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Operator: Good morning, ladies and gentlemen, and welcome to the Velan Inc. Q3 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, January 15, 2026. I would now like to turn the conference over to Rishi Sharma, Chief Financial Officer. Please go ahead. Rishi Sharma: Thank you, operator. Good morning. [Foreign Language] Thank you for joining us for our conference call. Let's start by discussing the disclaimer from our related IR presentation, which is available on our website in the Investor Relations section. As usual, the first paragraph mentions that the presentation provides an analysis of our consolidated results for the third quarter ended November 30, 2025. The Board of Directors approved these results yesterday, January 14, 2026. The second paragraph refers to non-IFRS and supplementary financial measures, which are defined and reconciled at the end of the presentation. The last paragraph addresses forward-looking information, which is subject to risks and uncertainties that are not guaranteed to occur. Forward-looking statements contained in this presentation are expressly qualified by this cautionary statement. Finally, unless indicated otherwise, all amounts are expressed in U.S. dollars, and all financial metrics discussed are from continuing operations. I'll now turn the call over to Mr. Jim Mannebach, Chairman of the Board and CEO of Velan. James Mannebach: Thank you, Rishi. And good morning, afternoon and evening, everyone. Please turn to Slide 4 for general overview of the third quarter of fiscal 2026. Velan delivered healthy adjusted EBITDA of $9.5 million on sales of $71.7 million, driven by the execution of high-margin projects and continued tight management of operating expenses. With respect to sales, let me point out that as expected, most rescheduled orders from the previous quarter recaptured in Q3 2026. A similar customer dynamic occurred in certain complex projects in the third quarter, leaving us again with orders worth a few million dollars still pushed out to later periods. Now let's turn to Slide 5. Our order backlog reached $296.8 million at the end of the third quarter, up 8% from the beginning of the year. At quarter end, 80.4% of the backlog, representing orders of $238.5 million, were deliverable within 12 months compared to 83.4% at the end of Q3 last year. Bookings amounted to $77.9 million in the third quarter of fiscal 2026, a year-over-year increase of 32%, further driving momentum in our backlog. The strong growth reflects higher bookings by our North American operations in the nuclear and oil and gas sectors, along with increased bookings by our Italian and Chinese units. These factors were partially offset by reduced orders from the German operations. In North America, Velan secured a valve order of more than CAD 20 million from Ontario Power Generation, or OPG, for reactors being refurbished at the Pickering Nuclear Generation Station, confirming our leadership position in this fast-growing nuclear sector. First shipment is scheduled for January 2027 with subsequent deliveries to be completed by the end of January '28. Note that Velan supported the original valves more than 45 years ago and has continuously supported the Pickering complex throughout its construction and refurbishing program. Turning to Slide 6. I'd now like to address the recent announcement regarding the proposed sale of Velan Holding's controlling interest in the company to Toronto-based Birch Hill Equity Partners Management, Inc. Velan Holding, which is held by certain Velan family members, has agreed to sell its 15.6 million multiple voting shares, representing approximately 72% of Velan's outstanding shares and 93% of its aggregate voting rights to Birch Hill at a price of CAD 13.10 per share for aggregate gross proceeds of CAD 203.9 million. This is a private transaction and is expected to close in the first half of calendar 2026, subject to receipt of required regulatory approvals and other customary closing conditions. The transaction is not subject to any financing conditions or approval by our shareholders. Velan's Special Committee of Independent Directors recommended to the Board of Directors that it's in the best interest of the company to facilitate the consummation of this transaction. And while the company is not a party to the private transaction, it has entered into a cooperation agreement with the parties, which will ensure a smooth transition with Birch Hill, as we jointly secure regulatory approvals and complete other customary closing conditions. The company continues to draw its inspiration from our founder, A.K. Velan, and the tireless efforts of the Velan family since our founding more than 75 years ago. We are extremely proud of our heritage and look forward to growing on our legacy as a world-leading Canadian valve company. Birch Hill has a proven track record of partnering with Canadian industrial leaders and accelerating performance. Their broad business experience and deep access to capital will enable Velan to speed advancement of our business plan, which is focused on value creation for all stakeholders, including customers, employees and of course, shareholders. We look forward to partnering with Birch Hill as we accelerate the execution of our strategic plan. Before turning the call back over to Rishi, I want to reiterate on Slide 7. Velan is well positioned in its main markets through its trustworthy brand, high-quality products and proven expertise in developing solutions for the most critical applications. Nuclear energy is enjoying a strong resurgence driven by massive power requirements and rising demand for clean energy sources. Our recent contract win with OPG is a clear example of government's refurbishing existing reactors to meet their energy requirements well into many future years. New deployment of small modular reactors, or SMRs, are also expected to be part of the overall solution. As a reminder, Velan is a key supplier to the first SMR initiative in North America at OPG's Darlington site. On the oil and gas front, we've recently witnessed geopolitical pressures in key strategic areas, highlighting the global need for this fossil fuel. Of course, Velan remains impartial, but we stand to benefit since the company supplies the most reliable engineered valves to the majority of refineries in North America, along with a growing presence overseas, especially in the Middle East through our announced joint venture in the Kingdom of Saudi Arabia. These 2 sectors, nuclear and oil and gas were the driving force behind a remarkable 32% bookings growth in the third quarter. If we add our important presence in other areas such as defense, liquefied natural gas and mining, the underlying theme is that Velan is well positioned to leverage strengths across a wide range of industrial sectors throughout the world. Rishi, I turn the call back over to you. Rishi Sharma: Thank you, Jim. Turning to our third quarter results on Slide 9. Sales totaled USD 71.7 million, down 2.4% from $73.4 million 1 year ago. The decline reflects lower shipments from our Italian operations, following strong sales in last year's third quarter and as Jim mentioned, customer dynamic resulted in orders totaling a few million dollars being pushed out to later periods. These factors were partially offset by higher sales in India and Germany, along with a positive foreign exchange impact. By customer geographic location, North America represented 48% of total sales in the quarter compared to 55% last year. Asia Pacific accounted for 33% of total revenues versus 44% a year ago. For its part, Europe represented 8% of sales this year with Africa, the Middle East as well as South and Central America, rounding off our quarterly sales. Moving to Slide 10. Gross profit reached $27.2 million in Q3 2026 compared to $28.3 million last year. As a percentage of sales, gross profit remained relatively steady, reaching 37.9% compared to 38.6% last year. This stability was driven by higher-margin projects though offset by lower absorption due to reduced volume and tariff impacts. Currency movements had a slight positive effect on gross profit for the period. Administration costs decreased to $16.5 million or 23% of sales in the third quarter of fiscal 2026 from $17 million or 23.2% of sales 1 year ago. The year-over-year reduction can be attributed to cost-reduction initiatives. We also incurred restructuring expenses of $1.3 million in Q3 2026, which consisted of transaction-related costs. Excluding nonrecurring elements, adjusted EBITDA amounted to $9.5 million in the third quarter of fiscal 2026 versus $14.3 million last year. The year-over-year variation can be attributed to a lower gross profit and to a slight increase in other expenses mainly caused by unfavorable currency movements on unrealized variations. These factors were partially offset by the favorable effect of a provision reversal. Net income totaled $3 million or $0.14 per share in Q3 2026 compared to a net loss of $47.8 million or $2.22 per share last year. Excluding nonrecurring elements, adjusted net income amounted to $4 million versus $8.5 million a year ago. On Slide 11, for the first 9 months of fiscal 2026, sales were relatively stable year-over-year and were up more than 2%, excluding last year's nonrecurring revenue contribution. Gross profit, meanwhile, was marginally down both in dollars and as a percentage of sales. Turning to Slide 12. Cash flow from operating activities before net changes in provisions used $6.7 million in the third quarter of fiscal 2026 compared to $0.6 million used a year ago. The unfavorable movement in cash was mainly due to negative changes in noncash working capital items versus last year. More specifically, a temporary increase in accounts receivable and late-stage work in process inventory related to changes in customer delivery schedules were largely responsible for the year-over-year variation. Once this customer dynamic normalizes, cash inflows are expected to follow. During the quarter, we also paid $1.5 million in dividends, representing regular payments for dividends declared. It should be noted that the company has agreed to suspend the payment of dividends until the closing of the transaction between Velan Holding and Birch Hill. Ordinary course dividends are planned to resume thereafter as if and when declared by the Board of Directors. Finally, our balance sheet remains strong at quarter end with $36.3 million in cash and cash equivalents and short-term investments of $0.4 million. Bank indebtness stood at $16.1 million, while long-term debt, including the current portion, was $17.7 million. Considering our credit facility, working capital financing, letters of credit and guarantees, we have access to multiple sources of additional funds. Altogether, Velan has approximately $86 million readily available to execute its strategy and finance its expansion to sustain long-term profitable growth. I'll now turn the call over to the operator for the Q&A session. Operator: [Operator Instructions] Your first question comes from [ Sebastian Sharlin ] with Agave Capital. Unknown Analyst: My first question, actually, it's quite personal and maybe it's too early to ask, but are you staying, both of you? James Mannebach: Well, I appreciate the interest in that. Yes, it's business as usual for us at Velan. Birch Hill has a long history of partnering and participating with management, and we don't see any change in that in the immediate future. So I look forward to working with them. In fact, they have a very unique, I think, data-driven decision-making process that I think will be very, very helpful to us. And yes, so business as usual, no expected changes in the foreseeable future with management in place driving our strategic plan going forward. Unknown Analyst: Great. And can we know a little more -- or should we expect more announcements in coming months as this transaction closes? I respect that there are Canadian buyers, so it should alleviate some of the problems we may have seen or foreseen with, let's say, foreign buyers in a strategic asset as Velan, but should we expect more announcements regarding changes to strategy or appetite M&A? So I really understand there's quite a big difference between the 2 controlling shareholders we'll have now and in the future. Rishi Sharma: Thanks, Sebastian. I think the first course of action and priority is obviously to support through the engagement of the cooperation agreement at the closing and get to the closing of the transaction. So that's the immediate requirement as well as obviously delivering a strong fourth quarter, I think that goes without saying for us and the management team, it's business as usual in terms of orders, bookings, delivery, profitability and cash generation. Beyond that, post-closing, I think we'll see. I think business as usual, there's a strategic plan. There's objectives that we have. I think through the partnership and our new controlling shareholder with Birch Hill, there could be, but I think there will be some time required to kind of reassess the plan going forward. So I don't expect immediate announcements to that effect. But I think post-closing, there will probably be some plans that will be shared. Unknown Analyst: Okay. And did I read correctly that Velan, the company is going to assume the legal cost of the transaction, even though if it's a private one, the $12 million that's highlighted in the press release? Rishi Sharma: Yes. So the special committee recommended that in the best interest of the corporation going forward that those costs be borne by the company. So if you look at the note, the total transaction, direct transaction fees are in the amount of USD 10 million to USD 11 million. There's an additional $5 million, call it, cost that will be incurred relating to change of control triggered items, mostly relating to vesting and accelerated vesting of incentive plans. And against that $16 million, we have about $4 million that's been paid throughout the year or accrued. So it's really a recommendation and support in terms of the best interest of the company going forward that those costs being absorbed by the company. Unknown Analyst: Okay. Yes. And perhaps, I guess the elephant in the room is maybe what do we don't know or do we miss for the discrepancy between the $13 sell price versus the, say, average price of the last 6 months of Velan, which was probably above $17 or $18. Do you agree with that price? If the company is paying for the legal fees for it, it means it agrees the special committees, it agrees that's the valuation that's correct for Velan? James Mannebach: Yes. Well, I think it's important to note, as we've already said, this is a private transaction between Birch Hill and Velan Holding. The company facilitated the secondary trade to ensure it was completed in an organized manner. But we weren't a part of the trade, we weren't involved in the pricing matters. As such, we're really not in a position -- I'm not in a position to comment on valuation and pricing. As you know, also, the minority shareholders will continue to participate in the company's next phase of growth, right, as it executes its strategic plan. And adding to what Rishi said, I look forward to an acceleration of deployment of those strategic plans with the new partner, Birch Hill. So I think we're on a good track, building out the fundamentals of this business to drive value creation over the long term. And I think that's the perspective that needs to be taken. And again, as I said, it's a private transaction between the parties that we weren't involved in the pricing. Rishi Sharma: Yes. And just to add on that, I think the way that Jim and I look at the transaction cost is it's really an investment in bringing on a partner as strategic as Birch Hill that has operational discipline that has the capital that we may have access to in the case of growth and executing on the strategic plan. But beyond that, as Jim mentioned, private transaction between the 2 parties are sole obligation here is the cooperation to ensure that we get to a close. Unknown Analyst: Okay. I mean it's a lot to reconcile in one day. But at the same time, I want to -- yes, I just want to reassess I know, and I appreciate all the work you 2 have been doing and the whole team in the last 3 years, not fixing the problem, but addressing the challenges of the business. So yes, I just want to admit I was disappointed when I saw the release yesterday, but the fact that you're staying that we get that we're not forced into selling at that price. I guess it's a mixed signal, but somewhat reassuring. I just wanted to highlight this point. It seems quite obvious, though, that it deserves to be addressed. Rishi Sharma: Yes, Sebastian, thank you. James Mannebach: Thank you. I appreciate the recognition as well. And as I said, underscoring the point, we really look forward to accelerating execution of our plans. I think we're in a really strong position in nuclear and oil and gas and other demanding applications, as I mentioned in my comments and partnering with Birch Hill, bringing their perspective to the business, I think it's really a win in the long run for everyone. Operator: [Operator Instructions] Your next question comes from Alex Ciarnelli with SM Investors. Alessandro Ciarnelli: Most of my questions have been asked. And I guess the bigger one was the reconciliation of the pricing, which you addressed. I don't know if this was asked, I was on the morning meeting of the company for a few minutes. But I think the press release was talking about the review of strategic alternatives under supervision of the special committee. So were there other options maybe to sell the entire company or maybe if you can talk about this review in general? James Mannebach: Yes. You've been engaged in our calls for quite a while now. And as you know, we've consistently and publicly stated that the company was reviewing options, right, to maximize value for the shareholders. And this process is continuous, right, going back many years, including the special committee's engagement with respect to the asbestos and the French subsidiary divestitures. But given that the offer was made to Velan Holding solely for the multiple shares of Velan Holding, after the special committee reviewed the circumstances and the particulars, as Rishi has already commented on and I as well, concluded that it was in the best interest of the company to facilitate the transaction. Really beyond that, I'm not sure what else I can say about that other than as I said -- I just said a moment ago, we've been quite clear and transparent that we've been considering value-creating opportunities for these years. Alessandro Ciarnelli: I'll change gears. I'll ask just the SMR on the entire power generation project, if I remember correctly, it was approved in May. I don't know if there's any updates, how is that going? I know it's long term, but... James Mannebach: Yes. We're very encouraged by what we're seeing. We see with the owner as well as with the GE Hitachi project that you're referring to specifically continues to progress very nicely. Obviously, this is new technology being developed, and this is right in the wheelhouse of our business to grow off of what we've already done in nuclear over 50 years now and apply it to this new emerging approach to more compact SMR nuclear power generation. So what we've seen so far is very encouraging, very positive. And as I said just a moment ago, really plays to the strength of Velan, the brand and our people, especially at this moment, our engineering people. So we're quite encouraged by what we're seeing to the moment. Long way to go, but encouraging to the moment. Alessandro Ciarnelli: Last one for me. This might be a strange question and some ways to ask it. We saw what happened in Venezuela. Is that actually an opportunity for the oil and gas for you guys? Or too early to say? Rishi Sharma: I don't think it's a strange question. Of course, we don't know what's going to happen. It was sort of an unexpected move, I guess, by the United States anyway. But as you know, the majors that are involved in Venezuelan oil before the nationalization of those assets were all customers of Velan. And what we've seen in the public disclosures about the intentions of the United States going forward is encouraging to us as well because for the parties that President Trump is talking about, we have good relations with and expect to have a good opportunity to provide valuable product to them as they improve the operations of Venezuela. So very early, and strained circumstances you alluded to. But I think it's -- from a commercial market point of view, is positive for us. Alessandro Ciarnelli: Sorry, one more thing. This is for Rishi. I sent you an e-mail about the conference. I don't know if you're interested or not, but if you can answer, I can relay. I can send it again if you want to. Rishi Sharma: It's been a little bit busy last few days, but I'll -- as you can imagine, I'll definitely get back to you on that. Thank you. Operator: There are no further questions at this time. I will now turn the call over to Jim for closing remarks. James Mannebach: Well, thank you, operator. It's been an interesting couple of days, few weeks, months, for sure. The business in the last quarter, I'm very encouraged by the uptake in orders, especially in the nuclear and oil and gas space for us. I think it bodes well for our future. And we'll look forward to chatting with you all at the end of our fiscal year, which is just in a few weeks away. Anyway, we appreciate the support and always the interest of you, the investors and stakeholders. Thank you so much, and have a great day. Rishi Sharma: Thank you. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good evening, and welcome to the J.B. Hunt Transport Services, Inc. Fourth Quarter 2025 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Andrew Hall, Senior Director, Finance. Please go ahead. Andrew Hall: Good afternoon. Before I introduce the speakers, I would like to provide some disclosures regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. These statements are based on J.B. Hunt Transport Services, Inc.'s current plans and expectations and involve risks and uncertainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements. For more information regarding risk factors, please refer to J.B. Hunt Transport Services, Inc.'s annual report on Form 10-Ks and other reports and filings with the Securities and Exchange Commission. Now, I would like to introduce the speakers on today's call. This afternoon, I'm joined by our President and CEO, Shelley Simpson, our CFO, Brad Delco, Spencer Frazier, EVP of Sales and Marketing, our COO and President of Highway Services and Final Mile, Nick Hobbs, Brad Hicks, President of Dedicated Contract Services, and Darren Field, President of Intermodal. I'd now like to turn the call over to our CEO, Ms. Shelley Simpson, for some opening comments. Shelley? Shelley Simpson: Thank you, Andrew, and good afternoon. We began 2025 with clear expectations. When the external environment shifted, we responded by adapting our strategy. I am proud of the agility of our team as we navigated through dynamic economic conditions while maintaining high service levels for our customers and structurally removing costs from our business. Throughout 2025, we prioritized operational excellence. Not only did we meet this goal, but we set a new benchmark for success within our organization. Our service levels and safety performance remain exceptional, and they are key differentiators for us in the industry. In the fourth quarter, we proudly celebrated our fourth driver to reach 5,000,000 safe miles, Steve Kirschbaum, and it is a reflection of the strong culture of safety at J.B. Hunt Transport Services, Inc. Alongside this, two other key priorities for 2025 were scaling into our investments and continuing to repair our margins. While we made meaningful progress in both areas, I recognize there is still more work ahead. We are laying the foundation for J.B. Hunt Transport Services, Inc.'s future, a future defined by disciplined growth and even stronger financial performance. I'll briefly address rail consolidation now that the merger application has been filed. We remain rooted in our commitment to our customers and providing excellent intermodal service and also to our shareholders to create lasting long-term value. We continue to have conversations with all Class I railroads, and those conversations are progressing. In our view, there remains a significant amount of industry risks and opportunities, and we continue to work on multiple options to ensure our customers and shareholders are well placed. We have a strong brand and service product and offer tremendous value to our rail providers given our scale, technology capabilities, and how we go to market. Our ability to deliver seamless, differentiated service across the entire North American intermodal network is a competitive advantage. As we move into 2026, the freight market feels fragile. Capacity continues to exit the truckload market, and we are testing the elasticity of supply. Regardless of the market environment, we continue to manage our business to put us in the best position for long-term growth. Let me give you a little more color on our strategy in 2026. Overall, our service levels across the business remain exceptional. The business leaders will share more, but throughout peak season, customers trusted us with more of their freight because of our service. As we grow through operational excellence, we will remain disciplined with our cost management and continue to lower our cost to serve. This will further strengthen our business model, providing capital to deploy for future growth while providing strong returns for our shareholders. Let me close with our key priorities for 2026. First, we're focused on disciplined growth through operational excellence. On the back of our operational excellence, we are playing offense and creating our own success that is not dependent on the market. Second, we will leverage our investments in our people, technology, and capacities into clear and sustainable competitive advantages for our business. We prefunded our capacity growth at the bottom of the cycle, including the purchase of Walmart's intermodal assets, positioning us to grow without needing to deploy additional capital to do so. We have invested in our people and technology, focusing on ways to improve efficiency and productivity through automation. Investing in people, technology, and capacity is core to who we are. Third, we will continue to repair our margins to drive long-term value for our shareholders. We are a disciplined growth company, and we will continue to build on the momentum we have created. With that, I'd like to turn the call over to Brad. Brad Delco: Thanks, Shelley. Good afternoon. I'll hit on some highlights of the quarter and the year, review our capital allocation for 2025, give some views on the plan for 2026, and finish up with an update on our lowering our cost to serve initiative. Let me start with the quarter. As you've seen from our release, on a GAAP basis, revenue was down 2% year over year while operating income improved 19%. Diluted earnings per share improved 24% versus the prior year period. In the prior year quarter, we did incur pretax charges of $16 million in intangible asset impairments. After consideration of these charges, operating income increased 10% from the prior year period. Inflationary cost pressures continued to impact us in the quarter, but once again were more than offset by solid execution by our people on lowering our cost to serve and by driving efficiencies and productivity into our daily work. For fiscal year 2025, on a GAAP basis, revenue declined 1% while operating income increased 4%. Given the inflationary cost pressures in 2025 that were not fully covered with the pricing environment, these results again highlight operational excellence in managing our costs, safety, and service to our customers. On capital allocation, in 2025, we spent $575 million in capital reinvesting in our business. That is net of proceeds from the sale of our equipment. We put $923 million towards our share repurchase, the largest annual amount in our company's history, and retired almost 6.3 million shares of stock. Our balance sheet remains healthy, maintaining leverage just under our target of one time trailing twelve-month EBITDA. This aligns with our messaging around prefunding our long-term future growth and not just remaining cost disciplined, but also disciplined on how we allocate our capital. In 2026, we anticipate net CapEx to be in the range of $600 million to $800 million, largely for replacement, with expectations for success-based growth capital to support our dedicated segment. We will continue to manage our leverage to maintain an investment-grade balance sheet, support the growth of our dividend, and opportunistically repurchase shares. We do have $700 million of notes maturing on March 1 and have more than enough flexibility with our recently amended and extended credit agreement to satisfy that maturity. We committed to giving you updates on our execution of our lowering our cost to serve initiative, and I'll start by saying our execution remains solid. I'll reiterate our intent is to demonstrate our progress in our results rather than just speak to tracked savings. In the third quarter, we stated we executed over $20 million in cost savings in the quarter. In the fourth quarter, we executed over $25 million of tracked savings and are now on a run rate of over $100 million of annualized cost savings. Keep in mind, we continue to focus on productivity and efficiency gains that were not contemplated in our $100 million target as our achievement of that target was not dependent on volume growth. We continue to see benefits in the same areas of service efficiencies, balancing our networks, dynamically serving customers to meet their needs, and even more focus on discretionary spending and driving greater utilization of our assets. Let me close with a couple of things that I think are important takeaways from our results. First, despite no meaningful tailwinds from market pricing, we posted solid year-over-year earnings growth for both the quarter and the year. Second, our focus on operational excellence and discipline on cost and deployment of capital sets us up well for the future. Finally, we enter 2026 with solid momentum, both operationally and financially, and with ample capacity to deploy capital to meet our customers' needs with our scroll of services. That concludes my remarks. Now I'd like to turn it over to Spencer. Spencer Frazier: Thank you, Brad, and good afternoon. I'll provide an update on our view of the market and share feedback we are hearing from customers. Demand in the fourth quarter aligned with expectations, and we continue to see the truckload capacity bubble deflate. As customer forecast accuracy improved throughout the year, so did our confidence we would have a solid peak season. As noted in our last call, a significant amount of early imported freight still needed to move inland, which ultimately supported a solid peak. I'm proud of how our teams met customers' seasonal demand, helping them deliver their plans. Additionally, we saw market dynamics tighten around Thanksgiving and continue through year-end, creating opportunities to leverage our culture of operational excellence and gain share. Our unique model, comprehensive service offerings, and 360 platform continue to differentiate us and position us for long-term growth. Most customers view the recent market tightening as temporary or seasonal rather than a structural shift. After several years of mixed signals and forecasting challenges, customers will only acknowledge a structural change after they feel a tighter market for a longer period of time, likely driven by some degree of both reduced capacity and stronger demand. Customers are also evolving their supply chain strategies. Many are consolidating logistics providers to do more business with fewer high-performing providers. Last year, we had our highest customer retention since 2017. Customers are also looking for the most efficient capacity solutions that meet their needs, and more sophisticated customers are planning ahead of potential market shifts. They are working with us to optimize networks and capacity strategies to leverage the right service offering at the right time to execute their business. This aligns well with the strength of our business model and our solution-based sales approach and is helping drive our share gains. Our current customer conversations focus on their 2026 outlook and initiatives and how we can strategically support their supply chain strategies and growth. They are looking forward to a more stable trade policy, a more confident consumer, and potential benefits from higher tax refunds and policy changes. Customers want logistics providers that offer scale, visibility, and consistent long-term service to bring predictability to a complex part of their business. They view us as operating from a position of strength, reinforcing our confidence in the value we can deliver in 2026 and beyond. I would now like to turn the call over to Nick. Nick Hobbs: Thanks, Spencer, good afternoon. I'll provide an update on our safety performance across our operations, followed by an update on our final mile, truckload, and brokerage businesses. Safety remains a top priority and is a key differentiator of our value proposition in the market. I am proud to say that 2025 was our third consecutive year of record safety performance measured by DOT preventable accidents per million miles. To put some context around our performance, our DOT preventable frequency is equivalent to driving more than 5,000,000 miles between events. Our focus on safety is a key piece of driving out cost, and this record performance is a testament to our entire team and their commitment to remaining safe and secure every day. Our commitment to safety starts well before anyone begins driving a truck or executing a final mile delivery. In our final mile business, we continue to lead the industry in terms of background screening and identity verification, ensuring the person delivering the product into the home meets our rigorous standards. As final mile claims across the industry continue to rise, we are pleased to see a large customer recently announced enhanced identity verification standards, which we believe is a positive and needed step for the industry overall. Shifting to the business, overall, final mile end market demand remained soft across furniture, exercise equipment, and appliances. In our fulfillment business, we continue to see positive demand driven primarily by off-price retail channels. Going forward, we do not expect any meaningful positive change in market conditions, but remain focused on continuing to provide high levels of service to customers while being safe and secure and ensuring that our returns match the value we provide in the market. We mentioned last quarter that we anticipated losing some legacy appliance-related business in 2026. We expect this to be an approximately $90 million revenue headwind in 2026. That said, we continue to work diligently to onboard new business in this area to offset as much of this as we can. Moving to our highway businesses, overall, season demand was in line with normal seasonality led by e-commerce-related volume. On the capacity side, the truckload market became tighter beginning the week before Thanksgiving and didn't recover through the end of the year. We believe this was driven primarily by supply or tighter truckload capacity due to higher levels of regulatory enforcement. In JBT, our strong service and focus on operations led to another quarter of double-digit volume growth, our third consecutive quarter achieving that growth rate. As the truckload market tightened in the quarter, our focus on service created additional volume opportunities from customers as other carriers struggled to maintain commitments. Going forward, our focus in 2026 is disciplined growth to ensure our network remains balanced while also improving the utilization of our trailing assets through better box turns. While we will continue to execute on lowering our cost to serve, meaningful improvement in our profitability in this business will continue to be driven by our ability to price higher. I'll close with ICS. During the fourth quarter, truckload spot rates moved notably higher, which put pressure on our gross margins, especially in late November and December. This did lead to more spot opportunities, not until really late in the quarter. While lower gross profit year over year did pressure our profitability, we continue to make good progress on our controllable cost with operating costs of approximately $41 million in the quarter, our lowest since Q4 of '18. Going forward, we are encouraged by the work we have done to resize our cost structure in this business and the wins we achieved during mid-season. Our focus in 2026 is maintaining operational excellence, continuing to onboard additional volume on the platform, and remaining disciplined on our cost as we grow. With that, I'd now like to turn the call over to Brad. Brad Hicks: Thanks, Nick, and good afternoon, everybody. I'll provide an update on our dedicated business. Starting with the results, at a high level, our full-year results highlight the resiliency of our dedicated business, which remains a standout in the industry. A year ago on our 2024 fourth quarter earnings call, I commented that we expected very modest operating income growth in 2025 in Dedicated. We had visibility to fleet losses throughout the first half of the past year, and given the nature of our business, we knew that growing operating income while shrinking the fleet would be difficult. I'm extremely proud of our dedicated team at not only addressing the expected fleet losses but also navigating unexpected customer bankruptcies during the year. Our focus on customer value delivery, efforts to lower our cost to serve, and strong safety performance allowed us to deliver flat operating income compared to 2024 results despite a lower fleet count. Looking at the fourth quarter, we sold approximately 385 trucks of new deals, bringing our full-year new truck sales to approximately 1,205 trucks. As a reminder, our annual net sales target is for 800 to 1,000 new trucks per year. While the known fleet losses disclosed two years ago caused us to fall short of this target in 2025, we have good momentum coming out of the fourth quarter, which gives us greater confidence that we will get back to this level of annual net truck growth in 2026. We continue to see considerable opportunities for future growth in our dedicated business with an addressable market of roughly $90 billion. Our sales pipeline remains strong, and we have opportunities across a diverse set of customers and industries. Our sales cycle is elongated at around eighteen months given the complex nature of these contracts and the big decisions to outsource a private fleet. We have seen this sales process extend a few additional months given the broad macroeconomic uncertainty and continued challenging freight fundamentals. While we initially anticipated resuming net fleet growth in the latter half of last year, the extended timeline for finalizing new agreements has pushed the return to fleet growth into 2026. Let me close with some thoughts on 2026. About two years ago, we spoke about having visibility to fleet losses that would play out through 2025. About a year ago, we spoke about expectations for very modest operating income growth in 2025 given those known fleet losses. Both of these comments proved to be true as the contractual nature of our dedicated business provides us clear visibility to and predictability of our performance. We also know that to see a material increase in the profit performance of this business, we must first see a wave of truck growth for about six months. As we have discussed before, we incur start-up expenses as business is onboarded, and it historically takes about six months before a new location starts contributing as expected to operating income. Our strong new truck sales in the fourth quarter and visibility to our pipeline give us confidence that the wave of new business is coming, just the timing is a little later than we had initially expected. As a result, and looking forward, we sit here today expecting only modest operating income growth in our dedicated business in 2026, with more momentum likely to roll into 2027. The confidence in our dedicated business and our strategy hasn't changed. We'll continue to execute with operational excellence, drive value for our customers through our CBD process, and continue to invest in our people to help support and accelerate our growth. With that, I'd like to turn it over to Darren. Darren Field: Thank you, Brad, and thank you everyone for joining us this afternoon. I'd like to start by thanking the team for their hard work during peak season. We executed very well during peak season and were able to meet customer demand while at the same time remaining disciplined on our costs and continuing to execute on lowering our cost to serve. This marks our third consecutive peak season of strong execution on behalf of our customers. Similar to last quarter, I want to start with some comments regarding the potential for Class I rail consolidation. Even with the merger application now filed with the STB, similar to what we said last quarter, there are still a lot of unknowns. We continue to digest the application and had expected more intermodal-specific questions to be addressed in the merger application than there were. So we continue to plan for a wide variety of scenarios. We can speculate on hypotheticals, but let's talk about what we know. We continue to have active dialogue with all Class I railroads and believe given our position in the intermodal market that J.B. Hunt Transport Services, Inc. should be a primary participant in all discussions regarding the future of the intermodal industry. We continue to see a large opportunity to convert highway truckload shipments to intermodal and have been actively pursuing these shipments long before any merger discussion. We have offered seamless transcontinental intermodal service for decades, connecting BNSF to both Eastern railroads. Our focus remains on engaging in discussions and executing a strategy that is in the best interest of our customers and our shareholders. During the fourth quarter, demand for our intermodal service performed relatively as expected. Volumes in the quarter were down 2% year over year and by month were down 1% in October, down 3% in November, and flat in December. We faced difficult year-over-year comparisons in the fourth quarter with the freight shift in volume from the East Coast to West Coast. Given these factors, our transcontinental volumes were down 6% in the quarter while Eastern loads were up 5%. As we have communicated previously, we had a bid strategy during 2025 focused on getting better balance in our network, growing volumes, and repairing our margins with more price. And we were successful in the bid season, particularly around network balance and head haul pricing. The third quarter each year is always the first chance to see the impact of our bid strategy show up in our results. Consider it our scorecard. We believe the success of bid season combined with our efforts to lower our cost to serve were key drivers of our improved year-over-year and sequential financial performance in the quarter. As a reminder, given the cadence of our bid season, we will live with the impact of this past bid season through the first half of 2026. Going forward, our focus remains on being operationally excellent, which is being noticed by customers and driving additional opportunities in the market. I previously commented that in order for us to return to the low end of our 10% to 12% margin target range, we would need one point from cost, one point from volume, and one point from price. We have good visibility to the point in cost but have work left to do on volume and price. As we think about the 2026 bid season, our overall strategy won't change much. We will look to grow in the back hauls and continue to fill in our network, grow with customers in the right markets and lanes, and look to further repair margins by pricing to the value we create for customers. The bid season for 2026 is still in the early innings, and it would be premature to comment on rate expectations at this point. In closing, we remain confident in our industry-leading intermodal franchise and excited about the opportunities in front of us. With that, I'd like to turn it back over to the operator to open the call up for questions. Operator: We will now begin the question and answer session. And the first question will come from Brian Ossenbeck with JPMorgan. Please go ahead. Brian Ossenbeck: Hey, Brian. Hey, everybody. Good afternoon. Thanks for taking the questions. Maybe just start with Shelley and team, if you can just fill in some more comments on what you mean by the freight market's gradual. Of course, there's quite a lot going on right now. I don't know if that was more a comment on capacity and what we're seeing there. So you have a white paper out there that walks through the impact of what you think could come out of the market. Maybe a little bit more color around the supply side and demand side so we can understand the comments around being fragile to start here. Thank you. Shelley Simpson: Sure. Well, okay. Thank you, Brian. So I'll start and then I'll let the team jump in from there. You know, I think you heard in Nick's comments that really since Thanksgiving, we haven't seen the supply side change as it as we finish the rest of the year. And here entering into this first part of the year, we still see some signs of that supply side being down. Along with that, from a demand perspective, you know, I would say there's a mixed reaction from our customers. I think our customers always tend to be more optimistic. We tend to be a little more realist and a little more wait and see as well. But I would say the elasticity in the supply chain from a supply perspective feels very fragile to us. It doesn't feel like a lot there, and so we've seen that in pockets. And as we've seen, even small tightening is creating bigger ripples in the market than when it has historically. I think regulations have had an impact on that. And so that's what I mean when I say fragile. Just a little bit of an uptick in demand. I don't think there's a lot of elasticity left in supply. And so that uptick in demand could create an environment that's different than what we've seen in the last several years. Having said that, we're not gonna hold our breath. Why we've said we're gonna take care of what we do and really focus on what we're good at, take market share, and be a disciplined growth company. Maybe I'll turn it over to any of those guests that want to comment. Spencer Frazier: Yeah. Hey, Brian. Thanks for the question. You know, Shelley, you referenced some comments that Nick made. I will also do that. Really from a demand perspective. Nick, you talked about in the bid season, we're winning. We continue to win. We're winning and taking share. So are our customers. They're winning as well. And so as I think about kind of the momentum from Thanksgiving through the end of the year and also while the first two weeks don't make the year, demand is solid. Really across all of our services. And I think that's reflective of some of the work that we've done, some of the bid strategies and approach to the market we've had. Really for the prior six months. And so from that perspective, I think demand is okay, but I think it's somewhat unique to J.B. Hunt Transport Services, Inc. and our approach to the market. The other thing I want to make mention of is, you know, we talk about our customers. You know, they went through a lot last year. They've got a lot of pressure. I've used words like they're gonna believe a change when they see it. But I also want to talk about their supply chains. Their inventories are lean. Their supply chains are executing extremely well. And they've got agility to run their business to meet their sales plans. They're leaning in then to the carriers like us that can match operational plans to help them out. So I believe that's why we're taking share. It all connects back to operational excellence. And we're gonna keep running that play. And then, you know, Shelley, your point about it being fragile, I think the market is fragile. It's vulnerable to change. You know? The prediction of when that tipping point is going to occur, everybody's missed that forecast for the last several years. But our customers are aware that if a tipping point does occur, that the really the industry has been uninvestable and needs to have dramatic change when that happens. So we're going at the market, working with our customers, and just preparing for all scenarios. Operator: The next question will come from Chris Wetherbee with Wells Fargo. Please go ahead. Chris Wetherbee: Hey, Good afternoon, guys. Hey, Maybe we could start on the cost side, kind of obviously made some progress there, $25 million kind of at the annual run rate of around $100 million, which was the target when you laid it out previously. So I guess as we think about 2026, I know you don't want to kind of put the cart before the horse, but how do we think about the progress? What is the opportunity for you in 2026 on the cost side? Brad Delco: Yeah. Chris, I think there was a blinker on that I sort of anticipated it. I mean, listen, my comments can tell that we've been off to a good start on this lowering our cost to serve initiative. You know, we said we and we committed. We give you guys some updates. You know, I think if you really peel back the onion on each of the segments' performance in some segments with down revenue and some segments with down volume, with, of course, knowledge of the pricing environment not being very robust in 2025, you know, I think you could probably parse out that we've been very successful executing on a lot of different cost initiatives around efficiency and productivity. And those are things that we sort of called out that we thought were not part of our lowering the cost to serve. So I think the proof is in the results that we've probably been executing above sort of what we've been stating. But it's also eating away at some of the inflationary pressure we've been feeling. Certainly on the insurance side, that continues to be a topic of discussion. Obviously, we continue to invest in our people with wages and merit. And so, as we're facing these inflationary cost pressures, what I want to call a pricing environment that's not covering inflation in order to drive the earnings improvement that we did. I mean, we're hitting on a lot of the cylinders. Going forward, I mean, I think it's fair to assume that we're going to be executing above the $100 million target. I don't think we're prepared right now to give you a number. We had some headwinds on some cost items and things that we incurred in the fourth quarter that we know won't repeat going forward. And so that gives me some confidence that we'll continue to build. I think Shelley used the word momentum. And we'll update you guys going forward at the appropriate time when we want to raise that number. Operator: The next question will come from John Chappell with Evercore ISI. Please go ahead. John Chappell: Thank you. Good afternoon. Darren, there's a lot of commentary about Thanksgiving to the end of the year being robust. But, you know, on the other hand, Spencer said most of your customers are viewing things as kind of temporary or seasonal. So exit rate seems better. And as we think about the timing of peak season, when would we need to see kind of this continuation of the last six weeks holding into? Is it a February event that's better than seasonal and that gives you a little bit of tailwind behind your back? Or does it have to go through kind of March and April until kind of prove the sustainability and give you a bit more bit between your teeth as you go for price? Darren Field: Okay. Well, I think intermodal's to that question may be slightly different than parts of our highway other transactional businesses. I think intermodal's experience normal seasonality in the first quarter. Shift from the fourth quarter, a little bit of downturn from some retailers. I think that we are aligned with customers that are winning business, and we continue to be really encouraged by forecast feedback that we get from our customers and additional opportunities to grow our business and take share off the highway to Intermodal. But in terms of the seasonality of strength specifically, from peak season or kind of Christmas shopping season, you know, every year has been a little bit different over the last four or five years. As we get into February and March, I think we'd have a better opportunity to understand what's going on there. But we're encouraged by what we've seen so far in January. Nick Hobbs: I'll just take it from the other part of the transactional bit. Other partners, Nick, so I'll talk about the ICS and truck. I think we need to see what demand is going to do as Spencer said and Darren, I think we've been taking some market share. If you look at other indexes out there, it says the market's down compared to this time last year. And yet we're gaining volume. So feel good about that. But before we talk about rates and some of that, we gotta see some consistency in the overall market. And not just our volumes. So probably a few more weeks. Shelley Simpson: And I would say, I mean, you hear a cautious tone from us because we've had some false starts. And so there's been some things that are in our control, a lot has been outside of our control. And that's why you're hearing us be more cautionary. I think we do have encouragement the things that we're seeing, but we want to wait and see what happens. We want to finish up at least January and February and see what happens there. And, also, we want to wait and continue to get customer feedback. This is our season where we spend a lot of time with customers over the next month. We'll get a chance to hear what they're thinking. Are their forecasts changing? Does the demand set? We need demand to continue to move up. And with demand moving up, with that fragility in the supply side, I think, you know, that could be a good opportunity for us to think about things differently. Brad Delco: Hey, John. This is Brad. I feel like I got to add here, too. I mean, clearly, we're the first out of the gate to report, and it's still early relatively early in January. I remember sitting here a year ago, we were feeling at least or seeing some signs of tightness in the market. Now the difference was, I remember a year ago, the January, we had a whole bunch of weather. So what is different is we haven't had as much of a weather disruption thus far in January, and things still feel pretty good. I think you guys should be picking up on that. I think demand is, I think we're staying solid or okay. You know, we're not saying robust. And capacity feels still pretty tight, and we're it's January 15. So let's let this settle and bake a little bit longer before we get out ahead of our skis and give any expectations of what we think that might mean for market pricing and rate. Operator: The next question will come from Scott Group with Wolfe Research. Please go ahead. Scott Group: Hey, Thanks. Thanks. Afternoon. So Darren, I think you said on the path to margin restoration, you feel good about the cost side and less certain at this point about volume and price. I guess, is there one side of that equation you feel better about? And I think you also said, like, there's no change in your bid strategy this year versus last year. I guess, why not? Like, it doesn't feel like you got a lot of price last year. Like, why wouldn't this be a year where you think you could be a little bit more aggressive in getting some price? Darren Field: Well, all good. And I hope that as the year moves on, we're both talking about that pricing opportunity was in front of us. So far, we've got a number of questions as to whether or not what's gonna happen with the overall market. The early results are there, but the early part of the bid cycle is a lot of westbound business, lots of backhaul pricing going out the door. And it's competitive. I wouldn't say it's any more or less competitive than what is normal. It's just it's an environment out there that has created a world where we want to protect our backhaul business and we actually want to grow with it. So in that instance, we're utilizing our lower cost to serve as an opportunity to generate volume. And so when we talked about the idea of more of the same, more of the same just means not allowing an imbalance of our business to drive negative impacts to our margin. We have to sustain improvement in our margins. And by that, if we can utilize lower cost to serve to grow volume and continue to drive improvements from the volume, we're going to be doing that. And then meanwhile, we'll be talking to the head hauls about what a challenge it is to produce capacity in the head haul markets and look for ways that we can help solve their challenges as capacity begins to tighten. But certainly 2026, you're hearing it from us that we're a little bit hesitant to suggest that we think there's some big pricing opportunity, but we will be all quick to identify when we see the market shift in a manner that we think there is an opportunity to generate price. We're absolutely ready to try to work on that area. But we're cautious. So I'll leave it at that. Brad Hicks: Scott, I think you'll remember two years ago, we came out of peak season feeling confident. We did push price, came out of the gate really strong, and I feel like we were the only horse in the front. And so we had to change the second half for bid because the market didn't react. So we've done that. We're going to be prudent with what the market will give us. Our customers know that we have inflation, and they know that we're not happy with our margins. Now it's just down to timing, but we're not going to wait and sit back and just let all of this season go through without testing exactly what you're saying. So more of the same means that head haul markets, we're going to continue to push and walk our customers through the cost part of that. And then fill in that home line. So do you think we had a successful bid season from that perspective? We can repeat that and then start to fund those opportunities. We can challenge the price. I think we're gonna have a successful bid season. Operator: The next question will come from Brady Lares with Stephens. Please go ahead. Brady Lares: Hey, Hey, great. Hey, Brad. Thanks. Thanks for taking our questions. I wanted to ask about Dedicated. You mentioned truck sales were almost 400 during the quarter, which would put you near the high end of your annual target. So when you look ahead to '26, how does the recent tighter capacity freight market impact your expectations for dedicated sales? Are you seeing any improvement in the pipeline year to date, or is it just too early? Brad Hicks: Thanks, Brady. This is Brad Hicks. You know, great question, and I think it's probably a little too early to see the outward view. But what I would say is that, you know, the 385 in the quarter is real close to what our expectations are. We're never satisfied. It's never enough, but we're very proud of the year we had and then closing with the strongest quarter in the year should give us some momentum coming into '26. We have high expectations to grow regardless of the environment or the market conditions. It has been harder though. I mean, the last two or three years, it's been more difficult. There's been more competition. There's been a lot of inflationary costs that we've overcome. Super proud of where our margins were, industry-leading double digits. And that's not been easy. And so you think about what Darren was saying on cost to serve to over things, that's largely where our focus was throughout '25. To hang on to the great margins that we've had. I'm super excited about as we turn into 2026. The last thing I'll say is in my experience, dedicated is always kind of the last area of the supply chain still feels some of the squeeze or the pressure from our customers. You know, it works its way. First and foremost in truckload and then it finds its way in intermodal. And then there's pressure to defend and maintain and renew the business that we have. I kind of feel like maybe we're there. So that gives me optimism as we go deeper into '26. One more great data point that I didn't share in my prepared comments, we did have a record year in terms of new customer names. So new names in our portfolio. We sold 40 new brand new customers, that's not all of our sales. Some of our sales inside of twenty five were with customers we already had some business within Dedicated. The 40 new names also gives me a great promise for the work that we've done, the investments we've made, in prospecting. We certainly want suites to be larger on average than what we saw in '25. Some of that I think is representative of the macroeconomic environment that we faced. Again, 40 new names is a record for us and that even includes our pretty remarkable COVID years where we had 2,500 plus trucks of growth. Operator: The next question will come from Rich Harnain with Deutsche Bank. Please go ahead. Rich Harnain: Hey, Richa. Thanks, team. Hey. So, yes, I wanted to ask a little more about the cost savings and lowering your cost to serve, you've clearly done a great job on. Brad, you spoke to some big bucket items of what you're gonna attack in 2026. You know, whether it's your service efficiency, balancing your network, dynamically serving your customers, monitoring your discretionary spend. And I think you said, you know, driving utilization. But maybe you can give us some more thoughts on, like, what is what does all that mean? What are some initiatives you have in the hopper to really take that $100 million plus further? And then I'm gonna I'm gonna try on this one. You know, just, like, looking at all the efficiency and some of the tailwinds y'all spoke to that are kinda unique to you and how you've managed to do pretty well starting out in 2026 in terms of, I think, comment was in the first two weeks things feel pretty good. How should we be thinking about Q1? Typically, you see something like an 18% decline in EPS into 2026, but given some of those tailwinds, could we see something better than that? To start the year? Brad Delco: I'll certainly take the bait and answer the first part of that question. The second part certainly sounds very guidance heavy and I remember us making some comments like that a year ago which I'm not necessarily gonna repeat. But specific to the question on lowering our cost to serve, when you turn to from a New Year twelve thirty-one to one one, what are the incremental opportunities? It's all the things that I had in my prepared remarks and you took good notes because you read them back to me. But I would say the incremental things are still driving efficiency in terms of the work we can do with our overhead and our people. We talked about scaling into our investments. Certainly, there's renewals with all sorts of different products and services that we buy. And so challenging ourselves on what are the some of the things we can do. I think we continue to make really good progress on some of our maintenance initiatives that tended to have a little bit of a longer tail before we can fully realize the full benefits of some of those. And so I think those are still some of the big buckets. But I think this is a team that has not well, they've seen a lot of success from all the work. And I think there's still a lot of motivation to go out there and challenge ourselves on what more we can do to continue to drive our costs lower. To allow us to be more competitive in the market to accelerate our growth. And I think you've heard Darren talk about it and the rest of the team. You know, we want to be a disciplined growth company, and the only way to accelerate our growth is to make sure that we can be very cost competitive and provide an excellent service. And I think staying focused on all those things should be a nice tailwind to the momentum that we've already built and hopefully leads us in a good direction generally in 2026. To your comment about fourth quarter and first quarter, I'm not going to give you a specific range, but I mean, you've been around transportation more than five minutes, you generally know first quarter is usually the toughest quarter. It's what we disclose in our filings and you know, typically, see things improve from there. So to see market tightness in the first quarter is unique, and we'll just see how what we've seen plays out the rest of the quarter. Shelley Simpson: Let's begin. That if you look at the bigger, more strategic items that we're working on, they're not necessarily in our $100 million lowering our cost to serve. And so Nick and Stuart are really helping lead along with you, Brad, some of the work that we're reimagining. With our people and how can technology really empower our teams. And so we have one big initiative in intermodal and how we're thinking about that really from the way that order comes in all the way to completion. And we also have another big initiative in quote to cash. And I think that will give us a lot of different opportunities. You'll see some of that will even talk about that here as we progress through the year. That's just a couple of bigger ideas, but I would tell you technology. We have I think Stuart's done a nice job really rethinking what we should be doing, how we leverage our technology, how we deploy AI as part of that process. And I think that'll be something that we'll be able to talk about as the year progresses. Operator: The next question will come from Dan Moore with Baird. Please go ahead. Dan Moore: Good evening, everybody. Hey, guys. Appreciate the time and opportunity to ask a question here. I think maybe one of the worst kept secrets for 2026 is this general idea that we're gonna have some fairly healthy tailwinds related to tax rebate season. Estimates are kind of all over the map, anywhere from, you know, a hundred billion to as much as a hundred and sixty billion in tailwinds. Those should land between March and April and May. My question to you is, how are your customers thinking about that, preparing for that? Responding proactively to that, and then if you could remind us the percentage of the broader book of business, just kind of how it it renews from a contract standpoint as we move through the year as a percent of the total. That's it. Thank you. Spencer Frazier: Hey, Dan, this is Spencer. You know, our customers, we talk to them about their 2020 planning. Really leading into this year. And I think you're right on the money. With their optimism about really the potential continued strength of the consumer. Think if you look back at any data from November and December, macro data reporting as well as retail sales, they had a solid year-end finish. And so as the consumer might have a little bit of a tailwind from the refunds as well as other policy changes. I know our customers are gonna be there to serve them. And have the right products that they can sell through. I do think as well again, as I said earlier, their inventories are pretty lean right now. And they're wanting to make sure they've got the right products at the right time. For every customer and to serve them through every channel. So you know, we're going to work with them to make sure we understand their forecast. That's a big thing. I do think they got a lot better last year in forecasting and also their award compliance with us. And so we're talking to them right now about how the rest of Q1 is going to shake out. And any other changes that they have as we go through the winter season into the spring lawn and garden and then obviously through the summer. So you know, we're optimistic about what the American consumer can do. And also, just want to make it one other or two other comments. I mentioned how we're winning. I want to specifically call out our cross-border Mexico business. We've had solid double-digit growth there throughout 2025. And continued momentum with our customers going into 2026. And then one other area that we don't talk about, Nick, I think you might have said it, but you know, a truck line and JBT to have three consecutive quarters of double-digit volume growth. I think that's pretty solid too. So that just gives you an example, Dan, of how we're positioning ourselves to be able to serve our customers as they're serving their customers and growing their business. Then I'll let Darren talk about the other part of the question. Darren Field: Sure, Dan. I mean, we've said this before. This is we call it about 10% of the book implements new pricing in the fourth quarter of each year, and then the rest of the quarters are roughly even at about 30% each. Look, there's some error there. Call it plus or minus 5% in any one of those quarters, but that's a good rule of thumb and that's what we shared in the past and that's pretty close to what it lines up with year in and year out. Shelley Simpson: And maybe one more comment, Spencer, I've heard you say the customers that are winning are more optimistic. We see them really thinking about forecast, we're working more closely with them. And I think that's what has us make these comments is the customers that are winning do feel some of those tailwinds. I think they're planning on those and like we're planning with them as a result. Operator: The next question will come from Ken Hoexter with Bank of America. Please go ahead. Ken Hoexter: Hey, great. Good afternoon. Big data on the market. Hey, Brett. Picture on the market, Shelley, you mentioned capacity is coming out. ICS is now adding providers back in. Obviously, you went through some theft issues that you wanted to eliminate carriers. So maybe just talk about that balance. Are we seeing that sustainably? Are you seeing that in terms of the capacity come out? And stay out as we now move into the New Year? And then just on the fragile comment, is that a comment that fragile you're leaning toward the upside? I just want to understand your fragility view on that demand commentary. Thanks. Nick Hobbs: Yes, Ken, this is Nick. I'll talk about the carriers. We're seeing in ICS is, yeah, we did screen out a lot of carriers, did a lot of thorough put some new software and technology in. And pushed a lot out. We're starting to let some back in. After they go through further compliance. But we also changed kinda who we're going. We're going more midsize small to mid, not micro. ICS. So we've changed it. We're going after the carriers to get us more capacity. That's been the thing there. But we're clearly seeing between visa policies and immigration, capacity is definitely tighter. And, we see capacity going out particularly on the teams seeing it's really hard right now. I think that impacted the nondom impacted that more along with the reefers seem to be very tight right now. More so than others. We continue to see carriers go out. There are bankruptcies and just all kinds of things. So clearly, the carrier capacity from everything we're seeing is going out. Even though we're bringing some back in, we just did. But in both yes. In both ICS and JBT, we're seeing that across the board. Shelley Simpson: Again, and the whole word around fragile, really is a positive. So you know, we've done this business a long time. We've all been here. Management team has been here on average twenty-five years at J.B. Hunt Transport Services, Inc. We've seen a lot of cycles. And in this cycle, when you see rejection rates with customers still hovering close to 10%, which is elevated. So you see the demand side a little better, but you see supply really still tighter than it should be. That's a fragile market for our customers. So that's in the industry. And how we want to think about how we take advantage of that. If the market is fragile, if we're having customers call us to say, this pocket is tighter than what I expected or this area. That's really what we're starting to see. That does not mean that we think it's going to be tight this whole year. It's too early for us to call any of that. We've seen a lot of false starts. We just know that there's not a lot of elasticity. We saw that in the last six weeks of the year. Where the tightness and the pockets. Look at the margins that are happening in both ICS and JBT really struggled from a gross margin percentage, and that's because of what was happening on the supply side. Customers had a little more demand and boom, that really created a better environment. Now that didn't last it has to last longer than six weeks. It has to last longer. Really, to the earlier question, like, how long does it have to last? Well, certainly for us this time it's have to last a little bit longer than it would have had to in the past. Just to make sure that we think that we're going to call it right. But it's fragile and that's in a positive way. Operator: The next question will come from Bascome Majors with Susquehanna. Please go ahead. Bascome Majors: Hey, good afternoon. Thanks for taking my questions. You guys have been pretty candid on customers maybe having a more optimistic view about the capacity situation and your fragile view to use your word. You know, how has the rapid escalation in the spot rates in purchase transportation calls, you know, maybe changed the way around the edges that you're approaching this year and managing your business? I mean, are there moves you're making that you wouldn't have otherwise made to maybe capture some of that on the revenue side or mitigate some of the cost on the purchase transportation side? Nick Hobbs: Yep. Bascome, this is Nick. I'll take that. Yeah. We're absolutely we're trying to get in the spot market and play in this spot market as much as we can. So that's just a play in our playbook that we've had for many years. So we see that, we try to have the opportunity to jump in there. So we clearly all over the spot market trying to do that in our spot loads are going up. And so we're trying to take advantage of that. Particularly where we know we can cover the load and still operate it safely and on time. So, yep, we're doing that. Spencer Frazier: Yeah. And, Bascome. I'll just talk about the revenue part of your question. You know, we've got a say new culture around here. We honor our commitments to our customers. We did that throughout the fourth quarter. And we're doing it today. And with that reputation, and again, it goes back to operational excellence, we become the go-to when tender rejections go up. When routing guides begin to fail. And we saw some of those opportunities really take place at the tail end of Q4 and they're taking place today. So from a revenue perspective, we're going to be there for our customers when others aren't. And that's part of our ability to gain share. Nick Hobbs: And I'll just say the mini bids are active right now, and we like to participate in those and the we process a little bit better typically. And so those give us different opportunities to price differently and take advantage of the market as we see it today. Operator: The next question will come from Ravi Shanker with Morgan Stanley. Please go ahead. Ravi Shanker: Great. Thanks, afternoon everyone. Apologies if I missed this. But what are contract renewals running at in ICS? And also, as you look ahead to '26, hopefully, you guys are being conservative, and we do have an up cycle. How are your customers thinking about using JBT ICS to meet their incremental capacity? Needs, in an up cycle. Thank you. Nick Hobbs: Yep. Thanks, Ravi. This is Nick. I'll take that. And I would just say that our customers, we're seeing demand across the board. You can see our volumes are clearly up. In the truck line, so customers are clearly leaning in over there on the asset side. But think if you could see under the covers a little bit in ICS, there's a lot of demand coming in there. We've had some losses earlier, in '25. We'll be lapping here before long, so you'll see tremendous growth in ICS. So they're really leaning in on both sides of that. And your first question, he wanted to give guidance on pricing, which Ravi, appreciate it, but we're not gonna comment. I mean, clearly, we're gonna get as much as we can. This goes back to even Scott's earlier question. Like, I know Darren answered that question very eloquently, but at the end of the day, we need to focus on operational excellence. We want to grow. We want to be very disciplined with our growth. We're gonna get as much pricing as the market will allow us and try to be fair and balanced in light of all the inflationary costs that we're being hit with. So but not yet ready to necessarily signal to the world what we think price what pricing is gonna do this year. Operator: This concludes our question and answer session. I would like to turn the conference back over to Ms. Shelley Simpson for any closing remarks. Shelley Simpson: Thank you. As we wrap up today, I just want to highlight our progress and outlook because over the last year, our team has demonstrated agility and discipline. We have driven operational excellence, record-breaking safety, record-breaking service, and that is setting us apart. We've advanced our strategic priorities and that's positioned us for sustainable growth. And that also provides us with a competitive advantage that we think we'll get to capture here in 2026. Because our customers, they're choosing us because they trust us and they trust our reliability. Financially, we remain disciplined. We're maintaining a strong balance sheet and executing record share repurchases that's supporting shareholder value. So looking into 2026, you've heard us say our focus is on disciplined growth. When we do that, it's going to take care of us leveraging our investments and we're going to continue to repair our margins and drive shareholder value. So we're not standing by waiting for circumstances to improve. We're taking charge. We're making them better. Ourselves. Our growth isn't something that's dictated by the market. It's a direct result of our team's initiative and our drive. We're on the offense. We're creating new opportunities and defining what's possible. So I'm confident in our strategy, ability to deliver in the year ahead. Super, super, super proud of this team and the 32,000 people that are working hard every day on behalf of our customers and our shareholders, they have delivered in a really tough environment and looking forward to 2026. Thanks for joining us today. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the H.B. Fuller Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Scott Jensen, Head of Investor Relations. Sir, please go ahead. Scott Jensen: Thank you, operator. Welcome to H.B. Fuller's Fourth Quarter 2025 Investor Conference Call. Presenting today are Celeste Mastin, President and Chief Executive Officer; and John Corkrean, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will have a question-and-answer session. Before we begin, let me remind everyone that our comments today will include references to certain non-GAAP financial measures. These measures are supplemental to the results determined in accordance with GAAP. We believe that these measures are useful to investors in understanding our operating performance and to compare our performance with other companies. Reconciliations of non-GAAP measures to the nearest GAAP measure are included in our earnings release. Unless otherwise noted, comments about revenue refer to organic revenue and comments about EPS, EBITDA and profit margins refer to adjusted non-GAAP measures. We will also be making forward-looking statements during this call. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations due to factors covered in our earnings release, comments made during this call and the risk factors detailed in our filings with the SEC, all of which are available on our website at investors.hbfuller.com. I will now turn the call over to Celeste Mastin. Celeste? Celeste Mastin: Thank you, Scott, and welcome, everyone. Our execution and agility in the quarter and throughout the year generated double-digit EPS growth and EBITDA at the top end of our full year guidance range amidst an unpredictable economic backdrop and challenging demand landscape. During this time, we helped our customers navigate this environment successfully, providing them with material optionality and flexibility while ensuring consistent quality and reliable availability wherever in the world they chose to make their products. These efforts, which strengthened our partnerships and enhanced H.B. Fuller's competitive positioning are reflected in our improved profitability and sustained margin expansion. As a result, we are exiting the fourth quarter with strong momentum heading into 2026 and are firmly on track to achieve our target of greater than 20% EBITDA margin. I am very proud of our team's resolve, resourcefulness and the meaningful progress we made in 2025 as we continue transforming H.B. Fuller into a higher growth, higher-margin company. Looking at our consolidated results in the fourth quarter, net revenue was down 3.1%, reflecting a continued weak economic backdrop and our strategic actions to reposition the portfolio. Net revenue was up about 1%, adjusting for the impact of the Flooring divestiture, which was a key step in that repositioning. Organic growth was down 1.3% year-on-year, volume down 2.5% and pricing was up 1.2% with positive pricing in all 3 GBUs. EBITDA for the fourth quarter was $170 million, up 15% year-on-year, and EBITDA margin was 19%, up 290 basis points year-on-year, driven by favorable pricing, raw material cost savings and restructuring actions, which more than offset lower volume. Now let me move on to review the performance in each of our segments in the fourth quarter. In HHC, organic revenue was down 1.8% year-on-year, driven by lower volume. Strong growth in hygiene was more than offset by continued softness in packaging-related end markets. Despite the weak market and lower volumes, EBITDA was up almost 30% year-on-year for HHC in the fourth quarter and EBITDA margin improved 380 basis points to 17.5%, driven by favorable pricing, raw material savings and the impact of acquisitions, which more than offset lower volume. In Engineering Adhesives, organic revenue increased 2.2% in the fourth quarter, driven by both favorable pricing and volumes. Automotive, electronics and aerospace showed continued strength. Excluding solar, which we continued to deemphasize, EA delivered organic revenue growth of approximately 7%. As we progress through the year, EA continued to build momentum, reflecting our successful efforts to reposition the portfolio toward higher-growth markets. Adjusted EBITDA for EA increased 17% year-on-year in the fourth quarter, driven by favorable pricing and raw materials as well as restructuring savings. EBITDA margin increased by 260 basis points year-on-year to 23.5%. In BAS, organic sales decreased 4.8% on broadly lower volume across the portfolio. Although the team is executing well, construction conditions remain muted. Additionally, BAS had a tough comparison in the fourth quarter of 2024 when the business delivered strong organic growth on new customer expansion. EBITDA for BAS decreased 7% versus the fourth quarter of last year as pricing gains and restructuring savings were more than offset by lower volume. Geographically, Americas organic revenue was flat year-on-year in the fourth quarter. Solid growth in EA, particularly aerospace and general industries was offset by weaker results in packaging and construction-related end markets. In EIMEA, organic revenue was down 6% year-on-year, driven by lower volume in packaging and construction, which more than offset positive results in hygiene. Asia Pacific showed solid organic revenue growth in the quarter, up 3% year-on-year, driven by higher volume. Positive growth in EA and HHC, particularly in automotive, electronics and packaging more than offset lower year-on-year revenue in solar. Excluding solar, Asia Pacific organic revenue was up 10% year-on-year. Reflecting on fiscal 2025, the economic backdrop for the manufacturing sector was weaker than expected and end-user demand remained sluggish; however, we took proactive steps to overcome these headwinds in order to deliver on our profit commitments. Specifically, we executed well on pricing and identified meaningful opportunities to reduce raw material costs and offset tariff impacts. We continue to reshape our portfolio by investing in higher-margin, faster-growing market segments while selecting out of businesses that didn't meet our growth or profit criteria. We also launched our manufacturing footprint and warehouse consolidation initiative, now known as Quantum Leap, which significantly improves our cost structure. As a result, we are exiting the year with strong momentum, driven by the determination and outstanding execution of our team. Looking ahead to 2026, we expect the economic environment to remain challenging, similar to 2025, marked by ongoing geopolitical tensions, tariff uncertainty, elevated inflation and interest rates and continued labor constraints, all of which are likely to weigh on manufacturing investment. Despite these challenges, we anticipate delivering another year of profit growth and margin expansion in 2026 by building on the meaningful progress we made this year while staying firmly on track to achieve our target of greater than 20% EBITDA margin. Now let me turn the call over to John Corkrean to review our fourth quarter results in more detail and our outlook for 2026. John Corkrean: Thank you, Celeste. I'll begin with some additional financial details on the fourth quarter. For the quarter, revenue was down 3.1% versus the same period last year. Currency, acquisitions and the divestiture of the flooring business collectively had a negative impact of 1.8%. Adjusting for those items, organic revenue was down 1.3%, driven by lower volumes. Pricing was up 1.2%, reflecting positive pricing in all 3 GBUs. Adjusted gross profit margin of 32.5% increased 290 basis points year-on-year. The impact of pricing, raw material cost actions, acquisitions and divestitures and targeted cost reduction efforts drove the year-on-year increase in adjusted gross profit margin. Adjusted selling, general and administrative expenses were down modestly year-on-year, driven by continued cost-saving efforts and lower variable compensation. Adjusted EBITDA in the fourth quarter of fiscal 2025 was $170 million, up 14.6% year-on-year, driven principally by the impact of pricing and raw material cost actions as well as restructuring savings. Adjusted EBITDA margin increased 290 basis points year-on-year to 19%. Adjusted earnings per share of $1.28 was up 39% versus the fourth quarter of 2024, driven by higher operating income and lower shares outstanding as a result of our repurchase of approximately one million shares in fiscal 2025. Fourth quarter cash flow from operations of $107 million was up 25% year-on-year, driven by higher net income. Net working capital as a percentage of annualized net revenue increased 130 basis points year-on-year to 15.8%. Net debt to adjusted EBITDA of 3.1x was down sequentially from 3.3x at the end of the third quarter and down from 3.5x at the end of the first quarter, consistent with our plan to reduce leverage during the year. With that, let me now turn to our guidance for the 2026 fiscal year. Despite a challenging economic backdrop, which we anticipate will be similar to 2025, we expect to deliver another year of profit growth and margin improvement. We anticipate full year net revenue to be flat to up 2% versus 2025, with organic revenue expected to be approximately flat. We also expect foreign currency translation to positively impact revenue by about 1%. We expect adjusted EBITDA to be between $630 million and $660 million as pricing and raw material cost actions and Quantum Leap savings more than offset wage and other inflation. We expect our 2026 core tax rate to be between 26% and 27% compared to our 2025 core tax rate of 25.9%. We expect full year net interest expense to be approximately $120 million, depreciation and amortization to be approximately $185 million and the average diluted share count to be between 55 million and 56 million shares with share repurchases offsetting shares issued through compensation plans. These assumptions result in full year adjusted earnings per share in the range of $4.35 to $4.70. Finally, we expect full year operating cash flow to be between $275 million and $300 million, weighted to the back half of the year before approximately $160 million of capital expenditures, which includes approximately $50 million of capital related to Project Quantum Leap. Taking into account the typical seasonality of our business and the later timing of Chinese New Year, we expect first quarter revenue to be down low single digits and adjusted EBITDA to be between $110 million and $120 million. Now let me turn the call back over to Celeste. Celeste Mastin: Thank you, John. During 2025, the execution and determination of our team allowed us to deliver on our profit commitments for the year while continuing to make meaningful positive long-term changes to the portfolio as we build for the future, including manufacturing footprint consolidation, price and raw material management and portfolio mix shift. M&A continues to be an important part of our value creation strategy as we shared during our October Investor Day. In 2023 and 2024, we acquired 8 companies with a combined EBITDA of $41 million. Those acquisitions delivered $73 million of EBITDA in 2025, representing a post-synergy purchase price multiple of 6.7x EBITDA. During 2025, we executed on several acquisitions in medical adhesives and fastener coating systems. Early in the year, we completed the acquisition of GEM and Medifill, formulators, manufacturers and marketers of state-of-the-art medical-grade adhesives for internal indications. These businesses have performed exceptionally well with revenue up approximately 15% versus pre-acquisition 2024 and EBITDA up almost 30%, consistent with our deal model. Recall, we acquired ND Industries in 2024 for its unique encapsulated adhesive technology, knowledgeable employees and the coating service to apply these unique adhesives to mechanical fasteners. ND Industries expanded our product range for customers in high-growth markets like automotive and aerospace and puts us in a position to provide a service, further linking us to those customers. We saw ND as a platform from which we could expand this technology and service offering globally. And in 2025, we did just that. We acquired 3 small fastener coating companies to aid our global expansion. Early in 2025, we acquired businesses in Taiwan and Shanghai, giving us access to the fastener coating markets in Asia. And in late 2025, we acquired a fastener coating business in Turkey, giving us access to the broader European and Middle Eastern markets. Collectively, we paid $17 million for these 3 acquisitions, which are expected to generate $3 million of EBITDA in 2026. While the collective value sounds small, these 3 outposts give us access to a fast-growing $0.5 billion market in Asia and Europe. This expanded platform features a differentiated technology offering, long-tenured customer relationships and a strong competitive position in the fastener coating market. As we shared at our Investor Day, our M&A strategy is an EBITDA compounder. This is an excellent example of a platform business with a good organic growth profile that we expect to significantly expand through revenue and cost synergies as we rapidly build share in this technology-driven, fast-growing and expandable market. Finally, I would like to take this time to acknowledge and thank all our employees for their dedication and hard work throughout the year. Your commitment and the strength of our culture have enabled us to make meaningful progress on all of our strategic initiatives. That same culture has been recognized externally as well with Newsweek naming us one of America's most Admired Workplaces for 2026 and Forbes naming us one of America's Best Employers for engineers. As we look ahead to 2026, we remain committed to advancing the long-term strategic plan we have set in place. While global conditions remain unpredictable, we're taking the necessary steps to manage costs responsibly, execute our global initiatives with discipline and navigate through this period with focus and resilience. That concludes our prepared remarks for today. Operator, please open the line for questions. Operator: [Operator Instructions] your first question comes from the line of Mike Harrison with Seaport Research Partners. Michael Harrison: Congrats on a nice finish to the year. I was hoping we could start with the Q1 guidance. You mentioned a couple of times that you feel good about the momentum that you finished the year with. But for Q1, you're kind of pointing to a low single-digit top line decline. I think FX is a pretty good tailwind. So maybe we're thinking more like mid-single-digit organic sales decline. Maybe just give us a little bit more color on what you think would be driving that weakness. And I'm curious if you can comment at all on what December looked like and if that's informing some of the weaker outlook. Celeste Mastin: Yes. So what we'll see going into Q1 will be continued performance much like we saw in the fourth quarter of this year. I mean if you look at volume progression throughout Q4, what you would see is that EA was strengthening throughout the quarter. BAS was improving, but it's still weak. And in Q4, we had a pretty tough comp there of plus 7%. And it's going to be a continually challenging environment for HHC. What we saw at the end of the year was just a step down the last couple of months, particularly by the CPG customers in their order patterns. So we'll probably get a little more of an uplift there. That said, the biggest impact in Q1, Mike, is going to be Chinese New Year. So the timing of Chinese New Year in Q1 will result in some of that revenue being pushed into Q2. I don't know if you want to comment further, John. John Corkrean: Sure. Yes. Sure, Mike. That's the big -- that's the primary reason Q1 looks a little weaker is the timing of Chinese New Year. In 2025, it was late January, early February. And in 2026, it's late February stretching into March. And revenue declines to almost nothing during Chinese New Year and then bounces back very strong after the holiday. So last year, we saw that bounce back in Q1. This year, it will happen in Q2. Because of this, we'll see 1 to 2 weeks of revenue move from Q1 to Q2, probably has a revenue impact of $15 million to $20 million, and EBITDA impact of $6 million to $8 million. So it's really just a shift between Q1 and Q2. You had asked about December or how we're seeing revenue so far and whether that's a reason we have had a little softer guidance. No. I mean, it's really Chinese New Year. I'd say the year started out basically as expected. Things are a little weird in December with the timing of the holidays. But if we look at the first 6 weeks or so, it's tracking with what we'd expect and what we -- and so the impact of Chinese New Year is to come, but we believe that, that will push some revenue into Q2. Michael Harrison: Understood. And then, just wanted to ask another one on raw 1materials. In fiscal '25, you started the year with a little bit of raw material versus pricing headwind, and I think that got better as the year progressed. How are you thinking about raw materials and pricing in fiscal '26? And I'm just curious kind of what that means for the year-over-year comparison on margins. Is the assumption that pricing versus raws is kind of slightly positive all year? Or is it maybe more of a tailwind in the first half and turning into more of a headwind or more neutral in the second half? Any kind of thoughts on that cadence would be helpful. Celeste Mastin: Yes. So in 2025, we delivered around $30 million of combined price and raw material benefit. As we mentioned in the last quarter, we anticipate seeing a carryover benefit of around $25 million into 2026, plus our continued efforts to reallocate sourcing to drive pricing to drive our business towards the highest margin, most differentiated spaces has led us to increase that benefit of price and raws in 2026 to about $35 million. So that will be the year-over-year comparison you're going to see, Mike. John Corkrean: Yes. And I think in terms of timing, maybe slightly weighted to the first half of the year, but we will see, I'd say, a favorable spread for the entire year because we will get additional new pricing in 2026. Celeste Mastin: Yes, you'll see expanded margins in all GBUs in the second -- in 2026, much like we delivered this year. Operator: Your next question comes from the line of Ghansham Panjabi with Baird. Ghansham Panjabi: Maybe we can focus on the BAS segment and some of the drivers that impacted your 4Q and there was a lot going on in the quarter with, obviously, the government shutdown, et cetera. Just curious as to whether it had any impact on you? And specific to that, if it did, was there any change in trajectory December onwards? Celeste Mastin: Yes. We had a tough comp in the fourth quarter for BAS. Ghansham was plus 7% in Q4 of '24 for the overall BAS business. So there's a few things going on there. One is we're wrapping around some -- a big customer win from 2024. So that's one thing you saw as an impact in Q4. We continue to be successful serving data centers, also LNG. But overall, the construction environment continues to weaken. That said, there's some pretty exciting things going on in BAS. I'm really thrilled to be taking a bigger position in LNG. We just won a big project on [ CP2 ] with our Foster's product. which is used for cryogenic insulation systems. So we're going to continue to see as that capacity expansion happens around the globe, and it's growing at about 7% in LNG, we're going to continue to see wins there. Also, we just started shipping a data center, a big data center ultimately, that will be 4 million square feet at conclusion in Texas in fourth quarter. So more exciting stuff there. And also, I mean, our glass business continues to succeed. Our 4SG product grew 18% in 2025 despite a reduction of housing starts of 6%. So none of those businesses are really affected by the government shutdown. So I would take that off the table for us. I would just say tough comp wrap around on new customer business and a generally tough construction environment. Ghansham Panjabi: Got it. And then for packaging, as it relates to HHC, you called that out as weaker. Anything going on there relative to the recent trend line apart from customers just managing inventory aggressively into year-end, et cetera? And then also on fiscal year '26 guidance, I'm sorry if I missed this, but can you give us a sense as to core sales by segment? I know you're guiding towards roughly flat for the year. Celeste Mastin: Sure. So on packaging drivers, we're seeing really just in North America, in particular, weakness from our packaging and related CPG customers. So again, we saw a very similar trend to what we saw last year with just kind of ongoing slightly negative volume in that space that really took a step down in P11 and P12. And I think that's a space that's just going to continue to be challenging for us throughout HHC in general throughout the course of the next year. It's a -- given the issues with affordability and the lack of mobility, people aren't really moving. There's not a lot of household formation. That is weighing on that business. But we continue to introduce some exciting innovations there. The HHC business grew very well in not Europe, but in EIMEA. So in our EIMEA sector -- we took a lot of share in places like Algeria and Turkey because we're being able to -- we're more able to produce successfully out of our new Cairo facility. So that's been exciting. We're growing in India in that business. So HHC is migrating to growth in higher growth developing nations. And again, our plant strategy revolves around making sure we can produce cost effectively in places like that to take advantage of the trend. Also in Asia Pacific, we had growth in our packaging business. This is related to just this recurrence and the bounce back in China that we're seeing, and we've introduced some new innovations in packaging related to anti-slip coatings in Asia that helped support and grow our business there. The business in HHC was pretty strong in packaging in Asia. And so it's a balanced story if you look around the globe, and we're migrating the business to really focus on the places where we know we can be successful and building the supporting infrastructure within the company to do that. Now your second question was -- I think it was core sales by segment? John Corkrean: Yes. And I can take that, Ghansham, just we'll try to unpack our revenue guidance here just a little bit. So we said that we expect revenue to be flat to up 2%, that organic revenue will be flattish. So the difference there really being FX. So we do expect about one point of favorability for the full year from FX if rates stay where they are. Acquisitions really won't have a meaningful impact, at least not the ones we've done so far because the carryover is very small. So what it implies is organic revenue might be up slightly, down slightly. We expect pricing to be positive in all 3 GBUs, probably 0.5% to 1% positive. And then if you look at the GBUs in terms of kind of volume, we'd expect EA to deliver positive volume growth despite the headwind from solar. We'd expect HHC and BAS probably to be down slightly year-on-year. So does that help? Ghansham Panjabi: Yes, it does. It does. Very comprehensive. Operator: Your next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: John, I was wondering if you could speak to your free cash flow outlook for 2026. Your capital expenditure budget looked to be on par with what we would have expected, but the cash flow from operations may be a little bit lighter than we would have thought. So is there anything in particular you would call out that might be weighing on the free cash flow conversion in terms of working capital or any other extraordinary cash needs? John Corkrean: Yes. So I'd say if you look at cash flow from operations, Kevin, we guided to $275 million to $300 million versus $263 million this year. So it's the midpoint, roughly $25 million increase, which is driven almost entirely by higher income. Working capital, we would expect to be similar. So I would say if you look at kind of the last couple of years, operating cash flow has been weighed down a little bit by working capital. And we mentioned at the Investor Day that we are going to carry higher inventory as we get through Quantum Leap. So I would say that's the primary picture. If you think about free cash flow, it's CapEx sort of in line with what we have been talking to and operating cash flow driven by income and working capital remaining a little higher in the near term. Kevin McCarthy: Very good. And then on your EBITDA outlook, I heard the comments on the Chinese New Year timing, which was very helpful. But I was wondering if you could just expand on the key assumptions that you're baking into the annual guide and just trying to get a feel for what sort of macro help, if any, you might need to achieve the earnings targets. Celeste Mastin: So on the -- I'll take the first question about the macro help. Kevin, we're expecting no macro help. We've built in a strong self-help approach to the year, much like we had to do last year. So while we think we'll be positive pricing in all of our GBUs, and there's clearly a focus on that as we continue to refine and select which parts of the business we want to operate in. But also on the volume side, we're not expecting any positive macro to be supportive there. We're going to have to get there a different way or we're prepared to get there a different way. Maybe there'll be positive surprises around volume that will help. John Corkrean: And just to maybe give you the key building blocks of kind of the guidance for EBITDA for 2026 relative to 2025. Celeste mentioned the impact of -- net impact of pricing and raws, we expect to get about a $35 million improvement year-on-year. FX, again, based on where exchange rates are today, would be a $5 million to $10 million benefit. Quantum Leap, as we talked about, will continue to ramp up. We expect about $10 million of incremental savings in 2026 versus 2025. And then going the other way, we have about $10 million of variable comp rebuild based on where we finished 2025. So we'll have about $10 million of incremental variable comp expense in 2026 and about $20 million of wage and other inflation. So I think those are the key building blocks. And as Celeste said, volume, we've expected to be relatively neutral, but that could be the swing item one way or the other. Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: When I look at your other income adjusted in the fourth quarter, it looked like it's a little bit more than $10 million. And you spoke of an insurance payment. How much was that? Or what's going on in other income? And other income for the year adjusted was a little bit more than $30 million. And last year, it was $17 million. Can you talk about those numbers? John Corkrean: Yes, Jeff. So there's 2 items that are kind of driving that. The primary ones are higher pension income year-on-year. So that's probably half of that difference. So the pension assets earning higher returns generate more pension income. The second part of it is FX hedging gains or losses. I think we've done a really good job this year in managing that and reduce that impact significantly through, I'd say, both part of its cooperation in the market, cost of hedging come down a little bit, but I think we've managed it well and reduced any potential leakage from a hedging standpoint. So those are the 2 main items driving that year-on-year improvement. Jeffrey Zekauskas: Your deferred taxes were a use of $50 million versus $36 million last year. Can you talk about what's going on there? And your accounts payable was down about $20 million year-over-year. What's going on there? John Corkrean: Yes. So on deferred taxes, the biggest impact there is we did pull a pretty big dividend from China in 2024 that comes with a withholding tax. So we were able to bring a little over $100 million of cash back from China, has about a 15% withholding tax. So that -- although we declared the dividend in 2024 the withholding tax was paid in 2025. So that was the impact on the deferred tax line. On the trade payables line, it is -- it does have a big year-on-year swing. I think this is kind of a reflection also of timing on inventory. But it's -- I would say, overall, our level of payables, our payables as a percentage of revenue are very similar year-on-year. I think what we saw in 2024 is a big improvement and then it leveled off and maybe DPO came down a little bit in 2025. Jeffrey Zekauskas: And then lastly, is there an incremental penalty because of weakness in the solar market in 2026? And do you expect 2026 to be a meaningful acquisition year? Celeste Mastin: Yes. I'll take that one. So as far as solar goes, Jeff, in 2025, we had about $80 million of revenue in the solar business. What we're going to see is that's going to ramp down to around $50 million by the conclusion of this year. So over the course of the year, you're going to see predominantly in the first 3 quarters, a reduction of about $30 million of revenue related to that exit of that one particular product in solar that we're deemphasizing. As far as 2026 being a meaningful acquisition year, we definitely have a very full pipeline as we curtailed acquisitions for the last 3 quarters of 2025 in order to bring our leverage down. We ended the year at 3.1x. As you saw, we're still not quite in our $2.5 million to $3 million -- or 2.5 to 3x levered range. So we're still being cautious. But again, the pipeline is full, and we are very selectively working through it at this point in time. So you should expect the acquisition cadence in 2026 to be more like a normal year for us. So back up to that roughly $200 million to $250 million of purchase price spend. Operator: Your next question comes from the line of Patrick Cunningham with Citigroup. Patrick Cunningham: I was hoping you could just dig into sort of the level of confidence in the volume growth in EA 2026, maybe ex solar. I guess, do you expect any normalization of what has been pretty consistently strong outperformance in autos and electronics in '25? Or do you feel like you have a good line of sight in terms of both market growth and new business? Celeste Mastin: I do feel like we have a good line of sight there. And this EA team has just been unleashed. So as you saw, excluding solar, about 7% organic growth in the fourth quarter, 5% volume growth. And I anticipate we're going to be able to continue to drive that, excluding solar over time. I mean, look at our ND acquisition -- ND Industries acquisition, for example. We brought that business in, in 2024. If you look at 2025, we had it operating at 8% organic growth. So that is a team that understands how to grow the business. We do have this overhang of the solar business that we're deemphasizing that they're going to have to contend with a $30 million hit over the course of 2026. But aside from that, the electronics, the aerospace and especially the automotive market are growing very successfully. I mean just looking at the automotive business that we have in Asia -- we continue to grow our position in interior trim significantly, but also we grew our position in exterior trim well over 100% last year. Our lighting business grew about 50%. Our EV powertrain business grew over 40% in that region in 2025. And they're really in a position where they have taken a strong share position in the market, and we are strong partners generating innovation along with our customers and an important part of their new product development pipeline. So yes, we're very confident about EA. Patrick Cunningham: Got it. That's very helpful. And I wanted to come back to free cash flow. Obviously, conversions, another year below historic averages. I guess, how should we think about long-term free cash flow conversion? And then maybe what should we expect in terms of peak working capital drag and peak CapEx drag associated with Quantum Leap? John Corkrean: Sure. So Patrick, I would say if we think about kind of what we talked about at Investor Day, we would expect that operating cash flow will remain a little muted here in the next couple of years, primarily due to higher working capital associated with Quantum Leap. I think we finished this year at working capital of 15.8% as a percentage of revenue. Our goal is to be below 15%. I would expect that we'll be above 15% this year and possibly in 2027. But our ultimate goal is to get below that. The other benefits we'll see from a working capital standpoint as we complete Quantum Leap by reducing the number of facilities we have, we should be able to take out CapEx related to maintenance capital. So we expected, as we said at Investor Day, maintenance capital, which is roughly $50 million annually, we expect we could eliminate as much as 1/3 of that. We'll also be completing our SAP implementation at the end of this year. And so that's roughly $20 million of capital that we spend every year that should be reduced dramatically. From a working capital standpoint, as it relates to these initiatives, we talked about the Quantum Leap initiative and how we see that improving inventory management and days on hand by roughly 5 days, which I think is about $15 million. So I do think we'll probably be a little bit lighter from a free cash flow standpoint the next couple of years as we have slightly elevated CapEx and slightly higher working capital related to Quantum Leap. We get through Quantum Leap and the SAP implementation. I think we should see a nice step up. Operator: Your next question comes from the line of Lucas Beaumont with UBS. Lucas Beaumont: I just wanted to go back to the organic growth outlook, if we could. So I mean it looks like first quarter is going to kind of be down low single digits. I assume maybe second quarter is potentially flattish with the benefit of the shift there on Chinese New Year. So I mean, to get to kind of flat for the year, you probably need the second half to kind of be up low single digits there. So I was just wondering if you could kind of walk us through kind of where you see the acceleration coming from across the portfolio to drive that. Celeste Mastin: Yes. When -- if you look at -- maybe I'll start, and John, you might want to jump in here, too. But if you look at it from the perspective of 2026 overall, Lucas -- and by the way, welcome. If you look at it from the perspective of 2026 overall, what you should expect will be EA performing organically kind of mid-single digits, excluding solar, low single digits, up low single digits, including the solar business. Meanwhile, the BAS and the HHC business are going to be slightly down. Now all of our businesses, all our GBUs will be positive price 2026. So that means correspondingly, that's going to be largely a volume impact. John Corkrean: And I think your question, Lucas, around second half versus first half, I think the biggest driver is probably the fact we'll have mostly annualized against the solar decline by the second half, right? So we're kind of up against that the first half, particularly the first quarter becomes less of a headwind, almost no headwind by the second half, fourth quarter. So that's the primary difference. Lucas Beaumont: Great. And then I guess just on the pricing side. So I mean, you mentioned that's going to kind of be in the 50 to 100 basis point range. I mean you're exiting 4Q at a bit over 1%. And I mean it's continued to increase. We're going to kind of have some tougher comps there as we sort of get through the year. And I know there's the continued sort of backdrop of raw materials deflation. So I guess just kind of walk us through how you sort of see that slowing. I mean you mentioned that you're going to kind of potentially go out with some more price too. So I guess, as we move through the year, I guess, how much do you think you can kind of hold that in there with the new initiatives that you've been undertaking? Celeste Mastin: Yes. So the pricing cadence, it is influenced by our pricing actions that we'll be taking throughout the course of the year. And those vary depending on the business unit, the market segment and actually ultimately what's happening in a region or a segment at any given point in time. But you do see more of those happen historically earlier in the year. The biggest impact on just our ability to retain pricing and drive pricing throughout the year is just a couple -- it's twofold. One is portfolio mix. So we do continue to optimize the business to be operating in the more differentiated, more solution-oriented spaces in our markets. And the companies we're acquiring are just that. So there's a portfolio mix impact that you also see that does filter down to pricing and also just a cultural shift as we at H.B. Fuller recognize more frequently now how much -- how enabling our technologies are for our customers and how much of a very small part of the end product cost we are so much so that we can enable them to achieve total system cost or total end product cost reductions by bringing them better, higher-performing, higher-priced products of our own. John Corkrean: And Lucas, just to tie that back to the comment you made around potential for raw material weakness and how does that impact pricing. That's really the primary reason we look at the two together, right? So we believe that we're better forecasters of the two combined than each one individually. Because if the economy were to weaken further and pricing were harder to come by, I think that would create a raw material upside or if raw materials were, let's say, we saw some economic pickup and raw material prices started to move up, I think we could be more aggressive on pricing. So I think we feel good about the pricing and raws together. We feel good about our pricing strategy, but feel particularly good about our ability to predict pricing and raws. Operator: Your next question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Just in construction, you mentioned the environment is weakening. Is that more a U.S. comment or a European comment? Celeste Mastin: David, it is both. The construction market has been particularly weak in Europe. And I'm not saying that's not the case here in the U.S., but with the construction of data centers here in the U.S. and our success penetrating that market, we're able to offset some of that commercial construction weakness here that I think others may be feeling. David Begleiter: Understood. And just on the packaging weakness, can you discuss the competitive intensity in that market as volumes decline? And do you think you've maintained your share, i.e., not lost any share in this downward trend? Celeste Mastin: Sure. So it is a competitive market. It always has been a competitive market. I do think that is becoming more and more intense. And it actually coincides with our portfolio review and our interest in making sure that we are working with the best customers where we can bring the most value, where we can bring innovation and they're seeking solutions, whereas there are parts of that market where we have deemphasized them kind of organically selected out of some of those spaces. And so yes, it's competitive, but I still feel like we're bringing a lot to the table for those customers. And our service delivery is what makes a difference, that in innovation. Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: I guess just two final questions. When you look at your overall geographic markets, if you exclude the places where you're gaining market share, do you see an acceleration in demand growth in any of your 3 major regions? Are there green shoots? Celeste Mastin: Excluding places where we're gaining share, and I'd like to say that we're creating our own green shoots, Jeff, right? But the greatest acceleration that I saw in Q4 was China. China was really exciting because we finally saw a bounce back there that took it to a level that it had historically operated at 2024, Q1 of 2025, et cetera, double-digit organic growth. And what we had seen in Q2 and Q3 was really a pause there, right? While with all of the tariff chaos that occurred, we saw the Chinese manufacturers pull back a little bit. But I don't know if you saw this, China just reported $1 trillion trade surplus for 2025, which is a record. So they're back on track and shipping to other parts of the world. I think that's why our packaging business did well in China in Q4. And if I had to point to any green shoots, I would say that would be the one. Jeffrey Zekauskas: Okay. And then finally, why do you expect as a base case for your HHC volumes to be down a little bit in 2026? Celeste Mastin: I expect really continued constraint in the packaging space, Jeff. Our CPG customers, the packaging customers are struggling with affordability in our bigger economies, which are Europe and the U.S. for that business. So I think that in Asia and Latin America, we may see something different. But in the bigger economies, we continue to see that constraint. Operator: Your next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: I just had a housekeeping question for you. In your Reg G reconciliation, I think there's a $37.4 million special item related to, as I understood it, two issues, litigation and product claims and also an insurance gain partially offsetting that. Can you unpack that a little bit and help us understand what's going on as well as comment on whether it's a cash item or noncash? John Corkrean: Sure. So it's predominantly the legal claim that's driving that number. And it's not -- it's a noncash item in the quarter. But it's associated with a product liability legal claim related to the divested flooring business, amount was about $35 million pretax, about $25 million after tax. So we recorded a reserve in the fourth quarter. Reserve doesn't consider any insurance recovery and we have coverage that we believe will cover a substantial portion, but it's predominantly a product liability claim related to the divested flooring business. Operator: Your next question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Just in BAS/BAS in Q1, what do you expect volumes to be down? John Corkrean: So I'd say we probably won't get into that level of detail, but I would say it's probably not dissimilar to Q4. I think we see some of the macro headwinds. We have some of the impact of having the customer gains last year that we've sort of annualized against. So I'd say similar to Q4, David. Operator: That concludes our question-and-answer session. I will now turn the call back over to Celeste Mastin for closing remarks. Celeste Mastin: Thanks to everyone for joining us today. We look forward to speaking with you again next quarter. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, everyone, and welcome to today's Greystone Q2 results conference call. [Operator Instructions] Please note this call is being recorded, and I will be standing by. Now it's my pleasure to turn the call over to Brendan Hopkins. Brendan, please go ahead. Brendan Hopkins: Thank you, and thank you, everyone, for joining us today. We have a brief safe harbor and then we'll get started. So except for historical information contained herein, the statements in this conference call are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from forecasted results. With that said, I would like to turn the call over to Warren Kruger, CEO of Greystone. Warren Kruger: Thank you, Brendan, and welcome, everyone. I'd like to just kind of dive right in. I want to talk about the Q. As you can see, we've had a significant exogenous event occur with our customer of 11 years, iGPS. They called me one day and said, we're done today. Our 11-year relationship came to an end, which -- and the revenue came to an end that day as well. We may have gotten a few dribs and grabs after that, but not much. So it was a shock to our senses a little bit at the Greystone. I will say that we've had a wonderful 11-year run, and we -- the great news is with iGPS, they allowed us to build a wonderful infrastructure that allows us the next phase of our growth. And so that's a beautiful thing. So we laid off about 140 people right away. That was towards the end of November. So it will take some time for those numbers to be reflected. So you can see that, that -- some of those costs will be in the first half of our corporate year. We can talk about -- we want to about what happened, but we're going to move on with what we're doing and what we are going to do. I want to make sure everyone knows that I -- this is -- Greystone is my life. And I will tell you that I have 8,884,354 shares of Greystone stock. So no one is more affected than me personally. So this is something that I don't think take line down. This is -- we are very aggressive in what we're doing, and we're very excited about where we're going. So I will take some questions about what happened when we get to the Q&A. But I just want to talk about what we're doing now to add revenue and get back into a profitable mode and get back to where Greystone where we all want it to be. And first of all, I'll say that we have an 8-month contract to do some grinding granulating processing of about 18 million pounds of plastic. So that starts next week. So that revenue will start to be reflected after next week. So that will provide -- we have a tremendous recycling infrastructure that we were recycling about 300,000-plus pallets a year for iGPS. So a lot of resin. So for us, this is just -- it's something we've done a lot of in the past. If you've been a long time shareholder. We used to do a lot of grinding, granulating and [ weaving ] plastic for resale. We haven't done that because we've used most of it for product sales. Then I'm going to talk about where we're headed in terms of our leasing. We have our -- we were prohibited really from doing some leasing because of the iGPS contract. And so we've -- since we don't have that in place, we'll -- starting in the middle of February, we can really do some -- we are unencumbered. I'll tell you that we've been testing with Walmart a cellular track pallet. We are having good luck there. We're having success. We also designed a pallet for Walmart. There was a warehouse pallet that has been utilized in the Chicago import facility. And we used it out in California and one in the Ontario, California area. And we had to change that design. So that pallet was remanufacturing in Taiwan for us, and it has been delivered in December, and we have made product, and I'll be out in the Mira Loma import facility next week with Ron Schelhaas our -- who I've worked with for 20 years. We'll be at the Walmart import facility. And it's -- we've got about 5 million square feet out there. So it's a big import facility. And we've probably done about $30 million in revenue over the last 5 or 6 years with Walmart. And I really look forward to what we're doing there. We're trying to do a track and trace. So we always know where they are. The pallet is on a daily basis. We know how long the pallet dwell time is. We know what the temperature is. So we see that being helpful in their food side later on. So we're really excited about that. So we're going to move rapidly in that arena. We also have a great firm working with us company called Adaptive Pallet Solutions who they are -- they'll be working with us on some of these returnable programs where there's going to be a lot of management involved. So that's good news there. So we feel good about the pallets as a service and more -- will continue to take care of our customers on all our other product lines that continue to purchase products for export for the beer side or for the automobile side. But we do think that our big growth is going to come in the -- in putting in our pallets in closed loops rather than the open loop. And if you -- to distinguish between the open loop and the closed loop and open loop is more like if you go to Costco, and you see blue wooden pallets or red wooden pallets or the iGPS pallets, those pallets are ubiquitous and they're all over the United States. And they have to have an infrastructure across the United States to take care of that. And what we're -- our focus is on rivers and streams and lakes and ponds. In other words, where the pallets don't really leave the -- they're not sent across the country, so their 1s or 2x have to be recovered somewhere else. It's more in between a product manufacturer sending every week to someone on a consistent basis. And they're all tired of the wooden pallets that they have. Plastic pallets continue to be strong, [ drawn ] strong in demand. And so we feel good about that. So coupled with the processing of the resin and with our opportunity on the cellular tracking and tracing, we feel quite good about where we are. I think it will take a couple of quarters for us to add good revenue -- but I anticipate by -- in the next 6 months that we'll be back on track and we won't be -- we won't have this punch in the nose, which it was. It will just take us a little time. I've been doing this now for 23 years. It's not the first time we've been punched in the nose, and I'm sure it's not the last time we'll be punched in the nose. So anyway, I look forward to answering questions and I'm going to keep these -- this kind of brief because I know there's a lot of questions that need to be asked. So at this time, if there's -- I'd just like to open up to questions and answers. Operator: [Operator Instructions] And our first question today comes from Anthony Perala. Anthony Perala: I guess, looking, like you said, having got the first or last time you've been punched in the nose, just kind of looking for -- looking back historically, kind of the early 2010 period was another time that you operated with revenues that were in this area, kind of like $6 million to $8 million quarterly. I see anywhere from $23 million to $26 million of annual revenue in 2013 to 2016. And you were able to deliver 20% gross margins in those years, generate some cash. Is there any fundamental changes in the business that prohibit you from being able to put up those types of numbers with that level of revenue today? Warren Kruger: No, I think you're dead on. We are a lean -- we are very lean organization. We try to run it that way. We have fantastic -- our general manager is just fabulous. Or guy that's in charge of facilities and equipment and molds. He's been there longer than. He is unbelievable. And everyone knows -- everyone has a stake in this. It's their life. And so we take this -- every day, we take very serious. And we were preparing for the next level. We put in a lot of new equipment. I put in $10 million of new equipment, really haven't leveraged that equipment at all. So almost all of our debt is from new equipment that we have that we really haven't put into work. I have some outsourcing that I'm going to do over the next year. I've got people who have contacted me and asked me if I have extra capacity to produce some things. So we'll be doing some outsourcing some other products. We have been asked to do a couple of other non-pallet type programs like for showers, plastic bases for these outdoor showers. So we've been asked to do that. So we'll be doing a lot more of that type of thing. And to answer your question specifically, yes, I think that we'll have our numbers in order. I'll make sure that we have cash on hand to run the business. As we've always done that. If necessary, we'll get the money that we need. And our banks, we've gone to an interest only for the calendar year 2026 with our bank IBC. And so our payments were about $250,000 a month, and they'll now just go interest only. So it will be a significant help on our cash flow, and they've been great to work with and have no issues whatsoever. Anthony Perala: Do you have any MFPs that you mentioned in the Q, just kind of continue to negotiate an extension of the revolver. Any update on those negotiations? Warren Kruger: Yes, it's no problem. It's just they're waiting for the end of it, and we'll -- I just talked to -- a matter of fact, I had -- I met with them last Friday and the guy that I worked with, and that will be renewed. Anthony Perala: Okay. Okay. And then one just kind of more philosophical, like you pointed out, you own 8 million-plus shares here. Some of your partners, you get close to 50%. A check to purchase the entire other part of the business that you don't own is fairly reasonable, all things told, looking -- so I'm just curious if that's something you're evaluating or a management buyout or something like that. Just curious what you think of that. I guess more of an open-ended question. Warren Kruger: That is an interesting question. And I will tell you the last 90 days have been more of really spinning the place of firefighting and getting things prepared. We didn't have -- our last Board minute was prior -- Board meeting was prior to the iGPS call. And so we have a Board meeting coming up. And we will be addressing that because, I mean, at this price, being today, we've had big sell-off, 300 -- last I looked, there was like 335,000 shares that were traded today and the share price has fallen. At this price, it's -- we've got $60 million of equipment that we've put in over the years. We've got $10 million of brand-new equipment. So I feel very, very comfortable about those discussions. And you know what, it's something we've discussed in the past, and we'll discuss again. Operator: Next up, we have [ Adam Posner ]. Unknown Analyst: Thank you for your time and frankly, swift action during this potentially turbulent time. My question really is around morale. So given the recent layoffs and the news around iGPS, how's the team morale the facility and sort of beyond? Warren Kruger: Thank you for asking that question because I'm concerned about that. I'm really -- I care about those who I work with, and I care about those who worked with me a long time. And I will say that our general manager, just -- I'm going to give us a short little story here. Our general manager is Marilyn Carter. Marilyn came to us when she was about 25 years old and a single mother. We sent her over the years -- we sent her to school. She got her undergraduate degree. She got her master's degree at Drake. She has grown, and she's been with us 20 years almost. She's unbelievable. She knows how -- I think she knows how we want to do things. [ Joe Carter ] has been there for 25 years. He is fabulous. Ron Schelhaas, who is our former plant manager, Ron's working with me on the sales arena. He is so good with people and with Walmart, it's incredible. Their attitudes are great. They're said about what's happened. They don't understand sometimes as do I, the logic in at all. So -- and then I've got another -- so the staff that we have are loyal and hard-working and great people. And I had a conversation with one of our sales -- other salesmen this morning, Gary Morris. He has some -- I mean, in his pipeline, it's really, really good. So the Toyota thing on our extruded pallet, we finally -- there -- we've got some purchase orders, and we're sending some of those out. He's got some great things with Berry Plastics working. He's got some things with Southwire. He's got really, really, really, really good opportunities out there as does Ron. Ron Schelhaas, I'll meet him at the Walmart import facility in California. And so their attitude is great because they know we have a great product line. They know we have the best designed in for pallets in the United States. We feel that way. And we believe that things will be -- we will -- we'll make things happen. How about that? Unknown Analyst: Awesome. It sounds like you're doing a great job maintaining the crew there during this time. So thank you. Operator: Next, we'll hear from Robert Littlehale. Robert Littlehale: Warren, could you maybe talk a little bit more about iGPS situation. What prompted this phone call, this midnight phone call that you received? What happened there at that company? Warren Kruger: Robert -- and for those who don't know, I've -- Robert has probably been as long an investor as anyone besides myself. So I appreciate that. He was down, he probably bought some things at the nickel. I will tell you that it's -- we had a relationship. I worked with Robert and Jeffrey Levisman years ago. They were the original -- they bought the company with a fund about 11 years ago out of bankruptcy. And then we provided the first pallet what we call the MVP for them that worked for iGPS. So we grew with them quite rapidly and had a great relationship. Robert and Jeffrey were removed about 5 years ago. And I really enjoyed them. I enjoyed working with them. The new crew, I just didn't know the new crew. And I will tell you, I had a good relationship with their national sales manager there and their operations guys. But they never shared any information that we never shared much information. They put in a -- they told us they needed a secondary manufacturing facility just in case something happens. So they put one in for themselves down in Dallas, Texas, and they actually produce another product down there in Dallas. It's a similar -- it's not a similar. It's another pallet. It's not similar. And of course, we recycled probably 300,000 to 400,000 pallets a year for them, broken pallets. So it's not easy. It's not for the faint of heart to do this. I mean, it's -- it's a lot of resin. It's moving metal out, taking metal out. It's -- and I think what happened there is the fund that was in originally 11 years ago, I believe that they meant to be in for about 5 years, and here they are 11 years in. I don't know if they had to do a secondary fund to take that position. I'm not sure because I'm not privy to that. But I just believe that they tried to sell this last year and couldn't sell. And I think they finally said, okay, we're not going to be in a growth mode anymore. We're going to be in just a -- let's reap what we've sewn and let's just flatten out, and we'll just do maintenance -- we'll just do maintenance on our pallets and we just won't grow. So -- because when you take 800,000 pallets out of the system on an annual basis, that's going to slow your growth. And so I believe that, that's the case, Robert. I just think that they -- whoever the money people are said, okay, time to just stop going to maintenance only, let's generate cash, let's pay down debt if we have it, and let's return something to the shareholders. So that's my guess. And that's truly just a guess on my part. Robert Littlehale: The closed-loop pallets from a manufacturing standpoint, is it different? And do you have to retool in order to produce those? Or maybe you could talk about that? Warren Kruger: Well, we are -- we have multiple different pallets that we can put cellular devices in. The whole technology with cellular devices has changed just because the battery life is long, like 7 years. I mean you -- now you can put 1 out and appreciate your product over 7 years and you know where it is every single day. That's pretty interesting. It's also you can put -- you're putting a fire alarm in every single pallet you put out there because you can set the temperature and have it notify you at a certain level. So it's -- the technology is just unbelievable. And so we believe that we can tie in with existing RFID systems and tie the RFID that they're currently -- that customers are currently using with the cellular device so that we can know where the product is. And then if you have to go down to an individual level and find a specific palette with maybe a product on there, you can do it with existing RFID hand scanners and so forth. So we're -- just the interest in this is really high, and there's a lot of discussions within this industry about -- because it is an asset. At the end of the day, you buy these pallets or an asset, and they -- it's easy to float away. This is a big country. And now it's funny because we can monitor these things, and we know where they are every single day within meters. So it's pretty great. Robert Littlehale: So the customer achieves economies of scale and productivity enhancement by using these closed-loop pallets, I presume? Warren Kruger: Yes. Every those that -- and I'll give you an example. We're talking to a Midwestern company that they just have used CHEP or so long and they're just done with wood. They just said to us finally, hey, we are just so done with wood. We got a big bill for your -- the lost pallets that we don't think that we lost them, but it's hard to find out who's -- it's really -- it's -- you start pointing fingers at one another. And with us, we'll be able to say, hey, here it is. It's off the reservation. You either recover it or you're going to have to pay for it. And so we don't -- it's not ambiguity. It's going to be real life. It's going to be data. It will be data driven. And we also know people say, "Oh, my pallets turn really rapidly. And then you can now you can say, well, they've been sitting for 40 days." So you can also help with some of the things that people believe happening within their systems, but not happening. So data and information is powerful. And we're -- we believe that we can help the customers deliver information. Robert Littlehale: Final question. Just -- so your headcount is what currently? Warren Kruger: Oh, gosh, it's probably in the 80s. Yes. It's low. We were -- we've been as high as 250, and we -- I think we had -- we lost 140. I think we're in the 80 range, something like that. Operator: [Operator Instructions] Warren, we have no questions at time, I'll turn it back over to you for any additional or closing comments. Warren Kruger: Well, I want everybody to know that's on this call that our -- we care about our shareholders, and we work every day for our shareholders. And so I want you to know that. I am -- I was saddened about the big loss, but I will tell you I was emboldened as well. And it has now given me the -- we look forward opportunistically. And we have multiple products we can put our cellular devices in. And we're working -- our stocking and nonstocking distributors out there have been very good with us. They've said, "Hey, we'll support you and help you as well." So we're going to continue to work hard for our shareholders. So if -- and anyone is welcome to reach out to me at any time. If I don't call you -- answer it right then, I will follow up. So -- but I appreciate everyone being a shareholder, and thank you very much. Operator: That concludes our meeting today. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware Fourth Quarter Results Conference Call. [Operator Instructions] Note that this call is being recorded on January 15, 2026. [Foreign Language] Richard Lord: Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the fourth quarter and the year ended November 30, 2025. With me is Antoine Auclair, CFO and COO. As usual, note that some of today's issue include forward-looking information, which is provided with the usual disclaimer as reported in our financial filings. Overall, we delivered a strong fourth quarter with good progress in our main market segments. We also closed 3 new acquisitions during the year, building on the 6 acquisitions completed earlier in the fiscal, 2 in Canada and 4 in the U.S. For the quarter, sales increased by 7.3% to $511 million. EBITDA increased by 9.1%, diluted earnings per share increased by 4.5% and cash flow from operations reached $68.7 million, including a $30 million reduction in inventory. These results highlight the strength of our model and our operating discipline. The fourth quarter was active on the acquisition front. We closed Ideal Security in September, Finmac Lumber and Klassen Bronze in October. Ideal Security located in the Greater Montreal area, distribute specialized hardware products for doors and window market and serves hardware retailers and renovation superstores market as well as online retail platform. Finmac Lumber is a specialized wood product distributor based in Winnipeg serving Western Canada. Klassen Bronze based in Ontario, strengthens our offering with a wide range of letter, number, sign and mailboxes, key blanks and key cutting machines for the hardware retailers and renovation superstores market. We are very pleased with this acquisition, particularly with Ideal and Klassen, which expand our Richelieu portfolio of private brands for the retailers and renovation superstores market to 10. These acquisitions reinforce our position in this key market segment and support our one-stop shop strategy, supported by our distribution centers in Calgary for Western Canada customers, Kitchener for Eastern Canada and Chicago for the U.S. market. Private brands and exclusive products remain an important differentiator for Richelieu. A significant proportion of our sales is generated through these offerings. Which support customer satisfaction and loyalty, while reinforcing our competitive positioning and margin profile. The strong fourth quarter drove total sales for the year to $1.96 billion, up 7.2%. EBITDA for the year increased by 6.2% and cash flow from operations reached $202 million. We closed the year with a positive cash position almost no debt and a working capital of $622 million, which means a solid and healthy financial position and an outstanding balance sheet. I will now ask Antoine to review the financial highlights for the quarter and the year ended November 30, 2025. Antoine Auclair: Thanks, Richard. Our fourth quarter sales reached $511 million, up 7.3%. Sales to manufacturers stood at $459.9 million, up 9.1% with 5.9% from internal growth and 3.2% from acquisitions. In the hardware retailers and renovation superstores market, sales were down 6.4%. In Canada, sales amounted to $282 million, up $6.8 million or 2.5%. Sales to manufacturers reached $241 million, an increase of 4.6%. In the retailers market, total sales totaled $41 million, down 10.7% this quarter, mainly due to timing differences. On a year-to-date basis, sales are in line with last year. In the U.S. sales totaled USD 164 million, up 12.3%. Sales to manufacturers reached USD 157 million, up 12.9%, including 8.8% internal growth, mainly driven by price increases. In the retailers market, sales were up 1.4%. Total sales in the U.S. reached CAD 229 million, an increase of 13.9%, representing 45% of total sales. Total sales for 2025 reached $1.96 billion, an increase of 7.2%, of which 3.2% from acquisition and 4% from internal growth. Sales to manufacturers reached $1.7 billion, up 8%, of which 4.4% from internal growth and 3.6% from acquisitions. Sales to hardware retailers grew by 1.6%. In Canada, sales totaled $1.1 billion, up 2.2%, primarily driven by acquisitions. Sales to manufacturers amounted to $897 million, up 2.8%. Sales to hardware retailers and renovation superstores were $175 million, essentially flat compared with last year. In the U.S., sales amounted to USD 638 million up 10.9%, of which 5% from internal growth and 5.9% from acquisitions. They reached CAD 892 million, up 13.9%, accounting for 45% of total sales. Sales to manufacturers reached USD 604 million, an increase of 11.1% and sales to hardware retailers were up by 7.8%. Fourth quarter EBITDA amounted to $59.2 million compared to $54.3 million in the fourth quarter of 2024, up 9.1%. Our gross margin remained stable, and the EBITDA margin stood at 11.6% compared to 11.4% in the same period last year. Fourth quarter net earnings attributable to shareholders totaled $25.6 million compared with $24.4 million last year. Diluted net earnings per share were $0.46 compared with $0.44 last year, an increase of 4.5%. For the year, net earnings reached $86 million or $1.55 per diluted share compared with $1.53 last year, an increase of 1.3%. Fourth quarter adjusted cash flow from operating activities were $48.3 million or $0.87 per share. Net change in noncash working capital balances represented a cash inflow of $20.4 million driven by a $30.1 million reduction in inventories. Consequently, we generated $68.7 million in cash flow from operating activities compared with $27.2 million in the fourth quarter of 2024. For the year, operating activities generated a cash inflow of $202.4 million compared with $133.6 million last year. Over the year, we paid $34 million in dividend, representing a payout ratio of 37.5%. We also repurchased common share for $16 million, including $13 million in the fourth quarter. In total, we returned $50 million to shareholders this year. Investing activities used cash flow of $62 million, including $47.1 million for 9 business acquisition completed this fiscal year. And $15.2 million primarily for the purchase of equipment aimed at maintaining and improving operational efficiency. I now turn it over to Richard. Richard Lord: Thank you, Antoine. I am proud to note that over the past 13 months, we completed 10 acquisitions in Canada and in the U.S., representing approximately $100 million in additional sales. And our most recent acquisition completed after the year-end, would bring the total to 100 acquisitions so far that Richelieu has made in its complete history. Especially, this most recent acquisition includes 3 McKillican American distribution centers located in Portland, Oregon, Seattle and Spokane, Washington. These centers are already integrated into our IT system and the Seattle operations have already been moved to our current Seattle distribution center. This transaction reinforces our distribution network enhances local expertise and expands our product and service offering to better serve our customers. As a result, we now operate 5 locations across the Pacific Northwest region. In the current environment, our business model continues to demonstrate its resilience and flexibility enabling us to respond with agility to our customer needs and protect our margins. Looking ahead, our 2 primary growth drivers, innovation and acquisition position us well for continued profitable growth and further consolidate our leadership in North America. We are committed to ongoing investment in innovation to strengthen our offering and value-added services and we actively pursue acquisition opportunities. Thanks, everyone. We'll now be happy to answer your questions. Operator: [Operator Instructions] The first question will be from Hamir Patel at CIBC Capital Markets. Hamir Patel: Richard, could you comment on the sort of organic growth rates you've seen in Q1 so far? And any notable differences between Canada and the U.S.? Richard Lord: Yes. What we're seeing in Q1 so far is a flat sales for the hardware to -- sales of hardware to retailers market. And we -- in the mid, I would say, something around 5% regarding the growth for the manufacturers market. So basically, we're satisfied with the start of the year. We don't know what's going to happen in the months to come, but so far, so good. Edward Friedman: And then when you think about how the U.S. versus Canadian business is going, any differences there? I know last quarter, you were pointing to Ontario being softer? Richard Lord: We see a bit more growth in the U.S. a couple of percent growth, additional. Edward Friedman: Antoine, I wanted to ask about the EBITDA margins. It looks like they ticked up to 11.6% in Q4. How should we think about the margin trajectory for Q1 and full year '26? Antoine Auclair: Yes. The last 2 quarters were positive versus the previous year. So that trend should continue. But keep in mind that usually the first quarter of the year is the lowest of the fiscal year due to seasonality. So -- but we should continue to see improvement in the EBITDA margin. Of course, it all depends on the type of acquisition that we'll be able to land. But same-store sales, we should be able to generate more EBITDA. And having a bit more rigor in the market will definitely help as well. Hamir Patel: And then thinking on a full year basis, I mean, for the last 2 years, it looks like you've kind of averaged close to 11%. I know you've been quite acquisitive. So that's kind of a short-term drag. But do you think you can drive further margin growth in '26? Antoine Auclair: Yes, we should be slightly north of 11%. Operator: Next question will be from Zachary Evershed of National Bank. Zachary Evershed: Congrats on the quarter. Could you go into a little bit more detail on the pullback that we saw in sales to retailers during the quarter, please? Richard Lord: I think the flat sales for the retailer, I think it's -- what we see with -- if you read the Home Depot and Lowe's in the U.S., whatever they're forecasting, they're forecasting of flat sales. And in Canada, we see that the market is more to get -- we speak to our customers and the -- their sales are down for the first quarter. So Richelieu is doing well because we keep reducing -- introducing products into the stores. We have new products coming with RONA that are getting into their stores. So that's going to generate sales in the months to come. We have the same thing with the home hardware and Home Depot in Canada. And in the U.S., fortunately, we have regained the business that we had lost with Lowe's. So basically, that's going to -- the delivery will stop or in the end of the second quarter and third quarter. So -- but basically, that will bring another $10 million to $12 million sales in the U.S. So I think we have the only good news for the retailers. It's only a matter of the market being as we speak, flat. But eventually, I think the market is going to start to move again . Antoine Auclair: And Zach, the main -- the main reason for the Canadian retail sales down in the fourth quarter. And that's why we said that overall, the year is flat, but in the fourth quarter, it's because of one customer that didn't place orders for seasonal sales. So it's not a big deal, so it's only a timing issue. Richard Lord: So we remain positive for the retail market. Zachary Evershed: Got you. And do you think there's a catch-up in Q1 for those seasonal sales or that's just foregone? Antoine Auclair: No, I would say on a yearly basis, there's a catch-up, but just a question of timing. Zachary Evershed: Understood. And your inventory reduction this quarter was pretty far ahead of the schedule you'd outlined last quarter. What's driving the improvement in working capital there? Antoine Auclair: It's pretty much aligned with what we said at the beginning of the year, Zach. So, of course, it's difficult to be perfectly timed during the quarters, but that's what we were expecting. I think I mentioned a year ago that we would be expecting between $20 million and $30 million reduction in inventories, that's what we achieved. We achieved $33 million this year. So that was positive. . Hopefully, we will still -- we will be able to generate a bit more reduction in 2026, not as big as that, but we'll continue to be actively working and improving and optimizing our inventory situation. And also, I I'm glad to see the CapEx that is now down -- come down to a more maintenance level phase of CapEx. So we've had a few big years in terms of CapEx investment. So now we spent $15 million. It's 0.08% of our sales. So that's more in line with the historical data prior to COVID. So we're glad that it's back to normal. Richard Lord: And as a result, I think in 2026, the cash flow generation is going to be stronger. Zachary Evershed: Excellent color. What are your customers saying about the pause on the additional tariffs on furniture and cabinets? Richard Lord: They're very happy, but they already have to live with that first 25% that is already imposed. So basically, I think the -- our Canadian customers that are selling in the U.S. are losing sales as we speak. They're reducing the number of employees and everything else. They still continue to buy from Richelieu, but some buy less, but some buy more because they used to buy from overseas certain products now that they buy from Richelieu. So basically, we should see an clean of the sales to that type of customers. And the second phase, I think safe, I would say, I don't know how to say it, but you really saved the 2026 year, even though they're already negatively affected by the first 25%. But if that second 25% apply next year, I think it's -- it could be very, very basically disasters for the customers that export to the U.S., but we don't have that many customers that export in the U.S., but it's still a substantial business. But we -- as a result of that, we should really capture some business on the U.S. side because the customers that are capturing this market are also your customers in the U.S. Zachary Evershed: Got you. And then how are you feeling about the M&A pipeline for 2026. You just came off of a year of almost $100 million in 2025, starting off with an acquisition subsequent to the quarter, where do you think you'll end this year? Antoine Auclair: We'll continue with what we've told you guys 1.5 years ago. So we're still on a $100 million a year. So that's what we're working on. The pipeline is healthy. Both side of the border. So no change there. Operator: Thank you. And at this time, Mr. Lord, we have no other questions registered. Please proceed. Richard Lord: Thanks to everyone, for listening. And so if you have any more questions, do not hesitate to call myself or Antoine. We're here in the office. So thank you very much, and have a good afternoon. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.
Operator: Good morning. My name is Jennifer and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the BlackRock, Inc. Fourth Quarter 2025 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Martin S. Small; President, Robert S. Capito; and General Counsel, Christopher J. Meade. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference. Christopher Meade: Good morning, everyone. I'm Chris Meade, the General Counsel of BlackRock. Before we begin, I'd like to remind you that during the course of this call, we may make a number of forward-looking statements. We call your attention to the fact that BlackRock's actual results may, of course, differ from these statements. As you know, BlackRock has filed reports with the SEC, which list some of the factors that may cause the results of BlackRock to differ materially from what we say today. BlackRock assumes no duty and does not undertake to update any forward-looking statements. So with that, I'll turn it over to Martin. Martin Small: Thanks, Chris. Good morning and happy New Year to everyone. It's my pleasure to present results for the fourth quarter and full year 2025. Before I turn it over to Larry, I'll review our financial performance and business results. Our earnings release discloses both GAAP and as-adjusted financial results. A reconciliation between GAAP and our as-adjusted results is included in today's press release. I'll be focusing primarily on our as-adjusted results. We're closing out one of the strongest years in our history. Clients awarded us nearly $700 billion in net new assets, 9% organic base fee growth and 16% technology ACV expansion. Our whole portfolio strategy is winning both mind and wallet share with clients. It's bringing even more momentum to the breadth of our organic growth. We had nearly 150 products across our ETF and mutual fund ranges with over $1 billion in flows. We had over $24 billion in revenue alongside nearly $10 billion in operating income, both up 50% since 2020 and earnings per share was a new record. Our platform demonstrated resilience and growth even when markets were in turmoil back in April and captured steep upside when they rallied. 2025 was another proof point that BlackRock is a share gainer when there's money in motion. Our 10% increase to our 2026 dividend per share and increase in planned share repurchases to $1.8 billion are driven by our accelerating growth trajectory and platform success in 2025. That's our highest dividend increase since 2021 and comes after a record $5 billion payout to shareholders in 2025. Supported by both 9% organic base fee growth and favorable markets, we entered 2026 with a base fees run rate that's approximately 35% higher than our base fees in 2024 and approximately 50% higher than 2023. This stronger entry point enhances our ability to deliver future earnings, return capital to shareholders and execute on our 2030 ambitions. We delivered 6% or higher organic base fee growth in each quarter of 2025. We finished the year with 2 consecutive quarters of double-digit organic base fee growth, including 12% in the fourth quarter. That growth is broad-based across our systematic franchise, private markets, ETFs, digital assets, cash and outsourcing. And it's across capabilities that we've had for decades and others that we've built or acquired in the last 2 years. That gives us confidence we're on the right track with clients and we have a lot of optimism for the years ahead. You've heard us say it's not that the big are getting bigger, it's that the best are getting bigger. Size and scale are outputs of performance. We've wrapped a successful 2025 and now we're moving with speed and scale to go upward from here. We're building leading franchises in newer high-growth markets across the industry, private markets to insurance, private markets to wealth, digital assets and active ETFs. We think these can all be $500 million revenue generators in the next 5 years. We already have industry-leading margins and we see real opportunity to drive margin expansion through the FRE growth trajectory of our private markets and our highly scaled foundational businesses. We entered 2026 with strong momentum and our first year as a fully integrated firm with GIP, Preqin and HPS. We're pioneering what we believe is the asset management model of the future. It's one that seamlessly brings together public and private markets, it interoperates between traditional and decentralized financial ecosystems and it's powered by technology and data with Aladdin, eFront and Preqin. BlackRock houses the world's #1 ETF franchise, a top 5 alternatives platform with more than $675 billion in client assets, $0.5 trillion in target date AUM, leading advisory services and a tech and data SaaS franchise with nearly $2 billion in revenue. Moving to financial results. Full year revenue of $24 billion was up 19% year-over-year. Operating income of $9.6 billion was up 18% and earnings per share of $48.09 increased 10%. Fourth quarter revenue of $7 billion was 23% higher year-over-year, driven by the acquisitions of HPS and Preqin, organic base fee growth over the trailing 12-month period and the positive impact of market movements on average AUM. Quarterly operating income of $2.8 billion was up 22%, while earnings per share of $13.16 increased 10% versus a year ago. EPS also reflected a lower tax rate, lower nonoperating income and a higher share count in the current quarter linked to the close of the HPS transaction on July 1. Nonoperating results for the quarter included $106 million of net investment losses, primarily due to a noncash mark-to-market loss linked to our minority investment in Circle. In mid-December, we contributed a portion of our stake in Circle to our existing donor-advised funds. Following this transaction, we maintain approximately 1.1 million shares of Circle common stock, which will continue to be marked through investment income. Our as-adjusted tax rate for the fourth quarter was approximately 20% and benefited from discrete items. We currently estimate that 25% is a reasonable projected tax run rate for 2026. The actual effective tax rate may differ because of nonrecurring or discrete items or potential changes in tax legislation. Fourth quarter base fees and securities lending revenue of $5.3 billion was up 19% year-over-year, driven by the positive impact of market beta on average AUM, organic base fee growth and approximately $230 million in base fees from HPS. On an equivalent day count basis, our annualized effective fee rate was approximately 0.1 basis point lower compared to the third quarter. This decrease was primarily due to higher securities lending revenue in the third quarter, which benefited from specials. We're seeing client demand from our structural growers like private markets, systematic, models, OCIO, ETFs and SMAs. And these capabilities provide positive leverage to average fee rates. The fee yields on new asset flows this year are 6 to 7x higher than they were in 2023 and are at a premium to our overall fee rate. Fourth quarter performance fees of $754 million increased from a year ago, reflecting higher revenue from alternatives and included $158 million from HPS. Full quarter and full year technology services and subscription revenue, each increased 24% year-over-year, reflecting the successful onboarding of a number of new clients, expanding relationships with existing clients and the closing of the Preqin transaction. Preqin added approximately $65 million and $213 million of revenue in the fourth quarter and full year, respectively. Annual contract value, or ACV, increased 31% year-over-year, including the impact of Preqin. ACV increased 16% organically. Total expense increased 19% in 2025, primarily driven by higher compensation, sales, asset and account expense and G&A expense. Full year employee compensation and benefit expense was up 20%, primarily reflecting higher incentive compensation associated with performance fees as well as higher operating income. The year-over-year increase also reflects the impact of onboarding GIP, Preqin and HPS employees. Full year G&A expense was up 15%, primarily due to M&A transactions and higher technology investment spend. Our fourth quarter as-adjusted operating margin of 45% was down 50 basis points year-over-year. Our full year as-adjusted operating margin of 44.1% decreased 40 basis points from a year ago. Both periods reflect the impact of performance fees and related compensation. We continue to deliver margin expansion on recurring fee-related earnings. Excluding the impact of all performance fees and related compensation, our adjusted operating margin for the fourth quarter would have been 45.5%, up 30 basis points year-over-year. Our full year margin would have been 44.9%, 60 basis points higher relative to 2024. As we execute on our organic base fee growth and operating margin ambitions, we'll continue to be disciplined in both our hiring and our investments. After annualizing for the impact of HPS and Preqin, we would expect a mid-single-digit percentage increase in G&A. Additionally, we would expect BlackRock's headcount to be broadly flat in 2026. After investing for growth, we returned a record $5 billion to our shareholders through a combination of dividends and share repurchases in 2025. This includes $500 million and $1.6 billion of share repurchases for fourth quarter and full year, respectively. BlackRock's Board of Directors recently approved a 10% increase to our first quarter 2026 dividend per share, building on our track record of strong dividend growth and demonstrating confidence in our cash flow generation and durable earnings expansion. That represents a 13% increase in the dollar amount of dividends expected to be paid. The Board also authorized the repurchase of an additional 7 million shares under our share repurchase program. At present, based on capital spending plans for the year and subject to market and other conditions, we are targeting a purchase of $1.8 billion worth of shares during 2026. Full year total net inflows of $698 billion reflected positive flows and organic base fee growth across all asset classes and active and index. iShares led the industry and set a new flows record with $527 billion in 2025, representing 12% organic asset and 13% organic base fee growth. Net inflows were diversified across core equity and premium categories like fixed income, active and digital asset ETPs. iShares net inflows of $181 billion in the fourth quarter once again demonstrated strong momentum into year-end, supported by seasonal portfolio reallocations. Full year retail net inflows of $107 billion were led by the onboarding of the $80 billion SMA assignment from Citi Wealth during the fourth quarter. Separate from this assignment, Aperio had its fifth consecutive record year of net inflows with $15 billion, active fixed income added $3 billion and alternatives generated $12 billion in 2025. BlackRock's institutional active franchise generated net inflows of $54 billion in 2025, reflecting the onboarding of multiple outsourcing mandates, the above-target close of GIP V and deployment in private credit. Institutional index net outflows of $119 billion were mainly driven by redemptions from low-fee index equity strategies. Our scaled private markets platform delivered $40 billion of full year net inflows led by private credit and infrastructure. We're targeting $400 billion in gross private markets fundraising through 2030, powered by origination, strong investment performance and the depth of our client relationships. Our valuable position as a trusted long-term partner to corporates and sovereigns provides us with unique visibility and insight into capital markets and client activity, enabling differentiated deal flows, tailored solutions and long-term value creation for our clients and shareholders. Finally, BlackRock Cash Management saw $74 billion of net inflows in the fourth quarter and $131 billion in 2025, driven by U.S. government, international, Prime and Circle Reserve Funds. BlackRock's platform is anchored by growth engines tied to the long-term expansion of global capital markets and fast-growing client product channels. The opportunity ahead is inspiring to reshape portfolios for more complex markets, to deepen partnerships with clients and to deliver durable, profitable growth for our shareholders. We entered 2026 with the combined strength of BlackRock, GIP, HPS and Preqin, now all One BlackRock and we're excited to share our growth with clients, employees and shareholders. I'll turn it over to Larry. Laurence Fink: Thank you, Martin. Good morning, everyone and Happy New Year. Thank you for joining. We entered 2026 with accelerating momentum across our entire platform. It will be the first full year with the combined strength of BlackRock, GIP, HPS and Preqin. We're coming off the strongest year and quarter of net inflows in our history. BlackRock awarded -- clients awarded BlackRock with nearly $700 billion in new assets in 2025, including $342 billion in the fourth quarter. And the consistency of our results stands out even more over the long term with nearly $2.5 trillion of net inflows over the last 5 years. Our pipeline of business has broadened across products and regions, spanning public and private markets, technology and data and client channels. We're seeing excellent fundraising activity. We have an ambitious 2026 fundraising plan diversified across infrastructure, equity and debt, private financing solutions and multi-alternatives. Our client relationships have never been stronger and deeper. We're a scale operator in public and private markets, investments in technology, that's significantly enhancing our position with clients worldwide. We're building off accelerating growth over the course of 2025. We delivered 6% or higher organic base fee growth each quarter and we ended the year with 12% organic base fee growth and 16% technology ACV growth in the fourth quarter. These growth rates are both 4 points higher than last year and 9% full year organic base fee growth represents $1.5 billion of net new base fees. That means we enter 2026 with base fees approaching $21 billion, 13% higher than 2025. And we delivered a premium 45% operating margin. Our scale and Aladdin technology fuels growth and helps push down our marginal cost. We're in an upward trajectory in our margins on fee occurring -- recurring earnings as we continue to drive growth in private markets and scale businesses like ETFs and systematic equities. Our belief in our future growth, increasing profitability and durability of cash flow led us to increase the dividend per share by 10% and step up planned share repurchases. Over the last 10 years, we delivered a 10% compounded annual growth rate in our dividend and over a 15% annual return on our repurchases. And we're confident than ever that our -- in our model and the outsized opportunity we see across multiple growth engines. Our foundational businesses like iShares are unlocking new markets like in active ETFs and digital assets. At the same time, we're a leader in emerging trends like private markets to wealth, 401(k)s, tokenization and private market data. In private markets, our investments in infrastructure and private credit and alts to wealth underpin our ambitions to raise $400 billion in private markets by 2030. BlackRock is already managing $3 trillion on behalf of insurance, wealth and OCIO clients. We have a significant opportunity to deliver better outcomes and experiences for clients in private market allocations. And for our shareholders, that shift represents new private markets AUM and potentially over $1 billion in new base fees. For example, BlackRock is the largest general account manager for insurers with $700 billion in AUM. With HPS, we're now also one of the largest asset-based finance and high-grade managers. We're in about 20 late-stage conversations to help insurers build more dynamic and diversified portfolios across public and private markets. Similarly, in wealth, we're focused on expanding access to private markets. We're bringing together strong investment performance track records with BlackRock's scaled global distribution model. We have the largest wholesaling team in the industry covering every corner of the United States marketplace. We have very strong relationships in private banks in Europe. Our more than $1 trillion of wealth platform spans end clients' whole portfolios from models and SMAs to ETFs and private markets. We're also a technology provider through Aladdin Wealth, which brings institutional quality portfolio construction right to the desktops of our financial advisers. We continue to expand and diversify distribution of HPS nontraded BDC to U.S. wirehouses and RIAs, and we believe model portfolios will be another unlock. We're also planning to widen our product range through an H Series family of funds that would be led by the flagship HLEND alongside junior capital, real assets, triple net lease, multi-strat credit and secondaries and co-investment strategies. We plan to bring all the building blocks to serve wealth investors through coordinated multi-alts portfolios. Then in retirement, we're seeing important progress towards a framework to include private assets and target date funds. We expect to launch our first LifePath Target Date fund with private markets later this year. Most Americans' only experience with capital markets is through their 401(k) plan. I said many times that helping workers build and spend their retirement savings is one of the greatest challenges of our generation. We've long associated for better retirement solutions and easier access to investment options. BlackRock has also championed early childhood savings accounts and the policies that make them possible and we're encouraged by and supportive of the launch of these accounts in the United States. For retirement savers, there's a real opportunity to bring additional returns and diversification to investors through private markets. BlackRock will be at the forefront with our leading DCIO business, our $600 billion LifePath franchise, top 5 alternative platforms and definitely Preqin. We expect plan sponsors will need standardized benchmarking and performance data to validate their plan choices and Preqin can be the central provider. Our leadership in all of these areas distinguishes BlackRock with plan sponsors and policymakers. We've always been a leader in retirement and a first mover in developing new solutions in retirement. We started innovating LifePath Paycheck in 2018 and it's been the fastest-growing lifetime income target date strategy in the defined contribution market. We believe it will be the default retirement investment strategy. Guaranteed income and private markets are not 2 separate conversations. BlackRock can bring it all together. Our vision is not just for incremental addition of private markets. It's the design of an optimal target date solution, one that combines public markets, private markets and guaranteed income like LifePath Paycheck. BlackRock has long-standing relationships and decades of experience in working with plan sponsors and building client-first retirement solutions for their members. We're a bit over a year into closing our GIP transaction and we're already seeing synergies through our combined expertise and relationships. GIP V closed above its $25 billion target in July and our AI partnership, which was not part of the deal model, continues to attract significant capital. AIP has raised over $12.5 billion from partnership founders and clients. Our initial target is to mobilize and deploy $30 billion of equity capital with the potential of reaching $100 billion, including debt. More broadly, we're seeing excellent progress across the range of infrastructure strategies, including mid-cap and emerging markets' infra equity and investment-grade, high-yield and credit-sensitive infra debt. The current cash flow and inflation-protected return profile of infrastructure makes it an attractive sector for our clients, especially those saving for retirement. More broadly, income-oriented strategies are a critical component of our clients' portfolios. BlackRock manages over $4.5 trillion in assets across both public fixed income, cash and private credit. This means we can provide an integrated fixed income solution for clients, that delivers scale benefits. In 2025, we generated over $45 billion of net inflows across our high-performing active fixed income franchise, led by Rick Rieder. We believe 2026 is shaping up to be another year where returns may be driven primarily by income rather than price appreciation. We're well positioned to capture flows with strong performance and differentiated strategies across municipals, high yield, total return and unconstrained fixed income strategies. And we're leveraging active ETFs to provide access to our portfolio managers inside along with the benefits of the ETF wrapper. Our active ETFs drove more than $50 billion in net inflows in 2025, nearly tripling their assets in the last year. Rick's flexible active income ETF, BINC, B-I-N-C, and our systematic U.S. equity factor rotation ETF, DYNF, led our active ETF flows for the year. DYNF was the highest inflowing active ETF in the industry with $14 billion of net inflows. It is our flagship of our systematic equity platform. Overall, our systematic equity franchise raised over $50 billion in 2025, even as the active equity industry saw another year of outflows. Our systematic investments have been using data and AI for 20 years. We've invested in this business. And today, its IP delivers alpha to clients and helps portfolio managers across BlackRock to invest better. As more investors are looking at how to use AI for investments, we already have one of the best platforms utilizing AI and big data to drive thousands of alpha signals. We're optimistic about our systematic platform, continued double-digit organic base fee growth potential and its position as a bright spot in the active equity industry. iShares continues to be an innovation engine for BlackRock. iShares remains the market leader in ETFs in terms of organic assets and base fee growth, countries served and in product lineup. 2025 was another record year for iShares with $527 billion of net inflows. In 2000, with just 40 ETFs, BlackRock's iShares set out to revolutionize investing. And over those 25 years, iShares has led the way in democratization of access to the growth of capital markets. BlackRock shaped the industry and we continue to expand the choice and access for investors around the world. We brought U.S. investors access to international markets and we introduced ETFs to Europe. We launched the world's first bond ETF. We provide over 1,700 ETFs today, more than 6x the next largest issuer. And we're focused on providing investors value for their money while driving growth and margin expansion for our shareholders. iShares AUM was about $300 billion when we announced our acquisition in 2009. Today, it's $5.5 trillion and iShares revenues have more than quadrupled to over $8 billion. iShares is delivering growth both through core channels and newer premium initiatives like active ETFs, digital assets and in international markets. In Europe, ETF net inflows of $136 billion was approximately 50% higher than 2024. And we're seeing more individuals coming to iShares through digitally enabled offerings and monthly savings plans. We're seeing similar trends in India, where our JioBlackRock joint venture operates through a digital-first direct-to-consumer model. JioBlackRock raised $2 billion upon launch, 6x the previous industry record and now manages 12 funds spanning cash, index, systematic equities on behalf of nearly 400 institutions and already more than 1 million Indian retail investors. More broadly, we're seeing great momentum in connectivity with clients in international markets. Both in Asia and in Lat Am, we saw double-digit organic base fee growth in 2025. Growth in Asia was led by our active wealth strategies and $30 billion of ETF net inflows across our locally listed and global ETF range. In Latin America, our local presence is similarly resonating through our onshore ETFs and wealth offerings. And in the Middle East, we have a strong history as a trusted adviser to countries looking to allocate capital or to build out their own local markets. It is one of our fastest-growing regions. Our Aladdin technology powers and unites all of our platform and all our work. The fact that BlackRock is the largest user of Aladdin allows us to stay attuned to changes in the marketplace and adapt Aladdin for our clients. Today, we're enabling our clients to more easily manage their exposures through end-to-end integration across public and private markets. 16% technology ACV growth reflected several innovative multiproduct wins, which will drive future revenues. Through Preqin, we're expanding access to actionable private market data, giving investors the analytics they need to build strong and reliable portfolios. The BlackRock platform is comprehensive. It's global. We're a leader in public markets. We're a leader in private markets, and we are a leader in technology and data. We're a foundational provider in the traditional financial markets and the evolving decentralized financial ecosystem. Most importantly, we bring it all together to deliver BlackRock to our clients in a comprehensive, consistent, determined way. We're entering 2026 with elevated momentum and we're positioned ahead of big future opportunities. We ended the year with 12% organic base fee growth, record flows and a new AUM high at $14 trillion. This already lifts our base fee entry level rate by 13%. We are confident in our organic base fee growth ambitions. We plan to raise a cumulative $400 billion in private markets by 2030. We're focused on our margins and driving profitable growth. This all should translate to shareholder value through higher earnings and then multiple expansion. I'd like to thank our employees for the work they do every day on behalf of our clients, each and every client that we stand by as a fiduciary. When we do well for our clients, we also do well for our employees and then we do well for our shareholders. I believe they're all -- they'll all be beneficiaries of our future growth. Operator, let's open it up for questions. Operator: [Operator Instructions] Your first question comes from Craig Siegenthaler of Bank of America. Craig Siegenthaler: And I have to congratulate you on the record base fee organic growth because 12% is pretty impressive for a $14 trillion manager. Laurence Fink: Well, I hope it's going to be impressive when we're a much larger manager than $14 trillion. Craig Siegenthaler: As we look ahead to 2026, can you flush out what you're all seeing and thinking on the net flow pipeline? And a sort of follow-up would be your money market business, which is not a new modern business, has done really, really well over the last 5 years. Higher rates has been a factor there. But with the Fed cutting, do you see flows reversing in this business? And if it does, where do you think that liquidity goes? Martin Small: Thanks, Craig. It's Martin. Happy New Year. Let me just start by saying that organic base fee growth continues to outperform our 5-plus percent baseline target, 10% in Q3, 12% print in Q4, 9% for the year. And it's the momentum, I think, that really gives us a lot of energy. The growth has ticked higher each quarter. We were 1% to start 2024, 6-plus percent each quarter this year and then ending with 2 back-to-back quarters that are at double digits. That means clients want to do more business and are giving more business to BlackRock. I think the success we've had with this structural growth strategy, it's driving strength and it's doing it across market environments in an all-weather way. And with more growth coming from our pipeline of private markets, systematic strategies, models, SMAs, digital assets, we think we can power organic base fee growth that's more consistently 6%, 7% or higher. And in supportive market environments, I think like Q4, where there's some risk-on sentiment for higher fee, international, precision exposures, private markets, that can tilt even higher. But we've always talked about our strategy being grounded in the whole portfolio. It's always been about breadth and serving every corner of a client's portfolio. This year we had really excellent breadth in organic base fee growth and we're seeing that same breadth in our pipeline. Our fundraising plan is diversified across infrastructure, private financing solutions, multi-alternatives. And I think 2026, to your point on money funds, it's shaping up to be the year of a steeper yield curve. And we think that era of easy 2a-7 fund income looks to be fading. We think that bond returns are going to be driven more by income rather than rate moves or spread compression. And I think even though cash is always going to be an allocation in a well-balanced portfolio, we'd expect that rate cuts are going to cause money market yields to fall and that some of the best opportunities for investors to be locking in bond yields are going to be in intermediate-term bonds. I think if the bond team was here, they'd say there's a generational opportunity to earn high-quality, steady income in the front and middle of the yield curve using that full toolkit in fixed income, credit, securitized, government bonds, munis, active and index. And we're seeing that energy on our platform. We saw more than $80 billion of fixed income flows in Q4 and more than $40 billion outside the new Citi mandate. iShares bonds had $52 billion in Q4, $175 billion. That's 18% organic growth for the year. We manage over $3 trillion in fixed income. So we think we can meet clients with fixed income offerings across sectors and durations wherever they need it and to do it in a vehicle that works best for them. That's an ETF, it's a separate account, a mutual fund or even yield-oriented exposures being a top CLO issuer and manager and by blending public and private fixed income through direct lending BDCs like HLEND. Our fee yield on new assets to the firm in this pipeline is running 6 or 7x higher than the fee yield on new assets in '23. And we think clients want to do more with BlackRock across the platform. We saw it in the 2025 activity and in the early momentum in '26. So it gives us confidence that we're on the right track and gives us a lot of energy about what 2026 can look like on the organic growth front. Laurence Fink: Let me just add one more point. As global capital markets grow, cash is going to grow alongside of it. So the base holdings of cash will be elevated as long as the global capital markets continues to grow. And if you overlay -- if tokenization becomes more real and the opportunity to have a tokenized money market fund alongside tokenizing other assets, I actually believe you're going to see probably above-trend holdings in cash. That being said, I agree with everything what Martin said, we're going to see much more -- you're going to see more and more investors going up the curve, especially if the yield curve becomes steeper and steeper, which probably is going to be the outcome. But I think we have to look at the overall scale of the capital markets and its growth globally and that is one of the foundational reasons why cash holdings will -- they look larger than ever, which they certainly are. But I think as the capital markets grows, so does holdings in capital markets cash. And I think that is important -- there's an important connection between that. And it's not -- it's -- cash is just not an outcome of people are nervous and holding and they're not looking to do it. As the capital markets grows and as more people's wallets are in the capital markets, the role of the money market fund just grows. And I think that is one of the foundational reasons why we continue to believe that money market holdings will continue to be quite large. Operator: Your next question comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: Wanted to ask one about Asia. I was hoping you could speak to your priorities across your footprint in Asia, from your local partnership in India to initiatives you have in Japan, among other countries. How are you looking to accelerate growth and expand contribution from Asia over the next couple of years? And what aspects might be most meaningful to the overall firm? Laurence Fink: Well, I would say, first and foremost, Asia capital markets grew faster than the U.S. capital markets. More IPOs in Asia, especially in Hong Kong. So let's just start with that foundational base. The capital markets are growing faster there. You're seeing historical changes in Japan because the NISA accounts and retirement accounts, you're just seeing more of wealth entering the capital markets out of the banking system. And that just represents more and more opportunities. So Japan has been an exceptional platform for growth, the insurance industry in Japan, the pension fund industry as the NISA accounts grow. So that's just one really good foundational example. As I said, the IPOs in Hong Kong and the scale of wealth management in Hong Kong and Singapore, the wealth that is being generated in Southeast Asia, all leads to bigger opportunities, not just bigger opportunities to manage the money but bigger opportunities to invest like GIP invested in the airports of Malaysia. In India, I believe we have the best single platform to grow in India with the JioBlackRock partnership. I talked about the growth in 2025 but we have -- we believe that the transmission of the growth of the capital markets in India is just at the very beginning. Historically, Indians kept most of their money either in gold or in cash. And I think the opportunity to develop a self-directed retirement platform in India is real. And as the platform grows in terms of retirement, the opportunities for us are very large. But even in places like in the -- in Saudi Arabia, there's conversations going on now to really build a Pillar Two retirement system there and then obviously, a Pillar Three and we're engaged in those conversations and opportunities. So historically, we looked at a lot of these markets who were exporters of capital. But now in many cases, they are importers of capital but more importantly, they're developing their own capital markets. This is a trend that I've been talking about for years. And I think it's just that we're at the early stages of the growth of the capital markets in every place in the world. If you look at our growth rates, the double-digit growth rates in base fees in Lat Am, it is another example of the growth of wealth and the opportunities we have. And so the key is, BlackRock is going to grow as long as the world and the global capital markets grow. But I would -- what I would clearly say what '25 indicates and what '26 offers is the growth of these capital markets are very beneficial for platforms like BlackRock and we are involved in these conversations. We're building our platform in each and every country. And I believe this is one of the real foundational opportunities for us in the future. Operator: Your next question comes from Mike Brown with UBS. Michael Brown: So Larry, you touched on the insurance channel in your prepared remarks and BlackRock is a major player in the space and it's about 5% of your AUM today. But certainly, competition seems to be rising in the space. Can you just talk a little bit about how your differentiated offering like a full spectrum cash to private credit differentiates here and maybe unpack your comments about how the demand for the channel is shaping up here in 2026? Martin Small: Thanks. Maybe I'll start, Martin. And then I know Larry will add some color. So I'd start with, yes, the balance sheets of the world's largest insurance companies were traditionally invested in public fixed income. BlackRock has been very successful at capturing those allocations. And today, we're the largest insurance company general account manager in the industry with $700 billion in assets, more than 450 insurance relationships. HPS also manages over $60 billion of credit assets for over 125 insurance companies. And I think with our combined platform, we're better positioned than ever to be a high-grade solutions provider. We also have service to the largest insurance companies on our Aladdin platform as well as an array of middle office services and accounting services. We think that private credit and building great public private portfolios is a very important growth vector within private markets and there's an opportunity for growth with asset-based finance and private high-grade with insurance companies. Just the penetration in this market is much smaller when compared to the corporate credit market. We have over 20 conversations right now where we're working on high-grade SMAs with leading insurers and building private high-grade portfolios. A number are in later stages. We'd hope to start seeing deployments pull through, through the second half of 2026. And we're really focused on 3 things with them. The first is delivering better outcomes for our insurance clients by working with them to migrate something on order of 10% of their existing public fixed income assets into private high grade. So think of a $700 billion base migrating to $70 billion on order of that in private high grade. The second is expanding high-grade mandates, meaning new assets and winning new assets with clients away from our existing book. And the third is also pursuing strategic partnerships, minority investments to increase the pool of insurance assets managed here at BlackRock, similar to the minority investment and strategic alliance that we announced with Viridium last year. I think on our competitive advantages, I'd note that insurance company asset management, it's a highly customized effort working with clients every day. It's not one of these mandates that's give me a benchmark and I'll beat it and give you a monthly report. Teams are basically in-sourced by the insurance company to be looking at cash flows, to be thinking about credit, to be thinking about the intersection of accounting and capital and managing those portfolios. It is a highly interactive day-to-day thing. So being able effectively to blend turnkey full-service capabilities for insurance companies, that's a key competitive advantage for BlackRock. Integrating public fixed income, private credit, Aladdin, accounting, middle office services makes working with BlackRock a performance enhancer, a scale enabler. So there's no doubt that this space has become more competitive, especially in private high grade. But I think our experience is that insurance companies want a full-service partner and that we're well positioned to play that role given our track record in public fixed income technology and world-class capabilities in private credit. Operator: Your next question comes from Alex Blostein with Goldman Sachs. Alexander Blostein: So a question to you guys about margins. Larry, you mentioned it a couple of times and Martin did as well. Obviously, the business has grown really well. You outlined a number of really compelling initiatives, how this growth could continue for '26, '27. So when I think about the 45% operating margin, excluding performance fees that you sort of highlighted for 2025, how should we think about that progressing over the course of '26, assuming kind of normal markets? And then, Martin, just a follow-up for you, the specifics around G&A, I heard mid-single digits but maybe you guys could just remind us what the right base is. Martin Small: Sure. Thanks, Alex. Happy New Year. So BlackRock, as I mentioned, we continue to deliver industry-leading margins. As we talked about at our Investor Day, we continue to target 45% or greater adjusted operating margin profile with our margin on recurring fee-related earnings running higher. Our operating margin in the quarter was 45%. And as I mentioned in my remarks, we continue to deliver margin expansion on recurring fee-related earnings. So excluding the impact of performance fees and related comp, our margin would have been 45.5%, up 30 basis points. Think of that as more akin to an FRE margin burdened for stock-based compensation. This growth here at BlackRock is fueled by strong FRE growth in our private markets franchises, along with high-value, higher fee rate and scaled strategies in active ETFs, digital assets, systematic equities and other areas. So we think that over time, we'll see the margin on fee recurring earnings driving upwards toward the trajectories of the best-in-class private market names, so think north of 50%. A couple of things. I'd remind you that we defer a portion of compensation linked to performance fees for talent retention. So in years where we see higher performance fees, we also see higher deferrals, which impact comp in future years. We continue to drive operating leverage and growth through technology and automation using the benefits of size and scale to reduce costs, strategically footprinting our business. And as we set out in the Investor Day, we're targeting that 45% or higher greater adjusted operating margin. We're delivering steady operating margin expansion before the GIP, Preqin and HPS transactions. As we talked about during the announcement of those transactions, GIP and HPS both have 50% or higher FRE margins. So that's accretive to our margin on fee-related earnings. So we think the growth in these franchises alongside the highly scaled platforms like iShares, cash, model portfolios, they can fuel higher margins on fee-related earnings and over time, our overall adjusted operating margin. And just in terms of your question, Alex, on G&A, we've talked about our financial rubric and how we aim to align organic revenue growth and controllable expenses across base salaries as well as G&A. Ultimately, I think with the long growth of markets is our structural tailwind, that's going to deliver more beta to the bottom line in op income growth and the benefits of scale to our clients and shareholders. As I mentioned on my prepared remarks, after annualizing for the impact of HPS and Preqin, we'd expect a mid-single-digit percentage increase in G&A. In 2025, we didn't see the full year impact of acquired HPS and Preqin G&A, so it will impact the year-over-year comparison in 2026. If you annualize our second half 2025 G&A results, which fully captures HPS and Preqin G&A, our 2026 expected G&A growth is in the mid-single digits. Once we've lapped the 2026 results with a full year of integrated expense in our results, we expect you'll continue to see controllable expenses within organic base fee growth as we drive our 2030 strategy forward. That implies future years are in the mid-single-digit percentage growth. Operator: Your next question comes from Ken Worthington of JPMorgan. Kenneth Worthington: I wanted to dig a little bit further into Preqin. The alternative data business is evolving. Several alternative managers and index companies have launched private market partnerships over the last few quarters with plans to launch various private market indices. How should we view the evolution of Preqin and BlackRock's initiatives around private market data? And what sort of outlook do you see for Preqin and BlackRock to participate in investable alternative indices? Martin Small: Thanks. I'd start with, we're basically 9 months plus past the close of Preqin. The integration has really been terrific. We're very excited about the plans going forward. The 4 big things to do as part of bringing Preqin into BlackRock is, first, expanding the distribution, obviously, of world-class Preqin data across our client base. The second is the build-out of data and models for private markets using the Preqin data, creating that great ecosystem where you have data and models being able to power how asset allocators think about investing in the private markets, how they think about benchmarking and comparing returns, effectively creating the language of private markets, both in risk models and in data. The third is enriching the data and building scale in the data factory. And then the fourth is the opportunity you're touching on, which we think is the larger long-term opportunity of leveraging our engines in Aladdin and iShares to build the machine for the indexing of the private markets. And when I think about what the creation of public markets did to drive stock markets, which especially we see through iShares, we think BlackRock and Preqin to do that for the private markets. We see that opportunity as being particularly compelling. We're working on building investable indices that we hope to bring to market here in the next few years. And I think the real opportunity is to try to standardize index rules, to try to standardize pricing frameworks and ultimately publication so that you can create markets and transparency that ultimately can power futures contracts, can ultimately power iShares. And that's a big part of our strategy in the overall growth of Preqin. Laurence Fink: Let me add one other point. Because more and more insurance companies, more and more pension funds and sovereign funds are deploying more and more private market strategies and more wealth managers are anticipating more private market strategies, the need to have a comprehensive risk management platform is even more imperative. So having a separate risk management system only for private markets is not going to be workable. And I think what Aladdin is bringing across the world or the spectrum of public and private markets, we're in a position of very large growth. And you saw that in our ACV growth in 2025. And we expect that to continue over the coming years. The need to have a comprehensive risk platform. And especially if the Department of Labor approves the utilization of private markets in the 401(k), in the defined contribution business, each and every firm is going to have to validate and authenticate the risk that is being implied when they add private markets. We are still going to have to live under some prudent ruling, maybe still a fiduciary ruling of some sort, we don't know. But I can say with absolute certainty, the need to have a comprehensive risk tools to understand the risk associated with adding private markets to a -- what is -- all public market portfolio is imperative. And so the need for a platform like Aladdin has never been greater, especially with the addition of private markets in the defined contribution space. Operator: Your next question comes from Dan Fannon with Jefferies. Daniel Fannon: So just a question on private credit. I was hoping you could first disclose what the HPS flows were in the quarter. And then more broadly, how you're thinking about the outlook for growth given the headlines and news flow around this asset class. Has that changed at all as we think about 2026 and beyond? Martin Small: Thanks a lot. So we deployed $25 billion in 2025 across private markets, led by private credit and infrastructure. The deployment trends have been strong. We had $7 billion of private credit net inflows in the quarter, primarily due to deployment activity. We're seeing good and building momentum for private markets investing and private credit, I think, particularly. So that number, I think, is in the tables. We're generally seeing stable credit conditions across the main HPS strategies that today form the core of our private credit platform. We think some of the headlines that we've read often highlight isolated stress points rather than painting the full picture. But we generally see stable credit conditions across the portfolios that we're managing. But I think the context is critical, like defaults and losses in the non-IG direct lending to corporates have been abnormally low for years following low rates. Default rates in the broader leveraged loan market are averaging slightly below the long-term average of 3%. And in economic slowdowns, like default rates rose to 4% to 5%, the all-time peak in the GFC hit 15% on an issuer weighted basis. And so direct lending defaults are rising but they remain in historical ranges. So I think we see this period, as do many of the other firms, as a period of expected catch-up following a long period of very low defaults. So returning to normal defaults is something I think we expect. When we look through the universe of BDC loans, the $400 billion across 20,000 loans sitting in the valuation databases, we see nonaccruals that are inside the historical average. We see PIK as a percentage of total interest income in line with historical norms, recovery rates that are in line with historical norms. The data does show some stratification between smaller companies and larger companies. So a $0 to $50 million EBITDA company looks very different than a $100 million to $200 million EBITDA company in terms of the ability to generate earnings. So I think going forward, it's not that there's nothing to see here. It's just that we'd expect smaller borrowers, particularly those that were financed at very high or peak valuations and capital structures that didn't contemplate a 3% to 4% neutral rate, those are the credits that we'd expect to be more challenged. The HPS teams have focused very consistently over the years on larger companies. The weighted average EBITDA on the HLEND portfolio is about $250 million. But these are lending businesses. There will be normalized default rates through cycles. And I think the team is very fond of saying the promise of private credit is not that there will be no defaults, it's that detailed credit work is going to be rewarded and that lenders will be in a better position to maximize recoveries. We continue to see good flows. We had strong gross subscriptions of $1.1 billion in the fourth quarter in HLEND. Redemptions were 4.1%, which was higher than recent quarters but in line with the broader industry. I think a mix of factors affected the Q4 flows. There's generally elevated seasonal redemptions. There was media attention, some profit taking. And then I think forward expectations on lower base rates also plays in. But still, most BDCs posted positive flows. In our Preqin survey data, we see the structural pipeline for private credit fundraising and deployment as intact. In the Preqin data, over 80% of investors plan to maintain or increase their allocations to private credit in the next 12 months. It's just becoming a more standard part of overall fixed income allocations to provide income and diversification. Operator: Your next question comes from Ben Budish with Barclays. Benjamin Budish: Maybe just following up on Dan's question. Just curious if you could provide a little bit more color on your expectations for the wealth channel more generally in 2026. HLEND, obviously, some good, if not better than average trends in Q4. What's the latest you're hearing from advisers? For GIP, I know there was some press indicating that there were maybe some challenges getting a product off the ground. So just curious if there's anything you can share there. And then I think in the prepared remarks, you talked about model portfolios using private markets. So anything you can share in terms of what those products might look like, what we should expect in terms of timing would be helpful. Martin Small: Sure. I'll give that one a go. I'd start with the framing that, again, at our Investor Day, we discussed how our platform was going to target $400 billion in gross fundraising from 2025 through 2030. We raised over $40 billion in private markets in 2025. And we're entering '26, I think, with strong momentum, very excited about the integrated public private capabilities that now include GIP, HPS and Preqin. In private wealth and retail channels, we currently have the flagship private credit BDC HLEND, as you mentioned, been raising about $1 billion a quarter. And we have semi-liquid strategies in senior secured loans, junior capital and broadly syndicated loans. In '40 Act interval and tender offer funds, we have multi-strategy credit and private equity solutions that combine for about $1 billion in AUM under the tickers CREDX and BPIF. And in Europe, we recently launched multi-alternative solutions products using the LTIP vehicles, which stand at sort of $600 million plus in AUM, generally offered through private banks and retirement plans. Looking ahead, as Larry mentioned, we're bringing an H Series of vehicles to the market for private wealth and retail channels over the course of '26. The H Series is going to give investors access to key private markets building blocks, direct lending, junior capital, real assets, triple net lease, private equity solutions. And at our Investor Day, we set out a goal to grow the private markets to wealth series of products to at least $60 billion of AUM by 2030. So I think you'll see here in the near term, a real asset strategy coming to market in the U.S., European direct lending to European private wealth clients and following with triple net lease and other strategies in the U.S. later this year. Operator: Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks? Laurence Fink: Thank you, operator. I want to thank all of you for joining us this morning and for the continued interest in BlackRock. Our results in 2025 validate the power of our integrated platform and the strength of our positioning with clients. We enter 2026 with differentiated momentum and opportunities ahead for us. I think we're well positioned to deliver for our clients and in turn, create longer-term value for our shareholders. Everyone, have a very good first quarter and enjoy the winter. Operator: This concludes today's teleconference. You may now disconnect.
