect to be offset as we annualize over the materially reduced corporate bonus and share-based compensation. And that's about half of the actual expectations we have for savings in FY '27. Now in normal course of business, we don't expect those items to actually be around, right, and to have the same magnitude of impact. So that's really where you look at FY '28 and you say, okay, that would be a full annualization of the savings. So that's how to kind of think of FY '27 and the exit rate savings. Like look, we are laser-focused. And just to be absolutely clear, we are laser-focused on running as efficiently as we can. And I think us taking up our target from $150 million to $200 million is a sign of that intent. And so we're certainly plowing forward and excited about those savings. But again, the full impact will really be in FY '28. Did you have a second part of your question, Rajat? Rajat Gupta: I like just a quick follow-up for Keith. Yes. So just curious, like as you've had a chance to look at the portfolio a little bit, would you consider taking a look at just your store count as well and maybe think about pruning the number of locations you need, the density you need? I'm curious like how that would fit into how you're thinking about rationalizing and just creating more efficiency. Enrique Mayor-Mora: It's Enrique again. As we go through our strategic planning process here with Keith his new leadership, it's certainly something that we're going to be assessing. Like we're going to go through a strategic plan outlook. We're going to come back. And as Keith mentioned in his prepared remarks, we're going to come back at the appropriate time and communicate what those longer-term objectives are, what the goals are and the key underpinnings of that strategy. So at the current moment, I think that a lot is on the table, and that's something that we'll be assessing as part of the strategy. Operator: Our next question comes from Sharon Zackfia with William Blair. Sharon Zackfia: I guess as you think about kind of improving affordability and clearly taking this GPU hit currently, are you also kind of considering maybe relaxing some of CarMax' standards? And I don't mean on the mechanical side, but on the cosmetic blemishment side, is there an opportunity to sell a few cars with dent or modest scratches where it might be more affordable to the consumer and could be clearly disclosed given that most of the research is done online? Enrique Mayor-Mora: Yes, Sharon, thank you for the question. Certainly, if you look over the past year, right, we have taken what we internally call, but I think everyone kind of externally knows as well, like ValueMAX cars, so our older cars. We've taken the mix of our ValueMAX cars up pretty considerably this year, which is really a sign towards like we recognize, as Tom mentioned, pricing is key. Affordability is key. And so that's one way of thinking of us meeting the customer where they want to be met on price is just increasing our mix of ValueMAX. I think at the same time, taking a harder look at what -- how exactly can we even better do that is something as part of our strategy, we're going to consider because clearly, over the past year, sales have not been where we want them to be. And so we need to consider all potential levers when it comes to going to the market. I think the one thing that we will not change, though, is absolutely overall relative quality standards that we have and that we're known for. CarMax is known for a quality car, and that will continue. But there's probably items around the edges that we can take a harder look at and make sure that we meet today's customers' demands today, right? Sharon Zackfia: And Enrique, can I follow up? I know Keith has been there for like a minute, but is there any kind of time frame when we should expect kind of the strategic plan and some maybe more concrete benchmarks on SG&A per car and things like that? Enrique Mayor-Mora: Yes. You're right. Keith has been here a minute. So we will be -- we have our planning sessions that are underway here, and that will take we'll start doing those over the next quarter here. I think in June, you'll probably start to see some headlines maybe. I don't expect by June, there'll be a full strategic path forward. But in June, you'll start to get a sense of where we're going. And then certainly, after that, shortly after that, I would expect that we'd have a strong point of view on where we're going and the key metrics that go along with that and our outlook for the future, which we're really excited about. Operator: Our next question comes from Scot Ciccarelli with Truist. Scot Ciccarelli: So 2 strategic questions, if I may. First on sales. If price reductions and a $300 GPU drop were to accelerate comps to the positive range, would you expect it to push it even further because it's working? Or is there a floor on GPU levels that you're kind of thinking about? And then secondly, on the SG&A side, it sounds like you have an expectation to improve the customer experience, especially with online transactions. But can you help us reconcile like you're also expecting to cut OpEx and CapEx pretty significantly. And presumably, some of those things cost money. Enrique Mayor-Mora: Yes. Maybe just to start with SG&A. And so we have increased our target, right, from $150 million to $150 million to $200 million, and we'll continue to assess this at the right number. I think the key point here is that it's critical that we balance our cost reduction goals with our ambitions to grow the business, right? And to your point, there is a little bit of tension between the 2. And I fully expect as part of our strategic planning deliberations, that's going to be a topic, right? We want to make sure we're running as efficiently as possible, but we also want to make sure that we're actually funding the business appropriately. And that may mean reallocating certain resources. It may mean reducing certain resources and in certain areas, perhaps increasing resources, right? But that's going to be a key point of attention as we build out our strategy kind of moving forward. And then when it comes to price, I think the other lever to consider, right, that we're always focused on, but I think will take on heightened importance is COGS and reducing our COGS and logistics costs. Because when you do that, you actually then have multiple choices ahead of you. You can either just take it straight and give it to the customer. You can take it to margin to help offset some of that pressure or you can do a combination of the 2. And that's really something that we're laser-focused on kind of moving forward. And that certainly will be a key tenet of our strategy moving forward as well. Keith Barr: Scot, I'm just going to build on what Enrique said. In my past experience, becoming a more efficient business and lowering SG&A doesn't come at the expense of a great customer experience. You can actually improve quality, leverage technology and become a more efficient business at the same time. And I think that's what we're going to be very focused on. Spending time with the team in the stores, there's a number of opportunities for us to, again, make it easier for our associates to serve our customers and give a better experience for our customers, both in-store and online more efficiently. So I have done that before and looking forward to working with the team to do it again. Operator: Our next question comes from Daniela Haigian with Morgan Stanley. Daniela Haigian: Keith, congratulations on the role. Looking forward to seeing what you and the team will accomplish here. So I appreciate the overview on goals and understand we'll have to wait until June for the full strategic update. But I guess in the first 90 to 100 days here, what are the specific changes or low-hanging fruit that you'll prioritize to simplify that digital experience and improve conversion? And what are, I guess, areas or metrics that we can track against those goals? Keith Barr: Well, thanks for the question. Again, I've been here 4 weeks, which has been an amazing experience and spending time in the stores in the office and with the teams. And so I'm really enjoying learning about the car industry and understanding our strengths. And I guess I'll start there because I think -- the company has made great long-term investments in its digital platform and the geographic footprint. And the thing that we're focusing on is how do you connect that digital innovation with physical retail to create something that's really powerful that we can leverage to drive growth. The team right now is incredibly focused on the customer experience, particularly in digital and understanding how we can more efficiently move customers through the funnel, reduce friction. And to one of the earlier questions, like if it's taking us 10 clicks to do something, how can we do it in 7 or 5, really understanding what are the features and benefits that matter most. And so really making sure that we're driving customer acquisition, but then also more effectively moving customers through this experience, both online and in the stores. In regards to specific metrics, I think we're going to have to come back to you once we have a clear view on the long-term strategy because the metrics that are going to be most important in this business has to be aligned to those outcomes. So I don't know, Enrique, if you want to add anything else? Enrique Mayor-Mora: No, I think that's absolutely correct. And again, in June, maybe some signals in terms of where we're going. June is really not that far away. But I think thereafter is when we'll come back with kind of a fuller point of view on our strategy, the metrics to hold us accountable by that we'll hold ourselves accountable to. And again, we're really, really excited about where we are and our path forward here. Operator: Our next question comes from David Bellinger with Mizuho. David Bellinger: Keith, congrats on the new seat. Two areas where we were looking for a bit more detail. First one on conversion. I know you just talked about this a second ago, but how do you assess the level and quality of traffic that's coming into your site and your app? And just how you benchmark against others in the sector on conversion? And then second piece on vehicle inventories. Looking at your app, you've got 55,000 cars in there right now. That's been as high as 60,000 or 70,000. So as you implement some of these new tools, even some AI tools, is there an opportunity to operate the business with simply less inventory while still giving that core customer the breadth and depth that they need? Enrique Mayor-Mora: Yes. I think on the inventory piece, I think, look, that certainly is a key aspect that we need to consider, and we need to balance what is the right amount of inventory kind of by market, how quickly can we get it to customers. And I expect that will be a key component of our strategic deliberations as well, making sure we have the right amount of inventory. Is it less? Is it more? We'll end up seeing what that looks like. And in regards to conversion, I think as well, that's going to be a key point of view. Like this past quarter, I would tell you, conversion was relatively flat. Our selling opportunities were actually relatively flat as well. Our web traffic was up like 14% this past quarter. And for the first time in 5 quarters, we saw selling opportunities actually relatively flat as opposed to being down year-over-year. So positive movement there. And again, conversion was relatively flat. But I think the items that Keith has pointed out in terms of getting the customer through our website and buy a car in an easier way, in a faster way, undoubtedly is going to help our conversion rate when folks land on the website. And so pretty immediately, he's been here a hot minute, but already identifying, I think, the key areas of opportunity for us moving forward. And look, our goal is to drive selling opportunities and also drive conversion as well. Operator: Our next question comes from Jeff Lick with Stephens Inc. Jeffrey Lick: Question, Tom, since this is probably going to be your last call, we get the benefit of your wisdom. I was wondering if maybe you could just give a little -- any granularity or color on just as you drop prices, obviously, you didn't drop every price $207, some you dropped some you might even increase. Any color on where you do see more elasticity in terms of cohorts, age of car, where you're getting more traction versus where you're getting less or where it's not worth it to try to play the price game. Thomas Folliard: I think Enrique talked earlier about kind of optimizing the -- he talked earlier about optimizing the price and cost differences. As I mentioned, clearly, when we lowered price, it changed our -- changed the trajectory of our sales. And as you just rightly pointed out, when we say our margins are down $200, they're not down $200 on every car. You see all of our cars practically ended $998. That means we're more likely to drop a car at $1,000 -- like 20% of the car is at $1,000 to achieve the $200 price drop. And we are very analytical about that and how we approach it and do it in a way that we think will maximize the change in sales. The backdrop of that is we have to run a profitable business. And as Enrique mentioned, some of the things on cost, we felt like lower the prices, get sales moving in the right direction and then pay for it by taking cost out of the business. And I