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Operator: Good day, and thank you for standing by. Welcome to the Q4 2025 KVH Industries, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Anthony Pike. Please go ahead. Anthony Pike: Thank you, Tanya. Good morning, everyone, and thank you for joining us today for KVH Industries, Inc.'s fourth quarter results, which are included in the earnings release we published earlier this morning. Joining me on the call is the company's Chief Executive Officer, Brent C. Bruun. A copy of the earnings release and a recording of today's call will be available on our website at ir.kvh.com. This conference call contains forward-looking statements that are subject to uncertainties that may cause actual results to differ materially from those expressed in these statements. Words such as “expect,” “may,” “intend,” “anticipate,” “will,” and similar expressions identify forward-looking statements, which include projections, plans, initiatives, and other future events. We undertake no obligation to update these statements, and you should review the cautionary statements in our most recently filed Form 10-Q under the heading Risk Factors. We will also discuss adjusted EBITDA, a non-GAAP financial measure. Our press release defines this term and reconciles it to GAAP net income or loss. Brent? Brent C. Bruun: Good morning, everyone, and thank you for joining us. The maritime connectivity market is undergoing a fundamental transformation, and 2025 was the year KVH Industries, Inc. proved it is positioned to lead it. Let me explain what I mean. For years, the maritime satellite industry was built on GEO technology: reliable, established, but limited in speed and capacity. The arrival of LEO constellations changed everything. Vessels that once relied on modest bandwidth can now access high-speed, always-on connectivity at sea. New providers are entering the market, customer expectations are rising, and the addressable opportunity is expanding rapidly. KVH Industries, Inc. saw this shift coming. We made a deliberate strategic decision to reposition our business around LEO airtime, subscriber growth, and high-value managed services. 2025 was the year that strategy began to pay off. Here is what we delivered. In the fourth quarter, service revenue grew to $28.3 million, a 27% increase from 2024. We contracted for our second Starlink data pool, a 300% increase from our initial pool, representing a $45 million 18-month commitment. We made this commitment with confidence. Demand for LEO airtime across our customer base is strong and growing. And we delivered our strongest adjusted EBITDA quarter of the year. For the full year, service revenue grew 2% to $98.4 million. That headline number understates the real momentum in our business. Stripping out the $7.7 million in U.S. Coast Guard revenue that did not reoccur in 2025, underlying service revenue grew 11%, a meaningful reflection of what our core maritime connectivity business looks like. We grew our subscriber base by approximately 2,000 vessels, a 28% increase, ending the year with more than 9,000 vessels under contract. That is a significant and growing installed base that generates recurring revenue and creates the platform for everything we are building. We surpassed 1,000 CommBox Edge subscribers. CommBox Edge will be integral to our vessel-based managed IT solution, which we plan to introduce in the coming weeks. This is the next chapter for KVH Industries, Inc., moving beyond connectivity into a broader, higher-value managed service relationship with our customers. We also expanded our global footprint, successfully completing the integration of a maritime communications customer base in the Asia-Pacific region, adding more than 800 vessels and more than 4,400 land-based subscribers. And we delivered $8.1 million in adjusted EBITDA for the full year, including $3.1 million in the fourth quarter alone, reflecting the operating leverage we are beginning to generate as the business scales. None of this happened by accident. We made deliberate choices: investing in LEO capacity, growing our subscriber base, reducing operating costs by 17%, and selling our Middletown facility to strengthen our balance sheet. The result is a company that is leaner, more focused, and better positioned than it ever has been. That financial strength gives our board the confidence to act. Given our recent top-line growth in a rapidly growing market, improving profitability, positive free cash flow, and no debt, our board continues to view our common stock as undervalued. With that said, the board has authorized an increase in our share repurchase program from $10 million to $15 million, which we believe is a prudent next step in returning value to our shareholders. Looking ahead, the satellite communications industry is undergoing a significant transformation. We are still in the early stages of that shift. In the coming years, new LEO-based providers will come to market, expanding the opportunity further. With our growing subscriber base, our demonstrated ability to integrate and scale new satellite technologies, and our vessel-based managed IT solution launching in the coming weeks, we believe KVH Industries, Inc. is uniquely positioned to capture this expanding market and deliver differentiated, high-value services to our customers. We enter 2026 with momentum, financial strength, and a clear strategy, and I have never been more confident in KVH Industries, Inc.'s direction. With that said, I will turn the call back to Anthony to review the financial details. Operator: Anthony? Anthony Pike: Thank you, Brent. With respect to our fourth quarter financial results, service gross profit was $9.8 million, which is up $1.1 million from the prior quarter. Service gross margin was 34%, which remained flat compared to the prior quarter. Airtime depreciation expense, which is a non-cash charge, represented 89% of service revenue in the fourth and third quarters, respectively, which impacted these gross margins. It is also worth noting that our cost of service sales related to our legacy network will reduce in 2026 as our minimum bandwidth commitment reduces by $7 million compared to 2025. As Brent mentioned, total subscribing vessels at the end of Q4 were just above 9,000, which is up 1% from the prior quarter and 28% from the beginning of the year. Vessel growth in the fourth quarter was lower than prior quarters this year due to the termination of two Southeast Asian low-ARPU fishing fleets. These two fleets contributed very little to our service gross profit. Total subscribing vessels were up 8% in the fourth quarter excluding the loss of these fleets in Q4, and 37% from the beginning of the year. Q4 operating expenses totaled $10.5 million compared to $9.5 million in the prior quarter. However, Q4 operating expenses included $900,000 of nonrecurring costs, which related to transaction costs from the acquisition we completed in Q4 as well as some restructuring costs. As Brent mentioned, our adjusted EBITDA for the quarter was $3.1 million, and capital expenditure for the quarter was $2.4 million, of which $1.4 million related to our ongoing ERP project and the fit-out of our new U.S. headquarters. Both of these projects will conclude in 2026. This compares to adjusted EBITDA of $1.4 million and capital expenditure of $1.6 million in the third quarter 2025. Our ending cash balance of $69.9 million was down approximately $2.9 million from the beginning of the quarter, and this decrease was driven by the acquisition we completed in Q4. Overall, we are very pleased with the fourth quarter performance, which shows a continuation in the execution of our strategy to focus on our recurring revenue business and the transition from our legacy to a LEO-driven maritime satcoms market. Our subscribed vessel count continues to grow, churn in our legacy network is being managed well, revenue has increased for the third quarter in a row with consistent margins, and our costs have remained under control, all of which resulted in our strongest quarterly adjusted EBITDA performance of the year. With all that considered, our guidance for 2026 is revenue of $130 million to $145 million and adjusted EBITDA of $11 million to $16 million. This concludes our prepared remarks, and I will now turn the call over to the operator to open the line for the Q&A portion of this morning's call. Operator? Operator: We will now open for questions. 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question will be coming from the line of Christopher David Quilty of Quilty Space. Your line is open, Chris. Christopher David Quilty: Thanks, gentlemen. Good results here. I had a question for you just first on the acquisition. I cannot remember when you bought it in the quarter. Is that $2.5 million sort of a good run rate that we should assume for that business on a go-forward basis? Anthony Pike: Yes. The business is actually a bit larger, Chris. But yes, $2.5 million is really the net impact. We did have a number of vessels that we were providing our VSAT service through this particular customer, and obviously, we will pick up the incremental margin on that, but $2.5 million per quarter is a pretty accurate close estimate. Christopher David Quilty: And I am assuming part of the acquisition is you will—would you actively convert those over to LEO, or let them sort of mature on their own? Brent C. Bruun: No. We will actively look to understand our customer base, we will work with them, and we will provide them with the best solution that is available for them. Our LEO-based services, to a large degree, are the best services that we could provide today. As we have demonstrated, we are doing great in providing LEO services. We are growing our installed base, the usage is up, and we have our new data pool, so it goes without saying that is our focus. Christopher David Quilty: And on the new data pool, Anthony, should we assume similar margin trends that we have been seeing with the prior pool? And the length of that of 18 months, I think, is shorter than your original plan, or was that also 18 months? Brent C. Bruun: Let me jump in there first, Anthony. It was a similar 18-month commitment. The fact of the matter is we depleted the pool prior to 18 months, so it might appear like it was less, but we still had some runway to go on that, which we did not need, which we are hopeful will be the same case with our next pool. As far as the margins, we anticipate consistent margins, but as I am sure you are aware, Starlink has implemented a terminal access charge, which in essence is a pass-through, so that might have a slight impact on the overall margins for the Starlink piece of our business, but I will let Anthony answer the specific question. Anthony Pike: Just as Brent said, really, the only change we expect on margins is probably driven a little bit by the terminal access charge. From a dollar gross profit perspective, that should not be materially affected at all, and the new deal we have should help us maintain our margins. Christopher David Quilty: Very good. And when you look at the product margins here, obviously, I actually just signed up for Starlink, and my antenna is free now—at least on the consumer side. We have seen some pressure across enterprise. Is that a business where you think you can maintain a breakeven, or does that become a loss leader over time? Brent C. Bruun: The plan is to maintain breakeven, but it is an enabler to the airtime. Breakeven or slightly better. Christopher David Quilty: Got it. Great. I will circle back into the queue. Brent C. Bruun: Thanks, Chris. Operator: I am showing no further questions. This will conclude today's program. Thank you for participating. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oracle Corporation Third Quarter Fiscal Year 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. To withdraw your question, press star 1 again. We kindly ask that you please limit yourself to one question. I would now like to turn the conference over to Ken Bond, Head of Investor Relations. Please go ahead. Ken Bond: Thank you, Regina, and good afternoon, everyone. Welcome to Oracle Corporation's third quarter fiscal year 2026 earnings conference call. On the call today are Chairman and Chief Technology Officer, Lawrence Ellison; Chief Executive Officer, Clay Magouyrk; Chief Executive Officer, Mike Cecilia; and Principal Financial Officer, Doug Caring. A copy of the press release and financial tables, which includes supplemental financial details on our most recent quarter, guidance for our future results, a GAAP to non-GAAP reconciliation, and a selected list of customers who purchased Oracle Cloud Services or went live on Oracle Cloud recently will be available from our investor relations website. As a reminder, today's discussion will include forward-looking statements, and we will discuss some important factors relating to our business. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from the statements being made today. As a result, we caution you from placing undue reliance on these forward-looking statements and we encourage you to review our most recent reports, including our 10-Ks and 10-Q, and any applicable amendments. Finally, we are not obligating ourselves to revise our results or these forward-looking statements in light of new information or future events. Before we go to the Q&A portion of the call, we will begin with a few prepared remarks. I will now turn the call over to Doug. Doug Caring: Thanks, Ken. Let me start by highlighting the changes we are making to our earnings press release and this call. In the press release, we have laid out clearly and explicitly the supplemental financial metrics that we otherwise would have provided on the earnings call so that each of you has the information in writing and in advance. Then as it relates to our approach to the earnings call itself, I will be very brief and then turn it over to Mike and Clay to provide more substantial thoughts on our business, after which, all of us, including Larry, will be available to take questions. In terms of the results for Q3, we had a tremendous quarter that exceeded expectations across the board. Our momentum continues to accelerate with Q3 being the first quarter in over 15 years where both organic total revenue and organic non-GAAP EPS grew at 20% or better in USD. As we highlighted in the press release, I will quickly mention a couple things and then hand the call over to our CEOs. First, in January, TikTok US completed the separation of its US data operations from ByteDance into an independent company in which Oracle Corporation now holds a 15% equity stake along with a seat on the board. In terms of impact to our financials, there is no impact to the revenue related to the services we have been providing as their technology vendor. That is continuing to the equity investment. We will be accounting for this under the equity method and we will recognize our share of the new company's earnings for the period from the close of the investment in late January to March 31, in our Q4 results, as there is a two-month reporting period time lag. It will be recorded as nonoperating income or loss on our income statement and is incremental and additive to our financials. Second, in February, we announced our intent to raise up to $50 billion in debt and equity financing along with the statement that we do not expect to issue any additional bonds beyond this amount in calendar year 2026. Within days of the announcement, we raised $30 billion through a combination of investment-grade bonds and mandatory convertible preferred stock, with a record order book that was substantially oversubscribed. As noted in our release, we have not yet initiated the at-the-market equity portion of the financing program. Finally, I would be remiss not to remind everyone we are reporting our financial results just 10 days after the last day of the quarter, despite the increasing size and complexity of our business. Using Oracle Fusion, we continue to close and file our financial results faster than any other company in the S&P 500, providing us with a significant strategic advantage as well as an opportunity to help our Fusion customers do the same with their businesses. With that, let me now turn the call over to Mike. Mike Cecilia: Thanks, Doug. And as Doug just detailed, we really had an excellent quarter across the board. We continue to see strong execution, so let me say a few words about our applications business. Oracle Corporation has the fastest growing, most complete suite of cloud applications in the market, full stop. Our SaaS solutions are industry-complete platforms—highly scalable, trusted, secure, and regulatory-compliant systems and processes in which our customers trust us to run the systems that run their businesses. In constant currency, cloud applications revenue was up 11% in the quarter, reaching an annualized run rate of $16.1 billion. Within that, Fusion ERP was up 14%, Fusion SCM up 15%, Fusion HCM up 15%, Fusion CX up 6%, NetSuite was up 11%. Industry SaaS solutions for hospitality, construction, retail, banking, restaurants, local governments, and telecommunications combined, were up 19%. So, certainly, very happy with the applications growth in the quarter. In the context of that, I will say a few words about the reported SaaS apocalypse. You have all heard the theses or theory that new companies coding quickly using AI will spell the end of SaaS. I do not agree with that at all. I do think that AI tools and their coding capabilities would be a threat if we were not adopting them, but we are—and very rapidly. Oracle Corporation is using the best AI coding tools and the best developers not only to accelerate our SaaS business, but to deliver solutions that enable entire ecosystems across numerous industries. The use of AI coding tools inside Oracle Corporation is enabling smaller engineering teams to deliver more complete solutions to our customers more quickly. We are building brand new SaaS products using AI and also embedding AI agents right into our existing applications and suites. Embracing AI with small engineering teams, we have just built three brand new CX applications: lead generation and qualification, sales orchestration and automated selling, and our new website generator. In fact, we just used the website generator to build and launch the new oracle.com. We have built these new CX products to help our customers sell, not simply to administer a forecast or generate email opens. These are three products that salesforce.com does not have. And, of course, salesforce.com also does not have OCI, the AI data platform, Fusion ERP, and complete industry suites. AI-powered end-to-end ecosystem automation platforms are quite unique to Oracle Corporation. In addition to that, we have already delivered well over 1,000 agents right inside our horizontal back-office and industry applications. This does not even include the agents that our customers are building themselves or the fleet of agents that we are using internally. These are AI features built right into our applications and existing processes. And a great example, I think, is in health care: our brand-new AI-powered EHR—electronic health record—system is live in the market and the results are quite clear. We are reducing administrative overhead, we are allowing clinicians to see more patients, we are improving access to care, and we are increasing provider satisfaction. In another example, in banking, we provide a comprehensive AI-powered SaaS platform, including everything from commercial banking, retail banking, investment banking, anti-money laundering, financial crimes and compliance, payments, supply chain financing, CX, ERP, and HCM. That banking suite alone contains hundreds of embedded AI agents, all available at no additional cost to our customers. In retail, our AI-enabled solutions span merchandising, assortment planning, supply chain management, point of sale, commerce, and, of course, ERP, CX, and HCM. In summary, these are not systems that can be replaced by a small collection of these features cobbled together and bolted on in the name of AI. So, yes, some smaller or single-focused SaaS players may well be disrupted. But Oracle Corporation will not be among them. Now let me focus on a few key wins in Q3 in the application space—and, by all means, this is a very short list, not an exhaustive list. Memorial Hermann Health System selected Fusion ERP, SCM, and HCM. This was a win over Workday. University of New South Wales also selected Fusion ERP and HCM—also a win over Workday. Gray Media selected Fusion EPM and ERP—a win again over Workday and also over SAP. Investec Bank selected Fusion EPM and ERP over SAP. HID Global Corporation also selected Fusion ERP and SCM over SAP. Ethiopian Shipping and Logistics Services Enterprise selected Fusion ERP, SCM, and HCM—again, over SAP. A major Wall Street bank elected to standardize on Fusion ERP for the entirety of their business, all of their business units, replacing SAP, full stop. Loudoun County Public Schools selected Fusion ERP, EPM, HCM, and SCM. The JM Smucker Company selected Fusion ERP and EPM. Westfield Insurance picked Fusion ERP, EPM, HCM, and Procurement. Mitsubishi UFJ Financial Group, an existing cloud customer and database customer, are now moving into both our Fusion ERP and industry SaaS applications. Zain KSA Kuwait, an existing major tech customer, is moving EBS to the cloud to support their growth. So just this very small list of major applications wins in the quarter. In the quarter, we had over 2,000 customers go live in Q3. When you think about our industry applications and our Fusion applications put together, over 2,000 went live, and, more importantly, we continue to see the median time to go-live decrease. A very small sample of go-lives in the quarter: Hearst expanded their ERP with EPM as well as HCM. JM Huber Company is now live across Fusion ERP and SCM. Emirates Health Services went live with HCM, which enabled a comprehensive HR, payroll, and talent suite to elevate their workforce management. Niagara Bottling went live on SCM, moving from on-premises ERP to Fusion. Seadrill is now live across ERP, HCM, SCM, and EPM. Again, with 2,000 go-lives in the quarter, that is just a very, very short list of go-lives, but you can see, hopefully, not only momentum, but multi-pillar momentum with these customers. I also have an equally short list compared to the overall list of key tech wins in Q3. Lockheed Martin selected OCI high-performance compute to scale AI across their environments efficiently. Rhombus selected OCI Compute, Networking, and Storage for AI video and security across all of their workloads. Lucid Motors selected OCI core services for data and connectivity in order to expand into European markets. Infomart in Japan selected OCI for their mission-critical B2B platform. Claro Brazil selected OCI Alloy for Sovereign AI. Air France-KLM, which is a multicloud win, featuring a win with the Oracle Database at 13x performance improvement at a significantly lower cost for Air France-KLM. Activision Blizzard, an existing Oracle E-Business Suite customer, was also an Oracle Database at Azure win. Oracle Corporation's embrace of AI across our strategic applications is leading to broader enterprise conversations with our customers involving our full stack: OCI, AI Data Platform, Fusion applications, industry suites. These conversations are about ecosystem automation. They are not about single apps. They are about automating the entire ecosystem and they are further enabled by our simplified go-to-market model, which we spoke about in our last earnings call. This is allowing us to close more multiproduct deals with more customers combining the power of the Oracle Database, our OCI platform, our AI tooling, and our complete applications suites. In constant currency, cloud applications deferred revenue was up 14% versus in-quarter cloud applications revenue growth of 11%, which further supports our acceleration thesis. Clay, I will turn it over to you. Thank you, Mike. Clay Magouyrk: Okay. So I am going to talk about two segments of our business: our multicloud database and AI infrastructure. Both are growing extremely quickly. Multicloud database revenue grew 531% year over year. AI infrastructure revenue grew 243% year over year. Both also have demand that exceeds supply and a clear execution plan from Oracle Corporation that will rapidly turn that demand into profitable recurring revenue. Oracle Database has run on any hardware and operating system for decades. Oracle Database cloud services up until recently were only available in a single cloud: OCI. We created our multicloud partnerships with first Microsoft, then Google, and finally Amazon to bring the best database platform to all clouds. Those partnerships unlock an enormous backlog of demand—our database customers who want to use our database in other clouds. This quarter, we achieved an important milestone: we have global region coverage in all of our partner clouds. We now have 33 regions live with Microsoft and 14 live with Google. We delivered significant growth with AWS, beginning Q3 with two AWS regions live, exiting Q3 with eight AWS regions live; we will exit Q4 with 22 AWS regions live. AI is also accelerating the adoption of our database cloud services. The rapid improvement in model coding skills and agentic abilities pushes customers to move their most valuable data into our cloud services. They need access to the latest AI features, to support vector embedding, MPT server access, and advanced security controls. Customers also need their data to be colocated with the agents themselves, and our multicloud database makes that easy. Our multicloud architecture brings the best of Oracle Cloud to our partner regions. This ensures that we will rapidly turn billions of pipelines into highly profitable database service revenue. Demand for AI infrastructure, both GPU and CPU, continues to exceed supply. This is directly visible in our $553 billion RPO. I want to share a model for how that RPO turns into profitable recurring revenue as well as some operational metrics that are early indicators of our progress. AI infrastructure begins with data centers and power generation. Through our partners, we have secured more than 10 gigawatts of power and data capacity coming online over the next three years. Those infrastructure investments also need funding, and greater than 90% of that capacity is fully funded through our partners, with the remainder planned to finish this month. Once the data center is secured, several things must come together. The data center and on-site power generation have to be constructed. Compute, networking, and storage have to be designed, manufactured, delivered, and installed. All the capacity inside the data center also has to be funded. We continue to innovate across each of these steps. We optimize our data center construction through standardized design. Our supply chain has improved with more suppliers and deeper relationships. We have tripled our manufacturing sites and increased rack output by 4x all in the last year. We have scaled our installation processes to enable multiple phases of delivery in parallel. Time from rack delivery to revenue has reduced by percent in the past several months. We also continue to innovate on our business models. On our last earnings call, I shared multiple ideas for how we can incrementally grow our AI infrastructure without Oracle Corporation raising more debt or issuing equity. We have signed more than $29 billion of contracts since then, across multiple customers using that new model. A combination of bring-your-own-hardware and upfront customer payments enables us to continue expanding without any negative cash flow from Oracle Corporation. Of course, this $29 billion is in addition to other deals we signed this quarter. Ultimately, all of this results in capacity delivered to customers and revenue to Oracle Corporation. In Q3, we delivered more than 400 megawatts to customers. 