Operator: Good day, and welcome to Cogeco Inc. and Cogeco Communications Inc. Q1 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Patrice Ouimet, Chief Financial Officer of Cogeco Inc. and Cogeco Communications Inc. Please go ahead, Mr. Ouimet. Patrice Ouimet: So good morning, and welcome to our first quarter results conference call. So as usual, before we begin the call, I'd like to remind listeners that today's discussion will include estimates and other forward-looking information. We ask that you review the cautionary language in the press release and MD&A issued yesterday as well as in our annual reports regarding the various risks, assumptions and uncertainties that could cause our actual results to differ. With that, I will pass the line to Fred Perron for opening remarks. Frederic Perron: Mercy, Patrice. Good morning, everyone, and a warm Happy New Year. Our consolidated results for the quarter were in line with our plan as well as what we had mentioned to you last quarter, and we're on track to deliver our guidance for the full year for all KPIs. In the U.S., our turnaround is working. We've materially improved our subscriber trends for a second consecutive quarter, just as we said we would, translating into our best U.S. customer metrics in the past 15 quarters and we're just getting started. Our goal is now to grow our customer base across our entire U.S. operation on a repeatable basis. We had told you that this was the goal for Ohio in the past, and we're now delivering on that. So we're now further raising our ambition in light of our latest plans and progress. We won't be hitting that new ambition next quarter quite yet, but it is within realistic reach in the medium term. It's important to remind everyone of a few key points about our American business. First, in half of our U.S. footprint, our penetration is still below 20%, which gives us ample room to keep growing our customer base in those areas and offset any losses in other regions. Second, we're making great progress at selectively upgrading our network in a capital-efficient manner including the launch of 2.5 gigabit speeds during the quarter, which is helping us protect and grow our business in key areas. Third, we're still in the process of ramping up new sales channels and beefing up important marketing capabilities. We're also launching an oxio-like fully digital second brand next month. Thanks to the above points and more, we're confident about materially improving financial trends for our U.S. business starting in the second half of this year. This was already recognized by Moody's and S&P, who both improved their outlook on our debt in recent weeks, while DBRS reaffirmed its stable outlook. In Canada, our performance remains solid and resilient with positive year-on-year EBITDA trends. We continue to consistently grow our customer base and our wireless subscriber growth is also going well. Wireline competitive intensity got a little heated in some of our markets during Black Friday and through the holidays. So we expect a more modest wireline customer growth in the upcoming Q2, but this remains manageable overall from a revenue perspective. Before turning to our radio operations, I'd like to reflect on yesterday's report released by the commission for complaints for telecom and television services, which ranked Cogeco as the best telecommunications company in Canada in terms of customer complaint reduction when aggregating brands. In a year where complaints within the telecom industry rose by 17%, Cogeco made significant progress in improving its customer service, which has resulted in a leading 15% reduction in customer complaints versus the prior year, a 25% reduction in billing complaints and no reaches to the Internet code. At Cogeco Media, Q1 revenue increased again this quarter on a year-over-year basis, lifted by strength in our digital advertising solutions and continued listener engagement. So in closing, I'd summarize our overall situation by saying that our 3-year transformation is on track, that our Canadian performance is resilient and solid, our U.S. turnaround is working. And last but not least, we continue to have one of the best balance sheets and cash flow profiles in the industry, which positions well -- positions us well to keep increasing shareholder value over time just as we have been. On that, I'll turn it over to Patrice for more details about our results. Patrice Ouimet: So thank you, Fred. So in Canada, Cogeco Connexion's revenue was stable in the first quarter as we had a mix of a higher Internet subscriber base, which added 8,900 Internet subscribers during the quarter, and lower revenue per customer from fewer video and wireline phone subscribers. Adjusted EBITDA grew by 2% in constant currency due to stable revenue and lower operating expenses resulting mainly from cost reduction initiatives and operating efficiencies coming from our 3-year transformation program. We added 1,100 homes passed during the quarter, mainly with fiber-to-the-home under a network expansion program. In the U.S., Breezeline's revenue declined by 9.9% in constant currency due to the cumulative decline in the subscriber base over the past year, a smaller rate increase than in the prior year, along with a competitive pricing environment. The 1,100 Internet subscriber decline represents a significant improvement over the last quarter and last year, while Internet subscriber additions in Ohio recorded its best quarter since we acquired that business 4 years ago with positive growth of 2,600 subscriber additions. Adjusted EBITDA declined by 9.1% in constant currency, mainly due to lower revenue, offset in part by lower operating expenses, driven by cost reduction initiatives and operating efficiencies. Note that last year's comparative Q1 period had the highest adjusted EBITDA level of all quarters in fiscal '25. Turning to our consolidated numbers for Cogeco Communications. At the consolidated level, revenue in constant currency declined by 4.9%, and adjusted EBITDA declined by 3.7%. The adjusted EBITDA decline was driven by a decline in U.S., partially offset by growth in Canada. Diluted earnings per share declined by 12.2%, mainly due to a onetime gain recorded in the prior year that was associated with a sale and leaseback transaction as well as lower adjusted EBITDA. Capital intensity was 22.2%, up from 20.4% last year, although we are on track to hit our CapEx guidance for the year. Free cash flow in constant currency declined by 15.9% in the quarter, mainly due to proceeds from last year's sale and leaseback transaction. Our net debt to EBITDA ratio was 3.2 turns at the end of the quarter, up slightly from the 3.1 turn reported in Q4. We continue to target a net debt to EBITDA ratio in the low 3 turns range. And we've declared a quarterly dividend of $0.987 per share, which is up 7% year-on-year. At Cogeco Inc., revenue in constant currency decreased by 4.5% and adjusted EBITDA declined by 3.1%, largely explained by Cogeco Communications results. Media operations revenue increased by 8.1% year-on-year, driven by solid market positioning and growth in digital advertising solutions. And we've also declared a quarterly dividend of $0.987 per share at Cogeco Inc., which is also up 7% year-on-year. Now turning to financial guidelines. We are maintaining our annual guidelines for Cogeco Communications fiscal 2026 year, which we first provided to investors in October. As it relates to the upcoming Q2, we are expecting consolidated revenue and EBITDA in constant currency to decline in the low to mid-single digits compared to last year. The declines are explained by the U.S. business. We are, however, expecting much stronger financial performance in the U.S. in the second half of the year, as we'll benefit from improving customer trends and a new wave of in-flight cost and revenue initiatives. We expect both financial expense and acquisition integration and restructuring costs to be similar to Q1, while our depreciation expense should be slightly lower than in Q1. At Cogeco Inc., we are maintaining the financial guidelines as well. And now, Fred and I will be happy to take your questions. Operator: [Operator Instructions] And your first question comes from the line of Aravinda Galappatthige from Canaccord Genuity. Aravinda Galappatthige: Maybe just to clarify on the Q2 guide, Patrice, is it fair to suggest that the U.S. numbers you don't expect like any sort of variance to what we saw in Q1 and Q4, sort of high single-digit declines? And then maybe just to build on that, can you also talk to the sort of the degree of improvement that you expect in the second half? I mean is it within the realm of possibility that you sort of get even towards breakeven as you exit fiscal '26? Maybe I'll just stop there. Patrice Ouimet: Yes, Aravinda. So as part of Q2 with the information we provided at a consolidated level, I think it's a fair assumption to assume that the U.S. business will be in a similar position than in Q1, obviously, plus or minus some changes there. But definitely, where we expect the change is in the second half. And when we think about the second half of the year, we've been losing some customers historically in the U.S. But when you look at the past 2 reported quarters, the situation has improved quite a bit. So that will play into it. We do have some price increases that kick in, in a different periods in January. So that will play a role into -- especially in Q3 and Q4. And we have a number of other elements in terms of cost improvements and some other revenue measures that are going to kick in during the second half of the year. So that's what explains basically the change. Frederic Perron: Yes. And Aravinda, it's Fred. Those initiatives that Patrice is alluding to that will kick in, in the second half. They're all quantified. They're all on track. They're all in delivery right now. So we feel pretty solid. I know the other part of your question was, can we expect a positive year-on-year EBITDA exit rate in the U.S. by the end of the year? Patrice, I don't know if you want to... Patrice Ouimet: Yes. I think it's still a bit early days to think about individual quarters, but definitely trending towards a neutral position is -- for those quarters is a good assumption, what I said the last quarter, but again, it's still a bit early days to talk about just one particular quarter. Aravinda Galappatthige: And then for Canada, Fred, I think you alluded to the prospect of maybe just a slightly muted broadband trends in Q2. We obviously did see some activity even from your end. Maybe just sort of characterize for us what -- where you're seeing that pressure? Is it more on the legacy side? Or is it -- are you perhaps not seeing as much tailwind from the other sources, oxio and your broadband -- your rural expansions? Maybe a little bit more context there. . Frederic Perron: Sure. Oxio is still going very strong, mostly in our current footprint at good margins. And that gives us a lot of optimism about launching an oxio-like brand in the U.S. as well, and we can talk about that later. So that's still strong. Network expansion is still early days. Our Ontario programs are being dragged a little bit over time due to permitting things. So that will take some time before it kicks in. As it relates to the legacy business, the way I would characterize it is the end of our Q1 and the Q2 that we're in right now appears to be a period of experimentation by the different players, whether it's dabbling into resale or some promotional activity during Black Friday. So it's been a little up and down. The past couple of weeks have been better but -- and therefore, we're calling for a more muted growth in Q2, but I wouldn't see it as the new normal. Aravinda Galappatthige: And just lastly, maybe just on the take-up on the wireless side of the business in Canada, again, very early days, but you ran a fairly attractive promotion for a while. Any kind of feedback that you care to share would be useful. Frederic Perron: Yes. Wireless Canada is going really well. Our baseline pricing is in line with the rest of the market, where we have promotions, it was an introductory promotion because we were launching the product in the fall. But it was a promotion for one year on the first line only. And the sales are going so well right now that we've already done 2 pullbacks on that introductory offer. So we don't offer a free line for a year anymore. So we're already in the process of pulling back on those introductory promotions because the sales are going so well. Operator: And your next question comes from the line of Vince Valentini from TD Securities. Vince Valentini: First, let's stick with that wireless. Can you give us any color of what strong means to you? Like are you over 20,000 subscribers in wireless in Canada? I mean I think we're all grasping with what your definition of strong is? Frederic Perron: Vince, the -- we don't disclose our wireless numbers. It's relative to our internal targets. It will take a couple of years before our wireless customer base to be material and really benefit our bottom line. But when you look at what some of the U.S. cables are doing after a few years of being into wireless, it's really a needle mover to their EBITDA positively. But I would not expect much of an impact in the short term, but we're not yet at a place of disclosing the customer base. Vince Valentini: Okay. And on the competition in Canada, you were just talking about, can you unpack it all? Is it a fixed wireless aggression problem or you mentioned TPIA? Is it more the TPIA or just traditional Bell competition? And a sub-question on that. If it -- to the extent you're seeing TPIA experimentation, are you seeing that of somebody reselling your networks or you're at least getting the wholesale fee? Or are you seeing that on the telco fiber network? Frederic Perron: Sure. Happy to answer the question. If you unpack FWA resell and just normal promotional activity, FWA is not having an impact on us. We track churn reasons. And I know some of the advertised prices can be eye-popping on FWA, but we're really not feeling it. On resale, yes, it does seem to be a phase of experimentation. As I said, the past couple of weeks have been a bit better. Hopefully, people will realize that it's not good for anybody. But to your other question, yes, a big chunk of that resale activity shows back up in wholesale revenue for us. So while the subscriber metrics may be more muted, that's why I was saying that in my introductory comments that it's manageable from a revenue perspective. And then in terms of normal promotional activity, yes, it popped up during Black Friday and the holidays. But let's see how it evolves. It may just be a point in time thing. Vince Valentini: Switching to the improving trend in the U.S. Internet subs. You say you won't get back to positive sub adds in the second quarter, but you're still trending well. Can you frame this at all? Like should we be thinking about another quarter with only losing 1,000 or 2,000 Internet subs? Or was there something unusually strong in the first quarter that can't be replicated and maybe you slip back to 4,000 or 5,000 sub losses? Frederic Perron: Without going too precise because we're still in the quarter, right? But the second quarter, I do expect some losses maybe a little bit more than the current quarter, but it's yet to be seen. But no, it was not an unusual phenomenon in the first quarter. The trends are sustainable. And in fact, after the second quarter, we see a clear line of sight to the improvement trend resuming. We have enough quantified measures in place to believe that, that will be the case and turning positive in totality in the U.S. on HSI subs on a repeatable basis is now something we believe is realistic and is our goal in the medium term. Vince Valentini: Excellent. And last one, if I could. Very nice to see the rating warnings, whatever you call them, removed from Moody's and S&P. Does that now free you up to consider using your free cash flow and balance sheet strength for share buybacks? I mean, as I'm sure you appreciate, if you're still on track for $600 million or more in free cash flow in fiscal 2027, that's an incredible free cash flow yield and a lot of excess cash after paying your dividend. Do you think about starting to use that as opportunistically to buy back shares? Patrice Ouimet: Yes. So as we go through fiscal '26, we're still going to concentrate on reducing debt. We're still slightly higher than the 3x target. When you look also at the ratings on the debt, there is an expectation as well of continued decrease in leverage. That being said, as we get to next fiscal year, to your point, which starts in September, then we do expect to have hit that target and also have visibility on strong free cash flow next year. And that's a discussion we'll have definitely at that point internally on what do we do with the excess cash? Do we resume a buyback program that we've run for many years in the past. So that's a possibility for sure. Do we repay more debt. We do a mix of both. But I would say it's not something in the shorter term, but it's going to come -- that discussion will come soon enough. Vince Valentini: Okay. I appreciate that, Patrice. Just to state the obvious, hopefully, it's obvious. I mean your dividend yield is higher than your cost of debt. So buying back shares still has a cash-on-cash benefit, which hopefully, the rating agencies would appreciate. And certainly, I know the equity market would appreciate, but I leave it to you guys and I will pass the line. Operator: And your next question comes from the line of Maher Yaghi from Scotiabank. Maher Yaghi: [Foreign Language] I just wanted to ask you first on your oxio strategy. I know there's probably a lot more to say when you actually launch it in the U.S., but it's been quite successful for you as a brand in Canada. And the idea to replicate that in the U.S., obviously makes sense. I just wanted to ask you, is the goal for the oxio-like brand in the U.S. is to sell a service in territory only or also out of territory like you are doing in Canada? Frederic Perron: [Foreign Language] Maher, it's Fred. Thank you for the question. We are indeed super excited about the launch of an oxio-like brand in the U.S. The short answer to your question is it's in territory only in the U.S. But when you look at the upside potential, oxio in territory is already doing so well for us in Canada. We've reported our best subscriber performance in Canada in the past 13 years. Last quarter and this quarter was solid as well and oxio is a big part of that. Now if you contrast Canada and the U.S., the opportunity is even bigger in the U.S. because in Canada, our penetration on Cogeco is already in the low 40s percent. But in the U.S. in totality, we're in the low 30s. And in half of our footprint, we're below 20% penetration. So you just start thinking about the possible upside from such a second brand, and it gets pretty exciting. Maher Yaghi: Okay. Okay. My second question is on the improving trends in the U.S. on the subscriber side. Obviously, it was quite noticeable in Q1 compared to a year ago. But I just wanted to understand what you are giving up to improve those subs because you're kind of doing pretty much the same strategy that Charter and Comcast are doing in the U.S., which is repricing your base or repricing the offers in the marketplace for your Internet service. For example, I can see you're selling 1 gig for $45 a month in Ohio right now and the first month is free. That service used to be $75 a couple of months ago. So in -- when I think about the objective here, how should we think about ARPU progression or the ARPU negative impact in the U.S. as you reprice your product to improve subs. And when we come out of this transition, where do you expect revenue growth to land at? Frederic Perron: Okay. Maher, it's Fred again. I'll start answering and maybe Patrice will want to add a little bit on this one. First of all, when you look at our year-on-year decline in ARPU, it's not because of a massive drop in acquisition prices for new customers. It's because mainly of cord cutting. So we're cutting -- some customers are cutting the cord on TV, and TV itself has a higher ARPU than our Internet product, but it comes with very little margins. So I would say that's the main driver. There is a bit of promotional activity for sure. And it is a fact, to your point, that new customers come in at a lower ARPU than existing customer, that's true in Canada as well. But our improvement in our PSU trends that we're reporting this quarter is not because of any massive change on that front. We just stay along with the market, and there has not been a massive change in pricing. Our improvement comes from execution. It comes from beefing up some sales channels that were previously underexploited, especially in those areas where our penetration is below 20%. And it comes from simplifying our pricing as opposed to reducing it. So that's how I'd characterize it. Patrice? Patrice Ouimet: No, I think you summed it well. Happy to take other questions, but I think these were the main points. Maher Yaghi: Yes. So I did look into the mix of PSUs that you have in the U.S. And when I look at Q1 '25, about 25% of your PSUs were on video. And in Q1 this year, it's 24%. So -- and then on home phone, it was 12% last year and 12% this year. So obviously, there's slightly less video as a percent of the overall PSU base in this quarter versus last year's Q1, but it hasn't moved that much. So I'm trying to figure out what's driving the 4% price decline per PSU in the U.S.? And when should we expect that to improve? Frederic Perron: Yes. So the -- what this analysis doesn't show, Maher, is which segments of TV customers are losing versus those that we're adding. So in many cases, we're losing the higher ARPU TV customers, and we're adding lower ARPU ones. So it would get into a pretty detailed analysis, and I'm sure you can talk about it with Patrice on the follow-up calls, but we've analyzed this in and out and cord cutting is the main driver of the ARPU decline. Of course, to your point, new customers also do come in on promotional rates, at a lower rate, and that's also a factor. But our point is simply that the improvement in Q1 is not due to any material change in that trend. Maher Yaghi: Okay. One last question. In terms of the growth that we're seeing in Canada, obviously, quite noticeable as well. How should we think about these net adds on broadband in Canada as -- from a sustainability point of view? And can you maybe tell us what's giving you the advantage to load as many customers as you are? Is it oxio or the Cogeco brand is also successful in the marketplace these days? Frederic Perron: In prior quarters, including this one, it was a combination of both. It depends quarter-by-quarter. Sometimes network expansion helped, less so in more recent quarters. The Cogeco brand has held its own over time. And then it's really oxio that's helped generated, I would say, differentiated growth in Canada versus some of our peers. And that's why we're so excited about an oxio brand in the U.S. As it relates to moving forward, as we've said, Q2 PSU growth in Canada will be more muted, but we're recovering a lot of that in wholesale revenue. Is that the new normal? Not necessarily. It's still a stage where people are experimenting. And as I said, the past couple of weeks have been a bit better. Operator: And your next question comes from the line of Matthew Griffiths from Bank of America. Matthew Griffiths: So just going back to the U.S. broadband sub picture that you're providing. Is there a way to kind of share with us whether the improvements that you're expecting are going to be coming from reduced churn? Or you've mentioned sales channels as something that you've been working on improving. So is it a gross add difference going forward that we should be expecting as the driver? And then secondly, I think you mentioned medium term as the time period for U.S. broadband subs turning positive. Should we -- should I read medium term as like 2027? Or is it slightly further out than that? Is the next year too soon? Is that still near term? And maybe just finally on the transformation efforts, as you're progressing through this working through the second year kind of checklist for lack of a better word, like what have you -- what kind of details can you give us on what you've completed and what you're moving on to in that program? Frederic Perron: Sure. Matt, it's Fred. On your first question, the improvement in the U.S. coming from churn versus gross new sales. We have initiatives in flight to keep improving our churn management and our retention blocking and tackling. But most of the improvement will come from gross new sales. And that's the simple math of what I was saying before, which is in half of our footprint, our penetration is below 20%. So there is a real opportunity to deploy new sales channels in that footprint plus our soon to be launched second brand to materially grow our penetration in that footprint. On the definition of medium term, a handful of quarters is what we're shooting for right now. But -- so it's not past calendar 2027, but -- or even fiscal 2027, it's not beyond that. Our goal is shorter term than that. But please just give us a bit of grace on that one, and we'll get there. But it has to be -- we have to see how the competitive environment evolves and give or take a couple of quarters, but we'll get there. That's our goal. Patrice Ouimet: And on the transformation -- yes, sorry, go ahead. Matthew Griffiths: No, no, I was just -- the transformation. Patrice Ouimet: Yes. Yes. So on the transformation, I would say, to your point, we're in year 2 of the 3-year program. The first year was more focused on cost optimization, which included the reorganization of Canadian and U.S. businesses initially and a number of other elements after. We had more to do on the cost front as well, optimizing the way we operate our chatbots, IVR systems and there's a lot going on as well in the number of basically proactive maintenance and making sure we tackle issues in the systems before they become a customer-facing issue, which reduces truck rolls. So there's a lot of these things still on the map for year 2 and year 3. But I would say what's a bit newer in year 2 and 3 is more focused on revenue generation. We've talked about this before, but this was not the focus of year 1. And that has to do with the way we sell our products, the way we segment the market, the way we have contacts with the market as well, churn reduction is an element as well. As part of that as well, launching the second brand is -- the idea is to be able to tackle basically different segments of the market. It's more difficult to do with only one brand. So I would say this is -- there's a lot going on. And the last piece I would say is, as we started this a while ago, the opportunity to use AI to do some of this work was not there at that point, but it is today. So we have a heavy emphasis on actually using AI and the latest and greatest to make this happen rather than do it the traditional way. So hopefully, that gives you some hints on what we're doing today. Matthew Griffiths: That's super helpful. And maybe -- sorry, if I could ask one other thing. On the 20% share in some markets, has there been any -- I'm sure you've looked into why that is? And maybe can you share with us like why is it so low in some markets? And what in your plan addresses that why and fixes it? Frederic Perron: Okay. It comes from 3 places: first, Ohio, is the main part of that. You may remember that we bought the Ohio business 4 years ago or so. And it was already an overbuilder. So by definition, the share there was already lower and there was a loss of share, unfortunately, through the integration at the time. The second is in newly built footprint, I think it's a newly built footprint over the past few years where we see an opportunity to execute better from a sales perspective there. We're not building those new network expansions anymore. We've stopped them shortly after I was named CEO a couple of years ago, but they do under-index in terms of sales, and we're now ramping that up. And the last area is Florida, where Florida was typically focused on bulk sales, but we have a residential footprint there where we think we can deploy more sales force. So you add all those 3 things together, and that's how we get there. But Ohio is the main one. Operator: Your next question comes from the line of Drew McReynolds from RBC. Drew McReynolds: Yes. Fred, thanks for clarifying that last question. That's super helpful. Two others for me. Number one, on the Canadian broadband margins and, I guess, more importantly, the trajectory. I know revenue mix is certainly -- will drive cable margins for the industry going forward. But just would love to get your sense, really good margin performance. We see Rogers at kind of stable revenues to almost 58%. And obviously, that's a little bit of a bigger scale. But what do you see as upside kind of medium term here on Canadian margin? And then just secondly, with respect to commercial revenues, I guess, business revenues, both in Canada and the U.S., it generally looks kind of flattish. And just wondering if there's anything to flag in that segment from the perspective of cablecos in general being underpenetrated in the business market, particularly SMB. Just would like to get an update just what your growth expectations are for that segment? Patrice Ouimet: It's great. So in terms of margins, well, we've been increasing margins over the years in Canada, as you know. It comes from different elements. There's a portion that's mix, but a portion of that comes through the cost reductions that we've been able to do. So it depends on the years. But typically, like 0.5 point to 1 point has been something we've been able to do. When you throw in acquisitions, obviously, it can change the mix, but we haven't done meaningful ones recently. So when you look at this full year, I would say versus where we are in Q1, it's -- we're probably going to be in a similar place. So we've had a good increase versus last year. But I would say, yes, that's probably it. And if your question is longer term, we do think as we continue to invest in automation and improvement in our operations. I gave a few examples on the call earlier. These typically produce increasing margins as we're a lot more efficient in the way we operate. So we'll keep on working on this in the future. Frederic Perron: Business segments? Patrice Ouimet: Yes. And for the business segment, yes, it's been more flattish. This is actually an area -- I would say business for us is about 10%-ish of our business and residential is the balance. So obviously, our focus has been more on residential. We do have some focus -- I would say, a bit newer focus on commercial. So we're going to be putting some efforts there. That being said, we also don't want to go into too many products on the commercial side. Given the size of the business, it's often not worthwhile doing. So for now, I would say, yes, it's more neutral-ish, but we do feel that there is some upside in that business in both countries going forward. It will be less material than what we do in residential, though. Operator: And your next question comes from the line of Stephanie Price from CIBC. Stephanie Price: I just wanted to circle back on Ohio. So net adds in the high region improved sequentially again this quarter. Just curious about what you've done in that region to move it back to growth and your ability to use the same playbook to move to growth in the rest of the U.S.? Frederic Perron: Sure. Stephanie, without giving the entire playbook to our competitors, what I would say is we've deployed new sales channels in that footprint and we're not done doing that. That's number one. Number two, we've simplified our pricing. Customers were telling us that our pricing was too complicated before. So we've made it more transparent, more simple. And then there's other blocking and tackling around analytics, customer base management, more refined targeting both of new customers and existing customers for upsell and retention. And then, of course, last but not least, that's the obvious place to start with our second brand. That's not in the results yet, but that's going to be in the future results. Stephanie Price: And then you mentioned in the U.S. penetration below 20%. One of the reasons was newly built out footprint. It looks like you added about 3,000 homes passed in the quarter in the U.S. Maybe you can talk a little bit about the opportunity there. Frederic Perron: Yes. I wouldn't say -- we're not building much any more new footprint, Stephanie, in the U.S. That's something that we've stopped just because of the nature of the market. Any numbers that you see such as that 3,000 is more the residual impact of either prior long-standing projects being completed or residual commitments to some local government but we're not starting many new projects on that front. The opportunity is on filling the pipe, so to speak, and deploying some of the same tactics that I was talking about in your Ohio question in that footprint as well. Operator: [Operator Instructions] And your next question comes from the line of Jerome Dubreuil from Desjardins. Jerome Dubreuil: First one, another one on the subscriber trends in the U.S. going forward. You seem quite confident on that front. I'm wondering if on top of the operational efficiencies that you're planning to roll out, is there any change on the pace of fiber building in your footprint that you have noticed maybe that leads you to this forecast? Frederic Perron: The forecast goes mostly from the execution things, Jerome, that we've been talking about on this call. I would describe the competitive environment as steady with some puts and takes. But it's true that fiber penetration used to be nowhere in the U.S., and we're getting closer over time to what would be a stability point, the same way we've experienced that in Canada in the past and navigated it quite well. But I would say, by and large, it's the different measures that we've been explaining on this call. Jerome Dubreuil: Okay. Great. Second one for me. Consolidated CapEx in the quarter was pretty much where we expected it to be. But there was quite a shift out of the U.S. and into Canada. I'm wondering if there's something to unpack there or if it's more of a timing thing? Patrice Ouimet: Yes, it's more of a timing thing. The CapEx by quarter can be more volatile, but there was more CPE spend in Canada this quarter, which we won't have in the next few quarters. So I would say, overall, we're on track for the full year, but I would not take the trend of the Q1 and apply it to the full year. It's going to revert back to more normal numbers over the full year. Operator: And there are no further questions at this time. I will now hand the call back to Mr. Ouimet for any closing remarks. Patrice Ouimet: Okay. Great. So thanks for being on the call today and happy to take any other questions you have in the future. So have a good day. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Jeff Su: Good afternoon, everyone, and welcome to TSMC's Fourth Quarter 2025 Earnings Conference and Conference Call. My name is Jeff Su, TSMC's Director of Investor Relations and your host for today. Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials. If you are joining us through the conference call, your dial-in lines are in listen-only mode. The format for today's event will be as follows: First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the fourth quarter 2025, followed by our guidance for the first quarter 2026. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. Wei, will jointly provide the company's key messages. Then we will open both the floor and the line for the question-and-answer session. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our press release. And now I would like to turn the microphone over to TSMC's CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance. Jen-Chau Huang: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for the fourth quarter of 2025 and a recap of full year 2025. After that, I will provide the guidance for the first quarter of 2026. Fourth quarter revenue increased 5.7% sequentially in NT, supported by strong demand for our leading-edge process technologies. In U.S. dollar terms, revenue increased 1.9% sequentially to TWD 33.7 billion, slightly ahead of our fourth quarter guidance. Gross margin increased by 2.8 percentage points sequentially to 62.3%, primarily due to cost improvement efforts, favorable foreign exchange rate and high capacity utilization rate. The operating expenses accounted for 8.4% of net revenue compared to 8.9% in the third quarter of '25 due to operating leverage. Thus, operating margin increased sequentially by 3.4 percentage points to 54%. Overall, our fourth quarter EPS was TWD 19.5 and ROE was 38.8%. Now let's move on to revenue by technology. 3-nanometer process technology contributed of 28% of wafer revenue in the fourth quarter, while 5-nanometer and 7-nanometer accounted for 35% and 14%, respectively. Advanced technologies, defined as 7-nanometer and below, accounted for 77% of wafer revenue. On a full year basis, 3-nanometer revenue contribution came in at 24% of 2025 wafer revenue, 5-nanometer, 36% and 7-nanometer, 14%. Advanced technologies accounted for 74% of total wafer revenue, up from 69% in 2024. Moving on to revenue contribution by platform. HPC increased 4% quarter-over-quarter to account for 55% of our fourth quarter revenue. Smartphone increased 11% to account for 32%. IoT increased 3% to account for 5%. Automotive decreased 1% to account for 5%, while DCE decreased 22% to account for 1%. On a full year basis, HPC increased 48% year-over-year. Smartphone, IoT and automotive increased by 11%, 15% and 34%, respectively, in 2025, while DCE remains flat. Overall, HPC accounted for 58% of our 2025 revenue. Smartphone accounted for 29%. IoT accounted for 5%, automotive accounted for 5% and DCE accounted for 1%. Moving on to the balance sheet. We ended the fourth quarter with cash and marketable securities of TWD 3.1 trillion or USD 98 billion. On the liability side, current liabilities increased by TWD 182 billion quarter-over-quarter, mainly due to the increase of TWD 95 billion in accrued liabilities and others and the increase of TWD 61 billion from the reclassification of bonds payable to current portion. In terms of financial ratios, accounts receivable days increased by 1 day to 26 days. Inventory days remained steady at 74 days. Regarding cash flow and CapEx, during the fourth quarter, we generated about TWD 726 billion in cash from operations, spent TWD 357 billion in CapEx and distributed TWD 130 billion for first quarter '25 cash dividend. Overall, our cash balance increased TWD 297 billion to TWD 2.8 trillion at the end of the quarter. In U.S. dollar terms, our fourth quarter capital expenditures totaled TWD 11.5 billion. Now let's look at the recap of our performance in 2025. Thanks to the strong demand for our leading-edge process technologies, we continue to outperform the foundry industry in 2025. Our revenue increased 35.9% in U.S. dollar terms to TWD 122 billion or increased 31.6% in NT dollar terms to TWD 3.8 trillion. Gross margin increased 3.8 percentage points to 59.9%, mainly reflecting a higher capacity utilization rate and cost improvement efforts, partially offset by an unfavorable foreign exchange rate and margin dilution from our overseas fabs. With operating leverage, our operating margin increased 5.1 percentage points to 50.8%. Overall, full year EPS increased 46.4% to TWD 66.25 and ROE increased 5.1 percentage points to 35.4%. In 2025, we generated TWD 2.3 trillion in operating cash flow, spent TWD 1.3 trillion or USD 40.9 billion on capital expenditures. As a result, free cash flow amounted to TWD 1 trillion, up 15.2% from 2024. Meanwhile, we paid TWD 467 billion in cash dividends in 2025, up 28.6% year-over-year as we continue to increase our cash dividend per share. TSMC shareholders received a total of TWD 18 cash dividend per share in 2025, up from TWD 14 in 2024, and they will receive at least TWD 23 per share in 2026. I have finished my financial summary. Now let's turn to our current quarter guidance. We expect our business to be supported by continued strong demand for our leading-edge process technologies. Based on the current business outlook, we expect our first quarter revenue to be between USD 34.6 billion and USD 35.8 billion, which represents a 4% sequential increase or a 38% year-over-year increase at the midpoint. Based on the exchange rate assumption of USD 1 to TWD 31.6, gross margin is expected to be between 63% and 65%, operating margin between 54% and 56%. Lastly, our effective tax rate was 16% in 2025. For 2026, we expect our effective tax rate to be between 17% and 18%. This concludes my financial presentation. Now let me turn to our key messages. I will start by talking about our fourth quarter '25 and first quarter '26 profitability. Compared to third quarter, our fourth quarter gross margin increased by 280 basis points sequentially to 62.3%, primarily due to cost improvement efforts, a more favorable foreign exchange rate and a higher overall capacity utilization rate. Compared to our fourth quarter guidance, our actual gross margin exceeded the high end of the range provided 3 months ago by 130 basis points, mainly as we delivered better-than-expected cost improvement efforts. In addition, the actual fourth quarter exchange rate was USD 1 to TWD 31.01 as compared to our guidance of USD 1 to TWD 30.6. We have just guided our first quarter gross margin to increase by 170 basis points to 64% at the midpoint, primarily driven by continued cost improvement efforts, including productivity gains and a higher overall capacity utilization rate, partially offset by continued dilution from our overseas fab. Looking at full year 2026, given the 6 factors, there are a few puts and takes I would like to share. On the one hand, we expect our overall utilization rate to moderately increase in 2026. N3 gross margin is expected to cross over to the corporate average sometime in 2026, and we continue to work hard to earn our value. In addition, we are leveraging our manufacturing excellence to drive greater productivity in our fabs to generate more wafer output. We are also increasing a cross-node capacity optimization, which includes flexible capacity support among N7, N5 and N3 nodes to support our profitability. On the other hand, as the scale of our overseas expansion grows, we continue to forecast the gross margin dilution from the ramp-up of overseas fabs in the next several years to be between 2% to 3% in the early stages and widen to 3% to 4% in the latter stages. Furthermore, the initial ramp-up of our 2-nanometer technology will start to dilute our gross margin in the second half of the year, and we expect between 2 to 3 percentage -- percent dilution for the full year of 2026. Finally, we have no control over the foreign exchange rate, but that may be another factor in 2026. Next, let me talk about our 2026 capital budget and depreciation. At TSMC, a higher level of capital expenditures is always correlated to the high-growth opportunities in the following years. With our strong technology leadership and differentiation, we are well positioned to capture the multiyear structural demand from the industry megatrends of 5G, AI and HPC. In 2025, we spent USD 40.9 billion as compared to USD 29.8 billion in 2024 as we began to raise our level of capital spending in anticipation of the growth that will follow in the future years. In 2026, we expect our capital budget to be between USD 52 billion and USD 56 billion as we continue to invest to support our customers' growth. About 70% to 80% of the 2026 capital budget will be allocated to advanced process technologies. About 10% will be spent for specialty technologies and about 10% to 20% will be spent for advanced packaging, testing, mask making and others. Our depreciation expense is expected to increase by high teens percentage year-over-year in 2026, mainly as we ramp our 2-nanometer technologies. Even as we invest in the future growth with this level of CapEx spending in 2026, we remain committed to delivering profitable growth to our shareholders. Finally, let me talk about TSMC's long-term profitability outlook. As a foundry, our biggest responsibility is to support our customers' growth, and we always view them as partners. Having said that, we are in a very capital-intensive business. In the last 5 years alone, our CapEx totaled USD 167 billion. Our R&D investments totaled USD 30 billion. Therefore, it is important for TSMC to earn a sustainable and healthy return as we continue to invest in leading -edge specialty and advanced packaging technologies to support our customers' growth. Today, we face increasing manufacturing cost challenges due to the rising cost of leading nodes. For example, the cost of tools are becoming more expensive and process complexity is increasing. As a result, the CapEx dollar required to build 1,000 wafer per month capacity of N2 is substantially higher than 1,000 wafer per month capacity for N3. The CapEx per k cost for A14 will be even higher. We also faced additional cost challenges from expansion of our global manufacturing footprint, new investments in specialty technologies and inflationary costs. These all lead to a higher level of CapEx spending. As a result, in the last 3 years, our CapEx dollars amount totaled USD 101 billion, but is expected to be significantly higher in the next 3 years. Having said that, we continue to work closely with our customers to plan our capacity while sticking to our disciplines to ensure a healthy overall capacity utilization rate through the cycle. Our pricing will remain strategic, not opportunistic to earn our value. We will work diligently with our suppliers to drive greater cost improvements. We will also leverage our manufacturing excellence to generate more wafer output and drive greater a cross node capacity optimization in our fab operations to support our profitability. By taking such actions, we believe a long-term gross margins of 56% and higher through the cycle is achievable, and we can earn an ROE of high 20s percent through the cycle. By earning a sustainable and healthy return, even as we shoulder a greater burden of CapEx investment for our customers, we can continue to invest in technology and capacity to support their growth while delivering long-term profitable growth to our shareholders. We also remain committed to a sustainable and steadily increasing cash dividends per share on both an annual and quarterly basis. Now let me turn the microphone over to C.C. C.C. Wei: Thank you, Wendell. Good afternoon, everybody. First, let me start with our 2026 outlook. In 2025, we observed robust AI-related demand throughout the whole year, while non-AI end market segment bottomed out and saw a mild recovery. Concluding 2025, the Foundry 2.0 industry, which we define as all logic wafer manufacturing, packaging, testing, mask making and others increased 16% year-over-year. Supported by our strong technology differentiation and broad customer base, TSMC's revenue increased 35.9% year-over-year in U.S. dollar terms, outperforming the Foundry 2.0 industry growth. Entering 2026, we understand there are uncertainties and risk from the potential impact of tariff policies and rising component prices, especially in consumer-related and price-sensitive end market segment. As such, we will be prudent in our business planning while focusing on the fundamentals of our business to further strengthen our competition position. We forecast the Foundry 2.0 industry to grow 14% year-over-year in 2026, supported by robust AI-related demand. Underpinned by strong demand for our leading-edge specialty and advanced packaging technologies, we are confident we can continue to outperform the industry growth. We expect 2026 to be another strong growth year for TSMC and forecast our full year revenue to increase by close to 30% in U.S. dollar terms. Next, let me talk about the AI demand and TSMC's long-term growth outlook. Recent development in the AI market continue to be very positive. Revenue from AI accelerator accounted for high teens percent of our total revenue in 2025. Looking ahead, we observe increasing AI model adoption across consumer, enterprise and sovereign AI segment. This is driving need for more and more computation, which supports the robust demand for leading-edge silicon. Our customers continue to provide us with a positive outlook. In addition, our customers' customers who are mainly the cloud service providers are also providing strong signals and reaching out directly to request the capacity to support their business. Thus, our conviction in the multiyear AI megatrend remains strong, and we believe the demand for semiconductor will continue to be very fundamental. As a foundry, our first responsibility is to fully support our customers with the most advanced technology and necessary capacity to unleash their innovations. To address the structural increase in the long-term market demand profile, TSMC works closely with our customer and our customers' customer to plan our capacity. This process is continuous and ongoing. In addition as process technology complexity increases, the engagement lead time with customers is now at least 2 to 3 years in advance. Internally, as we have said before, TSMC employs a disciplined capacity planning system to assess the market demand from both top-down and bottom-up approaches. We focus on the overall addressable megatrend to determine the appropriate capacity to build. Based on our assessment, we are preparing to increase our capacity and stepping out our CapEx investment to support our customers' future growth. We are also putting forward the existing fab schedule to the extent possible, both in Taiwan and in Arizona. We will also leverage our manufacturing excellence to drive greater productivity in our fabs to generate more output, convert N5 capacity to support N3 wherever necessary and focus on capacity optimization across node to maximize the support to our customers. Based on our planning framework, we raised our forecast for the revenue growth from AI accelerator to approach a mid- to high 50s percent CAGR for the 5 years period from 2024 to 2029. Underpinned by our technology differentiation and broad customer base, we now expect our overall long-term revenue growth to approach 25% CAGR in U.S. dollar terms for the 5-years period starting from 2024. While we expect AI accelerators to be the largest contributor in terms of our incremental revenue growth, our overall revenue growth will be fueled by all 4 of our growth platform, which are smartphone, HPC, IoT and automotive in the next several years. As the world's most reliable and effective capacity provider, we will continue to work closely with our customers to invest in leading-edge specialty and advanced packaging technologies to support their growth. We will also remain disciplined in our capacity planning approach to ensure we deliver profitable growth for our shareholders. Now let me talk about TSMC's global manufacturing footprint update. All our overseas decisions are based on our customers' need as they value some geographic flexibility and a necessary level of government support. This is also to maximize the value for our shareholders. With a strong collaboration and support from our leading U.S. customers and the U.S. federal, state and city government, we are speeding up our capacity expansion in Arizona and executing well to our plan. Our first fab has already successfully entered high-volume production in 4Q '24. Construction of our second fab is already complete and tool moving and installation is planned in 2026. Due to the strong demand from our customers, we are also putting forward the production schedule and now expect to enter high-volume manufacturing in the second half of 2027. Construction of our third fab has already started, and we are in the process of applying for permits to begin the construction of our fourth fab and first advanced packaging fab. Furthermore, we have just completed the purchase of a second large piece of land nearby to support our current expansion plan and provide more flexibility in response to the very strong multiyear AI-related demand. Our plan will enable TSMC to scale up an independent giga-fab cluster in Arizona to support the need of our leading-edge customers in smartphone, AI and HPC applications. Next, in Japan, thanks to the strong support from the Japan Central prefecture and the local government, our first specialty fab in Kumamoto has already started volume production in late 2024 with very good yield. The construction of our second fab has started and the technologies and ramp schedule will be based on our customers' need and market conditions. In Europe, we have received strong commitment from the European Commission and the German federal state and city government, construction of our specialty fab in Dresden, Germany is progressing in our plan. The ramp schedule will be based on our customers' need and market conditions. In Taiwan, with support from Taiwan government, we are preparing multiple ways of 2-nanometers fabs in both Hsinchu and Kaohsiung Science Park. We will continue to invest in leading edge and advanced packaging facilities in Taiwan over the next few years. By expanding our global footprint while continually invested in Taiwan, TSMC can continue to be better to be the trusted technology and capacity provider of the global logic industry for years to come. Last, let me talk about N2 and A16 status. Our 2-nanometer and A16 technologies lead the industry in addressing the insatiable demand for energy-efficient computing and almost all the innovators are working with TSMC. N2 successfully entered high-volume manufacturing in 4Q 2025, at both our Hsinchu and Kaohsiung site with good yield. We are seeing strong demand from smartphone and HPC AI applications and expect a fast ramp in 2026. With our strategy of continuous enhancement, we also introduced a N2P as an extension of N2 family. N2P features further performance and power benefits on top of N2 and volume production is scheduled for the second half of this year. We also introduced A16 featuring our best-in-class superpower rail or SPR. A16 is best suitable for specific HPC products with complex signal route and dense power delivery network. Volume production is on track for the second half 2026. We believe N2, N2P, A16 and its derivatives will propel our N2 family to be another large and long-lasting node for TSMC, while further extending our technology leadership position well into the future. This concludes our key message, and thank you for your attention. Jeff Su: Thank you, Wendell. Thank you, C.C. This does conclude our prepared statements. Jeff Su: [Operator Instructions] So now let's begin the question-and-answer session. I think we'll take the first few questions from the floor here. So why don't we start over here with Gokul Hariharan from JPMorgan. Gokul Hariharan: So C.C., it definitely feels like you have heard what your customers have said to you over the last 3, 4 months. Could you give us a little bit more color on what you're hearing from your customers' customers on demand because this is a very big step-up in the capacity commitment. There is definitely a lot of concern in the financial market, especially about whether we are in a bit of a bubble. And obviously, you are the one who is putting up all the capital in this industry. So you've definitely considered this very careful as well. So give us a little bit more detail in terms of what you're hearing from the customers and your views on the cycle, given if you think about typical semiconductor cycle, we've already probably lasted a little longer than usual cycles, but this is definitely doesn't feel like a typical semiconductor cycle. Jeff Su: Okay. Gokul, let me summarize your question for the benefit of those online and those in-person. So again, Gokul's question is really, he would like to hear C.C.'s views about the overall AI-related demand and the semiconductor cycle. So again, Gokul notes that as Wendell and you said, we are substantially stepping up our CapEx to support the customers. But he does say there is concerns about an AI bubble and risk. So part of Gokul's question is how -- what is the feedback? Any color we can share about what type of discussions and feedback we're getting from both customers and the customers' customers that C.C. mentioned. And how long do we think this cycle can last? C.C. Wei: Okay. Gokul, you essentially try to ask us, say, whether the AI demand is real or not. I'm also very nervous about it. You bet because we have to invest about USD 52 billion to USD 56 billion for the CapEx, right? If we didn't do it carefully, and that would be big disaster to TSMC for sure. So of course, I spend a lot of time in the last 3, 4 months talking to my customer and end customers' customer. I want to make sure that my customers demand are real. So I talked to those cloud service providers, all of them. The answer is that I'm quite satisfied with the answer. Actually, they show me the evidence that the AI really help their business. So they grow their business successfully and healthy in their financial return. So I also double check their financial status. They are very rich. That sounds much better than TSMC. So no doubt, I also asked specifically that what's application, right? I mean that's -- for one of the hyperscalers, they told me that, that helped their social media software. And so the customer continue to increase. So I believe that. And with our own experience in the AI application, we also help to our own fab to improve the productivity. As I mentioned, 1 time say that 1% or 2% productivity improvement, that is free to the TSMC. And that's where also our gross margin is a little bit satisfied even if this very high post period of time. And so all in all, I believe in my point of view, the AI is real, not only real, it's starting to grow into our daily life. And we believe that is kind of -- we call it AI megatrend, we certainly would believe that. So you -- another question is can the semiconductor industry to be good for 3, 4, 5 years in a row, I'd tell you the truth, I don't know. But I look at the AI, it looks like it's going to be like an endless, I mean, that for many years to come. No matter what, TSMC stick on the fundamental technology leadership, manufacturing excellence, and we work with customers to get their trust. And I think that fundamental thing position TSMC to be very good future growth, let me say that, 25% CAGR as we projected, and we used to be conservative. You know that. Gokul Hariharan: My second question is on the U.S. expansion. You're pulling in some of the capacity in response to customers. You're already starting planned for the Phase 4. There's a lot of media reports about TSMC, you might have to build more fabs in the U.S. How should we think about U.S. expansion in principle over the next few years? I think previously, you had talked about reaching 20% or even 30% of 2-nanometer capacity in the U.S. eventually, the total capacity would be in the U.S. Could you give us a little bit more detail about how that is progressing? And when could we get there in terms of the 30% or even 20% capacity? Jeff Su: Okay. So Gokul's second question is about our overseas expansion, particularly in the U.S. He knows that C.C. said, we are pulling in the schedule for fab 2 earlier. We're starting the application for the fourth fab. And so his question is partly around recent reports that we intend to build more fabs in Arizona. So his question is how should we or how is TSMC thinking about the future expansion in Arizona. And we have said in the past that around 30% of our 2-nanometer and more advanced capacity would be based in Arizona once we complete scaling out to this independent giga-fab cluster, so what is the time frame, more timetable for that? How quickly can we get there? C.C. Wei: That's a long question. We built a fab in Arizona, and we work hard. So today, everything, even the yield or defect density is almost equal to Taiwan. And due to the strong demand, as I just answered from the AI stronger, that's a megatrend. All my customer and AI customers in the U.S., so they ask a lot of support from the U.S. fab. So because of that, we have to speed up our fab expansion in Arizona. In Taiwan also actually, we increased most of the capacity in Taiwan. No doubt about it because this is the most adjacent one we can progress very well. In the U.S., we try to speed it up and the progress is very good. We got the help from the government. But still, we have to meet all the requirement for the permits, for those kind of things. And so both in Taiwan and in Arizona, we speeded up our capacity expansion to meet the AI demand. I can always say one word. The capacity is very tight. We work very hard to narrow the gap so far. Probably this year, next year, we have to work extremely hard to narrow the gap, okay? We just bought a second land in Arizona. That gives you a hint. That's what we plan to do because we need it. We are going to expand many fabs over there and this giga-fab cluster can help us to improve the productivity, to lower down the cost and to serve our customers in the U.S. better. Jeff Su: Okay. Thank you, Gokul. Let's move over here next to Laura Chen from Citibank, please. Chia Yi Chen: Thank you, C.C. and Wendell for very comprehensive outlook briefing and also congratulate for the great results. Of course, we see that the AI semiconductor growth has seen very strong growth. And I believe all of your customers and customers' customers very desperate to add more capacity support from TSMC. But I'm just wondering how does TSMC evaluate the potential power electricity supply for data center. So other than that, the chips we can discuss with our customers, I think for the overall infrastructure buildup for data center, a lot of factors also very important. Just want to understand more how does TSMC evaluate those key factors for the AI infrastructure buildup? That's my first question. Jeff Su: Okay. So Laura's first question is around the AI demand. She notes, again, as we said, AI megatrend and the growth is very strong and customers, customers' customers and ourselves are strong believers. But when we do our planning, how do we balance this against the other considerations? Do we look at things, for example, I think Laura's question is powering electricity grid availability to basically assess is this part of our -- included as part of our planning process, do we factor such things in? C.C. Wei: Well, Laura, let me tell you first. I worry about the electricity in Taiwan first. I need to have a lot of enough electricity, so I can start to expand the capacity without any limitation. But talking about build a lot of AI data center all over the world, I use one of my customers' customers I answer because I ask the same question. They told me that they plan this one 5, 6 years ago already. So as I said, those cloud service providers are smart, very smart. If I knew that, I will -- anyway. So they say that they work on the power supply 5, 6 years ago. So today, their message to me is silicon from TSMC is a bottleneck and ask me not to pay attention to all others because they have to solve the silicon bottleneck first. But indeed, we look at the power supply all over the world, especially in the U.S. Not only that, we also look at the who support those kind of power supply like a turbine, like the nuclear power plant, the plant or those kind of things. We also look at the supplier of the rack. We also look at the supplier of the cooling system, everything. So far, so good. So we have to work hard to narrow the gap between the demand and supply from TSMC. Did that answer your question? Chia Yi Chen: That's great to know that it will not be the constraint for the further AI developments. Yes. And my second question is on the leading-edge advanced packaging. And Wendell, can you remind us that what would be the revenue contribution last year for the advanced packaging overall? First of all, we see that -- I recall that in the past that the CapEx for leading-edge advanced packaging is roughly about 10%. Yes. But now it could be up to like 20%. So I'm just wondering that for the expansion, can you give us more detail about what kind of the plans you are looking for. Will you focus more on like 3DIC, SoIC? Or you also start to work on more advanced like panel based in the longer term? I also think before we talk about that, we'll work more closely with OSATs partner on the leading-edge advanced packaging. So just wondering what kind of the process will be the key expansion plan in the space. Jeff Su: Okay. So Laura's second question is more related to advanced packaging. What was the revenue contribution of what we call the back end, which is advanced packaging testing as a whole in 2025. And then she notes the CapEx, actually, this year, I believe, Wendell, we guided 10% to 20% of CapEx, which is the same as last year. But anyways, she wants to know what is the focus of this CapEx? Is it on 3DIC? Is it on SoIC packaging solutions, is on panel level? Sort of what is the key areas we're focusing on relative to the CapEx? Jen-Chau Huang: Okay. Laura, the revenue contribution last year from advanced packaging is close to 10%. It's about 8%. For this year, we expect it to be slightly over 10%. Okay. We expect it to grow in the next 5 years, higher or faster than the corporate. And the CapEx, yes, you're right, in the past, it's about 10%, lower than 10%. Now we're saying advanced packaging together with mask making and others accounted for between 10% to 20%. So you can see that the investment amount is higher. And we're investing in areas in advanced packaging where our customers need. So the areas that you mentioned, basically, we continue to invest. Jeff Su: Thank you, Wendell. Okay, let's move on to Charlie Chan from Morgan Stanley here. Charlie Chan: So first of all, amazing results and guidance. Congratulations to the management team. So my first question is about outside of AI, what do you see for those end markets, right? You talked about the memory costs, et cetera. So can you give us some your underlying assumption for PC shipments, smartphone shipments, et cetera? And also in your HPC, there are some other business like networking and general servers. Can you comment about the growth potential for those segments? Jeff Su: Okay. Charlie's first question is very specific. Well, generally, he wants to know about how do we see the non-AI demand, especially in the context where the certain component costs such as memory costs are rising. So he wants to know what do we see the impact on the PC and smartphone markets in terms of shipments. He's also asking very specifically, what about networking, what about general server, each of these different segments. C.C. Wei: Charlie, those -- although we say it's call non-AI, but actually that's related to AI, you know that, right? Because the networking processor, you still need to have AI data to scale up or scale out. Those are the networking switches or those kind of things still grow very strong. As for PC or the smartphone, to tell the truth, we expect higher memory price. So we expect the unit growth will be very minimal. But for TSMC, we did not feel our customer change their behavior. And we look at it and then we found out that we supply most of the high-end smartphones. The high-end smartphone is less sensitive to the memory price. So the demand is still strong. Using one sentence, I'd like to say we still try very hard to narrow the gap. We have to supply a lot of wafers to them also. Charlie Chan: I think that's very consistent with your 5-year CAGR outlook for all the 4 segments. And my second question is about the Intel's foundry competition. I think U.S. President seems to be very happy with Intel's recent progress. And even mentioned 2 of your key customers, right, NVIDIA, Apple may have a sound partnership with Intel Foundry. Should we concern about this so-called competition? And what TSMC can really do to mitigate or avoid potential market share loss at those key U.S. customers, not limited to the 2 customers I just mentioned. Jeff Su: Okay. So Charlie's second question is on the foundry competition and competition from a U.S. IDM. He knows U.S. President is very happy with the progress. A couple -- 2 of our key customers. He also was mentioned. So his question is fundamentally, is there a concern or risk going forward of market share loss for TSMC to our foundry competition? C.C. Wei: Well, kind of a simple question, I should say, no. Let me explain a little bit because in these days, it's not a money to help you to compete, right? I also like whoever you just mentioned, to invest on Intel, I like them to invest on TSMC also. But the most fundamental thing is let me share with you. Today's technology is so complicated. So once you want to design a very complete or advanced technology, it takes 2 to 3 years to fully utilize that technology. That's today's situation. And so after 2 to 3 years of preparation, you can design your product. Once you get your product being approved, it takes another 1 to 2 years to ramp it up. So we have a competitor, no doubt about it. That's a formidable competitor. But first, it takes time; two, we don't underestimate their progress. But are we afraid of it? For 30-some years, we're always in a competition with our competitors. So no, we have confidence to keep our business grow as we estimate. Jeff Su: Thank you, C.C. All right. Let's take the next 2 questions online in the interest of time. Operator, can we take the first call from the line, please? Operator: First question on the line, Macquarie. Yu Jang Lai: First, congrats, very strong performance. My first question is about the global capacity plan. Recently Taiwan local news report that TSMC could exit the 8-inch business and mature node, 12-inch to convert into the advanced packaging. And the investors is keen to know if this is true. And the decision is based on what kind of key factor, i.e. C.C. just mentioned about the power tightness or it's ROI concern? Jeff Su: Okay. So Arthur's first question is about basically mature node. Our strategy on mature node. He knows a local news has been reporting that TSMC is exiting 8-inch and 12-inch businesses and converting the capacity to advanced packaging. So he wants to know if this is true. And if so, what are the reasons behind the power constraints, ROI, et cetera, et cetera? C.C. Wei: Good question. Indeed, we reduced our 8-inch wafers capacity and 6-inch. But let me assure you that we support all our customers. We discuss with our customers and to do this kind of resources more flexible and more -- what is the word we say optimize, which I should. Optimize the resources to support our customer. But let me assure you also to my customer, well, we continue to support them. We will not let them down. If they have a good business, we continue to support that even in the 8-inch wafer business. Jeff Su: Okay. Arthur, do you have a second question? Yu Jang Lai: Yes. My second question is regarding the consumer and demand outlook. So C.C. also mentioned that the memory price actually inflation and he also pushing up the cost of the consumer electronics. So investors actually are concerned about the further demand softness in this year and next year or particularly next year. So can management comment about what your client or your clients' client, how to resolve this memory tightness or we call memory urgency issue? Jeff Su: Okay. So Arthur's second question is on the impact from the memory price increase and the demand softness. I believe this question really because C.C. already shared the impact this year. He wants to know what is the impact for 2027? C.C. Wei: For TSMC, no impact. As I just mentioned, most of my customers now focus on high-end smartphone or PCs. So those kind of demand has less sensitive to the components price. So they continue to give us a very healthy forecast this year and next year. Jeff Su: Okay. Thank you, C.C. All right. Let's -- operator, let's move on to the next participant from the line, please. Operator: Next one, Brett Simpson, Arete. Brett Simpson: My question is really on AI. I mean, TSMC has been supply constrained for your AI customers, I think, since 2024, and it sounds like 2026 is another year where we're going to see challenges. Do you think the CapEx you've laid out for this year. TWD 52 billion to TWD 56 billion, could that mean that we start to see supply and demand more in balance in 2027? Any thoughts there just in terms of how you're thinking about that capacity plan? And does it alleviate the supply bottlenecks that we see today? And as part of this, from a supply perspective, we hear TSMC is finding it quite challenging to develop enough engineering talent quick enough, both in the U.S. and in Taiwan. Can you talk more about this trend? And what's the scale of the labor shortage of foundry engineers at the moment? Jeff Su: Okay. So Brett's first question is related around AI and our capacity. So he notes, the supply looks to continue to be tight in 2026. But with the significant step-up in our CapEx to support the customers, TWD 52 billion to TWD 56 billion, do we expect the supply/demand or the gap, so to speak, to be more balanced in 2027? And then is engineering resources, fab engineers a constraint or a bottleneck for us in making these expansions, whether in Taiwan or the U.S.? C.C. Wei: Okay. Let me answer this question first. If you build a new fab, it takes 2 and 3 years -- 2 to 3 years to build a new fab. So even we start to spend the TWD 52 billion to TWD 56 billion, the contribution to this year almost none and to 2027, a little bit. So we actually are looking for 2028, 2029 supply. And we hope at that time that the gap will be narrow. For 2026 and 2027, we are focused on the short-term more output. Actually, our productivity continue to increase. Our people has an incentive because of one of the TSMC's incentive is to satisfy customer. It's not because of our financial results are good, but we want to let customer feel that TSMC is trusted that whenever, they have a good opportunity to grow, we will support it. So in 2026, 2027, for the short term, we focus on the productivity improvement, which we've done quite a good result because of, Wendell just mentioned that we can have a good financial result because of that. But that's not our incentive -- that's our incentive, but that's not our purpose. Our purpose is to support our customers. So 2026, 2027 for the short term, we are looking to improve our productivity. 2028, 2029, yes, we start to increase our CapEx significantly, and it will continue this way if the AI demand megatrend as we expected. Jeff Su: Brett -- thank you, C.C. Brett, do you have a second question? Brett Simpson: Yes, I do. That was very clear. I guess my second question is about pricing. And if I look at 2025, this was the second consecutive year where TSMC's wafer ASPs were up around 20%. And as leading edge becomes a bigger portion of the mix and also you feed through price increases. When we factor in the ramp of more expensive overseas fabs, is 20% ASP -- wafer ASP increases the new normal for TSMC? Typically, you have an annual price negotiation about this time of the year. And so I'm trying to understand how you project ASPs in '26. And is your March quarter guidance factoring in price increases at leading edge? Jeff Su: Okay. So Brett's question is on pricing. He notes that our -- which he looking at the blended wafer price is increasing close to 20% according to his estimates. Of course, that's blended both on price and mix, but it's a leading edge and also we have mentioned earning our value. So he wants to know is the new normal going forward? C.C. Wei: This is a tough question. I'll get the CFO to answer. Jen-Chau Huang: Okay. Every new node that we have a price. The price will increase. The blended ASP will increase I think they continue this way in the past and will continue with the way going forward. But Brett, I think you're asking about the contribution from pricing to the profitability. Now as we mentioned before, the profitability, there are 6 factors affecting the profitability. And price is just one of them. And of course, we continue trying to earn our value. But in fact, in the last few years, the pricing benefits to the profitability was just enough to cover the inflation cost from tools, equipment, materials, labor, et cetera. There are other factors contributing to the higher profitability. The first one will be a high utilization rate. As the demand is so high and as our disciplined approach to capacity planning, the utilization rate supports our high profitability. The other 1 will be our manufacturing excellence. As C.C. said, we continue to drive increasing productivity to generate more wafer output. Also, we continue to drive optimization capacity among nodes, which includes converting part of the N5 to N3. It also involves cross support from different nodes from the mature nodes to the more advanced nodes. That is a very important advantage of TSMC. So with all these efforts, we're able to maintain a good, healthy, sustainable return profitability so that we can continue to invest to support our customers' growth. Jeff Su: Okay. In the interest of time, we'll take 2 more questions from the floor and 1 more from the line. So we'll go here, Sunny Lin, UBS and then... Sunny Lin: Very strong results. Congratulations. So number one, if we look at the company, very different versus in the past from many angles. But if we look at the ramp from new node, now you can generate actually higher revenue from new node in year 4 or even year 5 of mass production versus in the past, new node like peak revenue in the second or even third year of mass production. And so could you help us understand what this new trend, what's the financial implications? And then what does that imply for you to operate or even compete differently versus in the past? Jeff Su: So Sunny's first question, I think maybe is related, well, to our technology differentiation, but she knows that when we ramp a new -- in the past, when we have a new node after a few years, sort of the revenue comes down a bit, but she notes that nowadays, we can still enjoy very high revenue from a node even after in its fourth or fifth year. So her question is what are the financial implications from this and also from a, I believe, competitive dynamics? C.C. Wei: If I can answer, say we are lucky. Actually, if you -- if you look at the semiconductors product, right now, the trend is you need to have a lower power consumption always and then high-speed performance. And for TSMC, our technology depreciation becomes more and more clear, we have both benefit. We have a high speed, and we have a low power consumption. And so our leading edge customer, the first wave, the second wave, the third wave continue to come and so that sustain the demand for a long, long time. That's a difference. Of course, this one, you need to have technology leadership, and which the technology leadership much easier to say. But every year, you have to improve. As we said, we have N2, N2P and then you won't be surprised, and the third one will be N2 something and continuously. And so that one give us the benefit and to support our customers continuous innovation. And so they continue to stay with TSMC. And so their product can be very competitive in the market. So that answers the question say that once we got the peak revenue and did not decrease, it's continuous because second wave, third wave customers continue to join. Sunny Lin: Thank you very much, C.C. And then maybe a question on 2 nanometer, which you should see meaningful revenue coming through in 2026. And so in the past, you guide like how much a new node will contribute to sales for the year. And so any expectations on the revenue contribution from 2-nanometer in 2026? And then I recall in terms of process migration, a few years ago, there were a lot of concerns on increasing cost per transistor. And that obviously is not declining from 5-nanometer? But then now looking at 2-nanometer, I think process migration seems to be reaccelerating even for smartphone and PC and then with larger demand coming from high-bandwidth compute. And so maybe based on your feedback from clients, maybe for smartphone and PC clients, why are they reaccelerating process migration into 2-nanometer? Jeff Su: Okay. So Sunny's second question very quickly in 2 parts, 2 nanometers, as we said, is a fast ramp in 2026, very strong customer interest and demand. So what -- do we have any revenue percentage to guide for in 2026? Jen-Chau Huang: Yes. Sunny, the 2-nanometer will be a bigger node than 3-nanometer from the start, okay? But it's less meaningful nowadays to talk about the percentage of revenue contribution when the new node starts because the corporate, as a whole, the revenue has become much bigger than before. So yes, revenue dollar, it's a bigger node. But percentage-wise, less meaningful. Jeff Su: Okay. And then the second part of Sunny's question from a technology perspective, as she noted increasing cost per transistor, as we said, CapEx per k going higher. So the question very simply, what's the value? What's driving smartphone, HPC customers actually to see -- we're seeing a widening out of the adoption of N2. So what is the value that is providing that the customers are willing to adopt N2? C.C. Wei: I already answered the question, right? Because now the whole product is looking for lower power consumption and high-speed performance. And our technology can provide that value. I also say that every year, we improve. So every year, they adopt the same -- even the same name of the same node, their products continue to improve. So that provides the value. It's -- if you say that the cost per transistor is increasing, I saw the cost per transistor, the performance compared to call the CP value is increased, is much better. So that customer stick with the TSMC. Our headache right now, if I can call it a headache, is a demand and supply gap. We need to work hard to narrow the gap. Jeff Su: Operator, can we take the last call from the line, and we'll take one last one from the floor. Operator: Next one, Krish Sankar, TD Cowen. Jeff Su: Okay. Krish, are you there? I guess not. Then let's just take the last -- not call -- sorry, the last question from Bruce Lu from Goldman Sachs. Zheng Lu: Thank you for letting me to ask the last question. Hopefully, it's not that difficult. So I think one of the key -- I understand that TSMC is trying very hard to increase the capacity. AI revenue is growing like 15% a year, 15% plus a year. But token consumption for the last few quarters is 15% a quarter. So the gap is still there, right? I mean that's why [indiscernible] was talking about the chip war. So can you share with us that in your assumption when you provide 50% plus AI revenue growth, what kind of token consumption you can support? And how many gigawatts power in terms of the chips you can support in your assumption when you provide this kind of 5 years revenue guidance for AI? Jeff Su: Okay. So Bruce's first question is around our AI CAGR. Actually, to be correct, we have guided for the AI CAGR to grow mid- to high 50s CAGR in the 5-year period from 2024 to 2029. So that is the official guidance we have provided just today. Bruce's question is, in this guidance, what is our assumption basically assuming about the token growth behind this type of CAGR? What is our assumption in terms of translating to how much gigawatts of data center can we support and other specific assumptions behind our guidance? C.C. Wei: Bruce, you got me. I mean that's -- I also try to understand what is the tokens of growth. But my customers, their product improvement continue to increase. So from -- it's a well-known from Hopper to Blackwell to Rubin, that almost double, triple their performance. So the one they can support the tokens of growth or the one they can continue to support the compute power is enormous. And so I lose the track to be frank with you. And for gigawatt, I want to see that how much of TSMC can make the money from the gigawatt rather than say that how much we can support. Today, from my point of view, still the bottleneck is TSMC's wafer supply. Not the power consumption, not yet. So we also look at carefully. To answer your question, say that TSMC's wafer can support how much of the gigawatt, still not enough. They still have abundant of power supply in the U.S. Zheng Lu: Okay. My next question is for the CapEx, right? I want to double check with what I just heard that C.C. was talking about like 2027, the CapEx will be more for the productivity improvement and '28, '29 may be meaningfully higher. So I do recall that in 2021, TSMC provided at 3 years for $100 billion CapEx to support that structural growth. Now the demand is even stronger. Based of that, can we do 3 years $200 billion of CapEx for the next 3 years. The math sounds doable. Jeff Su: Okay. So well, first, a clarification because C.C. was talking about this year, we have substantially stepping up our CapEx investment, but C.C. also mentioned it takes 2 to 3 years to build capacity. So in terms of -- Bruce's question, do we say 2027 significant step up in CapEx, I think we're saying it takes time to -- for that capacity to come out. So that's the first part. Jen-Chau Huang: Yes. I think Bruce, what C.C. said was the productivity was our main focus in '26 and '27 because when we start to invest the fab, the volume production will not come out until '28 and '29. So the dollar amount invested today is for 2 years or even in the future. And CapEx dollar amount, as I said, in the last 3 years, $101 billion in the next 3 years, significantly higher. I'm not going to share with you the number, but significantly higher. Jeff Su: So I think Wendell has addressed at least both parts of Bruce's question. Okay? So again, thank you. So again, thank you, everyone. This does conclude our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now. The transcript will become available 24 hours from now, and both are available or will be available through our TSMC's website at www.tsmc.com. So again, thank you, everyone, for taking the time to join us today. We certainly would like to wish everyone a Happy New Year. We hope everyone continues to stay well, and you will join us again next quarter. Thank you. Goodbye, and have a good day.