think that will be a theme for this team going forward as well, which is figure out how to grow the company. There's no reason we shouldn't be able to grow this business with our current footprint and do it in a profitable way. And that's a combination of pricing, margins, CAF, all the ancillary products that we sell. But look, I think it was great to come out of the quarter with a change in sales trajectory, and we believe that price was a big factor there. Jeffrey Lick: And then just a quick follow-up and maybe, Keith, you could chime in on your thoughts. I mean, Tom, if I think back, call it, 10, 15 years ago, when the world was really all brick-and-mortar, I think the thought -- the strategy was you're trying to have a used car lot that was a little more customer-friendly than your typical used car lot would lend itself to selling newer cars. And it seems like there's less competition, relatively speaking, in the -- your ValueMAX. I wonder is culturally, would you -- are you more willing now to explore that 7-, 8-year-old, 9-year-old sale and kind of mix the person who's coming in looking for that 3-year-old Jetta versus the person that's coming in looking for the 8-year-old Ford Explorer? Thomas Folliard: Again, we're a demand-driven business. And Enrique mentioned earlier about internally, we call it ValueMAX. It's really just an older car with higher miles, but we want to keep it at the same quality standard. I believe Enrique, our inventory is around 50% ValueMAX, that was 15%, 20% 10 or 15 years ago. So... Enrique Mayor-Mora: Yes. And again, this year, we have absolutely increased our sale -- inventory and sales of our older cars to drive -- to meet the customer where they want to be met on affordability to help support sales. But at the same time, Jeff, clearly, overall, if you take a look at the entire year, we're not where we want to be, right? And so I think it's -- we need to continue to assess from a sales standpoint. So we need to continue to assess what is the right level of inventory, what is the right age of inventory and the price points. And that will be part of our deliberation certainly. Thomas Folliard: Yes. And Jeff, it's a double-edged sword. You buy older cars with higher miles, they cost more to recondition and they take longer to recondition. So it's not -- and Keith said it earlier, it's the right car in the right place at the right price. And so it's a combination of those variables. Operator: Our next question comes from Michael Montani with Evercore ISI. Michael Montani: Welcome to Keith. Looking forward to working with you as well. I wanted to ask, if I could, John, if you could unpack a bit more some of the trends that we're seeing on the credit side with respect to roll rates and delinquencies, both in terms of on a like-for-like basis of credit quality and applicants as well as given some of the mix changes that have occurred maybe towards more upper end of your 2. Jon Daniels: Sure. Yes. I appreciate the good questions, Michael. With regard to roll rates and delinquencies, I think across the kind of the auto lending industry, lenders would say customers maybe absent exception of maybe the highest credit quality, the 800-plus FICO, they certainly are feeling the stress of affordability, inflation, et cetera. So those customers from mid-tier 1 all the way down to deep subprime are feeling the stress. Delinquencies are higher, roll rates are higher. And for us, as a lender, our job is to support them, help to service them and then set the reserve accordingly in preparation for that. And I think we've done that over the last -- at the end of Q3, we've hit our losses right on the mark in Q3 and Q4. So we feel good about where we sit. But there is a stressed customer out there, and we are thoughtful on that. That being said, again, it's a highly profitable business. We provide a fantastic card and a fantastic experience. So that's why we are willing to go into the Tier 2 space, and we are growing that space. You've got loans of value of $3,000, $3,500 on top of the Tier 1 business. So we look forward to growing that. So we have shifted our focus. Obviously, we will always take all the Tier 1 volume, but we're growing in Tier 2. We signaled that. We're at 43% penetration this quarter. We anticipate that accelerating over the course of FY '27. We've made market changes to grow that across the last year, including Q4. And so we will look forward to booking those that Tier 2 volume. We were approximately less than 10% of Tier 2 a year ago. We were closer to 20% in this quarter of Tier 2 and actually exiting the quarter, we're actually a little higher than 20%. So we look forward to taking on that volume, servicing that customer, reserving accordingly, nail in that and obviously generating more income for CarMax. Operator: Our next question comes from John Babcock with Barclays. John Babcock: I just have 2 quick ones here. I guess just first of all, on capital spending, you talked about how that's going to be down over the last couple of years. Are you able to provide any color in terms of where you're reducing spending, whether that's on the maintenance side or the growth side? Enrique Mayor-Mora: Yes. It's actually a little bit of both. And so number one, on the growth side, we're taking new stores down from 6 to 4, as I talked about in my prepared remarks. So that's one of the drivers. At the same time, from an off-site reconditioning and auction standpoint, we have spent the past several years buying the actual real estate when it comes to those sites. And so what you see this year is a little less on real estate spend as well. And then overall, just for our stores as well, just a little bit more heightened focus, just a little bit there, a little more heightened focus on prioritization of resources there. So you kind of see it across the board really. John Babcock: Okay. That's very helpful. And then also, just given everything that's going on in the Middle East right now, I was wondering, I know you've talked about lowering pricing and marketing spend and everything else you're doing to really try to drive more traffic, drive more consumer interest in CarMax. Just kind of curious, though, I mean, how have the Middle East tensions impacted what you're seeing? And do you think that's going to have a notable impact on your overall year-over-year growth trends? Or do you think that you can grow through despite that? Enrique Mayor-Mora: That's a great question. What I'd tell you is what I'd point you to really is more the industry, right, for the month of March. And in the month of March, the industry actually supported by a pretty strong tax season was pretty healthy. We're not going to talk about our intra-quarter performance. But I'd tell you, the industry itself is actually pretty healthy coming out of March or into March. And I'd tell you, moving forward, yes, I do think it's something that we need to watch between inflationary pressures, between what has now been on record the lowest consumer sentiment on record here. So it's something that we're watching, right? But at the same time, we are focused on what we can control. And what we can control, especially given now that we have a much more dynamic approach to margin management is we can react to what's happening in the market pretty quickly. And so we're excited to have that approach a little bit more dynamic, as I mentioned, and we'll control what we can control. Keith Barr: John, just to add one more thing there, which I've been really impressed about is just how the team has been talking about what's happening in the market. And so thinking about on the supply side as well, talking about, okay, do we have more -- bring more EVs into inventory? Do we bring in more gas-efficient vehicles as well, too. So constantly thinking about what does the customer want and how we make sure we can deliver that to them to drive sales. Operator: Our next question comes from Chris Pierce with Needham. Christopher Pierce: If we just fast forward a year from now and we're looking out to '28, would we -- I just want to sort of understand, is it lower prices, lower SG&A per unit and structurally lower retail GPU? Or are there levers you can pull on the retail GPU side of the world as well? And I'm just sort of asking because you've got a customer being aggressive on -- not a customer, a competitor being aggressive on financing rates to customers. Like what would happen if that competitor got aggressive on pricing as well? I'm just sort of curious how you can kind of -- could you pull this lever again and drive growth again? Or is this like a onetime lever and retail GPU needs to sort of move higher over time? Enrique Mayor-Mora: Yes. No, I don't think it's a onetime lever. Look, I think a year from now, yes, we are laser-focused on affordability for customers. That does move the needle. And so we need to now go back and figure out how to deliver on that. And as I mentioned earlier, certainly, a focus on COGS, logistics costs is going to take a heightened focus in our strategic planning process because, again, that is a lever that you can either give to the customer, you can either take the margin or you can do a combination of those 2 things. That is a very powerful lever, and it's one where we think we have opportunity and one that we're laser-focused on. But what I think is nonnegotiable is having -- being more price competitive. And we've actually seen that. We do track our relative price competitiveness on pretty much on a weekly basis here. And what we have seen is that, that price competitiveness has gotten better and pretty much in line with what we expected for the quarter. And so we've been pleased with that movement, and you saw the results. Jon Daniels: And Chris, I'll just add to that. As Enrique mentioned about -- you talked about the retail side and the retail margin, we've signaled and clearly have shown in what we're doing in the CAF side of it, there is clear opportunity on the finance margin, and we're going to go after that. We're excited about the EPP product and the added margin there. So we look at it holistically. We're going to look at it dynamically, and I think we can really support in those 2 buckets as well. Christopher Pierce: Okay. And then just, Enrique, if you could sort of help me kind of -- if I think about logistics as part of retail GPU, what kind of like lever are we talking about? Is that a couple of hundred dollars? Like just kind of bucket it a little bit. So if you do decide to take that back and pass something on like how much of a lever is that on retail GPU to the extent you can say? Enrique Mayor-Mora: Yes. No, I mean our overall spend on logistics is north of that, right? So -- but in terms of like where the actual dollars will come from, logistics is an opportunity we know just the actual labor that goes into reconditioning and all the costs associated with that parts, everything is an area of opportunity. But there -- we believe there's plenty of opportunity there to further increase and improve our price competitiveness. Operator: Our last question comes from John Healy with Northcoast Research. John Healy: Keith, I wanted to get a big picture question. I know we've talked a lot about the retail approach, but your view on the financing business, are you fans of it? Are you liking the approach to kind of maybe reach down a little bit deeper in that category? And then secondly, just as you look at the capital structure of the business, I always felt CarMax is unique in that it doesn't floor a lot of its inventory or much of it all. Is that something that you'd consider to do to maybe take advantage of maybe raising some capital to maybe recapitalize or buy in a lot of stock? Or how would you think about maybe even the need to have CAF and maybe try to be creative with that asset as maybe some other entities have recently done. So would just love to get your thoughts if that is something that's also on the table for you guys? Keith Barr: Thanks, John, and a pretty wide range of question. I'll take the first part, and I'll let Enrique talk about kind of capital structure. I was with the CAF team last week, and it was absolutely fantastic to spend time with Jon and his team to see just the caliber of talent we have there and how we're thinking about the business. And as we build our strategy moving forward, which we'll come back and talk more about in June, it's really understanding all the levers we can pull to make this a growth business and drive return to shareholders. And so CAF is going to play a key piece in that. That's going to be in the lending environment. It's also going to be in the other products that we can sell. And then how does that pair into our overall selling strategy for the business and getting the right price, right cars, improving logistics, too. And so CAF is going to be a critical lever for profit growth for this company moving forward, and we're going to really kind of see how it fits into the broader strategy overall. But I'll let Enrique talk about capital structure. Enrique Mayor-Mora: Yes, a couple of things. And certainly, the capital structure supporting CAF funding and all that is very dynamic, and it's a very exciting area for us. I think number one, on a floor plan, the revolver that we have is the most efficient use of capital when it comes to funding the CAF business. And so I would not expect that to change. What I would tell you, though, is from an overall CAF funding opportunity we are looking at, as we've talked about before, at alternative funding vehicles, right? So last year, we executed our first residual sale, which allowed us to have a gain on sale in the third quarter. So that's something that we intend on continuing to lever. We are really pleased with the execution of that deal and the reception that we had in the marketplace with that deal. But alternatively, we're also looking at different levers, too, such as a whole loan sales. Is that an opportunity, right? And there's multiple ways to access capital to support CAF, and we're exploring them all. We have a strong portfolio of banks and capital providers that we've been dealing with for years and years that are supportive of us. We also have some new potential partners as well out there that we're exploring those options with as well. So I would expect as the year unfolds here, you'll see us kind of exploring new ways to fund the CAF business. Keith Barr: Great. I think, operator, that's the last question. So thank you for joining the call today for your questions and for your support, and I look forward to getting to know all of you better in the quarters to come, and we will talk again next quarter. Operator: Thank you. Ladies and gentlemen, that concludes the Fourth Quarter Fiscal Year 2026 CarMax Earnings Release Conference Call. You may now disconnect.