90% of that committed capacity was delivered on or ahead of schedule, as we have consistently done over several quarters. This is why customers continue to choose Oracle Corporation for their infrastructure needs. Investing in AI infrastructure is capital intensive, but our operating model is optimized to ensure profitability. Flexible infrastructure design, high utilization, and handover combined with diversified customers creates an incredible business. Increased scale spreads our fixed cost over a larger base, increasing profitability. It is unprecedented to scale a capital-intensive business so quickly while also increasing profitability. Looking at the AI capacity we delivered in Q3, our gross margin for that remained above our 30% guidance at 32%. Now combine that with our other segments of OCI, which have much higher margins, like our database services, and you can see why Oracle Corporation is growing so quickly and profitably. Our numbers speak for themselves. We are overdelivering on FY26 revenue and earnings, and we are constantly raising our FY27 forecast. This is made possible by Oracle Corporation's transition from a predominantly seasonal license business into a highly predictable recurring revenue class. Demand for AI and advanced compute will continue to expand broadly across the economy. There will be many successful models, agentic platforms, and businesses that emerge. We support hundreds of the most advanced AI customers today, and more continually want to work with us. We build infrastructure that is flexible, fungible, and can support the smallest workloads up to the largest. We continually offer the latest in accelerators, from the most recent NVIDIA and AMD options to emerging designs from companies like Cerebras and PowerCharm. Altogether, we are confident that the investments we make now in data centers, compute capacity, and customer relationships will only grow more valuable with time. Back to Ken for questions. Ken Bond: Thank you, Clay. Regina, if you could please poll the audience for questions. Operator: We will now begin the question-and-answer session. To ask a question, press star then the number 1 on your telephone keypad. We ask that you please limit your questions to one. Our first question will come from the line of John DiFucci with Guggenheim. Please go ahead. John DiFucci: Thank you. Wow. A lot going on here. So, listen, I am going to let others ask about the AI infrastructure question, but we have heard Doug talk about a halo effect that the AI infrastructure business is having on the rest of your business. This quarter was strong, and you said that the RPO increase was from large-scale AI contracts. At the same time, we are hearing from the field now that that halo effect is actually turning into business. Outside of AI infrastructure, it sounds like the go-lives are steady, but the business activity and especially the pipeline are up materially from more traditional cloud workloads, including, you know, Dedicated Region, sovereign clouds, even Alloy deals we have heard you are starting to hear about, in addition to what Mike started talking about with the often-related apps deals. I realize these types of deals are not the scale of these AI deals. But can you talk about what seems to be an underlying momentum building in these businesses? Am I right to be thinking of this? And if I could, on a sort of related topic, can you give us any visibility into CapEx for fiscal 2027? Mike Cecilia: Okay, John. This is Mike. I will take the question. So, yes, we absolutely are seeing a halo effect. And let me add a little bit of color on that. As far as the apps business, the fact that we are training so many models on OCI and closely provisioned for applications allows us to embed very high-quality AI services right into our applications as features. So not only are we serving the model vendors for training, but we are also embedding a lot of the output right into our application cores. We are doing prompt engineering and things like that to make it relevant to the business. But the fact that we are the custodian in our applications business of so much of the world's mission-critical data, and we have very close provisioning—very close proximity—to these models, putting those two things together allows customers to get value from AI very, very quickly. And if you have heard any criticism of AI in the world, it is “well, cannot get value quickly enough.” Well, actually, when you bundle it up as a service and expose the private data to AI that we are the custodian of in the applications, we have seen terrific wins. I mentioned some of the verticals you heard about there, but I think that is true across the board. The other piece that is a very interesting halo effect is leveraging our infrastructure—just OCI infrastructure—as a budget creator for customers. You have heard us say it before: we are faster and cheaper than everybody else. And when customers are thinking about these large-scale application or large-scale infrastructure transformations, we can also help them get to a position of budget creation to be able to fund that transfer simply by moving their workloads to OCI, because we can run them more quickly and more efficiently and less expensively than our competitors. And then, finally, the other halo effect before I turn it over to Doug for your question on CapEx is around Sovereign AI. Our sovereign story is not new, and it is not a knee-jerk reaction to things that are happening in the world. Combined together with our Alloy story, we are really seeing increasing pipeline across the world. The fact that our form factor—we are so differentiated in our form factor—and we can deliver not just a smaller form factor, but complete OCI services on top of that form factor no matter how many racks are involved, whether it is three racks or 500 racks, we think that is a huge differentiator in the market. So you put apps together, you put OCI AI services together, you put sovereignty together, and yes, it is a pretty big halo effect. Doug Caring: Yeah, and, John, let me start by acknowledging the creativity in getting two questions in at the same time. That is always fascinating to watch. So on CapEx, I think we will get back to everyone after the end of the fiscal year and talk about next year’s CapEx at that point in time. But I will state a couple of things. Obviously, from what Clay has gone through, the most interesting thing that you should start thinking about is the uncoupling of CapEx with capital requirements from Oracle Corporation. Obviously, when we have these additional funding mechanisms, there may be additional CapEx, but it does not require out-of-pocket cash from Oracle Corporation, which is quite interesting. Underlying that is we remain committed to what we talked about last quarter, which is maintaining the investment-grade rating at Oracle Corporation as well as staying within the financing envelope that we talked about, of which we have announced that we are doing $50 billion this calendar year of that total. So more to come, John, on the CapEx after next quarter. John DiFucci: Very much appreciate the color on that, Doug. And, Mike, your prepared remarks on AI and how Oracle approaches it—everybody should use that because it is a logical approach. So thanks, and nice job. Operator: Our next question will come from the line of Mark Murphy with JPMorgan. Please go ahead. Mark Murphy: Thank you. Congrats on the acceleration. Clay, as Oracle Corporation transitions to higher levels of AI inferencing, what do you view as the right strategy for trying to optimize the location of your data centers? For instance, if you have these huge centralized data centers in Texas and Wyoming, they are very close to power, but they are pretty far from the population centers and the fiber routes that are out there on the seaboard. So it crosses our minds that the users and the devices are a long distance away. So as you make a move more into inferencing, are you seeing any reason to try to pivot those locations a little closer to where the users and the traffic are? Clay Magouyrk: Sure. Great question, Mark. So let me start by highlighting our perspective on inferencing and then how that impacts data center deployment. First thing I would say is for a while there was a lot of training going on. Inferencing is very rapidly growing everywhere and anywhere. I think it is because of higher and higher utilization of the models themselves and also new use cases—as anyone who has been using Claude or Codex recently in the software space knows. These are incredible tools. They are changing how we do everything. So inferencing is going to have a huge amount of demand. Now, you talk about data center location—you mentioned latency is the one. Realistically, there are several reasons you might care about the location. It might be for the cost. It might be overall availability. It might be for sovereignty. So there are different reasons to pick a location. But to hone in on your point about latency, the thing to understand is that latency is all proportional. Meaning, if what you are trying to do is a very low-latency trade on the stock market, waiting for the 100 millisecond round trip from coast to coast is a bad idea. If what you are doing is you are asking a question of your business that is going to take an AI model several seconds to think about, an extra 40 milliseconds of latency from New York to Wyoming is not going to hurt you. And so when you actually talk to customers about use cases where they need lower latency, the latency problem right now is not actually the location of the hardware, it is the type of hardware that is being deployed. And that is why you are seeing so much innovation going on around these AI accelerators. If you look at what GROQ does, or Cerebras, or Positron—all of these different types of companies are saying, well, not only how do we reduce the cost of inferencing, but also how can we significantly reduce the latency of it? And I think, if you look forward to GTC from NVIDIA next week, you will see an announcement from them. But across the board, I think the way that, as an industry, we are going to consolidate and reduce latency has to first start with a different architecture for that inferencing. And, thankfully, the data center location is actually a very tiny part of that. So it makes it much more flexible for us to go out and put data centers where power is abundant, land is plentiful, and we can actually optimize for what is available to meet this ever-increasing demand. Mark Murphy: Thank you very much. Operator: Our next question comes from the line of Siti Panigrahi with Mizuho. Please go ahead. Siti Panigrahi: Great. Thanks for taking my question. I want to ask about the opportunity with your AI Database and AI Data Platform. So with recent excitement on AI and around enterprises now adopting tools from frontier LLMs, what are you hearing from customers about training their private data and building their private LLMs? And how confident are you in seeing the inflection in your AI Database growth that you talked about at the Analyst Day in October? Clay Magouyrk: Yeah. Thanks. So, look, I think there are two parts to that question. One is how much adoption we are seeing of private LLMs, and then how much we are seeing of using AI with private data. I think in the early days, a lot of people thought that most customers would be doing very specific training of their own large language model. I think that has largely proven to not be the case. Instead, what I think is incredibly popular and growing in popularity is people taking the best models and wanting to combine that in a private way with their private data. And we are seeing a lot of demand for that. If you listen to Mike earlier talk about how we are embedding these AI models into our applications, that is one use case. But, obviously, not everything, unfortunately, runs inside of an Oracle Corporation application, and lots of custom applications are written. So we added a lot of functionality to our Oracle AI Database to make it easy to connect—whether it be through MPT servers or natural language SQL—that you can use these models to use. But, also, we have our AI Data Platform product. This is really about solving this exact problem. You have a lot of data—it may be application data, it may be custom data in different data lakes and lake houses, it may be data in a structured database. All of that together gives you an agentic platform to quickly build applications on as well as access to all of the greatest models from multiple providers. So across the stack, we are seeing a lot of momentum across that. And that is why, in my prepared remarks, I talked about the growth that we are seeing with our multicloud database. What we see is that for customers to take advantage of the latest and greatest AI, they first have to be in the cloud. There is still a lot of data that is not in the cloud. And so we see acceleration of moving that most important private data to cloud environments so they can then take advantage of the latest and greatest AI with that data. Siti Panigrahi: Great. Thanks for the color. Operator: Our next question comes from the line of Mark Moerdler with Sanford Bernstein. Please go ahead. Mark Moerdler: Congratulations on what is a really good quarter. Really great work. I am going to change over a little bit and discuss the financial side a little bit. Now that you have completed your major debt raise, can you explain, given the blend of the cost of building out the AI data center and the cost of raising capital to fund the AI data center, how comfortable are you with the values you are creating from the AI data center business itself? And then as an adjacency, if you do not mind, can you talk a little bit more on the Sovereign Cloud? Can you discuss how you parlay the AI data center business into being the AI provider for sovereign clouds and how that should impact your value of work to Oracle Corporation? Thanks. Clay Magouyrk: Sure. I think we are going to split this one up. I will take the first half, and then I am going to throw it to Mike to talk about some of the Sovereign Cloud stuff. So, look, when you think about the overall profitability of these AI data centers, there are two pieces. One is how profitable it is purely on the accelerators themselves. We gave guidance in the past that we see gross margin in the 30% to 40% range on that. That continues to hold for us. And we continue to get better and better at running these data centers, delivering them more cheaply—the amount of cost in networking and hardware spend as well as power—we see that continuing to incrementally improve. So we are very pleased with that. The other thing to understand is that in these AI data centers, whether it be for inferencing or for training work, the only thing being procured is not AI accelerators. There is a lot of general-purpose compute. There is a lot of, whether it be high performance or large-scale blob storage. There is load balancing. There are identity and security products, etc. That is typically on the order of 10% to 20% of the total spend that ends up going to adjacent services. And when you factor that in, which has higher margins depending on the mix of services, overall profitability continues to improve. And that is without taking into account, as I mentioned earlier about our multicloud database business, that that is a much higher-margin business—more in the 60% to 80% range. It is growing very, very rapidly. So when you combine all of these pieces together, the overall margin profile of OCI continues to strengthen and grows rapidly. The thing I would say—the question that I think underlies this that maybe people do not understand—is the limitation on the profitability is not on the capacity we have delivered. So let us say that I am building a data center and it has four data halls, and I deliver the first data hall. That one is profitable. The reason we are not even more profitable right now, despite the fact that we are continuing to grow EPS, etc., is because we have so much under construction at one time, and we have some expenses for those things. Now we are really good at that. We are very, very good at minimizing the time under which that construction is happening. We are very, very good at reducing those costs during that time period. But they are not zero. And so as our business is going through this hypergrowth phase, that is the only drag on profitability. But, thankfully, we are very good and getting better at delivering that capacity. That capacity, when we deliver it, is all already contracted for at a very profitable rate. So when you combine those things together, we are extremely confident in both the capacity we delivered and the continuing increase in profitability of our AI business. Mike Cecilia: Mike, want to talk about sovereignty? Yeah. So sovereignty, as I mentioned earlier, I think we are very well positioned. A year ago, sovereignty was about data sovereignty, and there were some faux solutions in the market where there was sovereign data from a primary perspective, but the backup was maybe somewhere else, maybe in another country. Of course, that is no longer acceptable. Sovereignty is about sovereign data, sovereign operations, and even sovereign contracting. Our Alloy model is perfectly positioned to deliver on all three of those things. And by delivering full-stack solutions—again, the big difference between what we are doing with sovereignty and what some of our competitors are doing—we are not simply putting an edge sovereign zone in. We are putting full-stack OCI, which has all of our OCI services and, as you mentioned, margin mix also allows us to run all of our applications suite, our AI Data Platform, in that sovereign zone as well. Of course, the margins on some of those are different than our infrastructure margins. So I think we are in a very unique position to deliver all that we have at Oracle Corporation in a sovereign zone. That sovereign zone can be as small or as large as a customer wants it to be. The other piece is that we have full flexibility as to where we draw the line of sovereignty. We often think about sovereignty in terms of lines of countries, but we also have customers that we have been talking with—enterprise customers may operate across multiple countries, let us say, in Europe or in Africa—that actually want to have a sovereign zone, a sovereign zone that they control and they operate in their data center, and they are serving customers in a certain vertical industry like health care, for example, or retail, for example. Their sovereign zone is drawn in their Alloy across those countries. We can accommodate all of that. We have the most flexibility—we think we have the most flexibility in contract and the most flexibility in delivering—and, again, the most important thing is that we deliver all that Oracle Corporation has in these sovereign zones. It is not a subset. It is not a few edge devices. It is all of OCI. Mark Moerdler: Extremely helpful, both the answers. I much appreciate it, and congrats again. Operator: Our next question will come from the line of Raimo Lenschow with Barclays. Please go ahead. Raimo Lenschow: Perfect. Thank you. Congrats from me as well. I wanted to ask something that we are struggling a lot with when we talk to investors, and that is the theme of SaaS software, application software—“Is AI going to kill it?” I just wanted to hear what you guys are hearing when you talk with customers. Is that one of these investor things? Is that getting discussed on the customer side as well? And how do you explain it? I am just thinking about what you guys do is a lot of deterministic rather than probabilistic, so that might probably be the explanation here, but just wanted to hear your perspective again. Thank you. Mike Cecilia: This is Mike. I will take the question. As far as the customers that I spoke with, I have not yet met a customer who tells me they are ready to give away their retail merchandising system, their core banking system, demand deposit account systems, electronic health records systems, and some cobbling together of niche AI features are going to replace all of that overnight. In fact, you hear quite the opposite with customers. What they are asking is how can we consume as much AI out of the box as you are putting into your applications across the board, and how can we get that up and live as quickly as we can? Because we think that is the best way to actually realize value. These systems—what we are running at Oracle Corporation, as you know—are highly complex, mission-critical, with decades of industry experience, decades of regulatory compliance, and these are the systems that our customers use to run their business, run their government agency, run their health care organization, whatever the case is. I really like our position here. As I said, we are leaning very heavily into AI ourselves. We have a thousand AI agents already live in Fusion. Our banking suite alone has hundreds of AI agents just inside our banking solution. So, yes, we think AI is disruptive—we do—but we think we are the disruptor because we are actually embedding the AI right into our applications, full stop, again at no additional cost. These are features