Operator: Welcome to Blackline Safety's Fourth Quarter Results Conference Call. The conference is being recorded. I would now like to turn the conference over to Jason Zandberg, Director, Investor Relations. Please go ahead. Jason Zandberg: Welcome, and thank you for joining us. On the call today, we'll be discussing our fiscal results for the fourth quarter ending October 31, 2025, which were released earlier this morning. With me today is Cody Slater, CEO and Chair of Blackline Safety Corp.; Blackline's CFO, Robin Kooyman; and Sean Stinson, President and Chief Growth Officer. I will turn the call over to Cody for an overview of our fourth quarter and year-end 2025 results. Robin will then discuss the financial highlights before turning the call back to Cody for closing remarks. I'd like to remind everyone that an archive of this webcast will be made available on the Investors section of our website. I would like to note that some of the information discussed in this call is based on information as of today and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in these statements. For a discussion of these risks and uncertainties, please review the forward-looking statement disclosure in the earnings news release as well as the company's SEDAR+ filings. During this call, there will be a discussion of IFRS results, non-GAAP financial measures, non-GAAP ratios and supplementary financial measures. A reconciliation between IFRS results and non-GAAP financial measures is available in the company's earnings news release and MD&A, both of which can be found on our website, blacklinesafety.com and on SEDAR+. All dollar amounts are reported in Canadian dollars, unless otherwise noted. With that, I will now hand the call over to Mr. Slater. Cody Slater: Thank you, Jason. Good morning, everyone, and welcome to Blackline Safety's Fourth Quarter and Fiscal 2025 Conference Call. I'm very pleased to report that Blackline delivered another strong quarter and capped off a record fiscal year, highlighted by record annual recurring revenue, strong net dollar retention and our sixth consecutive quarter of positive adjusted EBITDA. For the fourth quarter, revenue reached a record $39.3 million, marking our 35th consecutive quarter of year-over-year top line growth. For the full fiscal year, revenue reached $150.5 million, an all-time high. Adjusted EBITDA for the fourth quarter was $2.2 million. Adjusted EBITDA for the full year reached $6.1 million compared to a loss of $2.4 million in fiscal 2024, clearly demonstrating our ability to generate full year positive adjusted EBITDA. Annual recurring revenue reached a record $84.5 million at year-end, up almost 30% from last year, providing strong visibility and a solid foundation for future growth. This performance continues to validate the demand for our hardware-enabled SaaS business model. Net dollar retention remained extremely strong at 128% in the fourth quarter, reflecting ongoing expansion within our existing customer base as customers continue to see value in our hardware and services, adding devices, services and functionality to their deployments. Our NDR figure has been above 125% for 10 consecutive quarters now. Our connected safety product portfolio continues to resonate across a broad range of industries. Demand for our EXO 8 area monitor remains strong as did demand for our G7 and G6 products, particularly in the Middle East as our long-term purchase agreement with ADNOC starts to scale. We not only delivered the initial 1,000 devices stated in our press release in August, but deployed almost 2,500 devices in the fourth quarter, an excellent start on our path to fulfill our multiyear purchase agreement with ADNOC, which could see up to 28,000 devices deployed with associated services. As a flagship customer in this region, we have already seen expanded interest from other leading companies in the Middle East. The growth in the Middle East region will be supported by the previously announced new international office in the UAE, providing localized training, rentals and service. We did face some near-term headwinds in the fourth quarter in product revenue due to global trade uncertainty and overall economic conditions impacting our energy and industrial sector customers. U.S. government shutdown also impacted our business with the funding disruption slowing purchase activity among fire and hazmat customers. As the U.S. government shutdown ended in November, we believe funding will begin flowing again in the near term, supporting our strong pipeline in that industry vertical. On Tuesday, we announced the G8, our next-generation connected safety wearables and the most advanced product we built to date. G8 brings together gas detection, lone worker protection and real-time communication in a single rugged intrinsically safe device, all connected to the cloud through Blackline Live. It builds on the strong foundation of our G7, but with meaningful enhancements, including a larger full color display, expanded connectivity and integrated communications, so workers can stay connected without needing multiple devices. Importantly, we see the G8 as an inflection point for Blackline safety. With over 4 years in development, the G8 represents a technological leap over the G7, which defined the category since 2017. The G8 is designed as a true platform that will become a hub for workforce productivity, hosting applications to enable teams to streamline workflows, reduce downtime and maintain compliance in the field, all of which we believe will increase the service revenues associated with each device. We're currently taking orders with our first commercial shipments expected to begin in February 2026. I will now turn the call over to Robin to review our financials in more detail. Robin Kooyman: Thank you, Cody, and good morning, everyone. I'll start with a review of our fourth quarter results and then provide a summary of full year fiscal 2025 performance. Total revenue in the fourth quarter was $39.3 million, up 10% year-over-year. This growth was driven by a 30% increase in service revenue, which reached $25.5 million. Within services, software services revenue grew 26% to $21.5 million, while rental revenue increased 55% to $4 million, reflecting strong demand in industrial turnarounds, maintenance and project-based environment. Product revenue in the quarter was $13.8 million, down 14% year-over-year as customers continue to exercise caution on capital purchases amid global trade and macroeconomic uncertainty, the U.S. government shutdown and a delay in certain customer hardware refreshment activities. Gross profit in the fourth quarter increased 21% to $26.3 million, and gross margin improved to 67% compared to 61% in the prior year quarter. Service margins remained strong, reaching a record 82%, benefiting from scale efficiencies, optimized connectivity and infrastructure costs, while product margins rebounded to 40% from 35% in Q3. Total quarterly operating expenses represented 68% of revenue, excluding onetime charge reported in general and administrative expenses and foreign exchange. Within this, G&A expenses accounted for 20%, sales and marketing for 32%, and product research and development costs represented 16%. The onetime charge relates to a U.S. sales tax assessment for prior periods. EBITDA for the quarter was $1.4 million and adjusted EBITDA was $2.2 million, reinforcing the scalability of our operating model. Turning to full year. Total revenue for fiscal 2025 was $150.5 million, up 18% year-over-year. Service revenue increased 30% to $90.5 million, while product revenue increased 4% to $60 million. Gross margin improved to 63%, up from 58% in fiscal 2024, driven by favorable revenue mix, pricing discipline and operating leverage. Total operating expense for the year represents 67% of revenue, consistent with the prior period and reflected continued cost discipline as the business scales. Adjusted EBITDA improved significantly to positive $6.1 million compared to a loss of $2.4 million in fiscal 2024. We ended the year with $46.6 million in cash and short-term investments. We have available capacity on our senior secured operating facility, including its accordion feature of $29.8 million as of October 31, 2025, for total available liquidity of $76.4 million. This compares to $60.4 million at the end of fiscal 2024. Our fiscal 2025 results reflect the strength of our recurring service revenue base, expanding margins and disciplined execution in a dynamic global environment. On a personal note, I'll be temporarily stepping away from Blackline Safety for maternity leave effective February 2. I'm proud to do so at a time when the company has achieved record revenue, ARR and has a very strong balance sheet. I have full confidence in Chris Curry, our VP, Finance and Accounting, to work as interim CFO with a strong team at Blackline to continue delivering ever greater results while I spend time with my growing family. With that, I'll turn the call back to Cody for closing remarks. Cody Slater: Thank you, Rob. We wish you and your family all the best. As we close out fiscal 2025, I'm extremely proud of what the Blackline team has accomplished. We delivered record total revenue, record annual recurring revenue and sustained positive adjusted EBITDA, all while continuing our track record of innovation and global expansion, redefining the connected worker category. Today, Blackline protects workers across more than 75 countries, supporting customers in energy, utilities, industrial, infrastructure and emergency response. Our growing recurring revenue base, strong customer retention and expanding global footprint position us well as we enter fiscal 2026. To close, we're particularly excited about the opportunities ahead as we launch the G8. We believe G8 represents a meaningful step forward for connected workers, both in terms of the value it delivers to customers and the long-term growth potential it creates for Blackline. The G7 created the connected industrial safety market and has taken Blackline from a company of $12 million in revenue to over $150 million today. The G8 will redefine the connected industrial worker market and be the key driver to accelerate our trajectory as we continue on our path to connect the global industrial workforce, creating a modern, more efficient workplace while ensuring more workers have the tools to get their job done and return home safe at the end of the day. I am deeply grateful to our customers for their trust, to our employees for their dedication and to our shareholders for their continued confidence. Thank you all for your ongoing support. I'll now turn the call back to the operator for questions. Operator: [Operator Instructions]. The first question comes from Martin Toner with ATB Capital Markets. Martin Toner: Congrats on a great start to the year, and congrats to Robin, too. My first question, maybe you can help us get our head around the timing of G8 revenues. Like how long does it take to ramp sales efforts? How easily are you able to move customers in the pipeline for the G7 over to the G8? And then what kind of near- and long-term impact do you think the G8 can have on service revenue and service revenue growth? Sean Stinson: Martin, this is Sean here. I will address those in sequence. So first off, how quickly can we start to realize G8 revenue? We anticipate the G8 shipping in late February. What we've modeled is a roughly 2 quarter -- 2 to 3 quarter transition between G7 to G8. So what I expect is that if customers have very tightly budgeted and [ inspected ] G7 in, they may be more likely to stay with the G7. We'll start to introduce G8 to everybody. But I don't believe that the entire pipeline will flip over to G8 right away. And part of that will be because of budgetary requirements. We are -- the price of the G8 will be a little bit higher on hardware, but we do anticipate a full switchover within about 2 quarters. So that -- I think that's kind of related to your second question about how do we move people over the G8 is a significant improvement in the G7. It's clearly the same concept. It's one of the only instruments in the world that can actually save a life. It's a voice-powered extremely sophisticated device that helps people save lives in the case of an accident and helps them deliver proactive safety. Behind that, it's a platform that will deliver years of continued expansion. We will see initially, I think the biggest impact on services will come from the PTT growth. The G8 has a very significantly improved push-to-talk experience, and that's a crucial tool for people who work in the industries that we serve, both in terms of collaboration to get a job done, which is, I would say, more productivity than safety, but also safety and productivity are very much linked. So if there is any communication that needs to happen in order to properly assess the situation for safety, that can happen much more easily. So we expect that to be a significant pickup. And if you followed Blackline for a while, you know that the G7 has roughly an 11% attach rate on PTT, we see that going significantly higher. I think I got them all, Martin. Did I miss anything there, you dropped 3 questions. Cody Slater: Maybe Martin, I'll just throw in and add, it's Cody here that the other difference with the G8 is that the 7, what we've seen is that customers acquire a certain stack of service, refresh, we might move them up a service tier or so, but usually, they're pretty good at picking those safety elements. [ G8 ] is a platform for more productivity, more workforce efficiency, more other elements of different -- think about them like apps that we'll be starting to add through '26 and beyond, and that will give us a base of -- if the unit goes in the field, that gives us really a base of customers to service, new opportunities, new value to and drive that service revenue growth through the life cycle of the product rather than at the refresh points. So a really significant difference in the business model for the company. And a difference for our customers, too, because everything we're talking about here is something that will make their jobs easier and safer. Martin Toner: That's great. So you have 2 interesting forces colliding here, macro-driven caution and an exciting new product. How do you see that playing out in numbers in 2026? Cody Slater: Yes. I think we've surfaced the G8 to a number of core customers. So in the -- over the last period of time, I will say the response has been excellent across the board. So that's going to push some near-term work into renewals or refresh units into the second quarter as we start shipping G8 in the second quarter. So maybe a bit of a headwind in Q1, but starting to really see that flow through from Q2 forward. The nice thing is, as Sean mentioned, this is -- the G8 is a phenomenal technological leap above the G7, but it's not -- the idea of connected safety is no longer new. When we launched the G7, it was entirely new. No one had done anything like this before. Lot of caution in customers adopting the tech. This is just something that they're going to see as a significant improvement and can see that visibility of what they could do with it in the future. So we're not going to see that kind of a challenge. We will see some customers wanting to do trials or tests to get it in their hands before they deploy. It's always a bit of a -- there's always a bit of noise on the launch of a new product of this scale. But the trajectory will be exceptionally strong, we feel throughout the year, particularly throughout the second half of the year. Operator: The next question comes from Doug Taylor with Canaccord Genuity. Doug Taylor: I'll ask a couple more questions on the G8 and it's an exciting milestone. Now that it's official, can you speak a little bit more on how we should think about the manufacturing cutover from the G7 as the current plan stands? What we should think about in terms of the overlap? I mean, is the G7 going to continue to be produced for some of those more cost-conscious customers for a period of time? Can you talk about the mechanics of that a little bit and inventory and working capital mechanics as it relates to that? Cody Slater: Sure, Cody here. I mean we anticipate a full shift over, as Sean has mentioned, from the G7 to the 8 by the end of the fiscal year here. So scaling down the G7 manufacturing while we're scaling up the G8 manufacturing. We've -- already you've seen from some of our inventory numbers, et cetera, and investment in the G8 inventories. You will continue to support the G7 customers. So there'll be nominal manufacturing G7 for a number of years as we go forward. But what you're going to see is a shift over, over the next 3 quarters to be fully G8. During that time, I will say there's usually introduction of a new product could put some downward pressure on hardware margins for a short -- for those first introductory periods, and your output, your throughputs are going to just scale up as we've seen that over the time with the G7. It's designed to be exceptionally manufacturable. But again, we'll have some caution as we're entering into the new manufacturing of the new line. And we will be, as we expand down the line, expanding our manufacturing capacity as well, too. We'll be adding a second surface [ mount ] line to the production timing on that is probably late this fiscal year. There is some capital investment there, but not significant in the overall, particularly given the strength of the balance sheet here. So yes, ramp up over the next 3 quarters, shift over a bit of time. The other thing I think you'll see with the G8 is when you talk about from the hardware standpoint is we're going to see more accessory sales with the G8. Sean has mentioned the pickup we anticipate in PTT, one of the really cool features with the 8 is it has a custom what's called remote speaker mic or RSM, the kind of thing you see a fireman or police officer having on their lapel, that really makes the PTT experience even greater. And so things like that will actually probably accelerate a little bit of the accessory revenues as well, too. Robin Kooyman: Yes. And Doug, I'll just jump in with one more point. On that investment in our manufacturing facility, you can think about that as single-digit million later this year. Doug Taylor: That's fantastic color. And so when you're launching the product here, the G8 next month, I mean, are all variants, all the different gas configurations and the PTT and the related service, speaker mic, all that, are they all going to be available? Or is that kind of staggered over the course of the year? Cody Slater: No, 100% of everything that is available day 1. That's -- one of the real advantages of our product system is in our design, is that cartridge base that you're familiar with, I think, with the G7. So the gas cartridges are really where a lot of the flexibility in the device comes from, whether it be multi 5 gas, 4 gas, pumped instruments, unpumped instruments, everyone works with the G8, everyone is approved in all the regions that we're functioning and working in around the globe, the speaker mics in production, the multiple charger docks, the rest of the stuff, everything is ready to go. What you are going to see with G8 though, is those new service apps that I'm talking about, those will start to roll out later this year, those will be something that we'll be able to talk a bit more about later in the year. But that's the real -- one of the real keys with the G8 is it is this new platform with this big full color screen and the additional interface access to it through the different side buttons that will allow customers to do a lot more on the device. And those are things that we're going to be able to just keep adding and adding as customer demand and as we focus in different areas from the software side. So -- but to your point, from the hardware end, everything is available day 1 on the G8. Doug Taylor: Okay. One further question for me and maybe just to back into the quarter that you just reported and talk about that a little bit because the services revenue certainly stood out and how resilient the growth had that been in all market conditions, but also the margins. So I just want to touch on that a little bit. Is that the margin expansion there, I mean, a function of the rental growth, currency? I mean, can you just help us as we think about modeling that into the start of this year and as the G8 rolls out and becomes a bigger part of the mix? Robin Kooyman: Thanks, Doug. It's a great question. So one of the biggest drivers of the service gross margin this quarter is really the scalability initiatives that we've been focused on achieving in the business, and we're really pleased with the results this year. And over 80% as we think forward from here, I just keep in mind that gains while still very much available are probably generally smaller. So we're going to continue to focus on optimizing things like connectivity services and data expenses. But as always, when you launch a new product, I think it's important just to keep in mind that there can be a little bit of variability. Cody Slater: The other thing I'd just add on the services growth is one of the core drivers of the lower hardware numbers is a slower refresh rate. A lot of our customers are just taking longer to replace their fleets. The devices are working. Capital is a bit constrained. Why would I replace them at this point in time. So even though that hardware number has been lighter, what you're seeing is still a lot of new customer adoption, and that's what's driving that growth there as well. And from our standpoint, frankly, there's some real positive in that because as those customers who've delayed their refresh, we'll be refreshing on a platform that we can over the next 5 years, continually add new services to. So that's been part of the driver of the growth of the services, that new customer adoption, really. Doug Taylor: Okay. Before I pass the line, I'll echo the congratulations, Robin, on the upcoming addition to your own family product line, so to speak. Operator: Our next question comes from Sean Jack with Raymond James. Sean Jack: Just wanted to hop on and ask again about the G8. Wondering if you guys can give a bit of color on how we should expect service gross margin to change now with the G8, just keeping in mind some of the more kind of like technical and data analytics-based things that are probably going to be enabled by this device. Are we -- should we expect to see prices move meaningfully upwards? Any sort of color would be great. Cody Slater: Sure. First, I'd say for 2026, I think you're going to see a pretty similar model as we start adding, but it is a good point as we start adding some of these new services, think about them again, like apps on the devices. In fact, those will carry a good strong margin because we already have the data channel, we already have the connectivity. We already have a lot of the back end. So it's not adding as much load as additional features might -- as the base does, if that makes sense in that context. So long term, I think there'll be some upward pressure on the margins, upward movement on the margins. But again, to Robin's point, in the shorter term, I think I'd be looking at something pretty similar to where we're at. The other point is that these -- when you talk about costs, the base costs are all staying the same, like the different service features we have now are all the same price. What we're really going to be able to do is add new features like, say, permitting on site or different apps that we can add. And those will be individually priced and priced based on the value proposition to the customer. But again, they're not ones that are going to really add a lot of additional costs from our standpoint. So it should be high-margin elements. Robin Kooyman: Yes. And then, Sean, just to jump in, it's Robin here. The other thing I'd keep in mind is I wouldn't be necessarily just analyzing the service gross margin in a vacuum, right? One of the key messages today is that we see the G8 as a product that's going to unlock more service revenue over time. And so that overall gross margin is an important one to think about there, too. Sean Jack: Okay. Perfect. And I know that we've never really talked about specific guidance with you guys or anything, but just kind of headed back to margin questions. There is these kind of 2 conflicting forces here. Like can you give us kind of any sort of sense of how we should expect product sales headed into the first half of the year here? Are you guys very confident with the pipeline that you set up in front of the G8? Any sort of extra detail would be great. Cody Slater: I think that we're very confident in where we see the year, particularly. Again, as I mentioned, we're -- customers -- we announced the G8, 2 days ago, customers have been seeing it now for a few weeks. That's definitely going to shift some of the business we'd expect in Q1 into Q2, I would say. And then strength going from Q2 throughout the rest of the year. Operator: Our next question comes from Amr Ezzat with Ventum Capital. Amr Ezzat: Robin, first and foremost, congrats and all the very best to you and your family. If we could zoom in on product revenues. I think last quarter, you guys had flagged that Q4 would be sort of weakish, but I still expected a small increase, nonetheless, Q-on-Q. And I think you spoke to a couple of factors. First, on the U.S. government shutdown impacting fire and hazmat. Are these orders simply delayed? Is that the way to think about it? Then can you size it for us? Are we talking about $1 million, $2 million, $3 million, maybe more, maybe less? Cody Slater: Sure. I would -- yes, these orders are just delayed. There's -- when you're looking at that marketplace, that's a market that 3 years ago for us didn't really exist. Today, it's one of our fastest-growing markets. And you are talking single-digit millions here in the low end as far as the fire and hazmat pipeline for what we would have expected to be in Q4, and I'd expect to see that sort of coming through Q2, Q3. I think the bigger -- for us, we've talked a little bit about some of the different headwinds. But as I mentioned before, the other thing really is we have some of the lowest refresh rates that we've ever seen in the last really 2 quarters, where customers would normally refresh their hardware every 4 years, and they're just extending that out. And is some of that because they know the G8 is coming? Probably. But some of it's also because the unit is functioning, working and it's the services that give that real value. And you can see by the net dollar retention, it's not that we're losing customers. It's that they're just taking longer to refresh their hardware. And that's probably been the biggest headwind for us. The teams are still acquiring new customers. And again, as I mentioned earlier, that's what's driving that ARR growth and the services growth. Amr Ezzat: And I suspect as you like launch the G8 as a sort of platform technology where you could add like apps and so on into it, you'll have that refresh headwinds like more and more going forward. Do you feel the same way? Cody Slater: Well, I actually look at the -- for the midterm number, I'd actually say I think the G8 will be a tailwind to the refresh. I always use the analogy of the iPhone, like right now for our customers, we're selling with the G7, we're selling an iPhone 11. They bought it 4 years ago. We're still selling an iPhone 11. Why would I refresh the device. Now we're moving from an 11 to 17. So the G8 is going to give our current installed base reason to look to accelerate that refresh rate. So for the next couple of years, I think it's actually a tailwind for us on the G8. Amr Ezzat: Moving -- I thought -- I was talking about moving out of the G8 eventually. Cody Slater: The G9, we'll leave that discussion for a little while. Our tech teams have spent 4 years on what is the biggest technological leap in this industry. I'd say I'm not going to -- I'm going to leave them a couple of months before we start talking about the G9. Amr Ezzat: I'm sure, it will begin. Now, did I hear you correctly, Cody? So are we currently at 3,500 devices in total sold to ADNOC in the fiscal year? Cody Slater: It would be 2,500. The first order was shipped in Q4 as well, too. So there was a total of 2,500 shipped as of Q4. We continue to see orders coming from ADNOC. So that number just keeps growing and growing. And we'll keep some visibility on that, partially just because of the scale. But I do think it really -- ADNOC really exemplifies the kind of customer we see coming -- becoming more and more part of our standard business where it's a company who's just simply said, we're converting entirely to this platform. And they're doing it not only for safety, but for efficiency and operations. And that's what's really exciting about ADNOC. And that's -- as we start adding more logos in that same context, that will be a big driver for us going forward. Amr Ezzat: And then can you give us the split of these 2,500 between like G6 and location beacons -- just all G6? Cody Slater: Sorry, the numbers there, the 2,500 are all body-worn devices. So it's a mix of G7s and G6s. It's not the beacons. Those are only revenue generating. Those are only service revenue-generating devices. Amr Ezzat: Okay. Then one last one on the ADNOC. The number that of devices you potentially spoke to was 28,000, correct? Cody Slater: That's correct, yes. Amr Ezzat: And is that like a number that's an internal estimate? Or is it validated with Al Masaood Group or ADNOC? Cody Slater: That's validated directly with ADNOC, Amr. Amr Ezzat: Fantastic. Any sort of color you could give us on the pace of follow-on orders? Is that over 4 years, 5 years, 2 years, best guess? Sean Stinson: Yes. My best guess is that it will roll out over about the next 2 years. We're seeing continued velocity. ADNOC is such a large organization. And so we're looking at it operating unit by operating unit, by plant by plant and working very closely with them to make sure that the units are properly deployed and that everybody is happy as we move along. And there's some integrations behind the scenes there as well. We're integrating with the software package that they have. So it will be a really best-in-class solution when it's all fully deployed. Amr Ezzat: Fantastic. Then maybe one last one on the product gross margin. I was very surprised to see it grow up at 40% despite lower hardware volumes this quarter. Anything in particular happening there that's a one-off? Robin Kooyman: I wouldn't say anything in particular as a one-off. Product gross margin has a number of factors in it, including how busy the factory is. And obviously, you would have seen inventories grown a little bit this quarter as well as we prepare for the launch of the G8. So you'll see different factors just contributing to the strength. Operator: [Operator Instructions]. Next question comes from David Kwan with TD Cowen. David Kwan: Maybe just on that last question as it relates to the product gross margins. You talked about -- it sounds like there might be some weakness here just as you kind of ramp up the G8 similar to kind of a weakness in product gross margins when you've launched other products. So I guess, where do you think the product gross margins could go to in the coming quarters as you ramp up the G8? Cody Slater: I mean we're not talking massive differences, but a few points drop is a good potential to look at. Again, so many things, as Robin mentioned, impact that product mix, all kinds of other aspects. But we're not -- I would expect to see if you're modeling it, David, I'd say model a little bit of a drop for a couple of quarters and then getting back to the 40% -- and then long term, we still believe there's opportunity to see the hardware margins move north of that. But I think that's more going to be late '26, maybe more like a '27 story. David Kwan: That's helpful. And then on the services gross margins, it sounds like you've done almost as much as you can do in terms of kind of cost optimization. So maybe a lot more measured or steady hopeful increases. But I was wondering on the PTT side, I guess my understanding was, I think, as the G8 launch and hopefully, you see some significant pickup in that uptake and adoption rate of PTT that there could be some notable incremental upside on the services gross margin. So I was wondering if you could talk about that. Cody Slater: No, I wouldn't look at PTT as carrying a higher gross margin than the other core services really. It's -- there's so many factors that impact that, whether it be data, whether it the back-end storage because we store all the data for the customers in the PTT base. So there's -- the cost base on the PTT, I think it's going to -- isn't -- anyway, I don't believe the expansion of PTT is going to be a real upward pressure on the margins. What will be long term, I would say, is more of the kinds of app-like services we're talking about adding because a lot of those are ones where we don't really do -- some of them are even realistically SDKs tying into another company's systems. So those will be ones that I think we can talk more about towards the end of the year about upward -- about their higher gross -- higher margins themselves. But the PTT, I think, will be -- is in a similar context to where we're at with our other margins. I think the other thing to think about the PTT though is how much stickier you become with this customer. If this is now their core safety device, but it's now also their core communication device to what Sean mentioned on that, how they work on their sites, how they communicate their operations, we just become an even stickier product at the end of the day. Robin Kooyman: Yes. David, just to jump in, the other thing I want to reiterate is while maybe push-to-talk doesn't necessarily come at a higher gross margin, the more services we can sell for every dollar of product that we sell is really impactful to the overall gross margin of the business, and that's part of the reason we're so excited about G8. David Kwan: Yes. So just more of a revenue mix benefit, it sounds like. And I guess last question. The MD&A referenced some weakness in the U.S. due to the lower energy prices. I assume that was just customers extending the life of their devices that Cody mentioned earlier and/or renewing, but for fewer devices similar to what I think we saw in the last downturn. So I just wanted to confirm that number one. And then number two, are you seeing any signs of similar behavior amongst your Canadian customers? Sean Stinson: Yes. We were seeing similar patterns in both Canada and the U.S. So -- and really, it was the upstream clients that were heavily affected. That's a lot of our core energy customer profile in Canada. The years ago, the satellite product that we came out with, which was the first really industrial-grade satellite lone worker device on the market that established a lot of our early Canadian energy companies in the upstream market. So what we're seeing is it's a bit of a double whammy in that case, David. It's like renewals are sliding out a little bit, and then it's harder to acquire clients in the upstream market right now. So good conversations in the pipeline. Just it stretches it out a little bit more. Like in a lot of cases, we've got companies saying they're going to buy, but they're just stretching out their buy time line. So you might see the pipeline extending from a 6-month sales cycle up to an 8- or 9-month sales cycle, ultimately closed them in the end, but that stretch out is something that you -- ultimately, you have to backfill that by more leads in the pipeline. So that's something that we focused on a lot going forward. It's just really working on the pipeline strength. That's kind of the only way you can counteract a slower market. So that's what we're really focused on for '26. Obviously, G8 and so on and so forth. David Kwan: No, that's helpful, Sean. And are you seeing a similar dynamic in the Middle East? Obviously, you've got the ADNOC win that seems like it's going quite well and it looks like there's some good future potential there. But just curious to see the dynamic in the Middle East that's also maybe pushing out sales cycles. Sean Stinson: No, it's very strong in the Middle East, and I do believe that a lot of that has to do with the lower incremental cost of production in the Middle East. I believe Aramco has published numbers like this is a few years ago. So look this up before you quote me on it. But at some point, I think they quoted that their cost of production per barrel of oil is $19, and that's significantly higher in North America. So like I view the Middle Eastern energy market as a hedge to the North American market, just as I view the downstream refining market as a hedge to upstream. We're making significant inroads in refining. So typically, when the price of energy is low refining, will still buy. Upstream might suffer a little bit. But -- so we look at ways to naturally hedge the business by getting into different vertical markets. And just like I said, even a geographical split can help us even when you're in the same vertical. Operator: We have a follow-up question from Martin Toner with ATB Capital Markets. Martin Toner: At what point would G8 shipments run into capacity issues, if at all? Cody Slater: Our ops teams are so strong. We just don't see that as a challenge. We're planning for growth, and we're planning for capabilities there. We're planning for growth and we have the capabilities there to meet whatever demand we see. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Cody Slater for any closing remarks. Please go ahead. Cody Slater: Thank you, operator, and thank you, everyone, for your attention and your time today. I look forward to talking again throughout 2026 as we launch the G8 and take the next steps on connecting the industrial workforce. Thanks again, everyone. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Hello, and welcome, everyone, to the Insteel Industries First Quarter 2026 Earnings Call. My name is Breeka, and I will be your operator today. All lines will be muted throughout the presentation portion of the call with a chance for Q&A at the end. I will now hand over to your host, H.O. Woltz III, CEO, to begin. Please go ahead. H.O. Woltz III: Good morning. Thank you for your interest in Insteel Industries, Inc. Welcome to our first quarter 2026 conference call, which will be conducted by Scot R. Jafroodi, our Vice President, CFO, and Treasurer, and me. Before we begin, let me remind you that some of the comments made in our presentation are considered to be forward-looking statements that are subject to various risks and uncertainties which could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. The upturn in business activity we reported previously continued during our first quarter, and our fiscal 2025 acquisitions continue to perform well. While our ability to forecast future activity is limited, we are encouraged by the level of optimism in our markets as well as brisk order entry up to this point in January, which causes us to believe that 2026 will be a strong year for the company. While the relative strength of our markets is real, we are aware of uncertainties created by the administration's trade policies, the nation's fiscal conditions, and by the economic cycle. I am going to turn the call over to Scot R. Jafroodi to comment on our financial results. Following Scot's comments, I will pick the call back up to discuss our business outlook. Scot R. Jafroodi: Thank you, H.O. Woltz III, and good morning to everyone joining us today. As highlighted in this morning's press release, we delivered a strong start to the year. First quarter results benefited from improved demand for our concrete reinforcing products, which supported wider spreads between selling prices and raw material costs. Net earnings for the quarter rose to $7.276 million or 39¢ per share compared with $1.1 million or 6¢ per share in the same period last year. It is also worth noting that last year's first quarter results included $1 million of restructuring charges and acquisition-related costs, which collectively reduced earnings per share by 4¢. First quarter shipments, which are typically our softest period due to winter weather conditions and holiday schedules, increased 3.8% year-over-year. On a sequential basis, shipments declined 9.7% from the fourth quarter, which is consistent with normal seasonal patterns. The year-over-year growth in shipments reflects improved demand across our commercial and infrastructure markets along with incremental volume from the acquisitions we completed early last year. As we move forward, our year-over-year volume comparisons will normalize now that these acquisitions are fully integrated into our run rate. Turning to pricing, average selling prices increased 18.8% year-over-year, reflecting the pricing actions we took throughout fiscal 2025 to offset higher steel wire rod costs driven by tight domestic supply conditions and increased Section 232 steel tariffs, as well as to address rising raw operating costs. Sequentially, average selling prices were essentially unchanged from the fourth quarter as we did not take additional pricing actions during the current period. However, with scrap and wire rod prices now moving higher again, we implemented our old price increases across most product lines, which took effect earlier this month. Gross profit for the quarter improved to $18.1 million from $9.5 million a year ago, with gross margin expanding 400 basis points to 11.3% from 7.3%. This improvement was driven by widening spreads, higher shipment volumes, and lower unit manufacturing costs. On a sequential basis, gross profit declined by $10.5 million from the fourth quarter, and gross margin narrowed by 480 basis points, driven primarily by the consumption of higher-cost inventory. As I just mentioned, the price increases implemented in January are expected to benefit second-quarter spreads and margins as higher selling prices begin to align with the consumption of lower-cost inventories under the first-in, first-out accounting methodology. SG&A expenses for the quarter rose by approximately $900,000 to $8.8 million or 5.5% of net sales compared with $7.9 million or 6.1% of net sales in the prior year. The year-over-year increase was driven primarily by an $800,000 rise in compensation expense under our return on capital-based incentive plan, reflecting stronger financial performance in the current year. As you may recall, we did not incur any incentive compensation expense in the first quarter of last year. Our effective tax rate decreased to 21% compared to 26.1% in the prior year period. The decline was primarily driven by a reduction in the valuation allowance on deferred tax assets along with a discrete tax item related to the calculation of state deferred taxes. Looking ahead, we expect our effective tax rate for the remainder of the year to be approximately 23%, subject to the level of pretax earnings, post-tax book-to-tax differences, and the other assumptions and estimates underlying our tax provision calculation. Moving to the cash flow statement and the balance sheet, cash flow from operations used $700,000 in the quarter, compared to providing $19 million last year. Net working capital used $16.6 million of cash in the first quarter, driven primarily by a $34.5 million increase in inventories, partially offset by a $14.1 million reduction in accounts receivable. The inventory increase reflects higher raw material purchases, including a meaningful amount of offshore material, along with an increase in the average carrying value of inventory. On the receivable side, the decline was largely tied to lower shipments, which is consistent with the normal seasonal slowdown in sales we see this time of year. Reported on the inventory position represented approximately 3.9 months of shipments on a forward-looking basis, calculated off of our forecasted second-quarter volumes, compared with 3.5 months at the end of the fourth quarter. As we discussed on our prior call, we expected a temporary inventory build in the first quarter as we supplemented domestic wire rod supply with offshore purchases. Looking ahead, we expect inventory levels to moderate over the course of the second quarter as purchasing activity normalizes and shipment volumes increase. It is also worth noting that our first-quarter inventories are carried at an average unit cost that is generally in line with our first-quarter cost of sales and remain below current replacement levels. We incurred $1.5 million of capital expenditures in the first quarter and remain committed to a full-year target of $20 million. H.O. Woltz III will provide more detail on this topic in his remarks. In December, we returned $19.4 million of capital to our shareholders through the payment of a $1 per share special cash dividend in addition to our regular quarterly dividend. This marks the ninth time in the last ten years that we have issued a special dividend. Also, during the first quarter, we continued our share buyback, repurchasing $745,000 of common equity equal to approximately 24,000 shares. From a liquidity perspective, we ended the quarter with $15.6 million in cash on hand and no borrowings outstanding on our $100 million revolving credit facility. Turning to the macro indicators for our construction end markets, the latest readings from two key leading measures, the Architectural Billing Index (ABI) and Dodge Momentum Index (DMI), continue to signal a mixed and somewhat cautious outlook for nonresidential commercial construction activity. In November, the ABI registered 45.3, remaining firmly in negative territory as any reading below 50 can indicate a contraction in activity. This marks the thirteenth consecutive month of declining billings. Inquiries for new projects showed only modest improvement, and the value of newly signed design contracts continued to soften. In contrast, the Dodge Momentum Index signaled strengthening activity, rising 7% in December and supported by more than 3.5% growth in commercial planning, driven in large part by data center construction. Year-over-year, the DMI was up over 50% overall, including a 45% increase in the commercial segment. Turning to the broader market backdrop, the most recent construction spending data from the US Department of Commerce shows that through August, total construction spending on a seasonally adjusted basis was down about 1.6% year-over-year. Nonresidential spending declined 1.5%, and public highway and street construction, one of our key end markets, was down about 1% compared to the same period last year. Finally, US cement shipments, another key measure that we monitor, fell 4.3% in August and were down 3.4% year-to-date. That said, as we close out 2026, we are encouraged by the steady demand we are seeing across our core markets. While we recognize the broader economic backdrop remains uncertain, the demand trends we are seeing and the conversations we are having with customers give us confidence as we look ahead to the balance of the year. This concludes my prepared remarks. I will now turn the call back over to H.O. Woltz III. H.O. Woltz III: As I noted in my opening comments, we are pleased with the acceleration of business activity that continued through our first quarter. Our first quarter performance will never be strong due to the limited number of working days in the quarter after giving effect to Thanksgiving and Christmas shutdowns through much of the industry and to seasonal weather patterns. So our first quarter results are never indicative of the level of demand for our products. Nevertheless, we are pleased with the performance for the quarter and see no indication that the level of activity in our markets is poised to subside. As we consider the drivers of demand for our products, the facts are no clearer to us today than they have been in the past. We believe, however, that funding from the Infrastructure Investment and Jobs Act (IIJA) is responsible for much of the uptick in demand we have experienced, although we cannot definitively state that any single project was funded by IIJA. I suspect the same is true for our customers. They have enjoyed better volume levels without knowing the precise source of funding that drives demand for their products. While IIJA funding expires in 2026, funded projects will proceed into 2027 and beyond. The consensus today is that there is bipartisan support for a replacement infrastructure funding mechanism. Of course, that remains to be seen. The other notable source of demand that we expect to remain robust into 2027 is from the data center construction boom that has been well publicized. While community pushback seems to be growing as the scale of data center resource intensity is more fully appreciated, we have commitments from customers for projects that have been approved and funded and that should run through calendar 2026. The timing of the data center activity is fortuitous since other sectors of the private nonresidential construction market are weak. We believe the data center work will serve as a timely bridge while we wait for the recovery of more traditional private nonresidential projects. Turning to another subject, the steel industry may have been more affected by the administration's tariff policy than any other industry. The Section 232 tariff of 50% on imports of steel has caused market prices in the US for hot rolled wire rod, our primary raw material, to rise to a level that is 50% to 100% higher than the global market price. While we are fortunate that imports of PC strand are now subject to the Section 232 tariff under the derivative products provision, domestic wire rod prices have risen to an extent that dilutes the benefit of the Section 232 tariff on PC strand. Probably of more importance is the uncertainty that continues to surround the administration's tariff policy. Recently, I read that the Secretary of Commerce had speculated that the Section 232 tariff might be modified or removed with respect to the Europeans if the right trade deal were struck between the US and European Union. It is reasonable to assume that this could be true with respect to other countries as well. Notably, negotiations surrounding USMCA come to mind. Such speculation by the administration increases uncertainty and instability in US markets. It is important for investors to understand that Insteel Industries, Inc. operates in a small segment of the domestic hot rolled carbon steel market. Domestic production of wire rod, our primary raw material, is approximately 3.5 million tons per year, while US production of all hot rolled carbon steel is roughly 100 million tons per year. Difficult economic conditions in recent years for producers of wire rod resulted in the permanent closure of two producing mills and financial struggles together with significantly diminished output for a third producer. Altogether, these curtailments reduced actual domestic production of wire rod by more than 800,000 tons per year and reduced domestic capacity to produce wire rod by nearly 1.2 million tons per year relative to apparent domestic consumption of approximately 5 million tons per year. So by our calculation, capacity equal to nearly 25% of apparent domestic consumption is offline, most of it permanently. These capacity curtailments together with the imposition of the Section 232 tariff caused the US wire rod market to tighten significantly and created serious questions about the adequacy of domestic supply. Insteel Industries, Inc. therefore turned to the offshore market for a portion of its supply. The economics of offshore transactions, which include substantial freight costs, require the purchase of large quantities with a resulting impact on inventories and networking capital requirements as reflected on our balance sheet. Net working capital has risen over $50 million in the last twelve months. We expect to continue importing a portion of our raw material requirement until such time as domestic availability improves. We believe, however, that the net working capital impact of importing will be more muted going forward and that we will see significant working capital release as market conditions normalize. But it is not possible to quantify this at the present time. Finally, turning to CapEx, as mentioned in the release and by Scot R. Jafroodi, we expect to invest approximately $20 million in our plants and information systems infrastructure here in 2026. We expect our investments to support the growth of our engineered structural mesh business, to reduce our cash production costs, and to enhance the robust nature of our information system. Consistent with past practice, we will provide quarterly updates of our investment activities and expectations as the year progresses. We believe our estimate is conservative in keeping with prior forecasts for CapEx levels. Looking ahead, we are aware of substantial risks related to the state of the economy and the administration's tariff policies. Regardless of developments in these areas, we are well-positioned to pursue growth-related activities, both organic and through acquisitions, to optimize our costs. This concludes our prepared remarks, and we will now take your questions. Breeka, would you please explain the procedure for asking questions? Operator: Of course. If you wish to ask a question, please press star followed by one on your telephone keypad now. Please press star followed by two. And when preparing to ask your question, ensure your device is unmuted locally. We have our first question from Julio Alberto Romero from Sidoti and Company. Your line is now open. Please go ahead. Julio Alberto Romero: Thanks. Hey, good morning, H.O. Woltz III and Scot R. Jafroodi. To begin, you sounded pretty constructive on the overall demand outlook, particularly with the data center and IIJA-related projects. You mentioned the commitments you have from customers on the data center side that have been approved and funded and run through calendar 2026. Can you give us a little bit more color on these commitments? Are these new commitments in your pipeline? Have they been accelerating? And what is your sense of how far out these commitments are beyond calendar 2026? H.O. Woltz III: Well, I mean, the data center business is new to Insteel Industries, Inc. It is new to much of the economy. I think 2025 was the first year we had done any significant data center business, but certainly, now that we are in that market and connected with some of the companies that regularly do that business, we are seeing repeat opportunities and robust demand, which comes as no surprise based on what has been publicized about that industry and that build-out. Julio Alberto Romero: Got it. That is helpful. And, talking about the volumes in the quarter, you experienced growth of roughly 4%. Can you talk about how that was affected, if at all, by constraints of wire rod? Both in this quarter and on a go-forward basis? H.O. Woltz III: Do you mean just the domestic situation? Julio Alberto Romero: Yeah. I think the last couple of quarters you called out that raw material constraints have kind of constrained your volume output. But it sounds like that was less of an effect this quarter. H.O. Woltz III: So the reason that I went through the mill closures and sort of the macro with respect to wire rod supply and demand is to give readers of our release and participants on this call a sense for why our inventories have grown. Our inventories have grown because we are unable to acquire sufficient quantities of wire rod domestically, and we are forced to go offshore. I will point out that the situation in the wire rod market is very different than the situation that confronts purchasers of other hot rolled steel products because wire rod capacity has contracted significantly, and capacity has expanded significantly in other hot rolled products. So when we concluded that it was unlikely we could support our business objectives by buying solely domestically, we went to the offshore market to fill the gaps. We will continue doing so until such time as we see that availability improves in the US and that suppliers are willing to work for an order. Julio Alberto Romero: Very helpful context there. Last one, if I may, and I will pass it on, is on the SG&A front. You were able to grow sales 23% while SG&A grew by 11%. My question is, are you beginning to realize SG&A leverage from your acquisitions of EWP and OWP at this point in time? Or is that leverage still coming in your view? H.O. Woltz III: Well, I mean, we certainly realize the synergies we expected to come from the acquisition. I would say that together with the added shipments and sales volume is really what that acquisition was all about. We are pleased with its performance, and we are moving along well. Julio Alberto Romero: Excellent. I will pass it on. Thanks very much. Scot R. Jafroodi: Thank you. Operator: Our next question is from Tyson Lee Bauer from KC Capital. Your line is now open. Please go ahead. Tyson Lee Bauer: Good morning, gentlemen. Insteel Industries, Inc. has consistently been able to run counter to the industry stats as far as your ability to grow shipments and your ability to grow as a company. Versus, I think you mentioned, thirteen straight months of ABI billings below 50 and some of the other general industry stats. What has allowed you to run counter to those? Are we seeing an underlying acceleration away from just standard rebar to more of your ESM products and other products that would account for your ability to grow facing those kinds of industry headwinds? H.O. Woltz III: Well, if I remember correctly, Tyson, the first time that business conditions for Insteel Industries, Inc. seemed to diverge significantly from what the major macro indices would indicate was 2025. Several things have happened internally that have helped us with that. Our work in the cash-in-place market has helped. Our acquisitions have helped. I think there are things going on internally that are different than what you may see in macro indicators for construction activity in the US market. We will continue pursuing the paths that we are pursuing now. Tyson Lee Bauer: In the past, you benefited from when we were going into 2021 with the distribution centers. Now we are looking at data centers, both DC, ironically. You are working with those contractors that specialize there. Are you being spec'd into those designs as you were with some of the online retail customers before in the DCs? As we see that develop and that industry grow, are you kind of in lockstep with that? H.O. Woltz III: Yeah. I think every project is different. But as a general goal, I would say no. We are not spec'd in. Rebar is spec'd in. We make a conversion of rebar applications to engineered structural mesh applications and rely on the value proposition of our product. Particularly with respect to data centers, one of the significant value propositions that we offer is speed. These owners and lessors of these centers are really focused on constructing them and getting them up and operating quickly. Our product helps with that whole charge. Tyson Lee Bauer: So you do have an inherent advantage based on what your product is to grow along with that growing segment, that niche. H.O. Woltz III: Yeah. I think the value proposition of our product relative to rebar is solid. There is no question about that. Tyson Lee Bauer: Okay. Inventory levels, it sounds like that may have peaked this past quarter. Will we see a gradual downtick? Will that downtick accelerate as we get into fiscal three and fiscal four? H.O. Woltz III: Well, I think it depends on the level of shipments that we see. If the scenario that we believe will unfold actually unfolds, and that is one of strong business conditions in 2026, then I think that is correct. But keep in mind that we will go back to the offshore market for Q3 and Q4 if we do not see significant improvements in the balance of supply and demand domestically. Tyson Lee Bauer: Okay. The CapEx of $20 million, is that roughly split fifty-fifty maintenance, $10 million, $10 million for whether it be cost reductions or product line expansions, more of the growth side or improvement in margin? Is that kind of the split you are looking at? H.O. Woltz III: I would say that is close to correct. We are still identifying some of the capacity expansion opportunities that exist out there. Of course, we are always interested in incorporating new technology into our manufacturing operations that will help us reduce cash costs of operation. We still have the underlying labor availability issue. As you might suspect, the more new technology we bring into the plants, the less labor-intensive our operation is. We are very much oriented toward looking at that. Tyson Lee Bauer: Okay. And last one for me. As the administration goes to Davos, it is supposed to lay a plan to increase and incentivize greater activity in the residential side, which is about 15% of your overall business. Betting against the administration has proved futile. So you kind of go with what they are pushing, especially in an election year. How quickly can that residential market for you turn where it becomes a benefit as opposed to just kind of being stuck in the mud the last couple of years? H.O. Woltz III: My view would be probably not fast enough to have any meaningful impact on 2026 for Insteel Industries, Inc. More importantly, our participation in residential markets would be related to slab-on-grade construction of housing units where the slabs are post-tensioned, and we are using PC strand. That is the segment of business where we knock heads with the imports most closely. Tyson Lee Bauer: Okay. I am going to sneak one in. The labor cost outlook, we have heard other companies talk about general wage increases, health costs on that side of it. Have you indexed or looked at labor costs in increases for this year and what kind of offsets you have there? H.O. Woltz III: Yeah. We have 11 or 12 different considerations because we look at prevailing labor markets in each of the areas where we operate. They are each different. But the upward pressure on labor costs still exists. We are incurring significant reciprocal and Section 232 tariff expenses in purchases of non-raw material items like spare parts, seeing energy increase. The inflationary environment is alive and well within our operations, and it really, like I say, every one's an independent event. Tyson Lee Bauer: Okay. Thank you, gentlemen. Operator: Thank you. We currently have no further questions, so I will hand back over to the management team for closing remarks. H.O. Woltz III: Okay. We appreciate your interest in Insteel Industries, Inc. and its operating results, and we look forward to talking to you next quarter. In the meantime, if you have questions, do not hesitate to follow up with us. Thank you. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Katie: Good morning. My name is Katie, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Fourth Quarter 2025 Earnings Conference Call. On behalf of The Goldman Sachs Group, Inc., I will begin the call with the following disclaimer. The earnings presentation can be found on the Investor Relations page of The Goldman Sachs Group, Inc. website and contains information on forward-looking statements and non-GAAP measures. This audiocast is copyrighted material of The Goldman Sachs Group, Inc. and may not be duplicated, reproduced, or rebroadcast without consent. This call is being recorded today, 01/15/2026. I will now turn the call over to Chairman and Chief Executive Officer, David Solomon, and Chief Financial Officer, Dennis Coleman. Thank you. Mr. Solomon, you may begin your conference. David Solomon: Thank you, operator. Good morning, everyone. Thank you all for joining us. I am very pleased with our strong performance in the fourth quarter. We generated earnings per share of $14.1, an ROE of 16%, and an RoTE of 17.1%. For the full year, we delivered earnings per share of $51.32, a 27% increase versus last year, and ROE of 15% and ROTE of 16%. Before we review our financials in detail, I want to discuss our longer-term performance and provide an update to you on our strategy. Beginning on Page one, in 2020, we held the firm's first investor day and laid out a clear and comprehensive strategy to grow and strengthen the firm. We also set a number of targets so we would be held accountable for our progress. Since then, guided by our purpose to be the most exceptional financial institution in the world, supported by our four values of client service, integrity, partnership, and excellence, we continue to successfully execute on this strategy. We increased firm-wide revenues by roughly 60%. We grew EPS by 144%. We improved our returns by 500 basis points. And we delivered a total shareholder return of over 340%, the most of our peer group over this time frame. As you can see on page two, we achieved this while also materially improving the risk profile of the firm and enhancing the resilience of our earnings. We have doubled our more durable revenues. We have reduced historical principal investments by over 90% from roughly $64 billion down to $6 billion. The results of these multiyear efforts to scale capital-light businesses and reduce our capital intensity were reflected in our most recent CCAR stress test, where we've driven a 320 basis point improvement in our stress capital buffer. Overall, we have strengthened and grown the firm through relentless focus on delivering excellence to our clients. Turning to page three, I want to highlight our strong execution in 2025. Our success is fueled by our world-class interconnected franchises that deliver one Goldman Sachs to our clients around the globe. In global banking and markets, we maintained our position as the number one M&A adviser in investment banking and number one equities franchise alongside our leading position in FICC. We improved our standing with the top 150 clients in these businesses, which has contributed to 350 basis points of wallet share gain in GBM since 2019. We significantly increased our more durable FICC and equity financing revenues, which grew to a new record of $11.4 billion for the year and generated returns in excess of 16% in the segment. In asset wealth management, we are a top-five active asset manager, a leading alternatives franchise, and a premier ultra-high-net-worth wealth manager. We've consistently grown more durable management, other fees, and private banking and lending revenues, which were both records in 2025. And also raised a record $115 billion in alternatives. Our strong execution has led to improvement in both the margins and the returns in this segment. Importantly, we're taking the final steps needed to narrow our strategic focus. In addition to completing the transition of the General Motors credit card program last August, last week, we announced an agreement to transition the Apple Card portfolio. Let's turn to Page four for a deeper dive on our franchises, starting with investment banking, where we have been the number one M&A adviser for twenty-three consecutive years. Very few, if any, service businesses of our size can claim long-standing leadership to this degree. This is a reflection of the strength of our client relationships as well as the quality of our people and the advice and execution capabilities they bring to our clients. Since 2020, we've generated an incremental $5 billion in advisory revenues versus the number two competitor. And in 2025 alone, we've advised on more than $1.6 trillion of announced M&A transaction volumes, over $250 billion ahead of the next closest peer. Over the last year, we've seen high levels of client engagement across our investment banking franchise. And we expect activity to accelerate in 2026. Our outlook is supported by a number of catalysts: corporate focus on strategically positioning scale and innovation, the tremendous public and private capital fueling growth in AI, as well as a strong pickup in sponsor activity. Given our best-in-class sponsor franchise, we're especially well-positioned to help sponsors deploy the $1 trillion of dry powder they hold and monetize the roughly $4 trillion of value across their portfolio companies. Increased levels of engagement are reflected in our backlog, which stands at its highest level in four years. M&A transactions often kick off a flywheel of activity across our entire franchise. Whether it's acquisition financing, hedging activity, secondary market making, or investing opportunities for our AWM clients, it is unquestionable that there is a significant multiplier effect. And as the number one advisor for over two decades, we are uniquely positioned to capture the significant forward opportunity. Moving to Page five, another growth engine for GBM has been our leading origination and financing businesses. Last year, we announced the creation of the Capital Solutions Group, formalizing a hub to provide our clients a comprehensive suite of financing origination, structuring, and risk management offerings across both public and private markets. On the public side, we are optimistic about the outlook for equity and debt underwriting, particularly amid the resurgence in the IPO market and higher acquisition finance-related activity. We have a long-standing track record and leading market positions. On the private side, our ability to structure holistic solutions has led to a number of asset-backed financings across infrastructure, transportation, and data centers. Supported by strong origination and structuring that feed opportunities across our client franchise and our asset management platform. These capabilities have supported our deliberate strategy to grow our more durable financing revenues, providing a ballast to our results and comprising 37% of total FICC and equity revenues in 2025. Since 2021, these have increased at a 17% CAGR. And with risk management always top of mind, we still expect to prudently drive growth from here. On page six, we illustrate the strength and resilience of the FICC and equities intermediation businesses. We have a demonstrated ability to deliver strong results in a broad array of market environments. While client activity levels in different asset classes ebb and flow in any given quarter, our overall results have been remarkably consistent over time. This reflects the breadth and diversification of these businesses, which have been bolstered by our share gains. We see even more opportunities to further strengthen our client franchise. This includes investing to improve our market-making capabilities and broaden offerings for active and passive ETF issuers. In addition, we are working to close share gaps with key client segments, including insurers, wealth managers, and RIAs, as well as in certain product areas like corporate derivatives. Geographically, we are looking to close the share gap in Asia, in part by focusing on these areas. Turning to page seven, our scaled asset and wealth management business has $3.6 trillion in assets under supervision, with global breadth and depth across products and solutions. We've grown more durable revenues across management and other fees in private banking and lending at a 12% CAGR, ahead of our target, and we continue to see significant opportunities across wealth management, alternatives, and solutions. We have also improved our AWM margins and returns. And given our growth outlook across these businesses, we are setting new targets. We are increasing our pretax margin target to 30%, which will help drive high-teen returns in AWM over the medium term. Let's dive deeper into our key growth opportunities, starting with wealth management on page eight. Over the last fifty years, we have built a premier franchise with $1.9 trillion in client assets that is centered around meeting the distinct investing, planning, and borrowing needs of ultra-high-net-worth individuals, family offices, endowments, and foundations. Over the last five years, we drove long-term fee-based inflows at an annual pace of 6% and grew wealth management revenues at a CAGR of 11%. And we expect further growth from here. Specifically, we are broadening our client base by increasing the number of advisers and content specialists globally. We're expanding our loan product offerings in line with client demand. We are enhancing alternatives investment offerings to facilitate clients moving closer to their optimal target allocation. And we are continuing to elevate the overall client experience, including via enhanced digital offerings and more expansive thought leadership engagements that leverage the convening power of Goldman Sachs. To sharpen our focus on future growth in wealth management, we are introducing a new target of 5% long-term fee-based net inflows annually from the platform. On Page nine, we highlight our other key growth opportunities in asset wealth management, alternatives, and solutions. We have a leading alternatives platform where we've raised $438 billion since our 2020 investor day. And we have grown alternatives management and other fees to a record $2.4 billion. We continue to scale our flagship fund programs while concurrently developing new strategies. Given our success in strengthening and growing our alternative platforms, we believe we can raise between $75 billion and $100 billion annually on a sustainable basis. As these funds continue to be deployed, we expect double-digit growth in alternative management and other fees. We expect fee-paying alternative assets under supervision to reach $750 billion by 2030. This further supports our existing target of generating $1 billion in incentive fees annually. We're also pleased with the progress across our solutions business, where we see secular growth in demand for our products and services. We are the number one outsourced CIO manager in the US, providing clients a one-stop shop for their investment needs: advice, portfolio construction, risk management, and hedging. And we've won significant global mandates this year from firms, including Eli Lilly and Shell. We are also the number one separately managed account and the second-largest insurance solutions provider. Looking forward, we see continued opportunities for growth, including in third-party wealth, in the context of alternatives offering, ETFs, and customized solutions like direct indexing. In addition, we are expanding our capabilities in the retirement channel via partnerships, further deepening our strong relationships with insurers, and enhancing our offerings for institutional clients, including sovereign wealth funds. Turning to page 10, building on our strong organic growth, we are accelerating our growth trajectory in asset wealth management through our recent strategic partnerships and acquisitions. Our collaboration with T. Rowe Price delivers a range of public and private market solutions for retirement and wealth investors. Last month, we announced the launch of co-branded model portfolios, the first of four planned product offerings. We recently closed the acquisition of Industry Ventures, a venture capital platform that adds an attractive technology investment capability to our market-leading secondaries investing franchise, XIG, where we now have over $500 billion in assets under supervision. Most recently, we announced the acquisition of Innovator, which significantly scales our businesses to be in the top 10 of active ETF providers globally, particularly in the fast-growing outcome-based ETF segment. While the bar for transformational M&A remains very high, we will continue to look for ways to accelerate growth in asset wealth management. Turning to Page 11, we have a long history of prudent and dynamic capital management, and our philosophy remains unchanged. We prioritize investing across our client franchises at attractive returns, sustainably growing our dividend, and returning excess capital to shareholders in the form of buybacks. We see meaningful opportunities to deploy capital across our franchise. This includes leaning into acquisition financing as M&A activity accelerates, supporting growth in equities and fixed financing, and increasing lending to our ultra-high-net-worth clients. That said, given our strong earnings generation capability and excess capital positions, we also have the capacity to return more capital to shareholders. Today, we are announcing a $0.50 increase in our quarterly dividend to $4.5, representing a 50% increase from a year ago. In addition, we have $32 billion of remaining buyback capacity under our current share repurchase authorization. And while we are mindful of our current stock price, we will remain dynamic in executing repurchases. Turning to Page 12, as we continue to grow the firm and strategically deploy our balance sheet to support client activity, our unwavering focus remains on maintaining a disciplined risk management framework and robust standards. We've been on a multiyear journey to diversify our funding footprint, including building strategic deposit-raising channels such as private banking, markets, and transaction banking. This has significantly improved our funding structure. Our deposits have grown to $501 billion and now represent roughly 40% of our total funding. We continue to optimize activity in our bank, which held 35% of firm-wide assets at year-end, versus 25% at the time of our first Investor Day. Overall, this progress underscores our commitment to the diversification and resiliency of our funding profile, which has improved our funding costs and our financial flexibility. All in, our robust capital position, diversified funding mix, dynamic liquidity management, and strong risk discipline are foundational to the strength and stability of our balance sheet, allowing us to meet the evolving demands of our clients. Moving to Page 13, last quarter, we announced the launch of One Goldman Sachs 3.0, our new operating model propelled by Ella AI. We are excited to embark on this effort, starting with six work streams we identified as ripe for disruption. Our people have begun thorough assessments of opportunities for efficiency, and we will then invest to reengineer these processes from the ground up. We will be measuring and driving accountability, and we will update you over the coming year with additional details regarding these metrics. Let's turn to page 14. The exceptional service we provide our clients is a direct result of our people, who are our most important asset. Our client franchise is powered by our best-in-class talent and culture. And it is critical that we continue to invest in Goldman Sachs as an aspirational brand around the globe, which allows us to attract quality talent at all levels. As an example, in 2025, we had over 1.1 million experienced hire applications, a 33% increase from last year. And in our summer internship program, we maintained a selection rate of less than 1%. Many of these individuals will have long careers at the firm, exemplified by the fact that roughly 45% of our partners started as campus hires. And while some leave for opportunities elsewhere, these firms often become important clients to Goldman Sachs. Today, more than 650 of our alumni are in C-suite roles at companies with either a market cap greater than $1 billion or assets under management greater than $5 billion. On page 15, we outline our firm-wide through-the-cycle targets. Given the successful execution against our strategic priorities, we are confident that we will continue to deliver on these. And in the near term, we believe that our catalysts position us to exceed our return target. We have the number one M&A advisor within our leading global banking and markets franchise that is poised to capitalize on a cyclical upswing in investment banking activity. A scaled asset wealth management business with higher margin and return targets and clear opportunities for future growth. And tailwinds from a more balanced regulatory regime. In closing, I am incredibly proud of what we have delivered, and I am confident that we will continue to serve our clients with excellence and drive strong returns for our shareholders. Let me now turn it over to Dennis to cover our financial results in more detail. Dennis Coleman: Thank you, David. And good morning. Let's start with our results on page 16 of the presentation. In the fourth quarter, we generated revenues of $13.5 billion, earnings per share of $14.01, an ROE of 16%, and an RoTE of 17.1%. For the full year, we delivered earnings per share of $51.32, a 27% increase versus last year. An ROE of 15% and an RoTE of 16%, improving 230 and 250 basis points, respectively, compared to 2024. As David mentioned, we announced an agreement to transition the Apple Card portfolio. For the quarter, the transition had a net positive impact of $0.46 to EPS and 50 basis points to ROE, as a $2.3 billion revenue reduction was more than offset by a $2.5 billion reserve release upon moving the portfolio to held for sale. Given that we are taking our final steps to narrow our strategic focus, you will have seen we implemented minor organizational changes and made corresponding updates to our segments, which are incorporated in our earnings presentation today. Turning to results by segment, starting on Page 18, Global Banking and Markets produced record revenues of $41.5 billion for the year, up 18% amid broad-based strength versus last year. In the fourth quarter, investment banking fees of $2.6 billion rose 25% year over year, driven by increases in each of advisory, debt underwriting, and equity. For 2025, we maintained our number one in the league tables for announced and completed M&A, and also ranked first in leveraged lending. We ranked third in equity underwriting and second in common stock offerings, convertibles, and high-yield offerings. Even with very strong accruals in the fourth quarter, our investment banking backlog rose for a seventh consecutive quarter to a four-year high, primarily driven by advisory. As David mentioned, we are optimistic about the investment banking outlook for 2026 and the multiplier effect this activity has across our franchise. FICC net revenues were $3.1 billion for the quarter, up 12% year over year. In intermediation, the 15% year-over-year increase was driven by rates and commodities, and in financing, revenues rose 7% to a new record on better results within mortgages and structured lending. Equities net revenues were $4.3 billion in the quarter. Equities intermediation revenues were $2.2 billion, up 11% year over year on better performance in derivatives. Equities financing results hit a quarterly record of $2.1 billion, up 42% versus the prior year amid record average balances in prime. For the full year, total equities net revenues were a record $16.5 billion, surpassing last year's record by over $3 billion, helped by the multiyear investments we've made in this business. Moving to asset wealth management on page 20, for 2025, revenues were $16.7 billion, and our pretax margin was 25%. Segment ROE for the year was 12.5%, and in the mid-teens when adjusted for the 230 basis point impact from HPI and its related equity as well as the FDIC special assessment fee. In the quarter, management and other fees were a record $3.1 billion, up 5% sequentially and 10% year over year. Private banking and lending revenues rose 5% year over year to $776 million, as higher results from lending and deposits related to wealth management clients were partially offset by NIM compression in the Marcus deposit portfolio. Incentive fees for the quarter were $181 million, bringing our full-year incentive fees to $489 million, up 24% versus the prior year. We expect to make further progress in 2026 towards our annual target of $1 billion. Now moving to page 21, total assets under supervision ended the quarter at a record $3.6 trillion, driven by $66 billion of long-term fee-based net inflows across asset classes and $50 billion of liquidity inflows. In conjunction with our new long-term fee-based inflow target in wealth management, we are providing enhanced disclosures outlining inflows and long-term AUS by channel. Turning to page 22 on alternatives, alternative AUS totaled $420 billion at the end of the fourth quarter, driving $645 million in management and other fees. Gross third-party fundraising was $45 billion in the fourth quarter and $115 billion for the year. Moving to Page 24, our total loan portfolio at quarter-end was $238 billion, up sequentially reflecting higher collateralized lending balances. Provision for credit losses reflected a net benefit of $2.1 billion, including the previously mentioned reserve release associated with the Apple Card portfolio. Let's turn to expenses on page 25. Total operating expenses for the year were $37.5 billion. Compensation expenses were $18.9 billion and included $250 million of severance costs, driving a full-year compensation ratio net of provisions of 31.8%. Full-year non-compensation costs of $18.6 billion were up 9% year over year, driven primarily by higher transaction-based activity. While the operating environment for our businesses continues to improve, we remain committed to our key strategic priority of operating more efficiently and are maintaining a rigorous focus on advancing our productivity and efficiency initiatives as part of One Goldman Sachs 3.0. Our effective tax rate for 2025 was 21.4%. For 2026, we expect a tax rate of approximately 20%. Next, capital on Slide 26. Our common equity Tier one ratio was 14.4% at the end of the fourth quarter under the standardized approach. In the fourth quarter, we returned approximately $4.2 billion to common shareholders, including common stock repurchases of $3 billion and dividends of $1.2 billion. In conclusion, our strong performance this year reflects the strength of our client franchise and our multiyear execution on our strategic priorities. We see a highly constructive setup for 2026 as the improving investment banking environment and our deep client connectivity position us to capture significant opportunities across the entire firm. At the same time, we remain mindful that the operating environment can shift quickly. Economic growth, policy uncertainty, geopolitical developments, and market volatility are factors we continue to monitor closely. And as always, disciplined risk management will remain central to how we serve clients and allocate resources. Even so, with solid momentum and growth opportunities across our businesses, we are optimistic about the forward outlook for Goldman Sachs and remain confident in our ability to deliver for clients and drive strong returns for shareholders. With that, we will now open up the line for questions. Katie: Thank you. Ladies and gentlemen, we will now take a moment to compile the Q&A roster. Press star then one on your telephone keypad if you would like to ask a question. If you would like to withdraw your question, press star then 2 on your telephone keypad. If you're asking a question and you are in a hands-free unit or a speakerphone, we'd like to ask you to use your handset when asking your question. Please limit yourself to one question and one follow-up question. We will take our first question from Glenn Schorr with Evercore. Glenn Schorr: Hi. Thanks very much. Great thoughts and detail in there. One narrow one first. I guess I'll ask it simply. How do you plan to scale wealth from here? And I want to include that if you could. Your aspirations. Meaning, we had a little experiment with United Capital, but, like, you're amazing in ultra-high-net-worth. And I'm curious about the rest of wealth. You've done a couple of things in RIA land, so maybe we could talk about that and then zoom out after that. Thanks. David Solomon: Sure. And appreciate the question, Glenn. I think our ultra-high-net-worth franchise is extraordinary. I think we have a leading position here in the United States. Strong position, but obviously with room for more share and footprint in Europe and in Asia. But I think it's a highly differentiated offering for wealthy individuals and people that have very, very complex needs from a wealth perspective. That business scales with people. You heard in and technology. But you heard in our remarks that we're continuing to invest in broadening the footprint and the coverage available and the resources to expand that ultra-high-net-worth footprint. As you point out, we did do an experiment with United Capital, but we've reached the conclusion that the right way for us, given our manufacturing capability, and asset management, is to really explore broader access to wealth through third-party wealth channels. And so I think you know we're making very significant investments in our third-party wealth capability. That includes partnerships with RIAs and footprint with RIAs. And we have great product manufacturing capability. We can use others' distribution very, very effectively given our brand and our very, very complete diverse product offering. And that will help us continue to scale. But in direct full-service product wealth, we're going to stick with ultra-high-net-worth wealth. And what's interesting is obviously, you've got a bunch of secular things going on that are growing the available people that need these services. You have a huge generational wealth transfer that's going on that's bringing a whole new generation into these services. And it's a very fragmented business, and we think we have a very differentiated offering with lots of upside. And look, you heard what we said about our capabilities and wealth and our target to continue to grow those long-term fee-based wealth assets by 5% as we go forward. Glenn Schorr: I appreciate all that, David. Bigger picture, obviously, really strong results, good backdrop. Middle of the range despite all these strong results because I think there's mixed operating leverage or people always want more operating leverage during big market peaks. So I'm gonna flip the comment around and just ask, what's your level of confidence you've raised the floor with everything that you've laid out and everything you've executed on? Because in the past, when markets pull back off highs, returns for you and others would drift back to the, like, low double digits and sometimes a little bit lower. But, like, I guess I'm curious about how much you think all that progress you've built, how much have you raised the floor? David Solomon: I think we've raised the floor meaningfully. You know, based on the work we've done, the growth that we've done. You know, in particular, the growth of durable revenues, which will be less affected, less affected, not not affected, but less affected if we get into some sort of a downturn or a more challenging environment. If you step back to our Investor Day, the firm's returns in the ten years before our Investor Day averaged nine and change percent. And so I think we now are operating with a global banking and markets franchise that should run mid-teens through the cycle. That doesn't mean you couldn't get a very tough environment where it runs lower, but you can also get environments, and this is part of what we've said about 2026, where it has the potential to run higher. I think we've uplifted the floor very significantly. Now, of course, in very severe downturns, it slows down activity. It impedes confidence. But I just think the firm is bigger, more diversified, much more durable, and better positioned when we have that kind of environment than we've been before. Now I'm not gonna predict the future, and I know it's never a straight line. But I think we've uplifted it very materially. Katie: We'll take our next question from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: Good morning. I guess maybe just sticking with the true cycle ROE, David, maybe the other end of the spectrum when I talk to investors, given that the stock trading, given the performance you've had, and two structural things seem to be happening at Goldman Sachs. One is obviously, the regulatory backdrop changing is creating more capital flex. And the productivity focus that you had double down with the Goldman Sachs 3.0, is it fair for a shareholder to assume that absent, like, big peaks in falls, that the business is rebasing to maybe something better than mid-teens returns towards closer to high teens? Or is that sort of misplaced and misunderstanding kind of the business dynamics? David Solomon: Well, I appreciate the question, and, look, our goal is gonna continue to be to work very, very hard to do everything we can to continue to take the returns higher. We were very pointed in our comments on the last slide in that presentation that we're reaffirming our mid-teens targets. You know, I certainly remember it. It's not that many quarters ago where many people on this call would ask questions about how we were going to get to the teens. So we've arrived. I think we were pointed in saying, this is an environment where the potential to be positioned to exceed targets in the near term is there, but as the previous set of questions just pointed out, there'll be other environments where there could be headwinds. So I think we're very comfortable that we are operating as a mid-teens firm. We think that we can do things that over time will drive upside to that, but we're not going to set targets until we're very comfortable that we further elevated the firm. I think one of the most important things coming out of the presentation is the next step in our asset wealth management journey to tell you that given the work we've done and the progress we've made, we now have more confidence that we can operate that business at a higher margin, 30%, which drives a higher return. And so we're comfortable putting that target out. And that, of course, elevates the overall performance of the firm. The other thing I just want to highlight that comes out of your comment is people think about the regulatory environment as changing the capital rules and giving us more capital flexibility. But I'd also highlight the regulatory environment in the last five years put costs and burdens on the firm that we now won't have going forward that actually gives us flexibility to invest over time in other things that drive growth. So it's not just the capital stuff, that's important. It's also the fact that we and others in the industry were burdened by additional costs that now can be directed to what I call more productive growth and return for our clients and for our shareholders. Ebrahim Poonawala: That's great. And I guess maybe a second one just on capital deployment. So it's very clear the bar for M&A is high. But when you think about just the stock valuation today, regulatory backdrop, there is a cycle or an environment where there is room to do something transformational. Just give us a sense in terms of do you see this as the