Operator: Ladies and gentlemen, welcome to Tims China's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. At this time, I'd like to turn the call over to Patty Yu, Tims China's Public and Media Relations Manager for prepared remarks and introductions. Please go ahead, Patty. Unknown Executive: Hello, everyone, and thank you for joining us on today's call. TH International Limited announced its fourth quarter and full year 2025 financial results earlier today. A press release as well as an accompanying presentation, which contains operational and financial highlights are now available on the company's IR website at ir.timschina.com. Today, you will hear from Yongchen Lu, our CEO Director; and Albert Li, our CFO. After the company's prepared remarks, the management team will conduct a question-and-answer session. You will find the webcast of today's earnings call on our IR website. Before we get started, I'd like to remind you that our earnings presentation and investor materials contain forward-looking statements, which are subject to future events and uncertainties. Statements that are not historical facts, including, but not limited to, statements about the company's beliefs and expectations are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and our actual results may differ materially from those forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC. This presentation also includes certain non-GAAP financial measures, which we believe can be helpful in evaluating our performance. However, those measures should not be considered substitutes for the comparable GAAP measures. The accompanying reconciliation information related to those non-GAAP and GAAP measures can be found in our earnings press release issued earlier today. With that said, I would now like to turn it over to Yongchen Lu, our CEO Director. Please go ahead, Yongchen. Yongchen Lu: Thank you, Patty. Good morning and good evening, everyone. Thank you for joining us today. As we just celebrated the 62nd anniversary of the globally renowned Tim Hortons brand and the seventh anniversary of Tims China. We're excited to continue serving our innovative and locally relevant offers to our fast-growing loyalty guests. As of December 31, 2025, China stood as the largest international market in Tim Hortons global history by a number of stores. We continue our growth trajectory, generating total system sales of RMB 1.57 billion in 2025, a 7.6% increase compared with 2024, fueled by mainly 25 net new store openings and expanding our store network to 1,047 across 92 cities in China. Food sales as a percentage of the total revenues account for 33.4% in Q4 2025, increased from 24% in Q1 2023. Orders with food items account for 51% of total orders in Q4 2025, increased from 45.2% in Q1 2023. 2025 marks a critical transition year for the company. We further solidified our differentiated strategic positioning in Coffee Plus freshly prepared food, completed made-to-order renovation of over 74% system-wide stores while strategically pruned certain underperforming stores, especially those remote MTO express stores. On same-store sales growth, we managed to achieve overall comparable transaction growth of 2.7% in 2025, but we had to apply higher discounts on delivery business to mitigate intensified competition due to aggregator platform dynamics, which led to 2.4% decline in the same-store sales growth for system-wide stores in 2025. Despite the headwinds of fierce competition, especially from low-priced local brands, our team demonstrated strong resilience and maintained our margins well at both store and corporate levels. 2025 full year company-owned and operated store contribution margin was 7% compared with 7.4% in 2024, which was primarily attributable to the temporarily increased delivery-related costs due to aggregator platform dynamics. 2025 full year adjusted corporate EBITDA margin actually improved by 1 percentage point. With further optimized store capital expenditures and enhanced store unit economics, our 2024 vintage [ year ] company-owned and operated stores generate store contribution margin of nearly 15% in 2025 and expect to achieve a payback period of 2 to 3 years. Our 2025 vintage [ year ] stores are still new, but are ramping up right now. We believe they will have similar unit economics too. In the meantime, our company-owned and operated store in Tier 1 cities, including Beijing, Shanghai, Guangzhou and Shenzhen and in those cities with 10-plus stores generate over 10% and 7% store contribution margin in 2025, respectively, outperforming other tier cities with lower store density. We will continue adding more company-owned and operated stores in existing stores to achieve a high economy of scale. In 2025, we strategically expanded our store footprint while maintaining capital efficiency, delivering absolute convenience for our customers. Leveraging the franchisee partnerships, we accelerate market penetration entering 92 cities by year-end, including the debut of our first stores in Nanchong in Sichuan Province, Datong in Shanxi Province and Xinxiang in Henan Province during the fourth quarter of 2025. This growth strategy not only further strengthen our brand presence, but also ensure sustainable scalability through optimized resource allocation. Since we launched our individual franchise business in December 2023, we have received over 10,000 applications and successfully opened over 300 stores by the year end of 2025, showcasing continued market confidence in our franchise model. We have witnessed reasonable returns for our franchise stores. For instance, our franchisee stores in special channels, including railway stations, hospitals and highway rest areas generated store contribution margin of high teens in 2025 and are expected to achieve a payback period of approximately 2 years. We will accelerate opening franchise stores on these special channels. In the meantime, our sub-franchisee business contributed steady cash flows and profitability. Profits from other revenues achieved a year-over-year growth of 55.7% in 2025. Product innovation has always been an important strategic focus for us. In 2025, Tims China accelerate product innovation across both beverages and food, launching a total of 178 new products, 96 new beverages and 82 new food items, which contributed over 25% of our top line sales and offerings have run very strongly with customers. Seasonal beverage highlights during the fourth quarter included the pomegranate, low cheese and oat latte series, offering a diverse and differentiated flavor portfolio. We also focused on adding non-coffee beverage offerings complementary to existing product portfolio during the after cheese daypart. Total number of non-coffee beverage cups accounted for approximately 18.3% of total beverage cups sold in 2025 compared to 14% in 2024. On the food side, we continue to strengthen breakfast dayparts and launched several campaigns to promote lunch daypart in 2025. For instance, we introduced a breakfast combo with expansion of croissant lineup with new offerings such as cheese chicken and [ loaded ] coconut cheese croissants, which suits the morning routines and offering greater value, building on our classic bagel breakfast fests; the croissant combo includes protein-rich options like meat and catering to high energy needs in colder months. Meanwhile, the croissant itself like the excess frying, are perfect for those wanting highly but not very -- not overly caloric breakfast. In addition, Tims China now continue to broaden its bagel sandwich range, introducing new products, including the Black Truffle Mushroom Bagel and the Spicy Pickled Cabbage Beef Bagel, further enriching its [ savory ] menu. We continue to strengthen our leadership in the bagel platform, selling a total of over 80 million bagel and bagel sandwich products cumulatively as of the end of 2025. The fourth quarter being the holiday season saw us rolling out a series of marketing campaigns designed for these special occasions from Halloween to Thanksgiving and Christmas, we joined the festive spirit with creative promotions and theme activities to grab consumer attention. During the first quarter, Tims China continued to enhance brand relevance and consumer engagement through a series of marketing and product innovation initiatives. The company strengthened its cultural positioning through high-profile collaborations, including a limited edition partnership with the hit TV series of The Vendetta of An as well as a co-brand campaign with People's Daily [indiscernible] to celebrate China's National Day and honor everyday heroes across the country. These initiatives leverage cultural storytelling to deepen consumers' connections and drive social engagement. In parallel, Tims China advanced its sustainability initiatives by expanding its Bring Your Own Cup program and increasing the incentive to RMB 8 per cup. As of now, the program had attracted over 200,000 participants, reducing carbon emissions by approximately 8 tons, equivalent to planting around 360 trees. The company also introduced eco-friendly stores in collaboration with Tencent's CarbonXmade program using carbon capture technology to convert industrial carbon dioxide into sustainable materials. SGS certification confirms that every 100 straws store 3.185 grams of carbon dioxide, reinforcing Tims China's commitment to sustainable product innovation. As of December 31, 2025, our registered loyalty carbon members exceeded 31 million, reflecting a remarkable 29% year-over-year growth. The average number of members per store has now surpassed 29,600, serving as a strong catalyst for our growth and clearly demonstrating our consumers' ongoing support for Tims China's loyalty programs. At this time, I would like to turn it over to our CFO, Albert Li, to discuss our fourth quarter and full year 2025 financial performance in more detail. Dong Li: Thank you, Yongchen. We continue to strive for excellence in delivering high value for quality, healthy products and thoughtful services to our ever-growing customers. In the fourth quarter, we achieved positive net new store openings and continued our strong momentum in system sales, achieving a 4.0% year-over-year growth. Our overall monthly average transacting customers reached 3.43 million during the fourth quarter of 2025, a 14.3% increase from 3.01 million in the same quarter of 2024. Additionally, digital orders as a percentage of total orders rose from 86.1% in Q4 2024 to 89.3% in Q4 2025. We continue to enhance our digital capabilities to meet the growing demand for delivery and takeaway services. Total number of delivery orders increased by 33.7% year-over-year during the fourth quarter of 2025. Amidst macroeconomic volatility and intensive market competition, our team demonstrated strong resilience and achieved profitability improvement through enhanced operational efficiencies, supply chain optimization and rigorous cost controls. In Q4 2025, our adjusted corporate EBITDA margin improved by 3.3 percentage points year-over-year. During the fourth quarter of 2025, our total revenues dropped by 7.3% year-over-year, which was mainly due to the closure of certain underperforming stores, benefiting from the expansion of our franchised store network with the number of our franchised stores increased from 446 as of December 31, 2024, to 485 as of December 31, 2025. Our system sales increased by 4.0% year-over-year to RMB 359.4 million during the fourth quarter of 2025. We are committed to improving our financial performance by refining store unit economics and boosting operational efficiencies at both store and our corporate levels, setting the stage for our long-term sustainable growth. Specifically, through refinements in our supply chain capabilities and economy of scale, we reduced the 2025 full year food and packaging costs as a percentage of revenues from company-owned and operated stores by 1.4 percentage points year-over-year. We continued to streamline our operations by pruning underperforming stores, optimizing unit economics, refining staffing arrangements and optimizing store managerial efficiency. These actions led to a reduction in 2025 full year