that come in the application suite as part of quarterly upgrades, as part of a regular cadence. So I am actually—rather than thinking that AI spells the death of SaaS, at least for Oracle Corporation—I think it actually helps our SaaS position and helps us get to market even more quickly. We are thrilled with the results that we have and expect to have a lot more color on this as we go forward. Raimo Lenschow: Okay. Thank you. Operator: Our final question will come from the line of Brad Zelnick with Deutsche Bank. Please go ahead. Brad Zelnick: Great. Thank you very much, and I will echo my congrats and also just say that the messaging is very, very clear and very helpful. My question is for Mike and perhaps Larry, and it extends on what Raimo asked. You have introduced AI Agent Studio inside of Fusion, and we all know that the crown jewels within an enterprise live inside of Oracle Database and Oracle apps. But I am curious, how do you see Oracle Corporation's role evolving in a world where many other players are vying to be the AI interaction layer across multiple different enterprise systems and workflows? Mike Cecilia: So, Brad, it is Mike. I will start. Look, I think data gravity matters here, and I think mission-critical data gravity matters even more. So, as we said, we have announced the AI Agent Studio inside of Fusion. Fusion is a system inside our customers that is the custodian of their operational data, their mission-critical data. If you are going to build a bunch of AI agents—or your system integrator is going to build a bunch of AI agents—the question I would have is where would you start? Well, you would start inside the system of record. You would start inside the system of gravity because that is the data, from an inferencing standpoint and from a retrieval-augmented generation standpoint, that is going to be highly relevant and highly specific and add a bunch of context to AI. Now, the AI Agent Studio that we have released in Fusion is not just specific to Fusion data. You can build AI agents across our industry applications, across third-party applications. Third parties can build AI agents in there. So the fact that we are delivering an all-in-one best-of solution—a full-scale SaaS application, AI-powered SaaS applications—and giving you the ability to create your own AI agents either on top of that or next to that in a standard, upgraded-quarterly platform release schedule, I think, is going to be quite attractive. Because this AI Agent Studio that we built in Fusion is part of our quarterly upgrades. It is part of our regular security patching. So you are getting the best, we think, of both worlds. You are getting packaged SaaS applications. You are getting an agent studio which is very, very close to the most mission-critical, germane data that the enterprise possesses, and you are getting the ability to create your own custom bespoke agents if you would like to as well. Lawrence Ellison: I will just end with: we provide a bunch of prebuilt agents for all of our applications. But in addition, we provide a development environment—the AI Data Platform development environment—that allows our customers to easily add their own agents to what we built. We do not think we can build all the application agents for a banking system or all the application agents for a health care system. A lot of our partners are going to do that. A lot of our customers are going to do that. What the AI Data Platform does is it provides a complete integrated development environment where you can build your own agents using any AI model that is in the Oracle Cloud. And that is basically all of the popular AI models. You can use it for coding the agent. You can use it to do multistep reasoning for queries. We plan, in our Fusion accounting system, for example, we will have a complex agent that does something called the close. So when you close your books with Fusion in the not-too-distant future, it will be an autonomous agent—no human beings involved. You will close your books by simply telling the AI agent to go ahead and close the books, and then you will get your results. We provide a lot of AI capability built into our applications, but they are open. They are open to allow our customers and our partners to add to that portfolio of agents, and we build an entire ecosystem that automates health care, automates financial services, automates retail. That is what AI is allowing us to do: to expand our horizons for the scope of the suites of the SaaS software we are building to automate entire ecosystems. Let me talk about health care. In health care, Epic automates hospitals—acute care hospitals—and, in some cases, clinics, but primarily acute care hospitals. We automate acute care hospitals. We automate clinics. We automate laboratories. We automate the payers—the people who actually pay the bills. We automate the insurance companies. We automate the HCM system that trains their nurses, that schedules their radiologists to get the right radiologist when an MRI is given, that automates the hospital's financials, that also automates the FDA and the regulators that approve the latest drugs, that deals with the pharmaceutical companies. That is the health care ecosystem. It is enormous. And thank God we have these coding tools now that allow us to build a comprehensive set of software—agent-based software—to automate an ecosystem like health care or financial services. That is what we are doing at Oracle Corporation. That is why we think we are a disruptor. That is why we think the SaaS apocalypse applies to others, but not to us. Brad Zelnick: Really great stuff. Thank you, Larry. Thanks, Mike, and congrats. Ken Bond: Thank you, Brad. A telephone replay of the conference call will be available for 24 hours on our investor relations website. Thank you for joining us today. And with that, I will turn the call back to Regina for closing. Operator: This will conclude today's call. Thank you all for joining. You may now disconnect.
Operator: Greetings. Welcome to Domo's Fourth Quarter Fiscal 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Cory Edwards, Vice President of Corporate Communications. Thank you. You may begin. Cory Edwards: Good afternoon. On the call today, we are joined by Josh James, our Founder and CEO; and Tod Crane, our Chief Financial Officer. I'll begin with our safe harbor statement. Our press release was issued after the market close and is available on the Investor Relations section of our website. Please note that today's call contains forward-looking statements about our business as defined under federal securities laws. These statements involve risks, uncertainties and assumptions, including, but not limited to, statements and projections about our future financial performance, growth prospects, cash position, sales efforts, technology developments, new business opportunities, transactions and initiatives, the potential impact of artificial intelligence and macroeconomic factors on our business. For a detailed discussion of these risks and uncertainties, please refer to our public filings, including today's press release, our most recent annual report on Form 10-K and our quarterly report on Form 10-Q, all available on the SEC website. These documents outline important risk factors that may cause actual results to differ materially from our forward-looking statements. We will also discuss non-GAAP financial measures during the call, which we use as supplemental indicators of Domo's performance. Unless otherwise stated, all results discussed today other than revenue are on a non-GAAP basis. These measures should be viewed as complements to, not substitutes for our GAAP results. A reconciliation of our non-GAAP results to the most directly comparable GAAP measures can be found in today's earnings release and on our Investor Relations website at domoinvestors.com. With that, I'll turn it over to Josh. Josh? Joshua James: Thank you, Cory. Hello, everyone, and thank you for joining us on the call today. As we close out the year, I want to begin by highlighting some important achievements for the fourth quarter. We achieved record quarterly billings, delivered the strongest gross retention in 3 years, posted the highest operating margin and best EPS in company history and recorded our best ever full year free cash flow result. Now let me get into the details behind these accomplishments. We achieved our highest quarterly billings ever, totaling $111.2 million, which represents 8% year-over-year growth, the strongest we've seen in 3 years and also exceeding our billing guidance for the quarter. This performance was driven by higher retention, accelerating adoption of our consumption model and expanding partner ecosystem activity. Increasingly, customers are using Domo not just for analytics, but as the operational layer that powers data products and AI-driven workflows across their organizations, which naturally expands consumption over time. We also achieved our highest gross retention rate in over 3 years, coming in at over 88%, underscoring the durability of our customer relationships, particularly as multiyear consumption contracts continue to deepen. Net retention also improved by over 4 percentage points year-over-year and is now over 96%, making the sixth straight quarter of sequential improvement in this metric. Notably, the cohort of customers who started on consumption contracts, representing over $24 million in ARR, achieved an impressive net revenue retention of 111% in Q4, highlighting the value our customers are getting from our consumption model. Our operating margin for the quarter was over 10%, reflecting disciplined execution and efficiency improvements that lay the groundwork for durable profitability. Importantly, this translated into an all-time high for quarterly earnings per share. At the heart of Domo's opportunity is an innovative cloud-native platform, which is already driving nearly $300 million in recurring revenue. Our platform is well positioned to benefit from the rapid adoption of AI in the market. While Domo is often viewed as just a dashboarding or reporting tool, to be frank, that is laughable. In reality, Domo is a modern AI-first data platform designed for today's enterprise challenges. Domo's platform was built with AI in mind from day 1. Our very first product X 15 years ago highlighted machine learning and predictive modeling capabilities and AI-informed apps, the early predecessors to today's AI. This long-term vision has guided our architecture and investment decisions, ensuring we're not just reacting to AI trends, but enabling our customers to harness these powerful technologies at scale. The next wave of enterprise AI will be less about models and more about coordinating data decisions and workflows. What makes Domo different is that our platform doesn't stop at insight. It unifies data, provides AI-driven intelligence via our AI service layer and with Agent Catalyst enables agentic workflows in a single system, allowing organizations to move from analysis to automated action without stitching together disconnected tools. One innovation I'm particularly excited about is App Catalyst, our AI-powered app builder that allows customers to quickly create production-ready governed applications simply by describing what they need in natural language. Unlike early AI tools focused just on rapid code generation, App Catalyst provides a secure, scalable foundation that connects directly to customers' existing data platforms without duplication. It gives teams true optionality to build, iterate and extend applications for real-world enterprise use, and it's poised to be a significant driver of increased consumption and deeper adoption. Put simply, Domo is far more than just a BI tool. It's a strategic data and AI platform built for the demands of modern business. The growing need for AI is clear. The topic is coming up on nearly 70% of our calls with current and prospective customers. As companies across industries push to embed AI at the core of their operations, they need a platform that scales, is governed and stays secure and can grow as their AI ambitions do. We believe Domo is the platform that can deliver on these ambitions, turning complex data into clear, actionable intelligence and making it easy for customers to apply AI across immense amounts of data to quickly generate summaries, sentiment analysis and many other use cases. That's why we see significant opportunity ahead and why we firmly believe the market has yet to recognize the full value of our platform and ecosystem are delivering. Our customers aren't just experimenting with AI. They're driving real large-scale production deployments, and the impact is already visible. Here are 15 examples of AI agents that are actively being deployed in Domo's customer base. This is a small sampling. One, a national restaurant brand worked with Domo to deploy an AI-powered vendor onboarding workflow that automatically scans W9 documents, extracts key information from unstructured files, validates vendor records against internal data and routes approvals via a governed audit trail. This end-to-end automation replaced a fully manual process, drastically reducing administrative hours while enhancing compliance and control. Two, a leading global home improvement retailer is deploying an AI-powered product sign-off workflow to replace a traditionally manual approval process that took weeks or months. Using Domo, an AI agent analyzes product specifications, customer sentiment, imagery and testing data to evaluate market readiness. This scalable solution expands product reviews from dozens to thousands annually, accelerating innovation while reducing risks of recalls, rework and legal exposure. It integrates governed data, external sentiment and custom apps with a unified platform to operationalize AI at an enterprise scale. Three, a global financial services organization deployed an AI-driven invoice processing workflow to replace a manual e-mail-based system. Using Domo, coordinated AI agents automatically ingest invoices, determine extraction methods, translate content when needed and extract key financial data. The system routes information into accounting and management review processes, reducing delays, errors and providing scalable global operational visibility through governed AI orchestration. Four, a global customer experience provider deployed a Domo-hosted AI knowledge assistant that gives employees a single interface to answer operational and platform questions without navigating multiple systems or submitting tickets. The solution searches internal documents and secondary knowledge bases using confidence scoring to ensure accurate responses. By combining documents -- by combining document retrieval, text generation and text to SQL within governed workflows, it delivers faster answers and reduces manual support efforts. Continuous feedback logging ensures ongoing improvement at scale. Five, a global private aviation company is developing an AI-powered executive flight deck that provides leadership with real-time visibility into sales, lead generation, operational margins and client experience, eliminating the need for analysts to interpret data. This custom Domo application combines live KPI dashboards with AI-generated insights that explain trends and context dynamically, helping executives quickly understand performance and make informed decisions. Six, a national compliance technology provider is developing an AI-driven reporting system for state emissions inspection programs to automate the creation of 17 regulatory appendix reports. Previously, manually compiled into massive static files, the new Domo-powered pro-code solution uses specialized AI agents to generate interactive report tables in smaller, more easily distributed PDFs. This deployment demonstrates how governed orchestrated AI agents accelerate production-grade application development while enhancing transparency and efficiency in regulated public sector programs. Seven, a global pharmaceutical company deployed an AI-powered analytics agent that automatically generates monthly insights across marketing spend, brands and channels. Previously relying on manual agency reports, the AI agent scans governed marketing data to identify campaign trends and spend allocation, enabling faster data-driven decisions and reducing costs. Eight, a large industrial manufacturer deployed a Domo-powered operations app that automates welding job assignments across its production floor. The system analyzes job requirements, worker certifications and capacity constraints to dynamically schedule tasks, ensuring qualified welders are matched to the right jobs at the right time. This improves production flow and provides supervisors with real-time visibility into workforce capacity and scheduling. Nine, a luxury home goods brand deployed an AI-powered returns categorization engine that automatically classifies 100 to 200 daily product returns, analyzing unstructured customer feedback and mapping issues like size, quality and comfort into a standardized taxonomy. The AI agent assigns confidence scores and routes uncertain cases for human review, continuously improving accuracy. Operating at over 95% validated accuracy, the system delivers scalable insights into product quality and customer sentiment, enabling faster quality alerts and smarter product decisions. Ten, a K-12 education technology provider is developing an AI-driven reporting engine that enables educators to generate up to 100 professional student reports at once. Previously constrained by manual one-at-a-time downloads with inconsistent formatting, this Domo-powered solution integrates student data from Snowflake and delivers well-formatted consistent reports asynchronously. This scalable workflow improves educator efficiency and strengthens the customer's long-term investment in the platform. Eleven, a global workforce management platform serving enterprise retailers partnered with Domo to build an automated multi-environment deployment pipeline powered by Domo APIs and Agentic AI. What once required multiple engineering sprints was delivered in days through human AI collaboration, enabling automated promotion of code and assets across development, QA and production with built-in version control and rollback safeguards. The solution accelerates development cycles and maintains enterprise-grade governance, providing a scalable foundation for faster innovation and reduced operational overhead. Twelve. A national funeral services operator partnered with Domo to replace a manual spreadsheet-based bonus process with a governed enterprise application largely built through Agentic AI code generation. The solution provides multilevel approvals, real-time budget controls, payroll exports and immutable audit trails within a single workflow. By leveraging human AI collaboration, development time was reduced by an estimated 60% to 70%, resulting in a scalable compliance-ready application that accelerates time to value. Thirteen. A national behavioral health organization deployed an AI-powered contract intelligence system to replace a manual process for reviewing and tracking hundreds of complex agreements. The AI agent automatically ingests contracts, extracts key data and monitors critical milestones like renewals and expirations. A conversational interface enables natural language queries, providing faster access to important information, reducing administrative burden and enhancing compliance visibility across the organization. Fourteen, a global accounts receivable firm deployed an AI-powered skip tracing agent to automate the research process that prepares collection agents before contacting debtors. Previously relying on manual searches across business ratings, websites and regulatory filings, the AI agent now compiles and structures enriched business intelligence from multiple sources based on company identifiers. This solution dramatically reduces research time per account and improves agent preparedness and call effectiveness, transforming a manual bottleneck into a scalable intelligence-driven workflow. Fifteen, a national wealth management platform is developing a self-learning AI system to automate user provisioning and eliminate manual onboarding delays. The AI agent analyzes job titles from identify -- identity management data, classifies users into appropriate access rules with confidence scoring and continuously refines its logic as data evolves. Low confidence cases and sensitive financial access requests are routed through human approval to ensure compliance. This solution aims to reduce manual provisioning by up to 75%, improving operational efficiency and platform adoption across thousands upon thousands of employees. Clearly, the vision for Domo is coming to fruition, and we're just getting started. Domo has also garnered significant recognition from industry analysts and the media, further validating our leadership position in the data and AI space. Most notably, Domo was recognized by Dresner Advisory Services as a winner in 6 categories of the 2025 Technology Innovation Awards, including several categories related to Agentic AI. In addition, Domo was recognized as an overall leader in ISG's AI Analytics Buyers Guide 2025 Market Report. Domo announced that it was ranked as a top vendor in Dresner's Wisdom of the Crowds Analytical Data Report. This recognition reinforces what we consistently hear from customers that Domo is delivering a modern unified platform that bridges data, analytics, AI and action in a way that drives measurable business impact. Before we move on, I would like to invite all of our customers and strategic partners, current and prospective to join us at the upcoming Domopalooza user conference. It's an excellent chance to connect and explore the latest innovations across the Domo platform. Finally, thank you to our employees whose dedication and passion fuel everything we do. I'm proud of what we're achieving together. And with that, I'll hand the call over to our Chief Financial Officer, Tod Crane. Tod Crane: Thanks, Josh, and thanks, everyone, for joining us today. We delivered strong financial results in Q4, exceeding our billings guidance with our highest ever result of $111.2 million, representing year-over-year growth of 8%, the highest we've seen in 3 years. For the full fiscal year, we achieved billings of $318.7 million, representing a 3% increase over the prior year, marking our first full year billings growth since fiscal '23. Our gross retention rate improved to over 88%, marking the highest level in 12 quarters and reflects the strength of our customer relationships as well as the progress we've made on moving to a consumption pricing model, expanding our ecosystem partnerships and landing more multiyear contracts. ARR net retention was over 96%, up sequentially for the sixth straight quarter and a year-over-year improvement of over 4 percentage points. One of the key factors contributing to this improvement is the retention profile of customers on the consumption model, which continues to be well above that of our seat-based customers. ARR net retention for the customer cohort that began on consumption continues to be well above 100%, coming in at 111% in Q4. One of our most significant achievements in the past few years has been the monumental effort of moving from a traditional seat-based model to a consumption-based model. We ended fiscal '26 with 84% of our annual recurring revenue on consumption pricing, a major accomplishment. Now that we have the vast majority of our ARR on consumption, we will no longer be providing regular updates on this metric. Our operating margin for the quarter was a record high 10%, which contributed to the highest full year operating margin in company history at over 6%. We also achieved our best ever EPS result, which was the third consecutive quarter of positive EPS and led to our strongest full year EPS to date. Adjusted free cash flow for the full year was near breakeven, an improvement of over $12 million from the prior year, representing our best ever full year cash flow result. These results reinforce our ongoing commitment to operational efficiency. Turning to our recurring revenue metrics. Current subscription RPO grew 1% year-over-year to $227 million and our total subscription RPO grew 8% to $437.9 million. This growth underscores the strength of our customer relationships, highlighted by the prevalence of multiyear contracts and the longest average contract duration we've ever seen. Total revenue was above the high end of our guidance range at $79.6 million. Gross margin was 78.2%, an improvement of over 2 percentage points year-over-year. Over