right time or if the right opportunity presents itself to do something that would shift the mix, boost the mix of AWM business a lot more, or do you think that's kind of anti-Goldman's DNA to do something that would be too large or transformational? David Solomon: I appreciate the question, Ebrahim, but I'm gonna be very consistent with what I've said multiple times with this question. We feel very good about what we did in 2025, the T. Rowe partnership and the two small acquisitions. They fill in gaps. They accelerate our journey in asset wealth management. But the bar for doing something significant and transformational is very, very high. And it has to be high, one, because there are very few really, really great large businesses. Most of them are not for sale and available. And I think the cultural aspects of Goldman Sachs and what makes Goldman Sachs unique and different, there has to be a tremendous sensitivity to integrating business into it to make sure that Goldman Sachs can continue to be Goldman Sachs. And so I won't say that we don't look at those things and think about those things. But I really my key message is the bar is very high. I do think that we will see other things like the things that we've done that can accelerate our journey and therefore increase the growth trajectory of the asset wealth management business. Katie: We'll take our next question from Erika Najarian with UBS. Erika Najarian: Hi, good morning. I hate framing this question this way, but I can't think of a better way to frame it. In terms of the capital market cycle ahead, what quote inning are we in? And as investors think about the scale of potential upside to Goldman? Maybe compare and contrast the preconditions that you see for the capital markets backdrop in 2026 with 2021. And I'm only asking this question as investors try to think about the EPS potential of your company. And I think 2021 was is sort of seen as a ceiling in terms of what you could produce in this business. David Solomon: I'll give you a couple of things, Erika, to think about, and I appreciate the question. You know, the first thing I'd just say is as a student of these businesses for decades and decades and decades, I would bet you that 2021 is not the ceiling. That doesn't mean that in this cycle, we surpass 2021 because things can change and things can go wrong. But this business, when you go back and you step out and you look over twenty-five, thirty years, there's not a ceiling that hasn't been exceeded at some point down the road as you run through cycles. And I'm sure given the growth in market capital world and activity, the 2021 activity levels will be exceeded again. They might be exceeded in 2026. You know, there was a slide that my team was showing me that shows a range of outcomes, including a conservative outcome for M&A, a base outcome for M&A, and a bull outcome for M&A. And the base outcome is pretty close to 2021, and the bull outcome is ahead of 2021. I think the world is set up at the moment to be incredibly constructive in 2026 for M&A and capital markets activity. And I think the likely scenario is it is a very, very good year for M&A and capital markets activity. What could change that? Something could go on in the world, some sort of an exogenous event or a macro event that changes the sentiment. If you look at 2025, we saw that in April. For a period of time, and things got slowed down. Don't think that's the likely outcome. But it's certainly in the distribution as a possibility. But I do think that we are, you know, not yet in the middle of the potential for a full-on M&A and sponsor cycle. And I think over the next few years, barring some sort of an exogenous event that slows it down, we're gonna have a pretty constructive environment for those activities given the combination of fiscal, monetary, capital investment, deregulatory stimulus. You've got this combination of stimulus activity that I think is pretty constructive for these businesses. Erika, a couple things I'd add on that just to supplement everything David said. If you look at sort of industry-wide volumes of the various categories of investment banking activities compared to, say, the last five years, a number of them have started to trend above the average level. One that's decidedly below the averages remains the IPO business for equity. That's a lucrative business that, you know, we have a very long-standing leadership position in. And it's also the case that while, you know, some of the debt activities have been trending up in terms of overall volumes, we still haven't seen enormous volumes of sponsor capital committed deals or, you know, large-cap capital committed investment-grade activity. So there still remains, you know, other types of transaction activity as we progress through the cycle that is, you know, very strategic to clients, things that Goldman Sachs is very good at executing, you know, that could further propel upside across the capital markets line items. Erika Najarian: Great. And just the follow-up question is, I really appreciate how you laid out your internal opportunities to deploy the capital, excess capital, which is so much. Right? If you take into account the excess, your buffer, and potentially the redefinition of that capital, you know, as we think about, you know, a year where, you know, you talked about the cap markets, your ability to organically generate capital is also, you know, best in class. How do we think about how that buyback fits in? Appreciate your prepared remarks that if you're going to be opportunistic, you did $12 billion in '26, but it seems like you have plenty of room to meet or exceed that and, you know, and check off your wish list. Is that the right way to think about it? David Solomon: Sure, Erika. So, you know, I'll quickly give you our standard on the prioritization of the deployment of capital. And that remains unchanged, as David said. And that's what we'll focus on first. But to get to your buyback question, given the degree of excess capital that we sit with today, and our expectation that we'll continue to generate capital over the course of the next year, you know, buybacks remain an important tool in our toolkit. Over the long term, you will notice that Goldman Sachs has, you know, reduced its share count, you know, quite significantly and quite sustainably. And it gives us leverage to continue to generate EPS growth. So like anyone, we are mindful of the price at which our equity is trading. But we're also trying to take, you know, a strategic long-term approach. The first and foremost fuel the franchise to support client activity, but also, you know, drive returns for shareholders over multiple years. So buybacks continue to feature as an important part of our capital deployment strategy. Katie: Thank you. We'll take our question from Betsy Graseck with Morgan Stanley. Betsy Graseck: Hi, good morning. Just continuing on this theme, I wanted to understand a little bit about how the equities markets, revenues, and the fixed income revenues are aligned with the issuance calendar. Just wondering how much of the issuance that's going on is those two line items as well, or is issuance all within banking? David Solomon: So, thank you for the question, Betsy. I'm not sure I understood the very tail end of your question, but maybe I'll start off answering it, and then you can redirect me. I think across our FIC and equity businesses, we obviously have a very diversified portfolio of activities, both intermediation and financing. Even with intermediation, diversified by asset class, by cash, derivatives, and equities. And I think there are contributions that the primary market activity makes to enhance the overall liquidity provision secondary market making opportunity set. But my own view is that we'll continue to see an increase in the overall level of capital markets activity. And if that pulls through as well as we hope and expect, that should catalyze incremental levels of activity across intermediation activities as investors even more dynamically work to assess their existing secondary market portfolio versus quote unquote making room for primary, etcetera. So I think there remains opportunity on in that front as we move into 2026. Betsy Graseck: And then you mentioned that your backlog today is the highest in four years. Maybe we could just ask you to unpack a little bit. There's a lot of different backlogs, so, would you mind going through what you're anticipating, getting on unreleased into production, so to speak, as we go through '26? David Solomon: Sure. So the way we report our backlog consistently each and every quarter. So there's no change to the way we're reporting that. It's comprised of our advisory activities, our debt underwriting, our equity underwriting. We're very, very deliberate in our disclosures each and every quarter to highlight if the delta is in the backlog, have particular drivers. In this particular case, we say a couple things. We say it's the seventh consecutive quarter. It's the highest in four years. It's one of the highest levels ever. It is a large level of backlog, and we make that point because, obviously, the results that we just delivered in Q4 and for full year 2025 were very strong. But the indication is that not only we delivered those results, but more than replenished those results. And so that is what's giving us the confidence. And then all of David's comments that he made with respect to the flywheel and the catalyzing of activity, because the growth in the backlog is driven by advisory, we're also trying to give our investors the sense that that could in turn drive other pieces of activity across the firm, other types of activity that doesn't get registered in backlog and doesn't lend itself to that type of reporting metric. So that's sort of our orientation, and that's what I would offer up to help you get, you know, the insight on why we're putting that out there and highlighting it. Katie: Thank you. We'll take our next question from Brennan Hawken with BMO. Brennan Hawken: Good morning. Thanks for taking my question. First of all, sort of great timing on the Apple Card deal. Like, having that announced the week before we get the tweet on the limits. I mean, I couldn't help but juggle about that. I'd love to hear about obviously, you've got a long pathway to close, twenty-four months and then it closes. But could you help us maybe understand the right way we should be thinking about, like, platform's run rate after it closes and then whether or not there's any operating expenses given this is your last card exit. That might be running off? And what are the plans for the deposits, the Apple deposits that may not have been reflected in the announcement? David Solomon: Sure. Brennan, thank you for the question. Thank you for the observation. The same thing occurred to us. So thinking about platform solutions on the forward, it's really comprised, you know, the vast majority of it is the Apple Card business and the savings program. The loans are now obviously in a fair value, standpoint from an accounting perspective. So they're marked to market. The performance contributors will obviously be, you know, NII, charge-offs, operating expenses, etcetera. I think we'd observe from a seasonality perspective and across the balance of the year perspective, the same dynamics we've observed over the last couple of years of the portfolio where the first quarter is typically stronger in terms of reflecting, you know, pay down of balances and things like that, which then, you know, generally speaking, grow over the balance of the year. When you put that all together, our expectation is we'll have a small, you know, pretax loss for the year in the segment, but nothing that's material for Goldman Sachs. You asked, you asked also, Brennan, about savings. Like, you know, I just wanted to comment on this. Yeah. So there currently is no agreement to transition the savings program. We're gonna continue to service and maintain, you know, our existing Apple savings customers, and we're gonna continue to offer them high-yield savings accounts, you know, as Apple Card users. And users should expect that this service will be seamless. It'll be uninterrupted. And they'll continue to earn the same competitive rate they've been getting on their savings. And it's attractive to us. Obviously, we are very focused on the transition of the card, and there's a lot of work to do over the next twenty-four months. The transition of the card. But at some point in the future, we will expect to have additional conversations about the future of Apple savings. As we've mentioned, our deposits are diversified in tenor and channel, and that remains true even if we excluded Apple savings deposits. They're just a small fraction of the deposits. But at this point, there have been no discussions about the savings plan. Brennan Hawken: Got it. Thanks for that, David. And Dennis. I for my so know, one of the sort of debate points this morning with investors was on the efficiency ratio. And how things looked year over year. Now, of course, you have to adjust for the revenue impact of the Apple Card announcement. But and I might be doing the math wrong, but so correct me if that's the case. But when I do make that adjustment, it looks like there's, you know, a negative year-over-year impact on the efficiency ratio, like, it was a the efficiency ratio was stronger last fourth quarter versus this fourth quarter. Is my math right? And if so, could you speak to maybe what some of the factors were that prevented greater operating leverage and how we should think about operating leverage going forward? David Solomon: Sure, Brennan. I'll start with that. So first, thank you for observing correctly that the efficiency ratio is one of those places where based on the accounting for the Apple Card transition, it goes in the opposite direction versus our intention and the trajectory that we've been on. So that does explain why it's going in that direction based on the reduction to revenues. But you need to look at the efficiency ratio on a full-year basis. There have been some other things I've seen where people are looking at quarter, you know, year-over-year, fourth-quarter operating expenses or efficiency, given the way that we manage compensation and non-compensation expenses over the course of the full year, you need to look at that sort of in totality. And in this particular, when you do that, for the year-over-year fourth-quarter look in this particular year, it looks like you have, you know, a significant increase in operating expenses. But when you step back and look at the full-year performance, it's very clear that the firm delivered significant operating leverage. Obviously, we have reported revs at plus 9%. We have pretax at plus 19, and we have EPS at 27%. And so you have to sort of step back, take account of the provision release, and look at the full-year results. The fourth-quarter year-over-year, the only thing I'd add, the fourth-quarter year-over-year was affected by the way we accrued comp last year. And the way we accrued comp this year and the revenues in the quarter. And so it's you can't look at the fourth-quarter year-over-year. To Dennis' point, you have to look at the year. Katie: Thank you. We'll take our next question from Mike Mayo with Wells Fargo Securities. Mike Mayo: Hi. I guess it's an exciting time. This is a new era for Goldman Sachs. Goldman Sachs 3.0. And you're redesigning the whole firm around AI, so that could be very exciting. I'm looking for the output that you're looking for from this. I know it's early days, but whenever I ask about AI, it's always answers at the 10,000-foot level. Like, it's transformational. It's a game changer. It's a superpower. You know, we all get that. But what are you hoping to achieve? So, like, this decade, your revenues are up two-thirds. Your headcount's up one-fourth. So that's one way maybe you could frame the output that you like to achieve. But how much more in revenues? How much more in efficiency? Just you put some meat on the bones? Thank you. David Solomon: I appreciate the question, Mike, and I appreciate the way you frame it. And I understand why there's a strong desire to get more from us. What I promise you is you're going to get more over time as we're in a position to give you metrics, to give you targets, and to really explain it. Wanna step back at a high level. Just the one thing that I'd say, and I'd frame it slightly differently than you'd frame it, this is not a new era for Goldman Sachs. One GS 3.0 is not gonna transform the whole firm with AI. We are focused on our two core businesses, driving growth in our two core businesses, and both, I think, we're incredibly well-positioned and positioned to win. AI and this technology is an opportunity for us to drive productivity and efficiency in the organization. And we are very, very focused on it. Because it will add to our capacity to invest in growth in the business. At a high level, and I think I've talked about this a little bit before, there are two things that I would focus on. One, we have very smart, very productive people. And you can give them these models, these tools, these applications. You can put them in their hands. They're very good at playing with them and figuring out on a day-to-day basis they can use these tools to make themselves more productive, to do more, to affect our clients more. And we're pretty good at that. We put technology in our hands for decades. They're pretty good at taking that technology and figuring out how to use it. And that is going on, and there is progress in that. The thing you're talking about is our ability to, really, in the enterprise, deploy the technology to reimagine operating processes and create real efficiency. And we think there is an ability to do that on a basis that would be meaningful and significant for Goldman Sachs. It's not just to take cost out, but it's also to free up capacity to invest in other areas where we see growth opportunities we've been a little bit constrained. I talked about wealth management because somebody asked a question. And our desire to put more feet on the ground to broaden our footprint and our platform. We would like to do more of that this year than we're doing. But we're constrained because we're also trying to balance and deliver returns. If we can remake processes and create more operating efficiency and flexibility, that will free up more capacity from an efficiency perspective to invest in these growth areas. To change operating processes in the firm, and we've identified six specific processes that we're attacking. Takes an enormous amount of work to bring people along. We started doing this in the fall. We're making good progress. To be honest, I had hoped to give a little bit more transparency at this earnings call, but we don't have the full confidence to put information out publicly. But we are committed to giving you more over the course of the next quarters so you can track with us the efficiency progress and how we're deploying that progress into the business. And so we'll continue to keep you posted as we do it. But I think it's meaningful, but for the moment, it's focused on six distinct processes. Mike Mayo: And just as one follow-up, if we were to look at one metric for progress five years from now, would that be, like, revenues per employee? Would that be efficiency? Would it be headcount or how do you think about that? David Solomon: Well, if you look out five years from now, I think this technology and I think this has to be put in the lens of a journey that a firm like ours has been on for decades. I mean, I joined Goldman Sachs in 1999. On a revenue per employee basis. I mean, you pointed out a revenue per employee metric over the last five years. You go back and you look twenty-five years, you know the same thing. We continue our people continue to get more productive. I think this technology and the work we can do in One GS 3.0 creates an ability for us in the next five years to accelerate the pace of that one to get. And so that is a metric, but I don't think the only metric. Katie: Thank you. We'll take our next question from Steven Chubak with Wolfe Research. Steven Chubak: So David, there have been a number of significant developments in the area of market structure, whether it's tokenization, the recent expansion of prediction markets. You guys are always quite front-footed when it comes to innovation, and I was hoping you could speak to how you're evaluating some of these emerging opportunities within the market structure or tokenization landscape. Where do you see the most compelling opportunities for Goldman? And how are you positioning the firm to participate in a more meaningful way? David Solomon: Yeah. So I appreciate the question, Steven. First, I'll start I mean, you mentioned two things in the both things that we have an enormous number of people on the firm extremely focused on. You know, tokenization, stablecoins, obviously, there's a lot going on in Washington right now. With the Clarity app that was actually in Washington on Tuesday. You know, speaking to people about things that we think are important, you know, to us in the context and framing to that. Obviously, that bill based on the news over the last twenty-four hours, has a long way to go before that bill is gonna progress. But I do think these innovations are important. I don't think we have to be the leader, but it would not surprise you that we have a big team of people spending a lot of time with senior leadership and doing a lot of work so that we can clearly decide where we're investing in playing and how those technologies can expand or accelerate a variety of our existing businesses. And where there are new business opportunities candidly around those technologies. I think the prediction markets are also super interesting. I personally met with two big prediction companies in their leadership in the last two weeks and spent a couple of hours with each, you know, to learn more about that. We have a team of people here that are spending time with them and are looking at it. When you think about some of these activities, particularly when you look at some of the ones that are CFTC regulated, they look like derivative contract activities. And so I can certainly see opportunities where these cross into our business, and we're very focused on understanding that, understanding the regulatory structure, that's going to develop around that, seeing where there are opportunities for us to have capabilities or to partner to serve our clients around these. I think it's early on both. I think sometimes the, you know, the I think there's a lot of reason to be excited and interested in these things, but the pace of change might not be as quick as quick and as immediate as some of the pundits are talking about in both these. But I think they're important, real, and we're spending a lot of time. Steven Chubak: No. Thanks for all that color, David. And just a quick follow-up on the financing opportunity. If I think back five plus years ago ahead of the 2020 Investor Day, when you first started talking about the financing opportunity, you noted it was less than 20% of Goldman's trading revenue. It was 40% at some of your larger money center peers. And that you were planning to narrow that gap. And if I fast forward to today, you're now approaching that 40% threshold. And I was hoping to get your thoughts on how large you think that financing piece can grow over time. And your approach also managing risk against any potential drawdown or deleveraging events within that business. David Solomon: Yeah. No. It's a very good question, Steve. And you're focused on the right thing and so are we. I mean, I think what I would say is over the last five years, we've gone for being underweighted given our market footprint and our market shares and our wallet shares. To be more closely weighted. I think we've got a little bit of room. But it wouldn't surprise you in the formation of the capital solutions group and thinking about the connectivity between our asset management business and our origination capabilities, we see the potential to basically put a lot of this activity over time into our asset management business and allow our clients to have access, you know, to these origination flows. And so we're very conscious from a risk management perspective. We see opportunities to continue to serve our clients. But because of our asset management business, we have the ability to grow this, and not all of it has to be on balance sheet the same way. And so we're keenly focused on the evolution of that in the coming years, and that's something you'll hear us talk more about. Katie: Thank you. We'll take our next question from Dan Fannon with Jefferies. Dan Fannon: Thanks. Good morning. Another one just on expenses and really noncomp and one all you've been doing with the GS 3.0. Was curious as you start 2026, how does the growth for noncomp look versus maybe 2025 in the budgeting process? And maybe what's the difference in terms of some of those metrics? David Solomon: So appreciate the question. You've heard us say, you know, over many, many, many years, we maintain a rigorous focus on managing these expenses as tightly as we possibly can. There are a lot of them, certainly by dollar quantum, that are very linked with the overall level of activity inside of the firm. Notably, transaction-based expenses, and also, to an extent, some of the market development expenses. We're at a point in the cycle where, as an example, it's more important to feed some T and E into the firm to get people front-footed and meeting face-to-face with clients than it is to overly constrain that expenditure. Transaction-based, similarly, as we continue to grow, these activities there are necessarily transaction-based expenses that go alongside those. On the other side of the equation are those types of expenses over which we have more control, and we have a very concerted effort to constrain the growth of fees, which may be inflation-linked, or may be, you know, substitutes for other types of work. And we're focused on sort of grinding those down as much as we possibly can. Dan Fannon: Thanks. And as a follow-up for the private banking and lending, I was hoping to get an updated outlook as you think about 2026 and a backdrop where rates are coming down, how you're thinking about the offsets of revenue from both demand and deposits? David Solomon: Sure. So, you know, there, we've obviously been quite deliberate trying to, you know, make sure you have all the pieces of the puzzle. You know, as we head into 2026, we've dealt with some of the sequential comparisons in that line item based on the one particular loan that had been previously impaired, and then we had, you know, exceptional levels of revenue. We want to understand that as a comparison. That, frankly, still be relevant as we head into 2026. Our focus is continuing to grow lending activities and the lending penetration. We made good progress there. That's a piece of unlocking incremental growth in the wealth channel, remains very important to clients. So we'll expect to grow lending. We'll focus on growing our overall level of deposit activity across the segment. Yeah. But we do expect there could be some NIM compression given our expectations on the rate cycle. And so we just want to flag that as an expectation as we head into 2026. Katie: We'll take our next question from Matt O'Connor with Deutsche Bank. Matt O'Connor: I was hoping to follow-up on the 5% long-term asset flow target within wealth. You were slightly above this in 4Q and just wanted to get more color in terms of how you arrived at that and maybe framing how much is doing more with existing advisers and customers versus the efforts that you have to hire more advisers? And presumably attract new customers? David Solomon: So look, we think, you know, wealth is a big opportunity for the firm. We have a very strong business at the moment. We think there's a good opportunity to grow it. And we are making extra efforts to drive accountability and focus on our execution against that opportunity set. And so this is an external target that we expect you all to hold us to account. And we also think it's an important signal to send to all of our people in terms of how laser-focused we are on this opportunity set. As you said, we have a track record of delivering this type of annual growth. So we want to maintain the focus. That is one component of the overall sort of revenue equation and opportunity set in wealth management. But it's an effort for us to just apply incremental amounts of granular focus. This is one of the key underpinnings to the overall revenue trajectory in the wealth business. Matt O'Connor: And any color you want to provide in terms of talked about billing advisers. You've got some planned this year. You said you'd like to do more, but you're mindful of kind of managing the profitability. Just any way of framing whether it's your plan this year or just kind of longer term where you're at now and where you'd like to be? David Solomon: I think the best way, Matt, to frame it is this is a very, very fragmented business. My guess is an ultra-high-net-worth. Our share in the United States, for example, is somewhere mid-single digits. And that's probably leading share. So you think about there are hundreds and hundreds of firms and people that do this in a variety of ways. So with our franchise and our platform, I said before early in the call, it scales with people. There is lots of ability to still grow market share in this business if you've got a leading franchise. By adding advisors, adding footprint, broadening the clients that we touch, so we think we've got good trajectory to do that. And there's real focus on that. And I'd add too, Alts is a component of it. We put out specific targets around sort of Alts opportunity set. And while we obviously have penetration of alts within our clients, given that, you know, the average wealth of a client on our platform is north of $75 million. It's not only appropriate, but you could advise a distribution of exposure to alternatives and there's still probably opportunity to grow that with our clients. In addition to the footprint, the advisers, the mix of their activities, lending remains an opportunity there. And we do as we've mentioned, we see more opportunities to enhance our technology investment, the digital experience for those clients, and ensure that we're, you know, very well positioned with existing clients, and their successors. Katie: We'll take our next question from Gerard Cassidy with RBC Capital. Gerard Cassidy: Good morning, Dennis. Good morning, David. Can you guys share with us, in the past, David, you talked about the IPO market and the sponsors maybe not getting the valuation that they would like as being one of the areas that had to loosen up, and it appears like it is. But when you look at this year, and I think, Dennis, you touched on it in your remarks, that we're still below where's IPO business is still below the long-term averages. Is it market conditions do you think will be a greater influence on the market this year? Or is it still the valuation challenge that you've referenced in the past? David Solomon: I don't think you've got the valuation challenge we've referenced. I think you're gonna see a bunch of the sponsor stuff unlock, and you're gonna see more activity, you know, from sponsors. I also think one of the dynamics that we have, and it's just the reality of market structure and the way the world's evolved, companies are staying private longer, and we've got a lot of big, big companies in the pipe that I think just for a variety of reasons are reaching a moment in time where they're saying, you know what? It's time to go. And I think you're also this year gonna see a bunch of IPOs this year and next year of very, very large companies, which is something we really haven't seen a lot of. So combination of sponsor momentum and more of the big companies that have stayed private longer are now turning toward the public markets. And I think the confluence of that's gonna be constructive. Provided we have the kind of market environment we have now. Gerard Cassidy: Right. Right. Okay. That's helpful. Thank you. And second, and not to really get political on this question, but it seems like the M&A activity as you guys do so well and as your peers in 2025. It seems like this administration is more supportive of consolidation than maybe the prior administration. When you talk to executives about transactions, are they more focused on just, you know, the economic outlook and the opportunities there? Or does the, you know, regulation also factor into their thinking, thinking that the window is open now and they really need to move possibly before the change in administration in 2029? David Solomon: Yeah. Sure. Sure, Gerard. I think a way to frame it, you framed it. We had a very, very different environment from a regulatory perspective for M&A for the last four years. And that doesn't mean that it's just a blank check, you know, no regulatory oversight of large-scale consolidation. But CEOs definitely believe that the art of the deal and scaled consolidation is possible now. And when CEOs see that opportunity, because scale matters so much in business, business is so competitive. CEOs get very front-footed. And so I think CEOs and boards are looking and saying, okay. We've got a window here. Of a handful of years where the opportunity to consider big strategic transformative things is certainly possible. And therefore, you've got a much, much more front-foot forward, you know, across industry group of CEOs really thinking about is there something we should do? Is there something we should dream about? That really advances our competitive position? And that's leading to you see that filtering into our backlog, but I think that's leading to a significant upswing in activity provided we don't have some sort of an exogenous event that changes the current sentiment that we now have. Katie: We'll take our next question from Chris McGratty with KBW. Chris McGratty: Oh, great. Good morning. Lot of discussion on the capital impact from dereg. I think in your earlier remarks, you talked about expenses. I'm wondering if you could quantify that potential pool of money that could be freed and redeployed? I guess, how much of a drag has it been? David Solomon: Appreciate the question. I'll follow on, you know, David's comments. I mean, I don't think we're gonna give you an exact number, but you can imagine that there are a variety of, call it, different human capital consulting professional fee type surge experiences that have been observable across the industry over the last couple of years. And while there will always be work to be done, and each and every institution has a responsibility to still govern and run itself in line with regulatory expectations, the current levels of engagement and focus are on the safety and soundness of the banking system. And there's just a different formulation and mix of expenses required to ensure that most important goal of safety and soundness, and it therefore frees up capacity from some of the secondary or tertiary activities, which can then be redeployed to, you know, driving growth across the franchise and actually, frankly, strengthening the safety of the soundness of the firm in another respect. So I think I wouldn't look at it as much of a bottom-line unlock as much as an opportunity to redeploy towards helping to grow the firm and actually improve its resiliency. David Solomon: The only thing I'd add, Chris, to what Dennis said just to get a little bit more we're not gonna be able to quantify for you. But the things that you should look at, you know, obviously, if you go back over the last ten years, capital in the large banks has grown meaningfully. Over the last ten years. And now it's actually the growth has certainly stopped. And because one of the big things that drove the capital growth was the stress capital buffers for all the firm and the CCAR process, which was very, very opaque, there's now going to be more transparency around the models in the CCAR process. I think you're getting a different result there. So one piece of the quantification comes from doing the analysis to look at how SCBs change from kind of 20, you know, the late part of last decade up to 2025 and where they are now and how they've evolved. That's a quantification. The second one was there was an expectation that Basel III was going to put more capital on top of the stack. That's another way that people thought capital was growing. Now the perception is as a Basel III, is going to be more of a neutral event when it's ultimately closed out. And then the third thing is G SIB was supposed to be calibrated to growth in the world and market cap growth that was put in the statute, but it never followed through. So G SIB, as the world grew, G SIB wasn't supposed to grow as fast as it was growing, but it grew faster. That's now going to be recalibrated. That's another one. So if you wanna kinda calculate those differences, those are three important things I would point you to can look at the different banks and calculate that impact. Chris McGratty: That's very helpful. Thank you for that, David. Second question would be more of a business mix desire rate. If you look at the fourth-quarter revenue mix, trading 50%, IB 20, you know, AWM 25, dominant share, great growth. If you were to fast forward over the next few years, like, what do you think this mix looks like? Maybe do you wanna be viewed by the market? Because there are, I think, implications for the multiple that we all wanna put on your stock. Thank you. David Solomon: Yeah. We're gonna continue to invest in the growth of asset wealth management, and we would like the mix to continue to evolve. I think it can evolve very slowly with the organic growth differential. Because, you know, this is not an unfortunately, but it's a reality. We've been able to grow global banking markets faster than we might have expected. And even though we've grown asset wealth management very nicely, just given the scale of global banking markets, that's made the shift in mix slower than we might have all imagined if we go back five, six years and kind of think about the trajectory that we're on. We will try to find things that accelerate that. In addition to the organic, you know, inorganically. Again, with a real discipline around that, as I've stated over and over again. I do think if you look forward, the mix of the firm will continue because the growth in asset wealth management is faster. It will continue to shift. And we're focused on that. Katie: Thank you. We'll take our next question from Saul Martinez with HSBC. Saul Martinez: Hi, thanks for taking my questions, squeezing me in. I just have one question. And it is a clarification more than anything to Erika's question about where we are in the investment banking cycle. And I think, David, in your response, you said that your people are suggesting that in a base case view, 2026 investment banking fees could be closer to approach where they were in 2021, which was, you know, over $14 billion and, you know, we're running, you know, I think '25 was a bit over 9. The delta really is ECM, obviously, and, you know, advisory and DCM are kind of tracking to those the '21 levels already. But just wanted to clarify that. Were you talking about IV fees as a whole, or were you talking about the individual segments, advisory, DCM? You know, I apologize if it was clear to everybody else but me. But, you know, obviously, an environment where you do $14 billion of investment banking fees would seem like an environment where your ROEs for GBM and the firm as a whole would be, you know, materially above the mid-teen level. But just if you can just clarify that, that would be helpful. David Solomon: Sure. I'm sorry, Saul, if I confused you. What I was referring to was advisory fees only. I was, okay. I'm sorry. What I was referring to was advisory volume. Excuse me. Advisory volumes. Now advisory volumes are very correlated to fees. Okay? But the chart that I was referring to is one that looked at three different cases for advisory volume. Okay? So it wasn't equity capital markets, etcetera. I will tell you that what went on in 2021 with equity capital raising, particularly on the stock phenomenon, that's not going to occur in 2026. So my guess would be that equity capital markets level will still be meaningfully below the 2021 peak in 2026, but they will be higher than they were this year. That would be my estimate based on what we see today. But I was talking specifically about advisory volumes when I made that quote. And look. The advisory, as we've said over and over again, when advisory activity grows, the flywheel creates lots of activity. And we were talking industry-wide, not just GS. Looking just at industry-wide volume. Saul Martinez: Yep. Okay. Got it. No. That's helpful. Thank you for clarifying that. David Solomon: Yep. Katie: Thank you. At this time, there are no additional questions. Ladies and gentlemen, this concludes The Goldman Sachs Group, Inc. Fourth Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect.
Operator: Good morning. Welcome to Morgan Stanley's fourth quarter and full year 2025 Earnings Call. On behalf of Morgan Stanley, I will begin the call with the following information and a disclaimer. This call is being recorded. During today's presentation, we will refer to our earnings release financial supplement, and strategic update, copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our notices regarding forward-looking statements and non-GAAP that appear in the earnings release and strategic update. Within the strategic update, certain reported information has been as noted. These adjustments were made to provide a transparent and comparative view of our operating performance. The reconciliations of these non-GAAP adjusted operating performance metrics are included in the notes to the presentation or the earnings release. This presentation may not be duplicated or without our consent. I will now turn the call over to chairman and chief executive officer, Ted Pick. Ted, you may proceed. Ted Pick: Good morning, and thank you for joining us. In 2025, the US economy proved resilient as ever. As predicted, the capital markets are kicking in with well-capitalized corporates and higher-end consumers driving the economy forward. 2026 starts with the tailwinds of constructive fiscal policy and easier monetary policy. As the arc of history resumes, geopolitics are front and center, with a broadening set of opportunities and challenges. While the higher plane of Morgan Stanley results tell a story of durable performance, we are mindful of the combination of geopolitical swirl and ambulant markets. The macro backdrop is complicated. On the one hand, the setup is ideal. We are monetizing the long-awaited conversion of capital markets green shoots across our investment banking and markets verticals and we are scaling asset inflows and transaction activity across our wealth businesses. At the same time, we are well served to watch for any overreaching against ongoing global uncertainties and higher asset prices. 2025 results and in fact, the results for every quarter over the last eight are a blueprint for Morgan Stanley's success. We expect this mix of tailwinds and headwinds to prevail in 2026 and are prepared to continue to execute. We will now walk through the 2026 strategy deck entitled The Integrated Firm: Executing on a Higher Plain which can be found on the Morgan Stanley website. We will then detail fourth quarter and full year results. Turning to Slide three. Morgan Stanley's 2025 results are summarized by $9.3 trillion in total client assets, $10.21 in earnings per share, and a 21.6% return on tangible. The firm's trusted adviser franchise delivered across all three metrics. Slide four shows that our average earnings per share and returns on tangible over the last decade reflect the transformation of Morgan Stanley's business model. The last five years are the result of share gains and operating leverage via consistent investment in technology, footprint, and the successful integration of key strategic acquisitions. Moving to Slide five. We're well on track toward our firm-wide goals. We've compounded wealth and investment management client assets towards $10 trillion plus. In institutional securities, we gained 100 basis points of wallet share with clients across investment banking and markets, reflecting the strength of our integrated investment bank and global franchise. Please turn to Slide six. We've moved up the firm-wide goals page for review in the context of the last two very strong years. 2025 results in the fourth quarter or on an annual basis broadly met or exceeded our firm-wide goals. Asset growth accelerated with last year's additional $1.4 trillion. Wells pretax margins are at their highest levels ever with the fourth quarter's 31% printed result. Institutional securities gained share across underwriting and equities trading. And we closed the year with a strong advisory result. In short, the firm is running at a higher run rate. We are executing from a position of strength. Multiyear investments in the core businesses, client momentum, management stability, and growing capital excess. But as I observed in the opening, there are both macroeconomic and geopolitical tailwinds and headwinds. And in our view, while we are happy to have reached many of these firm-wide goals, perhaps earlier than some expected, this is not the time to overreach. These last eight quarters memorialize consistent execution against different many macro uncertainties and our multiyear growth plan contemplates both secular growth and available wallet and continued durable share gains. Our expectation going forward is that if this environment is welcoming, we are meant to execute at or above these firm-wide goals as we did in 2025. And when the backdrop is more challenged, to endeavor to achieve higher lows. The longer-term cadence we seek is a higher plane of operating performance through the cycle, as we compound earnings in a capital-efficient way. Now to the Forward Growth Plan. Please turn to Slide seven, where we review our major businesses. As you know, wealth has three channels. Our financial advisers, workplace, and E*TRADE, each a category leader. Which taken together comprise our strategic client acquisition model. And institutional securities we have deep client relationships and a global footprint under the Integrated Investment Bank. We have diversification in investment management led by Parametric, alternatives, and fixed income. We continue to invest in each of our three business segments. Wealth, institutional securities, and investment management via human capital and technology. Our growth plans embed the increasing adoption of AI tools throughout the enterprise and inside our client base. With each passing quarter, our confidence continues to increase in the potential for both the efficiency and the effectiveness of AI-related technologies across the business units and infrastructure. Slide eight. Our wealth management business is built for scale, and performance. The financial adviser, workplace, and E*TRADE channels are each thriving. The business had net new assets of over $350 billion last year. Over the last five years, the firm attracted $1.6 trillion plus of net new assets with a doubling of fee-based flows. For 2025, Wealth achieved $32 billion of revenues, 29% margins. The funnel is working. Please turn to slide nine. With 20 million wealth relationships, future growth is embedded in the business. Our intense focus on the value of advice generates movement through the funnel, allowing us to capture opportunities for adviser-led assets. In 2025, we saw accelerating flows across channels with $100 billion migrating to financial advisers. We're using our scale to invest in broadening capabilities for FAs that are difficult for others to replicate. Alternatives and privates, tax-efficient investing, digitized assets, family office and OCIO, and tailored lending. Collaboration across the integrated firm is felt by clients, for both their corporate and personal wealth needs. Slide 10 dives deeper into institutional securities. We have an established global footprint and revenue base. Banking and markets gained wallet share delivering margins of 34%. Revenue growth supported by the recovery in investment banking is running roughly two times SLR and RWA growth since 2023. Reflecting our continued focus on capital efficiency, and operating leverage. Turning to slide 11. The institutional securities value proposition is reflected in the Integrated Investment Bank. We approach client coverage holistically, and provide comprehensive solutions with the support of integrated teams. The collegiality and Morgan Stanley tenure of the leadership teams across banking and markets on average, about twenty-five years at the firm, is critical in bringing the best of our intellectual capital to clients. The themes of the equitization of global markets and the full suite of expertise to advise on cross-border M&A are at our global core. ISG share gains position us well for the global investment banking and capital markets cycle in 2026 and beyond. Please turn to Slide 12. In Investment Management, we continue to benefit from secular growth in investing solutions and the democratization of alternatives. Parametric is the industry leader in tax-efficient investing at $685 billion in AUM, and stands to benefit as more clients and asset managers seek customized solutions. Our alternatives platform has more than doubled in five years, with investable assets now at $270 billion. These and other areas of strength are supported by ongoing investments in technology and global distribution. Slide 13 underscores Morgan Stanley's global presence. We have 30,000 people outside the US in every business unit and in large tracks of infrastructure. 25% of our revenues this year came from outside the US, with EMEA growing revenues by 40% and Asia by 50% over the last two years. We have leading businesses in Japan, to our almost twenty-year joint ventures, with our close partner MUFG, and a world-class business in Hong Kong. We've grown in the EU, and maintained leadership in the UK. In a world that is both deglobalizing and reglobalizing our presence and footprint matter. Slide 14 illustrates why Morgan Stanley wins as the integrated firm. We have scaled capabilities and a business mix that can support our clients throughout an entire life cycle. Our Morgan Stanley work business with its exclusive partnership with Carta positions us as an early trusted adviser to over 50,000 private companies. As workplace companies grow, we can provide traditional institutional servicing. Employees across our workplace companies benefit from our management of equity compensation plans liquidity opportunities, and our full-service advice. We are focused on both the public and the private ecosystems, augmented by our recent acquisition of EquityZen. The objective is to cover growth companies and their employees from founding their public maturity while broadening access for investors to the growing stack of private companies. Ted Pick: Again, our technology leadership and wealth enables us to deliver a holistic client experience. Please turn to slide 15. Our durable business model and strong earnings profile have kept capital levels high during a period where the regulatory capital framework has normalized. As we've grown fee-based revenue streams, our regulatory minimum CET one ratio has steadily come down. At a CT one ratio of 15%, have over 300 basis points of excess capital. With the passage of time, the continued durability of the business model may be enhanced by further regulatory relief. Prudent dividend growth comes first. And accordingly, we have raised our quarterly dividend by 7 and a half cents for four years in a row, to now a dollar per share. As we've discussed in previous years, excess capital will be directed to continued dividend growth and to ongoing investment in clients and technology across the integrated firm. We will also continue to opportunistically buy back stock. We are keeping full watch on potential M&A adjacency. But we will continue to be patient. Because we have worked diligently through the acquisitions of Smith Barney Solium, E*TRADE, and Eaton Vance over the last fifteen years we know what level of focus and energy is required across the entire firm to make a multiyear integration successful. In short, we are endeavoring to keep the bar for acquisitions high, bearing in mind that many asset classes private and public, trade at elevated levels, that there is no shortage of ongoing opportunities, and that the first call on capital must be to our clients and the continued growth of our core businesses. Concluding with Slide 16, we're supported by our four pillars of the integrated firm. Strategy, culture, financial strength, and growth. Morgan Stanley's strategy to raise, manage, and allocate capital is well understood by our clients, people, and our shareholders. Culture is about rigor, humility, and partnership. Financial strength is about capital, earnings power, and durability. And growth is about smart, strategic investment into wealth, institutional securities, and investment management and across the firm globally. The result is growing assets and compounding earnings in a capital-efficient way over the long term. Thank you. Now Sharon will review our fourth quarter and annual results. And then we will both take your questions. Thank you, and good morning. Sharon Yeshaya: 2025 was an exceptional year for the firm. Marked by deliberate execution of our strategy. Full year revenues reached a record of $70.6 billion and the fourth quarter revenues were $17.9 billion. Expanding markets, increasing client demand for advice, and improving client engagement supported results across businesses. Concurrently, multiyear investments in our talent, the integration of acquisitions, workplace, and the integrated firm have significantly contributed to growth and momentum. Our ROTCE was 21.6%, and we generated record EPS of $10.21 for the full year. Alongside fourth quarter ROTCE and EPS of 21.8 percent and $2.68, respectively. In 2025, we delivered operating leverage while continuing to invest for future growth and advancing productivity initiatives firm-wide. Our full-year efficiency ratio improved to 68.4%. Underscoring disciplined execution, and rigorous prioritization of investments. Now to the businesses. Institutional Securities delivered a record full-year revenues of $33.1 billion including $7.9 billion in the fourth quarter. We continue to invest in our global footprint and capabilities. Resulting in competitive advantages and industry leadership. A strong macro backdrop improving corporate confidence, open capital markets, position us well to continue to capture durable share. Investment banking revenues were $7.6 billion for the full year, reflecting year-over-year growth across products and regions. Fourth quarter revenues of $2.4 billion increased 47% from the prior year. Results were led by a record in debt underwriting, and advisory crossing $1 billion for the second strongest quarter ever. Corporates leaned into constructive financing conditions to fund strategic priorities. While sponsors were also active. Completing previously announced M&A transactions. Equity issuance led by convertibles and IPOs remained strong, driving consistent results in equity underwriting. Looking ahead to 2026, investment banking pipelines remain healthy global, and diversified across sectors. Strategic activity is accelerating, Companies and sponsors are looking to access capital for growth investments. And the reopening of the IPO market creates additional opportunities for clients. Turning to equity. The business delivered record full-year revenues of $15.6 billion. Our global share gains this year were driven by increased client engagement, and dynamic risk management. Revenues were $3.7 billion in the quarter. All businesses were up versus the prior year's fourth quarter on the back of higher client activity. Prime brokerage revenues drove the fourth quarter's results. Client balances continue to rise, supporting the outlook for financing revenues. Cash results increased versus last year's fourth quarter, reflecting higher volumes across regions. Derivative results were up versus last year's fourth quarter as well, benefiting from our consistent investments in our client franchise and product offering. Fixed income revenues were $8.7 billion for the full year. And importantly, investing in our lending businesses has contributed to increased consistency and stability of our franchise. Quarterly revenues were $1.8 billion. Micro and macro results declined versus the prior fourth quarter. Reflecting lower volatility in foreign exchange and weaker performance in credit corporate. Sharon Yeshaya: Commodities results declined primarily due to lower power and gas revenues. Which had benefited from several large structured transactions in last year's fourth quarter. Turning to wealth management. 2025 demonstrates the consistent execution of our strategy. We delivered full-year records across revenues and reported margins, reaching $31.8 billion and 29%, respectively. Both net new assets of $356 billion and fee-based flows of $160 billion for the full year demonstrate industry-leading growth. Workplace and E*TRADE relationships continue to seek out advice. Advisor-led assets originating from workplace and E*TRADE relationships accelerated growing to a record $99 billion for the full year. Compared to historical averages of around $60 billion per year. Moving to our business metrics for the fourth quarter. Record revenues reached $8.4 billion and the business delivered strong leverage with the reported margin expanding to 31.4% DCP negatively impacted the quarterly margin by 95 basis points. Asset management revenues were a record $5 billion, benefiting from expanding markets and consistently strong fee-based flows. This marked our third consecutive quarter of fee-based flows exceeding $40 billion. A first for this industry. Transactional revenues were $1.1 billion. Elevated activity across both adviser-led and self-directed clients drove the strength. Additionally, net new assets for the quarter were robust at $122 billion with contributions across all channels, Growth was supported by institutional relationships, related to the integrated firm. Bank lending balances grew $7 billion sequentially to $181 billion. Driven by securities-based lending and mortgages, Growth reflects our efforts to deepen client penetration with SBLs. Leveraging technology to improve automation and facilitate the client acquisition openings as well as increasing education with our advisers and our clients. Sequentially, total period deposits grew $10 billion to $408 billion, and net interest income increased to $2.1 billion. The growth in NII was driven by the increase in sweep deposits and loan balances. Looking ahead to the first quarter, we expect NII to remain roughly flat quarter over quarter as higher average sweeps and lending balances should help to offset the full impact of the two rate cuts in the fourth quarter. As we look ahead to the remainder of 2026, assuming the current forward curve, incremental loan growth, and our for the deposit mix, we expect NII to continue to trend higher. Before concluding, one update on DCP. Over the course of the first quarter, we will be transitioning all economic hedges for DCP obligations to derivative instruments. As previously announced, we will also increase the cash component of our adviser compensation. We are making these changes to reduce the accounting-driven volatility in revenues and earnings. While there will be some transitional costs, these changes support our overall investment into our financial advisers and will help simplify our compensation program. The full year, inclusive of momentum in the first quarter, fourth quarter, exemplified our strategy to reach new relationships grow assets, and deliver advice solutions to clients. Strategic initiatives, such as our recent acquisition of EquityZen, expanded partnership with Carta, and collaboration with Zero Hash, all reflect our commitment to innovation. Together, they lay the foundation for sustainable growth to widen our competitive moats. Our intentional strategy to introduce and educate retail clients to the value of advice coupled with consistent education over the past several years sets our franchise apart and positions us to continue to outperform. Turning to investment management. Our franchise delivered strong results this year with durable management fee revenues reaching all-time high. The margin continued to steadily improve. Total revenues were $6.5 billion and we scaled to a record $1.9 trillion in AUM. The business has now generated six consecutive quarters of positive long-term net flows. With ongoing demand for parametric and fixed income strategies supporting the full year long-term goal net inflows of $34 billion. Long-term net inflows were approximately $2 billion in the quarter. Importantly, our broadened portfolio helped offset equity outflows. Benefiting from the consistent strength in fixed income, parametric, and global distribution. Liquidity and overlay services saw $68 billion of inflows for the quarter. Driven by institutional demand. Some of which may be seasonal. Fourth quarter revenues were $1.7 billion, driven by higher asset management and related fees on higher average AUM. As a reminder, certain performance fees are recognized on an annual basis largely in the fourth quarter. Which drove the sequential increase. Performance-based income and other revenues were $71 million in the quarter. Gains in US private equity and private credit more than offset markdowns in our infrastructure fund. Turning to the balance sheet. Total spot assets were $1.4 trillion. Standardized RWAs increased sequentially to $553 billion. Our standardized CET1 ratio ended the year at 15%. For the full year, we bought back $4.6 billion of common stock, including $1.5 billion for the quarter. Our tax rate was 21.5% for the full year, and 23.2% for the quarter. We expect our 2026 tax rate to be between 22-23%. And consistent with prior years we do expect some quarterly volatility. As we look ahead into 2026, the firm enters the year from a position of strength. Our wealth and investment management businesses exited with $9.3 trillion in total client assets. Client engagement remains high, Our pipelines are healthy, and our global footprint positions us well to continue to deliver advice and solutions across markets. We remain focused on investing for the future and scaling our business to perform through various market environments. With that, we will now open the line up. To questions. We are now ready to take in questions. To get in the queue, you may press star and the number 1 on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press star and the number 2 on your touch tone telephone. We'll take one question at a time, and then we'll move to the next person in the queue. Please rejoin the queue for any additional questions. Please standby while we compile the Q and A roster. We'll take our first question from Glenn Schorr with Evercore. Glenn Schorr: Good morning, Glenn. Hi. Good morning. Okay. So the results are pretty great across the board, and I think I appreciate your, your comments about environment, risks, Ted Pick: you're a conservative guy, you're a risk manager. I do think people would love to hear a little bit more about why no change for the targets, Are there pieces of the business that you think are just at peak and over earning you? We don't wanna set ourselves up The market's up 80% for the last three years. And and then just like you know, cyclical caution basically versus anything underneath separately. So thanks so much. Ted Pick: Well, think that's the important question for the day. We a robust conversation about it, but in the end, the decision was really pretty easy. I think the view is that the shareholders ultimately wanna see an enterprise that can operate at high levels with the kind of ballast that you began to see over the lows in the last decade. And then on the forward, we can achieve effectively higher lows. And I think the tendency has been when when a target is hit, the view would be, well, we hit it. Let's take it up further. Sharon Yeshaya: And there is no view that the that the net wins are headwinds. They are, in our view, secular and cyclical tailwinds that work for us both in terms of wallet and in terms of market share. Across all of the major businesses. And we have even more operating efficiency that we think we can continue to nerve from the infrastructure by way of AI over time. But I think part of the premise of rigor and humility at our place is that we do this in a way where we compound earnings again and again right through the cycle. And of course, we will revisit these targets in the in the late year to come. And if then we've passed through them very clearly, and it's time to take them higher, we will certainly consider that. But I think the view is we're a couple years in. Each of the quarters has been by many measures, quite excellent. And the two years taken together each on their own, and then taken together also excellent. But I think know, mistakes that I'll make, Glenn, this won't be one of them, which is to kinda hit the new target slide at the beginning of, you know, year three because we're feeling our oats. I think we have a very positive view of where the firm is positioned. We like the spaces we're in. But we think that demonstrating our ability to compound earnings through the cycle is what the owners wanna see, what you wanna see. And that when things are bumpier, they're choppier, we'll have higher lows. Ted Pick: And if we can continue to compound earnings at 20% returns, Sharon Yeshaya: we're gonna have happy owners. Operator: We'll move to our next question from Dan Fannon with Jefferies. Good morning, Dan. Dan Fannon: Good morning. So I guess just to follow-up on that given Ted Pick: the success of the wealth management business. Can you talk about Sharon Yeshaya: the drivers of the margin from here? Is it just scaling and growth of the business, or are the things underneath from a cost or efficiency that we should think about or mix of business that can drive those margins higher. Ted Pick: Thank you so much for the question. I think it's both. We have consistently added fee-based flows. That is demonstration that the funnel is working. So from the revenue line items, right, the the drivers of continued expand expanded market are twofold. One is building out the fee-based revenues and the fee-based assets, and that is happening as we do introduce new clients to the power of the advice-based model. But there are also clients who just want self-directed activity, and we have been investing in that business in the E*TRADE franchise, in E*TRADE Pro, and you see that our transactional revenues are also increasing. So that's an investment story in technology. And the second piece that you mentioned is efficiency. We are also using technology to help us from an efficiency perspective both on the cost and the revenue side. I'd note to you that some of the AI that we've been doing is actually also on the revenue side. So LeadIQ, for example, which is helping us introduce our advisers to our clients who are interested in in advice That's happening using AI. So there's technology that can be used both on the revenue side and on the expense side. That should help us drive the margin on both the top and the bottom line. Sharon Yeshaya: Workplace is particularly exciting as a way to bring the entire enterprise together. To help drive both the corporate client base and personal wealth into a broader mortgage handling funnel. So that plank of the funnel has been particularly extraordinary. Operator: We'll take our next question from Brennan Hawken with BMO Capital Markets. Ted Pick: Morning, Brennan. Brennan Hawken: Good morning, Ted. How are you? Great. Ted Pick: Excellent. I I I I actually sorry to be a little repetitive, but but I I Brennan Hawken: I'd love to have have another question here on on the targets because we it does seem as though we've got maybe a shift in how you guys are thinking about them. And it and you you made some comments around I totally get it, and I wanted to chase the dragon. Right? And and continuing to raise the the targets and think about what what the peak could look like. You spoke to higher lows in addition to higher highs. So is the right way to think about how you're framing the targets and how you're thinking about managing the business as more like a central tendency through the cycle or is it even feasible as you continue to scale to think about how this might be you never wanna use terms like floors in businesses like you have because of the market sensitivity and and whatnot. But you know, potentially, what you could be looking to do even in more challenging markets as we continue to progress forward. Thanks for taking my question. Ted Pick: Sure. There is a chasing dragon element to this, of course. You hit you hit some of the targets once, and you feel you gotta sort of bump and raise. We want we want this to work organically over the very long term. This is part of the reason on slide four, Sharon Yeshaya: we put up a decade of results. Ted Pick: There is cyclicality in the business. There is no Sharon Yeshaya: philosophical Ted Pick: frame shift, though. I I think we just now have the kind of confidence where we can start talking about what it would be like if there was a more challenging environment and our ability to still generate 17 and a half percent returns on tangible with an environment where earnings could be below $8. We don't have that in the plan. But it is an important ballast when we think about the, earnings multiple that you put on the currency that there's a view that we can continue to generate real leverage, operating leverage through performance in tougher periods. That is a tough is a tough thing to tell the market you have confidence in unless you've done eight quarters as we have in these sort of mini macro uncertain periods where we've been able to see performance driven by the the two major segments separately and then together. It is the case, though, that with the compounding of earnings and the continued growth of these businesses, it is quite possible that we are going to be moving right through these firm-wide goals. By definition, the math should take us through the $10 trillion. It's, you know, it's compounding math. And, you've seen our performance on that score over the last several years. And we printed wealth margins that were in fact above 30% We continue to gain share inside the investment bank. As Sharon went through, we had margins for the enterprise, i.e., ratio that was below 70%, and our ROTCE was 21, 22. So we demonstrated it. It's just not in our prudent kinda long-term thinking that is the Morgan Stanley of today, that we should just move the targets higher because we've had a couple good years. I think the view is Ted Pick: we are going to continue Sharon Yeshaya: to compound earnings We are going to Ted Pick: not push on robust objectives. When, in fact, 20% returns Sharon Yeshaya: are pretty darn good if we're continuing to, gain wallet Ted Pick: and secure market share in the businesses that we care about, whether they are in core investment banking, in the mergers, Sharon Yeshaya: business. You see our advisory number was excellent this quarter in our equities business, which has become again the kind of competition that it was some years ago where the Ted Pick: leadership group is moving away from the pack. Sharon Yeshaya: In, fixed income secured lending where we have a great client touching business. And then Ted Pick: really across that wealth funnel, which is Sharon Yeshaya: really quite extraordinary. So there is an element of gonna keep our heads down and execute. Ted Pick: As opposed to kinda here are some targets just to get everybody Sharon Yeshaya: excited in the moment. And then let's see if we ever hit them. I think our view is let's hit them again and again. To the point where, you know, it kinda gets louder. Like, when are you guys gonna take this up? Because it's sort of a no-brainer for you now. And when we get to that point, that'll be a happy day. But in the meantime, let's compound earnings Let's do it the right way. Got a lot of long-term plans around the durability of the business model. And, you know, we're playing for the multiple too. It's, you know, it's the p as you know, it's the p and the e. And part of the way to get a premium multiple, earnings multiple in the marketplace is to demonstrate our ability to say what we're gonna do and just go out and do it again and again. Operator: We'll move to our next question from Devin Ryan with Citizens Bank. Devin Ryan: Thanks. Good morning, Ted. Good morning, Sharon. Morning. Question on institutional trading. Obviously, wrapping up another great year for the firm, up 16%, and that's coming off of 19% growth in 2024. And clearly, Morgan Stanley, you guys are executing on your wallet initiatives and gaining share. But as we look ahead into 2026, can you help us think about some of the puts and takes of just assessing kind of the trajectory of the wallet Just trying to think about kind of the baseline here after two really good years. Can the wallet continue to expand and kind of the secular dynamics versus the cyclical? Thanks a lot. Ted Pick: Yeah. We like we like the tailwinds. Sharon Sharon will improve my Brennan Hawken: here. Ted Pick: We really like this business. I think one of your colleagues likes to ask sometimes what inning we're in. I think in the capital markets business as a whole, I kinda put us in the third inning. Now there are sort of exogenous outs, of, as I said, the geopolitical swirl. But the reality is, the equitization of markets around the world is underway. Why we put in the slides on the global presence that we have. Not that we're trying to be all things to all people. Where we are good, though, we wish to be very good. So we are we are differentiated in Tokyo. We are differentiated in Hong Kong. Hong Kong was the busiest, issuer of equity. Sharon Yeshaya: The world over the last year. That will continue. Ted Pick: Of course, we have the sweet spot in The US. So there's a global theme to this. But as we talked about in prior calls too, there have been reasons why there has been some sort of stuck boardroom mentality, understandably, as we went into the pandemic, and then we came out with our rates having roof to try to combat inflation. But I think now there is really you know, no more time to waste. The the reality is that AI is now taking hold endogenously and you need to actually have some real scale to be able to seize the teething of putting that into your into your core business. And so we should see consolidation and the sponsors are just getting going. They are having bought some time and taking a look at what they wanna keep and what they wanna run through markets. They they are beginning to unglue their asset base And then, of course, we have very large private companies that are wildly successful. That are probably going to start bridging to getting public. So I'm starting there because that's all about investment banking. Sharon Yeshaya: And then in the equity space, Ted Pick: you know, rates that are above the zero floor Sharon Yeshaya: foreign exchange that starts to trade, and then importantly, the institutionalization of the private credit class all speak to vibrant capital markets. And as you know, we are at some level stock house. Ted Pick: M and a, wealth management, and then equities. And clearly getting our footing to be number one or number two in the equities business in a given quarter has been a priority of ours to do it the right way with clients importantly, within that, Sharon Yeshaya: the growth of the derivatives business, a relative weakness of Morgan Stanley relative to the top tier competitors, a lot of that has now been erased. So we actually are are coming across now as a derivatives house as well for clients. So I like Ted Pick: what, we like what Dan has done quite brilliantly with the Integrated Investment Bank, which is sort of take it up another notch, with clients right into the cycle where we have the global footprint and where we are ready Sharon Yeshaya: to put capital to work, as Sharon said, Ted Pick: in places like, m and a acquisition financing, prime brokerage, fixed income secured lending, and other durable businesses that accrete to the broader integrated firm. And then my last comment would be the beauty of this, and you heard it woven into my slides, and Sharon's commentary, is that a whole bunch of what we're talking about has application above both the across both the institutional and wealth client set. Stock administration side of workplace has appeal both for the CEO and then for the the their that firm for their wealth management business. So we're quite excited about it. The the old rule of thumb is two times GDP. I would think two times GDP. Not a bad way to go. Nominal GDP even. So you could see the wallet in this business, continue to grow by anywhere between five and maybe even 10% per annum. And then as you can see, we are continuing to gain share from Sharon Yeshaya: some of the lesser firms, that have incomplete offerings. Which should auger well for the largest established firms Ted Pick: frankly, ones that reported this week being the ones to thoughtfully gain share here over the next number of quarters. Operator: We'll move to our next question. Sorry. Go ahead. We'll take our next question from Mike Mayo with Wells Fargo Securities. Ted Pick: Hey, Mike. Well, it's going to ask. Mike Mayo: I was going to ask you what inning you're in, but I think you just I know. I know. Ted Pick: I know. I know. Sorry about that. Mike Mayo: Well, it's the it's the wrong season too, so maybe I can Devin Ryan: in football games. I don't know. But Why don't how about this? Ted Pick: Maybe just ask the question again, and then they're like, I gave pick a softball. Sharon Yeshaya: Look. As it relates to trading, I get investment banking Mike Mayo: and the equitization of markets globally, the institutionalization of private credit class, and Sharon Yeshaya: you know, I think that you know, kind of probably hits the mark. But the trading side is what I think you know, people wonder about it. You've always put a forecast in there, and it doesn't always turn out so correctly. And so how do you think about the trading business? You had unusual volatility last year, and you say third inning, maybe it's the the first or second inning for IB and eighth inning for for trading, or how would you characterize that? And then as an overlay, how do you think about the AI opportunities and risks as it relates to your business? Ted Pick: Oh, that's sort of interesting where you put it. So I'll do the first part Sharon Yeshaya: Sharon will do the second part. The the the yeah. I could argue that the trading businesses in some respect have to be viewed, if you just we were to look back on the Ted Pick: earnings prints, but, you know, years from now, Sharon Yeshaya: maybe they're in middle innings. Simply because we've had this huge move in asset prices. So by definition, you're off higher notionals and you know, the there's a gross leverage and you've seen, you know, real sort of capital accumulation in places where we can monetize, and maybe we're in that sweet spot right now as opposed to the pure investment banking business which is in the, earlier innings. So I guess you could probably argue that And is the case that we have lower asset prices because you know, we just we have a drawdown or we have kind of, like, a blip economy or the geopolitical thing kinda hits tails. Because there are tails, obviously. The base case as as we as we both know, the base case is positive. Just given the health of the corporate, the consumer, and the general kinda tailwind of deregulation. But if some of that Ted Pick: kind of creates periods where things are kinda risk off, Sharon Yeshaya: Yeah. I would agree if there are folks that are trading, and have some inventory and kind of the risk that we all know gets kinda linked to trading, could there be lower levels of performance? Absolutely. Which is which is, by the way, also part of the reason that we are emphasizing for the for the purposes of the investment bank kind of durable share gains and wallet Ted Pick: as opposed to trying to show a ton of volatility around returns. Now we can't control asset prices, but we can sort of control that which we feel like is sort of Sharon Yeshaya: mandate business with our institutional clients versus kinda just you know, moment to moment sentiment. And that, you know, that that that's part of the that's part of the art of, overseeing and risk managing these businesses, but that's something we're focused on. Sharon Yeshaya: On the second part of your question, Mike, you hit on a great point. The need for capital markets and structuring expertise in terms of what's going on within the AI ecosystem is clearly there. And I think that that's a part of what you're seeing both play out over the previous year, but also when you look ahead, with companies needing access to capital markets. So these are places where we see ourselves playing that intermediary role in terms of our strategy of helping clients you know, manage and allocate, and get access to capital. And that will happen both as you think about the equity underwriting business and also in different parts of the project finance and potentially even the m and a space. We'll move to our next question from Steven Chubak with Wolfe Research. Steven Chubak: Hey. Good morning, and thanks for taking my question. Devin Ryan: So I did want to drill down into, like, a broader question on firm-wide operating leverage. And just as we think about the earnings growth algorithm, you know, putting the decision not to change the targets aside, I can certainly appreciate the Steven Chubak: desire to be a bit conservative there. Now given the expectation, though, for meaningful Devin Ryan: growth in both cap markets and wealth revenues in the coming year, and consensus really contemplating little to no improvement in margins. Versus the 50% incremental margin you achieved this past year was just hoping you could speak to the philosophy around operating leverage and whether you can still deliver those higher incremental margins if the revenue momentum is sustained and the operating backdrop remains constructive? Ted Pick: That was very clever. You're effectively did read your report. You are you are you are you are trying to get at moving the Sharon Yeshaya: moving the goals without moving the goals. Yeah. I I I mean, Sean put some meat on the bone. But, of course, we we expect there to be ongoing operating leverage if we are running these businesses as we have. And, you know, the market backdrop is constructive. You know, there's largely a fixed cost base. And, sure, there's some variable costs as you go, but that is why we are we we we we believe we're not overreaching and saying, that even with the ongoing investments we're making, back to Mike's question on AI, in core technology or in ongoing AI efficiency and effectiveness tools, we would expect that if the markets are conducive and we execute, so those are two ifs, Markets, you know, market is constructive, and we execute, across wealth and the investment bank and and I am as well. That we should continue to realize operating leverage. I don't think, our view is that it's a linear model. But our view would be that that is why we thought that the efficiency ratio at 70 was a good number. And in periods of performance in the past, and certainly again this year. You saw it in the fourth quarter at sixty-eight. And you saw it for the year at I believe, also, 68 and change, that we should be able to continue to press that further in a thoughtful way as we compound earnings. Sharon Yeshaya: Absolutely. I mean, I I highlighted a little bit, touched on AI, talked a little bit about the revenue side, but they're on the expense side. There are definitely places where we see both investment that we will be making. We were a first user, first adopter of AI technology and we're already seeing some of those productivity points play out. Ted mentioned it in his prepared remarks. But think about the operation space. Think about you you used to have two, you know, teams necessarily checking each other on different documentation to make things sure things are right. We now have one human team and one AI team. And so when you're actually looking at those those docs, you have ways to to see productivity gains, and teams can do more work on a different type of cost base than you've had before, and we need the the flex to also be investing in that technology as we move forward. Ted Pick: I really like the point of the the example Sharon gave because that one is sort of a very sort of a simply put example where there should be realized efficiency. From that, presumably, there is effectiveness, i.e., productivity, gains that come realized from insight that can then be applied to other infrastructure and then inside the business unit. The one thing I would say which we all know, but it's worth just putting on the table, is there's gonna be teething pain on this stuff. I mean, we don't know what combination of languages will be the sort of the ultimate best recipe for one institution or another, what the cost sort of put that through the system, will be, how we work the regulator, then importantly, you know, how advanced our client base is with respect to some of this toolkit. So there will be some teething around that. You know, again, like the introduction of the Internet. It will take several years. But I did mention in the deck and Shroom called out again, this is the kind of thing where we are seeing quarter by quarter as we all are in our personal lives that the, the substance underlying the progress the the technological advancement is real. Operator: We'll move to our next question from Erika Najarian with UBS. Erika Najarian: Good morning, Erika. Good Operator: morning. No no good deed goes unpunished. Right? To be fair, JPMorgan has been sticking to 17% Roxy through the cycle despite outperforming it. So maybe just approach it a different way, Ted, and Sharon. You know, you mentioned 320 basis points of excess capital. You know, clearly, the regulators are keen to redefine that. As you think about the forward and achieving higher highs and higher lows, you know, where are you investing back in the business in terms of trying to build moats? And, also, you know, given Sharon's response earlier on the wealth management pretax margin, You know, markets aside, there seems to continue to be structural to improve that underneath the surface. And I just wanted to make sure that we were taking away the right conclusion from that response. Sharon Yeshaya: Absolutely. Operator: You are taking away the right conclusion. We continue to see opportunities to expand our margins over time, really in all of the businesses. We get a lot of questions around, to your point, Erica, are there still opportunities to invest that are ROE accretive inside the building? And the answer is absolutely yes. You can see that in the results, particularly in the investment banking franchise. We have been adding talent and with additional talent resources capital resources, to help service a broadening and a widening out of a corporate portfolio and different corporate clients that we cover. That has helped us gain share and gain durable share in the investment banking, the advisory side, the ECM side, and the DCM side. So that's a a very clear place where we've been putting capital work. You can it in the loans and lending commitments in terms of the growth and balances. And then the the outcome is evident in the results this quarter. Other places where we've been investing capital have been secured lending. So, again, a a a durable business line that has helped, as I mentioned, to stabilize the performance that we've seen in fixed income over the last number of years. And as well capital within our equities business to help service our clients. That's That's on the ISG side, and there are plenty of places in wealth I talked a lot about SBL and mortgages. We're increasing our education to the clients and to our advisers of being able to have products that we can offer those clients and where we can deepen relationships So it's across the enterprise, so to speak, and it has been and will we think continue to be ROE accretive. Ted Pick: Yeah. I that that that's alright. And I and I Sharon Yeshaya: would also just to tag on there, Ted Pick: I would also call out just you know, the early days of the digital asset transformation side of wealth. Know, we announced partnership with Zero Hash last year. We're looking to expand our capabilities. We're well positioned now in the crypto and tokenized asset space. So of course, that's probably a first or second inning type of phenomenon, and there is a lot for us to do there. There is continued work that we're doing in E Trade to take a world-class platform and continue to make that interesting. For our active, self-directed community. And then in investor management, just to call that out, I mean, the success of Parametric classic case of scaling an asset from within an acquisition quite quite brilliant What what the team did there to inside of Eaton Vance to find this real gem and to scale it across wealth management and clients outside the building. I think there is a ton of work to do in alternatives. We continue to invest in that. So some of those are sort of in ongoing capital investments in businesses like equity derivatives, where they should just improve an existing product set. But I'd argue too that there are adjacencies that we are really, like, embryonically building inside of the institution in alts, in digital assets, inside of new customized solutions in the investment bank that are exactly kinda dovetail with the intellectual capital we're supposed to we're supposed to bring, but are gonna take time and investment. Operator: We'll move to our next question from Gerard Cassidy with RBC Capital Markets. Gerard Cassidy: Hi, Gerard. Hello. Hi, Kent. Thank you for thank you for taking the question. Sticking with capital, obviously, you guys are very well capitalized relative to your required levels. And we know you know, led by secretary Bessent that the this administration is really pushing deregulation within the banking industry, and we're seeing it We're all expecting, of course, the Basel III endgame proposal, hopefully, in the first quarter. G SIB recalibration, stress capital buffer recalibrations If your requirement comes down even further from where you are today, at what point do you really have to look at giving back maybe even more capital since you're you got an abundance of it already? Ted Pick: This this is, thank you for your question. Sharon Yeshaya: This is part of the kind of the Morgan Stanley's today where we are comfortable being in a position, where we sort of sit at high ground Yes. We have a capital surplus, and indeed, that surplus is growing with a buyback that's been you know, restrained and a dividend that's been growing prudently. But you know, we continue to grow the buffer. And, you know, we're above 300 basis points. So everything you said is correct. But I think we are in no rush. There are a ton of ideas that are coming at us. The bar for acquisition is super high, as I said. We know what you know, what it takes to kinda integrate an asset. Having done that, four times, we have humility around that. We also know that it is it's kinda incrementally helpful to the institution and even to valuation that folks see that we are real stewards of our capital. Now you're saying at a certain point, it gets to be where we may wish to do something incremental to the capital. Beyond putting into the business, as Sharon and I outlined. Let's see when we get there, and we'll we'll we'll we'll be we'll be we'll be talking about that. But we continue to find great places to put capital in the business. A whole bunch of business lines across the integrated firm. But, yes, it is a nice place to be. That we are above 300 basis points. And it is also the case that we believe the business model speaks to real substance around the argument for our c t one ratio to actually go further down. So you could argue that 300 could get bigger. And then if it does, we'll we'll be talking more about how we wanna prosecute against the alternatives. Operator: We'll take our last question from Chris McGratty with KBW. Chris McGratty: Good morning, Thanks for hey. Good morning, Tim. Thanks for fitting me in. I think in your prepared remarks, you talked about 25% of asset gathering being international. Sharon Yeshaya: I guess I'm interested in your in your views for the business and the growth, international, domestic over the medium term. Chris McGratty: Certain markets, businesses, you know, higher growth or higher ROE potential. Thank you. Operator: Yeah. We continue to see assets coming from wealth channels that are obviously based on The US. But I would note that I think that you might be discussing also there is international distribution that we're seeing in investment management. So when we bought Eaton Vance, one of the premises was they had a franchise that was basically very US driven from a distribution perspective. We are in a position where we are seeing, for example, our fixed income flows over the course of this quarter, 50% of that distribution was coming from international accounts. So there's plenty there. Now in terms of the rest of the institution obviously, the the global franchise has certainly helped from a capital markets perspective when you think about the nine boxes we used to talk about in equities. We're seeing contributions from all of the businesses or all of the regions across institutional securities. And in the equities business. Now we did think it was important to call out the non US business Sharon Yeshaya: because the revenue growth and the margins attached to them have been quite impressive. And, of course, our client base is global. And so you're speaking to the the revenue contribution to the firm overall. And that is that is one that may not necessarily grow relative to the total as a geographic matter. But should compound nicely as we continue to grow, not just in The Americas, but in EMEA and Asia. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you everyone for participating. You may now disconnect. And have a great day.