store labor costs and other operating expenses as a percentage of revenues from company-owned and operated stores by 0.8 percentage points and 0.1 percentage points year-over-year, respectively. We expanded our branding initiatives and promotional offers to drive traffic. Our marketing expenses as a percentage of total revenues increased by 1.2 percentage points year-over-year. Our adjusted general and administrative expenses as a percentage of total revenues decreased by 7.4 percentage points year-over-year, which was mainly attributable to a RMB 9.7 million, USD 1.4 million decrease in credit loss of accounts receivables. Turning to liquidity. As of December 31, 2025, our total cash and cash equivalents, time deposits and restricted cash were RMB 129.7 million (USD 18.5 million) compared to RMB 184.2 million as of December 31, 2024. The change was primarily attributable to cash disbursements on the back of the expansion of our business, partially offset by the drawdown of additional bank facilities. In the meantime, with the issuance of the USD 89.9 million 2025 senior secured convertible notes and the amendment to our existing 2024 unsecured convertible notes in December 2025, we have successfully repurchased the entire outstanding amount due under our variable rate convertible senior notes due 2026. Looking ahead to 2026, with profitability being front and center of everything we do, we will continue to enhance our supply chain capabilities and efficiencies, roll out our differentiating made-to-order fresh and healthy food preparation model to drive traffic, optimize overall store unit economics and accelerate the expansion of our successful sub-franchising. I will now turn it over to Yongchen for concluding remarks followed by Q&A. Yongchen Lu: Thank you, Albert. Before we turn to Q&A, I would like to take this opportunity to once again express my heartfelt gratitude to our customers, employees, business partners and investors for your continued support and dedication and trust. Together, we have created an overwhelming community of over 31 million loyalty club members, a unique Coffee Plus freshly prepared healthy food business model, offering the best value for quality products as an international coffee brand, differentiated and comprehensive store formats with over 1,000 stores in 92 cities, most of which are made-to-order stores with expected payback period between 2 to 3 years and a unique advantage of offering franchising opportunities as an international coffee brand. With these milestones behind us, we are steadfast in our commitment to sustainable growth and to generating long-term value for our shareholders. I will now turn the call over to Patty for today's Q&A session. Patty? Unknown Executive: Thank you, Yongchen. We will turn it over to Q&A session and open it up for our registered questions. Let's begin with our first question. Amber, please go ahead. Operator: [Operator Instructions] We will now take our first question from the phone line of Steve Silver of Argus Research Corporation. Steven Silver: So over the past few quarters now, you've highlighted franchise stores in special channels such as the railway stations, hospitals and highway rest areas. And you cited their strong contribution margins and the 2-year payback periods. So while you mentioned in your prepared remarks that you see openings under this model accelerating, can you quantify at all how much of a part of the future store mix you expect these channels to comprise? And really what impact do you expect this to have on future operating results? Yongchen Lu: Yes, sure. Thank you, Steve, for your question. I mean the beauty of the stores on special channels, especially on railway stations and highway rest areas, it's purely dine-in business. So they don't rely on delivery. And also, we don't need to give discounts on those stores in the special channels. So those stores have very high gross margins and low delivery cost despite the rent might be higher, but still those stores are generating high teens store contribution margin. And the payback is very attractive around 2 years, even lower than 2 years. So I mean, in China, there are a lot areas, there are thousands of stations, airports, rest areas in highways and hospitals. So we have generated the momentum in those channels. As we mentioned, we are the only -- essentially, we are the only international coffee brand that open to individual franchise. So we are tracking a lot of interest from those franchisee partners. So this year, we will accelerate our openings on those channels. Steven Silver: Great. And so company-owned and operated store contribution margins have now been negatively impacted by the higher delivery costs over the past few quarters. Is the company doing anything specifically to mitigate these risks in 2026 to improve same-store sales growth as well as the store contribution margins? Dong Li: Okay. Steve, thank you for the question. I think I will take this one, right? So as you have mentioned, due to those aggregator platform dynamics in 2025, which led to a very aggressive subsidies that we have been seeing. So that, I think, on one hand, drives higher delivery orders and also higher percentage of our delivery revenue mix. And in the meantime, we have also like suffering from actually increased delivery costs because of this. So I think overall, it's within our expectations because we want to manage our top line growth, our same-store sales, our margins and also our pricing well. So actually, we are taking every step to maintain or even expand our store contribution margin. So as you can see, even though I think the whole year 2025 store contribution margin for company-owned stores was slightly decreased from 7.4% to 7%, I think overall, we have, in the meantime, actually increased our gross margin. So the food and packaging cost as a percentage of revenue actually has decreased by 1.4 percentage points. And in the meantime, we are still in the process of pruning some of the underperforming stores and achieving better economy of scale. Labor costs, as you can see, the full year 2025 labor cost has also improved as well as store other operating expenses. So we will do everything we can actually to mitigate potential delivery costs and I think in the meantime, we are also like negotiating with those delivery aggregator platforms to -- actually to strike a better cost on the delivery cost. So in terms of the delivery cost per order, we want to improve the cost structure to streamline the delivery cost per order as well. And I think lastly, we are also actually increasing some of the pricing on the delivery products. So that is true to mitigate the potential headwinds from higher delivery cost. So overall, I think our goal is to at least maintain and even achieve certain margin improvement on our store contribution margin despite the -- in terms of the aggressive subsidized from those delivery aggregated platforms might still continue in 2026, but we expect that trend might be mitigated or might be like slowed down this year. Thank you, Steve. Steven Silver: That's helpful. And one more, if I may. So in 2025, net store growth was positive, but it was a little more modest than maybe what previous thoughts might have been around store expansion. Yet at the same time, the franchise applications sounds like it continues to be very, very strong. And the loyalty membership continues to expand significantly, almost 30% in 2025. So I'd love to hear your thoughts in terms of the underlying demand in terms of what we might think about for system sales growth in 2026. Yongchen Lu: Yes. I mean we are in the process of pulling the underperforming stores for the past 2 years, and we'll do so this year as well. As you know, we opened a lot of high rent stores during 2019 to 2022 and even 2023, higher rent larger store format for the brand building and also the rent back then was very high, much higher than the current situation. So we are in the process of continuing of pruning those underperforming stores. So that's why you see the revenue for company-owned and operated stores has dropped last year and this year for the last 2 years. So I mean, in this year, we will continue to prune some underperforming stores, but as we mentioned, we -- the newer base of our stores have higher store contribution margins, for the stores we opened in 2024 and 2025 have store margin around 15%. So this newer vintage of store format has been approved. So we'll continue to open such format for both company-owned and franchise stores. So we target to achieve net store openings this year of at least 100 and might even more when we see the capital secure. So I mean that's kind of the process. So we'll continue to expand the network and that's the plan for now. Operator: Our next question comes from the phone line of [ Fooly Ho from TF Securities ]. Unknown Analyst: I have 3 questions. The first one is about gross margins. Your gross margin improved by 1.4 percentage points in full year 2027. This is quite impressive. Can you explain more on the factors behind this? And how would you expect your gross margin in 2026? Dong Li: Thank you, Fooly. I think I will take this question related to gross margin. So as you have mentioned, so our food and packaging costs as a percentage of revenue from company-owned and operated stores actually decreased from 31.5% in 2024 to 30.1% in 2025, representing an improvement of 1.4 percentage points. And in the meantime, I also want to highlight that if you take a look on the fourth quarter 2025, the cost percentage was 29.4%. Actually, it represents a 2 percentage point margin improvement from the fourth quarter of 2024. So I think the overall improvement was mostly because of the following factors: the first one is better economy of scale as our overall GMV has increased and our overall store network has expanded. And two, we have tried actually many ways in terms of -- on the supply chain optimization projects. So especially on existing food and packaging materials. So we have almost renegotiated the unit cost and in terms of the overall pricing for the -- with each of the supply chain vendors. And I think thirdly, we have optimized our discounts program actually, so that basically, we have improved the average pricing a little bit, especially we have increased the pricing on delivery products, which definitely would help on the margins. And fourthly, we have also seen higher margin on our new product launch. As we have mentioned, we have actually launched nearly 180 new products -- new LTO products in 2025. And most of this like new LTO products had higher margins. And I think lastly, we have also optimized the recipe of existing core products and some other like material costs and also in terms of the transportation and freight costs. This has also contributed to our overall margin expansion in 2025. So going forward, I think we will continue to implement the above measures and plans. And we target to further reduce our food and packaging costs as a percentage of revenues by another 1 to 2 -- at least 1 to 2 percentage points in 2026. So that would be our target for this year. Thank you, Fooly for your question. Unknown Analyst: Very clear. The second one is about margin profile. You mentioned company-owned and operated stores in Tier 1 cities and in those cities with 10-plus stores generated over 10% and 7% store contribution margin in 2025, respectively, outperforming other tier cities with lower store density. Can you explain more details about the differences on margin profile of these stores? Yongchen Lu: Okay. I'll take this one. Thank you for your question. I mean it's a good question. I think the density really matters. I mean -- so I mean the more stores we have in the city, the more brand awareness we have in the city and the more efficiency on the marketing campaign and lower cost on delivery and supply chain and more efficiency on the management. So density really matters, the data clearly shows that. We have the highest margin on Tier 1 cities. And as we mentioned earlier, for the 2024 and 2025 vintage stores, our store margin is up at about 15%. And most of the stores are operating in the Tier 1 and the high-tier cities. So we'll continue to add more company-owned and even franchisee stores in existing cities to add density. And density really helps on everything. Unknown Analyst: Okay. And the last one is about store count target. What's the store opening and closure target for 2026 and expected mix between company-owned and operated stores and franchise stores? Yongchen Lu: Yes. We just answered the question -- the similar question from Steve. So we target to achieve net store openings of at least 100, including both company-owned and franchisee stores. And we are very happy to see our new ventures have very high margins. So we'll continue to open and although we will continue to prune some underperforming stores, we should be able to achieve net store openings again at least 100 this year. Operator: I'll now hand back to Patty to read any questions coming through via the webcast. Unknown Executive: It seems that we have no questions online. Is that right, [ Amber Lee ]? Operator: That's correct. So at this time, there are no further questions. So with that, we conclude today's question-and-answer session. I'd like to hand the call back to Yongchen for his closing comments. Yongchen Lu: Yes. Thank you all for your time. It's been a challenging year, but we have been able to improve our margins and achieve net store openings, and we expect to even improve our margins further this year and achieve accelerate openings this year. So stay tuned. We'll see you soon. Thank you. Dong Li: Thank you. Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Welcome to the Albertsons Companies' Fourth Quarter and Full Year 2025 Earnings Conference Call, and thank you for standing by. [Operator Instructions] This call is being recorded. I would like to hand the call over to Cody Perdue, Senior Vice President, Treasury, Investor Relations and Risk Management. Please go ahead. Cody Perdue: Good morning, and thank you for joining us. With me today are Susan Morris, our CEO; and Sharon McCollam, our President and CFO. Today, Susan will provide an overview of our fourth quarter and full year 2025 results and update you on our strategic progress, highlighting areas of particular focus as we enter fiscal 2026. Then Sharon will provide the details related to our fourth quarter and full year financial results and our outlook for 2026 before handing it back to Susan for closing remarks. After management comments, we will conduct a Q&A session. I would like to remind you that management may make forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC. Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to update or revise any such statements as a result of new information, future events or otherwise. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these financial measures to the most directly comparable GAAP financial measures can be found in this morning's earnings release. And with that, I will hand the call over to Susan. Susan Morris: Thanks, Cody. Good morning, everyone, and thanks for joining us today. In the fourth quarter, our teams led with operational agility and strong execution. Despite greater-than-expected pharmacy headwinds, identical sales increased 0.7%, while our resilient operating model and ongoing productivity drove better-than-expected adjusted EBITDA of $903 million. For the full year, we delivered results in line with our expectations, while investing in capabilities that strengthened our business, further positioning us for long-term growth. Also during fiscal '25, we returned more than $1.8 billion to shareholders through share repurchase and dividends, underscoring our commitment to shareholder returns and disciplined capital allocation. Throughout 2025, our teams leaned into a new day, executing with focus amidst a volatile and uncertain macro environment. The results we delivered validate the effectiveness of our investments, the progress we're making across the business and the strength of the foundation that we have built. As we enter 2026, we do so with confidence as reflected in today's outlook. This confidence is further reinforced by our announcement this morning to increase our quarterly dividend by 13% and refresh our existing share repurchase authorization to $2 billion. But before we talk more about the fourth quarter and 2026, I want to step back and talk about how we see the future of Albertsons and how we're positioning the company to win in a competitive value-focused grocery environment that requires differentiation. At the core of our strategy is a clear conviction. The future of grocery is personal, and true personalization is a durable competitive advantage. Our mission is to become the most-loved grocer in the neighborhoods we serve by transforming routine transactions into differentiated customer connections and experiences that deepen engagement. It's not a reinvention of who we are, it's a deliberate build on strengths that already differentiate us and give us the right to win. We have one of the strongest store networks in the country. In our markets, our stores are within 15 minutes of approximately 120 million people, giving us a structural advantage in trip frequency, pharmacy access and fast same-day fulfillment. Put simply, our store network cannot be replicated and is further strengthened by our team, our data, AI and next-generation technology capabilities, which allow us to personalize a customer's entire experience. We also have the scale and capabilities to deliver sustainable value. In our stores, we provide market tailored fresh offerings and value-enhancing services. In e-commerce, we offer speed, convenience and variety from our store-based fulfillment model. In pharmacy, we don't just fill prescriptions, we immunize and treat our patients along their wellness journey. And we have a strong loyalty engagement where deep relationships with our banners and brands provide us the data and insights to personalized experiences at scale. These foundational strengths working together bring our strategy to life under 3 tightly connected pillars: a winning footprint, a customer-centric experience and balanced value. Our winning footprint is not only a critical differentiator but a deep and structural competitive advantage that enables both convenience and local relevance. We're taking a disciplined market-by-market approach to banner optimization, store modernization, market densification where we have the right to win and store rationalization where the economics are structurally challenged. This is not about growth for growth's sake, it's about optimizing return on investment, elevating the customer-centric experience and ensuring that every store plays a clear role in winning in its local market. To elevate the customer experience, we're creating scalable yet personal experiences, experiences that are differentiated, combine caring service, quality and fresh, convenience, value and own brands, all while remaining simple and easy for our customers to navigate. To deliver this, we're building on capabilities and offerings where our brands already have credibility and our customers' trust. Fresh is a great example. Our customers know they can trust us with their custom birthday cake order, to have perfectly trimmed steaks for their barbecue or to be there for them with our fresh-cut options. We're leaning into our strength as a scaled Fresh destination combining service, solutions, innovation and expertise to drive both loyalty and share. We're also expanding into what we call food now, broadening our role in customers' daily lives by providing meal solutions that allow us to compete for a larger share of food occasions, not just the weekly stock up. Today, our deli and prepared foods drive more than 1/3 of total trips, and we have outsized share of wallet that continues to grow in this area. At the heart of our mission, we are deepening the personal digital and loyalty relationship, connecting online and in-store experiences so customers feel recognized, seen and valued wherever they engage with us. The outcome we're driving here is simple. Customers don't just shop with us, they choose us. We're very clear-eyed about today's consumer. They remain focused on value, making a balanced value proposition more critical than ever. Our approach to this is deliberate and sustainable. Scale is a real advantage that we will leverage every day, including capitalizing on buying better together at the national level, expanding our own brand penetration, and growing our retail media platform, all to provide fuel to reinvest in value. At the same time, we're accelerating automation and AI-enabled tools across merchandising stores and supply chain to improve efficiency to add further fuel for investment. We are surgically investing where it matters most to our customer. That includes getting sharper on key value items and driving own brand penetration, both funded through structural margin improvement in productivity, not short-term trade-offs. But it also includes the convenience, speed and value we can offer with our assortment. The result is building a balanced value equation that works for customers, and in turn for all stakeholders while protecting long-term returns and making us our customers' retailer of choice. Underpinning all of this is our team powered data-driven and AI-enabled company, using technology not to replace the human element, but to amplify it. As we look ahead, our focus is on building a company that can grow sustainably through all cycles. We have a clear path to accelerating revenue growth, strengthening margins and improving returns while staying true to what makes Albertsons distinctive. Becoming the most loved grocer in our neighborhood is how we bring this to life, while building on the initiatives and capabilities we've been focused on, making grocery personal at scale, earning customers for life and delivering long-term value for shareholders. I'll now turn back to the quarter to highlight the progress we are making across our priorities that continue to strengthen our foundation and position us for sustainable, profitable growth in fiscal 2026. Technology and AI fit at the center of our transformation. Our 4 big bets: digital customer experience, merchandising intelligence, labor optimization and supply chain optimization are not pilot programs. They're all long-term structural initiatives designed to drive growth and expand margins. This quarter, we continue to see tangible progress. In digital customer experience, AI-driven capabilities are modernizing the way customers shop, delivering personalization that drives higher conversion, larger baskets and greater loyalty. Merchandising intelligence. Automated insights and intelligent pricing tools are improving category decision-making and supporting structurally stronger margins. We are in flight with tools that are reimagining price and promotional strategy as well as category management and assortment decisions. Labor optimization. Our generative AI scheduling tools will improve forecast accuracy, reducing complexity for associates and driving labor efficiency. In supply chain, our AI power demand forecasting and computer vision are improving availability, quality and freshness, while lowering inventory and fulfillment costs. As part of our investments in supply chain, we've launched Gateway, a proprietary AI-powered tool that boosts inventory efficiency and replenishment for promotional center store SKUs. All of these initiatives are building the modern technology-enabled Albertsons that will define our competitiveness in fiscal 2026 and beyond. Our digital and e-commerce business continues to be a strong growth engine, building on the momentum that we delivered throughout fiscal '25, digital penetration surpassed 10% in Q4, a new milestone for our omnichannel ecosystem. Our first-party business continues to scale rapidly and contributed nearly 90% of our 16% digital growth this quarter as we continue to elevate our customer experience. Our AI-enabled shopping assistance, already showing meaningful lift in basket size, continues to enhance personalization, and we see significant runway ahead as customer adoption increases. The strength of our store-based fulfillment model also continues to differentiate. Our proximity advantage enables speed and efficiency at scale as we continue to fulfill more than half of digital orders in under 3 hours. Additionally, the vast majority of delivery households are eligible for a 30-minute flash delivery, which is our fastest growing digital segment. We maintained strong conviction in digital as a driver of sustainable growth and margin expansion as we scale retail media, enhance marketing efficiency and strengthen loyalty engagement. Our third-party business also remains a convenient choice for some customers and is a gateway for introducing new customers to our first-party offering. Our loyalty ecosystem continues to be one of our strongest competitive advantages, creating deeper stickiness and fueling our strategy. Membership grew 12% to more than 51 million members, with more frequent transactions, easier reward redemption and higher spending among engaged households. The program's momentum reflects both simplicity and relevancy. Customers are gravitating toward immediate value, including increasing redemption through the cash off option, which is clear evidence that we're meeting their needs in a value-focused environment. Loyalty is also a flywheel for growth. It enriches our data, strengthens our media collective and helps us personalize promotions with increasing precision. Across the board, loyalty is driving higher lifetime value, deeper omnichannel engagement and a more predictable, resilient revenue base, all essential components of our long-term growth algorithm. Our media business gained further momentum in Q4, driven by deeper integration across our platform. By embedding media into the customer journey and merchant partnerships, we're delivering targeted, measurable value at scale. In the quarter, our personalized ad pilots delivered a 90% lift in conversion and click-through rates, validating a clear path to scale personalization, driving higher relevance and improved return on ad spend. This approach is translating into a structurally attractive profit stream that amplifies and fuels our core retail business. Our customer value proposition continues to strengthen, making shopping more affordable, intuitive and personalized across our market. By combining our rich store, customer and category level data with disciplined price investments, we are delivering clear, more consistent value. Through targeted pricing actions, improved loyalty-driven promotions and continued own brands innovation, we're reinforcing trust with customers who increasingly expect transparency and consistency in their weekly