the near term, our gross margins may fluctuate from period to period but as we drive more consumption revenue, we expect gross margin to improve over the long term. Our non-GAAP net income was $1.2 million and non-GAAP diluted net income per share was $0.03 based on 44.4 million diluted weighted average shares outstanding. We've made great progress on delivering profitable growth and we continue to carefully evaluate opportunities to improve efficiencies within our go-to-market operations. Our goal is to optimize spend thoughtfully while continuing to invest in key growth areas such as AI innovation and ecosystem partnerships. Internally, AI is playing a significant role in boosting our engineering productivity. During the month of February, nearly 30% of our entire code base was edited using AI, and many of our engineers report that they are increasingly interacting with AI-driven interfaces at times going weeks without opening traditional code editing tools. We plan to continue leaning in on internal AI use cases across all areas of the business to optimize productivity. Given the ongoing evaluation of strategic alternatives, we will not be providing specific forward-looking guidance at this time. That said, to provide some high-level color on the upcoming fiscal year, we expect GAAP revenue to remain relatively flat, modest improvement in non-GAAP EPS and positive adjusted free cash flow. In closing, we finished Q4 with the highest quarterly billings ever, the strongest gross retention in 3 years, the highest operating margin and EPS ever and record full year free cash flow. Our focus remains on executing our strategy, supporting our customers and partners and positioning Domo for sustained success. With that, we will open the call for questions. Operator? Operator: [Operator Instructions] Our first question is from Derrick Wood with TD Cowen. Cole Erskine: This is Cole Erskine on for Derrick. Josh, I'll start with you. Can you just talk about what you're seeing out there in the competitive environment and if there's been any changes in win rates versus competitors? Joshua James: Yes. I think the biggest thing that we're seeing is just how much our customers are talking to us about AI and agentic opportunities. I think it's gone from vibe coding is cool to how do we implement actual solutions inside the organization that are governed, that have the security that we need and that can be distributed in a responsible manner. And that highlights the platform that we have. So that's probably the biggest thing that we've seen. In addition to that, definitely, we continue to be embraced by the ecosystem. So I would say all of our ecosystem partners, we have a better relationship, substantially better relationship with them than we did 6 months ago even. Their field sales are getting to know us. We've got a better brand with those sales organizations and we're getting more introductions to their customers. Just recently with a big Snowflake customer, they were trying to figure out how to roll out an agentic solution and they were struggling to get it done in the speed that they wanted to, and they came to us and actually, Snowflake came to us, and we went in jointly, and now we're developing a solution for them on the Domo platform in a very rapid pace. So it's just exciting to be embraced by the ecosystem, and we think that we're set up to finally start to see some of these investments that we've made into the ecosystem start to pay off this year. Cole Erskine: Super helpful. And then, Tod, just a follow-up. I know you guys aren't guiding for next year, but would love a little bit of color on where gross retention and NRR could go by the end of the year, some solid progress this year, but just wondering how that shapes out next year? Tod Crane: Yes. Thanks for the question, Cole. Yes, as we look ahead, really encouraged by the net retention rate we saw with our consumption customers this quarter. And as that -- we continue to get further and further into that customer base, and we have more time for them to be part of our adoption motion and get more technical people in front of them. We expect that things are going to gravitate upward towards that level. So it's that -- it's consumption, it's adoption. It's also as we go in more hand-in-hand with the CDW partners going in the front door with the CIO and being part of the global data strategy for the company, that continues to really help and bolster our efforts with our customers and being -- having much stickier implementations with those customers. And then the multiyear contracts as well, right? We've continued to make a lot of progress there. And as we continue to work on extending those contracts out, that's going to all contribute towards things being up and to the right with retention. Operator: Our next question is from Brett Huff with Stephens. Brett Huff: I'm sorry about that. Can you guys hear me now? Operator: Yes. Brett Huff: Congrats on a nice quarter. Two quick questions for me. Josh, you talked a lot about some of the things that differentiate what you all are doing versus competitors. And it sounded like one of those -- a big one was time to value and another big one was your ability maybe leaning on your ETL routes to sort of be already a central data hub. In the data right and difficulty sort of getting these tools to produce an actual real result has been a big kind of stoppage in AI. Are you seeing and hearing that? Is that why you're winning? What is the dialogue around that? Joshua James: Yes, that is why we're winning. The fact that it is a platform. People are -- they are vibe coding or they're coming up with these ideas that they think may be achievable now. But the implementation of those ideas is where the rubber hits the road, and that's where Domo really excels. So whether it's hydrating somebody's cloud data warehouse for our partners or stitching together data that they already have, being able to do that in an environment where they also can pull in any LLM model that they want and then having all the workflow capabilities that we had before AI became a thing. Just having all that functionality in one platform is something that does help us stand apart because the time to value, as you pointed out, is dramatically different than elsewhere. And so we're seeing that with our CDW partners, their customers were being brought into those deals and their customers see us as a way to be able to implement and create these agentic solutions that deliver the value that they've always been trying to get out of all the investments they've made into storing their data and organizing their data, putting it in an environment where it could actually be utilized. And this is the win that you get out of all that work. And we're seeing that with even a top 5 customer of ours for a long time had been resistant to looking at some of our pro-code apps and literally, over the weekend, one of our representatives that was working with them finally convinced them to let him go and create something over the weekend that they would take a look at. And literally, over the weekend, he created something that for several million dollar account for us. They looked at it on Monday. We're so ecstatic about it that they started rolling out many pro-code apps and agentic solutions that have made it all the way up to the CEO in that organization, dramatically changing our relationship in a place where we already had a good relationship, but it's just dramatically heightened at this point. So it's really fun to see the time to value. It's fun to create all these solutions. These solutions, we don't go and charge for the creation of the app. We go and it's a consumption business. So as these customers become familiar with the agentic solutions they can build and that we can build for them and that our partners can build for them and that they can build themselves, as they go and make one, they end up making 10, 20. And each one of those drives consumption of our products. So we're excited to see the lift that comes over the next 24 months as our customers roll these things out and become more and more familiar with what our platform can do for them. Brett Huff: That's super helpful. And then, Tod, maybe one for you. Last quarter, you mentioned that the sales cycles were getting longer, and I don't think we were surprised by that just given there's more hoops to jump through now that you're talking to more C-suite folks in a much larger sort of use case. Can you talk about that dynamic? Maybe it's still occurring, but are you getting some value maybe quicker as well? Or tell us the pros and cons of the puts and takes on that trend. Tod Crane: Yes. As we discussed last quarter, we had some deals sort of elongate a little bit and had some timing where we fell a little bit short of our billings guidance last quarter. But as we talked about, those closed early in this quarter, which gave us a nice leg up, and we were glad to see that momentum continue throughout the quarter and be able to deliver a nice billings beat. But in terms of the overall trend with these partner deals, it's a mix, right? There's some that are taking longer because we're part of that global data conversation, and it's a good thing in the end, but there's also deals that are coming through really quickly. And we've got -- actually got RJ here, our CRO, and he's got some other thoughts that he can add here. RJ Tracy: Yes. And we're making good progress on just figuring out these deals with the different ecosystem partners. And early on, we were focused more on new logo deals. They were a lot more willing to bring us into some of the new logo opportunities. And we were figuring out our motion there, and they still have to buy the warehouse partner and they've got to buy Domo. And so those deals do take a little bit longer. And now we're starting to see more introductions into their current customer base as well, and those deals seem to happen quite a bit faster. So I think we'll see, hopefully, that mix overall come down. And overall, making really good progress, and we're excited about what we're seeing with the different ecosystem partners that we're selling with them. Operator: Our next question is from Patrick Walravens with Citizens Bank. Aaron Kimson: This is Kimson on for Patrick. So it's my understanding that if a customer has committed spend with one of your partners, they can spend those credits on Domo through that partner's marketplace. Josh, you mentioned a few customers that you guys won this quarter. I'd love for a little color on if any of those use that sort of mechanism or what you're seeing broadly across your customer wins in relation to that metric? Joshua James: Yes, I'm going to let RJ take this one. RJ Tracy: Yes. So we saw in Q4, probably one of our largest quarters of customers using those MCD funds to purchase Domo. And it's a really good spot to be in. We've had customers even in the last couple of months where in talking with them, they're like, "Hey, we may only renew 1 year with you guys. And we get into the discussion further and it's because, oh, we're a Google shop or we're an Amazon shop or we're a Snowflake shop. And now being able to come to the table with those partnerships, we had 2 in particular that were pretty large opportunities for us. And instead of doing a 1-year renewal and potentially leaving us after a year, it turned into -- both of them turned into 3-year renewals with upsells, and we're now growing those accounts because we're part of the overall data strategy. It's budget that's already been spent. These customers don't have to go get the new budget. They don't have to go find more funds. They can just pay for the Domo contract, we upload it to the marketplace and then we get paid from the vendor. And so it's been an awesome motion for us. And I know there's a lot of deals out there in the past that we've lost strictly because they couldn't use those MCD funds to purchase, and it was a much easier effort to just use those funds with other vendors. And now we're part of those purchasing decisions. So... Operator: Our next question is from Lucky Schreiner with D.A. Davidson. Lucky Schreiner: Great. Congrats on the quarter. I wanted to ask on the improvement in consumption customer net retention that was quite significant in the quarter. Can you maybe provide a little more detail into what drove that rise in usage? And should we expect this metric to remain pretty volatile moving forward? Joshua James: Yes. I mean we continue to expand our adoption efforts with these customers. And every quarter that goes by, we get more time under our belt, kind of refining the model and refining the interface that we have with those accounts. So I'd say just generally across the Board, we're working to get technical resources in front of these customers, help them solve problems, help them stand up new use cases. We're working on getting more of our Agentic AI capabilities front and center with customers as well and getting some of those stood up. So it's really a combination of factors. And then just the ability for customers on the consumption model to be able to go and explore different components of the platform. They don't have to commit to a big upfront spend to go try some of our premium functionality. They can go and stand up a couple of workflows or stand up a couple of AI models and try some of our sentiment analysis, summarization that's really easy for nontechnical users to do inside the platform. And if they like it, they can lean in and do even more. So yes, no, as we continue to expand these motions, we expect that there's upside to those numbers that we've been reporting for that cohort. Lucky Schreiner: Got it. Makes a lot of sense. Last question for me then. It sounds like the business is trending really well. You had strong billings growth and retention is improving. But you still expect GAAP revenue to remain flat. So maybe can you help us understand some of the assumptions going into that outlook for the year? Joshua James: Yes. The way that our consumption contracts are structured, we still recognize revenue evenly over the contract period. So that makes revenue more of a lagging indicator. So it's kind of -- it roughly follows the trend in the previous year billings. It just takes a little bit longer for that revenue number to move. Operator: Our next question is from Max Michaelis with Lake Street Capital Markets. Maxwell Michaelis: Just one for me. I want to go back to the consumption model and some of the customers on that. I'm not sure when the renewal cycle for the first customer contract is up, but I was wondering if you can give us an idea on some of the volume that these customers are using and maybe they're increasing their usage with Domo and maybe percentages around customers that have increased the consumption that they began on and now where they're at now, that they've increased that [indiscernible]? Joshua James: Yes. I think the net revenue retention numbers we reported the last few quarters for that cohort that started on consumption is a really good indication of that level of expansion, right? We were well over 110% this quarter. Yes. So I mean, as we continue to -- again, as we continue to work on our motion there, I think there's upside to that. The other metrics that we talked about last quarter, we gave some usage metrics. We continue to see monthly active users up pretty significantly over the last couple of years. We look at that trend with across our data set, our ingestion capabilities, our ETL capabilities, our AI capabilities and across the Board, it's up and to the right in terms of the number of users that are using our functionality. So it's just great to see that our thesis with the consumption model and enabling our customers to more easily go explore the platform is playing out like we expected it to. Operator: With no further questions, we would like to just give final chance to re-prompt [Operator Instructions] We will just pause for a brief moment to see if there's any final questions.
Operator: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Nature's Sunshine's financial results for the fourth quarter and full year ended December 31, 2025. Joining us today are Nature's Sunshine's CEO, Ken Romanzi; CFO, Shane Jones; and General Counsel, Nate Brower. Following their remarks, we'll open the call for analyst questions. Before we go further, I would like to turn the call over to Mr. Brower as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Nate, please go ahead. Nathan Brower: Thank you. Good afternoon, and thanks for joining our conference call to discuss our fourth quarter and full year 2025 financial results. I'd like to remind everyone that this call is available for replay by telephonic dial-in through March 24 and by a live webcast that will be posted on the Investor Relations portion of our website at ir.naturesunshine.com. The information on this call contains forward-looking statements. These statements are often characterized by terminologies such as believe, hope, may, anticipate, expect, will and other similar expressions. Forward-looking statements are not guarantees of future performance, and the actual results may be materially different from the results implied by forward-looking statements. Factors that could cause results to differ materially from those implied herein include, but are not limited to, those factors disclosed in the company's annual report on Form 10-K under the risk -- under the caption Risk Factors and other reports filed with the Securities and Exchange Commission. The information on this call speaks only as of today's date, and the company disclaims any duty to update the information provided herein. Now I would like to turn the call over to the CEO of Nature's Sunshine, Ken Romanzi. Ken? Kenneth Romanzi: Thank you, Nate, and good afternoon, everyone. Thank you for joining our fourth quarter and full year 2025 earnings call. I've now been at Nature's Sunshine for 131 days, and I am even more delighted to be here than when I last spoke to you on our third quarter earnings call on November 6 of last year. Nature's Sunshine delivered another terrific quarter, growing sales 5% and EBITDA 10% by continuing to execute against its key drivers of success, leading to its highest annual sales level ever. But I'm most pleased by what I have found in this great company over the past 3 months. Simply put, I love what I see. 2 very strong brands steeped in heritage and quality, Nature's Sunshine and Synergy, operating in the large global and rapidly growing category of natural health supplements. A globally diverse business operating in over 40 countries around the world. Exceptional product development capabilities. Sourcing and blending hundreds of Nature's best ingredients from around the world and scientifically verifying their effectiveness. An army of independent consultants passionately representing our products every day to consumers all over the world. A rapidly growing digital business penetrating new channels driven by a subscription strategy that enables consistent recurring revenue streams. A rock-solid solid balance sheet with nearly $100 million in cash and no debt. And last but not least, a passionate, mission-driven organization dedicated to elevating people's lives globally through improving their health and economic well-being while delivering industry-leading results for our shareholders. Suffice to say, I see so much to build upon at Nature's Sunshine, and I believe we can drive even more accelerated growth going forward. I will share an outline for the future of Nature's Sunshine after our CFO, Shane Jones, provides the details of our strong fourth quarter performance. Shane? Shane Jones: Thank you, Ken. We are pleased to report another outstanding quarter with strong growth across North America and Europe. This growth continues to be bolstered by our expansion into new digital channels, strong adoption of our subscription auto-ship programs, exceptional new customer acquisitions and strong partnerships with our independent consultants across the globe. Our efforts to modernize the business expand digital capabilities and strengthen customer and consultant engagement continue to pay big dividends. Now diving into specific financial performance. Net sales in the fourth quarter were $123.8 million, representing our second largest quarter in company history and our strongest fourth quarter ever. This represents a 5% increase versus $118.2 million in the year ago quarter or a 4% increase excluding the impact of foreign exchange rates. Growth was driven by continued acceleration in both North America and Europe. Net sales for the full year 2025 finished at $480.1 million, our best year ever and slightly higher than the high end of our most recent guidance range. This compares to $454.4 million of net sales in 2024 and represents 6% year-over-year growth or 5% excluding the impact of foreign exchange. These results reinforce the traction we're seeing from our digital and other transformation initiatives, the strength of our product portfolio manufactured in-house with the very highest quality ingredients and the power of our passionate and knowledgeable independent consultants. Looking at our results in more detail, let's start with regional performance. In North America, we continue to see building momentum as digital accelerates while maintaining our core business of specialty retailers, practitioners, affiliates and independent consultants. Q4 sales grew 6% year-over-year to $37.4 million. We're particularly excited about the strength in our digital business, which continued to show exceptional growth in Q4, increasing 47% versus prior year. Our work to move to an improved platform, leverage digital tools, optimize our digital marketing, enhance the customer experience and increase lifetime value continues to pay off, evidenced by our -- by very robust growth in new customers coupled with better retention and frequency from returning customers. Similar to what we reported in Q3, during Q4, we saw new digital customers nearly double compared to the prior year. We're also pleased to see very strong adoption of our subscription auto program. This program provides the strongest value proposition for the consumer while improving consistent use to ensure the very best results for improved health. It also promotes increased frequency and retention and provides the company with a predictable recurring revenue stream. In Q4, digital subscriptions coming through our website increased 260 basis points versus prior year to 47% of revenue. And subscription auto-ship on TikTok, which only started this past summer, reached 25% of TikTok revenue. Finally, we also continue to make progress with the efficiency of our digital marketing spend, which is resulting in meaningful improvements in customer acquisition cost and enhanced return on ad spend. We are excited to see these fundamentals continue to move in the right direction, validating the strategic investments we are making and strengthening our confidence that we will meet and exceed the goals we have set. As we've said many times, digital momentum is a key component of our broader transformation and represents an important long-term growth lever for our business. As digital continues to see robust growth, we expect continued mid-single-digit revenue growth in North America during 2026. Sales in Asia Pacific declined 1% year-over-year to $55.7 million or a 1% decline on a constant-currency basis. As we highlighted in our discussion last quarter, Q4 was a very difficult compare for APAC as sales increased 21% in constant currency terms during Q4 2024. This performance over that difficult compare was driven by outstanding execution in China and Japan, where sales increased 35% and 21%, respectively, excluding the impact of foreign exchange. We are pleased with the commitment and strong execution from our independent consultants in both markets, which has allowed Japan to sustain 20%-plus growth for 6 consecutive quarters now and has helped to drive the meaningful turnaround in China. In addition to great execution, strong adoption of our subscription auto-ship program also continues to drive meaningful growth along with predictable recurring revenue. We are seeing rapid adoption of this program across all of our markets in APAC. In Japan, subscription auto-ship accounts for nearly half of all sales in that market. We only recently launched the subscription auto-ship program in China during the first half of 2025. Last quarter, we announced that the program already accounted for 12% of sales in Q3. We are pleased to report that subscription auto-ship in China