Operator: Welcome to the Bank7 Corp. Fourth Quarter Year 2025 Earnings Call. Before we get started, I'd like to highlight the legal information and disclaimer on Page 27 of the investor presentation. For those who do not have access to the presentation, management is going to discuss certain topics that contain forward-looking information which is based on management's beliefs as well as assumptions made by and information currently available to management. Although management believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties, and assumptions including, among other things, the direct and indirect effect of economic conditions on interest rates, credit quality, loan demand, liquidity, and monetary and supervisory policies of banking regulators. Should one or more of these risks materialize, should underlying assumptions prove incorrect, actual results may vary materially from those expected. Also, please note that this conference call contains references to non-GAAP financial measures. You can find reconciliations of these non-GAAP financial measures to GAAP financial measures in an 8-K that was filed this morning by the company. Representing the company on today's call, we have Brad Haynes, Chairman; Thomas L. Travis, President and CEO; J.P. Phillips, Chief Operating Officer; Jason E. Estes, Chief Credit Officer; Kelly J. Harris, Chief Financial Officer; and Paul Timmons, Director of Accounting. Please also note today's conference is being recorded. With that, I'd like to turn the call over to Thomas L. Travis. Please go ahead. Thomas L. Travis: Thank you. Good morning to everyone. We are delighted with our 2025 results. It seems like a broken record every quarter, but we have to acknowledge the great work done by our bankers and especially this year. The outstanding loan growth, the strong loan fee income, and very solid organic deposit growth is not easy to do. And we are very fortunate to have such a dynamic and professional group of bankers, people that have worked together for a very, very long time. And so always, always appreciate what they do and especially this year. And at the same time, while they were producing that tremendous growth in the loan fee income, they did it without sacrificing underwriting, and that enables us to really enjoy asset quality that is probably better than it's ever been. And it's also why we felt comfortable not increasing the provision more than we did this year or last year even though we made such tremendous strides in the growth. So just, a real congratulations and shout out to our great team. And at the same time, our operations, IT, finance functions, continue to evolve, and they make our lives easy. It's something we don't take for granted, so we want to thank and acknowledge the leadership in those functions as well. So we're well positioned to continue performing at a very high level and we're here to answer any questions anyone might have. Thank you. Operator: Thank you. We will now begin the question and answer session. To withdraw your question, please press star then 2. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. Once again, ladies and gentlemen, that's star then 1 if you have a question. Today's first question comes from Wood Neblett Lay at KBW. Wood Neblett Lay: Hey, good morning, guys. Morning, Thomas. Thomas L. Travis: Wanted to start on loan growth, another really strong quarter of growth. I know in the past, you kind of talked about, you know, sometimes growth is lumpy quarter over quarter. But we never really saw the downside in 2025. You know, has payoff activity been lighter than you expected, and how should we think about forward expectations for growth? Thomas L. Travis: Woody, this is Tom. Before Jason jumps in, I just want to tell you, I love the way you start your piece when you send it out. You know, I opened yours early this morning, and you start out with rock. And I like that. So thank you. Jason will take the question. Jason E. Estes: Hey, Woody. You know, it's interesting you bring up the payoffs because we study this every quarter. You know, we try and look at originations and payoff volumes. And, you know, not to sound like a broken record, but we're doing a lot of business in Oklahoma and Texas. And those economies, we're just thriving in this part of the country. Okay? And so we had, I would call it, accelerated payoffs throughout the year. There was just so much demand and loan opportunities. And, look, part of it's geography, and part of it is our team. You know? And so we're over here now with some more scale, and I'll just liken it to the snowball rolling down the hill. Right? And so now, you know, each year when we start, you know, January, and you just know your payoff pace is going to be a lot. Okay? Like, I think we'll have $25 million a month of payoffs this year. So to grow, you know, we need $3.545 billion a month of new funding. And so last year was no exception. I will say that the fourth quarter payoffs were lighter than they'd been in the first, second, and third. You're gonna see some of that come in in the first quarter. Wood Neblett Lay: Yeah. That's helpful color. And then, I mean, I guess, just a follow-up there. Knock on wood, but it feels like the momentum in your local market is continuing to be strong in 2026. I mean, can growth, you know, look like 2025 again in the year ahead? Or would that be a little bit of a stretch? Jason E. Estes: That sounds like a stretch to me. Where we're seeing the most pressure is pricing-wise, and we are not going to lose our discipline, Woody. So we are, you know, weekly meeting with clients, talking to banks, and we're trying to make sure, you know, we're within market and we are doing our best job of maximizing these loan dollars because we do think that we could grow loans at a similar pace, but you have to fund that, and you have to maintain those margins. And so we're balancing those items. Wood Neblett Lay: Yeah. And then last year, I just wanted to shift over to the net interest margin. And, you know, got some compression this quarter, which I don't think was a huge surprise given some of the commentary you gave last earnings call. But can you talk about how you expect the margin to trend if we get a couple additional cuts from here and remind us sort of of the historical ranges you would expect on the NIM? Thomas L. Travis: Before Kelly jumps into that, Woody, I would just a quick reminder that the slight compression that we experienced was we were coming off of almost an all-time high. And we tried to signal that last year. We knew we were running at a higher margin still within our historicals, but really way up there in the range. And so we need to be mindful of that. But go ahead, Kelly. Kelly J. Harris: And, Woody, we had a couple of rate cuts during the quarter, and you can tell in the slides on the deck that we've kind of reached an inflection point where we had a number of loans reach their floors. And so I think if you, on a forward-looking basis, using that with the loan growth, I mean, we feel really good about our current NIM. You know, could it go down slightly? Potentially? We do have some time deposits that are repricing during the quarter that would help offset some of that. And so I think, you know, going within that tight band, $4.45 is a great starting point for us. Thomas L. Travis: What was our historical low? Was it around $4.15 or $4.20, Kelly? Kelly J. Harris: $4.35. Thomas L. Travis: Yeah. Well, listen. If we get 75 basis points of cuts, and we put a lot of material in this deck. I mean, specifically on page 10 is a good illustration. But, you know, we've always said the more the deeper the cuts are, the more challenging it becomes. And our loan floors really help us, but then the depositors at the same time are insisting on higher rates. And so I think we've said in the past, in the recent past, that, you know, it wouldn't surprise us to dip down and touch our historical lows, which is below the number that Kelly said. But, you know, it wouldn't surprise us if it bled down a little further. Wood Neblett Lay: Got it. Alright. Well, that's all for me. I appreciate all the color. Operator: Thank you. And our next question today comes from Nathan James Race at Piper Sandler. Nathan James Race: Hey, Dave. Good morning. Just thinking about the direction of deposit cost going forward. I appreciate the comments earlier around having some opportunities to reduce CD pricing going forward. But wondering if you could speak to the non-maturity side of the deposit equation in terms of, you know, how much additional leverage you have to reduce those deposit costs and what that implies for deposit competition these days. Kelly J. Harris: Hey, Dave. This is Kelly. Our current cost of funds dipped from Q4. I think the current run rate is $2.40. I think that's going to be really driven off of balance sheet growth. Incoming new deposits. We did pick up a couple of nice deposits, you know, post year-end. Helped reduce that cost of funds. And so I think it's, you know, it ebbs and flows. I don't know if there's really a straight answer to give you. Nathan James Race: Okay. That's helpful. And maybe for Jason, if you could maybe just speak to some of the deposit competition you're seeing out there. Obviously, you had really strong loan growth in the quarter, so you had to fund that with deposits. But, you know, just curious what you're seeing across the ground. Jason E. Estes: Yeah. I think it's fair to say the last couple of cuts didn't really flow into deposit betas as strongly as maybe the first couple. And that's not, I don't think, unique to Bank7 Corp. I think that's just kind of across the industry. If you go out to the Internet and just look at what's available, you know, money market, CDs, it's just, you know, clearly you're hitting a point where the depositors are keenly aware now. Right? Interest rates are top of mind. And it was a little bit easier, you know, twelve months ago, eighteen months ago. But as these cuts have taken place, people are just paying attention to it. You know? And so are we, and we're trying to make sure we're getting our share of market share. So I think, you know, to your point or to your question of what do we see in real time? And it's, I think it's tough, you know, on the deposit side. Those last two cuts didn't really translate into typical betas. Nathan James Race: Understood. That's really helpful. And then maybe one last question for Tom. Maybe just zooming out a bit. I think 2025 was a tough year. If you just look at the performance of the stock relative to peers. So just curious, you know, you guys are still building capital at nice clips despite even the strong growth you had in the fourth quarter and throughout last year. So just curious if you're thinking more about buybacks to support the stock these days or just more broadly how you're thinking about excess capital? Thomas L. Travis: Regarding the stock price, we've always, everybody knows on this call and around the world, markets are gonna do what the markets are gonna do, and we really can't control that. Obviously, we can control it a little bit if we wanted to go and repurchase shares, which is not our objective. And we understand it's one of the levers in addition to others, but, you know, we're just focused on producing top-tier results and over time, the market will understand that and the stock price will respond. And I think the proof is in the pudding. I don't know what page it's on the deck, but if you look at our total shareholder return compared to the major exchange-traded banks or if you want to compare it to the KBW index, we are just top, top, top tier. So there's gonna be quarters and times where we don't look favorable compared to other banks, but that's okay because over time, we're gonna outperform them and the market will understand that. Nathan James Race: Got it. I appreciate all the color. Thanks, guys. Operator: Thank you. And as a reminder, if you'd like to ask a question, please press star then 1. Today's next question comes from Jordan Gendt with Stephens. Jordan Gendt: I just had a question kind of following up on that capital. And regarding M&A. In the past, you guys have mentioned sellers having high pricing valuation expectations. Along with, you know, an AOCI overhang. Are those still some of the biggest headwinds you guys are seeing in getting a deal done, or are you guys seeing more sellers come to the table and willing to negotiate? Thomas L. Travis: I think the AOCI has slightly come down. Many of the people that were burdened with that, I think they were using hope as a strategy, and they believed, you know, some of the wishful thinking that the rates were gonna come down and reality is really here. And then as it relates to other factors, there is still, if you run across a quality deposit franchise, it's going to be very difficult to buy that kind of operation. I don't want to use the word bargain, but it's just increasingly difficult. And the market is a mature market. It's an efficient market, and it recognizes that value. So I think all of those things are gonna always be in play. And, you know, we're scouring the countryside. We had a couple of opportunities over the last year in Oklahoma. You know, one, it didn't quite make it at the end. One, we were ready to go, but we didn't, we pulled away after doing our diligence. We had an out-of-market good opportunity that we also pulled away from. And so, you know, there's, it's never the same. But to your question about being able to make things work, we're going to stay very, very disciplined. And, obviously, we're not even gonna, when it comes to asset quality, that's nonnegotiable. Right? And so, but as it relates to price, the higher quality, the deposit franchise, the long-term deposit relationships that some banks have, that's gonna force you into a higher multiple and there's just nothing you can do about it. So while we're out, you know, talking to people, it's a high-class problem, but the capital is just gonna continue to pile up. And, you know, the good news about that is that it gives you more optionality when you finally do find something. And so I think for us, it's going to be stay disciplined, resist the urge to, you know, do any meaningful share buybacks so that we can pile up capital and just be prepared for a nice opportunity. And we've mentioned that, you know, we're not opposed to an MOE. And so it's a really good position to be in, but we also understand that we have to fade the heat because the capital's piling up so rapidly that the return on equity has come down. But the last thing I would say is that that return on equity may be coming down, but I don't know what the percentage of banks is, but I bet it's greater than 90% would love to have their capital ratio returns go down to 18% or whatever it is. So why I call it a high-class problem. Jordan Gendt: Perfect. Thank you for that. And then, kind of one follow-up question on the deposits, particularly the non-interest bearing. It looks like it kind of went down a little bit this quarter, and could you kind of maybe give a little color on that? And then maybe remind us of any seasonality that we should be expecting with the deposit side in 1Q? Jason E. Estes: Yeah. I think what you're seeing, you know, as those non-interest bearing accounts, that percentage bleeds down. Go back to my comments a minute ago about top-of-mind awareness. You know, when rates were zero, nobody cared if it was a money market account, a savings account, or a checking account because it just didn't matter. And that's changed, you know, with the last rate cycle, and it's just a thing that people are aware of. And we accept that. And we're responding, you know, to what the customer wants in that regard. Thomas L. Travis: I don't think that we're not heavy in public funds. Those are seasonal with regard to seasonality. Those balances do fluctuate. But other than that, I don't think we have much seasonality in the portfolio. Jordan Gendt: Okay. Perfect. And then just one more question on kind of the expense and fee guide. If you guys could give any additional commentary on that, on kind of what you're seeing. And then maybe just remind us of how many more quarters we can expect to see impact from the oil and gas revenues? Thomas L. Travis: As it relates to expense, it's nice and comforting that, you know, two of our three primary coverage people, I read their pieces this morning, and it's nice to see you recognize how good we are at controlling expenses. That's not gonna change. As it relates to the oil and gas, yeah, with all due respect, we think it's a nothing burger. It's a, I don't know if I want to call it a rounding error, but, you know, for the next, unless we were to sell the asset, for the next three or four years, it's just gonna be a gradual decline of any meaningful dollars to be harvested revenue. And so, you know, and as a reminder, we didn't really agree with our accountants a year and a half ago when they were using, you know, their formulas to recognize the revenue of the oil and gas. And we warned people that from a GAAP perspective that it, we felt like they were front-end loading it too much, and I still think that exists. And so, you know, from a strategic perspective, we've accomplished our goal. We continue to harvest, and we're happy with it. But from a GAAP accounting perspective, it's gonna continue to be a very insignificant portion of the bank. But we do recognize that we might have some fluctuations. And so from a GAAP perspective, it could negatively impact net income in a small, immaterial way. Kelly J. Harris: And from a dollar perspective, using Q4 as a fully solid guide, I think it was $9.1 million in core expense, a million in oil and gas, and then similar on the fee income side, a million split a million on the oil and gas, and a million core fee income, $2 million total. Jordan Gendt: Okay. Very, very similar to Q4. Perfect. Thank you for that answer. And that's it for me. Operator: Thank you. That concludes the question and answer session. I'd like to turn the conference back over to the company for any closing remarks. Thomas L. Travis: Thank you, everyone, for your coverage. And any shareholders that are on the line. We're excited about 2026 and our company, and we appreciate the partnership. Thank you. Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Lucy: Hello, everyone, and thank you for joining the First Horizon Fourth Quarter 2025 Earnings Conference Call. My name is Lucy, and I will be coordinating your call today. It is now my pleasure to hand over to your host, Tyler Craft, Head of Investor Relations, to begin. Please go ahead. Tyler Craft: Thank you, Lucy. Good morning. Welcome to our fourth quarter 2025 results conference call. Thank you for joining us. Today, our Chairman, President, and CEO, D. Bryan Jordan, and Chief Financial Officer, Hope Dmuchowski, will provide prepared remarks, after which we will be happy to take your questions. We are also pleased to have our Chief Credit Officer, Thomas Hung, here to assist us with questions as well. Our remarks today will reference our earnings presentation, which is available on our website at ir.firsthorizon.com. As always, I need to remind you that we will make forward-looking statements that are subject to risks and uncertainties. Therefore, we ask you to review the factors that may cause our results to differ from our expectations on page two of our presentation and in our SEC filings. Additionally, be aware that our comments will refer to adjusted results, which exclude the impact of notable items and other non-GAAP measures. Therefore, it is important for you to review the GAAP information in our earnings release, page three of our presentation, and the non-GAAP reconciliations at the end of our presentation. And last but not least, our comments reflect our current views, and you should understand that we are not obligated to update them. And with that, I will hand it over to Bryan. D. Bryan Jordan: Thank you, Tyler. Good morning, everyone. Thank you for joining us. In 2025, we showed significant progress in delivering value for our clients, associates, and shareholders. We delivered increased pre-provision net revenue and return on tangible common equity, hitting 15% in 2025. Loan and deposit trends were solid, and we improved balance sheet profitability through a better loan mix, price-disciplined control of deposit costs, and tighter integration of deposits within our client relationships. One example driving improved profitability is the year-over-year improvement of yields on market-based commercial real estate lending for new 2025 originations, 534 basis points. In 2025, we also returned just under $900 million of capital in stock repurchases and just over $300 million in dividends. With more clarity around economic conditions and regulatory trends, we believe we can continue to return additional capital to our shareholders while continuing to invest in growth opportunities. As you will see in our slide presentation, we are optimistic about our ability to improve profitability and continue to grow earnings in 2026. I will now hand the call over to Hope to walk through the results of the fourth quarter in more detail and provide some closing comments at the end of the call. Hope Dmuchowski: Thank you, Bryan. Good morning, everyone, and thank you for joining us today. We ended the year with a strong fourth quarter that includes earnings per share of $0.52, net interest margin of 3.512%, and loan growth. Starting on slide eight, we walk through some of the drivers of our approximately $2 million of net interest income growth as well as our net interest margin performance. Our margin compressed by four basis points, but excluding the impact of the Main Street Lending Program accretion discussed last quarter, NIM expanded by two basis points. Even with our slightly asset-sensitive balance sheet, the largest benefit to both NII and margin was deposit pricing, as our average interest-bearing cost declined by 25 basis points. Additionally, strong growth in loans to mortgage companies added to NII. On slide nine, we cover details around our deposit performance in the quarter. Period-end balances increased by $2 billion compared to the prior quarter. The average rate paid on interest-bearing deposits decreased to 2.53%, coming down from the third quarter average of 2.78%. We have maintained a cumulative deposit beta of 64% since rates started to fall in September 2024. Our interest-bearing spot rate ended the quarter at 2.34%. On slide 10, we cover our quarterly loan growth. Period-end loans increased $1.1 billion or 2% from the prior quarter. Our largest increase came from our loans to mortgage companies, which increased $767 million quarter over quarter. While the fourth quarter is not traditionally a high watermark for this business, we saw a pickup in the refinance market, which resulted in approximately one-third of activity from refinances, up from approximately 25% in recent quarters. We also saw excellent growth across our footprint in the rest of our C&I portfolio, with period-end balances increasing by $727 million from the prior quarter as origination volume increased quarter over quarter. Within the CRE portfolio, the pace of paydown slowed as the decline of period-end balances improved versus the prior quarters, with a $111 million reduction. Additionally, we saw a slight increase in commitments in our CRE portfolio during the quarter, providing momentum entering 2026. Commercial loan spreads remain consistent, generally mid-100s to upper 200 basis points. Turning to slide 11, we detail our fee income performance for the quarter, which increased $3 million from the prior quarter, excluding deferred compensation. The largest increase for fee income comes from our service charges and fee lines, which is largely driven by $4.4 million in income related to elevated activity in our equipment finance lease businesses. On slide 12, we cover adjusted expenses, which, excluding deferred compensation, increased $4 million from the prior quarter. Personnel expenses, excluding deferred compensation, increased by $12 million from last quarter, driven by $8 million in incentives and commissions, which primarily consisted of annual adjustments to bonuses impacted by hitting the high end of our revenue targets for the year. Outside services increased by $16 million, which includes project costs for some technology and product initiatives and increased advertising expenses in the quarter. Our non-interest expense declined primarily related to the foundation contribution discussed last quarter, as well as normal fluctuations in customer promotion costs and marketing campaigns earlier in the year. Turning to credit on slide 13, net charge-offs increased by $4 million to $30 million. Our net charge-off ratio of 19 basis points is in line with our expectation and recent performance. We recorded no provision for credit losses in the fourth quarter, and our ACL to loan ratio declined to 1.31% on broad improvement across our commercial portfolio and payoffs of non-pass credits. On slide 14, we ended the quarter with CET1 of 10.64% as buyback activity and strong loan growth, which included high loan to mortgage company growth, lowered our period-end CET1 levels. During the quarter, we bought back just under $335 million of common shares, bringing our full-year total to $894 million. We also announced a new repurchase program of $1.2 billion in October, and we currently have just under $1 billion of authorization remaining. On slide 15, we walk through the objectives and metrics within our current 2026 outlook. We once again expect year-over-year PPNR growth with mid-single-digit balance sheet growth and positive operating leverage. Our total revenue expectations range from 3% to 7% growth year over year, which accounts for a variety of interest rate and business mix scenarios. As we have mentioned previously, our expense outlook remains flattish, with the exception of incremental incentive expenses associated with higher countercyclical revenue. Continued improvements to market conditions for our fixed income, consumer mortgage, and loans to mortgage company lines of businesses could drive higher revenues and associated personnel expenses. We expect to achieve this while still making key investments in our businesses, including technology, personnel additions, and new branches. Our net charge-off expectation of 15 to 25 basis points reflects our continued confidence in our underwriting standards and credit processes. We expect taxes to be between 21% to 23%, similar to 2025. Lastly, our near-term CET1 target remains at 10.75%, with the level fluctuating approximately between 10.5% and 10.75% with loan growth throughout the year. We will continue to have conversations with our board about potential timing for lowering that target further in line with our intermediate-term expectations of 10% to 10.5%. I'll wrap up as we turn to slide 16. I am extremely pleased with the execution of our teams in the fourth quarter and throughout all of 2025. We once again operate at 15% adjusted ROSD this quarter, and our goal continues to be sustaining and exceeding this level. We are continually managing capital and credit to assure that we maximize returns for shareholders, as displayed this quarter with capital deployed into both loan growth and share buybacks. Our teams are focused on execution and delivering on our profitability objectives, including the more than $100 million revenue-driven incremental PPNR that we have discussed in the past. We made early progress on this in 2025 and expect the impact to continue to grow in 2026 and 2027. With that, I will give it back to Bryan. D. Bryan Jordan: Thank you, Hope. I'm proud of the progress we made in 2025 across many fronts. During the year, we distilled our strategic plan into a five-page framework to provide clarity for all of our associates about how we differentiate in the marketplace and create broad, deep, long-lasting client relationships. I believe this alignment will continue to help drive consistent execution across our organization, resulting in exceptional experiences and outcomes for our clients and our shareholders. As we look into 2026, our priorities are clear: serve our clients well, grow profitable relationships, and deliver on our financial objectives. We will capitalize on growing client confidence about the economy with continued loan growth. We see positive signs for growth in our current pipelines, especially in our commercial lending areas. I'm confident that our diverse business model and robust footprint position us to meet our revenue growth targets through a variety of economic scenarios. As we stated in our 2026 outlook, we also remain focused on expense discipline and efficiency while continuing to invest in technology and tools that make our associates more effective and deliver greater value for our customers. We talked in 2025 about our $100 million-plus PPNR improvement opportunity. We made initial progress in 2025 by improving the profitability of the balance sheet. We still see $100 million in additional opportunity and expect to make significant progress on that in 2026 and 2027. This profitability will be driven by deepening client relationships and products like treasury management and wealth management, leveraging our banker expertise to ensure clients have the right products for their needs, ensuring our pricing reflects the value we could deliver to clients, and ensuring we maximize the value of our footprint with our talent and distribution models. First Horizon has a lot of momentum going into 2026, and I'm excited to see our associates capitalize on those opportunities ahead. Our team put forth a great deal of effort in 2025. Thank you to our associates for their work this past year and to our clients and our shareholders for their continued confidence in our company. Lucy, with that, we can now open it up for questions. Lucy: Thank you. The first question comes from Casey Haire of Autonomous. Your line is now open. Please go ahead. Casey Haire: Great. Thanks. Good morning, everyone. I wanted to start on the revenue outlook, the 3% to 7%. That's about $135 million of revenues. I know it's tricky, but if you could just take us through your base case and what are some of the big wildcards to think about so we can, you know, make our own assumptions on that revenue outlook. Hope Dmuchowski: Happy New Year, Casey. Thank you for that question. You know, our base case, kind of middle of the range, is the current forward curve. So as you think about looking, you know, at the low and high end range, you know, we've got to think about where rates go, how quickly we might see rate drops versus the current forward curve, and then also loan growth. And so as we said, we have mid-single-digit loan growth in here. And so if we were able to exceed that, you'd be at the higher range. And of course, countercyclical. The Wall Street Journal reported this morning that December home buying was strong. I made a comment in my prepared remarks that we saw refinance pick up for the first time in multiple quarters. So as we start to see some of those countercyclical pick up and we hit our loan growth targets or higher, we end up on the higher end of that range. Casey Haire: Very good. And then on the expense front, I know you guys are, you know, kind of reiterating your flat outlook for this year. But I guess trying to understand what the obviously, I don't think that would be sustainable going forward. I guess what would the expense growth be had you not had these past years of heavy, you know, tech investment and digital infrastructure investment? Like, I'm just trying to get a sense of what would be, you know, where does the expense growth normalize to going forward after this flat year in '26? Hope Dmuchowski: When Bryan and I sit down and talk with our board about where we want to go in coming years, we always start with we want positive PPNR. And we really start with a base case of expenses being in line with inflation. You know, you have wage inflation, you have contract inflation. So we start with that, and then to your point, we did have some things that were kind of multiyear investments that are running down. But think about our normal growth in that inflationary area, which would be, you know, 2.5% to 3% currently. Casey Haire: Great. Thank you. Lucy: Thank you. The next question comes from Ryan Nash of Goldman Sachs. Your line is now open. Please go ahead. Ryan Nash: Good morning, everyone. Hope Dmuchowski: Morning. Ryan Nash: So, you know, Hope, you mentioned embedded in your revenue growth expectations is mid-single-digit loan growth. Maybe just unpack that and talk about some of the key drivers across the products. How are you thinking about the inflection of commercial real estate? What's baked in for a loan to mortgage companies, and, obviously, any other areas of growth in the broader C&I area. Thank you. Hope Dmuchowski: I'll take those one at a time, Ryan, and happy New Year. First, if we look to mortgage warehouse, we are expecting it to pick up. We had, you know, if you look at our trend page, you see it's the highest quarter we've had in five quarters. Seasonally, Q4 pays down, and we didn't see that. And with the pickup in refi, we think that we will, you know, our base case assumes that picks up in similar consecutive fashion. When we get to the higher side of our guidance, obviously, you know, looking at a double-digit mortgage warehouse growth in the lower end of our guidance would be, you know, flat or lower than this year. C&I, we have great momentum coming into the year. We talked on our last earnings call about being one of our highest quarters for new originations. Q4 had additional strong originations. So we think C&I has hit that inflection point. We're going to continue to see growth in 2026. CRE started to stabilize this quarter. We've seen good new production, but we do a lot of large construction increase. So it takes time for that to fund up. We've always had that spring-loaded balance sheet, Ryan. So I do think it'll, you know, stay stabilized with how quickly we can grow with how quickly our customers can get their projects running, get the supplies they need, and really start to hit that stride in the CRE market that's been slowed down the last couple of years. Ryan Nash: Got it. You know, maybe as a follow-up, given the expectation for mid-single-digit loan growth, I'm assuming you're expecting some decent deposit growth. Can you maybe just talk a little bit about deposit growth expectations, what you see as the key drivers? And in a better loan growth environment, do you think you could sustain this 64% beta for the remainder of the raising cycle? Thank you. Hope Dmuchowski: Yeah. Loan growth is always higher in our targets than our loan growth is always lower than our deposit growth. So the target that we give to our businesses is, you know, for that not to be offset and create a higher loan-to-deposit ratio. With that, we have a lot of initiatives that we've done in the past twelve to eighteen months, primarily our new treasury management system, that an additional product that we have delivered in the second half of the year that allows us to deepen relationships with existing clients and also go to market with clients that we maybe didn't have everything they needed for their business previously. We've seen great momentum in treasury management in the back half of the year. Also, we've mentioned before, we've hired a new Head of Consumer. We had, you see our advertising costs were slightly up, and our cash payments and other non-interest expense were up, have been up in the second half of the year. We're seeing great momentum with our new-to-bank offers, sustaining and deepening relationships in that space. We're opening new branches this year, and I think there's a lot of upside opportunity in our consumer franchise. Your comments about deposit costs, you know, I would say the number one thing that concerns me there outside of competition, as we always talk about, is what happens with the Fed's balance sheet. Now there's some congressional testimony about shrinking the Fed's balance sheet further. And so I really think it's a macroeconomic question as to what is the liquidity in the system in the coming year that will drive deposit prices much more than competition right now where I'm sitting. I don't know what you'd add to that, but there's a lot of uncertainty right now. D. Bryan Jordan: Well, I think you hit the key point. We do have opportunity in treasury management penetration. We have a very strong stable base there in our system. It is extraordinarily competitive, and we're making very good progress in terms of working with customers to increase that penetration. I think the opportunities across our footprint to continue to expand our retail consumer banking model, as Hope pointed out, are very positive. And deposit betas, you know, we're going to manage within the context of the market. We're going to be competitive. We think that, you know, the Fed's going to either contract or expand its balance sheet. Competitors are going to do this, that, or the other thing. We're going to pay attention at a very granular level and be competitive in the marketplace and grow the business and do it in a way that is thoughtful and built around long-term relationships and partnerships. I think we're well-positioned for that. Ryan Nash: Thanks for all the color. D. Bryan Jordan: Thank you. Lucy: The next question comes from John Pancari of Evercore. Your line is now open. Please go ahead. John Pancari: Morning. I wanted to see if, you know, within your revenue guide, if you could possibly help us unpack it across how you're thinking about net interest income trajectory and the fee side. I mean, on the net interest income side, I, you know, it looks like you grew net interest income about 4% in 2025. Looks like it may be a somewhat slower pace in '26, just maybe given less margin upside. But I want to see if you could maybe help us frame it. Is it low single digit? That's reasonable or mid-single for NII? And then as you look at fees, just give us a little bit more color on the ADR trends that you're seeing here and how that could play out in the cap market side? And how that influences your fee growth expectation. Hope Dmuchowski: John, thanks for the question. On fee income, obviously, the largest variable is, as I mentioned earlier, mortgage refinance, where we don't put something on our balance sheet. We do originations that we sell so that we can get that gain on sale back up to what it was two, three years ago when we saw more normalized resale activity. FHN Financial had a very strong second half of the year. If you look at the deck and you look at the fourth quarter ADR, we had mentioned that we thought 3Q may be an inflection point in the beginning of Q4, we were starting to see that come back down, and it's pretty flat quarter over quarter. So I think as you think about fee income, think about the core line items growing consistently with this year, but the upside being both gain on sale for mortgage and a refinance opportunity as well as FHN Financial upside. On the NII, as Bryan mentioned earlier and I did as well, the deposits are hard to predict exactly where we're going to land on deposit betas this year. I think that could have a big swing on that. And then loan growth, we had really low loan growth in our industry for two or three years now, and there is a pent-up demand out there. So I believe we can get certainty on rates. We can get certainty on the economic environment. We're going to see that pick up for our industry. I can't handicap right now, John, is that earlier in the first half of the year or the second half of the year in those, you know, average balance matters for NII more than that quarter over quarter. But I feel really strongly that, you know, we are well within that range. You can run a set of scenarios, and we will be within that revenue guide regardless of what happens in the macroeconomic environment this year. D. Bryan Jordan: Hey, John. This is Bryan. I'll add the coach comment. We're very intentional in not breaking apart the revenue projection into net kind of fee income. Simply because we have a very well-balanced business model. And that we have the countercyclical businesses. So we have businesses that will pick up if rates move down significantly. We have businesses that will do very well if rates move up, and the two balance each other out. And so when we build out a model looking at 2026 or 2027 and beyond, you know, we start with the premise that all models are wrong, some are useful. And so we look at it in the context of we feel good about the balance in our business, and that if you push down here, this will pop up. But at the end of the day, we feel confident in our ability to deliver revenue growth within the range that Hope has highlighted for you. John Pancari: Got it. Alright. Thanks, Bryan. Thanks, Hope. I appreciate that. And then separately, Bryan, I guess, we could just go M&A, just want to see if you can get some of your updated thoughts around potential whole bank M&A, a lot of attention obviously to your shift in your comments last quarter. You know, how are you thinking about the decision to potentially step in here and consider an acquisition, given the potential that the regulatory window could ultimately close and does that influence you? And then the backdrop of deals accelerating, but most importantly, what it means for you in terms of if something compelling financially or strategically comes up. Thanks. D. Bryan Jordan: Yeah. Thanks, John. One, I don't worry about the regulatory window first and foremost. I think that during the duration of the Trump administration, you're likely to see the regulatory window open. Your regulatory infrastructure is in place now, and they have multiyear appointments. So I don't worry about that. When it comes to thinking about our business and preparedness, I think as I highlighted in the third quarter call, we have the ability to integrate now, but our priorities are focused on the things that we've described in our prepared comments, which is penetrating our customer base, delivering on this strategic document that we have laid out for our organization, driving the $100 million of potential PPNR growth. And in that context, if we have the opportunity to fill in our branch franchise or deposit base by doing something small, we would consider it. I would tell you, like I did ninety days ago roughly, that's not a priority for us. Our priority is delivering higher returns, increased profitability, and leveraging the franchise and the footprint that we have. John Pancari: Got it. Thanks, Bryan. Lucy: The next question comes from Bernard Von Gazzicchi from Deutsche Bank. Your line is now open. Please go ahead. Bernard Von Gazzicchi: Hi, guys. Good morning. So you have a 15% plus sustainable ROTCE target over the near term. You hit the 15% mark the past two quarters. Are we at that sustainable 15% now and moving to the plus part of that? Or is there a time frame, like the end of the year, you feel that you can declare you hit the 15% in a sustainable manner? Hope Dmuchowski: Bernard, good morning. Welcome. I think we've hit that sustained number on a go-forward basis. It doesn't mean a single quarter could have dipped under that. I talked in my prepared remarks about how a could come down lower quarter to quarter as we look at loan growth. But on average, I do think we've hit that inflection point where we can deliver in the 15 plus percent, Rossi, target ongoing. But that's not an every quarter number. I would say it's an average in the near term. Longer term, that will be the minimum, but we've had a lot of uncertainty in the macroeconomic and a lot of things at play right now that could slightly dip us underneath that in 2026. D. Bryan Jordan: Yeah. I would add that, you know, the accounting around AOCI and things like that can move it in into a quarter and a quarter or two. But we feel very good about the sustainable nature of the progress that we've made over 2024 and 2025 in terms of proving profitability. So I think we are at a sustainable level. It may fluctuate up a little bit or down a little bit, but at the end of the day, I think what we've delivered and improved profitability is sustainable. And as we have in the past several quarters, the opportunity to return capital and manage our capital levels in line with peers is an opportunity that would further enhance that. So we've made good progress, and I think we're in a good place to increase that profitability as we go forward. Bernard Von Gazzicchi: Thank you for that. Maybe just on credit, so I know in the release, you noted the 11% sequential in criticized and classified during the quarter. You know, the resulting zero provision and the $30 million reserve release. You know, how are you thinking about your reserve build from here? Just given expectations on the path of criticized and classified, the expected 15 to 25 basis points of net charge-offs, as well as just expectations for mid-single-digit loan growth for the year. Thomas Hung: Yeah. Hey. Good morning, Bernard. This is Tom. I'm happy to address that question for you. You know, overall, we've had very strong momentum throughout all of 2025 in terms of working through our non-pass book. And, you know, as you noted in the fourth quarter alone, we had over $700 million of our non-pass resolutions. And there's a good mix of both payoffs and upgrades. On the whole year, that number added up to $2.2 billion. And so with the strong momentum we've had in those non-pass resolutions, that's why we have been able to have the other reserve releases we've had in the last couple of quarters. In terms of looking ahead, you know, a lot of other factors will impact what ultimately our reserves are, including broader economic outlook, the amount of loan growth we have, and also the mix of the businesses. You know, what I'm happy about is the momentum that we have in terms of how we've continued to be able to work down our non-pass book while maintaining very strong net charge-off performance in terms of forward outlook on reserves. But like I said, there's a number of factors that could change that, so it's harder to say. D. Bryan Jordan: Bernard, this is Bryan. I'll add to Tom. You know, the CECL model implies an awful lot of science, but there's a tremendous amount more art involved in it and the assumptions that are made about the economic scenarios. And if you step back from it and you look at our reserve levels today, we have something in the nature of six to seven years of reserves set aside at the current run rate. So we believe that we're conservatively positioned. We try to take a balanced view of the economy, and we don't look at it as all up or all down. But I think given the improvement that we've seen in CNC and the trends in the balance sheet, we think we're in a very good position for the reserve levels that we have. And then our credit trends, as highlighted in our outlook for 2026, are likely to be in the same area that we've seen over the last year or so. Bernard Von Gazzicchi: Thanks for the color, thanks for taking my questions. D. Bryan Jordan: Sure. Thank you. Lucy: The next question is from Jared Shaw of Barclays Capital. Your line is now open. Please go ahead. Jared Shaw: Maybe circling back on the capital discussion, when we look at that $1 billion or so of additional buyback authorization, what's the appetite for utilizing that over the course of '26 with the backdrop of growth? Should we expect that you stay active sort of at similar levels and see the capital ratios just continue to move lower? D. Bryan Jordan: Yes, Jared. This is a topic we work with our board on. So I don't want to get in front of that. But they have given us a substantial authorization, and we have a fair amount remaining under it. And as we've said in the past and as Hope has highlighted here, we will continue to talk about where the economy is, where our balance sheet is, how do we look at capital levels in the context of the peer universe and what's going on in the regulatory environment. Then having said all of that, you know, I would say I'm comfortable reaffirming what we've said in the past, which is we believe long term that we can operate our balance sheet in that 10% to 10.5%. And while you might get a spike one quarter in mortgage warehouse or you might get it for a year, year and a half, we're comfortable bringing those capital levels down over the longer term. So that's a long way of saying, one, we want to deploy our capital in organic profitable growth with our customer base. And if we don't have those opportunities, we will be disciplined. And as we've highlighted a couple of different ways, we returned $1.2 billion of capital in 2025, and we'll look for opportunities to be opportunistic, but we will participate in buybacks when appropriate. Jared Shaw: Okay. Thanks. And then maybe just shifting over to the loan growth side. C&I loans, as you pointed out, had a really good quarter. But utilization rates have been pretty much flat over the last year. How are you from your conversations with customers, what's sort of the appetite for bringing that utilization rate up over time? And is there any expectation in your guidance that utilization rates move higher? Or could that just be potential upside if you see increased optimism from existing lines? D. Bryan Jordan: Yeah. I'll start, and then Tom can help me. I think customers are generally still pretty optimistic. We see it in our pipelines, and the momentum in the economy appears to be very, very good today. I think, you know, as uncertainty emerges, whether it be, you know, Venezuela or Iran or oil prices or whatever the uncertainty could possibly be, then people will take stock. But I think people are generally biased for growth. And so I expect generally speaking, that C&I utilization will improve. I think the other dynamic I've talked a little bit earlier about loan growth and loan growth opportunities. In '24 and '25, we did a fair amount of work rebalancing. I mentioned improving the mix and profitability of the balance sheet. We also rebalanced where we were participating, and we got out of a number of what we viewed as unprofitable long-term participations and things of that nature. I think our balance sheet mix is set to be more profitable and to grow in a more sustainable and consistent level. Tom, anything you want to add? Thomas Hung: Yeah. I'll I would just add, starting with your question on utilization rate. We certainly watch that closely, but I think the drivers behind changes in that utilization rate are really kind of more telling because there can be positive and negative reasons for us. There that, you know, utilization rate going up and down. You know, if people are optimistic and looking to develop, we see that go up. It can also go up in periods of uncertainty, and so that's why I'm really more focused on the drivers underneath that number and what's driving it. I would also add, though, just overall, you know, what we're seeing across the board is increased momentum in our pipeline. Hope and Bryan have both mentioned C&I as an example. You know, what I would point to there is what I'm encouraged by is the increase in pipeline is coming from a pretty diverse set of businesses. We've seen it across our regional bank. We've also seen it to varying degrees in our specialty business units as well, and so this isn't concentrated in any one area, but it's more of a broad increase in pipeline that we've seen. Jared Shaw: Great. Thank you. D. Bryan Jordan: Thank you. Lucy: The next question comes from David Chiaverini of Jefferies. Your line is now open. Please go ahead. David Chiaverini: Hi, thanks for taking the question. I wanted to ask about the net interest margin outlook. Last quarter, you had guided to the high 330s, low 340s. Clearly, you outperformed that. It sounds like pricing trends are good on both sides of the balance sheet. How would you frame the outlook from here? Hope Dmuchowski: Yeah. I would say our outlook is still similar in that 340 range. There's a lot of timing and art on, you know, getting it exactly right in a quarter and an outlook. Specifically, this quarter, we had in my prepared remarks, I just discussed the uptick of growth in mortgage warehouse and the increase of NII there really helped our margin sustain quarter over quarter. Deposit costs, we're really proud of how we were able to work those down. I think we exceeded our expectations when we were on this call last quarter. So I don't see 350 as the go-forward. I really think we're in the mid-340s, kind of going, you know, some variation quarter to quarter. David Chiaverini: Great. Thanks for that. And then on the $100 million of incremental PPNR, you've been talking about that for a few quarters now. Curious as to how much of that has been achieved thus far and then perhaps the split between 2026 and 2027 of achieving that 100 million? D. Bryan Jordan: Yeah. We have been talking about it since roughly the middle of the year, and we talked about it in the context of 100 million plus. And we said the last couple of quarters that we continue to make progress. And we look at the opportunities across the business. It is clear to us that there are opportunities for greater penetration of treasury and wealth that I mentioned earlier in the call, greater opportunities for ensuring that we introduce broader relationships. So there are a huge number of opportunities. It will build over '26 and '27. So if you look at it mathematically, there's going to be more in '27 than there will be in '26. But we think we made significant progress in '25. I mentioned the improvement in market investor CRE lending and spreads there. By connecting our professional CRE business with the structure and pricing that we're doing in market investor CRE. And things like that build over time. So I'd expect you'll see some in 2026. You'll also see some in 2027. I would tell you as it relates to 2026, we have it built into the outlook that Hope has laid out to you. So it is embedded in that outlook. Hope Dmuchowski: I'll add to what Bryan said. And, you know, repeat. You know, our goal is sustainable momentum, and you're going to see that build quarter after quarter. You're not all going to suddenly see a spike. And so as you continue to see our earnings momentum, you continue to see our revenue growth really in line or outpacing our loan growth, you can attribute that to continuing to deepen these relationships. But it will build quarter after quarter, and as Bryan said, build '27 or build on '26. David Chiaverini: Very helpful. Thank you. Lucy: The next question comes from Peter Winter of D.A. Davidson. Your line is now open. Please go ahead. Peter Winter: The outlook for expenses flattish for '26, and it does imply expenses will be down quite a bit from the fourth quarter level. Just what are some of the levers for lower expenses versus 4Q? And do you think is a good starting point for the first quarter expense? Hope Dmuchowski: We have elevated expenses in Q4 due to the higher revenue. If you look on the increased commissions quarter over quarter, that is another strong quarter, but also at year-end, there's a series of true-ups that every company does. And so I would look at that run rate and say, what is it consistently going to be in Q1? Marketing and advertising is seasonal. And so it does tend to be slightly down in Q1 and then higher in Q3 and Q4 at times. So I'm not going to give you an exact, but I think when you look at the range and look at a glide path, take out the one-time items that we've commented on in our presentation. We also had a lot of technology projects that completed in the back half of this year, and that is part of what we're using now that run rate starting to come back in line to reinvest in branches and hiring. Peter Winter: Got it. Then if I can ask, I realize it's still early, but are you starting to see any disruption in your markets from the recent M&A deals? Any opportunities to hire bankers or bring in new customers or those conversations starting? D. Bryan Jordan: It is still early, and best I can tell, there's no real work going on right now in terms of systems conversions and things of that nature. But we have seen opportunities to recruit. We're recruiting as we always do across all of our footprint. And so we do believe that over time, we will have an opportunity to continue to bring talented bankers and support folks all across the organization onto the platform. And whether the disruption drives that or otherwise, I think our business model, our focus, our culture has been an advantage and will continue to be so. Peter Winter: Got it. Thank you. Lucy: The next question comes from Michael Rose of Raymond James. Your line is now open. Please go ahead. Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Just two quick ones for you. Just talk to me about the commercial real estate expectations, obviously, down Q on Q, down year over year. You got to have, in theory, a couple more rate cuts. You know, paydown activity, you know, probably still pretty healthy. Do you expect that business to inflect this year? And is that an area of potential growth as we move later into the year? Or do the headwinds from payoffs, paydowns from lower rates just kind of persist through the year? Thomas Hung: Yes. This is Tom Hung here. I think we can reasonably expect to see an inflection in our CRE this year. As Hope alluded to, what we do in CRE does skew a lot towards construction, and hence, we have more of a spring-loaded balance sheet there. Given the lower amount of construction in the last couple of years, that's why we have seen a decline in balances in that business. However, that has started to pick up. You know, I mentioned that pipeline momentum in the C&I business. I should also mention there's good pipeline activity in our CRE business as well. If I look at our CRE pipeline compared to even last quarter, it's up pretty meaningfully. And you mentioned especially with the rate decreases that have been happening, and there's expectations for further rate cuts, that really affects construction starts. And with more construction starts, that's why we're starting to see a very healthy build in our CRE pipeline. The final step I'll point to here is in our prepared opening remarks, one of the things we did mention as well is this quarter, for the first time in about two years, we had a net increase in our total CRE commitments. So I think that's a good early indicator of where we expect CRE balances to go. Michael Rose: Very helpful. Appreciate the color. And then maybe just last one for me. I know you guys have a small credit card book. There's obviously been some interest rate cap discussion out there. Just wanted to see if that might have any impact for you guys. Again, I know it's small. D. Bryan Jordan: Yeah. It is a small book, and if you apply the cap across our outstanding today, it'd be, you know, roughly a million dollars a quarter. So it's insignificant. Michael Rose: Great. I'll step back. Thanks for taking my questions. D. Bryan Jordan: Alright. Thank you. Lucy: The next question comes from Jon Arfstrom of RBC. Your line is now open. Jon Arfstrom: Morning. Good morning. Most of my questions have been asked and answered, but just hope a follow-up on Peter's question on the first quarter. Anything else you would flag in the first quarter in terms of the balance sheet and P&L, just so we can set up the year properly, the slope of the year. Hope Dmuchowski: Tom, that's a really general large question. I think we've hit the highlights. I'm really proud of where Q4 ended up, and it gives us tremendous momentum and excitement with our bankers and our clients going into Q1. I think when you look at mortgage warehouse especially, this tends to be a quarter where we always see our loans decline, and then we kind of dig out of it in January, February, and then March starts to stabilize in that business. We've continued to see strong momentum there in January. I do think that will be an upside for us. We won't have the normal quarter over quarter significant volatility we have. Fee income, it's really too hard on ADR to say where the quarter's going to come in as well as refinance. As you know, rates may be heading down, and that could pick up. John, I think we expect another strong quarter to look similar to this one across the board. On the expense side, we are adding bankers. So see in the deck, we've added over 100 employees, you know, 100 FTEs since midyear. Most of that is in client-facing, client-supporting technology positions that enhance the franchise and our ability to deliver revenue growth. I think, as I've said before, marketing and advertising really fluctuates quarter to quarter. Q1 comes down and then builds back up. If you look at our last two years of Q1 Q4 and Q1 expenses, John, pulling out that one-time commission, I think you're going to see it look very similar to normal seasonality. D. Bryan Jordan: Okay. That's very helpful. Mortgage company was another follow-up I had. So thank you on that. And then, you know, Thomas, Bryan, I don't know. Just one of the other questions is on the provision, and I guess we kind of danced around it before. But you've had two really good quarters. You're talking about positive trends in credit and mid-single-digit growth. But how do you want us to think about the provision from here given the strong numbers over the last couple of quarters? Thomas Hung: Yeah. I would start with, I think, the most important measure of our overall credit performance is really in our net charge-off numbers, and then I'm proud of how consistently strong we've been in that. Provision has a little more noise than it just because of the number of factors that go into it. Most notably, as we're calculating our reserves, obviously, our economic outlook as far as and loan growth can go into that number as well. So if provision is higher in quarters than we've had in the last two quarters, you know, that can certainly actually very much be a positive if it can be driven by the amount of loan growth that we're expecting and the momentum that we're seeing. And so just given kind of the number of factors that go into the provision number, I think, overall, I'm personally more focused on net charge-off as the best reflection of our credit quality. Hope Dmuchowski: John, I made this comment last quarter, I'll reiterate all the time. I do believe with all the facts we know today, we're done in that building phase. We spent two-plus years constantly increasing our provision, increasing our coverage. Not knowing what was, you know, what was going to happen, whether it was the pre-wave. There were just so many uncertainties. There's just as many uncertainties today, but I don't think we'll have to build. I think we're at the right reserve level. So you can really think about it, you know, more normalized as to would we have a release quarter, but it should trend with loan growth, which it has not been the last two years. Jon Arfstrom: Yep. That's what I'm looking for. Thank you very much. I appreciate it. Lucy: Thank you. The next question comes from Chris McGratty from KBW. Your line is now open. Please go ahead. Andrew Leishner: Hey. How's it going? This is Andrew Leishner on for Chris McGratty. Hope Dmuchowski: Hey. Good morning. Andrew Leishner: I know near term, you said you want to stay closer to 10.75% CET1. And you mentioned earlier on Jared's, I believe, longer term you can operate your balance sheet in the 10% to 10.5% CET1 range. But I guess what do you and the board need to see maybe from a market or regulatory perspective to get comfortable dropping down to that range? D. Bryan Jordan: Yeah. So it's really two levers, and the first is most important, and that is just sort of the economic data payout. If you were sitting here in 2025, everybody had concerns about how tariffs were going to impact in the short run. We've now seen nine months of evidence, and through a number of different means, it's had very little or minimal negative impact at this point. And so as those kind of economic factors play out, the outlook for the economy in '26 and '27 factor into our thinking. So as we look at the economy, we get more and more comfortable with the ability to bring those levels down. The second is there is a regulatory backdrop around capital and excess capital. And clearly, we pay attention to where we stack up in terms of peer comparisons. And you've heard some discussion and calls earlier this week that people are generally migrating capital levels down. So the combination of those things, I think, over time, gives us as a board more and more confidence that we can manage our capital levels down. Our approach has been to take it in fairly small steps, take it from a to ten seven five, and then we talk about 10 and a half. Then we talk about 10 and a quarter, and just do it in a way that we can manage through the distributing the excess capital or deploying it in the business. And so I think it's an evolving conversation. We'll do it in a measured and thoughtful way, but it's principally the economic drivers we're looking at. Andrew Leishner: Great. Thank you. And then just another follow-up on the C&I loan growth, and sorry if I missed this earlier. So outside the mortgage warehouse growth, and I know there was another $700 million of seeing, like, C&I growth excluding the mortgage warehouse. Can you just talk about where that source of growth came from? And going forward, how we should think about C&I growth and where it's coming from outside of Words Warehouse? Thanks. Thomas Hung: Yeah. Happy to address that one. C&I was obviously the largest number. But outside of that, across our C&I platform, I think what I'm very encouraged by is it came from actually a very diverse mix across all of our businesses. You know, our regional footprint had very strong productions across all of our regions. In our specialty lines, I guess I'll single out equipment finance as one business that had outside growth relative to some of the other businesses. But I think the most important takeaway here is it was pretty broad-based. And we saw it across most of our businesses and regions. Andrew Leishner: Okay. Great. Thank you. D. Bryan Jordan: Thank you. Lucy: The next question comes from Christopher Marinac of Janney Montgomery Scott. Christopher Marinac: Hey, thanks. Good morning. I wanted to follow-up on the regulatory disclosures last quarter on the NDFI loans. Think about 60% was related to mortgage warehouse. And, obviously, 40% is the rest. And I'm curious if the mortgage warehouse hope grows and gets to the upper end of the growth range this year, does that mean that the lower percentage on other NDFI loans would occur? Or would you still be seeing growth in some of this other business and other lines outside of mortgage? Thomas Hung: Sure. I'm happy to address that. I'll break that up into a few parts. I'll first off with the growth that we've had in mortgage warehouse that actually accounts for a larger percentage. It's more closer to two-thirds of our NDFI exposure is in mortgage warehouse. And from a safety and soundness perspective, I remain very, very confident in the way we have expertly managed that business for a lot of years now, most notably in that business, we take physical possession of the notes. So you can imagine the amount of paper coming in and out of our mortgage warehouse group each and every day. In terms of other NDFI, given the noise that's been in the market, you know, we certainly continue to look at that very closely, but I would point to, once again, the years of experience we have in that sector. Consistently strong performance. And I think there's some differentiation for us as well in terms of, you know, we have a full-time team of field examiners. That's seven full-time staff with nearly twenty years of average experience. And through that team who are on the road probably fifty weeks a year, we do our own field examinations out generally one to three per customer every year. We do supplement that with some third parties as well. And in addition to that, you know, once again, given kind of the recent noise, we have also completed a, recently, a comprehensive review of our non-mortgage warehouse NDFI book. We've segmented all of that into seven different segments, which have very different risk profiles, and we've done deep dive analysis into each of those segments with unique scorecards we developed based on the unique risk of each sector. So we continue to look at it very closely. You know, we and we originate, we continue to originate in those segments as well. You know, we do it in a prudent manner as we always have. And I think the results have been pretty good. Hope Dmuchowski: Following on Tom's comments about mortgage warehouse, I really do want to reiterate what I said. I said it's at November with Tammy Locascio, the head of that business at a conference. We do mortgage warehouse, and it looks exactly like a mortgage loan. We pick the closing attorney. We take physical ownership of the actual loan docket. It sits in the same vault as the mortgages that are on our balance sheet. So for us, when we do NDFI, we have that underlying collateral with us. And we get to sit at the table with the lawyer that we choose at the closing. So there always can be fraud, but we do do it some of our other peers. I want to point to that when you think about NDFI exposure. For us, if we had an issue with a borrower, we can we have the notes. We can sell them into the secondary market and get our money back, which is not traditionally how the NDFI is thought about. D. Bryan Jordan: To your mechanical part of your question, if the NDFI number goes up in the first quarter or quarter beyond, it's likely to be driven by fast growth in the mortgage warehouse lending business than any of the other NDFI lending business. Christopher Marinac: Great. Bryan, Tom, and Hope, thank you for that. That's all color. And, you know, I know the data is now a quarter stale, but it seemed that you had no losses in that business and that the problems in terms of just non-accruals were very small. So I suspect that's still the case today. Thomas Hung: Yeah. That's absolutely the case in our mortgage warehouse book. I mean, I think to be expected in our non-mortgage warehouse NBFI book, you know, there are slightly higher levels of classified assets and NPLs, and there's some charge-off in that business that I wouldn't call any of it a big outlier relative to the overall book. Christopher Marinac: Great. Thank you again for the detail here. D. Bryan Jordan: Thanks, Chris. Lucy: Thank you. The next question comes from Janet Leigh of TD Cowen. Your line is now open. Please go ahead. Janet Leigh: Good morning. Just to clarify on your expense guidance, so the flattish expense guidance, does that still hold if you achieve the higher end of your revenue guide of 3% to 7%? If you achieve 7%, is it still flat? Hope Dmuchowski: Janet, yes. It does. What I'll say is if we achieve the higher end of the range with more countercyclical commission businesses than we had this year, that's what brings it up above the 0%. Janet Leigh: Got it. Thank you. And just a quick follow-up. If I look at your fourth quarter loan growth results, period at 7% annualized, looks like a lot of the narrative around C&I potential mortgage warehouse, and CRE inflection, those all sound positive. And it feels like there's a level of conservatism baked into your mid-single-digit loan growth. Is this a fair assessment, or am I missing anything? Thanks. Hope Dmuchowski: Janet, we are traditionally a very disciplined lender. So if you look back at how First Horizon has lent for the last five or ten years, we tend to be pure average-ish. And so when we think about what we think the outlook is for the market, we're not trying to overperform. We want to make sure that we get great clients that we can work with, that they have the right underwriting standards. They're going, you know, the way we keep our net charge-offs so low through a cycle is through disciplined lending. And so absolutely, we could do more. Bryan's great quote that he always uses is, it's easy to lend money, it's harder to get it back. And so I think, you know, as I sit here today, I don't see an economy that's going to be above mid-single-digit loan growth unless there's some stimulus put in the system. D. Bryan Jordan: There's some mixed things going on in the loan growth percentages. We're not likely to grow our consumer mortgage portfolio at a very rapid rate this year. Just expect that most of what we will originate goes into the secondary market. But to your point, we feel very, very good about the business that you enumerated, and we think we have great opportunities to grow there. Janet Leigh: Thank you. D. Bryan Jordan: Thank you. Lucy: The next question from Anthony Elion of JPMorgan. Your line is now open. Please go ahead. Anthony Elion: Hi, everyone. Hope, on fixed income, I'm curious why ADR and fixed income revenue didn't grow in 4Q. It seems like the tailwinds were all there, including a lower rate outlook, volatility was moderate, and the yield curve remained steep. Hope Dmuchowski: Tiffany, we saw a significant slowdown in that business as it related to the government shutdown. And so we mentioned on our call last quarter that early October was starting out really slow. So it was really kind of a tale of two quarters where the first half of the quarter was pretty low ADRs and the back half came up. So it averaged to a good number, but there was a lot of volatility and really low ADR during the government shutdown. D. Bryan Jordan: Then the last half of December tends to be very slow as well. Anthony Elion: Thank you. And then one more on expenses. So could you put a finer point on the degree to which any incremental commissions from the fixed income business could impact the expense outlook? I only ask because I remember last year, your expense outlook quarter after quarter included increases in commissions. Helped give us more visibility into where total expense could come in for the year. Thank you. Hope Dmuchowski: As we think about the countercyclical, the rule of thumb is to assume 60% commission as revenue increases year over year. D. Bryan Jordan: I'll look at the commission-based nature of expense growth in 2026. If we get commission-based expense growth in 2026, it will be a high-class problem. That is profitable business for us. It is broadening and deepening relationships. And so while we don't anticipate that that's going to drive the expense number, if we get that and we end up with higher than flattish or flat expenses, that will be a high-class problem in my view. Anthony Elion: Thank you. D. Bryan Jordan: Thank you. Lucy: Our final question today comes from Timur Braziler from Wells Fargo. Your line is now open. Please go ahead. Timur Braziler: Good morning. Bryan, I just want to make sure I heard your last statement correctly. So is it implying the flattish expenses imply flattish countercyclical revenues in '26? To the extent that you get growth there, then you'll get growth in the expense base? D. Bryan Jordan: Well, back to my earlier point about all models are wrong. Some are useful. We have to make assumptions about what our countercyclical business is and our commission-oriented business is. So that includes our wealth management business. That includes our fixed income business. That includes incentives we play around, mortgage warehouse lending. So we've got a series of assumptions in there. I wouldn't overread that we don't expect that that balance will change, but we have incentive programs in our straight C&I lending and our commercial real estate lending. And as we look at the course of the year, we think all of it balances out given our expectations of where revenue is likely to come from. It'll largely be in a flattish area. Timur Braziler: Got it. And then just following up on the loans to mortgage companies, just wondering what portion of the growth is coming from new client acquisition, if any? Or has that ramp that you've been focused on over the course of the past year or so, has that largely concluded, and that business is now more or less stable, or is there still some level of benefit coming from new client acquisition there? Thomas Hung: Yeah. I'm happy to address that one. I don't have the exact split with me, but I can say that we continue to pick up new customers at a pretty good clip. As you may recall, there was some disruption to that industry earlier this year and also last year in terms of a few major players either exiting the space by decision or being acquired. And as a result, they became a good number of strong customers that were potentially looking for new homes. And so our team has done a great job through the execution and expertise we have in the space of picking up new clients, but we certainly also upsized with existing clients as mortgage volumes are picked up. And so the increase you're seeing is really a combination of a mix of the two. D. Bryan Jordan: And we get a larger share of originations as a result of all of that as well. Timur Braziler: Great. Thank you. Thomas Hung: Thank you. Lucy: We have no further questions at this time. So I'd like to hand back to Bryan for closing remarks. D. Bryan Jordan: Thank you, Lucy. Thank you all for joining us this morning. We appreciate your time and your interest. Please feel free to reach out if you have further questions or if there's anything that we can do to help fill in the blanks. Hope you all have a great day. Lucy: This concludes today's call. Thank you all for joining. You may now disconnect your line.
Scott Callon: Thank you, everybody, for waiting. I'm Scott Callon, Chairman of Ichigo. I am joined today by Dan Morisaku, who is a senior member of our Finance team and the Head of Global IR. Thank you so much, everybody, for joining us today. We're working off of the presentation in front of you, which is also on our website, FY, fiscal year '26 February. So ending next month, the Q3 corporate presentation. So let's go to it. I think the overview is that it's both a strong operating environment, but more importantly, what's happening in real estate in Japan is deeply in line with the core capabilities of our firm. As you know, we are a value-add investor. We, in principle, don't do development. I'll talk a little bit about what we've done in logistics. And as we say internally, when people ask me, can we do development, it's like only if you don't take development risk. So we did -- we've done it with logistics. We specialize in taking existing assets, preserving and improving real estate -- existing assets and improving them. Because of inflation, construction inflation -- and by the way, this model is the right model for not only Japan, but for the rest of the world, but Japan has classically done a lot of destructive redevelopment, which is economically and ecologically wasteful. And so what's happened now is much of that uneconomic development has become even more economic because of rising construction costs. And so -- we just have a massive opportunity, much less competition from redevelopment, much better opportunity to add value for our shareholders. So it's a very powerful operating environment for us. The results of -- kind of show up on a quarterly basis and will be coming at you going forward. But business profit year-to-date up 25%, EPS is up 24%, cash EPS up 19%. We've got growth both in stock earnings, up 9% and flow earnings up 31%. We will hit -- we are forecasting and we will definitively hit record earnings this year, growth in net income, growth in EPS. We think there's upside against the EPS and the ROE numbers in part because of buybacks. We did announce today that we're expanding or doubling our existing buyback to JPY 10 billion. That's both a reflection of the fact that we are enormously cash generative, one and, two, we are very sensitive to being capital efficient for our shareholders and being cash generative means you have the cash to reinvest in your business in any sort of way to drive EPS, you could actually buy assets. You can do non-asset activity. You can also buy back your shares as we're capable of doing all of the above. We're also canceling about 7% of our shares outstanding. And again, that's just a reflection of we're taking in the shares and we're getting rid of them. They will not be coming back into the market. So this EPS growth is structural. We acquired one hotel in the period. It's in Osaka. And again, it's an existing asset that we will improve and 2 logistics assets in Q3. For the second consecutive year, the CDP, which is a major global environmental initiative. We're on the AA list for climate change and water security. There are 22,000 companies globally that are involved with CDP. And the number of companies -- I should look this up, so I don't -- so I'll give you the actual real number. The number of companies that qualify for a AA twice is only 145. So we're literally in the top 1% of companies globally in terms of our environmental initiatives and execution. So there are a lot of pages in this presentation. I will go briefly and hope to hit on key points without spending too much time. And I think -- mostly I already touched on this. So we'll jump to the next one. So going by segment. I think the important thing is, I will go through the segments on the following pages is just to point out, we have a portfolio of businesses united by a core commitment and core competency in taking existing assets and making them better. And that activity and the value creation expresses itself across a number of segments, which can have volatility in them. And so on a total basis, we've got business profit up 25%. That has a hotel business up 103%, Ichigo Owners up 87%, and it has sustainable real estate down 19% and clean energy kind of flattish. And you should expect to have volatility among the segments on a quarterly basis and sometimes on an annual basis, but the core capability expresses across the segments, and we try to be smart about deploying our capability in the areas that are going to be most profitable. So volatility within the segments and robust stability and growth from the diversification and the growth in these individual businesses. On the asset management side, I think the only thing really pointing out is -- worth pointing out here is we had a full year forecast of down 31%. One of the things you should know is that we have stock earnings, which tend to be relatively stable in this business because of stock earnings. We also have primarily performance fees that come off of our listed REITs. We are not the decision makers for those REITs. They have independent boards. They are run for the REIT shareholders. They're run tenaciously for the REIT shareholders. We are not able at the beginning of the year to say, Ichigo office is going to do this and this and this, and so let's price it into -- or let's put it into our forecast because that would be totally wrong. We do not make the decision on that. The REIT makes a decision on it. So what it means is year after year, we show up. And yet, we run the REITs really, really hard, and we do monetize the value that's created. And we do, as Ichigo Inc. 2337, get the performance fees on those monetizations, but we can't put that into our forecast. It would just be wrong. It's not the right governance. It's not the right approach. And so just a reminder to you that every year, we will undoubtedly crush our forecast. Year-to-date, we've already hit the full year number -- we will beat the full year number very substantially. I think the one thing to point out on this -- on the sustainable real estate is one, we pull earnings are down 39% and we do have asset sales moving around from quarter-to-quarter. We expect to do a bunch in the Q4. So we would -- and so we will do well in this segment on a full year basis. And the other thing to point out is that the biggest driver of the increase in stock earnings is up 15% year-to-date is we've done an enormous job in kind of repositioning and growing value at our single biggest asset, which is a massive former headquarters building for [indiscernible] on Tokyo Bay and the NOI returns from that are very, very powerful. And hotels, I think really the only thing to point out is kind of 2 things. One, this is a very productive business. And two, and I'll talk about it a little bit later, there does -- you do get impact sometimes some activity, for example, the current kind of Japanese/Chinese geopolitical tension has pushed down a number of Chinese tourists, coming to Japan is not particularly impactful on us because we don't tend to target that segment. But this is a powerful growth driver for us and one that we also -- all need to understand together, has more potential earnings volatility to it and which is why we're careful in not overgrowing the business, one; and two, making sure we do things such as growing out THE KNOT series, which is our boutique -- Ichigo's own branded boutique hotel, which is an enormous, enormously powerful offer that has very high returns on capital. Ichigo Owners, up very large year-to-date. I don't think we're going to -- this also increasingly -- it started as a business 9 years ago that targeted kind of single asset sales, primarily targeted to cash-rich incorporations and individuals at this point has become a much more bigger lot business where instead of selling asset for $5 million, you're selling kind of 25 assets together for $150 million. And so it has more kind of activity moving around depending on what quarter we do the asset sale on this one, but it's a business that continues to grow well. Clean Energy, power production up a little bit year-on-year, some increase in operating costs, so basically flat year-on-year. I've already kind of touched on -- we're going to expect record returns. So we'll go forward. Page 17, as you know, we are very, very focused on being structurally profitable, and we deliver that for you. We're a company with now a 25-year operating history. We went through the financial crisis. We went through COVID. It's really, really important for us to be able to allow our shareholders know that we are, as I say, structurally profitable. We have a massive amount of stock earnings, which are overwhelmingly higher than our fixed expenses, and that's how we continue to deliver that for all of you. On the right-hand side, it shows how stock earnings and flow earnings break out. As you can see, I think the most important takeaway here is that Ichigo Owners is primarily a flow business and the other ones kind of tend to be more balanced. We think it's important to have ongoing disclosure. So on a quarter-to-quarter basis, we're not something that kind of like, oh, this is going well, so we put it in and now we're going to take it out. So I mean, this is kind of ongoing disclosure. I won't go into detail. Page 18, Page 19, Page 20, which shows we are long-term borrowers; Page 21, which shows what's happening with our borrowing activity. We have -- it's in the footnote, but we have 61% of our borrowing cost fixed through hedges. That's been helpful given the increase in interest rates. And I would point out that a difference between 1% and 1.43%, which is what the average interest rate is, has gone up over the last 2 years. It seems big, but guys, it's only 43 basis points. It really is not material. It's far more material as to how we're deploying the capital and it's far more material, and I've made this point before, that we now -- and as I talked about how the operating environment is so in tune with what we're doing, our construction cost inflation, and we are along that as a firm, meaning kind of as construction costs go up, when you're a classic developer model, you can't make the pricing work anymore. You can't put up assets without kind of increasing rents, literally 30%, 40%, 50%. So we are very CapEx-light, very capital efficient, very light construction and therefore, very long construction inflation because it damages our competitors in a way it doesn't impact us. So the fact of the matter is that because generalized inflation has gone up, we're seeing a rise in interest rates, which is an incredibly minor negative for us, but more fundamentally, there's been an increase in construction costs, which is running 2 to 3x the generalized inflation rate, which is incredibly important for our business and the social contribution we make because we want to have good assets in Japan at the lowest possible price, and that's the core deliverable and capability of the firm. Just to turn to kind of what buy-sell activity looks like. I think the broad information is probably most readily seen on the table on the bottom. We've been slight net sellers of retail. We bought some logistics assets, we'll talk about it in some detail. We picked up some hotels, which, again, this is part of -- these are going to go into primarily Ichigo brands. We have a high-end boutique brand called THE KNOT. We have also a kind of a value for money brand called OneFive. Both have been powerfully successful. So increasingly, we're going with our own brands. Again, that's a way to deliver higher returns without using capital. And year-to-date, we've been net sellers for Ichigo Owners, which is brand-new prime, primarily Tokyo Prime Residential. That's how it breaks out. We'll go to the next page. So you don't have to listen to me endlessly. So we have -- we brought online 3 new logistics centers. These were all development projects. And so to go back to the point that I said earlier, our rule is if you kind of do development, you can't take development risks. So this was build-to-suit with a buyer signing the master lease with us on the day that we've decided to buy -- that we agreed to buy the asset. So to be clear, we are not in the business of taking development risk. So these are all assets that have come in line. And we know the cost upfront. We knew the economics going forward and it's an opportunity for us to do something in an interesting sector. As you know, e-commerce continues to grow everywhere in the world. It's growing in Japan, which has lower penetration both -- this is both kind of classic warehouse and cold storage, both of which are growing well. So these are assets that are very valuable. And over time, what happens is since we agreed on them and began construction previous to the current construction inflation, we've got them at prices that are low relative to current market pricing and what's happening with construction inflation Is getting worse rather than better. So we expect that we would generate even higher returns going forward. I talked about a little bit of hotels earlier. You can see that our RevPAR, so revenue per available room is up 18% year-on-year. A little bit of a slowdown in November, December, and January because we do have some amount -- small amount of Chinese inbound exposure, but not particularly material. For the most part, the result of the slowdown there is that we're having a substitution effect of non-Chinese travelers. It means that we thought RevPAR is going to go up more, and it's not, but really not any material impact on us. Owners, again, this is kind of just an update of the classic material we provide. We are actually really, really good at this point. We have been doing residential for 9 years now. This is, if you can call it, kind of a fabulous model. We don't do the construction ourselves. We design with the developers, the kind of prime real estate, prime residential -- and this is multifamily residential that we want. They build it to our spec. They take all the risk on the construction. We then lease it up using our own leasing capabilities and that's an extraordinary kind of rich and advantaged kind of understanding of the market and we deliver just super powerful economics to our shareholders. Average hold is less than a year and the IRRs are kind of -- and ROEs are uncountably high, which is a nice thing. And so -- I'm sorry, go ahead. We'll go to the next slide. And so we -- it's an interesting question on this forecast, though. One of the things, that's a good thing, is we have pricing power. And so we've expanded the number of channels that we have. And it's a very strong market with, as I said, very high demand for our product, which is you take existing real estate and you improve it. And so we don't know if we're going to hit the forecast on Owners this year in part because we're trying to figure out -- I mean, it's -- we have buyers and it's like is it going to -- are we going to complete in the fourth quarter? Are we going to complete in the first quarter of next year? So we'll see what happens with that. As a broad statement, we know we're going to hit this year's numbers and beat them. So we'll see -- if we end up doing this in the fourth quarter, we'll beat them by more. If we ended up doing in the first quarter, we just have a running start to next year. It's one of the things that it's important to us and as our shareholders and investors, I think it should be important to you. We do not -- we're not in the business, and I've seen a lot of Japanese companies. We have this thing as like we need to hit the numbers for the fourth quarter. And therefore, this is not the best pricing, but we're going to have to sell. We do not do that. We make sure we have 6 ways to get to the yes, and we'll choose which one is the most optimal. So in the case of Owners, we have transactions that occur. We don't know if they close in the fourth quarter. We don't know if they close in the first quarter. We have absolutely no rush to close in the fourth quarter if there are better economics available in the first quarter next year. So we'll see what happens. We launched a private residential fund. As you know, we acquired a asset management company last year and is focusing on private funds to again, to grow. This is in part growing our sales channels and our capability to exploit sales channels. There's a market for private funds that we wanted to do more in. That's the good news. We did not, however, do a new security token launch this year. And so that's kind of worth thinking about kind of the positives and the negatives. To start with the positive, it's because we didn't need to. We had other places to sell our product. And so we chose to sell via different channels. The negative, though, and maybe we shouldn't call it negative, it's kind of an area that we should think about what we want to do about it. It's in part because we -- at this point, we're putting -- every time we do a security token, we sell that out instantly. So there's huge investor demand. But we are placing these via Japanese securities firms. And so what's happened over the last year was, we had kind of a bunch of stuff happening in the world and the securities firms are very capital market sensitive. And they're like, well, we think we want kind of -- we want lower pricing on this. And it's like, no. We can sell these assets, these improved digital assets to like 5,000 other buyers. So we're not going to give you at lower price. So what do you want to do? It's like, oh, okay, well, I guess we still want to do it. But let's look at kind of the market environment. It feels little risky right now. Can we do this in 3 months? Can we do it in 6 months. So we're constantly generating new products. So yes, we can do those things. But does raise the question as whether or not we should have our own -- put it on the blockchain directly ourselves. And so -- this is a very robust product. It's an extraordinary powerful offer. We are -- and I've said this before, so forgive me for repeating myself. This is effectively the REIT product being put on the blockchain because REITs are the same sort of thing, private REIT, a public REIT, we run assets really, really hard for the shareholders. In this case, we're running assets really, really hard and securitizing them on the blockchain. But it is a different sales channel and has kind of SKUs as a whole bunch of new buyers in it. They tend to [indiscernible] younger and kind of our REIT buyers tend to [indiscernible] older. So we like the category quite a bit and have ambitions to do more here. And so we haven't delivered against those ambitions this year. So we have to be thoughtful about do we kind of run forward and are we going to -- are we going to get this done with the securities firms as our brokers are doing is there something more substantial sales. So stay tuned. We'll work on that. And this is growth and diverse -- growth drivers -- actually, the growth didn't happen this year because we're expecting to do stuff more in the security token space. We didn't. We had some stuff come to expiry. I pointed out last quarter that we actually offered -- ended up delivering double the return, which we had marketed to our investors in our first security token. So that was a fabulous success. As I tell you, our offer sells out instantly. And so we really do like the blockchain opportunity. We want to do more there. And that's why I say we're going to think about how we will achieve that. In terms of the Clean Energy business, we're shifting our attention, and we've talked about this before, to battery storage. We think it's a really interesting opportunity. We've got some things that were going on there. There is a need which Japan has a very substantial clean energy -- growth in the Clean Energy mix and volatility around that from -- primarily from solar to do something with batteries because battery pricing has come down so much. It is now at this point, economic for us to do things in the space, and we expect to grow that business. We are buying back our shares. We think they are -- we're currently trading at about 11x earnings and that's accounting earnings. And as you know, our cash earnings are substantially above that, 30% above that. So we're trading sub-10 PE with a business that is really powerful with an operating environment that I've told you, there's been a structural change and appear structural and we'll -- because it's showing durability at this point. With the continuing decline of construction labor force, that's what points to the structural nature of cost inflation in construction, which is a very, very strong driver for our business because it damages kind of the classic Japanese development model, which is a primary amount of real estate construction in Japan. So it's really, really good for us. It is an opportunity for us to massively grow our market share. Anyway, we don't think that's being reflected in the current share price, and so we're buying with a bucket. So we doubled our buyback. We're canceling shares, as I said earlier, because it's not coming back in the market. This is a permanent growth in EPS. We grew our dividend. You can expect us to continue to grow our dividend going forward. We still have a J.League shareholder program, which a number of first [indiscernible], and we're just going to keep on running forward. I talked about our activity on the environmental side, and it's important. Look, climate change is real. Companies like ourselves should be responsive to it -- to do something about it, and we are. That shows up most obviously in our activity around renewable energy. So we've completed a renewable energy transition, 100% of the energy we use is now renewable. We actually have CO2 reduction through our production activities that is 8x greater than our CO2 emissions, and this is probably the best measure of us as a climate positive company. And the final thing worth pointing out is that we bought, as an experiment, we don't play with our shareholders' money. We actually expect to do something powerful here. We bought a J3 club 2 years ago. We have been promoted in just 2 years to J2. That is an extraordinary positive and powerful outcome. As you know, it generates more -- I mean, this will not be a major driver of our profitability, but it has some significant branding value. And we're trying to do more. As you know, Miyazaki, which is southern most prefecture in Honshu on the main island in Japan. We have a significant amount of business activity there. We think there are some -- there are major branding, community level branding opportunities that are powerful that will drive more economics for us. We're seeing if we can take this -- we're not quite Red Bull at this point, but taking this to be a national brand as a very community-oriented soccer club that is known as an Ichigo club. So we'll do more there. But bottom line is, you can run a soccer club, you should win, and we're doing quite well. So we go to the J2, we'll see -- we have our own dreams, welcome to [indiscernible], if we can get something -- get to J1, but that's what we're aspiring to. So that's what I have. Thank you very much for your patient listening, and I'm happy to take any questions and comments. Scott Callon: We have a question from Greg. Thank you very much. Gregoire Brillaud: Can you hear me? Scott Callon: Yes. Gregoire Brillaud: I have a couple of questions. One is you briefly highlighted the hotel situation with regard to China. Can you maybe go a little bit more granular in terms of if you are seeing more of a deterioration vis-a-vis kind of end of November or early December perhaps? Or do you feel that on the ground, the situation is fairly stable as we head into Chinese New Year in the middle of February would be my first question. And the second question would be indirectly related to the cancellation of treasury shares. I guess this means that in terms of potential domestic M&A opportunity. Maybe there is not something that is immediately palatable to the firm. But at the same token, as you know, with the rising cost and cost of sourcing assets, scale is becoming more and more and more important. As we've seen with the example of ITOCHU, slightly different business model, but obviously, ITOCHU tying up with [indiscernible] residential to help them kind of develop some sites along railway station, et cetera, for resi. As you highlighted, Scott, given that you guys have been a good -- you've built a good brand and you have a fabulous business model. Is there a way to kind of scale more with a partnership with another firm that perhaps has some assets, but not necessarily -- doesn't necessarily have the know-how or the marketing know-how so that Ichigo can kind of go into its -- the next scale of its development, so to speak. Scott Callon: Thank you, Greg. So 2 questions. The one on the Chinese tourism, we kind of -- it fell off immediately after the kind of the tension emerged between China and Japan on Prime Minister Takaichi's comments about Taiwan. It has -- it fell off and it stayed where it is. So there's no deterioration, but also no improvement. So we would expect Chinese New Year to be down relative to last year. We don't -- it's basically not particularly material for us. It is not a significant part of our inbound business. So -- but to answer your question, there's -- it's stable, not deteriorating. In terms of the treasury share cancellation, I think the message there is -- I mean, you mentioned M&A. we do not expect -- if we buy something, and look, we are -- one has to be very, very careful about M&A and the post-merger integration issues and overpaying and all sort of things. So I would express us being much more interested in driving growth organically than through acquisitions. But if we ever to buy something, we're not going to use our shares when they're cheap. And it's probably worth pointing out that our ability to borrow well. Now base rates have gone up, but our ability to borrow well is the best it's ever been. We have all the major mega banks coming to us and wanting to support more activity on our part. It is a very -- we've a very strong credit. We deliver on what we need to do. We've been around now for 25 years. And so if we were to do anything, we can use cash. We can -- we can use debt, but we certainly want to use shares. Your idea about combining in some sort of way, I mean, in order to work with an asset-rich Japanese company where we could deploy our real estate expertise is a great one. And so, yes, that is something that is an ongoing conversation we have internally and with potential partners on that. So I mean, if we could do something along those lines, we would because there's no question we have a set of capabilities that are just far more relevant than even 3 years ago because of construction cost inflation. So companies who had classically like, okay, we have an old set of buildings. We're going to go find a general contractor and kind of have them do this for us. That doesn't work anymore. So the desire to work with Ichigo among kind of asset-rich companies has gone up and our desire to take advantage of our set of capabilities. And I think this is what you're pointing to is, it's not only that there is an economic return opportunity and a social contribution opportunity, if we partner with somebody big and powerful, there's going to be likely a significant reputation brand and probably multiple expansion and possibly even more credit support, although as I just pointed out, we just -- we're able to borrow really, really well at this point that would be powerful. So like that idea a lot. And it's something that you need to find a partner and you need to make sure you're aligned with the partner and all the sort of thing. So one has to be cautious about whether or not we can deliver on that, but it's something if we could deliver on, we certainly would like to. Did I -- Greg, did I get your 2 questions? Gregoire Brillaud: Yes, yes. Scott Callon: We will bring it to a close, if there are no more questions. Okay. Thank you very much. We are done. Thank you, everybody. It's truly an honor and a privilege to work for all of you. Have a great morning, afternoon and evening. Take care.