shop. Our approach remains deliberate, protect affordability, sharpen value perception and use data-driven personalization to meet customers where they are across income levels, trip types and missions. The results, a value engine that supports growth and protects margins through all cycles. In pharmacy, we delivered improved profitability despite top line pressure from the government-mandated Inflation Reduction Act that took effect this quarter. This performance reinforces our confidence in our strategy to improve pharmacy stand-alone profitability, while also driving materially higher customer lifetime value among customers who shop both pharmacy and grocery. Looking ahead to 2026, we remain focused on increasing operational productivity through expanded central fill, enhanced procurement and the scaling of higher-margin services while maintaining disciplined management of reimbursement and regulatory headwinds. Finally, productivity remains a foundational pillar of our strategy and a meaningful source of both fuel and flexibility. Across fiscal '25, our teams executed with discipline, unlocking efficiencies across labor, store operations, supply chain, merchandising and global capability centers. This included a deliberate focus on reducing shrinking expense and improving units per labor hour, driving better in-store execution and structurally lower cost. Importantly, this work does not reset in 2026, it builds. As we enter fiscal '26, we are scaling the same productivity engine further through a $2 billion 3-year productivity program, supported by our technology agenda and our 4 big bets in AI. Our progress continues to strengthen our operating model and reinforce our ability to grow through all cycles. Our teams delivered a strong close to fiscal '25, and we are entering fiscal '26 from a position of confidence, clarity and momentum. With that, I'll turn it over to Sharon to walk through our financial results and 2026 outlook. Sharon McCollam: Thank you, Susan, and good morning, everyone. It's great to be here with you today. Before turning to results, I want to briefly update you on this morning's announcement of our proposed nationwide opioid legal settlement framework. This framework provides for a $774 million settlement payable over 9 years that was recorded during the fourth quarter. This proposed settlement is a meaningful step toward resolving our opioid-related litigation without any admission of wrongdoing or liability. We remain committed to patient safety, strong pharmacy practices and being a constructive partner in addressing the opioid crisis as communities' needs evolve. Now let me turn back to our fourth quarter results. In Q4, we delivered better-than-expected adjusted EBITDA and adjusted EPS despite industry-wide pharmacy dynamics that pressured reported identical sales. ID sales in Q4 increased 0.7%, net of approximately 145 basis points of pharmacy-related headwinds versus the expectation we provided in our Q3 outlook of approximately 65 to 70 basis points. These headwinds were primarily driven by a greater impact from the Inflation Reduction Act, which I will call IRA, and broader industry affordability dynamics. Specifically, IRA pricing and mix pressure accelerated more quickly than expected, while the industry shifted toward a higher generic to brand mix. Together, these factors represented an approximate 105 basis point headwind to ID sales in the quarter. Importantly, while the top line impact was meaningful, the margin impact was favorable as generics are structurally more accretive. In addition, we saw a greater moderation in GLP-1 growth, driven by tighter payer criteria and increased direct-to-consumer penetration. This represented an incremental 40 basis point headwind to identical sales compared to our Q3 outlook. So in total, pharmacy created an approximate 145 basis point headwind to our Q4 ID sales expectations, with better-than-expected adjusted EBITDA flow-through. In grocery, units in ID sales in Q4 remained pressured in our lowest income cohorts. And deflation also created a meaningful sales headwind as we cycled the significant egg shortages from a year ago, a dynamic that we expect to persist into the first quarter of 2026. Gross margin in Q4 was 27.2%, a decline of 25 basis points year-over-year, excluding fuel and LIFO. The decrease in gross margin rate continued to be driven by the mix shift impact of outsized growth in digital sales, while productivity benefits offset our surgical price investments. The gross margin rate also reflected the favorable rate impact associated with lower sales due to the pharmacy IRA. Selling and administrative expense, excluding the impact of fuel and the opioid settlement framework, improved by 2 basis points year-over-year as we continue to accelerate productivity and cost-containment discipline. The SG&A rate also reflected the unfavorable rate impact associated with lower sales due to the pharmacy IRA. Q4 interest expense increased $40 million to $141 million, compared to $101 million last year due to higher borrowings in the extra week in the fourth quarter of 2025 compared to 2024. Adjusted EBITDA in Q4 was $903 million, including approximately $68 million related to the 53rd week, and adjusted EPS was $0.48 per diluted share as productivity continued to drive fuel for investment and the bottom line. For the full year, identical sales increased 2%, and we generated $3.9 billion of adjusted EBITDA. This performance reflects the resilience of our operating model and our ability to continue to drive productivity across the business. These results reflect our financial agility to both reinvest in the business and return capital to shareholders, which brings us to capital allocation. I want to reiterate our capital allocation priorities. First, invest in the business to drive growth and value for our customers. Next, maintain and grow our dividend, which we increased 13% this morning to $0.68 per share. And finally, opportunistically repurchase shares while maintaining a strong balance sheet. In order of these priorities, we invested $1.84 billion in capital expenditures in fiscal '25 to modernize our store fleet, advance our AI, digital and technology capabilities and elevate our supply chain. In the store fleet, we remodeled 94 stores and opened 9 stores as we refresh the asset base for long-term growth. In AI, digital and technology, we accelerate our investment in our 4 big bets as we create greater structural cost advantages, deepen customer loyalty and unlock new profit pools. Also in fiscal '25 from a cash return to shareholders perspective, we returned $1.8 billion of capital to shareholders, including $322 million in dividends and nearly $1.5 billion in share repurchases, including the completion of our $750 million accelerated share repurchase program. As we look forward to 2026 and beyond, we remain confident in the strength of our balance sheet and our cash flow generation. As such, now that the ASR is complete, the Board has again increased our remaining share repurchase authorization to $2 billion in total, which we expect to opportunistically complete over approximately the next 3 years. We ended the year with our net debt to adjusted EBITDA ratio at 2.24x, demonstrating the strength of our balance sheet and capacity to fund growth and return capital to our shareholders. Finally, in the fourth quarter, we opportunistically refinanced $2.1 billion of existing bonds in 2 tranches, $1.2 billion of 5.625% notes due 2032 and $900 million of 5.75% tack-on notes due 2034. These proceeds were used to refinance our $1.35 billion 2027 and $750 million 2028 note maturity. I'll now walk through our 2026 outlook. As we look ahead to 2026, we view the year as an important step in returning the business to earnings growth, while continuing to invest in the capabilities that support sustainable long-term value creation. Our strategy remains focused on the areas where we see the greatest opportunity to drive profitable growth. Digital continues to be a powerful engine as we expand our base of loyal, engaged customers and scale the business in a disciplined and increasingly profitable way. At the same time, our focus on cost control and productivity remains central to our approach, enabling us to reinvest in high-impact initiatives, expand margins and maintain financial strength. In pharmacy, we expect continued improvement in the underlying trajectory of the business. Excluding the top line headwinds associated with the IRA, we believe pharmacy scripts will continue to grow, supported by immunizations in value-added clinical services that enhance customer engagement and profitability. With that backdrop, our fiscal '26 outlook represents a year in line with our long-term algorithm and a double-digit TSR, including our expected dividend yield and share repurchases. Identical sales are expected to be in the range of 0% to 1% or 1.5% to 2.5%, excluding the 150 basis point headwind from the IRA and assuming near flat reported pharmacy sales. Looking at quarterly cadence, we expect identical sales in the first quarter to track below our full year range, including the IRA and significant ongoing egg deflation. As we move beyond this dynamic, we anticipate a sequential improvement in sales trends throughout the year. Adjusted EBITDA is expected to be in the range of $3.85 billion to $3.925 billion, representing growth of approximately 2.5% at the top end of the range, excluding the 53rd week impact in 2025. Adjusted EPS is expected to be in the range of $2.22 to $2.32, including approximately $600 million of share repurchases during fiscal '26, underscoring our confidence in the business and our commitment to returning capital to shareholders. The effective income tax rate is expected to be in the range of 24% to 25% and capital expenditures are expected to be in the range of $2 billion to $2.2 billion as we accelerate our investment in new stores, remodels, AI-powered technologies and digital capabilities. Taken together, we believe fiscal '26 marks an important step forward, delivering adjusted EBITDA growth, strengthening earnings resilience and positioning the company to create sustained value. And with that, I'll turn it back to Susan for closing remarks. Susan Morris: Thanks, Sharon. As we look ahead, 3 things should be clear. First, Albertsons has a differentiated growth model built to win in a highly competitive industry, and is rooted in proximity, customer centricity and balanced value. Second, fiscal 2026 is the year where the investments that we've made begin to translate into accelerating earnings power and improving returns. And third, our confidence is grounded in the strength of our productivity engine, efficiencies we are driving across the business that expand margins, fund reinvestment and give us the flexibility to grow through cycles. The environment remains dynamic and competitive intensity across food retail is not easing, but our strategy is built for this reality. We have a defensible footprint that creates everyday convenience, distinct fresh experiences, a differentiated digital and loyalty ecosystem that deepens engagement and lifetime value of pharmacy business with long-term earnings power and an AI-enabled operating model that strengthens margins, improves execution and compounds returns over time. Above all, our confidence in the year ahead comes from our people. To our 280,000 associates, thank you. Your resilience, your commitment to customers and pride in our banners bring our strategy to life every day, whether it's delivering fresh, high-quality food, supporting customers on their wellness journeys or serving communities with care. You are the foundation of our success. And as we advance our transformation, we will continue to invest in the tools, technology and support systems to help you do your best work. I want to thank all of you on the call today for your time and support. We know who we are, how we win and where we're going. And we're building a company that can grow sustainably, generate strong cash flow and deliver long-term value for shareholders. We look forward to sharing our progress with you in the quarters ahead. I'll now turn the call over to the operator for questions and answers. Operator: [Operator Instructions] And our first question is from the line of Leah Jordan with Goldman Sachs. Leah Jordan: I wanted to start out on productivity, you talked about your efforts building as we go through '26. Just -- can you provide more detail on what you've been vetted regarding productivity within the guide as we move through the year? And how we should think about the split between COGS and SG&A at this point? Sharon McCollam: Yes, we just reset our productivity to $2 billion over the next 3 years. You can think of that ratably over that period of time. And when you look at the big areas that, that comes out of, it's going to be our store operations, including shrinkage and Rx, you're going to see us buying better together. Sourcing, both GNFR and in the admin areas, we expect to see benefit supply chain. So we have amplified our activities in this area materially, and we feel very confident in the delivery of this new productivity target over the next 3 years. Susan Morris: Leah, what I would add to that is that the strength of the productivity really shown through for us in FY '25. We showed that we can fund strong investments, still deliver EBITDA. And as Sharon mentioned, as we think about the shape of productivity moving forward, the fact