continued to surge in Q4, increasing to 18% of revenue. We are very pleased with the progress being made in APAC and expect continued mid-single-digit growth from this region in the coming year but acknowledge the inherent lumpiness of quarter-to-quarter sales due to the nature of our field activation efforts. We're also pleased with the continued strength in our European business, where Q4 sales increased 18% versus the prior year to $25.2 million or 14% on a constant currency basis. These outstanding results were driven by 23% growth in Eastern Europe in local currency terms. The strength in Eastern Europe has been fueled by improved product availability as we have worked to ensure appropriate in-stock levels of our key products where we see high demand. This improvement was combined with outstanding execution from our independent consultants and some economic stabilization in the region. This remarkable growth is a testament to the perseverance and commitment of our staff in that area, given the continued war in the region. For 2026, we continue -- we expect continued mid-single-digit growth in Europe as well. Now turning to gross margin. We continue to build on the progress we've made over the past several quarters as gross margin increased 55 basis points to 72.5% compared to 72.0% a year ago. This improvement represents the benefit of our ongoing gross margin initiatives and favorable market mix. We've been talking about these margin improvement efforts for some time. These initiatives include renegotiating logistics contracts, better conversion costs through improved manufacturing efficiency, improved sourcing, more disciplined pricing and other cost-saving measures. We're proud of our team's continued efforts to streamline our supply chain and pleased to see the benefit reflected in our results. As we look forward, we anticipate continued modest improvement in gross margin during 2026 but note that some uncertainty remains around the impact of tariffs and inflation. Therefore, gross margins are likely to settle into the upper 72% range during 2026, which represents a significant step up from where we've been historically. Volume incentives as a percentage of net sales were 29.1% compared to 31.1% in the year ago quarter. The decrease was primarily due to the strong growth in our digital business as well as changes in market mix. Selling, general and administrative expenses during the fourth quarter were $48.4 million compared to $43.7 million in the year ago quarter. As a percentage of net sales, SG&A expenses were 39.1% for the fourth quarter compared to 35.7% a year ago. The $4.7 million increase versus prior year was primarily related to digital ad spend, variable costs associated with the sales increase and nonrecurring expenses. The decision to increase digital ad spend during Q4 was based upon the opportunity for very strong customer acquisition at a favorable customer acquisition cost. Looking forward to 2026, we expect quarterly SG&A of $46 million to $48 million. Operating income increased to $5.3 million or 4.3% of net sales compared to $4.6 million or 3.8% of net sales in the year ago quarter. GAAP net income attributable to common shareholders for the fourth quarter was $4.1 million or $0.23 per diluted common share compared to a loss of $0.3 million or $0.02 per diluted common share in the year ago quarter. Adjusted EBITDA, as defined in our earnings release, increased 16% to $11.9 million compared to $10.3 million in the year ago quarter. The increase was primarily driven by the growth in net sales and improvement in gross margin. Adjusted EBITDA for the full year 2025 was $49.4 million, above the high end of our most recent guidance range and representing 22% growth versus 2024. The increase for both the quarter and the full year was driven by the increase in net sales, improved gross margin and cost leverage. Our balance sheet remains clean with cash and cash equivalents of $93.9 million and 0 debt. Inventory increased to $68.3 million at the fourth -- end of the fourth quarter, a $1 million increase versus Q3 as we work to replenish inventory after the robust growth seen in Q3 and Q4. We expect to see a moderate increase in inventory during 2026 to ensure appropriate in-stock levels and fulfill continued strong demand. Net cash provided by operating activities was $35.3 million compared to $25.3 million in the prior year. We repurchased 1.3 million shares for approximately $16.3 million or $12.95 per share during the year ended December 31, 2025, with $17.4 million remaining on our share repurchase program. Looking beyond share repurchases, our healthy capital allocation structure positions us well to continue our digital transformation and other strategic initiatives. Now turning to our 2026 outlook. We expect full year 2026 net sales to range between $500 million and $515 million compared to $480 million for 2025. This equates to year-over-year growth of 4% to 7%. For adjusted EBITDA, we are guiding to a range of $50 million to $54 million, representing year-over-year growth between 1% and 9%. This guidance includes measured investments to improve our technology infrastructure, drive further customer acquisition, advance geographic expansion, expand penetration in existing markets and accelerate product innovation. While these investments will temper our 2026 EBITDA from our consistent double-digit growth rate, we see strong momentum in the business and believe that now is the time to make these key investments in order to position the company for more rapid, sustained growth in 2027 and beyond. Overall, we continue to believe the business is well positioned to capitalize on current opportunities in a growing market and remain very optimistic about our ability to continue to unlock the substantial growth prospects that we see. The strategic initiatives we've been implementing are working, and we're confident in our ability to continue to accelerate growth in sales, profitability and free cash flow. Now I'll turn the time back to Ken for some further commentary. Kenneth Romanzi: Thank you, Shane. Very well done. As I mentioned earlier, I see many opportunities for Nature's Sunshine. To take advantage of those opportunities, we're doubling down in 2026 to make the investments Shane shared with you to accelerate our growth. We're setting a goal of growing Nature's Sunshine to $1 billion in sales with improved profitability along the way. As our plan is still in its early stages, we will present more details of when and how we'll get there in future presentations. But simply put, we expect to accelerate our top line growth ahead of the 4% to 5% we've been growing over the past few years and then leverage that higher growth to improve our bottom line profitability. We're calling our accelerated growth plan Nature's Sunshine vision for growth. The core drivers of our vision for growth include the following 7 elements. One, continued rapid expansion of our digital business into new channels. Two, deeper penetration in our core direct selling markets. Three, expansion -- geographic expansion in new high-value markets. Four, exploring opportunities in retail channels. Five, deepening our consumer relationship with differentiated brand positioning, marketing and product innovation for both Nature's Sunshine and Synergy. Six, leveraging our supply chain for scale efficiencies. And seven searching for complementary accretive M&A opportunities. By executing our vision for growth, we see $1 billion in sales clearly in our grasp. The future has never been brighter for Nature's Sunshine, and I look forward to sharing more about our vision for growth in the near future. Thank you for your time today and your continued support of Nature's Sunshine. I would now like to turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] And your first question comes from the line of Brian Holland from D.A. Davidson. Brian Holland: Congratulations on the strong 2025 results. Maybe just starting, Shane, with the outlook for 2026. You've obviously provided a wider range of outcomes on the EBITDA line than the net sales line. I assume that's fairly straightforward, i.e., obviously you talked about more investment behind advertising, marketing, et cetera, as well as innovation, bringing new products to market, et cetera. So is it as simple as kind of the bottom end of the EBITDA range assumes that those investments don't kind of perform at the level that maybe some of the incremental investment that you put into the business in the second half of 2025 showed? And maybe -- and similarly, maybe just help me understand also the midpoint and the high end of the range, does the midpoint assume that 2026 looks similar to the second half '25? And maybe the high end is better? Just trying to understand what's all in there. Sorry, that was kind of a jumbled one, but... Shane Jones: Yes. No, that's okay, Brian. Yes. No, so absolutely. There's a lot of things that are going into -- obviously into those EBITDA projections that we have out there. One of it, as we talked about, there's still some uncertainty about things like tariffs and inflation. And so at the bottom end, obviously, we've got some bigger impacts from potential inflation increases as well as tariffs this year. We also have the impact then most of our investment -- the investments we're talking about, we're making considerable investments in many different ways as you saw there. Some of those benefit us this year. Many of those -- the real benefit comes in the out years, in '27 and beyond. So that is incorporated into that as well. And then there's also just some macro uncertainty currently in the world with what's happening with current war that's out there and all the implications that, that could have for the consumer, for oil prices, for all of that. We've tried to encompass all of those factors into our guidance. And so that's why you have a little bit bigger range from that $50 million to $54 million. Does that answer your question? Brian Holland: Yes. No, that's extremely helpful. I appreciate it. And then maybe just a good segue into 2026, your comment about some of the uncertainties here. We're 2/3 of the way through 1Q '26. A number of factors both within the past week and maybe even earlier in the quarter to consider. Just any sense about how the consumer -- your core consumer is holding up in some of your strategic initiatives here as we're early in 2026. Any commentary about that relative to how '25 finished off for you? Shane Jones: Yes. We're still seeing very strong consumer demand in our markets. We've talked about some of the demand, like what you saw in Q4 across the digital, places like digital, and China continues to be very, very strong. Japan, and we are seeing no letup in the current quarter from those trends. Brian Holland: And then maybe just to... Kenneth Romanzi: And keep in mind because of the recent issues in the world, that I don't even think they showed up at the gas pump yet. So we haven't seen anything... Shane Jones: Yes. To summarize, we're not seeing anything yet. We're still seeing very strong demand, but who knows? Brian Holland: I appreciate it changes by the day. And then maybe just to finish off on kind of some of the long-term stuff that you teased there, Ken. Maybe first of all, obviously when you -- you guys have really kind of stepped into something here, the digital side with North America, the auto subscribe in China. And I imagine those are things you're going to double down on, obviously, sort of embedded within the outlook for 2026. You're going to continue to lean into some of this. What have you learned about the addressable market for Nature's Sunshine over the past year? Is there any way to quantify the extent to which that's expanded that might inform kind of $1 billion business at some point in the future? I know you haven't pinned down to a time on that. And then maybe just a second one on that. Would that be -- are you assuming the path to $1 billion would be all organic? Or is -- or could M&A be part of that path to $1 billion? And I'll leave it there. Kenneth Romanzi: Yes. Great. Thank you. Well, first of all, what we've seen in the market, this is a big and growing market. And depending on what sources you use, you can look at health and wellness trends, you can look at total supplement trends, you can look at natural supplement trends. There's a lot of different sources and we're honing in on what source we really want to use to kind of measure our market share. But basically, the market's been growing mid-single digits, 5%, 6%. And it's projected to like step up to grow a little bit higher than that, maybe 6% to 7% in what we're measuring in terms of health supplements going forward. Because if you look at health and wellness trends, some of the data includes exercise equipment, weight loss, GLP-1. We're really looking at the supplement market. So it's large. The TAM is huge. And we've looked at market share in some places. And right now, we're looking at per capita consumption, and there's just opportunity everywhere. In some of our strongest markets, we only have like a 2% to 3% share of health supplements. So we just think there's tremendous opportunity to both grow with the market as well as increase market share. In terms of growth going forward, to double the business in 10 years, you got to grow 7% a year. To double a business in 7 years, you got to grow about 10% or 11% a year. So we think that there's strong organic growth, but we also think that new channels and M&A have to play a part in that. So I listed a menu of things. We're not leaving anything unturned. But as we've discussed it with the Board, it depends on how fast we want to get there. We believe there's opportunities in the M&A area because we have capacity in our manufacturing facility. So we can do bolt-on acquisitions and get a lot of variable margin by leveraging our fixed costs in our manufacturing facility as well as perhaps brands that might be able to help us get into other channels. So we have amazing product development. We have 2 brands and we're going to open up our aperture and not be limited by whatever channel we've done in the past. We have so much product development capabilities. We could probably have different products in different channels underneath the brands we already have even before we consider buying anything new. Operator: And your next question comes from the line of Susan Anderson from Canaccord Genuity. Susan Anderson: I guess maybe I kind of wanted to drill down a little bit on the strong digital growth in North America. I guess I'm kind of curious if you're seeing customers come to the site, maybe they were buying your products in another channel or elsewhere, or I guess how are you guys acquiring these customers? And then also when they do go to the site, I guess, are they purchasing any different products you're seeing in other channels? Are they looking for anything different? Or it's kind of basically their interest is very similar to consumers purchasing in another channel. Shane Jones: Great question, Susan. So one of the things that we're starting to really appreciate is this is an ecosystem. As we're opening different channels in digital, all of those digital channels actually are synergistic and feed one another. Let me give you an example. We've been utilizing TikTok lately and have seen tremendous results in customer acquisition there. And we're able to drive new customer acquisition at a CAC that's way lower than anything we've seen in other channels. Those customers come into TikTok, purchase first time on TikTok, but then many times they'll go and then buy something -- and sometimes they don't even buy on TikTok. They'll go to Amazon and they'll buy the product on Amazon, or they might go to our website, or they might even go to one of our independent consultants and actually buy something there. So it is -- and it feeds that way across all of those channels. So I think we're getting to an inflection point where we're starting to see those benefits and starting frankly to understand them well enough to feed them in the right way so that we're utilizing our digital media in the right way to get a very strong return on that. We understand when we acquire a customer how much it costs to acquire that customer and then what we're going to get in the lifetime value of that customer and then just maximizing that, improving retention as we go along the way. So we're excited about what we're seeing because the real fuel here is new customer acquisition, which is coming largely through TikTok, but also through the other channels. But then that overflows into virtually everything else we're doing. Kenneth Romanzi: Yes. And the thing I'd add is that if you think about your own -- you or your own family's purchase behavior, or I just look at our family, we don't shop in just one place. Sometimes we shop in a retail store. Sometimes we get the same item at Amazon. Sometimes we get it directly through a website. Some people come to our website, learn about it, but then they can't avoid free shipping being a Prime member on Amazon, so they go there. We have a great example of this ecosystem that Shane just mentioned. We worked with an influencer on TikTok. And that influencer got really excited about one of the items that I think was #83 in our lineup in North America. It's called lymphatic drainage and lymphatic drainage is a hot health issue right now. We work with this influencer and not only did they sell an amazing amount on TikTok Shop, we sold a lot more on Amazon, a lot more in our nsp.com and then a lot more amongst our independent consultants. So an influencer on TikTok created this unbelievable demand across all of the whole ecosystem. And everybody, every channel benefited from that. So they're not as distinct as we sometimes talk about them because consumers are shopping everywhere every day and they're mixing it up. And it's just the power of if we are where the consumer is, we can benefit from that. And that item drove to be our #1 item last year across the board after being like #83 for years. Susan Anderson: Okay. Great. So it sounds like you guys are definitely acquiring new customers. So I guess as you think about kind of like this plan to accelerate growth to $1 billion and maybe go into some additional channels such as retail, I guess, the thought is that you'll continue to drive new customer acquisition through those new channels. I guess, is there any point where there is risk of kind of cannibalizing the older channels such as some of the partners that you work with and everything? Kenneth Romanzi: Well, one of the ways we can do this is we can do it through product differentiation. So we still want to treat our independent consultants very special. Right now, there's a lot of times where they bring consumers in and then people jump off to Amazon. So that is a little bit of channel conflict, but we believe we have enough products to feed the channel. So if you think about our independent consultant business and direct-to-consumer alone, we've got enough to feed those independently to drive growth because our independent consultants can't sell everything and we can't sell everything DTC. We can't concentrate on the amount of new product activity that we have coming down the pipeline because at some point, you can have too much. So we're fortunate enough to have such a robust pipeline. We're going to be able to start to differentiate and pick our way through to drive growth because I'm not very patient. And when my product development team has a great idea, I'm not going to wait for a channel to be ready. We're going to go find where the consumers are and we'll open up the channels necessary to make sure that we have an outlet for the strong product pipeline we have coming down the road. Susan Anderson: Congrats again on another great quarter. Operator: And at this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Romanzi for closing remarks. Kenneth Romanzi: Well, thank you for your questions. Thank you for your attention. We're really excited, as you can tell, about Nature's Sunshine. I just -- I see these 2 -- both brands, Nature's Sunshine and Synergy, powered by an amazing organization with great product development capabilities. If we just open up our aperture just a little bit to think about being where the consumers are, that lymphatic drainage example is a great one to share with you that if we start to untap that type of potential and not be limited by our channel scope, we really believe we can accelerate the growth. It's not doing the same thing the same way. We're going to take all of the great levers that the team's been working on and replicate that and add a few new levers to accelerate our growth. So we're looking forward to sharing more details of that plan going forward. So thanks so much for your time and attention and your continued support in Nature's Sunshine. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon, everyone, and welcome to loanDepot's Year-end and Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Gerhard Erdelji, Senior Vice President, Investor Relations. Please go ahead. Gerhard Erdelji: Good afternoon, everyone, and thank you for joining our year-end and fourth quarter 2025 earnings call. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements regarding the company's operating and financial performance in future periods. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings release that we issued earlier today, which is available on our website at investors.loandepot.com. Our presentation today contains certain non-GAAP financial measures that we believe provide additional insight into analyzing and benchmarking the performance and value of our business and facilitating company-to-company operating performance comparisons. For more details on these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP measures, please refer to today's earnings release. A webcast and a transcript of this call will be posted on our website after the conclusion of this call. On today's call, we have loanDepot's Founder and Chief Executive Officer, Anthony Hsieh; and Chief Financial Officer, David Hayes They will provide an overview of our quarter as well as our financial and operational results and outlook. We are also joined by Chief Investment Officer, Jeff DerGurahian; and Chief Digital Officer, Dominick Marchetti, to help answer your questions after our prepared remarks. With that, I'll turn things over to Anthony to get us started. Anthony? Anthony Hsieh: Thank you, Gerhard. Hello, everybody. I appreciate everyone joining us on the call today. I am pleased with the early results of our work to increase our scale and market penetration. While the fourth quarter is typically a seasonally slow quarter, we originated the most volume since 2022, gained share in an expanding market and achieved a 71% recapture rate from our in-house servicing platform. These results reflect progress in our return to the core competencies that enable the scaling to become the second largest retailer lender nationally during our first decade. Not only did we fund the largest volume of loan originations since 2022, but we also increased our market share. We expect to continue this trend as the market consolidates and large-scale diversified customer-facing originators like loanDepot benefit. While the third-party origination and MSR markets have consolidated around scale and operating efficiency, the consumer-facing marketplace remains highly fragmented and inefficient. Post financial crisis and Dodd-Frank, no retail lender currently controls more than 5% market share, which presents a significant opportunity for a customer-facing scaled originator. Furthermore, I believe the digital migration of the customer will continue to accelerate, particularly the purchase customer as more digital advancements make the entire home buying process more automated. We believe our assets and strategy provide us with unique competitive advantages to meet the customer as they migrate to a more digital experience as well as consolidating the market fragmentation, leveraging the most differentiated customer acquisition and retention business model in today's marketplace. First, our distribution model consisting of digitally enabled direct-to-consumer nationwide end-market retail and partnership with homebuilders bring new customers into our ecosystem across a diversity of transactions and geographies. Combining these best-in-class origination capabilities, we provide our customers access to purchase, refinance and home equity lending opportunities across market cycles. Second, vertical integration means we control the consumer experience from end to end, turning the flywheel from application to closing to servicing and back again through our industry-leading recapture capabilities, which are enhanced by our technology assets, relentless pursuit of customer service and our nationally recognized brand. Said simply, our primary strategy focuses on being one of the only scaled originators primarily creating and servicing our own customers as opposed to acquiring customers from third parties. As we look ahead with expectation of a larger refinance market, our top-of-the-funnel customer acquisition advantage uniquely positions us to outperform our competition in a rapidly evolving and consolidating marketplace. Behind the scenes, we remain focused on reducing unit costs through operating leverage and automation while investing in our marketing engine to drive more opportunities to the top of the funnel. In terms of innovation, our digital team led by Dom and Sean have made positive impacts by introducing AI capabilities to some of our most repeatable and scalable functions that improve the performance of lead acquisition and conversion, loan officer, CRA management and new underwriting processes. Each of these initiatives are having positive impact on the business with wide user acceptance, including by our customers and should drive positive operating efficiencies as volume increase. I am proud of the work that has been accomplished since my return to a full-time operating role. We are just scratching the surface of what this team can do. As digital migration continues to gain momentum, the company is capable of deploying AI applications directly to consumers will define the productivity and efficiency standards for our industry. We plan to continue investing and growing our top of the funnel customer acquisition and origination capabilities, leveraging our brand and marketing muscle, along with introducing contemporary technologies, including AI, which should lower our costs and increase our operating efficiency. Ultimately, our goals are to deliver profitable market share growth, improve the customer experience, drive customer retention and deliver long-term shareholder value. This is our opportunity and what we are working towards every day. With that, I will now turn the call over to Dave, who will take us through our financial results in more detail. David? David Hayes: Thanks, Anthony, and good afternoon, everyone. For the sake of time, I'll limit my commentary primarily to our fourth quarter results. The fourth quarter reflected the emerging benefits of our investment in technology and operating efficiency during a period of higher volumes. We reported an adjusted net loss of $21 million in the fourth quarter compared to an adjusted net loss of $3 million in the third quarter of 2025 due primarily to lower pull-through weighted gain on sale margin, higher amortization on our MSR portfolio and higher expenses, offset somewhat by higher pull-through weighted lock volume. During the fourth quarter, pull-through weighted lock volume was $7.3 billion, which represented a 4% increase from the prior quarter's volume of $7 billion. Pull-through weighted rate lock volume came in within the guidance we issued last quarter of $6 billion to $8 billion and contributed to adjusted total revenue of $316 million, which compared to $325 million in the third quarter of 2025. Our pull-through weighted gain on sale margin for the fourth quarter came in at 324 basis points at the high end of our guidance range of 300 to 325 basis points, but down compared to 339 basis points in the prior quarter. Our lower gain on sale margin primarily reflected product and loan purpose mix shift. During the fourth quarter, we originated relatively fewer higher-margin second trust deeds and FHA VA loans compared to the third quarter as part of our strategy to capture increased share of refinance volume. This resulted in larger average loan balances, resulting in decreasing our margin percentage. Our loan origination volume was $8.0 billion for the quarter, the highest level of origination since 2022, an increase of 23% from the prior quarter's volume of $6.5 billion. This was also within the guidance we issued last quarter of between $6.5 billion and $8.5 billion. Servicing fee income increased from $112 million in the third quarter of 2025 to $113 million in the fourth quarter of 2025 and primarily reflects an increase in collections due to the growth of the unpaid principal balance of our servicing portfolio. We hedge our servicing portfolio, so we do not record the full impact of the changes in fair value in the results of our operations. We believe this strategy helps protect against volatility in our earnings and liquidity. Our strategy for hedging the servicing portfolio is dynamic, and we adjust our hedge positions in reflection to the changing interest rate environment. Our total expenses for the fourth quarter of 2025 increased by $8 million or 3% from the prior quarter. The primary driver of this increase was due to higher personnel costs. Commissions increased as a result of the higher funded volume and salaries increased primarily due to loan officer hiring and the related operations staff. However, the remaining volume-related marketing and direct origination expenses were lower quarter-over-quarter despite higher volume, reflecting some of the benefits of our investments in process improvements and technology initiatives, including some of the early benefits from the initiatives that Anthony mentioned earlier. Looking ahead to the first quarter, we expect pull-through weighted lock volume of between $7.75 billion and $8.75 billion and origination volume of between $6.75 billion and $7.75 billion. We expect our first quarter pull-through weighted gain on sale margin to be between 270 and 300 basis points. Our guidance reflects market volatility, seasonality in the purchase volume, the affordability and availability of new and resale homes and the level of mortgage interest rates and our strategy of targeting larger average refinance loan balances. Our total expenses are expected to increase in the first quarter, primarily driven by personnel and G&A expenses, somewhat offset by lower volume-related expenses. The increase in personnel and G&A expenses are primarily associated with our investments in growth and the automation and innovation initiatives that Anthony mentioned. We remain focused on our commitment to profitability and continue to work with a discipline to grow revenue and manage costs while maintaining ample cash and a strong balance sheet. We ended the quarter with $337 million in cash, decreasing by $122 million from the third quarter, reflecting the investment in our loan inventory and the full repayment of our outstanding 2025 unsecured notes. During the full year 2025, we made significant year-over-year progress in investing in operating efficiencies that translated to positive financial results for the year. We were able to increase our adjusted revenue by 10% year-over-year while limiting expense growth by less than 1%, which has resulted in shrinking our adjusted net loss by 31%. Thanks to our progress, we are entering 2026 fundamentally a stronger company versus 2025. With that, we're ready to turn it back over to the operator for Q&A. Operator: [Operator Instructions] Your first question is from Madison Suhr with Raymond James. Taylor DeBey: This is Taylor on for Madison. Maybe just to start on your comments around profitable share gains. It was good to see the uptick in market share this quarter. Could you maybe expand on this and share where you're seeing success, whether that's in certain regions or retail direct versus partner channel? And then on the flip side, where you're hoping to see improvement in 2026? Anthony Hsieh: I didn't get the last statement there, Taylor, if you can repeat that. Taylor DeBey: Yes. Just to -- sorry, I don't know if my audio may be bad here, but just to expand on your profitable share gain comments and where you're seeing success, if there's any difference in certain regions or your different channels and then on the flip side, where you're hoping to see improvement in 2026? Anthony Hsieh: Yes, I'll try to tackle that, Taylor. You faded again towards the end there. loanDepot has a diversified retail customer touch model. So just to remind everyone, we have our digital-first direct lending business. We have our in-market retail business, and we have our builder business. So the builder business is predictable and stable, and we are experiencing steady growth. The retail business, in-market business is when we grow by hiring in-market loan officers in each of the local markets that we serve. That business is primarily resale and purchase business. Our direct lending business is where lots of opportunities are available today. We did retrace in the last few years in our market share on the direct lending side. And there are tremendous opportunities for us to rebuild our marketing funnel, our lead management systems, our CRM, our leads scoring system and all of the functionalities that make direct lending functional. Dom and Sean, as they started over the last 6 months or so, have been asked to completely rebuild our lead funnel engine utilizing AI. So there's lots of opportunities for us to continue to push down marketing cost, which is cost per customer acquisition. And we're seeing early wins as our volume and market share on our direct lending channel is starting to improve. There's still lots of work to do, but we're very, very bullish about our ability to penetrate additional market share through our direct lending channel. Taylor DeBey: Got it. All that color is very helpful. And then if I could just squeeze in one more here just on your -- just to get a sense of your 2026 non-volume-related OpEx and profitability expectations. I know you haven't guided for the year, but can you just give us a sense on how you're thinking about the non-volume expense growth in 2026 and how we should think about operating leverage for the business in the next year? David Hayes: Yes. Sure, Taylor, it's David. Yes, I think, generally speaking, as volume grows, you will see the scalable nature of our business given we do have a fixed cost that we get to amortize that incremental revenue over. I think from a year-over-year basis on sort of that non-volume-related growth, you'll see some modest investment into some technology initiatives and innovation initiatives that will help drive the growth for the overall profile of the company. So that's predominantly where you'll see that in. The rest of the expense growth will be volume related in the context of loan officer additions and related operations staff to support that volume. Anthony Hsieh: And I just want to add, Taylor, by saying that as we scale and penetrate profitable market share, which is something that is not foreign to this organization since our inception in 2010, I want to remind everyone that we did grow 38% year-over-year for the first 11 years through profitable market share gains. As we scale up, most of the cost, there will be variable cost as we add on additional personnel for funding of loans at the same time as we achieve AI efficiencies. But most of the fixed cost is pretty much already baked into the year. Operator: Your next question is from Eric Hagen with BTIG. John Davis: Some housekeeping here. The pickup in amortization expense to $52 million in the quarter, is that a good run rate to reflect the expense going forward? Or could we actually see it maybe come back down because rates have moved back the other way even just this quarter? David Hayes: I would say, Eric, there was a pickup in the quarter related to the higher refinance volumes that came in. That was obviously offset by our kind of best-in-class leading recapture rate, but I think they could moderate a little bit into the first quarter, but it really depends on rates on a go-forward basis and where that will go. Eric Hagen: Okay. All right. That's helpful. We're actually pretty intrigued by the level of cash-out refis in the period. Is there some overlap in the borrowers that you originated there where you also own the first lien in your MSR portfolio? And is that just the pickup in cash out refi volume in the period, would you say that's a function of your lead generation or something else? And how does the margin for cash out refis compared to the other products you guys are originating? Anthony Hsieh: Eric, it's Anthony. So we see customers shift over to cash out refinances rather than taking out a HELOC or a closed-end second anytime the 10-year yield or mortgage rates drop. So the good news there is we have the optionality to offer to that customer. And the volume on both sides are actually fairly similar because the CES margin has higher basis points, but lower loan amount. So we are seeing both products shift as mortgage rates do drop or climb back up. Operator: Your next question is from Mikhail Goberman with Citizens JMP. Mikhail Goberman: Just curious if you could maybe delve into a little bit of the thought process of the announcement the other day of getting back into the wholesale lending channel and what kind of volumes if you're targeting in that space over what kind of time frame? And what kind of margins do you expect to see in that space? Anthony Hsieh: So I can talk about the strategies there. So getting back into wholesale, which is a business that we were in previously, is going to allow us to achieve greater scale. It's a third-party origination, as you know. So we do not control the customer experience, but we are and we will be able to utilize the volume to help us create additional operating efficiency. And as we anticipate a volume growth and most likely a refinance volume return, we expect margins to expand, which will make wholesale model much, much more attractive. So we think this is the ideal timing for us to get back into the wholesale model. Mikhail Goberman: All right. Great. And if I could just squeeze in one more. Is there a level of recapture that you guys are targeting? I appreciate the 71% figure for this last quarter. Is there a level you guys targeting going forward? Anthony Hsieh: I think we're always going to be around that level. I think with technology changing and with AI being a better predictor of any customer that potentially could be in the market for an additional refinance, I think that number could go up. But I believe that we are pretty much at the top of the house as far as our recapture percentages. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call back to Anthony Hsieh for closing remarks. Please go ahead. Anthony Hsieh: Well, thank you, everybody. On behalf of Dave, Jeff, Dom and the rest of our team, I want to thank you for joining us today. The pieces are in place. We are executing a bold strategy to compete at the highest levels by returning to our core strength. Our strategy rests on 4 objectives: one, investing in the business through growth, operational efficiency and infrastructure; two, becoming a best-in-class mortgage banker or in other words, find another loan, close it faster, produce it cheaper and maintain superior loan quality. Three, growing profitable market share by hiring and training sales professionals in each of our channels, we plan to grow our origination capacity to capture profitable market share growth across refinance, resale and new home loans. And finally, four, returning to profitability by investing in our origination and new customer acquisition capabilities, growing our servicing portfolio, improving our recapture rates, growing our brand and marketing and increasing our operating leverage. We believe we can return to consistent profitability. This is how we will win. Executing these objectives positions us to create sustainable value for our shareholders while accelerating growth in a competitive landscape. So thanks again, everyone, and I appreciate your support. Bye for now. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to the Kohl's Corporation fourth quarter 2025 earnings conference call. All participants are in a listen-only mode. After the speakers' remarks, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Trevor Novotny, Director of Investor Relations. Thank you. Please go ahead. Thank you. Trevor Novotny: Certain statements made on this call, including those regarding our projected financial results, business outlook, and future initiatives, are forward-looking statements. These statements are based on current expectations and assumptions and are subject to certain risks and uncertainties that could cause Kohl's Corporation’s actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the factors described in Item 1A, Kohl's Corporation’s most recent Annual Report on Form 10-K, and as may be supplemented from time to time in Kohl's Corporation’s other filings with the SEC, all of which are expressly incorporated herein by reference. Forward-looking statements relate to the date initially made and Kohl's Corporation undertakes no obligation to update them. In addition, during this call, we may refer to certain non-GAAP financial measures. Please refer to the cautionary statement and reconciliation of these non-GAAP measures included in the investor presentation filed as an exhibit to our Form 8-Ks as filed with the SEC and available on our investor relations website. Please note that this call will be recorded. However, replays of the call will not be updated, so if you are listening to a replay, it is possible that the information discussed is no longer current, and Kohl's Corporation assumes no obligation to update such information. With me this morning are Michael Bender, our Chief Executive Officer, and Jill Timm, our Chief Financial Officer. I will now turn the call over to Michael. Michael Bender: Thank you, Trevor. Good morning, everyone. Thank you for joining Kohl's Corporation’s fourth quarter earnings call. Before I begin this morning, I want to express my sincere gratitude to the entire Kohl's Corporation team. 2025 was a year of substantial change and notable progress. I appreciate the way our teams adapted and committed to new ways of working. We are ending 2025 in a stronger position than we started, though important work remains ahead of us. Thank you for your continued dedication and belief in Kohl's Corporation. During this transformational time for our business, we are taking a long-term view. We take accountability for our performance each quarter, while making decisions for the long term with the understanding that progress will not be a straight line. Over the past year, our efforts have been focused on resetting our foundation. This focus is intended to stabilize the business and strengthen our operational ability to build for a stronger future. In 2025, we made meaningful progress and this aggregate work has us moving forward in the right way. While we have made progress addressing issues and strengthening areas of our foundation, that work will continue to be the focus for most of 2026. Addressing operational opportunities and modernizing our processes and ways of working is critical for what comes next for Kohl's Corporation. There are no shortcuts. We are confident that the work we are investing in now is essential to improving our business and getting back to growth. During today’s call, we would like to discuss three items with you. First, we will review our fourth quarter performance. Next, I will provide an update on how we will execute against our key initiatives in 2026, and lastly, Jill will give more details on our Q4 financial performance as well as give guidance to 2026. Although we are not pleased with our top-line results in the fourth quarter, as comparable sales decelerated to down 2.8%, we are pleased with our strong inventory discipline and expense management helping to deliver diluted earnings per share of $1.07, well ahead of last year. We also strengthened our balance sheet, ending the year in a strong cash position with no borrowings on our revolver. While not the primary driver of these sales results, severe weather was responsible for about 70 basis points to our comparable sales decline as approximately half of our stores were closed during the winter storms toward January. Beyond the impact of winter storms, we have identified two primary factors impacting our Q4 top-line results. First, we have an opportunity to better execute our fall seasonal business. The softness in this category uncovered some operational opportunities for us regarding our inventory depth and allocation. We did not consistently have the right product in the right quantity in the right places. This issue was outsized in our smaller format stores which meant we were not consistently able to meet the demand in key moments. However, we continued to experience positive growth in our year-round businesses including the emphasis on core basics and essentials, which were not impacted by inventory allocation issues. Second, we needed to offer breakthrough pricing during our key holiday shopping periods to drive more excitement for customers to choose Kohl's Corporation. During the fourth quarter, we lost some competitive ground during high-traffic shopping windows, including Black Friday, Cyber Monday, and the week following Christmas. We know consumers are more value conscious and there is opportunity for us to regain share during these windows through strong promotional statements that better align to our customer needs and priorities. Consistent and differentiated value statements across marketing, in-store, and online will be a catalyst to improve our performance. While acknowledging and addressing these issues from Q4, we remain committed to the path we are on to improve the business. This year, we made significant progress resulting in a 300 basis point improvement in our comparable sales from last year. There were a number of areas that drove progress this year, beginning with our Kohl's card customer who improved 120 basis points from the third quarter, now running down mid-single digits. While this performance is not where we ultimately want it to be, we are encouraged by the significant progress we have made from the first half of the year, where these shoppers declined in the mid-teens. The re-engagement of this shopper is instrumental to Kohl's Corporation’s long-term success as they are the most productive customer we serve. Additionally, we remain pleased with the performance of our non-Kohl's card customers and new customer acquisition. Overall, we are proud of the progress we have made toward re-engaging our Kohl's card customers while continuing to attract and serve new customers. Next, we have made solid progress across our proprietary brand portfolio. Although these brands were down 3% overall in the quarter, our proprietary apparel was flat with the decline primarily driven by our home business. Our juniors business, which grew 8% in the quarter, continues to benefit from investments in our proprietary brand, SO. We are furthest along in our progress with this category as it has faster turns and shorter lead times. We are excited about taking this momentum from the juniors business and expanding the efforts throughout the remainder of the women's category. Petites is another area within women's that continued its great momentum, running up 26% to last year. This category benefited from the in-store presence we built with key proprietary brands LC Lauren Conrad and Simply Vera Vera Wang. Our men's and kids departments also showed strength in proprietary brands, both running positive comps in the fourth quarter. This strength was driven by brands like FLX, Tek Gear, Jumping Beans, and Apartment 9. Our home business underperformed largely due to softness in seasonal decor, particularly within our proprietary brands. We bought too deep, which limited customer choice for the various holiday celebrations. We also have an opportunity to be more competitive by offering better value through sharper price points in key seasonal items. Moving to the remaining lines of business, our accessories business continues to outperform. Our Sephora business grew 2% with comparable sales improving to flat in Q4. This was driven by our expanded holiday gifting sets and continued strength in our fragrance and hair care categories led by brands such as YSL, Valentino, and Paioli. Excluding Sephora, our accessories business increased low single digits led by the expansion of Impulse to nearly all doors in Q3 helping deliver over a 40% comparable sales increase versus last year. We also saw positive performance in our jewelry business with strength in our fashion and bridge jewelry. Our