Scott Callon: Thank you, everybody, for waiting. I'm Scott Callon, Chairman of Ichigo. I am joined today by Dan Morisaku, who is a senior member of our Finance team and the Head of Global IR. Thank you so much, everybody, for joining us today. We're working off of the presentation in front of you, which is also on our website, FY, fiscal year '26 February. So ending next month, the Q3 corporate presentation. So let's go to it. I think the overview is that it's both a strong operating environment, but more importantly, what's happening in real estate in Japan is deeply in line with the core capabilities of our firm. As you know, we are a value-add investor. We, in principle, don't do development. I'll talk a little bit about what we've done in logistics. And as we say internally, when people ask me, can we do development, it's like only if you don't take development risk. So we did -- we've done it with logistics. We specialize in taking existing assets, preserving and improving real estate -- existing assets and improving them. Because of inflation, construction inflation -- and by the way, this model is the right model for not only Japan, but for the rest of the world, but Japan has classically done a lot of destructive redevelopment, which is economically and ecologically wasteful. And so what's happened now is much of that uneconomic development has become even more economic because of rising construction costs. And so -- we just have a massive opportunity, much less competition from redevelopment, much better opportunity to add value for our shareholders. So it's a very powerful operating environment for us. The results of -- kind of show up on a quarterly basis and will be coming at you going forward. But business profit year-to-date up 25%, EPS is up 24%, cash EPS up 19%. We've got growth both in stock earnings, up 9% and flow earnings up 31%. We will hit -- we are forecasting and we will definitively hit record earnings this year, growth in net income, growth in EPS. We think there's upside against the EPS and the ROE numbers in part because of buybacks. We did announce today that we're expanding or doubling our existing buyback to JPY 10 billion. That's both a reflection of the fact that we are enormously cash generative, one and, two, we are very sensitive to being capital efficient for our shareholders and being cash generative means you have the cash to reinvest in your business in any sort of way to drive EPS, you could actually buy assets. You can do non-asset activity. You can also buy back your shares as we're capable of doing all of the above. We're also canceling about 7% of our shares outstanding. And again, that's just a reflection of we're taking in the shares and we're getting rid of them. They will not be coming back into the market. So this EPS growth is structural. We acquired one hotel in the period. It's in Osaka. And again, it's an existing asset that we will improve and 2 logistics assets in Q3. For the second consecutive year, the CDP, which is a major global environmental initiative. We're on the AA list for climate change and water security. There are 22,000 companies globally that are involved with CDP. And the number of companies -- I should look this up, so I don't -- so I'll give you the actual real number. The number of companies that qualify for a AA twice is only 145. So we're literally in the top 1% of companies globally in terms of our environmental initiatives and execution. So there are a lot of pages in this presentation. I will go briefly and hope to hit on key points without spending too much time. And I think -- mostly I already touched on this. So we'll jump to the next one. So going by segment. I think the important thing is, I will go through the segments on the following pages is just to point out, we have a portfolio of businesses united by a core commitment and core competency in taking existing assets and making them better. And that activity and the value creation expresses itself across a number of segments, which can have volatility in them. And so on a total basis, we've got business profit up 25%. That has a hotel business up 103%, Ichigo Owners up 87%, and it has sustainable real estate down 19% and clean energy kind of flattish. And you should expect to have volatility among the segments on a quarterly basis and sometimes on an annual basis, but the core capability expresses across the segments, and we try to be smart about deploying our capability in the areas that are going to be most profitable. So volatility within the segments and robust stability and growth from the diversification and the growth in these individual businesses. On the asset management side, I think the only thing really pointing out is -- worth pointing out here is we had a full year forecast of down 31%. One of the things you should know is that we have stock earnings, which tend to be relatively stable in this business because of stock earnings. We also have primarily performance fees that come off of our listed REITs. We are not the decision makers for those REITs. They have independent boards. They are run for the REIT shareholders. They're run tenaciously for the REIT shareholders. We are not able at the beginning of the year to say, Ichigo office is going to do this and this and this, and so let's price it into -- or let's put it into our forecast because that would be totally wrong. We do not make the decision on that. The REIT makes a decision on it. So what it means is year after year, we show up. And yet, we run the REITs really, really hard, and we do monetize the value that's created. And we do, as Ichigo Inc. 2337, get the performance fees on those monetizations, but we can't put that into our forecast. It would just be wrong. It's not the right governance. It's not the right approach. And so just a reminder to you that every year, we will undoubtedly crush our forecast. Year-to-date, we've already hit the full year number -- we will beat the full year number very substantially. I think the one thing to point out on this -- on the sustainable real estate is one, we pull earnings are down 39% and we do have asset sales moving around from quarter-to-quarter. We expect to do a bunch in the Q4. So we would -- and so we will do well in this segment on a full year basis. And the other thing to point out is that the biggest driver of the increase in stock earnings is up 15% year-to-date is we've done an enormous job in kind of repositioning and growing value at our single biggest asset, which is a massive former headquarters building for [indiscernible] on Tokyo Bay and the NOI returns from that are very, very powerful. And hotels, I think really the only thing to point out is kind of 2 things. One, this is a very productive business. And two, and I'll talk about it a little bit later, there does -- you do get impact sometimes some activity, for example, the current kind of Japanese/Chinese geopolitical tension has pushed down a number of Chinese tourists, coming to Japan is not particularly impactful on us because we don't tend to target that segment. But this is a powerful growth driver for us and one that we also -- all need to understand together, has more potential earnings volatility to it and which is why we're careful in not overgrowing the business, one; and two, making sure we do things such as growing out THE KNOT series, which is our boutique -- Ichigo's own branded boutique hotel, which is an enormous, enormously powerful offer that has very high returns on capital. Ichigo Owners, up very large year-to-date. I don't think we're going to -- this also increasingly -- it started as a business 9 years ago that targeted kind of single asset sales, primarily targeted to cash-rich incorporations and individuals at this point has become a much more bigger lot business where instead of selling asset for $5 million, you're selling kind of 25 assets together for $150 million. And so it has more kind of activity moving around depending on what quarter we do the asset sale on this one, but it's a business that continues to grow well. Clean Energy, power production up a little bit year-on-year, some increase in operating costs, so basically flat year-on-year. I've already kind of touched on -- we're going to expect record returns. So we'll go forward. Page 17, as you know, we are very, very focused on being structurally profitable, and we deliver that for you. We're a company with now a 25-year operating history. We went through the financial crisis. We went through COVID. It's really, really important for us to be able to allow our shareholders know that we are, as I say, structurally profitable. We have a massive amount of stock earnings, which are overwhelmingly higher than our fixed expenses, and that's how we continue to deliver that for all of you. On the right-hand side, it shows how stock earnings and flow earnings break out. As you can see, I think the most important takeaway here is that Ichigo Owners is primarily a flow business and the other ones kind of tend to be more balanced. We think it's important to have ongoing disclosure. So on a quarter-to-quarter basis, we're not something that kind of like, oh, this is going well, so we put it in and now we're going to take it out. So I mean, this is kind of ongoing disclosure. I won't go into detail. Page 18, Page 19, Page 20, which shows we are long-term borrowers; Page 21, which shows what's happening with our borrowing activity. We have -- it's in the footnote, but we have 61% of our borrowing cost fixed through hedges. That's been helpful given the increase in interest rates. And I would point out that a difference between 1% and 1.43%, which is what the average interest rate is, has gone up over the last 2 years. It seems big, but guys, it's only 43 basis points. It really is not material. It's far more material as to how we're deploying the capital and it's far more material, and I've made this point before, that we now -- and as I talked about how the operating environment is so in tune with what we're doing, our construction cost inflation, and we are along that as a firm, meaning kind of as construction costs go up, when you're a classic developer model, you can't make the pricing work anymore. You can't put up assets without kind of increasing rents, literally 30%, 40%, 50%. So we are very CapEx-light, very capital efficient, very light construction and therefore, very long construction inflation because it damages our competitors in a way it doesn't impact us. So the fact of the matter is that because generalized inflation has gone up, we're seeing a rise in interest rates, which is an incredibly minor negative for us, but more fundamentally, there's been an increase in construction costs, which is running 2 to 3x the generalized inflation rate, which is incredibly important for our business and the social contribution we make because we want to have good assets in Japan at the lowest possible price, and that's the core deliverable and capability of the firm. Just to turn to kind of what buy-sell activity looks like. I think the broad information is probably most readily seen on the table on the bottom. We've been slight net sellers of retail. We bought some logistics assets, we'll talk about it in some detail. We picked up some hotels, which, again, this is part of -- these are going to go into primarily Ichigo brands. We have a high-end boutique brand called THE KNOT. We have also a kind of a value for money brand called OneFive. Both have been powerfully successful. So increasingly, we're going with our own brands. Again, that's a way to deliver higher returns without using capital. And year-to-date, we've been net sellers for Ichigo Owners, which is brand-new prime, primarily Tokyo Prime Residential. That's how it breaks out. We'll go to the next page. So you don't have to listen to me endlessly. So we have -- we brought online 3 new logistics centers. These were all development projects. And so to go back to the point that I said earlier, our rule is if you kind of do development, you can't take development risks. So this was build-to-suit with a buyer signing the master lease with us on the day that we've decided to buy -- that we agreed to buy the asset. So to be clear, we are not in the business of taking development risk. So these are all assets that have come in line. And we know the cost upfront. We knew the economics going forward and it's an opportunity for us to do something in an interesting sector. As you know, e-commerce continues to grow everywhere in the world. It's growing in Japan, which has lower penetration both -- this is both kind of classic warehouse and cold storage, both of which are growing well. So these are assets that are very valuable. And over time, what happens is since we agreed on them and began construction previous to the current construction inflation, we've got them at prices that are low relative to current market pricing and what's happening with construction inflation Is getting worse rather than better. So we expect that we would generate even higher returns going forward. I talked about a little bit of hotels earlier. You can see that our RevPAR, so revenue per available room is up 18% year-on-year. A little bit of a slowdown in November, December, and January because we do have some amount -- small amount of Chinese inbound exposure, but not particularly material. For the most part, the result of the slowdown there is that we're having a substitution effect of non-Chinese travelers. It means that we thought RevPAR is going to go up more, and it's not, but really not any material impact on us. Owners, again, this is kind of just an update of the classic material we provide. We are actually really, really good at this point. We have been doing residential for 9 years now. This is, if you can call it, kind of a fabulous model. We don't do the construction ourselves. We design with the developers, the kind of prime real estate, prime residential -- and this is multifamily residential that we want. They build it to our spec. They take all the risk on the construction. We then lease it up using our own leasing capabilities and that's an extraordinary kind of rich and advantaged kind of understanding of the market and we deliver just super powerful economics to our shareholders. Average hold is less than a year and the IRRs are kind of -- and ROEs are uncountably high, which is a nice thing. And so -- I'm sorry, go ahead. We'll go to the next slide. And so we -- it's an interesting question on this forecast, though. One of the things, that's a good thing, is we have pricing power. And so we've expanded the number of channels that we have. And it's a very strong market with, as I said, very high demand for our product, which is you take existing real estate and you improve it. And so we don't know if we're going to hit the forecast on Owners this year in part because we're trying to figure out -- I mean, it's -- we have buyers and it's like is it going to -- are we going to complete in the fourth quarter? Are we going to complete in the first quarter of next year? So we'll see what happens with that. As a broad statement, we know we're going to hit this year's numbers and beat them. So we'll see -- if we end up doing this in the fourth quarter, we'll beat them by more. If we ended up doing in the first quarter, we just have a running start to next year. It's one of the things that it's important to us and as our shareholders and investors, I think it should be important to you. We do not -- we're not in the business, and I've seen a lot of Japanese companies. We have this thing as like we need to hit the numbers for the fourth quarter. And therefore, this is not the best pricing, but we're going to have to sell. We do not do that. We make sure we have 6 ways to get to the yes, and we'll choose which one is the most optimal. So in the case of Owners, we have transactions that occur. We don't know if they close in the fourth quarter. We don't know if they close in the first quarter. We have absolutely no rush to close in the fourth quarter if there are better economics available in the first quarter next year. So we'll see what happens. We launched a private residential fund. As you know, we acquired a asset management company last year and is focusing on private funds to again, to grow. This is in part growing our sales channels and our capability to exploit sales channels. There's a market for private funds that we wanted to do more in. That's the good news. We did not, however, do a new security token launch this year. And so that's kind of worth thinking about kind of the positives and the negatives. To start with the positive, it's because we didn't need to. We had other places to sell our product. And so we chose to sell via different channels. The negative, though, and maybe we shouldn't call it negative, it's kind of an area that we should think about what we want to do about it. It's in part because we -- at this point, we're putting -- every time we do a security token, we sell that out instantly. So there's huge investor demand. But we are placing these via Japanese securities firms. And so what's happened over the last year was, we had kind of a bunch of stuff happening in the world and the securities firms are very capital market sensitive. And they're like, well, we think we want kind of -- we want lower pricing on this. And it's like, no. We can sell these assets, these improved digital assets to like 5,000 other buyers. So we're not going to give you at lower price. So what do you want to do? It's like, oh, okay, well, I guess we still want to do it. But let's look at kind of the market environment. It feels little risky right now. Can we do this in 3 months? Can we do it in 6 months. So we're constantly generating new products. So yes, we can do those things. But does raise the question as whether or not we should have our own -- put it on the blockchain directly ourselves. And so -- this is a very robust product. It's an extraordinary powerful offer. We are -- and I've said this before, so forgive me for repeating myself. This is effectively the REIT product being put on the blockchain because REITs are the same sort of thing, private REIT, a public REIT, we run assets really, really hard for the shareholders. In this case, we're running assets really, really hard and securitizing them on the blockchain. But it is a different sales channel and has kind of SKUs as a whole bunch of new buyers in it. They tend to [indiscernible] younger and kind of our REIT buyers tend to [indiscernible] older. So we like the category quite a bit and have ambitions to do more here. And so we haven't delivered against those ambitions this year. So we have to be thoughtful about do we kind of run forward and are we going to -- are we going to get this done with the securities firms as our brokers are doing is there something more substantial sales. So stay tuned. We'll work on that. And this is growth and diverse -- growth drivers -- actually, the growth didn't happen this year because we're expecting to do stuff more in the security token space. We didn't. We had some stuff come to expiry. I pointed out last quarter that we actually offered -- ended up delivering double the return, which we had marketed to our investors in our first security token. So that was a fabulous success. As I tell you, our offer sells out instantly. And so we really do like the blockchain opportunity. We want to do more there. And that's why I say we're going to think about how we will achieve that. In terms of the Clean Energy business, we're shifting our attention, and we've talked about this before, to battery storage. We think it's a really interesting opportunity. We've got some things that were going on there. There is a need which Japan has a very substantial clean energy -- growth in the Clean Energy mix and volatility around that from -- primarily from solar to do something with batteries because battery pricing has come down so much. It is now at this point, economic for us to do things in the space, and we expect to grow that business. We are buying back our shares. We think they are -- we're currently trading at about 11x earnings and that's accounting earnings. And as you know, our cash earnings are substantially above that, 30% above that. So we're trading sub-10 PE with a business that is really powerful with an operating environment that I've told you, there's been a structural change and appear structural and we'll -- because it's showing durability at this point. With the continuing decline of construction labor force, that's what points to the structural nature of cost inflation in construction, which is a very, very strong driver for our business because it damages kind of the classic Japanese development model, which is a primary amount of real estate construction in Japan. So it's really, really good for us. It is an opportunity for us to massively grow our market share. Anyway, we don't think that's being reflected in the current share price, and so we're buying with a bucket. So we doubled our buyback. We're canceling shares, as I said earlier, because it's not coming back in the market. This is a permanent growth in EPS. We grew our dividend. You can expect us to continue to grow our dividend going forward. We still have a J.League shareholder program, which a number of first [indiscernible], and we're just going to keep on running forward. I talked about our activity on the environmental side, and it's important. Look, climate change is real. Companies like ourselves should be responsive to it -- to do something about it, and we are. That shows up most obviously in our activity around renewable energy. So we've completed a renewable energy transition, 100% of the energy we use is now renewable. We actually have CO2 reduction through our production activities that is 8x greater than our CO2 emissions, and this is probably the best measure of us as a climate positive company. And the final thing worth pointing out is that we bought, as an experiment, we don't play with our shareholders' money. We actually expect to do something powerful here. We bought a J3 club 2 years ago. We have been promoted in just 2 years to J2. That is an extraordinary positive and powerful outcome. As you know, it generates more -- I mean, this will not be a major driver of our profitability, but it has some significant branding value. And we're trying to do more. As you know, Miyazaki, which is southern most prefecture in Honshu on the main island in Japan. We have a significant amount of business activity there. We think there are some -- there are major branding, community level branding opportunities that are powerful that will drive more economics for us. We're seeing if we can take this -- we're not quite Red Bull at this point, but taking this to be a national brand as a very community-oriented soccer club that is known as an Ichigo club. So we'll do more there. But bottom line is, you can run a soccer club, you should win, and we're doing quite well. So we go to the J2, we'll see -- we have our own dreams, welcome to [indiscernible], if we can get something -- get to J1, but that's what we're aspiring to. So that's what I have. Thank you very much for your patient listening, and I'm happy to take any questions and comments. Scott Callon: We have a question from Greg. Thank you very much. Gregoire Brillaud: Can you hear me? Scott Callon: Yes. Gregoire Brillaud: I have a couple of questions. One is you briefly highlighted the hotel situation with regard to China. Can you maybe go a little bit more granular in terms of if you are seeing more of a deterioration vis-a-vis kind of end of November or early December perhaps? Or do you feel that on the ground, the situation is fairly stable as we head into Chinese New Year in the middle of February would be my first question. And the second question would be indirectly related to the cancellation of treasury shares. I guess this means that in terms of potential domestic M&A opportunity. Maybe there is not something that is immediately palatable to the firm. But at the same token, as you know, with the rising cost and cost of sourcing assets, scale is becoming more and more and more important. As we've seen with the example of ITOCHU, slightly different business model, but obviously, ITOCHU tying up with [indiscernible] residential to help them kind of develop some sites along railway station, et cetera, for resi. As you highlighted, Scott, given that you guys have been a good -- you've built a good brand and you have a fabulous business model. Is there a way to kind of scale more with a partnership with another firm that perhaps has some assets, but not necessarily -- doesn't necessarily have the know-how or the marketing know-how so that Ichigo can kind of go into its -- the next scale of its development, so to speak. Scott Callon: Thank you, Greg. So 2 questions. The one on the Chinese tourism, we kind of -- it fell off immediately after the kind of the tension emerged between China and Japan on Prime Minister Takaichi's comments about Taiwan. It has -- it fell off and it stayed where it is. So there's no deterioration, but also no improvement. So we would expect Chinese New Year to be down relative to last year. We don't -- it's basically not particularly material for us. It is not a significant part of our inbound business. So -- but to answer your question, there's -- it's stable, not deteriorating. In terms of the treasury share cancellation, I think the message there is -- I mean, you mentioned M&A. we do not expect -- if we buy something, and look, we are -- one has to be very, very careful about M&A and the post-merger integration issues and overpaying and all sort of things. So I would express us being much more interested in driving growth organically than through acquisitions. But if we ever to buy something, we're not going to use our shares when they're cheap. And it's probably worth pointing out that our ability to borrow well. Now base rates have gone up, but our ability to borrow well is the best it's ever been. We have all the major mega banks coming to us and wanting to support more activity on our part. It is a very -- we've a very strong credit. We deliver on what we need to do. We've been around now for 25 years. And so if we were to do anything, we can use cash. We can -- we can use debt, but we certainly want to use shares. Your idea about combining in some sort of way, I mean, in order to work with an asset-rich Japanese company where we could deploy our real estate expertise is a great one. And so, yes, that is something that is an ongoing conversation we have internally and with potential partners on that. So I mean, if we could do something along those lines, we would because there's no question we have a set of capabilities that are just far more relevant than even 3 years ago because of construction cost inflation. So companies who had classically like, okay, we have an old set of buildings. We're going to go find a general contractor and kind of have them do this for us. That doesn't work anymore. So the desire to work with Ichigo among kind of asset-rich companies has gone up and our desire to take advantage of our set of capabilities. And I think this is what you're pointing to is, it's not only that there is an economic return opportunity and a social contribution opportunity, if we partner with somebody big and powerful, there's going to be likely a significant reputation brand and probably multiple expansion and possibly even more credit support, although as I just pointed out, we just -- we're able to borrow really, really well at this point that would be powerful. So like that idea a lot. And it's something that you need to find a partner and you need to make sure you're aligned with the partner and all the sort of thing. So one has to be cautious about whether or not we can deliver on that, but it's something if we could deliver on, we certainly would like to. Did I -- Greg, did I get your 2 questions? Gregoire Brillaud: Yes, yes. Scott Callon: We will bring it to a close, if there are no more questions. Okay. Thank you very much. We are done. Thank you, everybody. It's truly an honor and a privilege to work for all of you. Have a great morning, afternoon and evening. Take care.
Operator: Good morning, and welcome to United Community Bank's Fourth Quarter 2025 Earnings Call. Hosting our call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; President and Chief Banking Officer, Rich Bradshaw; and Chief Risk Officer, Rob Edwards. United's presentation today includes references to operating earnings, pretax, precredit earnings and other non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release as well as at the end of the investor presentation. Both are included on the website at ucbi.com. Copies of the fourth quarter's earnings release and investor presentation were filed this morning on Form 8-K with the SEC and a replay of this call will be available in the Investor Relations section of the company's website at ucbi.com. Please be aware that during this call, forward-looking statements may be made by representatives of United. Any forward-looking statements should be considered in light of risks and uncertainties described on Pages 5 and 6 of the company's 2024 Form 10-K as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I'll turn the call over to Lynn Harton. Herbert Harton: Good morning, and thank you for joining our call today. The fourth quarter was a solid end to a great year. During the quarter, we had 11% year-over-year revenue growth, led by continued margin expansion and 4.4% annualized loan growth. Nonperforming assets, past dues and substandard loans remained stable at low levels. Our operating earnings per share for the quarter was $0.71, a 13% year-over-year improvement. Our fourth quarter return on assets was 1.22%, and our return on tangible common equity was 13.3%. For the year, our operating earnings per share grew by 18% from $2.30 to $2.71. 2025 saw solid improvements in all of our key performance ratios. Margin was up 23 basis points. Efficiency ratio improved by 264 basis points. Credit losses declined and our return on assets improved by 18 basis points. We topped $1 billion in revenue for the year with 12% year-over-year growth. We put extra focus on our retail and small business lending efforts in both of those lines passed $1 billion in annual production for the first time. Our Navitas equipment finance team also crossed $1 billion in originations for the first time. Executing on our capital plan, we increased our dividend in the third quarter to an annualized rate of $1 per share. We took advantage of the opportunity to repurchase 1 million shares of our stock in the fourth quarter at an average price below $30 per share. During the year, we also redeemed our preferred stock, further increasing our returns to common shareholders. Our return on tangible common equity reached 13.3% for the year, and our tangible book value per share grew by 11% year-over-year. Culture remained a focus during the year as well. As a result, we were recognized for being #1 in retail client satisfaction in the Southeast for the 11th time by J.D. Power. American Banker recognized us for the ninth time as being one of the top banks to work for in the country. And the American Bankers Association awarded us with a Community Commitment Award for our Financial Literacy month program. For Financial Literacy month in 2025, our team led 154 workshops reaching more than 13,400 students. That's just a small example of the tremendous energy the United team personally invest in our communities. 2025 was a great year, but we want to be better. To improve the durability of our earnings and multiple interest rate scenarios, we reduced our securities duration. We upgraded both our talent and our systems that manage interest rate risk and deposit pricing. We continue to invest in growth. 2025 saw the successful conversion of American National Bank in Fort Lauderdale to the United Systems and brand expanding our presence in this dynamic market. We opened a new office in Cary, North Carolina and began work on new offices in South Miami and Winston-Salem, North Carolina. We committed to the expansion of our Florida private banking model to the rest of our footprint. We expanded our product set and treasury management to help us continue to grow our commercial line of business and we added talent and risk management to prepare us for continued success. It's been a great year. Jefferson, why don't you cover our performance in more detail. Jefferson Harralson: Thank you, Lynn, and good morning to everyone. I will start on Page 6 and talk about our deposit results. We experienced a positive seasonality we expected with regard to public funds in the fourth quarter with an increase of $293 million. We were also very pleased that our cost of deposits improved 21 basis points to 1.76% and that our cumulative total deposit beta moved to 40% from 37% as we discussed last quarter. Excluding public funds, our average balances were down slightly for the quarter, but similar to last year, we did see a greater decline in end-of-period balances. This end-of-period decline was partially due to seasonality with customers moving cash in and out during the last 2 weeks of the year. And it was also the result of our strategy where we lowered rates on some of our highest cost single-service customers. For the year, our deposits grew by 1%, and we continue to grow customers and accounts. On Page 7, we turn to the loan portfolio, where our growth continued at a 4.4% annualized pace. Our growth came primarily in the C&I and HELOC categories, which are 2 of our current areas of focus for growth. Turning to Page 8, where we highlight some of the strengths of our balance sheet. We believe that our balance sheet is in good position from a liquidity and capital standpoint to be ready for any economic volatility. We have very limited broker deposits and very limited wholesale borrowings of any time. Our loan-to-deposit ratio remained low but increased for the third quarter in a row and is now at 82%. Our CET1 ratio was relatively flat at 13.4% and remains a source of strength for the bank. On Page 9, we look at capital in more detail. As I mentioned, our CET1 ratio was 13.4% and our TCE increased by 21 basis points to 9.92%. As Lynn mentioned we were active in our buyback in the fourth quarter, buying back 1 million shares at just under $30 per share. Moving on to spread income on Page 10. We grew spread income 7% annualized in the quarter. Our net interest margin increased 4 basis points to 3.62%. Excluding loan accretion, our net interest margin increased by 6 basis points as compared to the third quarter. The driver was mainly a lower cost of funds, but we also benefited from the loan-to-deposit ratio moving to 82% from 80% last quarter. We continue to experience a NIM tailwind from our back book repricing and from the mix change towards loans and away from securities. In 2026, using just maturities, we have about $1.4 billion of assets paying down in the 4.90% range. And because of this continued impact, I would expect the NIM to be up between 2 and 4 basis points in the first quarter. A key will be how we are able to reprice the $1.4 billion of CDs we have maturing in the first quarter at 3.32%. Moving to Page 11. In noninterest income was $40.5 million, down $2.8 million from the elevated result of the last quarter. We had good growth in our wealth business and continued strong growth in our treasury management and customer swaps businesses within the other category, while mortgage softened as expected due to seasonality. Operating expenses on Page 12 were $151.4 million, an increase of $4 million on an operating basis. The main reason for the increase is $1.5 million in higher group health insurance cost. Moving to credit quality on Page 13. Net charge-offs were 34 basis points in the quarter. an increase compared to last quarter. The primary reason for the $9 million increase was charge-offs on 2 C&I loans, of which $5 million was already specifically reserved for. NPAs improved and past dues were flat as credit quality remains strong. I will finish on Page 14 with the allowance for credit losses. Our loan loss provision was $13.7 million in the quarter and included the release of the final $1.9 million of Hurricane Helene special reserve. Net-net, ROL coverage of credit losses moved down slightly to 1.16%. With that, I will pass it back to Lynn. Herbert Harton: Thank you, Jefferson. As we move into 2026, we're optimistic for continued growth and improvement. The economy in our markets remain strong and will support continued growth in our business. Before we turn to questions, I'd like to recognize and congratulate our teams for a great performance this past year. I'm looking forward to another great year with them in '26. And with that, let's open the floor for questions. Operator: [Operator Instructions] The first question today comes from Russell Gunther with Stephens. Russell Elliott Gunther: Starting on the balance sheet, if I could. We got a favorable average earning asset remix this quarter out of securities and into loans. How should we think about the overall balance sheet growth in '26? Should we expect this dynamic to continue? Or just on the investment portfolio front, could that flatten out or grow going forward? Jefferson Harralson: All right. Thanks, Russell. I'll take that one. The -- I would expect our balance sheet growth to be really dependent upon our deposit growth. Generally, we're modeling that it would be a couple of hundred basis points below our loan growth for both deposit growth and the balance sheet growth. So yes, I would expect this continuation towards a higher loan-to-deposit ratio throughout 2026. Russell Elliott Gunther: Okay. Excellent. And then just maybe isolating for the loan growth piece, Jefferson, you guys talked about C&I and HELOC remaining a focus. But if you could just touch on sort of anticipated asset class and geographic loan leaders for the year ahead. And then lastly, just Navitas as well, strong production in '25. How are you thinking about that and as a contributor to the overall loan mix? Richard Bradshaw: Russell, this is Rich. I'll take that one. So first of all, to address the production, this was the largest bank production quarter ever. So we felt great about that, did have some senior care headwinds and a couple of large loans that we chose not to defend. To your point, very pleased that Florida, which had our 2 newest acquisitions led in production for the bank. As you said, C&I grew. We grew that 12%. Owner-occupied CRE did well. Navitas had a strong quarter. As I said earlier, retail crossed the $1 billion mark and had a great quarter. And SBA, even with the government shutdown had the largest quarter in commitments that they've ever had. So we feel very good about that. And we look forward to 2026. We've got a lot of good conversations going on the hiring side throughout the footprint. We continue to focus, as you said, an asset class, we continue to want to do more in C&I and owner-occupied CRE as well as the HELOCs have done well for us as well. Operator: The next question comes from Stephen Scouten with Piper Sandler. Stephen Scouten: Yes. Obviously, really nice opportunistic trade on the share repurchase in the quarter. I'm wondering if there's any kind of mindset change at all around that opportunistic nature of the repurchase moving forward? Or if you could be a little more aggressive given capital looks like it will continue to build pretty aggressively based on the strong earnings. Herbert Harton: Yes. I would say we would intend to be more assertive on buybacks as we look into '26. As you mentioned, capital build is there. Credit quality is great. So no really reason to hold anything there. M&A opportunities are light. We've kind of built the foundations of the footprint that we want. And so we're very satisfied with what we've got. So that really puts buybacks in the crosshairs. And frankly, we think there continue to be at a good value and a good earnback as we sit. So yes, I would expect to see more. Stephen Scouten: That's great. Okay. And then if I'm thinking about -- I think, Jefferson, you had said last quarter, I believe, like in the medium term, felt like you saw some upside to the NIM. And obviously, we saw that this quarter on that remix and it sounds like next quarter as well. Can you -- I don't know if you have any data like this, but give us a feel for as these loans reprice and mature and maybe as the CDs, in particular, renew, like what sort of retention rates you tend to get on those pools of assets and deposits just as we think about the upside potential there? Jefferson Harralson: That's great. So I'll start on the CD side. I mentioned the amount of CDs that were repricing in Q1 at 3.32% maturing. They've been coming on around 3.13%. We've been seeing that trend continues. So we are still seeing more tailwind from the cost of funds or cost of deposits angle. We were at 1.69% at quarter end there. So we are set for some nice improvement if the current trends stay in place in the first quarter. On the loan side, excluding Navitas, we have $6 billion of fixed rate loans at 5.19%. That fixed book was up 9 basis points in Q4, and it's been increasing about 6 to 8 basis points a quarter. In the fourth quarter, we were putting on new fixed rate loans at 6.45%, excluding Navitas. And with the long end of the curve staying relatively high that may be able to stay in that 6.45% range, but we're also seeing spread compression there. But either way, we're putting them on at a much higher rate than 5.19%. So we have this longer-term trend on the asset side. That's a tail end, and we have a shorter-term trend on the liability side that should help our margin too in the near term. Stephen Scouten: Got it. That's helpful. And kind of specifically around those fixed rate loans, like as they reprice, do you -- or mature, I mean, can you give us a feel for how much of that you retain? I mean is it -- I'd assume just given the continued loan growth, it's a pretty high percentage. But just kind of curious if you have a metric there and if there's any change in competitive factors with rate cuts that you think that 6.45% could get pushed lower. I know you spoke to the curve staying where it is, but just curious there. Jefferson Harralson: So I'll go back and answer your question, too, because you had asked me about the retention of the CDs. That's been in the 90% range. We understand that's much generally higher than where the industry is. I don't have the data in front of me on the loan side. I can come back to you on that. I don't know if retention of loans is a number you guys have, but I'll come back with you on -- I don't have that at the table. So we'll come back to you on that one, Stephen. Operator: The next question comes from Michael Rose with Raymond James. Michael Rose: Just wanted to get a sense from you guys. I think Rich mentioned just some of the efforts on the hiring front. Can you just talk about the competitive landscape? We've had some deals in and around your markets closed here recently. It feels like it's more competitive, both on the loan and deposit side. Can you just kind of walk us through that? And I think last quarter, maybe you talked about kind of a 3% to 4% expense growth rate, but I've heard some other banks talk about maybe accelerating that just given some of the hiring opportunities. Can you just kind of walk us through the puts and takes to the hiring and the expense outlook and then just the competitive aspect, as I mentioned earlier. Herbert Harton: Yes. Sure, Michael. This is Lynn. I'll start on the competitive side and then turn it over to Rich for further details. But I mean, look, we're in fantastic markets, as you know. And so it is a very competitive environment, and there's always deals going on. So I don't view the current deals as being anything unusual or change in the competitive dynamic. I just think we're in a great place to be. And so what matters is how our brand plays in the market. And that's why we're really focus on client service. We really focus on J.D. Power. We got an extra focus on Greenwich this year. We won 5 awards last year for commercial service. We'd like to win 10 this year and the employee culture. So we're having opportunities to hire not from the deals that are coming up, but just from people who want to be with a bank that's focused on the community where they feel like they can make a difference and be in this environment with a balance sheet that's big enough to take care of their clients. So competition is going to always be there. We don't overly focus on it. We just focus on what we can do to be the kind of bank that attracts the right people here. And Rich, what would you add to that? Richard Bradshaw: So yes, on the competitive front, I would say that in the last 2 quarters, it probably has gotten a little more competitive. The good news only on interest rate, not on structure. So that feels pretty good. And then along the lines of Lynn's comments on the industry and hiring, what I would say is more than ever, as I've been here almost 12 years, it's never -- culture has never mattered more. It comes up in every discussion. I'm talking with when you're hiring a senior lender. And so that's -- I think that plays in our favor, and that's what we're working towards. Michael Rose: Really helpful. Any commentary on kind of the expense outlook for the year, just maybe given some of those opportunities? Jefferson Harralson: Yes. We don't budget significant hires or lift outs. We're really trying to stick to this 3% and 3.5% growth rate. It's a very difficult environment to maintain that, but that is what we are targeting and what we think we'll get in 2026. Michael Rose: Okay. Great. And then maybe just finally for me. Last quarter, you did talk about maybe some more opportunities here for M&A potential as we move forward. Has any of that changed? We've obviously seen some pretty quick deal approvals here. And it seems like if you want to do a deal, there's -- you can get it done. Can you just talk about the opportunity set? I know over the past year or 2, you've talked about maybe a relative dearth of opportunities. But last quarter, you talked about maybe seeing more banks raising their hands versus the prior couple of quarters. Just would love to, Lynn, just to hear your outlook and view on how the M&A landscape plays out this year? Herbert Harton: Yes, sure, glad to, Michael. So I mean I would start with kind of what's our overall strategy, what has been -- like I said, we like our footprint. We're not looking to expand that. We like smaller deals where we can be more additive and the cultures are better fit. And really, the honest truth is, and we want quality organizations. We're not interested typically in fixers. And so there's literally -- I was counting them up yesterday when we were talking about this call, and there's literally less than 2 handfuls. I mean, less than 10 in our markets that we would be interested in. So we have ongoing conversations with those. Right now, I would say most of them, like I said, they're quality banks, the whole industry, we believe, is set up for great performance in '26. And so most of them are saying, "You know what, I think I'm going to perform in '26, and I'll think about selling it sometime down the road." So it's really, at this point, our focus is more -- much more internal and building it out. And these other -- these 8 companies that we really like, we just kind of wait for the popcorn to pop and grab them that because it is hard to predict. So that's probably why my conversation -- my comments, maybe the last 2 quarters haven't been as consistent as they should have been because it's just really hard to predict. It's just based on those -- that small number of quality companies and what they want to do. Operator: Next question comes from Gary Tenner with D.A. Davidson. Gary Tenner: I just wanted to ask a follow-up on the expense question. I know you mentioned Jefferson targeting 3% to 3.5% growth. Obviously, expenses were a bit higher this quarter, and I think with the kind of the bigger delta between expectations and where you came in. Can you give us some thoughts on the first quarter kind of as a jumping off point from the expense levels you might expect? Jefferson Harralson: Yes. Great. Thanks for the question. Gary, number one, we put in the deck that the main driver was the -- a bit of a catch-up on the group health of $1.5 million. I don't expect that to be at that level next quarter. The other delta there was the impact of what Rich was talking about, the biggest record loan production in our history that moves our incentives up by about $1 million versus last quarter. We also had some assorted year-end things. In some cases, it was a little bit unusual with some small write-ups. And I would say that our run rate of expenses is a little less than we printed in the fourth quarter. That said, Q1 has some seasonality in there, things hitting like the FICA restart at $1.5 million. And if you put all that together, I think that our expenses should be flat in Q1. Gary Tenner: Okay. And then a quick question on credit. Excluding Navitas, your charge-offs were about 26 basis points, highest they've been in a couple of years, really, excluding the manufactured housing loss recognition in 2024. Could you provide any color just on those 2 specific C&I credits charged off during the quarter? I know there was some specific reserve associated with them already, but just curious about any thoughts around those 2 credits, particularly and kind of bank level charge-offs as you're looking into 2026? Robert Edwards: Gary, this is Rob. I'd be glad to share with you about the credits. The first one was a $14 million franchise loan for one of the largest franchisees in a national well-known franchise system. Some of the units were struggling. And while normal resolution would be the sale of the stores, the franchisee and the franchisor could not find an agreeable path forward. So the loss is really greater than what we think should have been appropriate because the stores ended up being closed, but that was a $6 million charge-off we took on a $14 million franchise loan. The second one was a $4 million owner-occupied SBA loan where we had a documentation error in the underwriting and decided to not pursue the guarantee. In the last 12 years, that's really the first time we've originated a credit that we decided to not pursue the guarantee. We have done an after-action review and feel confident in some of the tweaks that we made to the program and confident in the ongoing performance of the SBA portfolio. In terms of looking forward to 2026, when I look back, I think you mentioned sort of taking out the manufactured housing. So if I do that in 2024, the loss rate was 24 basis points. If I look at 2025, the loss rate was 22 basis points for the full year. And I expect 2026 to fall in that 20 to 25 basis point range again. Operator: The next question comes from Catherine Mealor with KBW. Catherine Mealor: One follow-up just on the margin. Jefferson, you mentioned, I think you said $1.4 billion in assets are at 4.90% and so that's going to be repricing this year. Do you have the break between that 1.4 million in securities and loans? Jefferson Harralson: Yes, I can get that for you. I could have a guess now, but let me get that -- let's talk offline and I'll get you the details on that. But it's a little bit of a guess to break that down with the information I have right now. Catherine Mealor: Cool. Okay. I think I was just trying to get a sense as to the upside, maybe in just the bond book repricing that we might see this year. So that's maybe another way to ask it. Jefferson Harralson: So if you ask it like that, I can come back -- I can do it better. So if you look at just the HTM book, it's at $190 million, and I would expect about $150 million of that to cash flow in 2026. And on the AFS portfolio, that is going to be -- I want to come back to you on the repricing of what's coming -- what's maturing out of the AFS. So let's -- I can talk about that one offline too. Catherine Mealor: Okay. Cool. Yes, that's great. And then maybe just another question on fees, just the fee outlook, the back end of the year run rate on fees for third and fourth quarter were higher than the first 2. And so can you just kind of remind us of the seasonality to be aware of as we go into the first quarter of the year? And then maybe just your outlook, particularly for kind of Navitas and SBA fee growth into '26? Jefferson Harralson: All right. So I think about the fee income items, the biggest items would be wealth where we expect nice growth in 2026. Within other, we also have our treasury management, which is growing well. So I think those are the 2 items where you're going to see nice kind of upper single-digit growth. We also have, I think, with the volumes that we're expecting next year, you're going to see strong growth in our customer swap businesses. Service charges aren't really a growth business for us or banks these days. For mortgage, we're pretty optimistic, and I'll pass it over to Rich here. The Mortgage Bankers Association is expecting 6% to 6.5% growth. We're seeing a lot of optimism from our mortgage team. And I'll pass it over to Rich to talk about the seasonality and our outlook for mortgage. Richard Bradshaw: Yes. And I'd just -- I'd echo what Jefferson said on the mortgage side, I feel good about where we're going on that. And with interest rates going down just a little bit, and we've seen a pickup in applications. So we hope that will continue. With regards to SBA, the one thing you didn't discuss pricing remains consistent on that. I do feel that we have some momentum going in SBA just with the large Q4 and some hiring going on there. So I think we'll do the same or better on the SBA fees for 2026? Jefferson Harralson: On the seasonality, you get one more weak seasonal quarter from mortgage before they're stronger second and third quarters and SBA tends to build up throughout the year. Catherine Mealor: Great. And then on Navitas? Jefferson Harralson: Navitas tends to also build up throughout the year. Now they've had a it had good momentum all year, but typically, their seasonality is a little bit weaker first and then stronger throughout the year. Richard Bradshaw: I would say that they had a great Q4, and they're going to have a good Q1, but there is seasonality associated with it. Catherine Mealor: Yes. And then I mean typically, I mean, do you feel like you'll still be portfolioing as much on Navitas? Or just given that your balance sheet growth feels like it's getting things really strong, maybe you sell a little bit more of that? How do you think about the balance between those 2 things? Jefferson Harralson: Yes. So as 2025 unfolded, we ended up selling more and more Navitas loans. I would expect that to continue. They're at 9.5% of our total loans. We want to keep that at 10% or under. They're going at a faster rate. They were 18% annualized growth this quarter before sale. So that translated into us selling more. So I think Navitas selling more loans is the most likely outcome for 2026. Operator: The next question comes from David Bishop with Hovde Group. David Bishop: Just curious, we got some calls inbound lately about catching up in terms of the impact of tariffs on credit quality. Are you starting to see any of that bleed into the borrower financial statements sort of impacting them negatively in terms of debt service coverage, et cetera? Any sort of problems you're seeing starting to emanate around the edges there on credit quality from tariffs? Robert Edwards: Yes. David, this is Rob. Really, the short answer is that we're not seeing any impact from tariffs in terms of asset quality. We continue to have discussions with customers around the impact of tariffs and people seem to be finding a way to work through that, whether it's passing it on, reducing margins. But we're not -- there isn't anything we're looking at in the problem loan workout area or -- and through the annual review process that would indicate that there's something that's pushing back to singly this tariff concern. Jefferson Harralson: The next question, I want to follow up on Catherine's, which was of the $1.4 billion fixed securities. Now this would be an AFS and HTM would be $285 million at [indiscernible]. David Bishop: Got it. I guess 1 follow-up question, Jefferson. I think you noted in the preamble, another, call it, 200 basis point improvement in the efficiency ratio this year. Do you think you can continue to lean on sort of that ratio as you look out and budget through 2026? Can we expect additional efficiency improvements? Jefferson Harralson: Yes. Thanks, David. The -- I do think that we are budgeting for operating leverage improvement in 2026. We see that with our -- on the revenue side, with our expectation for solid loan growth, a little bit of margin expansion in combination with expenses being managed, I think that we should have some efficiency ratio improvement next year -- this year. Operator: The next question comes from Christopher Marinac with Janney Montgomery Scott. Christopher Marinac: I wanted to ask Rob a few points on just charge-offs in general. We saw higher charge-offs in Q4, particularly on the commercial side. Is any of that just related to year-end cleanup? And does the outlook change at all for what you see in the next few quarters? Herbert Harton: Yes. So the outlook really, I would just go back to the previous comment. The outlook for 2026 is stable and consistent with what we saw on the bank side for 2024 and 2025. So not really seeing any change there. We did have higher charge-offs in the fourth quarter and lower charge-offs in the third quarter. I think you got to look at the overall mix as sort of an annual thing versus a quarter-to-quarter thing. We did see nonaccruals come down $4.5 million in the quarter. We were able to exit 2 substandard credits during the quarter that were really we thought problematic, and so we were pleased with that. So overall, we continue to feel good about the shape of the portfolio and performance going forward. Christopher Marinac: That makes sense on looking broader on losses. So I appreciate that. It seems that the back and forth on the criticized ratio is more of a good thing for you than not. That, if you will, volatility is normal. And it doesn't seem like the overall level is changing a whole lot. Is that a correct read to kind of what to expect and just the criticized combat combined on the graphic we see every quarter? Herbert Harton: Yes. Two points you made that I would just agree with. One is the overall levels aren't really changing. And the second point you made was we would prefer special mention to substandard. So yes to both. Christopher Marinac: Okay. And then a last question for Lynn, just on the big picture. I mean, it seems that UCB is really focused on the organic growth and much less on M&A. Does anything out there possibly change that for you? Or is simply the kind of buying business less attractive for you in general? Herbert Harton: Yes, I don't think there's anything that changes that. We are -- it changes the fact that we are focused more on organic now. If you look back in history, to me, the only thing that scale really gets you, it's not technology. We can fund whatever technology we need. In fact, at our size, it's probably easier to implement than it is if you're larger. But what scale does get you is a bigger balance sheet, product set, particularly for your commercial clients and then the ability to attract better talent and better talent throughout the company. So whether it's in risk, whether it's in treasury, whether it's on the lending side. So our focus going back 10 years, was let's build out, let's get the scale needed to be able to compete for these small business, small commercial, middle market clients in our markets. And look, would I like to be bigger? Absolutely, but are we big enough? Absolutely. And combined with that, then is both fewer targets out there and honestly, fewer quality targets. And whereas in the past, we took a couple of fixers on. It's really hard with all the momentum we've got now, the number of technology projects we're able to do without having to worry about integrations and conversions. The bar on what kind of bank I would want to bring into this franchise has honestly gone up. So that, to me, is more of a natural move, as we've built out and executed our strategy than any kind of change in the market or change in anything else. So as I've mentioned earlier, there's a very limited number of high-quality franchises in our current market that we'd be interested in. And as you would expect, those are the ones that are less needful or less interested in selling near term. And so it's more of a long-term calling game. And as they get ready, we'll do our best to be their preferred acquirer. But in the meantime, we've got great momentum and really focused on just executing what's in front of us. Operator: The next question comes from Gary Tenner with D.A. Davidson. Gary Tenner: I just had a quick follow-up. Just as it relates to loan growth, Jefferson, you kind of mentioned expecting solid loan growth in your answer to the question about the efficiency ratio and operating leverage. So you were right at 5% this year, excluding the Florida deal. Does that kind of translate to more -- kind of more of a 5% plus or 5% to 7% number, do you think in 2026? Or would you anchor expectations closer to that 5% mid-single-digit type of number? Richard Bradshaw: Gary, this is Rich. I'll take that one. For Q1, we kind of expect similar result as to Q4, probably because of seasonality, there'll be a little less production, but there'll also be less payoff headwinds. So we figure that's about the same. And then I covered a lot of areas in terms of momentum going into 2026. I think it's still too early to call, but we feel very positive, very optimistic because of all the momentum we have rolling into 2026. Operator: This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks. Herbert Harton: Great. Well, once again, thank you all for joining the call. I appreciate the comments, the conversation. I thought they were great today and look forward to any follow-up you might have, just reach out directly, and we look forward to talking again soon. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome, everyone joining today's Bank of America Earnings Announcement. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Lee McEntire. Please go ahead. Lee McEntire: Thank you, Leo. Good morning. Thank you for joining us to review our fourth quarter results. During the quarter, we elected to change the accounting method related to our tax-related equity investments in order to better align our financial statement presentation with the economic and financial impact of those investments. As a result, we filed an 8-K on January 6 and a related mini supplemental package recasting the numbers for the quarters of 2024 and 2025 and the full year of '23 and '24. The primary impact of the accounting change was a reclassification between the income statement line items in our income statement, which had an insignificant impact on net income. Our discussion today is based on those recast numbers. As usual, our earnings release documents are available on the Investor Relations section of the bankofamerica.com website. Those documents include the earnings presentation that we will make reference to during the call. Brian Moynihan will make some brief comments before turning the call over to Alastair Borthwick, our CFO, to discuss more of the details in the quarter. Let me remind you that we may make forward-looking statements and refer to non-GAAP financial measures during the call. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to materially differ from expectations are detailed in our earnings materials and SEC filings available on our website. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials and are available on our website. With that, Brian, I'll pass it over to you. Brian Moynihan: Thank you, Lee, and good morning, and thank you for joining us. This morning, Bank of America reported net income of $7.6 billion for the fourth quarter. That is up 12% from the fourth quarter of 2024. Our EPS was $0.98 per share. That's an increase of 18% from the fourth quarter of '24. We delivered 7% year-over-year revenue growth. This was led by a 10% improvement in net interest income, up to $15.9 billion on an FTE basis. For net interest income, we have delivered each quarter what we laid out across the year and finished a bit stronger than we expected. We grew average loans 8%. We grew average deposits 3%, we delivered 330 basis points of operating leverage in quarter 4 through continuing disciplined expense management. Alastair Borthwick will take you through the details of the quarter. But first, I want to highlight a few things about 2025 to close the year out. I'm working off of Slide 2 in the earnings presentation. Our fourth quarter topped off a strong performance by my teammates at Bank of America for 2025. We delivered on our commitments to shareholders across the year with solid growth across revenue, earnings and returns. We drove operating leverage and continued robust investments in people, brand, technology in both our physical and digital networks. Those results reflect the power of our diversified business model and our commitment to drive responsible growth. Some highlights of 2025, you can see here, revenue was a little over $113 billion, was up 7% year-over-year. We generated 250 basis points of operating leverage for the year. Asset quality was strong and net charge-offs improved from 2024. We grew net income year-over-year by 13%. In addition, we grew EPS year-over-year to $3.81 or by 19%. We also increased our profitability and returns during the year. Return on tangible common equity improved 128 basis points. Our return on assets improved to 89 basis points. Our results and prudent balance sheet management allowed us to distribute 41% more capital back to shareholders, more than $30 billion. We grew loans 8% and we grew deposits 3%. Loans outpaced the industry and average deposits now have grown for the tenth consecutive quarter. Our focus on all the markets we serve, whether they're domestic or international, has allowed us to grow our client balances at a faster pace than the industry. Dean described how we do this in the U.S. at our Investor Day, and we will cover it later in the program. As you look to Slide 3, we've also highlighted some organic growth highlights for the year and the quarter. We grew net new consumer checking accounts by [ 680,000 ] during the year. And that's while maintaining a strong average balance of $9,000 plus. This extended our consecutive quarter net growth to 28 or 7 years straight. We crossed over $6.5 trillion in client balances of investments, deposits and loans across Wealth and Consumer Banking. Our consumer investment totals reached $600 billion. Similarly, our workplace benefits totals, i.e., 401(k) balances related balances crossed over $600 billion also. It's worth noting that $28 billion of our year-over-year loan growth came through our wealth management clients. Global Wealth & Investment Management showed improved nominal profit growth, stronger pretax margin improvement and continue to draw net new assets within the combined consumer of $100 billion during the year. In Global Banking, average deposits increased $71 billion, up 13%. We saw treasury service fees increased 13% over '24 and ending loans go across each line of business year-over-year, good core customer organic growth driving that. Investment banking saw good activity. For the full year, our investment banking fees were the -- were the highest they've been since going back to 2020 and the outside pandemic period recovery. They were 7% higher than the prior year. Fees generated in the second half of 2025 were 25% greater than the first half. What does this show? It showed good momentum by our team. It also showed that our corporate commercial clients settled in during the year after tax policy being clear, tariffs became more understood, and they look forward and receive the benefits of deregulation. Global Markets under Jimmy's leadership saw continued growth in sales and trading with its 15th consecutive quarter of improvement and drove a record year of nearly $21 billion in sales and trading revenue. In addition to these stats, I commend you to review Slides 21, 23 and 25. Those highlight the continued progress of digital deployment and activation statistics for each of our businesses. You should note there the impact of Zelle and the continued usage growth and also note the impact of Erica, our AI agent and its use both across our businesses and with our teammates. A couple of high-level comments on what we see in the economy. It was a pretty good decent environment as we move through year 2025. Consumer spending grew 5% -- at $4.5 trillion grew 5% over the 2024 levels. Account balances in the consumer business, that broad base of the U.S. consumer were stable through the year. Delinquencies and charge-offs improved in 2025 consumer credit. Unemployment in the market remains stable, and the equity market appreciation benefit those consumers or investors in our Merrill Edge products or in our 401(k) platforms. This strong consumer health bodes well for the continued improvement in growth in 2026. When you go to our corporate commercial customers, again, as the tax law settled in, the tariffs appear to be manageable and deregulation kicked in. They had a pretty good year in good profits, including good credit quality and good money movement activity as we move through the year as they participate in the world economy. A world-class research team has the global growth rate for GDP at 3.4% in 2026 and U.S. at 2.6%. Risks remain out there. They always do, but we're encouraged and constructive on the head -- a year ahead. So I'll turn it over to Alistair to cover the quarter. Alastair Borthwick: Thank you, Brian. I'll start using Slide 4. And as Brian noted, the fourth quarter was a strong quarter for us with 7% year-over-year revenue growth and good operating leverage producing $7.6 billion in net income or $0.98 in earnings per share. Our EPS grew 18% compared to the fourth quarter of '24. Net interest income of $15.9 billion on a fully taxable equivalent basis was strong and a little better than expected, and we saw good momentum from market-based fees that complemented the NII growth. Of the $28.4 billion in total revenue, $10.4 billion came from Sales & Trading, investment banking and asset management fees. And those are 3 of the more highly compensable market-facing areas. It's these areas that grew revenue 10% year-over-year in the aggregate. On expense, the teams have shown good discipline across the businesses as we held headcount flat across the year despite the volume growth of clients and activity. Most of the year-over-year expense growth was a result of revenue-related growth in markets and wealth-based activities I just described and our continued investments in the franchise. We saw productivity improvements through AI and digitalization more generally, and those enabled us to add client-facing associates as we eliminated work and roles in our operational support areas. This year, we brought another 2,000 college graduates into the company, and we remain an employer of choice with progressive benefit programs for our employees. And even with those additions, we managed to hold our headcount flat for the year through good management. Provision and net charge-offs declined year-over-year. That's for a second straight quarter, driven by continued stabilization around credit card and lower losses in commercial real estate. The net charge-off ratio fell to 44 basis points and is down 10 basis points year-over-year. And lastly, we reduced our average diluted share count by about 300 million shares or 4% from the fourth quarter of '24. Slide 5 highlights the various earnings points that Brian and I have covered to this point. So let's transfer to a discussion of the balance sheet using Slide 6 where you see total assets ended the quarter at $3.4 trillion, a little change from Q3 as securities and cash reductions were replaced with loan growth. Deposits grew $17 billion from Q3 and we use those deposits to continue to reduce wholesale funding as part of the plan we've discussed previously to intentionally lower balances and drive a more efficient balance sheet. Average global liquidity sources of $975 billion remain very strong. Shareholders' equity of $303 billion was up less than $1 billion as earnings and a modest increase in OCI was mostly offset by capital return to shareholders. In the quarter, we returned $8.4 billion of capital back to shareholders with $2.1 billion in common dividends paid and $6.3 billion of shares repurchased, $1 billion increase in share repurchase from Q3 reflects increased earnings over the past 6 months and some reduction in excess capital. Tangible book value per share of $28.73 rose 9% from the fourth quarter of '24. Turning to regulatory capital. our CET1 level decreased modestly to $201 billion, driven by a $2.1 billion capital reduction from making the tax equity investment accounting change period, and we were not required to restate prior period regulatory capital. That capital reduction reflects the timing of equity and profitability in those investment deals and comes back into our capital over the next several years as those deals wind down. That accounted for roughly 12 basis points of CET1 reduction in the quarter, again, that we'll get back over time. Risk-weighted assets rose $22 billion from Q3, driven by loan growth. Our CET1 ratio then declined from 11.6% to 11.4%, and it remains well above our 10% regulatory required minimum. Our supplemental leverage ratio was 5.7% versus a minimum requirement of 5% as of December 31 and 3.75% under the new rule, which we are adopting starting in 2026. This leaves ample capacity for balance sheet growth and our $467 billion of TLAC, means our TLAC ratio remained comfortably above our requirements. On Slide 11, we show a trend of average deposits and the consecutive growth across those periods. Average deposits were up nearly [ 3% ] from the fourth quarter of '24, driven largely by commercial client activity. Mobile Banking grew average deposit $74 billion or 13% compared to fourth quarter '24. Our global capabilities, innovative solutions and our relationship managers continue to offer clients value and access to our award-winning digital platform in CashPro. Consumer Banking reported its third consecutive quarter of year-over-year growth and low and no interest checking was up $9 billion or 2%. Importantly, ending deposits improved sequentially in every segment. Team also showed continued discipline on pricing while achieving that growth, overall rate paid on total deposits of 163 basis points declined 15 basis points from Q3, reflecting lower rates and disciplined actions in our Global Banking and Wealth Management businesses. Global Banking and Wealth Management rate paid both declined 28 basis points from Q3. The rate paid on the roughly $945 million of consumer deposits fell 3 basis points to 55 basis points in Q4 and remains low driven by the operating nature of that account base and that client base. Let's turn to loans by looking at average balances on Slide 8. Loans in Q4 of $1.17 trillion improved $90 billion or 8% year-over-year, driven by 12% commercial loan growth. Consumer loans grew at a slower 4% year-over-year pace and importantly, we're up across every loan category of card, mortgage, auto and home equity. For the fifth quarter in a row, every business segment recorded higher average loans on a year-over-year basis. While commercial loan growth has been driven by our Global Markets Group, we've also seen year-over-year growth of 3% in Global Banking and strong custom lending growth of $18 billion year-over-year in Wealth Management as affluent clients borrowed for investments in assets like hospitality, sports, yachts, arts and business. In addition, small business saw its 12th straight quarter of year-over-year lending growth. Let's turn our focus to NII on Slide 9, where on a GAAP non-FTE basis, NII in Q4 was $15.8 billion. And on a fully taxable equivalent basis, NII was $15.9 billion. And as I said earlier, that's up 10% from the fourth quarter of '24. On a fully taxable equivalent basis, NII grew $1.4 billion year-over-year, and $528 million over the third quarter. Our growth was driven by several factors: First, we saw good core NII performance from loan and deposit growth and disciplined pricing; second, we benefited from asset repricing as higher-yielding loan growth, replaced loan and security maturities and paydowns; third, client activity in Global Markets drove more of the sales and trading growth through NII than fees this quarter compared to Q3. That was about $100 million more of a shift in global markets activity to NII from MMSA than we had originally anticipated. And lastly, we had a small benefit from an average Fed fund rate, which primarily impact our liabilities dropping more than the way average SOFR rates behaved on variable rate assets, so we had a slight benefit there. Our net interest yield, NIY, improved 7 basis points from the third quarter to 208 basis points, reflecting the growth in NII, while the earning balance remains stable as higher-yielding loan balances replaced lower-yielding securities. And as I said earlier, higher deposits allowed us to reduce wholesale funding while cash balances declined. Regarding interest rate sensitivity, on a dynamic deposit basis, we provide a 12-month change in NII for an instantaneous shift in the curve. That means interest rates would have to move instantaneously lower by another 100 basis points more than the 2 expected cuts contemplated in the curve. On that basis, a 100 basis point decline would decrease NII growth over the next 12 months by $2 billion. And if rates went up 100 basis points, NII growth would benefit additionally by approximately $700 million. With regard to a forward view of NII, let me give you a few thoughts. At Investor Day in November, we indicated our expectation that we would see 5% to 7% growth in net interest income in 2026 compared to 2025, and that's still our belief today based on the latest interest rate curve, which includes 2 rate cuts in 2026. To reiterate our expectation from Investor Day, we expect good core NII performance from loan and deposit growth that will additionally benefit from sizable fixed asset repricing and cash flow swap repricing to drive the 5% to 7% NII improvement. During 2026, we expect roughly $12 billion to $15 billion in combined mortgage backed securities and mortgage loans to roll off quarterly, and those will be replaced with new assets at 150 to 200 basis points higher in yield or they'll allow us to pay down expensive short-term debt. For Q1 NII expectations I would use Q4 as a base after excluding about $100 million or so for the shift in Global Markets client activity that I referenced, that is likely to be offset in MMSA. So simply a change in geography that's revenue neutral. I'd also note, we have 2 less days of interest in Q1 than Q4. And of course, we had a 25 basis point rate cut in December. Still we expect Q1 NII will grow roughly 7% from Q1 '25 based on the assumptions on Slide 18, in line with our full year guidance. Okay. So let's turn to expense and we'll use Slide 10 for our discussion. This quarter, we reported $17.4 billion in expense, up a little less than 4% year-over-year. When combined with our 7% revenue growth, this good expense management allowed us to generate more than 300 basis points of operating leverage, and that aligns to our target for the medium-term operating leverage range that at Investor Day. The increase in expense was mainly driven by incentives tied to revenue growth and higher brokerage clearing and exchange costs, or BC&E, costs from trading activity. Those BC&E costs reflect client activity shifting toward higher growth and higher transaction cost overseas markets. Now these costs are the ones that are generally reimbursed by the client, so they're included in our revenue essentially offset one another. If we isolate change in expense for the incentives tied to Wealth Management, and remember, that reflects a 13% year-over-year improvement in asset management fees and we isolate the BC&E costs that supported a 10% increase in sales and trading revenue. Then combined, they represented roughly 2% of our expense growth for the year and they came with good revenue. Beyond that, productivity improvements from AI and digitalization continued to help offset higher wages, benefits and technology investments. Headcount remains our key driver of expense from compensation and benefits to real estate and technology. And we manage this closely, not only in total numbers, but also an organizational structure aiming to strike the right balance of managers and teammates. Since the end of 2023, we've operated within a tight range of 213,000 employees. This year, we hired about 17,000 new teammates just to replace departures from what was a very low attrition rate. And every time someone leaves, we take the opportunity to evaluate whether the role needs to be replaced. [ Coming to ] the third quarter. Noninterest expense was up about $100 million, driven by technology investments and wealth management revenue-related costs. That was partially offset by a $200 million net benefit from the combined impact of the reduction of the FDIC special assessment accrual and some other settlements that modestly increased litigation expense. Looking ahead, our focus remains on delivering operating leverage for shareholders. We expect to generate about 200 basis points of operating leverage in 2026. Those expectations include a constructive fee environment that complements our expected NII growth. We've seen encouraging momentum in asset management fees, investment banking and Sales & Trading, and we look for that to continue. And importantly, if revenue comes in below our expectations, then obviously, revenue-related expense will be lower. As for Q1, we typically see seasonal strength in sales and trading activity and elevated payroll tax expense. Combined with the absence of the FDIC benefit we saw in the fourth quarter and combined with ongoing productivity improvements, we expect Q1 expenses to be about 4% higher than Q1 of 2025. And even with that, we still expect to deliver operating leverage. Let's now move to credit and turn to Slide 11. And where you can see asset quality remains sound with small improvements in several key indicators. It's not a great deal to cover here. Our net charge-offs were $1.3 billion, down about $80 million from the third quarter and driven by lower losses in commercial real estate. Total net charge-off ratio this quarter was 44 basis points, down 3 basis points from the third quarter and down 10 basis points from Q4 '24. Provision expense in the quarter was $1.3 billion and mostly matched net charge-offs. Focusing on total net charge-offs looking forward in the near term, we expect continued stability in total net charge-offs, given the mostly benign consumer delinquency trends and low unemployment data, the continued stability of C&I and reductions in our commercial real estate exposures. On Slide 12, in addition to the consumer delinquency statistics, note the modest changes in other stats for both our consumer and commercial portfolios. Let's now turn to the performance across our lines of business, beginning with Consumer Banking on Slide 13. Our Consumer Bank had a strong year. And for the full year, the team generated $44 billion in revenue and delivered $12 billion in net income. Net income grew 14% from 2024, and we earned a 28% return on allocated capital. In Q4, Consumer Banking delivered strong results, generating $11.2 billion in revenue, up 5% versus the fourth quarter of last year and $3.3 billion in net income up 17%. So a really strong finish to the year. These results reflect the value of our deposit franchise and underscore both the breadth of our platform and the success of our organic growth strategy and digital banking capabilities. Our focus on client experience and investments in both physical and digital capabilities, combined with more investment in product innovation and rewards drove the strong results. Business was also managed well for shareholders as we grew expense less than 2%, allowing us to improve our efficiency ratio to 51% and deliver nearly 350 basis points of operating leverage. This 2% expense growth reflects our continued investments in our brand, highlighted by our minimum wage increase to $25 earlier this year and incentives for more production. Digitalization and early utilization of AI helped offset some of the investments. Consumer investment balances grew $81 billion from Q4 '24 to nearly $600 million, supported by $19 billion in full year client flows and market appreciation. Average balance per investment account at $147,000 is up 12% from last year. And this investment platform serves as a great catch basin for first-time investors and for more experienced investors looking to manage some element of their own money. As mentioned, consumer net charge-offs improved again on a year-over-year basis, and we continue to see stability in asset quality metrics. Credit card net charge ratio of 3.4% improved nearly 40 basis points from Q4 and improved linked quarter. Finally, as shown in the appendix, this is Slide 21. You can see strong digital adoption and the engagement that all continued, and the customer experience scores remain strong, reflecting the impact of our ongoing investments in digital. Turning to Wealth Management on Slide 14. And you can see this is a business that has strong momentum right now, and we've improved growth as we work towards the medium-term targets laid out at Investor Day. For the full year, revenue of $25 billion grew 9% compared to 2024, and net income grew 10% to nearly $4.7 billion. Over the past 3 quarters, net income has gone from $1 billion in Q2 to nearly $1.3 billion in Q3 and to $1.4 billion in Q4. Return on allocated capital went from 20% in Q2, up to 28% in Q4. And the pretax margin has climbed back into the high 20% range as we ended the year. Underneath all that, client balances grew $500 billion across the year to $4.8 trillion and that included strong ending loan growth of nearly $30 billion or 13%. Within that, AUM flows were $82 billion and total flows of 80 -- sorry, [ $96 billion ]. And coupled with the flows of consumer investments, we saw $115 billion of well flows for the firm this year. And for the year, Maryland, the Private Bank added 21,000 net new relationships with the average size of new relationships continuing to grow across both businesses. Importantly, we're not just growing relationships, we're deepening them as we added 114,000 new bank accounts this year. And finally, I'd highlight the continued digital momentum as shown on Slide 23, where new accounts have increasingly opened digitally, underscoring the effectiveness of our digital investments and the evolving preferences of our clients. On Slide 15, you see the results for Global Banking. The team had a good year and generated $7.8 billion in earnings and that represented about 25% of the company's overall net income. Year-over-year earnings were down a modest 2% as a result of interest rate cuts impacting NII from the variable rate assets in the business. [indiscernible] grew average deposits $71 billion or 13% and grew loans $12 billion. This included the addition of roughly 500 new clients in middle market, banking and more than 1,000 in business banking that chose Bank of America as their financial services provider in 2025. For the fourth quarter, Global Banking delivered net income of $2.1 billion down 3% year-over-year with a 6% improvement in fees overcoming the NII pressure. Business remains very efficient with a 50% efficiency ratio and we earned 16% return on allocated capital in Q4. We generated $1.67 billion in investment banking fees, up modestly over Q4 '24. And we maintained our #3 position for the full year. And as Brian and I said earlier, investment banking fees showed good momentum, given all the regulatory and tariff announcements around the globe uncertainty settling in and our pipeline remains strong. Noninterest expense grew 6% compared to last year as we position the firm for the future with continued investments in technology and bankers. Switching to Global Markets on Slide 16. I'll focus my comments on results that exclude DVA as we typically do. The Global Markets team produced a record year of record -- sorry, a record year of revenue, improved earnings and solid returns. We generated $24 billion in revenue for the year, and that exceeded last year's revenue by 10%. Earnings of $6.1 billion for the year were up 8% and the business generated a 13% return on allocated capital. It's worth noting this is the 12th consecutive quarter of year-over-year net income growth. Q4 Global Markets generated net income just shy of $1 billion, up 5% from Q4 '24. Revenue, excluding DVA, grew 10% year-over-year driven by strong sales and trading performance. And focusing on Sales & Trading, revenue ex-DVA, rose 10% year-over-year to $4.5 billion. And it was equities trading that led the improvement, growing 23%, supported by increased activity in Asia. And that brought higher revenue, it also brought higher revenue -- sorry, higher cost in the form of transaction costs as the clients still reimburse us for those fees. [indiscernible] revenue grew 1% driven by improved performance in macro rates and FX products offsetting a modest decline in credit products. Loan growth continues to benefit from opportunities tied to highly collateralized pools of high-quality assets and clients value our expertise and in delivering these solutions. On Slide 17, all other shows a loss of $132 million in Q4, with very little to cover here. And as we wrap up, I would just note Q4 effective tax rate was 21%, and it was 19% for the full year. For 2026, we expect an effective tax rate of roughly 20%. And then finally, I'd just note on Slide 18, we provided a summary of the forward-looking guidance that we discussed today. So I'll stop there. Thank you. And with that, we'll jump into Q&A. Operator: [Operator Instructions] Our first question comes from Betsy Graseck with Morgan Stanley. Betsy Graseck: Thanks so much for all the detail here. I did just want to understand one thing on the outlook as we're thinking about the expense ratio. I know that you've got the accounting change, and you also have outstanding guidance for the expense ratio over the medium term, I believe it is 55% to 59%, is that right? Alastair Borthwick: Right. Betsy Graseck: Okay. I'm wondering, are you going to be adjusting that expense ratio guide given the accounting changes that you have made in this quarter? Alastair Borthwick: Well, I don't think -- so at this stage, Betsy, but similar to our comments at Investor Day, the numbers that we put out aren't a cap on our ambition. So obviously, as we go through the course of the next couple of years, if we improved our efficiency ratio by a couple of hundred basis points this year, we're going to keep driving towards that range. And once we get in that range, we'll reassess and we'll consider whether it's time to consider a lower efficiency number in the future. Betsy Graseck: Yes, I was just thinking mechanically with the accounting change, the revenues improve, right? So with the denominator moving higher, shouldn't that target expense ratio of 55 to 59 move down a percentage point on each side? Alastair Borthwick: Well, remember, we recast the prior periods. So that's already in there when you use the comparative periods. And I think part of the reason that it was important for us just to recast all the numbers and adopt the accounting is because that's how our competitors showed their results. So now we feel like it's on a comparable footing. Operator: We'll now move on to Ken Usdin of Autonomous Research. Kenneth Usdin: So [indiscernible] just a follow-up, Alastair, you made the point about just your outlook for fees is strong, and obviously, there will be compensation aligned with that. So just coming back on expenses in an absolute sense with 4% year-over-year growth expected in the first quarter. And I know everyone is just thinking about just how do you get to this operating leverage algorithm. Is that around what you're expecting just absolute expenses to grow given your underlying base of good fee growth in there? Alastair Borthwick: Well, I think what we're trying to convey is, and we've said this over the course of the past several years. Ours is an organic growth company. We're investing for growth all the time. And when we perform the way that we believe we can, we're going to create operating leverage every year. That's what our North Star is in terms of the financial model. So we've guided you towards NII, up 5% to 7% this year. We've said in the first quarter, we believe the first quarter will be up 4% or so. We've said that we expect the operating leverage to be a couple of hundred basis points. So that should allow you to work backwards into the expense side of the equation, especially since we've given Q1 essentially. And then I think it would just depend on your revenue assumptions regarding assets under management fees, markets and investment banking because those will be the big drivers. And yes, we remain constructive on all 3 of those. Kenneth Usdin: Okay. Got it. And then so -- as you think about your -- when you talked about the Investor Day, you talked about a 200 to 300 basis point range. So obviously, each year is going to be different things, but you've got -- with a strong base of NII growth and fee growth and we're on the 200 side, what are the things you could do to kind of longer term expand that and potentially get back -- to get up to the 300 side of that 200, 300 range that you had given us in November? Alastair Borthwick: Well, I think one of the things we've talked about when we went back to Investor Day, and this gets back to driving return on tangible common equity over time. You think about the fact that we've just gone from 13% to 14% last quarter. Prior quarter, we were at 15%. We Said we're going to get in that 16% to 18%. If you think about the organic growth opportunity we have around deposits and loans, and then you add the fixed rate asset repricing that drops to the bottom line. And then you combine it with the fee growth that we've talked about. When we manage expense carefully as we have done this year and headcount flat, sort of the core expense minus BC&E and incentive comp closer to 2% type growth. Then you'd look at something that gets pretty interesting over time. So that's what we're trying to drive over a period of time. And you're right, it won't always show up every year where it's exactly the same. But what we're trying to do, most importantly, drive organic growth, keep our expense discipline. That's it. Brian Moynihan: So Ken, the number one thing is to continue to let the headcount -- work the headcount through operational excellence and applications of new technologies, including AI that we gave you some sense for. So as we told you at Investor Day, today's activity in Erica in our consumer business alone is worth thousands of teammates that we don't have to have to do the great work we do for the customers. So we've applied digital, and that's why I put the pieces in the deck that you can see in the Pages 21 and beyond. We apply the digital capabilities now AI capabilities. And you saw during the year, the headcount was basically flat while we added more people in the field facing off the clients and generating new client flows. And that's why when Alastair talked about the middle market business, particularly in the private bank business, why we're seeing strong growth there. So it's going to be about bringing up the numbers of people down over time, and we expect the headcount to come down during this year. And each month, we get the -- to maintain neutral headcount, we have to hire at a 7%, 7.5% turnover rate, you got to think it's higher than 1,000-plus people so we can just make decisions not to hire and let the headcount drift down. The team has done a good job of we ended the year basically flat. And we absorbed, as Alastair said, 2,000 very talented teammates from colleges in July. And by the end of the year, we were down to 2,000 people and end up back net neutral. So that's what you're going to get there. If you look at the expense load, it comes from people and it comes from the benefits and compensation, and it ultimately comes from the buildings and computer systems to allow them to do the great job for clients. So that's what we're working on. Operator: We'll now move on to Mike Mayo with Wells Fargo Securities. Michael Mayo: If you could just give more of an update on technology. What do you expect your spend to be this year versus last year, your spend on AI? And then Slide 21, again, we -- I think everybody appreciates the data you provide on your digital engagement, which is more than others. But no good deed goes unpunished. I'm just looking at Slide 21 and your interactions in consumer with Erica took a dip down in the last year, even while your users go up. So if you can talk about the spend investments and the results from Tech and especially AI. Brian Moynihan: Yes. So Mike, we'll be up on initiatives this year, 5%, 6%, 7%, I think, types of numbers. Total spending [ $13 billion, plus $4 billion ] plus in initiatives, that's all new code. And in that spending, remember, also we get the advantage of all the other people. So for example, under the 365 CoPilot rollout, which is now out across a total of 200,000 teammates and using it and learning from it, we expect to get good leverage of that. So that's an increase in the run rate year-over-year. So that's -- the technology is increasing, the technology number is sizable and the team does a good job in implementing change every weekend, frankly, except for 1 a year. So we feel good about that. One of the things that you'll note is you use these technologies and combinations. So your point on Erica, I asked the same question, Mike, because it's pretty straightforward why would the interactions of the Erica could go down. The reality of that is -- well, we don't show is the amount of alerts that we deliver. So you can set up alerts which then has slowed down the need for Erica because the alerts are up to, I think, billions a quarter that are telling you when you're balanced low and things like that, that avoid you go in and asking the question. So that combination of things is growing very quickly. So again, what you always try to do is look at a process from a customer to you and figure out how you can get that customer the best client -- the best customer experience at the lowest cost so you can plow that back into the low fee structures, which help us grow the business for, as we said, for 7 straight years in [ checking ] accounts. So there's a technical explanation on the Erica that is a little bit different. But thematically, you can see just the digital enablement just continues to grow and continues to help us leverage our franchise and frankly, consumers now pushing through 50% profit margin, and it will continue to go up. Michael Mayo: Okay. And specifically on AI investments, like how much do you spend on that? Or the number of people, if you could dimension that and kind of what kind of outcomes you're looking for, especially as we say here at the start of the year? Brian Moynihan: Yes. Well, we're looking for -- we have the -- we have -- to give you an example, we have 18,000 people on the company's payroll who code. And we've using AI techniques. We've taken 30% out of the coding part of the stream of introducing a new product to service or change that saves us about 2,000 people. So that's how we're applying it. That was this year's statistic, meaning '25. Next year, we should get more out of it as we figure out and apply it across. So there's different projects going on in the company. I don't know off the top of my head the total expenditure, but it's several hundred million dollars. Importantly, we're going through the company to generate more ideas how to apply AI. And I use example like our audit team has built a capability they think a series of prompts around doing audits and stuff to allow them to shape the head count back down that they had to grow during the regulatory on side over the last few years. They're going to be able to bring that down in AI, they'll be able to bring it down further, and they've laid out plans to do that. And so that's going on everywhere. But that was organic from there starting to use the copilot capabilities and then learning how to do the prompts and then using it to set up audit practices. So you're seeing it everywhere in the company. So there's, I don't know, 15, 20 projects going on, and there will be a laundry list of much bigger size as we go through the company now and are generating ideas now that people are using it and getting used to how to use it. Operator: We'll now move on to John McDonald with Truist Securities. John McDonald: One of the other levers for the ROTCE ambitions that you guys have talked about is the denominator with the CET1 ratio. Could you talk a little bit, Alastair or Brian, about the time line for kind of where you are today with [ 11.4% ] to the target you laid out, which I think was around mid-10s? Brian Moynihan: Yes. I think, John, if you think about that we're still, as you well know, and your colleagues will now, we're still waiting for the rules to get finalized and they're multifaceted rule set that we got to make sure how it applies. But our goal, we appealed from 11.6% to 11.40%. And you're going to keep peeling that number down through expansion of our markets business, expansion of lending and other uses of RWA and so -- and we bought back a little more stock than in dividends than we earned. And so we'll keep working that down. But the idea is not to take the $200 billion-ish nominal and reduce that a lot. The idea is to use the excess to grow the balance sheet and let that work down as we see the final rules, the constraint may be sort of to common equity ratio stuff or $6.20. Could you be in the mid- to high 5s or something like that, that might be possible. And if you -- so we'll let this all drift down over time. And so just expect us to keep buying back -- to paying the dividend, increasing it and buying back the stock. And remember that as you said, we've drifted down a little bit by growth, but also the accounting change hit it, which will repeat. So the next quarter we'll keep walking it down. Just the idea is as this will settle in, then maybe we can be more aggressive, but we got to know exactly what we're dealing with. John McDonald: Okay. And then maybe if we pull back just the broader timeline on the ROTCE path. It looks like for 2025, you kind of ended in the 14, low 14s. What's the ambition to get to the lower end of the 16 and then the 18 over time. Brian Moynihan: I think we made it clear that you had -- and by the 8th quarter to the 12th quarter, you move in the lower part of the range and then the upper part of the range given a core economy growing it to 2.5% type of number. So -- and all the other attributes. So we made that clear. So that's basically 8 quarters from -- including this quarter, obviously, first quarter '26 and then we move into the 16 level, and then we move to the upper end of the range as we move through the third year. Operator: We'll now move on to Matt O'Connor with Deutsche Bank. Matthew O'Connor: I was hoping you could elaborate a bit on your outlook for loan growth and some of the drivers. You've obviously been bringing loans quite a bit. And just well in excess of the industry and how sustainable is that? And what are some of the drivers? Alastair Borthwick: Yes. So embedded in our NII assumption is loan growth in the mid-single digits Matt. Obviously, we've had pretty good loan growth this year, kind of $20 billion a quarter or so. A decent amount of that has been on the commercial side. And we highlighted that in our financials and in our commentary earlier. So we're still seeing the growth in each of the consumer categories. And that feels like it's in a position where it's likely to continue to grow from here. So we feel pretty good about those 2. I don't see any reason that it would be a whole lot lower necessarily than it was last year, but last year was a good 1 year, no question. So that's why we're saying mid-single digits. I think it will still be led by commercial. But you see the consumer categories picking up. Matthew O'Connor: Okay. And then I guess, specifically in credit card, the spending was good, up 6% year-over-year or the balances were up just a couple of percent, fees were down. I know at Investor Day, you talked about accelerating the growth there. Maybe just update a little on kind of the initiatives there and the timing. Alastair Borthwick: Yes. So [indiscernible] was