that we raised our expectations there from $1.5 billion to $2 billion over the next 3 years, that shows that we believe there's more to be had. We mentioned our AI big bets, and we're starting to see returns there on those investments. Our buying better together is yielding strong results, and we can talk more about that. The bulk of the savings though will be coming through the SG&A side of the business. Leah Jordan: Okay. That's very helpful. And then I just wanted to follow up on the ID sales guide. Thanks for the color, Sharon, on the improving sequential outlook for the year. But just if you can provide more detail on the grocery side of the house, your view of volumes and inflation as we move through the year? Susan Morris: So Leah, what I would say there -- and I'll hand it over to Sharon, is first, remember -- and we shared this in the script. The reported IDs of 0% to 1% include about a 150 basis point headwind from the IRA. So if you think about that, the underlying business will be running closer to 1.5% to 2% range. Also, remember that we're thinking about this not just about how we grow top line, but the quality of top line growth. And there are several things that we mentioned in the call. We've got the advantage of proximity and trip frequency. We're now looking at how we can optimize our stores to drive better returns. From a customer-centric perspective, we're really engaging deeply in loyalty, digital personalization and increasing our fresh penetration to drive frequency and lifetime value. And from a pricing perspective, we're closing pricing gaps where it matters, but we're doing it with productivity funding, not through margin erosion. Sharon, anything to add? Sharon McCollam: Yes. And Leah, your question is how do we see the cadence ex Rx as we move through the year. We're expecting the industry units to remain pressured, particularly in the first half of the year and expect Q1, we said it will actually be below our guidance range in total, including IRA. And then we will have sequential improvement as we move through the year and expect likely to be positive in the back half. Operator: Our next questions are from the line of Mark Carden with UBS. Mark Carden: So to start, just on the pricing front, some of your larger competitors continue to talk about investing in their value propositions. Have you seen much of a step change on this front? And then you talked about being able to fund your anticipated changes with your productivity initiatives. Just curious if you see much risk or need to make any deeper investments in the year ahead in any of your specific markets like you did this past year? Susan Morris: Mark, thanks for the question. So a couple of things. First of all, we closed the gap on pricing versus MULO in the fourth quarter. So we are seeing improvements there. And I think we shared a year ago, we have a very different price position across the many markets that we operate in. So our approach is very surgical, not broad-based. We're investing where it matters most to customer value perception, especially in key value items on our private label, our own brands, and also through loyalty and personalization. We're funding that through structural productivity and margin improvement, not looking for short-term trade-offs, and that's how we're improving the price competitive perspective of our business, but also protecting long-term gross margin growth. Mark Carden: Great. That's helpful. And then with everything that's going on in the Middle East, can you walk through the main implications you expect to see from higher fuel prices? Do you see demand destruction or trade down tend to accelerate when the price of gasoline is at a certain level? Does it change your inflation outlook? And just broadly speaking, how impactful do you expect it to be on your fuel margins? Susan Morris: Yes. So we're still expecting industry inflation -- food inflation to run around that 2% range. That said, you should know that we have not been passing through that inflation at the 2% rate. We've been working on that to help bolster our price position surgically across the company. And as we look forward, from a fuel perspective, what I would say is maybe this and just thinking about the consumer for a second. We do see units remaining pressured across the industry, and that pressure certainly is unevenly distributed. What we're seeing is increasing pressure on the lower income cohorts. It's reflected in ongoing affordability changes, we're seeing further pressure from staff regulation and so forth. So -- and by the way, the middle and income customers remain more stable in terms of the pressures that we're seeing there. But that said, we recognize our customers are focused on value. Our lower income households are most elastic, and that's why we continue to describe our value actions as very surgical. We're trying to improve the value perception where it changes behavior, again, while protecting long-term returns through productivity funding. Operator: Our next question is from the line of Edward Kelly with Wells Fargo. Edward Kelly: Yes. Could we just start with the gross margin, and I'm curious if you could provide a bit more color on how you're thinking about the gross margin in the upcoming year. There's a number of, I think, puts and takes here. And just curious as to whether you think that's a line item that we'll continue to improve. Sharon McCollam: Yes. So in 2026, we will continue to see benefit from the IRA. So you can anticipate that there will be a positive coming from that piece of it. On the mix shift side where we are seeing the digital business continue to grow, while less than previous years because of the improvement we're seeing in profitability in the digital business, it's still not running -- obviously, margins of the grocery business. So we see the digital mix still playing out. And the investments that we're making price and others, we've got the productivity to offset it. So we should see the margin flat to slightly better as we progress through the year in 2026. And when we think about that, the previous question about how is the Iran situation affecting us. One of the things to keep in mind is what we know at this point, we've included the pressures that the higher fuel costs will provide related to our transportation and the distribution expenses, et cetera. Obviously, we're expecting that -- hoping that this comes to an end in some shorter period of time. If that continued throughout the year, there could be some incremental pressure, but we are very comfortable right now with what we've included in our outlook. Edward Kelly: Okay. And then I just wanted to follow up on the guidance that you talked about with the share repo. I think you mentioned $600 million this year and $2 billion in 3 years. With cash -- with CapEx going up and the opioid sentiment, there's roughly, I think, a $300 million incremental headwind there. Can you just talk about what the offsets are to that? How you're thinking about leverage within the context of all of that? Just kind of curious as to the drivers of the cash flow to deliver the share repo. Sharon McCollam: Yes. So one area -- when you look at the big bets and you listen to the initiatives that are underlying our productivity, we are expecting in 2026, an improvement in working capital. And our guess would be that half of that probably will be funded by working capital improvements. In addition to that, we continue to believe that we are going to be able to take this CapEx and invest it, improve the store fleet, see the benefits in the back half of the year coming from the 4 big bets and be able to then at the back half of the year further accelerate working capital. So from a leverage point of view, we're very comfortable with where we are and we will see how this progresses through the year, but feel very confident in the returns that we will see from those capital investments. Operator: Our next question is from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: First, more of a philosophical question. It looks like the implied guidance is flattish margins, you can correct me if I'm wrong. If the comps end up being a little bit better at the high end, are you in reinvest mode at almost -- at any cost? Or do you let that flow through to earnings? How should we think about that both this year and the next couple of years? Susan Morris: Simeon, thanks for the question. So I'll start and I'll ask Sharon to chime in a little bit as well. So first and foremost, we want to -- I want to underscore the impact of our productivity agenda. And again, as I mentioned before, when you look at the results from FY '25, we've shown that we can actually deliver strong productivity and strong EBITDA flow-through. And we're scaling that further in FY '26. And that agenda is now accelerated and amplified by our 4 AI big bets, which are already yielding real results. We're starting to see increased customer take on AI-enabled shopping assistance. We're seeing a basket lift size there. In merchandising, we're already in flight with tools that help us reimagine price and promo and manage our margin spend very, very effectively. We've talked about supply chain helping us with our in-stock perspective and optimizing inventory levels through our proprietary gateway forecasting capability. So we see strong improvements there. We think it will be a very balanced year from that perspective. Sharon? Sharon McCollam: And Simeon, as I think about if units inflected faster than we expected and we saw real momentum with our customer, we will evaluate when that moment comes. But to get that flywheel going and to get that momentum going, we will definitely invest behind the customer and the growth because long term, that will be a catalyst for staying in the algorithm and maybe even improving the algorithm over time, and that would be our goal for 2026. Simeon Gutman: Okay. And then a follow-up. It sounds like you have a digital advantage and you have the assets and capabilities in place to drive it. Can you tell us the KPIs? When you report the e-commerce growth, how -- like what level of growth are you targeting? What level of growth are you satisfied by -- like -- and are you turning -- are you bending the curve in -- across all markets? Are you seeing some progress scattered across your regions? Susan Morris: Thanks, Simeon. So we're very pleased with the results of our digital penetration. We shared on the call that it's now surpassed 10%. If sales grew 16% in the fourth quarter, but what's important to note there, it's over 40% to your stack. And by the way, we're not done. We think there's still a lot of upside there. We're excited about the growth. 90% of that roughly coming from our first party, which is very attractive for us because of the relationship with the customer and the data side. On the other side of it, execution has been strong. More than half of our orders are delivered in less than 3 hours. Our Flash delivery, under 35 minutes, I believe, is one of our fastest-growing verticals in that space. And then we're really excited about the improvements that we made from a 5-star service program. We've gained return customers because we're delivering better in-stock, on-time deliveries and high-quality fresh products that we're committing to our customers. Operator: Our next question is from the line of Paul Lejuez with Citibank. Paul Lejuez: Curious if we can we go back to the fuel for a second. I'd love to hear what your assumption is for fuel profits in F'26? And also, if you have witnessed any change in consumer behavior since gas prices have increased over the past month or so? And then I also wanted to ask about your own brand's performance in 4Q relative to the rest of the store and what your assumptions are for F'26 on own brands? Susan Morris: So we are seeing, again, a shift in the consumer, primarily localized with the lower income consumers that shift towards the value. We've spoken about the increase in auto cash back on our loyalty program. So we are starting to see some changes there. At the same time, we're also still seeing consumers making trips to multiple retailers. So we'll watch that closely over time. And then we anticipate to see it -- an uplift in our fuel rewards program moving forward. Sharon? Sharon McCollam: And from a fuel perspective, at this point in time, again, within our forecast, we are assuming that this conflict is going to end in a reasonable period of time. And assuming that's the case, we're expecting -- let's think of it, in the near flat trajectory for 2026. Paul Lejuez: And then the own brand penetration as you look out to F'26? Susan Morris: So on brand, as we mentioned before, we're seeing fairly flat penetration at this moment in time, but it's one of our top priorities as we move forward into 2026. We've made some pretty significant investments in restructuring the team, in cost negotiation improvements, while also amplifying -- we're certainly protecting the quality that we have. So one of our primary initiatives in terms of driving value now and through the rest of 2026 is absolutely increasing own brand penetration. Operator: Our next question is from the line of John Heinbockel with Guggenheim Partners. John Heinbockel: Susan, I want to start with -- can you talk about the lag between value perception and reality, right? And how long that takes to shift? And I know it will probably differ market by market. With that in mind, is it reasonable to think about