footwear business underperformed the company due to softness in active footwear and boots. We expected our boots business to remain soft in the fourth quarter and proactively reduced our buys based on pricing expectations. The strength in dress and casual footwear across men's and women's businesses partially offset this category softness. Beyond our category performance, it is also important to acknowledge that the consumer is behaving differently in this challenging macroeconomic environment. We know our core low- to middle-income customers continue to face financial pressure and they are seeking value. As we expect this customer behavior to persist, we are adapting our strategies to ensure we are delivering great value to better serve this customer. We have taken immediate action to address the opportunities and to build upon our strengths. As we move into 2026, we will continue to work on our key initiatives. This work is essential for setting up Kohl's Corporation for long-term success and will take time. In 2026, we are committed to continuing the progress we laid out in 2025 and have clear, actionable insights that we can build on. Starting with our first initiative, offering a curated and more balanced assortment that fulfills the needs across all our customers. As we work through our merchandise strategies, our goal is to invest in key styles and categories while reducing redundancy to ensure we have a purpose behind each product and brand. By exiting out of unproductive styles and offerings, we can reinvest into higher turning items to drive a more balanced assortment. In our apparel businesses, we are focused on increasing our investment into our basics, while also right-sizing our assortment offering in trending categories. By strengthening our core apparel business category, we ensure that our customers can consistently rely on us for the essential, high-quality items they need for daily life. In addition to our core business, we continue to find ways to curate our assortment into more fashion and relevant categories such as denim, dress, and activewear. In our women's business, we are broadening our denim assortment with more styles and fit through our key national partners such as Levi's and enhancing proprietary brands such as LC Lauren Conrad and Sonoma. Additionally, we will build on the momentum in juniors by introducing the Office Edit by SO to provide a new compelling assortment in the casual and dress categories. For our men's business, we are investing in the key item programs within proprietary brands such as Tek Gear and Sonoma, and we will expand upon successful brands like FLX with our new offerings of FLX Golf, premium pant, and fleece. In our kids business, we will differentiate with our proprietary brands by introducing merchandising statements and an expanded assortment of under $10 entry price points in SO and Sonoma. We will also expand key brands like Jumping Beans into Baby and FLX Kids to all stores by Q2. Last, we recently launched our new proprietary tween brand, Sea and Sky, in Q1. We are driving the next phase of growth in our Sephora at Kohl's Corporation business by strategically curating an exciting assortment. We successfully launched MAC, a leading makeup brand, in over 850 of our Sephora at Kohl's Corporation stores this month. This launch immediately delivers enhanced newness and a strong value proposition to our customers. Recognizing that newness is vital in the beauty industry, we are also preparing to expand assortment with proven brands like Tarte and Charlotte Tilbury. Additionally, we see further opportunity in 2026 to build on the successful launch of our Impulse initiative. Following the rollout of an Impulse queue line in nearly all of our stores, we have identified more ways to inspire our customers and drive highly incremental, impulsive shopping behaviors. To capitalize on this, we are implementing the Deal Bar and an Impulse toy tower, both of which are specifically designed to offer compelling value on items like seasonal home decor and trending toys with all products priced under $10. We are excited to roll out these offerings this spring to maximize key seasonal moments including Valentine's Day, Easter, and Mother's Day. In footwear, as we transition to spring, we expect our dress, casual, and active categories to gain momentum. We are focused on improving our inventory position and reducing overall choice to deliver better clarity on the sales floor while ensuring greater depth in key styles our customers are seeking. And lastly, in our home category, we will deliver more value through our investment into key proprietary brands such as The Big One, while simultaneously growing newly launched brands such as Mariana, Hotelier, and Mingle & Co. In addition, we will leverage key national brand partners who continue to deliver newness and innovation, including brands like Shark and Ninja. And finally, we are taking immediate action to recapture our seasonal decor business through offering greater customer choice and sharper price points on key items. Our second initiative is our focus on reestablishing Kohl's Corporation as a leader in value and quality. Value continues to be a focus and is especially important given the macroeconomic uncertainty. The majority of our customers are low to middle income. These consumers have been consistently under pressure and are being thoughtful with how they are spending their discretionary income. It is clear that when we offer value, it resonates with this customer. Kohl's Corporation has an opportunity to deliver more consistent, competitive value to all of our customers. In 2025, we took important initial steps to enhance our promotional strategies and increase brand eligibility in our coupons. These actions proved to be a critical first step, resulting in an improved trend particularly among our Kohl's card and loyalty customers. In 2026, our focus remains on building upon the momentum we have established and deepening our commitment to delivering undeniable value to every customer. We are executing a strategy that includes simplifying our promotional statements and deploying more personalized real-time offers. This allows us to be more targeted, rewarding our most loyal and deal-savvy customers while ensuring a compelling value breaks through to a broader customer base. We are also making meaningful investments to amplify our proprietary opening price point brands, which provide exceptional quality at an accessible price. These strategic adjustments will strengthen our competitive position and ensure we deliver incredible value to all customers. A key element of Kohl's Corporation’s value proposition is the power of our high-quality proprietary brands. This year, we are committed to increasing our investment into proprietary brands’ inventory, marketing, and experience. In the women's business, we are excited about the work we are doing to key proprietary brands, LC Lauren Conrad and Tek Gear. In stores, we are elevating the experience to improve findability and inspire our customers. To achieve this, we are adding improved signage for better wayfinding, highlighting key styles with mannequins, and adding “find your fit” communication to better help customers find the product and fit they desire. This experience will be completed with our LC Lauren Conrad brand in Q1, and we will complete the Tek Gear experience in Q2. We are also excited to build off the momentum of another strong proprietary brand in FLX. Last fall, we introduced FLX to our kids category in 300 stores. Currently, we have expanded this to 600 stores in Q1 and expect it to be rolled out in all stores by Q2. In addition to the investment we are making into our proprietary brands’ inventory and experience, we will be supporting them with a new marketing campaign celebrating our “By Kohl's” brands. The “By Kohl's” campaign will put a spotlight on the great brands that customers can find only at Kohl's Corporation. We will focus on several “By Kohl's” brands by highlighting style, quality, fit, and aesthetic. To accomplish this, we will be leveraging our Kohl's mom this spring, utilizing a strong cross-channel campaign, including fun social content, TV, and digital video. We are also creating a landing page on our website and app to better highlight the proprietary brands to our customers. And lastly, our third initiative is delivering a frictionless experience across our omnichannel platforms. A frictionless experience starts with reestablishing trip assurance for our customers. To address this, we are making deliberate changes to both our planning and supply chain process. Specifically, we are committed to investing in depth with plans to increase it in the high single digits while simultaneously curating our choice counts for greater clarity and relevancy. This strategy includes protecting our replenishment receipts and heightening our in-stock levels, all while improving inventory turn to ensure the freshness of receipts. These adjustments are designed to ensure that the right product, with sufficient depth, is available at the optimal time across all our stores. Encouragingly, we are already yielding positive results from the implementation of some of these disciplines. We successfully executed a substantially smoother transition of our spring receipts heading into 2026. Our spring seasonal categories have started strong. To complement our investments in clarity and depth, we are focused on delivering a more consistent shopping experience through improved inventory allocation, which directly strengthens our omnichannel performance. By increasing inventory depth and improving in-stock levels, we are better positioned to leverage our store-enabled fulfillment tools such as BOPIS and BOSS. These omnichannel options provide our customers with greater speed and convenience while allowing us to utilize our ship-from-store capabilities more efficiently. We will continue to refine these tools to ensure a frictionless and reliable experience across all touch points, regardless of how or where our customers choose to shop. In addition to stores, we have an opportunity to modernize our capabilities and enhance our digital experience. We are focused on delivering a better experience and deeper connections through advanced personalization and contextual relevance, making every interaction with Kohl's Corporation more meaningful for the customer. We are enhancing our omnichannel capabilities across all digital touch points such as search, findability, and availability, as well as elevating our store-enabled services as key differentiators to maximize convenience and create the seamless, integrated shopping experience. And last, we are actively modernizing our site structure and foundational data architecture. This ensures our digital ecosystem is discoverable, high-performing, and fully prepared for a future driven by AI and agent technology. Now before I hand the call over to Jill, I would like to reinforce my perspective on the year. We have made meaningful progress in strengthening our foundation. I am confident that we are on the right path. While our fourth quarter results presented clear opportunities, we have already taken immediate action and are poised to build upon the strengths we have established. We are leaving 2025 in a measurably stronger position than when we entered it, and we are unwavering in our commitment to driving continued progressive improvements throughout 2026. I will now turn the call over to Jill. Jill Timm: For today’s call, I will provide additional details on our fourth quarter results and outline our fiscal year 2026 guidance. Net sales declined 3.9% in the quarter and 4% for the year. Comparable sales declined 2.8% in Q4 and declined 3.1% for the year. The decline was primarily driven by a decrease of transactions, specifically in stores. Store sales declined mid-single digits for both the fourth quarter and the full year, primarily due to a decline in transactions. Additionally, as Michael noted, our stores experienced a negative impact in January due to unforeseen weather conditions. Digital sales grew low single digits in the fourth quarter and were flat for the year. This performance was primarily driven by higher traffic, offset by lower conversion. We are pleased to have established a critical point of stability, ending the year flat. However, our goal was to drive more substantial growth in Q4, following the headwinds of the previous year. Our digital business has a higher penetration of our Kohl's charge customer, and although we are seeing improvement in this customer’s performance, it is still down mid-single digits, pressuring our digital business. In addition, we need to further elevate conversion through better availability and findability, which are being addressed through the inventory strategies Michael outlined. Moving down the P&L, Other Revenue, which consists primarily of our credit business, declined 9% to last year in Q4, an improvement from the third quarter driven by better Kohl's card performance. For the full year, Other Revenue declined 10%. As a reminder, at the beginning of the year, we shifted certain credit-related expenses from SG&A against our Other Revenue line. For the upcoming year, we will lap this adjustment so our Other Revenue should normalize and reflect the relative performance of our Kohl's charge customers. Gross margin in Q4 expanded by 25 basis points to 33.1% of sales. This expansion was driven by continued strong inventory management resulting in lower clearance markdowns. This was partially offset by increased cost of shipping as our digital penetration increased 220 basis points to 35% of total sales for the quarter. For the full year, our gross margin expanded by 34 basis points to 37.5% of sales. SG&A expenses decreased $76 million, or 4.9%, in Q4. Excluding the shift of credit-related expenses, SG&A declined 4.1%. The decrease in SG&A was driven by lower store, marketing, and fulfillment-related expenses. For the year, SG&A expenses decreased 4.1%, and excluding the shift of credit-related expenses, SG&A declined 2.8%. Depreciation expense was $174 million in Q4, a decrease of $9 million. For the year, depreciation declined $43 million to $700 million. The decline was mainly driven by closures of stores and one of our e-commerce fulfillment centers last year. Interest expense was $59 million in the fourth quarter and $288 million for 2025. This was a reduction of $15 million for the quarter and $31 million for the full year. The decrease was a result of the execution of an open market debt repurchase at a discount of $11 million in the fourth quarter and lower utilization of the revolver throughout the year. Our tax rate was 18% in Q4 and an adjusted tax rate of 16% for the full year. Adjusted net income in the fourth quarter was $125 million, resulting in adjusted diluted earnings per share of $1.07. Adjusted net income for 2025 was $186 million, or adjusted diluted earnings per share of $1.62. Moving on to the balance sheet and cash flow, we ended the year with $674 million of cash and cash equivalents, an increase of $540 million from 2024. Inventory decreased approximately 7% compared to last year. Our disciplined inventory management has enabled the more timely flow of transitional receipts, positioning us with stronger, fresher spring inventory as we enter 2026. Operating cash flow was $750 million in Q4 and $1.4 billion for the full year, a $700 million increase from 2024. Our capital expenditures were $64 million in Q4 and $372 million for the year. In addition, we achieved our goal of fully exiting the revolver with no borrowings at the end of the year, and we further deleveraged our balance sheet by buying back $87 million of long-term debt at a discount to par value during the quarter. In 2025, we returned $50 million to shareholders through our quarterly dividend. As previously disclosed, the Board, on February 25, declared a quarterly cash dividend of $0.125 per share payable to shareholders on April 1. Now let me provide details on our outlook for 2026. We believe the actions we are taking as well as the strategic initiatives laid out by Michael will allow us to continue making progressive improvements for the business in 2026. Our outlook reflects our confidence in our ability to execute against these initiatives with great discipline while considering the uncertain macroeconomic environment we continue to operate in. We remain cautious as our core low- to middle-income customers remain choiceful with discretionary spending. Our outlook for 2026 is as follows. For the full year, we currently expect net sales and comparable sales to be in the range of a 2% decrease to flat versus 2025, operating margins to be in the range of 2.8% to 3.4%, and earnings per share to be in the range of $1.00 to $1.60 per share. Now let me share some additional guidance details. We expect Other Revenue to be down 4% to 6%. The decrease is due to lower accounts receivable balances driven by sales underperformance in 2025 by our credit customer. Gross margin to be flat to down slightly, driven by increased proprietary brand sales offset by an increase in digital sales and promotional offers as we drive more value for our customers. SG&A dollars to be in the range of down 0.5% to down 1.5%. These savings will be driven by lower store payroll, marketing, and supply chain costs. Depreciation and amortization of $700 million, interest expense of $285 million, and a tax rate of 22%. We will continue to manage inventory tightly and expect inventory to be down low- to mid-single digits, and capital expenditures to be in the range of $350 million to $400 million. As we anticipate the new initiatives to take time to have an impact, we expect sales to build throughout the year. And although we are pleased with our start to Q1, specifically in our spring, seasonal, and year-round businesses, there is a lot of quarters still ahead of us. We expect Q1 comparable sales to be down low single digits with the remaining metrics balanced by quarter. We will now open for questions. As a reminder, to ask a question, please press star followed by the number 1 on your telephone keypad. Our first question comes from Charles P. Grom from Gordon Haskett. Please go ahead. Your line is open. Charles P. Grom: Thanks very much. Can you just talk about the “By Kohl's” campaign that you are going to launch this spring, what it is going to involve, and then laterally, what is your expectation for comps in 2026 amongst your Kohl's cardholder given the recent improvement that you saw in the back half of 2025? Michael Bender: Maybe I will take the first half of the question, Charles, and Jill can handle the second part. As far as the “By Kohl's” campaign, we have actually launched that already, and it is a continuation of our effort to make sure that the power of our proprietary brand portfolio is showcased and emphasized. So there is a marketing element to it that brings some of our most important proprietary brands together like FLX and others. It is also an opportunity for us to continue down the path, as we have been talking to you over the last three to four quarters, about the importance of the proprietary brand portfolio to our customers in general, but in particular to those that are Kohl's card-carrying members. It is a mouthful, sorry. And so it is an important next step for us to be able to showcase those brands in a way that elevates them and allows us to tell stories in an inclusive manner across both of our platforms of stores as well as digital. Jill Timm: In terms of the Kohl's charge holder, you know, obviously, it has continued to lag our performance this year, but showed stepped improvement from down mid-teens to down single digits at the end of the year. I would expect this to continue to improve based on a lot of the efforts that we are putting forth. First, they do over-penetrate in proprietary brands, so as we are making that investment back into those brands, it has resonated with that customer, one, because it provides incredible value. It is opening price point. We also need to restore the trip assurance with this customer, so investing back into depth will help with that as well, so when they come in they can find what they are looking for. A couple other key things that we have done is the coupon eligibility resonated with this customer as well as, as we have bought back into jewelry and petites. So I think you are going to see a build in this customer. It will probably still lag in the front half of the year. I think it will catch up in the back half of the year. The good news is our non-Kohl's charge customer has been running positive, and we continue to see new customer acquisition up as well. So those are definitely driving our business. We just need to get this customer back into parity with our comps, and I think that will happen more in the back half of the year as some of these new strategies start resonating more with that customer. Charles P. Grom: Okay. Great. And then just on the credit revenue line, you are guiding down 4% to 6%. Is there any geographical shift across the P&L that is happening? Or just maybe explain why you expect it to be down? And then just bigger picture, is there a way to size up how much of an impact the shift away from your proprietary brands over the past handful of years has actually had on your credit business given that I believe that the cardholders likely over-index to owned brands versus nationals? Just trying to understand the implications on some from credit because of the shift away from mix in recent years, and I guess the opportunity that that indirectly presents. Jill Timm: Yeah. I would say it is going to lag, so that is why we are down and lagging from a sales perspective. We are coming into the year with less accounts receivable, which is what really generates that interest revenue and the late fee revenue for us. So it is always going to lag. You make your purchase in month one. We do not start billing you till 30 days later. You do not start getting accrued into interest for 30 days, and then it really builds and accumulates. So it is always going to lag top line just given the lag of those purchases. I would agree. As we move into proprietary brands, they definitely over-penetrate into that category. We were really void of an opening price point in our store over the last couple years because we had not invested into proprietary brands, and this customer was finding that value elsewhere. The good news is she continued to shop us. We just got less frequency from this customer. So as we brought back coupons, we have brought back proprietary brands, we are starting to see that reaction to our customer, which is really what is driving that 120 basis point improvement in that comp from Q3 to Q4 and really moving from down mid-teens to down single digits by the end of the year. So big improvement. We continue to expect to see improvement, but it will lag on that credit revenue line just because of how the interest and late fees accrue the balances. Michael Bender: Got it. Charles P. Grom: Thanks a lot. Operator: Our next question comes from Mark R. Altschwager from Baird. Please go ahead. Your line is open. Mark R. Altschwager: Thank you. Good morning. Michael, you outlined several initiatives today. Which of these do you view as the most immediate catalyst for recapturing market share in 2026? Furthermore, how should we think about the scaling here, where these assortment pivots and other initiatives provide enough lift to drive a return to comp growth? Michael Bender: Yes. Thanks for the question, Mark. I would say, just carrying on Jill’s comment around proprietary brands, that has been a significant focus for us in the past, call it, eight to nine months or so in terms of restoring what we believe to be the proper balance. Again, we are not targeting a specific number that we are looking for from a mix perspective, but proprietary brands, for a number of different reasons, are really a focus for us in bringing and restoring the activity that we need with our customer. Jill mentioned the importance of the Kohl's credit card-carrying customer. They index heavily toward proprietary brands, so that will be a big focus for us. I think also beyond that, making sure that the continuation of the brands that we will be pushing forward, both national as well as proprietary, will be a big part of that. Our focus right now also is on making sure that we provide, I will say, maximum value to our customers. And so you are seeing us offer more in the way of, call it, $10 and under items. So look at toys as an example. We have a toy tower that we are rolling out to stores that has price points $4.99, $7.99, $9.99. Then the Deal Bar, which we have recently rolled out as well, which, if you walk into the entry of our store, provides another impulse opportunity and a pickup for customers, beyond what you can see as you are checking out in our queue line. So those are just a couple of examples of where we are focused right now. And more to come. Mark R. Altschwager: Thank you. And Jill, to follow up on the EBIT margin guidance, calling for about 50 basis points of compression at the low end. What specific headwinds are captured in that lower end, that 2.8% floor? What are you incorporating in terms of changes to tariff rates, if any, and just any further color you can provide on the expected cadence for the year on EBIT margin would be helpful. Jill Timm: Yeah. I think the biggest thing from an EBIT is on the down two it is just harder to leverage our SG&A costs just given the fixed-cost nature of our business. So I think we have done a really incredibly good job of bringing down our expenses over the last couple of years. We will continue to operate with that discipline into 2026 as well, but I think it just puts pressure on the EBIT expansion. Obviously, at flat, we are expanding the margin. So I think that shows our discipline in terms of how we are managing expenses, that we are able to have some expansion on the top end of the guidance. From a margin perspective, I think we have managed our tariffs incredibly well. We have actually offset that. So I do want to give a shout out to our sourcing and buying teams on how they have managed this dynamic environment in terms of still being able to expand our margin this year by over 30 basis points and 25 basis points in the fourth quarter. Next year, really, we are going to manage it the same way. So we think we have the right mitigation tactics to manage through tariffs. The big thing that we want to make sure that we are going after is value. We know we serve the middle- to lower-income customer. We know they have to be choiceful with their discretionary spend. And so a lot of what we are talking about today is how we can stand for value, whether that be through our proprietary brand portfolio, through the price points that Michael indicated with the $10 and under, also making sure that we are going to be able to break through with our promotional values as well. We want to give ourselves some room to be able to do that. We know our proprietary brand will be a tailwind in the mix as we definitely move more into sales there. But we also see digital as a growth opportunity. We were happy to get to a point of stability and putting a flat comp for the year, but we really think this can be a growth engine for us as well into 2026, which will then add some pressure to margin. So those are kind of some puts and takes. So margin, I would say, is not going to be a driver of the EBIT expansion, but rather it is going to be around our expense management and then obviously getting to that flat comp allows you to expand it on the top end. Michael Bender: Thank you. Operator: Our next question comes from Robert Drbul from BTIG. Please go ahead. Your line is open. Robert Drbul: Just a couple of questions from me. On the women's business, as you think about this year and I think the progress that you made last year, where are the biggest opportunities ahead? And I guess on the same line of questioning would be just in home, I think you think about what you have learned sort of Q4 in home, soft home, tabletop. Can you just talk through that category as well? And just curious on sort of online versus in-store, how you would merchandise that category? Thanks. Jill Timm: Sure. So from a women's perspective, I would say one big callout is juniors, Robert. It was up 8%, really seeing momentum behind our SO proprietary brand. Which, as you know, juniors is our fastest-turning business. We are probably the most mature in that curve in terms of how we went after our proprietary brand portfolio. So I think that is kind of the litmus test for us and really what we are going to continue to chase after, and that is where women's will continue to lead to. I think there are a couple of opportunities if I think about women's. We are in a denim cycle. So you are going to see us leaning into our proprietary brands LC Lauren Conrad and Sonoma, but also great national brand partners like Levi's. So that is going to be coming to life in our store as well. We know we had a little bit too many choices on our floor, so they are really going to be curating that assortment and putting more depth in so we can be in stock on those basics that we need. We went a little too far, I think, this year into core knits and sweaters, so we know we have an opportunity to curate that better as we get to the back half of the year. I am really excited about our spring seasonal selling. A lot of the changes that we learned from our missteps in fall seasonal, we have corrected, and we are starting to see that momentum as we called out with our spring seasonal businesses, which will only grow in volume as we move into March and April. So we are excited about that opportunity in front of us. So I think that women's really has the right formula from a juniors perspective, and they are going to continue to follow that as we move into the new year. From a home perspective, I think what we learned there was on seasonal decor, people like more choices. And so we went a little too deep in some categories. And we needed to give more choices from that perspective. So they have already corrected from that. We will move into it. So we know as we go into next year, do not go too deep on the Santa Claus and snowman, but have a little bit more array from a choice perspective and then having sharp price points. And so as we think about where we can add more value, particularly as we get into that seasonal business, that is where we will go. So we have a couple of places along the way. We did some small testing in Valentine's Day. See Mother's Day, Father's Day. So we have some moments to make sure we get it right before the big holiday season, but we feel good with the progress that that team has made and the steps they have already taken to correct what we saw during the holiday season. Robert Drbul: I guess, and if I could just ask a follow-up, which would be on the marketing expense, when you think about sort of how you are approaching reengaging with some of your credit customers, but also noncredit customers. Where did you end up in marketing, and can you just talk through the plans for 2026 in terms of, you know, leverage, not leverage, in terms of how much you are going to spend? Thanks. Jill Timm: Sure. I think marketing this year, we end up close to a similar ADAS as last year. Kinda that is my metric for how I look at the productivity. What I would say is we always look at opportunities. That team has done an amazing job of finding productivity and making our working media work harder for us. So it has been a way for us to save some money. However, we spend a lot of time with our Chief Marketing Officer about where and how we can invest back into drive sales. So if we see opportunities, we are definitely making those investments and making sure we get the return back off of the money. So even though there is some savings, I think if you look at that productivity factor, you will see it is pretty in line with where we have been. And it is a place that, if you look at versus where we plan to be, we will tend to invest back into because we know we can get the sales, particularly in digital. It is a very easy way for us to invest in, get some search terms, get some paid traffic in moving our digital business forward, and getting really good ROI out of it. So I think we have a very good system in terms of how we measure marketing, then how we make those investments to make sure we are getting the return back from an organization perspective. Michael Bender: Great. Thank you very much. Operator: Our next question comes from Dana Telsey from Telsey Group. Please go ahead. Your line is open. Dana Telsey: I know you have a very store base related to profitability. How are you thinking of openings and closings this year? And the small-store boxes? What is the game plan and remodels? And then, Michael, as you talked about the initiatives for top line growth, how do you see the framework of the store changing either by category, obviously at the impulse lanes? What does footwear and active mean for you this year? Thank you. Michael Bender: So I will try to take some of those questions. Thanks, Dana. The question around stores, and we have talked about this before, I think we have a store base of 1,150 stores roughly. The vast majority, well over 90%, are profitable. And as we look at that store base on an annual basis, we will continue, from a hygiene perspective, to make sure that we believe that those stores are positioned in the right spot and delivering what we need. So I would not anticipate any sort of grand plan of saying we are taking stores out or adding stores at this point. The focus for us is actually on optimizing what we already have, and we will be focused on making sure that we continue to push the stores’ productivity as far as we can going forward. We will look at stores like we do on an annual basis, like I said, and to the extent that there are opportunities for us to either relocate, those are opportunities for us. We can do that. But no major change in the store base expectation at this point. Jill Timm: I think, if footwear’s doing well from a dress casual perspective, we are seeing some green shoots there, particularly, like, in sandals. We knew boots was going to be tough. We bought that down just given the exposure to tariffs in that category. So that was an anticipated piece. I think the big piece of it for us, as you mentioned from an active perspective, is getting innovation and some movement from an innovation perspective in the footwear business. We have been working really closely with our top three partners. I think we do expect to see some momentum build in that category throughout the year, but I would say we would probably be set better from that perspective for back-to-school into fall, just because of the change that it does take to get there. So I would say, from a footwear perspective, I expect it to probably lag the front half of the year, but by the back half of the year, get back into parity from a comp perspective, just given we do have a big active footwear business and that will take some time to bring that innovation through from that perspective. And then in terms of, I think, your last question, if I wrote it down correctly, was the top-line framework for store changes. I think, you know, we have made some big changes in the last couple years. Obviously, Sephora coming in was a big moment for us. We had some missteps with the jewelry, so bringing jewelry back in, showing that and showcasing that, having accessories have a home behind the Sephora pad, and moving juniors back to the front of the store were some big showcases that we had in 2025. Clearly, putting juniors in the front was working. That cross-shopability with Sephora had persisted and been consistent for us, which is a good thing. Impulse lines and queueing lines have come in. We now have that in all stores, which we finalized at the end of the year. So that was a white space opportunity for us. And you are now going to see gifting zones as well, and those are going to be with the $10 price points. You are going to have more table towers, whether that be impulse, gift deals, and also in toys. And then we did some in-store showcases of our brands. So you will see, if you come in, we are showing more around Lauren Conrad. So you are going to have elevated signing, mannequins, really a much more curated assortment. That should be in stores now. And then Tek Gear will be the secondary brand that we are going to be supporting as well to showcase it. So investing in the proprietary inventory. We are investing in the marketing to build awareness, and we are investing in the in-store experience, as well as you are going to see it on our digital experience as well for the customers to showcase those brands. So really putting our effort behind growing back those proprietary brands which, as we know, provide incredible value and also resonate with that core loyal customer of ours as well. Michael Bender: And, Dana, just to add on to what Jill was saying, what you are hearing her talk about is trying to bring some fun and excitement back to particularly the store environment. So we talked to you before about the storytelling nature of—and what is important in being able to not only curate the right assortment, which is what our customers are asking for, but also do some storytelling. So whether it is the use of mannequins, the way we position an LC Lauren Conrad brand, like Jill just mentioned, in our stores, those are all important aspects of us being able to actually bring some fun back to the Kohl's Corporation environment and make sure that what we are offering is not just an item at a price but also a story around it, so that whether it is the entire outfit that we can display and talk to from a mannequin standpoint, those are the kind of things that are important for us that we think will help enhance the experience in-store for our customers as they engage with us. And then similarly online as well, telling that same story so there is a pull-through of that thread all the way through the experience that a customer can have where they want to engage with us online or in-store or all the different versions in between, like BOPIS and the rest. Operator: Our next question comes from Oliver Chen from TD Cowen. Please go ahead. Your line is open. Oliver Chen: Hi, Michael and Jill. Regarding trip assurance, what is the timing of that happening? And there are some things you can do sooner you have been doing than making happen. But how does it phase in quarterly? And as we also model Other Income, should we know about the comparisons and drivers throughout the year, as in profitability? Your company is quite sensitive to that line. It sounds like a lot is under your control, but what could be risk factors to the upside and downside on Other Income for us to consider? And third, you have been on an inventory management journey for many, many years. I think it is different now, but what is different in terms of breadth versus depth? It sounds like there are some decisions that were made that were self issues in terms of what you are choosing to do with basics and others. Thank you. Michael Bender: Yeah. So on the trip assurance question, Oliver, what I would tell you is that that work is well underway, and we have been focusing on that in large part in 2025 and it will continue into 2026 as well. The whole focus there is our customers count on us to actually have what they are looking for, whether it is online or in-store, particularly in-store. And what we have been doing is curating the assortment to the point where we have the appropriate level of choice and in many cases that means reducing the choice offerings that we have but at the same time actually going deeper on that so that, particularly in the basics area, and that work will continue. Our teams, collectively across the organization, have been working diligently on that over the last several months, and we feel like we are making good progress in that area. Jill, do you want to talk about the income? Jill Timm: Sure. I think when you reference Other Income, you are referencing the Other Revenue, Oliver. But it is going to be about our credit sales, and I think, you know, that is where it is going to ebb and flow. So as I mentioned, coming out of this year we have a lower accounts receivable balance just because it has been lagging. We need to build that back. So the guide of down 4% to down 6% will lag the comp just because of the ways that that build happens, the way that it revolves, and it generates that revenue. So I would say, you know, we are staying down flat to down two. We know our credit card customer needs to continue to improve. I think, you know, we can see that improvement more in the back half of the year, but it will still cause a lag on the Other Revenue line. So I think if you kind of look at that spread that we gave you, it is probably a good spread to use as we move into the current year. There are no reclassifications, so it is very pure this year. So it should be an easier way for you to be able to model that. Oliver Chen: Has been a great new recruitment tool. What is your latest thinking on the best adjacencies next to that, and where are we given that there are lots of nice conversion opportunities? And lastly, Michael, this is simple but hard, but what do you think it takes to positive comp in stores? Like, there are a lot of great things happening, but what is your visibility or your thoughts on which ones will be the critical drivers just to get back to positive comps on multiple years of negative comps? Thank you. Michael Bender: Sure. On the Sephora question, we feel very good about the partnership there. In terms of the adjacencies, you know, we have moved juniors across from Sephora. So we feel like that was a positive move and is paying dividends for us in terms of a customer coming in for a Sephora purchase and then turning out and seeing what is available. That is a younger, oftentimes more diverse, more digitally savvy customer that comes in to shop for Sephora, and we want to make sure that the product that they see outside of the Sephora portion of the store is consistent with what they are looking for, and that move with juniors has been a big part of that. As far as getting back to growth, I do not want to pinpoint a date and a time to say it is going to happen. But the kinds of things that we are doing in terms of the progression that we have been on over the past year in particular, but over the last couple of years, I would say, are, I think, indicative of the progress that we are making. We have mentioned proprietary brands. We have mentioned the culling of the assortment. Those are all things that we think are right. I talk to the team all the time here about—I use the analogy—that we have got to get the product right, because that is what people ultimately come for. Experience and all the other things that are wrapped around it are important as well, and we are working on those as well. But we have got to get the product right to make sure that that is what the customer continues to come back around for. So we will continue to focus on building that space to get back to growth eventually. What I would tell you is that if you look at the progression that this organization has been on over the last, call it, a couple years, we had a negative 6 comp two years ago. We produced a minus 3 comp this past year in 2025. We are giving you guidance, as Jill mentioned in her commentary, of being flat to down 2. We came out of the fourth quarter roughly around a 2% if you back out the weather impact of the 70 basis points that we mentioned. And so we are guiding on the low end of where we are already performing. And if you build these capabilities on top of that, that is what we believe will get at least back to flat. And we have the ambition, obviously, to get back to growth through this eventually. And that is what the aim is. We understand that that is the lifeblood of any business, to grow. But we also want to be measured and disciplined in the way that we get there, particularly against the backdrop of the environment that we are operating in from an economic standpoint. Oliver Chen: Thanks for those details. Appreciate it. Best regards. Operator: Our last question today comes from Michael Binetti from Evercore. Please go ahead. Your line is open. Michael Binetti: Hey, guys. Thanks for all the detail here. Just on the comps, Jill, you suggested, you know, that we would be building to the flat to down 2% through the year. Maybe just a thought on trying to connect that to your comment on first quarter. Sounds like seasonal goods and some of the holiday decor was the headwind in fourth quarter, but the decor was stronger if the spring seasonals are getting better and the core was stable. How should we think—I am trying to think about trends in first quarter relative to the negative two to flat for the year. And then I am also curious. It sounds like, you know, with the coupon and shifting to expanding the coupon a little bit deeper, as you said, shifting to more of the entry-level price points to drive value, sounds like a good idea, very important. Can you just talk about how you are thinking about the range of outcomes for units versus AUR that could support the negative two to flat comp for the year? Jill Timm: Sure. So I think from a comp perspective, Michael mentioned it well. We anchored the low end on our current performance. If you look at fall, we exited the year down two. The flat shows that we are going to have progressive improvement throughout the year. So, really, by starting at the low singles that I guided for Q1, you would actually say your exit rate has to get positive to exit at a flat. So we do know we have to make some changes. Obviously, we had some missteps with fall seasonal. We made those corrections with spring. It started out great. It is a small portion of the business right now, so I think caution. I do not want to become overly optimistic. That is, you know, as you know, not my nature, but we feel good with that business. We feel good with our year-round business, which has actually continued to perform well even through the fourth quarter. So I think we are cautiously optimistic there, but there are a lot of macro headwinds. And we know our consumer is low- to middle-income. They are under a lot of pressure. Obviously, a lot of things happening today that are taking their discretionary income. So we also want to be mindful of the environment that we are operating in. We are kind of balancing that as we enter into this year. We also know a lot of these investments into depth are going to happen as the year progresses. We mentioned footwear. We know we have some new innovation, but we do not expect that till the back half of the year. So there are things that are happening, but it does take some time to make those moves. So we wanted to make sure we gave ourselves that room within the guide to be able to make those changes. And as we continue to show progressive improvements throughout the year, that will show that these efforts are working. But I think, as Michael mentioned in his prepared remarks, it is not going to be a straight line. I mean, there are going to be some ups and downs, and it is not just within these four walls that we get to control what is happening. We do have to be mindful of the external environment, which brings us to why the coupon and the opening price point is so important. We know that our customer, particularly the low- to middle-income customer, is going to over-penetrate in these value brands, so we need to bring that to them. We have seen—you know, gosh, I think if I look back for the last 20 quarters, Michael—we typically have seen a pretty flat average transaction value. Our issue continues to be traffic. So whether we are bringing in higher price point or lower price point, they will fill that basket. Our average transaction value typically has stayed relatively flattish. It really comes down to driving traffic, which you have heard a lot more about marketing in this call because we know we need to continue to drive that traffic both in stores and digitally. We have done an incredible job digitally. Our traffic was very solid in the fourth quarter. We need to continue to do that to the stores. And I think the investments we are making in that experience, like Michael outlined, is a way for us to bring in some more traffic as well as just a better flow of goods. We transitioned in January, which is probably the first time we have done that in a long time—bringing in newness, having those transitional goods. It gives that customer a better reason to shop. And just on that inventory management, it affords us more currency of inventory and pulling goods faster, which we also think could be a driver of trips. So I feel well positioned as we enter the year. But I would say that I am also just cautious, being mindful of the macro environment that we are operating in. Michael Binetti: Okay. Thanks a lot for all the help, Jill. Jill Timm: Great. Thanks, Michael. And we are out of time for questions. This will conclude today’s conference call. Thank you for your participation. You may now disconnect.