exiting '26 with the positive food volumes? Or is that ambitious given the industry backdrop? Susan Morris: John, thanks for the question. So it's a very philosophical view, by the way. From a value perception to a reality perspective or -- what we're seeing there is really doubling down on how we're communicating to customers about value and what it means to them specifically. You'll hear us talking a lot about personalization. And of course, that means personalized offers through our app and so forth. But the value perception can come in a variety of ways, simplified pricing at the shelf level. Yes, of course, personalized offers coming through our app, but it also comes through relevance in terms of assortment at store level, variety and quality of fresh, which, by the way, as a reminder, we're already in the neighborhoods where our customers live. So our ability to deliver that fresh fast, whether it's in-store or online, that proximity is an advantage that we have there. Your second part of the question was, remind me? John Heinbockel: Well, just what's -- is it ambitious to think about food volumes inflecting as an exit rate at the end of the year? Susan Morris: Yes. So we absolutely see an inflection as we go throughout the year. Clearly, the customer -- consumer remains pressured in the first quarter, and we're seeing that as much as the industry is, but we expect that to increase sequentially over time. Sharon, would you add to that? Sharon McCollam: And John, I just -- when I answered the question about the cadence through the year of the ID sales, I said that in our outlook, we are assuming that we do get to positive at that point in time. Industry unit is going to be a catalyst that underlies that, and we will see what happens with industry units as they progress through the year as well. John Heinbockel: Great. And then my follow-up just on, right, sourcing better together, and that's always been a really large opportunity, right, given the base. Where are we on that? Because it sounds like most of the incremental productivity agenda is SG&A. Is there still an equally large opportunity in COGS? And is that still over that 3-year time period? Susan Morris: John, great question. So yes, absolutely, there is more to be had from buying better together. And we were talking about this earlier. I'd say we're somewhere around the fifth inning, if you want to think about it that way, the fourth or fifth inning. What's materially changed is we've not only put new leadership in place since late last summer, we've also reconstructed the team here, and we're already working differently with our vendor partners. Some examples, we used to have 3 national sales events. It will be 5 this year. We've already worked with our vendor partners on securing -- I'd mentioned this a moment ago, lower owned brands costs. We're now in discussions with our top vendor partners on how we can amplify the value equation for our customers, but do so in a way that protects our margins by asking them to lean in differently and helping us fund that growth as we move forward in the future. Operator: Our next question is from the line of Rupesh Parikh with Oppenheimer. Rupesh Parikh: I just want to go back to the new higher CapEx range. Is this a new baseline level we should think about going forward? And then in terms of the plans to open up new stores, is there any more color in terms of the number of new stores? And if there's a geography tent and the expectation for store closures? Sharon McCollam: In the new store fleet modernization program, there will be incremental new stores next year. We haven't given a number yet. But think about maybe -- not maybe, up 50% from this year. And then on remodels, we are amplifying our remodels materially in that number. So do I expect it to be a new baseline? These are easily measurable. You open, you've remodeled, you see the result that you get. Assuming that we see those kinds of returns that we're expecting based on the work we did in 2025, we would likely remain in this range, but we'll let you know how it's going throughout the year, and we'll give you an outlook for '27 later in the year, obviously. Rupesh Parikh: Great. And then my follow-up question, just on retail media. Just curious, the key priorities for the year? And then as you look at the efforts this past year, any major surprises of note? Susan Morris: Rupesh, what I would just say there is that we continue to accelerate growth in our media collective. And over the past year, the team has done a phenomenal job of improving return on advertising spend for our vendors, speeding up the rate at which we're able to feed back that data to our vendor partners so they can make better decisions on how they move forward. We've opened up inventory substantially and are leveraging that inventory well. I think we shared in the script also that we have been highlighting some experiments on personalized ads, which is -- which has had incredible take rate from a customer perspective, but also delivers a really strong return from our vendors for our vendors. So we're looking at acceleration there. So as a key driver of not only productivity and funding our digital business, we also see the media collective as a strong source of building relationships with customers and driving unit growth in the future. Operator: Our next question is from the line of Tom Palmer with JPMorgan. Thomas Palmer: You gave some helpful detail on ID sales expectations as 2026 progresses. I just wanted to maybe tie that in with the expected cadence of earnings growth and to what extent we should think about earnings, excluding the extra week, of course, aligning with that cadence of ID sales? Sharon McCollam: Yes. So in the first quarter, that will be our most pressured quarter because of the fact that the comp sales will be below the ID sales range due to the dynamic of the IRA and on top of that, the egg deflation. But when we start getting into Q2, Q3 and Q4, we are expecting adjusted EBITDA growth in every quarter improving sequentially as we get through the year as our productivity kicks in. Thomas Palmer: Great. And then I wanted to follow up just on the CapEx. You mentioned both store investments and technology and some expected benefits materializing in the second half, is that mainly related to the technology benefits? And then when we think about some of the store level investments, when do we start to see those becoming more of a contributor? Sharon McCollam: Yes. On the early remodels we do in the year, you should start seeing benefit as you get into the back half of the year. And that -- but they're going to be coming throughout the year. So it's a small benefit in this year, and you'll see it obviously in 2027. And then on the investments that we are making, we've been making them all year on the 4 big bets. And many of those, like, as an example, one of the ones Susan spoke to, Gateway, in her prepared remarks, actually launched nationwide in February. So the benefit from that initiative, we would start to see growing as we go throughout the year. Operator: Our next question comes from the line of Scott Mushkin with R5 Capital. Scott Mushkin: So my first one just goes to loyalty. You guys are seeing some really nice growth there. But on a unit basis -- and you guys correct me if I'm wrong, but on a market share unit basis, it seems it's in the grocery business, maybe flattish to down. And so I was wondering like kind of square that for me? Because your loyalty is growing really fast. I think you said trips are up, but yet, it looks like there's a little market share erosion. So I was wondering if you can kind of walk me through that? Susan Morris: Sure. So thanks for the question, Scott. Yes, as you stated, we definitely see industry units under pressure. And I think we saw a further decline in the industry from Q3 to Q4. That's true for us as well. That pressure is concentrated, as we mentioned before in our lower income cohorts. And this is where we look at our role is to turn our footprint, our proximity into preference for our customers through sharper value, stronger loyalty engagement, differentiation in fresh, better omnichannel experience and all of those types of things. So we are -- we mentioned before, units will be -- are pulling tougher in the first quarter, but we expect and plan for a gradual improvement as we go on throughout the year. Our initiatives are built to drive that improvement. And again, leveraging the value of our proximity, fresh and personalization are some of the key drivers that we're using to achieve that growth over time. Scott Mushkin: Perfect. And then my second question, just again, like John is maybe a little more philosophical. When you think about your kind of natural shelf price versus your promoted price, how do you guys think about that vis-a-vis the maybe high, pretty high price point at the shelf without it being promoted and the impact on the value perception? Susan Morris: Sure. So what I would go back to is what I mentioned a few minutes ago and just speak to the fact that we definitely look at price market by market. Our price position is very different across the country, depending where we're at. And so that's a very surgical approach that we take because of that, where we can massage promotional in one area. We're working on frontline pricing in another. In previous quarters, we mentioned the investments that we've made, largely in frontline pricing, also in promotional pricing, but in our 3 divisions. We've seen strong customer feedback, strong improvements. We're very pleased with those results. But again, even across those 3 deployments, if you will, the execution has been slightly different. One market might need heavier promotional increases, another market might need more relief from a frontline perspective. So a very surgical approach for us moving ahead. Operator: Our final question is from the line of Robby Ohmes with Bank of America. Robert Ohmes: I'll wrap it into one question. There's actually -- it's really just 2 follow-ups. The first, I think -- I can't remember, Sharon, I think you mentioned the moderation in GLP-1 growth was more than expected. I was hoping you could give a little more color on is that expected to continue? And does that have a -- should we think that it's going to be a negative headwind, obviously, to store traffic? And then the second one was on, I think, Susan, you mentioned you have seen more increased cross shopping. Is that, again, another headwind to store traffic? And overall, how is store traffic looking as digital keeps increasing as well? Sharon McCollam: Let me take the GLP-1 comment. So in our ID sales forecast for 2026, we have assumed that this GLP-1 pressure will continue and -- to some extent, and only because of the clampdown from the payers. Many health plans have made a decision not to pay for GLP-1s for consumers in 2026. So for weight loss only, where it's being taken for weight loss only. So we do think it is possible that, that will continue during the year. As far as the question related to GLP-1s and traffic, this is -- many of our GLP-1 customers are already customers of the store. If they were not taking GLP-1s, I believe they will continue to come to our store. So I see this is a very unique drug and has a lot of implications as it relates to food. So I don't know that I would immediately make that correlation. I will let Susan talk about traffic in the stores and our customers and where we see that happening. Susan Morris: Thanks, Sharon. And also just a side note, too, on the pharmacy, we are still growing script count. I want to make sure that comes through clearly. And that's important for us for a variety of reasons, including the traffic side, but as well as building larger baskets and customer lifetime value. From a traffic perspective, what I would say is -- we would say traffic has been fairly steady. And what our focus has been is we've got great proximity. We're already in the neighborhood that serve our customers today. So how do we stop that second trip? And that's where we're focused on increasing in-stock, which we've done. That's where we're focused on fair pricing -- fair frontline pricing, again, surgically across the country, great promotions funded by our productivity, and then excellence in fresh. So if we're giving our customers what they need at prices they're willing to pay in their neighborhood, that's how we think about stopping that second trip. That's why the investment in our store fleet is so important to us. That's why we're thinking about this customer-centric experience, again, loyalty, digital, pharmacy, fresh penetration, all of those things so that we can give them the balanced value equation that resonates uniquely with them. Operator: At this time, we've reached the end of our question-and-answer session. I'll turn the floor back over to Susan for closing remarks. Susan Morris: So before we wrap up, I just want to thank our investors and analysts for your questions and your continued engagement. And to any employees that might be listening in, thank you for the work that you do every day to serve our customers and strengthen our business. We appreciate your ongoing support and look forward to continuing dialogue. Have a great day. Operator: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.
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 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.
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