very clear about this at Investor Day. It's our intention to continue to accelerate the growth in card. I think we've seen that in the last 3 or 4 quarters. It's picked up sequentially quarter after quarter. And if you were to look at what the team is doing right now, they're investing a little more for future growth. So you can see that in some of the things we're doing around the World Cup this year. You can see it in some of the things we're doing around more rewards in November. You can see it in our rewards program with our co-brand partners. And you could see it in the June cash back rewards offering. So we've got a lot of things going on right now that we're excited about. We know what we've committed in terms of higher credit card growth, and we feel like we're on the right path. Operator: We'll now move on to Erika Najarian with UBS. L. Erika Penala: I just need to reask this question, Brian, Alastair because as I speak with investors, I think the communication on efficiency and expenses is a big part of what's holding down the stock. So just to clarify in terms of what Betsy was asking, she was asking, well, given the restatement and thereby higher fees, shouldn't you adjust the efficiency ratio range to 54% to 58% because you shouldn't get credit for the restatement, right? So that's why she was asking that. And I think what Ken was asking was, everything that Alastair mentioned, the curve, the growth capital markets, it's hitting this year, right? And so you're on the low side of the 200 basis point -- of the 200 to 300. And so I guess the question here is what should we take away in terms of the expense messaging? Is it sort of what Brian alluded to that the headcount just needs time to work through and then you'll hit 250 to 300, and we just need to be patient. Is there more investment spend like you told Mike Mayo that you wanted to front load in a great revenue year. Like what exactly do you want your investors to take away in terms of how you're viewing the expense growth relative to your -- the revenue side because, for example, for your closest peer at JPMorgan, they grow expenses to $105 billion, no one really links, right, because of the revenue side. So what is the underlying message for operating leverage for Bank of America over this year and over the 3 years that is underpinning that 16% to 18%? Brian Moynihan: Let's back up to it. We -- as Alistair said, we are driving these numbers and they have improved on a recast basis by a couple of hundred basis points, and they'll continue to improve. And so the range will move down to lower numbers. And when we get into the range, we'll reset the range. But I think we're focused on the wrong thing. The question is, what are you doing now as opposed to what you say you're going to do. We have a tendency to actually deliver as opposed to talk about what we do in the future, and that's what we focus on. So what have we done? The efficiency ratio came down a couple of hundred basis points on an apples-to-apples basis with the parts of the revenue stream that are least efficient, the wealth management revenue growing very strong in the capital markets revenue. So when the consumer bank revenue grows in and Global Banking revenue grows at the efficiency ratio there at, they produce a lot more pop than wealth management, which has, obviously, the financial advisory tariffs. So you have to also think of where the revenue growth is coming from to see the improvement, but we moved to 200 basis points. We've moved in past years when rates stabilize, we'll move it into the 50s. As you get the lower efficiency ratio, the operating leverage can be narrow and you still get a bigger earnings spot. One thing that we've been telling you and that we want to make sure people understand is our goal is to keep driving all the extra NII to the bottom line meaning the difference between sort of the core and the repricing because we owe that to drive the returns up and the rest of it will have more normalized attributes to it. So we've driven the efficiency down, and we expect to continue to drive it down. It is all going to be due to headcount because that's 60-plus percent of our expenses. We've absorbed inflation and everything while we're doing that. The expense growth Alastair just told you first quarter, 4% with expense increases and base increases and third-party inflation coming through, et cetera. So we're very -- we're very efficiently to our businesses, and we're very efficient relatively to our peers, and that will continue to improve. And that's -- I don't know how to do it. One of the things when I talk to investors and I actually talked to people own a lot of stock every quarter. Their view is stay away from -- focus people on the operating leverage in the company because at the end of the day, we've got to grow expenses at a faster rate, which we have been doing than a slower rate than revenue -- excuse me, revenue at a faster rate than expenses for operating leverage. We produced that for our last 5 quarters. We had 5 years of it leading up to the pandemic. You should expect us to get back on a streak. But the reason why they want us to focus on that, the people that own the stock is to get away from the nominal dollar debate every quarter and get more focused on how the team is doing a great job of driving the revenue and driving the expense. The revenue growth slows down because the dynamics outside our company, the expense growth will slow down. Operator: We'll now move on to Jim Mitchell with Seaport Global Securities. James Mitchell: Maybe just a question on deposits. We've seen 3 rate cuts in September. Can you speak to what you're seeing in terms of deposit pricing whether betas are worse, better or worse than expected? And just also what you're seeing with respect to client behavior would just be helpful to? Alastair Borthwick: Okay. First, with respect to our pricing discipline, really when you talk about pricing, we're most focused on the upper end of the corporate banking, commercial banking, a very large global banking deposit base where we're passing on rate cuts essentially the moment that they take place and in full. And so that's why you see the beta there, obviously quite high. Same thing in the upper end of wealth management. Consumer, you see much less in the way of pricing coming down because we have so much in the way of noninterest-bearing and checking and so much in the way of low interest-bearing. So we feel good about the team's pricing discipline overall. In terms -- and you should expect that to continue in Q1, recognizing that the rate cut was late in Q4. In terms of growth, I think if you were -- to look at Page 7 in the earnings materials, it sort of tells you the picture. On the bottom right, you can see Global Banking. That's had a very good period of growth. Not sure that sustains at that sort of level. But we've had good growth in Global Banking. And most importantly, on the top right, consumer has begun to turn and is growing. And that's the most powerful engine for us. Those are the most valuable balances. We've now got 3 quarters of year-over-year growth. It's poised to grow, place to accelerate. So that's very important and wealth management is bottoming here. So we feel good about the mix of deposits changing in our favor this year. I won't just need to make sure that we keep track of that through the course of the year, but we're pretty optimistic on that, Jim. James Mitchell: Right. So I guess when you think about maybe inflection [indiscernible] in deposits growing loan growth still strong. You have an NII target of 5% to 7% for this year. Could we just drill down and look at NII ex markets, it's grown about 5% over the past 2 quarters. Is that a reasonable growth rate for this year? Or do rate cuts make that a little more challenging? Just how do we think about the markets versus ex markets NII dynamic? Alastair Borthwick: Yes. So markets is going to benefit from a couple of different things. First, we obviously invested 10% plus into the Global Markets balance sheet. So that tends to mean that we're likely to grow NII, okay? Second, a big portion of that growth has been in loans. They're totally about NII. So that obviously is helpful. Third, when rates are cut, because markets tends to be liability sensitive that tends to be good for markets NII, okay. All those things are true. And the only thing, Jim, that I was just making sure that I pointed out in my comments earlier was we ended up at $15.9 billion. That is what I would consider to be mostly all core NII. It just happens that we had about $100 million or so of Global Markets NII that I think will revert back to MMSA next period. So that's the 1 part that I just feel like is important for us to note, but otherwise, I think Global Markets NII will grow with the continued investment in loans and in the business over time. Operator: We'll now move on to Chris McGratty with KBW. Christopher McGratty: Alastair, on the funding remix. I guess what's left to go in your view based on your core deposit trends? And how much of that is baked into the guide, the liability optimization? Alastair Borthwick: You're talking how much of the wholesale funding can we take down over time? Christopher McGratty: Yes, that's right. Alastair Borthwick: I'd say probably at this point, somewhere around $50 billion to $100 billion just on ballparking that between repo CP, some of the short-term wholesale funding institutional CDs that we put out there that are just quietly rolling off now quarter after quarter after quarter. So that's the sort of number I would use. Christopher McGratty: Okay. Great. And then just piggybacking on the loan growth comment. The optimism I heard on the commercial growth. I guess any asset class is perhaps not as optimistic into '26? And if I missed it on the card expectations with the proposal, any comments there about either growth or expectations for -- to offset that would be great. Alastair Borthwick: Just restate the question one more time for me. Just say it again. Christopher McGratty: Sure. Expectations for loan growth, anything you're not pushing on for growth? And then given the President's proposed 10% cap on card yields, any comments related to that related to your current strategy? Alastair Borthwick: Okay. So on loans, I don't -- I mean, I'd say we're pushing for loan growth everywhere we can find good high-quality loan growth. So there is no place that we're not pushing. We obviously have substantial excess of deposits above our loans. So we've got a lot of capacity there. We've got a lot of excess capital, we'd like to continue to deploy if we can find productive uses with our client base. So pushing everywhere I think commercial has obviously had a good period. Wealth Management has had a good period, too. Some of that relates to things like traditional securities-based lending, but some relates to wealthy people looking to purchase expensive assets, and we're there to help them with that, obviously. The consumer piece had been quieter last year, maybe picked up a little more this year. We can see the growth now in a variety of categories. Interesting to see home equity beginning to grow and right in across time. Mortgage, a little more activity this past quarter, if you see our originations, so we had more there in resi mortgage. So we're looking to continue to see pickup in consumer activity broadly. And again, we're trying to drive more card balances. So that's really important for us. That remains the front of our strategy. Brian Moynihan: Chris, on the rate cap, obviously, you're here -- there's a good public debate going out there on the -- if you have unintended consequences of capping rates as has been proposed over many years by various components in Congress and stuff like that. The explanation we've always made sure people understood is that the if you bring the caps down, you're going to get strict credit, meaning less people will get credit cards and the balance available to them on those credit cards will also be restricted. And so you have to balance that against what you're trying to achieve on the affordability. We're all in for affordability. You all know how we run our consumer business. It's the most fair to the consumer, and that's why we get good growth in high customer scores and those increasing. So we build a product to stop people from going to payday lenders. It's called Balance Assist. We've had 1 million -- 2.5 million to 2 million plus consumers have used that product to borrow a short-term loan for $500 or -- up to $500 for a $5 fee. We have a no-frills credit card with lower rate structure to it, and we've had [ 700,000 ] clients this year took that card. And so we believe in affordability. But if you -- with instruments that cap, you will see unintended consequence of that, and I think that's what you're seeing a debate going on is people are making our points to the various -- the administration and Congress and others involved. Operator: We'll now move on to Glenn Schorr with Evercore. Glenn Schorr: I think you brought up an interesting point getting people to focus on away from the nominal expense sales. And you obviously mentioned the less efficient revenues are growing good from Wealth and Capital Markets revenues. So my question is in a good backdrop like we're in, good economy, strong economy. Everybody's got a job, markets are doing well. If you take a step back, and you see flattish consumer deposits and down [indiscernible] deposits, it's not what maybe you would have expected. And that's not a you thing. That's an everybody thing. So I'm just wondering if you could address that, even with 680,000 new checking accounts, like why do you think we see this sluggishness in deposits? And do you think we'll see a turn at some point in '26? Because that would help the operating leverage story as well? Brian Moynihan: Yes. So I think you have to think about what the consumer, especially in the -- even the wealthy consumer, they come to us for the transactional accounts and they come to us, whether they're savings money. And as market alternatives off-balance sheet alternatives, money market funds, et cetera, ran up in rates, you saw a fair amount of money move in that, especially in the wealth management business. What Alastair explained earlier is that's kind of all behind us now the consumer has been stable and and bumping along. The wealth management actually grew in the last part of the year. And so you're seeing it -- and these have settled into much higher levels than they were traditionally. So I think wealth management was maybe $200 billion before the pandemic, maybe $230 billion, something like that $240 billion maybe, and it's moved to $280 billion type of level. So you're seeing a lot more cash towards. So on the wealth side, it's people putting money into the off balance sheet yielding things because, frankly, we don't need the cash, as Alastair explained on some of the things and the early on the rates paid in CDs and things like that. And then secondly, it's actually the risk on trade of when the market. And on the general consumer side, what's happened is that they fine-tune some of the higher pieces. And a lot of the decline in balances that we experienced up until the last -- about a year ago, most of that decline was driven by wealthy consumers and our consumer franchise. In other words, the balances for the people had less than $10,000 average balance before the pandemic or that were multiples of what they were pre-pandemic and then have been stable for the last few years. But the people who had $50,000, $100,000, $500,000 and average collective balance is pre-pandemic were down 20%. And with the percentage of total deposits there that drove it down on a relative basis, but again, that has stabilized. So we feel good where it's going. It's a lot of leverage. You have a consumer business, which has a 50% profit margin round numbers. And so it contributes to that. And if you go back and look historically, we have gotten that number down pretty far. And that has the biggest profit engine in the company is core to us driving that expense efficiency across the whole place. Glenn Schorr: Okay. I appreciate that, Brian. Maybe just a little more color on your comment on the IB pipeline looks good. There's moving parts in the fourth quarter, so I don't want to overemphasize the revenue environment. But maybe you could talk about the outlook, it's expected to be a pretty strong year. The underlying conditions are pretty strong for cap markets activity. So my question is, do you feel like you've made enough investments to capture more than your fair share, pick up share? And do you expect as good as the year as I do. Alastair Borthwick: Well, I mean, I think we feel good about both of those. We feel good about the deal environment. Brian noted earlier, second half of the year, investment banking fees were 25% higher than the first half of the year, and that's largely based on more and more certainty around tax and trade and some of the things that really matter to and CFOs and Boards of Directors. So we feel good about the investment banking environment. We feel good about our pipeline. And yes, on the second question, we feel good about our investments. So you know this, Glenn, but for the benefit of everyone, we've expanded our local banking presence around the United States to improve our client coverage. Today, we're in 24 different cities. We've got over 200 bankers in a group that really focus on middle-market clients. We've seen the benefit of that. We expect to see that continue as their relationships continue to grow. We're covering newer and emerging companies in things like technology and health care in a different way, earlier in their life cycle, and we're covering more clients internationally. So all of those places, we feel like are sorts of places that we should perform well. So yes, we feel good about that. And then I'd just say when you look at performance overall. Yes, we're at the top with some of the very largest transactions. So we feel like the franchise is in good shape. Operator: We'll now move on to Steven Chubak with Wolfe Research. Steven Chubak: So wanted to ask Alastair -- so I wanted to ask on the GWIM targets that you had outlined at Investor Day. You saw some good momentum exiting the year. You outlined the 30% margin target with accelerating growth expectations on the organic side, but new recruitment does require some upfront investment. So I just wanted to understand what gives you confidence you can deliver both the acceleration in organic while still driving better operating leverage. Alastair Borthwick: Yes. So I think if you were to ask Lindsay and Eric, they'd tell you, and if you ask [indiscernible], they tell you that they enjoy significant competitive advantage as it relates to covering our clients. So obviously, we're in the wealth business, but we're also in the banking business. We have high tech and we have high touch. We are digital, but we're also local, and we offer scale. And then in terms of prospecting for wealthy families to add net new -- we've got consumer, business banking, commercial banking, corporate investment banking, all helping that group working together. So that franchise is one then that can deliver. And if you were to look at what -- if you were to look at, for example, competitive attrition this quarter, the lowest we've seen in years. I think the Merrill FA see the value of our franchise and how they can help their own clients over a long period of time, and we're picking up the recruiting of experienced advisers. That isn't an enormous part of our strategy, but it's a training program so that we're training people in wealth management, Bank of America and Merrill and that is what that's ultimately what we believe we can just keep driving in order to improve the net new flows. Steven Chubak: That's great. And then just one ticky-tack question on the tax rate. First off, thank you for implementing the accounting change. It certainly makes our lives much easier from a modeling standpoint. I know that it appeared at least in the 8-K that there was a small stub of tax advantage investments where you didn't adjust the treatment. So I wanted to just understand if that 20% tax rate is expected to hold going forward beyond 2026 or if there's any potential for very modest but still a little bit of upward drift as earnings continue to ramp? Alastair Borthwick: For now, I'd use the 20% -- I mean, obviously, hence the guidance earlier. You're right, there are a small number of deals that don't qualify for the treatment. Now over time, all of those are going to burn down and burn off. And then in addition, you've got the question of whether or not some of the tax credit equity deals will end up expiring after 2027. So I think over a very long period of time, it's possible that the effective tax rate drifts up. But we'll be able to give you more guidance on that as we go through the various years. Operator: We'll now move on to Gerard Cassidy with RBC. Gerard Cassidy: Can you guys share with us, as you know, the Genius Act was passed and there's a lot of talk about stablecoin deposits. I think they're now trying to figure out how to close a loop hole so that the stable coin deposits cannot pay interest. If they are not -- meaning Congress, if they're not successful in closing that loophole, what's kind of the impact that you guys are thinking that could happen from this trend in stablecoin deposits? Brian Moynihan: So I think I would not -- look, we'll be fine. We'll have the product. We'll meet customer demand, whatever may surface. And so I don't worry about it. But the point we've tried to make, and if you look at some studies, I think, were done by treasury is that they say you can see upwards of $6 trillion in deposits flow off the liabilities of a banking system to as the deposits into the stablecoin environment. And the key of that is to think that the restrictions to be a stablecoin is basically think of it as a money market mutual fund concept that has to be invested in only deposits, banking Fed or treasuries in short term. And so when you think about that, that takes lending capacity out of the system. And that is the bigger concern that we've all expressed to Congress as they think about this, is that if you move it outside the system, you'll reduce lending capacity of banks that particularly hurts small-, medium-sized businesses because they're largely lent to end consumers by the banking industry where capital markets-oriented companies go off into the market. So I think in the end of the day at the margin, the industry gets loaned up. And if you take out deposits, they're not going to -- they're either not going to be able to loan or they're going to have to get wholesale funding and that wholesale funding will come at a cost that will increase the cost of borrowing. And so that's the issue that people have to struggle about. Do I think it affects the course of history of Bank of America, no, we'll be competitive and drive it. But I think in the industry overall, I think it's something that we've expressed concern as an industry, and we continue to make sure that they see those issues as they are trade groups and others as they work through the funnel legislation. What will come out of it? I don't know in terms of adjustments or thoughts about that and are working on as we speak. Gerard Cassidy: Very good. And then just as a follow-up question. Obviously, you guys have presented a positive outlook for yourselves for 2026. The industry appears to be setting up very well with deregulation, steepening yield curve, healthy economic growth. Loan growth is picking up according to the H8 data. And as bank investors, we've learned to always look over our shoulder, but it seems like the worry now is there aren't many worries out there. Do you guys -- when you look at -- other than the geopolitical risk, of course, which is always a risk, what do you guys focus on just to keep an eye on in case something goes off the rails or something? Brian Moynihan: Yes, don't be a [indiscernible] there, Gerard. At the end of the day, think about the structure. We are always doing stress tests that reflect a 50% decline in house prices and market declines and all that kind of stuff and we test ourselves every quarter. We have trading stresses run every day. And so you're always trying to see, at the end of the day, whatever configuration of activities that produce as a result, the result that's going to reverberate into the global financial system and the U.S. financial system and the U.S. banking system is going to be the economy, right, in a recessionary environment, a high unemployment, those types of things. So what we do is we stress scenarios that produce those characteristics. But really, if you think about it, the stress test is going from where we are today up to 10% plus unemployment, house prices are down, as I said, they don't -- the way the methodology doesn't really allow you to adjust your operating expenses, which we know we would adjust. And you can see the industry passive stress tests, and that's, I think, 1 of the most valuable things that came out of the regulation. And our goal is to get those fine-tuned a little bit so they don't swing back and forth depending on who is supplying to test, but the reality is it's a good thing, and we all support that. So I think that's the way to measure it. Is there [indiscernible] that you can outline you started rattling off and I could [indiscernible] off, yes. But you sat there and said last year at this time, those same dimensions were in place 2 years ago, 3 years ago, 4 years ago, but we just don't see what we see differently than this maybe 3 or 4 years ago is the momentum in the market -- the capital markets activity in the investment in AI and the consumer spending is 150 basis points higher than it was back then -- our customer base, the credit quality is -- we're running at 40 basis points level. That's a level that is among the lowest in the history that we could find in a company going back 30, 50 years, these are good setups, but we're always worried about what could happen next as you say, and that's why we did the stress testing. That's why we have to balance. And effectively, that's why we drive responsible growth. We have a balance in lending. We're not overlent in any 1 industry. We manage those things. We make sure that we take the credit risk. We don't have a lot of stored risk that the industry had leading the financial crisis, meeting CDOs and things like that. So the industry is in pretty good shape, yet there'll be something that will happen and we'll all have to adjust to it. Let's just hope it takes us longer the next year to happen. Gerard Cassidy: Yes. No, no, I totally agree with you. Operator: We'll now move on to Saul Martinez with HSBC. Saul Martinez: I wanted to follow up on credit. And I apologize if you addressed this in the prepared remarks, but it's been a busy morning. But your loan loss provisions and charge-offs have been particularly low in the last couple of quarters. And Brian, you just mentioned the 40 basis points being historically low. Wholesale also very low. I'm just curious your thoughts on whether you think we're at below trend levels of losses and in what categories? And is there a way to think about what more normalized levels of losses would be even in an economic environment that remains benign as we have now. Alastair Borthwick: Well, you're right, asset quality has performed quite well. You can see that in consumer. You can see that in commercial. At Investor Day, we gave an idea of what we thought through the cycle might be. I think we said at the time, 50 to 55 basis points. So you can see right now the last 2 quarters, we were at 47 and 44 overall. So we're obviously happy to see that. We feel like we underwrite the right risk. We feel like we select the right clients. We feel like we've earned that and it happens to be a good environment right now. But maybe the 50% to 55% is the right number or through the cycle. No change to investment. Saul Martinez: Okay. Okay. That's helpful. And I guess in consumer deposits, you expressed some optimism that you're seeing an inflection there and some acceleration. Just curious where you think the growth can get to? Do you think we can get to mid-single-digit types of growth in consumer deposits? And what are some of the variables that would drive that? Does it depend on additional rate cuts? And just kind of curious what you think a more normalized level of -- or not on a more normalized level of growth. But where do you think it could go to as rates come down and deposit growth starts to materialize? Alastair Borthwick: Well, look, Brian did a nice job of sort of setting the historical context. We've had an enormous pandemic bump followed by normalization back towards something that would be more just normal for consumers in terms of what they would have in their checking accounts. That has taken years. But what we're seeing right now, Saul, is if you look at the checking account balances, for example, they're up a couple of percent now year-over-year, not 0. So do I think it can go higher again next year? I believe we do. Historically, we might see consumer deposit growth at GDP to GDP plus type levels. Now that would put you in the sort of 4% to 5% type of range. Maybe we don't get all the way there this year, but we just come off a year where we added 3%. So we're obviously expecting and hoping for something slightly higher again in 2026 as we move to something more normal. Operator: Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to Brian Moynihan. Brian Moynihan: Well, thank all of you for joining us. And just in summary, it was a good quarter and a good year, and I want to thank our team at Bank of America for producing it. We've laid out at Investor Day, that world-class franchise we have across all these businesses their performance continues to make good progress in '25, both on revenue profitability and returns. The organic growth that I outlined earlier remains strong. The credit is very stable and very good quality. And we continue to manage head count and expense as we talked about to drive operating leverage. So thank you. We look forward to talking to you next quarter. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Greetings. Welcome to the RF Industries Fourth Quarter Fiscal 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Donni Case, Investor Relations. You may begin. Donni Case: Well, thank you, and good afternoon, everyone, and welcome to RF Industries Fiscal Fourth Quarter and Year-End 2025 Earnings Conference Call. With me today are RFI's Chief Executive Officer, Robert Dawson, President and COO, Ray Bibisi, and CFO, Peter Yin. We issued our press release after market today, and that release is available on our website at rfindustries.com. I want to remind everyone that during today's call, management will make forward-looking statements that involve risks and uncertainties. Please note that information on the call today may constitute forward-looking statements under the Securities Exchange laws. When used, the words anticipate, believe, expect, intend, future, and other similar expressions identify forward-looking statements. These forward-looking statements reflect management's current views with respect to future events and financial performance and are subject to risk and actual results may differ materially from the outcomes contained in any forward-looking statements. Factors that could cause these forward-looking statements to differ from actual results include the risks and uncertainties discussed in the company's reports on Form 10-Ks and 10-Q and other filings with the SEC. RF Industries undertake no obligation to update or revise any forward-looking statements. Additionally, throughout this call, we will be discussing certain non-GAAP financial measures. Today's earnings release and related current report on Form 8-Ks describe the differences between our GAAP and non-GAAP reporting. With that, I'll now turn the conference call over to Robert Dawson, Chief Executive Officer. Please go ahead, Robert. Robert Dawson: Thank you, Donni, and welcome, everyone, to our fourth quarter and fiscal year-end 2025 conference call. I'll start with our fourth quarter highlights and observations of what our team achieved in fiscal '25. Ray will then provide a progress update on our go-to-market strategy and Peter will cover our financial results before opening the call to your questions. In the fourth quarter, our team kept building on the momentum we delivered throughout the year. Net sales grew 23% year over year to $22.7 million. Over the past several quarters, I highlighted how our strategic transformation was driving profitable growth. And the operating leverage from executing our plan really showed in Q4. Gross profit margin of 37% exceeded our 30% target. And adjusted EBITDA was 11.5% of net sales, above our stated goal of 10%. We controlled our fixed costs while driving strong sales growth, and that execution delivered a significant increase in profitability. As I mentioned, our results steadily accelerated throughout the year and for the full fiscal year, net sales were $80.6 million, an increase of 24% compared to fiscal 2024. Gross profit margin for the year was 33% compared to 29% in the prior year. And we delivered adjusted EBITDA of $6.1 million, a huge increase compared to $838,000 in adjusted EBITDA in fiscal 2024. From both the top line and bottom line perspective, fiscal '25 felt like a breakout year for RFI. And going forward, our goal is to prove what our operating model is capable of producing. While the general overall environment continues to have its share of uncertainty and increased costs, our team will continue to execute our long-term strategic plan. To further transform RFI from a product seller to a technology solutions provider. In fiscal '26, we remain intensely focused on diversifying end markets, driving further customer and market penetration, and launching new products and solutions that we believe will help deliver another year of strong sales growth and profitability. Now I'd like to walk you through how some key initiatives contributed to a successful fiscal '25. And how they set up RFI for future growth and profitability. The baseline story is the difference between being a solutions provider with technologically advanced products and systems versus our historical position as a downstream component supplier. Being a solutions provider, coupled with RFI's reputation and product approvals from key customers, has opened many new channels for growth and has resulted in considerable diversification of both customers and end markets. Ray will go into more detail on trends we're seeing in key end markets, including aerospace, stadiums and venues, and transportation. What I want to point out is that diversification not only expands opportunity, also mitigates the risk of customer concentration. In the past, there were times when a single customer accounted for a large part of our growth during the fiscal year. While this was good for our top line and is not abnormal in a growth story, we also recognized it could be seen as a vulnerability. Since then, our team has been heavily focused on widening our horizons by innovating our product applications into new end markets, engaging new customers to drive diversification. Now our results are healthier, with diversity by product, customer, and market. Three key initiatives are helping our story evolve. First is deepening our relationships with existing customers. We want to partner more closely with our customers, which allows us to add more value and likely gain a larger share of their annual spend. With our high-value proprietary offerings, we can provide tremendous performance and cost benefits to our customers. We've become very adept at partnering with our customers to identify a need, and then using a key solution as the tip of the spear to elevate our relationship. Once we began working more collaboratively with the key technical and market resources within our customers on solving their pain points, we saw more opportunities to cross-sell and expand the value proposition of our relationships. Second, leveraging our successes in markets where we have a long history helps us identify needs similar applications in other new end markets. Once we've proven our value to key current customers, our team has become skilled at aligning with new customers and partners to penetrate new market segments. We believe over time that these new markets and customers will build into healthy contributors to our sustainable growth and profitability. Finally, we're expanding the value proposition we offer to our channel. A solid portion of our revenue comes from partners in our distribution channel, and we continue to foster very close relationships with these key companies. As our portfolio of high-value innovative products and solutions grows, our partners' product offerings to their customers are further enhanced. This has resulted in steady recurring sales for RFI. Also, our distribution partners help open the doors to customers we're targeting. Just about every key contractor and integrator buys from distributors. And we appreciate being well aligned with each of those groups. In addition to our key distributors, we also made a strategic decision to partner with certain manufacturers that act as a channel to take us to new customers and markets. As I mentioned on last quarter's call, a major manufacturer of electronic cabinets and enclosures identified our thermal cooling systems as a solution for edge data center installations. And we're starting to see some real traction in these applications. Both of our organizations believe our combined solution the critical role that cooling systems play in the performance and reliability of edge equipment. While still in its early stage, this collaboration can result in a significant new opportunity for us. It's a great example of where a customer sees a problem and comes to RFI for a solution. We look forward to sharing more about these stories in coming quarters. These go-to-market initiatives along with our continued focus on constant improvement in operational excellence. Provided great results in 2025. And we have solid momentum as we enter fiscal year 2026. While we expect some of the normal seasonality in Q1, we also expect to accelerate throughout the year in a similar trajectory to fiscal 2025. And with what we know today, we anticipate another year of sales growth. As I've noted before, we look at our business opportunity over the long term. Because results can flex from quarter to quarter depending on when orders are shipped out the door and a small movement of a shipment even by a day or two could have a large impact on a single quarter. Our leading indicator is having a strong and diversified pipeline to help fuel top-line growth. Which in turn can deliver profitability from our operating leverage. Most important, we have a great team that's firing on all cylinders. Their enthusiasm and commitment to maximizing the opportunities ahead is driving RFI forward to our full potential. Now I'll turn the call over to Ray for more detail on the tremendous progress our team has made in executing on our strategic plan. Ray Bibisi: Thank you, Robert, and good afternoon, everyone. Across our business, Q4 reinforces the progress we've made throughout fiscal 2025. What stands out most is not just where we're seeing growth, but the consistency and discipline behind our execution. Across our targeted end markets, demand remains supported by long-term infrastructure and connectivity investments. In large infrastructure markets, including stadiums, venues, and transportation, activity remains strong throughout the year. We supported more than 130 projects across these categories delivering a meaningful contribution to revenue compared to prior years. More importantly, this work strengthened our credibility and visibility positioning us for future multiyear opportunities including major global events such as the LA Olympics, and the US World Cup. As well as continued airport modernization programs. Our pipeline continues to provide strong visibility across a wide range of infrastructure-related opportunities reinforcing our confidence in demand stability. The aerospace and defense market also remained solid. Performance here continues to be driven by close collaboration between engineering operation, and customers to deliver solutions that meet stringent performance quality, and compliance requirements. In telecommunications and broadband, investment remains focused on densification, coverage expansion, and network reliability. Our small cell, direct air cooling, and RF passive solutions continue to see consistent traction across both OEM and carrier-driven programs. Across all these markets, our distribution channels continue to perform well, delivering consistent contributions based on improved product availability, strong partner engagement, and more disciplined commercial cadence. From an operational standpoint, Q4 reflected continued progress towards more predictable execution and tighter operational controls across inventory, cost, and delivery. Inventory actions were focused on aligning the supply chain with demand while managing tariff and supply chain uncertainty. And our cost reduction initiatives continue to deliver tangible benefits. Process and IT improvements are strengthening forecast accuracy, visibility, and scalability across the organization. From an engineering perspective, our focus continues to be innovation aligned with market demand. A more disciplined stage-gate process, and cross-functional prioritization are improving on how we allocate resources to the highest value opportunities. Customers are increasingly engaging with us early in their design cycle. Reflecting our evolution from a component supplier to a problem-solving partner. As Robert noted, RF Industries looks very different today than it did a few years ago. That change reflects clearer accountability, stronger cross-functional alignment, and a more disciplined operating rhythm. Looking ahead to 2026, our priorities are to build on this foundation. Executing reliably, advancing our product roadmap, strengthening leadership, and improving predictability across the business. There are plenty of external variables we continue to manage. But our strong pipeline, disciplined operations, and aligned teams position us well moving forward. What gives me confidence today is the progress we've made in building a more predictable and scalable business. With stronger execution, better visibility, and clear accountability. RF Industries is well-positioned to carry momentum into 2026 and continue creating value for our customers and shareholders. Now I will turn the call over to Peter. Peter Yin: Thank you, Ray, and good afternoon, everyone. As Robert mentioned, we're pleased with our fourth quarter and full-year results. Starting with our fourth quarter, sales increased 23% to $22.7 million year over year and 15% on a sequential basis. Gross profit margin increased to 37% from 31% year over year. That is an improvement of approximately 600 basis points that was driven by both higher sales and a more favorable product mix. Fourth quarter operating income was $903,000, a considerable improvement from the operating income of $96,000 we reported last year. Consolidated net income was $174,000, or 2¢ per diluted share and our non-GAAP net income was $2.1 million or 20¢ per diluted share. Compared to a consolidated net loss of $238,000 or 2¢ per diluted share year over year and non-GAAP net income of $394,000 or 4¢ per diluted share for Q4 2024. Fourth quarter adjusted EBITDA was $2.6 million compared to adjusted EBITDA of $908,000 for Q4 2024. Turning to fiscal year 2025 results. Full-year revenue increased 24% to $80.6 million year over year. This included finishing the year strong, with shipments from our custom cabling offering to a leading aerospace company. Full-year gross profit margin increased to 33% from 29% year over year. That is an improvement of approximately 400 basis points which was primarily driven by both higher sales and a more favorable product mix. Full-year operating income was $1.8 million, a significant improvement from an operating loss of $2.8 million in fiscal 2024. Full-year consolidated net income was $75,000 or 1¢ per diluted share, and our non-GAAP net income was $4.4 million or 40¢ per diluted share compared to a consolidated net loss of $6.6 million or 63¢ per diluted share year over year and a non-GAAP net loss of $990,000 or 9¢ per diluted share for fiscal 2024. Full-year adjusted EBITDA was $6.1 million, a substantial improvement compared to adjusted EBITDA of $838,000 in fiscal 2024. Moving to the balance sheet. Our working capital and overall liquidity remain very strong. Our improved results allowed us to reduce our net debt by $4.6 million compared to last year. As of 10/31/2025, we had a total of $5.1 million of cash and cash equivalents and we had working capital of $14.1 million and a current ratio of approximately 1.7 to one. With current assets of $35 million and current liabilities of $20.9 million. As we discussed on the last call, we have been exploring ways to reduce our overall cost of capital. As a result of our significantly stronger financial results and outlook, I'm pleased that we were able to negotiate more favorable terms and flexibility for our revolving credit facility. Reducing the minimum outstanding loan balance, interest rate, and reporting requirements. As of 10/31/2025, we had borrowed $7.8 million from our revolving credit facility. Our inventory was $13.7 million, down from $14.7 million last year. The decrease in inventory reflected further operational excellence. We continue to manage our inventory levels with discipline. Balancing our ability to meet strong customer demand while optimizing supply chain operations to maximize efficiency. Moving to our backlog. As of October 31, our backlog stood at $15.5 million on bookings of $18.5 million. As of today, our backlog currently stands at $12.4 million. Our backlog is a snapshot in time, and can vary based on when orders are received and when orders are fulfilled. While we view backlog as a general gauge of health, it can swing significantly at times, making it a less predictable indication of our near-term sales. We are incredibly proud of the breakout year that we achieved in 2025. While understanding there is still work ahead of us, as we see room for further improvements. We enter fiscal 2026 with strong momentum and we are optimistic about the future and our ability to drive improved profitability as we continue to grow. With that, I'll open up the call for your questions. Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, please press 1 if you have a question or a comment. First question comes from Josh Nichols with B. Riley. Please proceed. Matthew Maus: Hi. This is Matthew Maus on for Josh. Thanks for taking my questions and great quarter. Guess, let's start off. Yeah, I guess to start off, I mean, fiscal 2025 came in above our expectations. You had strong momentum exiting the year. I'm just wondering how we should think about the growth trajectory for fiscal '26, especially now that we're almost through the '6. So I'm just wondering how things are tracking. Robert Dawson: Yeah. Appreciate that. Thanks for the question and the comment. So I think as I said in my commentary, our expectation for '26 is another year of growth. I think the trajectory of how we get there is gonna look similar to what it was in '25. You know, the joy of having a first quarter that includes November, December, and January means you're always gonna have seasonality almost regardless of what industries you're selling into. So we expect our first quarter probably to be our platform to start from as our lowest quarter of the year. Again, if you look at what we did in 2025, you can see how quickly that accelerates and how the profitability really ratchets up. So while we're not giving specific guidance, I think if you look at our normal sort of our normal quarterly quarter-over-quarter growth that we see in a given year, we expect something similar in 2026. Matthew Maus: Got it. And, yeah, I mean, this fourth fiscal fourth quarter was really strong, and you had gross margins that expanded to 37%. So I'm just wondering, like, can you break down how much of that was mix versus operating leverage or pricing? Robert Dawson: Yeah. I think it's really a nice combination of product and solution mix, which we're starting to see a solid impact and contribution from some of the higher margin product lines that we sell. But I can't really understate the strength of a sales number that starts to get up above $20 million a quarter. I mean that's a we really saw it in Q4, and that's not something that we've been able to even model perfectly and say, hey. What's this gonna look like if our mix does what we think it's gonna do and sales go above a certain level? You know, once we fully absorb our fixed overhead and our labor we start to throw a lot of cash to the bottom line. And so I think that was as much the story in Q4 as anything else was our sales came in a little higher than even what we expected. We had some orders that were requested to be moved in a little bit, which was great. So we benefited from that. But, certainly, you can really see what happens when sales creep up above $19-20 million bucks. How much of that becomes a bottom line impact. Matthew Maus: Yeah. Actually, expanding on that bottom line impact, I mean, similarly, EBITDA margin was, you know, like, 11.5%, and that was above your 10% target. Is there sort of, like, a new target that you think you can hit? I mean, you're expected to grow this fiscal 2026, so I'd only imagine that as you continue pushing past $20 million, it'll continue to be above that 10% target on a strong quarter. Robert Dawson: Yeah. I appreciate that. I think, I mean, one, I wanna celebrate how great the team was to get us there in Q4. We put a goal out there of getting 10% EBITDA as 10% as a percentage of sales. We put that out not long ago and said, yeah. We see an opportunity to get there. We've got to really work hard to do it both on the cost and operational excellence side, but also on the sales side. And everything kinda came together in Q4. I think the expectation for us is we got to find ways to keep it above that 10% number. That's not an easy feat. I mean, if sales are up, that's great. But we're also up against, you know, continued cost increases and other things that are being thrown at us. So not putting out a specific different goal than what we already have. Our job is really to keep the profitability as high a level as we can. Again, looking at it over the long term. I mean, if you look at what we did in Q1 through '4 in 2025, you saw that number adjusted EBITDA as a percentage of sales start to crank up each quarter. Even as sales didn't grow a ton until you really saw in Q4 with a higher sales number. So I anticipate sort of a similar approach to 2026. And how that's gonna go. I mean, the quarters are hard for us to dictate specifically based on customer demand and timing of shipments around projects. Specifically, But I think, we just wanna celebrate that we exceeded that 10% a little while before we get into what are we gonna do next. Matthew Maus: Got it. Thank you. And last one for me. It'd be helpful if you could expand on those cost increases you mentioned. And how much of those increases do you think can be mitigated with the new products and solutions you're looking to launch this year? Robert Dawson: Yeah. So I think, I mean, look. It's nominal increases. It's the things that everyone's up against. We do have a lot of people building products in The United States. We've got a healthy production team that's north of 200 folks. Building things in multiple locations. We're proud of that. And because of that, we need to keep those folks, you know, wages keeping up with the world and with great benefits. For a company our size, we provide what we believe are really strong health care and 401(k) match and other things like that that in a lot of cases, are better than companies much larger than we are. So those are the things that we see increases on sort of annually. And the team's done a good job of managing those. We go in eyes wide open every year knowing that there's these annual renewals of certain things. And we have to do our best to mitigate that where we can. Some of that can be done with pricing, but to your point, some of that can be overcome with just a slightly better sales number with a solid product and solution mix. And so we, you know, we attack an annual budget with that idea that we have some increases, and we expect that we have to overcome them because that's what we're supposed to do. So it's the normal thing that you would see and then throw in just the general global chaos of things can change with one quick text message or tweet at this point. And so have to always be on our toes and ready for changes to things like logistics costs and other product costs that might be unexpected at this point. Matthew Maus: Got it. Thank you. And actually, just a quick follow-up on that. Can you maybe give us I guess, in terms of those new products and solutions, like, maybe a couple that you think are gonna be the most impactful this year? Robert Dawson: Yeah. Look. We continue to feel really good about our integrated systems product line stack and small cell are both things we've talked about for a long time. That we're having minimal impact on our sales and have started to really contribute more. We also still feel really good about our legacy product lines. I mean, our custom cabling business is strong and performing extremely well in things like the defense market and other, you know, industrial and OEM kind of markets. We're seeing nice steady growth there and some great customer wins that, you know, in some cases, we're putting out news on when those things come in. In the aerospace and defense market. So I think, you know, those three areas are probably items that are more project-centric and can be kind of a meatier piece of our total sales. The everything else, which has in many cases, you know, a distribution flavor to it as well. We expect those to continue growing and being a nice workhorse in the background putting up solid growth and profitability there. So it really has become for us sort of the combination of firing on all these different pistons not expecting every single product line to be perfect every quarter. But expecting a nice balance from them. And when there's contribution from multiple product and solution areas that are, you know, project-centric and less seasonal that starts to give us some predictability and smooth things out where it can. Matthew Maus: Got it. Thanks for taking my questions. I'll hop back into the queue. Robert Dawson: Thanks, Matthew. Operator: Next question is from Howard Root, Private Investor. Howard, please proceed. Howard Root: Great. Thanks for taking my questions and congratulations. Not just on the quarter, but really the transformation you've done over the last couple of years here with RF Industries. It's really a great job. Thank you. First, I got a couple of questions for Peter. The income taxes and the noncash onetime charges, can you kind of give a quick explanation of what those were in the fourth quarter? Peter Yin: Sure. I'll tackle the tax first. Tax relates to a valuation allowance. There. So not sure if that answers your question or you want me to get into a little more detail here in our footnotes to the K. There we kind of have a tax provision footnote that kind of highlights that in a little more detail. Howard Root: I'm just kinda looking going forward. The $478,000, obviously, a huge number for the income taxes. But what is that, you know, if you strip out the unusual stuff, what's your tax rate going forward? Peter Yin: So tax rate going forward, it's kind of hard to predict. They're probably in the mid-twenties if that's kind of standard corporate tax rate, from state and federal. There, but we have some nuances with valuation allowance items kicking in, for us. Howard Root: Okay. And then the noncash, is that part of that was on the taxes side too, or is that something else? Peter Yin: No. The noncash items are not part of the valuation allowance or the tax provision. So those items are kind of pointed out there. The $855 you're seeing there, we talked a little bit about it's related to an accrual for a settlement. Howard Root: Okay. And then the interest rate, what do you see as a decline in your interest rate kinda going forward from this new rework plan of credit? Peter Yin: Yeah. So we're, you know, obviously, the refinance we've disclosed there, so it's drop. But from a cash perspective or interest, savings, we're expecting kind of at least a quarter million in interest savings. For the next year. Howard Root: Okay. Great. So then more for Robert on the, you know, the just diversification that you've gone through. It's amazing. And it could you put some numbers kind of around on what percentage of your revenue and just really ballpark, Robert, is coming from, you know, transportation, aerospace, you know, stadium, data centers, can you tell us in terms of where you are and types of the revenue growth from there? And getting away from your base telecommunications business? Robert Dawson: Yeah. I appreciate the question. I think it's hard to slice that up simply because the numbers get they share a lot of information. I think for a company our size, trying to slice into the various details. What I can tell you is, you know, on prior years where we had major growth happening, we were seeing the, you know, wireless and telecom market in the 70% range of total sales. We're now seeing that more like 50%, about of our sales are coming from things that I would call telecom and wireless. The remaining half is coming from, you know, in many cases, similar applications maybe, but transportation, aerospace, and defense, industrial, and other OEM, public safety, things like that. So I think the way that we disclose those results is a slightly higher level than maybe what you're asking, but, hopefully, that gives you some color around just the way we've seen the overall impact and contribution from those different markets. Howard Root: Great. Yes. And then in the backlog, just to kind of explain, I mean, what part of that is seasonal? I mean, both the bookings and the backlog took a pretty big drop from Q3 to Q4. And I understand being a shareholder for a bunch of years, is that part of that is seasonal. But what part of that is seasonal? What part of that might be from the transformation of the business changes, how long you have backlog or what your overall level of backlog would be and when your bookings are coming in. What can you say about that in terms of what that means for your business? Robert Dawson: Yeah. Great question on backlog. I think it's, you know, for us, it's a as we've said for years, it's, you know, it's a good health indicator that we have a backlog, and we've got stuff coming in there. I think we also disclose it deeper than most companies where we talk about, you know, end of quarter and based on the bookings that we had, what got us to that number, and then we give an update at the time of our call to make sure people are clear to elaborate a little bit on how the business does work. And you're right. With the way you're thinking about it is, you know, seasonally, we expect to have a solid booking quarter in our fiscal fourth quarter. Just around the seasonality of sort of the way we also expect to start eating through some of that backlog in our Q1. most markets work. We also are trying to get better at moving our backlog out the door. You know, it doesn't hurt us to have long-standing backlog, but it also, at times, some of that backlog can get old and tired. We wanna keep that moving similar to the way we've managed our inventory by bringing it down to a, you know, a more manageable, healthier level and being faster with replenishing when we need to. Our expectation on backlog is that it sort of hits a low point in our first quarter and then starts to work its way back up as we see the project-based work on the calendar year start to kick in when people's budgets get finalized and everyone gets settled back into their seats. This was a, you know, I think everyone probably felt that this was a strange holiday season because you had Christmas and New Year both falling on a Thursday. Which means you basically had two dead weeks from a people coming to work and everyone being engaged perspective. We're finally seeing the world get back to a little more normalcy. Our expectation is that that backlog will, you know, start to move back up as it normally does this time of year. But at the same time, you can see that we've been moving some of that out the door to get to a fresher level as well. Howard Root: Right. And then bookings, the $18.5 million in bookings for Q4, was that kind of according to your plan? Was that ahead of your plan or a little under your plan? How did that fit with your expectations? Robert Dawson: Yeah. I would say it's around our plan-ish. I think it's hard to Q4 is a tough one because of where our, you know, October year-end doesn't really align with other people's budgets. So we generally see a larger booking level happen in our third quarter. It's kinda just seasonally. That's what we've historically seen. It's starting to smooth out a bit. But the, you know, October, November, December, January time frame is always any order that we expected in any of those months could be in another one. And that's just that's just how it falls around the year-end and the year beginning. So it was fine. I think we were happy with that number, and, you know, and the thing that we're even happier about, though, is we've got in our pipeline that still looks super healthy. Ray talked some about that. The different application areas and the different customer areas where we're seeing, you know, growth in the last couple of years, we've still got a really solid pipeline of opportunities that aren't going away. While those move around in those various months, as I just said, we only see us adding to that pipeline of opportunity and feel really good about it. Howard Root: Great. Well, I appreciate all the extra color there. And again, congratulations to you and the whole team on outstanding performance from where you were four years ago to where you are today. Thanks a lot. Robert Dawson: Great. Thank you, Howard. Operator: Once again, if you have a question or a comment, please indicate so by The next question comes from Steve Cole with Bantgrove. Please proceed. Steven Kohl: Hey, good morning, guys. And too would like to reiterate that it's congrats on a great performance. I'm sure I agree that you should at least savor the victory at least for a day or two, maybe even a week before we start looking at the next set of targets. But wanted to talk about a couple of things. One thing on the balance sheet, I noticed if I'm doing my math right, we're down to $3 million in net debt, which has probably been the best we've been in quite a while. How has that changed our priorities on capital allocation? Do we see we haven't done any acquisitions in a while? Do we look at share buybacks, acquisitions, dividend? Has the thought changed at all on that or what is the thinking today on capital allocation? Robert Dawson: Yes. Steve, thanks for the question. I think at the moment, our priority is the same as it has been. You know, we wanna get that net debt as low as we can. Obviously, the performance of the business helps. But at the same time, every time the board meets, we talk about, you know, best shareholder value. And at the moment, we think the best thing for us short of having a strategic opportunity in front of us that makes sense, we wanna continue paying down that debt. That is job one. Now we're also always looking at other opportunities to drive shareholder value and give a nice return. So all of the items that you brought up are up for discussion. Every time the board meets, we talk about those. We haven't done an acquisition in a few years that's been on purpose, and some of that the market, and some of it was us getting to a point where we could actually, you know, finish the integration, of the ones that we had done. We finally got a chance to do a lot of that work, which is showing through now in our operating leverage and, you know, getting our costs as low as we can. So I think if there were an opportunity that presented itself, from an M&A perspective, we might alter those priorities. But at the moment, our priority continues to be debt service and getting that to a, as low a point as we can. Steven Kohl: Right. And if I one follow-up just on margin for a sec. So I know obviously margin is doing very well. I guess I'm curious we look across the base, how much of the improvement in margins coming on the book to inside versus just volume running through the plant? I know you've keyed in on, again, today kind of on a I know it depends on mix. And we get to a certain level, a lot comes to the bottom line. But are we seeing is that split fifty if you look at it, I know how to phrase the question, but are we seeing a better book? Because I presume as you're getting aerospace defense stuff, you're getting better booked in margins there. I would think. But can you put some color around that or some granularity? Robert Dawson: Yeah. I think the best I can do there is, you know, look. Having a better product mix and solution mix with some of our newer higher high-value much more technology-centric product areas. Really helps. I mean, that mix just as those areas perform better, Matt will tell you that that'll start to drag your gross margins up. Once we cross, you know, $18-19, $20 million in sales, now you start to see the impact of, you know, you fully absorb all the labor, much of which for us hits above that gross profit line. So the better we perform top-line wise, almost regardless of product line, and the mix, you're gonna see more profitability, which for us, we live and die by the gross profit line. You know, we manage our really well below the line. It is a function of those things. Can we sell more valuable products? And solutions to our customers and can we get that high as possible? Because when we do, you really see the impact of it. So it's, yeah. As it's hard for you to ask the question, it's hard for me to give a specific answer on which percentage causes which. I can tell you that it's both those things help. Although, you know, we would see a solid margin improvement just with a higher sales number and a similar product mix than what we've had historically. Wouldn't be as high as 37%, but it certainly would be better. Steven Kohl: And last question, just touching on you alluded to DAC and small cell. Obviously, it's taken a little while for them to get some traction. But talking about public safety for a minute and density, I know for a long time we're talking about, you know, these buildings and venues, you know, and even elevate people had coverage. Are we seeing is the regulatory landscape there changed? Is it still a local thing? Or is there anything from a bigger picture? Is that market becoming more lucrative and getting more traction as people have put requirements on the books that they're actually enforceable? Robert Dawson: Yeah. We like the public safety market. I mean, we have a great product offering, not just with our RF passives and some RF active gear that, you know, we have under the Microlab brand. But also our kinda core connectivity product line fits in there as well with fiber and coax. So we like it. We've sold to it for years. Most of that gets serviced through the distribution channel. Which, again, we appreciate those partnerships and getting to markets like that. I think how those decisions are made and who really dictates what, though, it's still really fragmented. You've got localized ordinances that sometimes are hard to enforce. There's certain cities in the country that have mandated public safety coverage inside buildings, and that mandate is hard to force people to do when they're unwilling to find these building owners to make it happen. It just becomes a really challenging sort of environment. That's not new. We take part in public safety forums all year long. All the time, and have conversations about it real-time. It's similar to kind of bead funding, the federal government says, hey. We need this. And then it gets left up to states and local governments, and then it just becomes a revolving door of people making decisions. And it's been challenging to pin down, you know, sort of a final addressable market there short of saying, for us, it falls into our in-building coverage, our distributed antenna system product areas and those the way we service those applications. So I think it'll continue to get better. New buildings being built tend to have an opportunity to put in some better public safety-based, you know, RF solutions, and we're right in the middle of many conversations around that. And I think our offer is really strong there. So we expect that to be an opportunity for us going forward, but it continues to be extremely fragmented from an ordinance and decision-making perspective. Steven Kohl: Thank you guys very much. Robert Dawson: Thanks, Steve. Operator: We have no further questions in the queue. I will now turn the call back over to Robert Dawson for closing remarks. Robert Dawson: Great. Thank you, and thanks, everyone, for participating in today's call. We truly appreciate your support and look forward to reporting on our progress throughout fiscal 2026. Have a great day. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon, and welcome to Compass Diversified's Fiscal 2025 Third Quarter Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Ben Tapper, Vice President, Investor Relations. Ben, please go ahead. Ben Avenia-Tapper: Thank you, and welcome to Compass Diversified's Third Quarter 2025 Conference Call. Representing the company today are Elias Sabo, CODI's Chief Executive Officer; and Stephen Keller, CODI's Chief Financial Officer. We are also joined by Zach Sawtelle, Chief Operating Officer for Compass Group Management; and Pat Maciariello, who recently retired after 20 years with CGM. Before we begin, I'd like to remind everyone that during the course of this call, CODI will make certain forward-looking statements, including discussions of forecasts and targets, future business plans, future performance of CODI and its subsidiaries and other forward-looking statements regarding CODI and its financial results. Words such as believes, expects, anticipates, plans, projects, should, and future or similar expressions are intended to identify forward-looking statements. While these statements present our best current judgment about future results, performance and plans as of today, our actual results and operations are subject to many risks and uncertainties that could cause actual results and operations to differ materially from what we expect. Except as required by law, CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise. In addition to any risks that we highlight during this call, important factors that may affect our future results, performance and plans are described in our recent SEC filings and press release. During the call, we will refer to certain non-GAAP financial measures. Please note that references to EBITDA in the following discussions refer to adjusted EBITDA as reconciled to net income or loss from continuing operations in CODI's press release and SEC filings. At this time, I would like to turn the call over to Elias Sabo. Elias? Elias Sabo: Thank you, Ben, and good afternoon, everyone. With today's filing, we are now current with our SEC filings for 2025. We're also back in compliance with the reporting requirements under our credit facility and bond indentures, and we're returning to a more normal operating cadence. It's been a long road thus far, and I want to thank everyone for their patience throughout this process. We appreciate the support you've shown as we work through it. Before I discuss our performance, I want to give you all a quick update on some organizational changes that have occurred at Compass Group Management, our external manager. After 20 years of dedicated service, Pat Maciariello retired at the end of 2025. Pat has been an integral member of CGM's senior leadership team, and it's been a pleasure to work alongside him over the years. Stepping into the role of COO for CGM is Zach Sawtelle. Zach has been with CGM since 2009, most recently as the leader of our East Coast office. He's been instrumental in many of CODI's most successful acquisitions in his tenure and currently chairs the Boards of BOA, PrimaLoft, Altor and Sterno. I'm thrilled to have him take on this role, and I'm confident his leadership will support continued execution by all of our subsidiaries. Before we move on, I'll pass the call to Pat to say a few words. Pat, over to you. Patrick Maciariello: Thanks, Elias. It's hard to put 20 years into a few words, but I'll try. Working with the CODI team has been one of the most meaningful chapters of my life, and I want to thank each and every employee, manager and partner at Compass. I'm also grateful to the employees at each of our current and past subsidiaries. Your professionalism and hard work were evident every day. I would also like to express my gratitude to the executive teams at each subsidiary business. I have learned and continue to learn from each of you as you have modeled drive, leadership and character. Working with you has been the highlight of my career, and I will be forever grateful for the opportunity. I look forward to watching all of your continued successes from [ the far ]. Thank you. Elias Sabo: Thank you, Pat. On behalf of everyone at Compass, thank you for your leadership and partnership over the years. Best of luck in your next chapter. I'll now turn to our year-to-date results and share a few operating highlights from our subsidiaries. Then I'll close with the steps we're taking to drive long-term shareholder value. From a macroeconomic perspective, 2025 was a year marked by uncertainty driven by geopolitical risks and a fluid tariff environment. Despite that volatility, our subsidiaries, excluding Lugano, delivered mid-single-digit growth in subsidiary adjusted EBITDA through the first 3 quarters of 2025. That's consistent with the expectations we laid out at the beginning of the year. And while Lugano remains included in our reported results for the period, our focus today is on our 8 other subsidiaries. Our solid performance reflects the disciplined execution of our subsidiary management teams as well as the attractive positions our businesses hold in their respective markets. Across CODI, we own and operate high-quality, well-managed middle-market businesses that can perform through a range of economic environments. Now let me walk through what we're seeing in each vertical and share a few examples of how our teams are driving results. Year-to-date, sales in our consumer vertical grew low single digits. BOA continues to drive significant penetration in multiple applications, including snow sports, cycling, workwear and protective headwear. The precision and performance of the BOA Fit system is unmatched. The Honey Pot is now one of the fastest-growing feminine care brands, driving continued share gains and category growth. The team has successfully launched innovative products and is taking share from legacy brands in the feminine care category. We believe this reflects the long-term appeal of better-for-you products as well as the strength of our brand, supporting strong double-digit EBITDA growth. 5.11 moved quickly to adapt to the evolving tariff environment, using supply chain actions and targeted pricing to protect performance while continuing to invest selectively to broaden the brand's reach. Year-to-date, our industrial vertical delivered mid-single-digit sales growth, supported by Altor's 2024 acquisition of Lifoam. In 2025, the rare earth magnetics market saw meaningful disruption that we believe creates a compelling long-term opportunity for Arnold. Demand for a more geopolitically secure rare earth supply chain continues to rise, while intermittent export restrictions have increased volatility. These export restrictions created short-term headwinds in 2025, but we believe they also reinforce the long-term tailwinds for the business as reflected in Arnold's growing backlog. Today, Arnold is one of only a handful of companies producing samarium cobalt magnets in the U.S. These magnets play an essential role in the most demanding aerospace and defense applications where supply chain security and performance reliability are critical. Finally, Sterno continues to deliver double-digit EBITDA growth, driven by strength in its core food service offering. The Sterno management team continues to drive efficiency, including optimizing sourcing and production locations to navigate the tariff environment. These are just a handful of the accomplishments across both verticals. Before I hand it over to Stephen, I want to reiterate our commitment to all of our stakeholders. Now that we have completed the Lugano investigation and restated our financials, we are focused on execution and on delivering consistent long-term shareholder value. While our priority remains reducing leverage to mitigate risk and ensure long-term financial flexibility, we recognize the need to drive shareholder returns, and we are taking steps to position ourselves to be able to efficiently and prudently return capital to shareholders. We believe that our current valuation represents a significant discount to the intrinsic value of our underlying businesses. If this disconnect persists, we will factor that in as we consider the greatest risk-adjusted return opportunities, including the efficient return of capital. The bottom line is that we are committed to a better outcome for all of our stakeholders. With that, I'll now turn it over to Stephen. Stephen Keller: Thanks, Elias. As a reminder, our reported results still include Lugano Holdings, unless otherwise stated. Lugano will be included in our consolidated results through November 16, 2025, the date that entered Chapter 11 bankruptcy proceedings and will be deconsolidated thereafter. For the third quarter, net sales were $472.6 million, up 3.5% year-over-year. GAAP net loss for the quarter was $87.2 million, which includes expenses related to the Lugano investigation as well as Lugano's operations. Now given the timing of this call and because this is the first time we publicly discussed our 2025 results, I'll focus my commentary on year-to-date performance. This captures the first 3 quarters in full and helps normalize for inter-quarter shifts as customers prepare for and then reacted to changes in the tariff landscape. Year-to-date, consolidated net sales were $1.4 billion, an increase of 8.6% over the prior year or 6.1%, excluding the impact of Lugano. In our consumer vertical, sales were up 3.1%, driven by very strong growth at the Honey Pot with additional contribution from 5.11. Year-to-date, BOA declined slightly as the team exited a lower value, less performance-oriented business in the children's market in China. This planned exit supports BOA's long-term strategy. Excluding the children's business in China, BOA's core business grew double digits. Year-to-date, sales in our industrial vertical grew 10.5%, driven primarily by Altor's acquisition of Lifoam. Growth was partially offset by near-term headwinds at Arnold due to the geopolitical uncertainty and disruptions in the rare earth supply chain. As discussed, while that disruption creates short-term challenges, we believe it also reinforces the long-term strategic relevance and growth opportunities of that business. Excluding Lugano, year-to-date subsidiary adjusted EBITDA was $257 million, an increase of 5.8% over 2024. The growth in subsidiary adjusted EBITDA was primarily driven by double-digit growth at the Honey Pot and Sterno as well as Altor's acquisition of Lifoam. This growth was partially offset by short-term challenges at Arnold as it deals with the rare earth supply chain disruptions and broader tariff-related uncertainty. Our consolidated net loss year-to-date was $215 million, which includes $155 million loss at Lugano. Public company costs and corporate management fees were $99.5 million year-to-date. Included in that amount is more than $37 million of onetime costs associated with the Lugano investigation and restatement. CODI and our Board continue to work with the manager to fully recoup overpaid cash management fees from prior periods affected by Lugano's results as originally reported. The overpayment of which will be partially offset by a voluntary cash management fee reduction made by the manager during 2025. In the fourth quarter, we expect to reconcile these items through a significant true-up related to the restatement. We expect this to result in a onetime noncash benefit in CODI's P&L and the recognition of a current asset that will be used to offset future cash management fees. CODI expects to fully recoup the overpaid cash management fees by the end of 2026. Turning to our cash flow. Year-to-date, we used $54 million of cash in operating activities, primarily due to costs associated with Lugano's operations and its disposition. Year-to-date, we've invested $34 million in capital expenditures in line with the prior year as we continue to protect and invest in our 8 subsidiaries to support sustained growth. We ended the third quarter with $61.1 million in cash and cash equivalents and less than $10 million used on our revolver. As a reminder, due to the credit agreement amendment we signed in late 2025, we have restored access to the full $100 million capacity on our revolver. As Elias discussed, reducing leverage is our priority, and we are focused on deleveraging both organically and through value-accretive strategic transactions, including the potential opportunistic sale of one or more businesses. The credit agreement amendment we signed in December gives us the time and flexibility to deleverage in an orderly way. Under the amended agreement, our leverage covenant is relaxed through 2027 with milestone fees paid to the lender beginning June 30, 2026, if our leverage ratio is not below 4.5x, which serves as an incentive for faster deleveraging. That structure allows us to deleverage organically while remaining in compliance. It also preserves the flexibility to accelerate deleveraging through a value-accretive sale of one or more business. As a reminder, our year-end leverage ratio, excluding the deconsolidated Lugano results, is expected to be around 5.3x. Finally, we expect to continue to fund the growth of our subsidiaries alongside our debt reduction and to maintain appropriate liquidity as we execute against our plans. Turning to our outlook for 2025. Consistent with previously communicated guidance, we are tightening our expected subsidiary adjusted EBITDA range, excluding Lugano, to between $335 million and $355 million. We'll provide an outlook for 2026 when we hold our fourth quarter call. However, we do expect to organically deleverage in 2026 through solid growth in our subsidiary adjusted EBITDA. As has been our practice, our outlook does not include the impact of any potential acquisitions or divestitures and assumes no incremental material impact from changes in the tariff environment or other macro and geopolitical developments. Finally, we know many investors have inquired why members of management and the Board have not yet purchased shares following the completion of the restatement. The main reason is timing and process. Given the cadence of our SEC filings this year, we expect our insider trading window to remain closed until after we file our 2025 Form 10-K and complete the annual audit. When the window does reopen, any purchases would be subject to our normal reclearance and compliance procedures. With that, I'll hand it back to Elias for closing remarks. Elias Sabo: Thanks, Stephen. Before I wrap up, I want to share one additional thank you from our Board and everyone at CODI. James Bottiglieri retired from the CODI Board at the end of last year. For over 20 years, Jim was a key member of both the management team and eventually our Board. Jim was instrumental in our initial public offering and has been a valued Board member, providing deep institutional knowledge, financial expertise and wise counsel to the Board and management. We truly appreciate everything he contributed to CODI. Now as I conclude today's prepared remarks and we look ahead, I want to reiterate our commitment to generating sustained long-term shareholder value. This objective is reflected in our capital allocation priorities to reduce leverage, invest for growth and long-term value creation and at the appropriate time, return capital to shareholders. With 2025 in the rearview mirror, we're ready to get back to what has historically defined CODI. We believe we have a battle-tested business model, strong enough to withstand the unprecedented events of this past year. We offer a permanent capital approach that allows us to acquire, manage and grow attractive businesses that are leaders in their space. We provide shareholders access to high-quality middle market businesses backed by engaged ownership, strategic resources and a long-term approach, while empowering strong management teams to run and grow our subsidiary businesses. We know 2025 was challenging, and trust is earned through consistent execution. That's our focus as we enter 2026. With that, Stephen and I will now take your questions. Operator, please open the lines. Operator: [Operator Instructions] And our first question comes from Lance Vitanza with TD Cowen. Lance Vitanza: Congratulations on getting the restatement done. My question would be with respect to the Honey Pot. My recent channel checks seem to suggest both more shelf space and also faster inventory turns than at least I had expected. And I'm wondering if you could comment on how the performance has been shaping up relative to your internal expectations. And to the extent there's been outperformance on that basis, what do you think the drivers of that have been? Elias Sabo: Sure. And thank you, Lance. First feels good to be back up to date with all of our filings and the company getting back to a more normal operating level. With respect to the Honey Pot, this is really an extraordinary brand. I think we told you when we bought this business that this was a company that was founded by an extraordinary woman and that she was really changing kind of the entire industry and using better-for-you products. And it was mostly a business that was in the kind of more of the hygiene side, and it was not in the broader part of the feminine hygiene market. It was in more of the washes and wipes. And so that's a very small market. One of the things that the company has been able to do, and it was always part of the plan was to extend the brand into other categories. And in this case, the company has been able to get into the menstrual category, which is a massive market compared to the market they were entered into before. And we've had very successful execution. Our product really does stand for something in our brand and with our customers, it's extendable into other adjacent categories. And so what we've seen is more shelf space being dedicated to us in this new category, and our turns are doing really extraordinarily well. So relative to expectations, I can tell you the company is significantly outperforming expectations given kind of the additional shelf space that we continue to talk to our retailers about as the next year gets set, we expect that growth to continue. And we're investing in the brand. You just see a lot more marketing. It was always our strategy. And so everything is coming together, and it is really producing wonderful results. And I think '26 is shaping up to be a great year. Lance Vitanza: That's really helpful. I appreciate it. If I could just squeeze in one last question. On the divestiture front, and I know you've talked about this previously, but could you just sort of remind me like are there any assets that are off the table there that you would just simply not consider selling at any price? Or should we just consider this you're going to look to maximize shareholder value. And if that's subsidiary, XYZ, it's subsidiary XYZ? Elias Sabo: Yes. I would say everything -- our model has always been everything is for sale at all times. It all comes down to the value that you're willing to pay. And to the extent that's attractive to us, we would always be a seller under those circumstances. Nothing has changed with respect to that, Lance. So absolutely, all of our businesses remain available for sale because that's the basic kind of business model that we have. Now I would tell you that some of our companies that are growing really fast and have great dominant market positions. And I think we all know kind of some of those businesses that we have. Look, the valuation expectations are going to be really high. And if they fail to materialize, we are in a position where although we would like to divest the business, we don't have to and what we won't do is take a big discount on a premium asset. And so I would just say, yes, everything remains available for sale. That's always been the case. We do have a firm-wide desire to be in divestment mode in order to shrink our balance sheet to get back to normal leverage and then have capital allocation available to us again. Stephen mentioned, part of that is clearly looks at buying back stock as a capital allocation opportunity. And at these prices, we would think that's pretty attractive. So divestment is what we would like to achieve, but it is not without kind of respect to valuation, and we'll be very disciplined in executing that. Operator: Our next question comes from Larry Solow with CJS Securities. Lawrence Solow: Great. Welcome back, I guess, to the current financial world. Also just want to extend my best wishes to both Pat and Jim, great working and personal relationships with both of them. So I wish you guys both best of luck. I guess first question lies is just kind of just broad brush. I know you called out good color on all your holdings, quite frankly. But growth seems like it slowed a little bit. I think you grew kind of 8% first quarter and 2% or 3% this quarter. It looks like it's probably more just timing in some of your bigger holdings like BOA. I think maybe timing there and also the Chinese exit. So -- but just from a broad brush, how do you see the economy like today versus -- I know you had a lot of other things on your mind, but maybe at the start of the year and just... Elias Sabo: Yes. Thank you, Larry. Thank you for the warm wishes for Pat and Jim. They have both been really valuable participants here in building Compass and have become friends with us all, and we wish them the best in their future endeavors. With respect to the economy and kind of how we see things or saw things unfold, yes, we did have a really strong Q1 and things moderated in Q2 and Q3. We saw a little bit of a pull forward of some demand that we think otherwise would have materialized on a more normalized pattern with the kind of Liberation Day announcement and there was a period of time where you could still bring some goods in, and I think everybody kind of rushed to do that. So there's a bit of distortion, I would say, quarter-to-quarter because of that. But look, if we're going to normalize for that, there still is a bit of a slowdown that occurred after Liberation Day. And as you'd anticipate, there's -- look, a lot of inflation. There was some inflation that came through still, and it was very disruptive for a lot of companies. And I think consumers just got to the point where they weren't willing to take any additional inflationary pressures. So that's been a very difficult environment in which to operate. I would say 5.11 has probably had the biggest impact from that because we produce in Southeast Asian countries, not China. We were, I think, quick enough to get out of China when the President was in his first term and there was a lot of rumblings. But in adjacent markets where you produce a lot of apparel, there's still 20% tariffs and you have a customer set that is very reticent to take any incremental price increases, that's a tricky spot that companies, I think, across a lot of different industries are finding themselves in. So it may not impact directly a BOA or PrimaLoft. But if our customers are feeling those same headwinds, then that impacts us. And so I would say broadly, Larry, these tariffs have kind of slowed down at least the consumer side of the business. The industrial side of the business clearly had a very unique kind of impact from the export restrictions that China put on rare earth minerals. As a result of that, there's -- as you see in Arnold's results, millions of dollars of EBITDA reduction that occurred. I think that is a little bit more kind of one-off, and we expect that to revert back to normal in 2026. And so that had some impact on kind of the weaker results in the back half of the year. But I would just say broadly, things slowed a little bit, but still feel like they're growing. Lawrence Solow: Yes. And I know, listen, you're not giving guidance for next year yet, but you have spoken about sort of getting your leverage down organically into the mid-4s. So that would imply some growth. And it does feel like you're -- even if consumer slows a little more, you'll -- Altor sounds like it's going to -- I know it's basically flat this year, maybe organically, but it seems like that's not really -- a lot of that's noneconomically related with the cold storage. And as you mentioned, Arnold should bounce back a little bit, right, next year, hopefully. So it feels like your outlook, you're kind of holding into that outlook, continue to at least grow somewhat next year without getting ahead of our skis. Elias Sabo: Yes. We're going to give an outlook for next year here, I guess, sooner rather than later because we're going to have our year-end call more quickly than normal. But I would say, Larry, we have very strong expectations that we will have a growth year next year. and our free cash flow is going to be very strong. And heretofore, we have not produced actual free cash flow because it's been invested in growth in working capital and other assets. In 2026, when you talk about deleveraging path, there's 2 forms that it comes in. One is we expect growth of the portfolio. And number two, we expect to grow and have actual free cash flow that repays indebtedness and has a lower gross amount of debt at the end of the year. So when you -- so that is going to be something, and we're not giving guidance today, but I would tell you, when we do give it in 5, 6 weeks or whatever the timing is, it's going to include that kind of like foundational tenets. Lawrence Solow: Awesome. That sounds great. If I could just one more housekeeping question. Stephen, just -- can you give us a sense of sort of like a normalized management fee today. I guess it sounds like there'll be some noncash accounting true-up in Q4 that will kind of roll through the P&L next year. But -- so maybe as we enter '27, obviously, your company may look a whole lot different. But based on what the current holdings and net asset value is, like can you give us an idea what that normalized number would -- and then... Stephen Keller: Yes. I think it's -- so look, obviously, we need to do a little bit of work to true up all the kind of overpaid management fees. And as you mentioned, there will be some adjustments in Q4. But from a management fee cost perspective, noncash, I would say, for next year, I think it's probably -- you can probably assume it's in the -- it's around $55 million, including what's paid directly by the subsidiaries. That's probably a good number based on our current portfolio of businesses and excluding any impact from Lugano -- excluding any fees, obviously, Lugano will be deconsolidated and those assets won't be under management. From a cash perspective, next year, it will be substantially less as basically CODI will have lower cash payments to CGM to make up for the overpaid management fees that have been paid historically. So cash will be a lot less. But from an accounting perspective, you can assume around $55 million. Operator: Our next question comes from Timothy D'Agostino with B. Riley Securities. Timothy D'Agostino: Congrats on being current in everything, really big accomplishment. I guess my first question kind of goes back to asset sales. It would be great to get some color on who might be interested or how you might go about a sale, not necessarily what you're selling. The reason why I ask is I think back to Fox Factory, and I wonder if there's any potential of like maybe like bringing a company public and that being a way of sale -- way to sell an asset. So I guess my question is, what are the different avenues you can explore when going to sell one of these assets? Elias Sabo: Yes. Tim, thank you for the question. This is Elias. In selling an asset, I mean, I think there are a number of avenues. Fox was an example of an IPO. If you remember not too long ago, we filed actually right before the market kind of took a turn for the worst in 2022, an IPO for 5.11. And we withdrew that just because of market conditions, but that's a company that is kind of a size that potentially could explore that kind of pathway. And in fact, other companies are at that size or getting to that size as well. So IPO becomes an absolute route for which we can monetize the position. I think that route has the benefit of unlocking value and demonstrating that to the market, but it does not have the benefit of quick deleveraging because inevitably, we become a large holder of those shares, and we have to, over a series of years, make orderly sales to be able to monetize that. So although I think that is a great way for us to monetize assets, and we have that in our portfolio of things we would do, I would say it comes at the cost of not having quick liquidity. For faster liquidity, I'd say the routes are through investment banks typically that we engage and they go out and talk with kind of strategic buyers, private equity buyers. Tim, understand because we're in the market all the time and we're engaging in the market, we're getting inbounds and we are talking with bankers constantly about strategics or other PE firms that may have interest in our assets and then conversely assets that we may have interest in. Now '25, we weren't doing really the latter, looking for assets clearly. But there's always kind of that chatter that is going on. So I think just in the normal operations, we have a pretty good understanding of where strategics are right now by our different companies and their acquisition cycles. who's expressed interest, who has not, where PE firms are in that process. And what we try to do is get a sense of what is the demand for an asset like this, typically using investment banking partners to help us do that. And the ones that we feel we can get the greatest amount of interest and demand for are assets that we're kind of bringing out to market. Now I will say, and we've said this before, we have a couple of assets, a few that we are looking at this. We don't -- we're not saying we're going to sell multiple assets this year, but we do want to execute against a sale, and we don't want to give leverage to any potential buyer. And so in that process, we'll look at a few different businesses that we feel there's sufficient demand in the marketplace to warrant a good value and then we'll determine which one that we will want to divest based on how the market materializes. Timothy D'Agostino: Okay. Great. That's super helpful color. And then if I can just ask another. Going forward in '26, the way you oversee the portfolio companies, has your oversight changed or how you go about it? If you could just provide any color there. Stephen Keller: Yes. So I think what we talked about on the restatement call is that from an internal audit perspective and a compliance perspective, we have made some changes. We did decide to outsource our internal audit function with the idea that using a third party would allow us to do 2 things. One, it allows us to easily scale up and down the size of the team based on the assets that we have and the companies that we're running. And then the second thing is also when you use an outsourced team, when you get businesses that are -- have unique characteristics, it's easy for you to get industry-specific experience and quickly flex it up and down. And so we think the changes in internal audit and compliance moving to an outsourced model will be a better model. That's the primary change that we are making in terms of the oversight. There's also some other internal processes that we'll be looking at. But we do want to recognize, the situation with Lugano was very, very terrible. It was unprecedented. It was also very unique and very unique to that situation. So as we talked about on the other call, we have -- we'll probably change a little bit of some of our criteria where we would not necessarily want to have a someone who is a founder, still CEO, still owns 40% and a key man, that's probably a risk that we, in retrospect, would like to structure differently if we had another deal. So we will make some changes like that. But overall, we have to remember that the situation in Lugano was very, very isolated to Lugano. And so generally speaking, the model that we have had and the oversight we've had of these companies have worked very, very well for 20 years. And this is a very unique situation driven by a very unique individual. Operator: Our next question comes from Matt Koranda with ROTH Capital. Matt Koranda: Best wishes to Pat, you'll be missed. I guess what I wanted to make sure I understood, it sounds like we're motivated to sell an asset at some point this year, but we don't feel a whole lot of pressure given you have multiple good assets that you could potentially sell. The 4.5 leverage covenant that you have by midyear, is that something you could actually attain organically even just given the cash unlock from working capital that you could get this year? Stephen Keller: So first of all, it's not a -- there's an incentive to get below 4.5. If we're not below 4.5, there's a payment. We won't be out of covenant. The covenant is actually higher. So we will be in covenant -- we are now and we will continue to be all next year. There is a -- look, with some recovery from Lugano, assuming that we have, there would be a path to getting below 4.5% organically, but it would be tighter than we would like, which is one of the reasons why we're trying to operate in a sense that we will be able to organically delever and therefore, that allows us to -- any asset sales to accelerate it and gives us more comfort. So we'll go down both paths. We're not going to sell -- we do not want to sell a business at a discount that will destroy shareholder value. So we're focused on being able to get below if we -- if a sale at the right valuation doesn't materialize. We do, however, expect to sell a business. Matt Koranda: Okay. All right. That's fair. That helps. And then I just wanted to hear a little bit more about Arnold and supply chain disruption, how long that sort of should be playing out or if it's already essentially solved in your mind and that just is going to take a little time to percolate through the business. Just an update there. Elias Sabo: Sure. So as we all know, the trade liberation day and the tariffs on China caused a lot of global issues and retaliation by China in certain areas. Matt, the area where China has the most leverage is over rare earths, currently, something like 90% of all Neo magnets are produced in China, and I think something like 70% of all samarium cobalt, which is what we produce is produced in China. So they're just a massive player. They obviously have a lot of the raw material that's there. And these are absolutely integral as we think about the AI economy, alternate energy kind of production to serve the AI economy partly. And then robotics and electric cars, all of these things require rare earth magnets. And so the future growth of economies is dependent on this. Clearly, China flexed their muscle and put export controls that we were not able to comply with. No company would have been able to comply with them. And as a result, that shut down pretty much all the business that we had that we could export out of China. That's kind of a $6 million to $8 million EBITDA disruption that we got hit with there. Now what's happened is China has loosened export controls and we're seeing products start to flow back out of China. But the longer term, so we expect normalization, and that's already happening in the fourth quarter. And we have a backlog that we need to obviously catch up. So that provides a good tailwind going into 2026. Now the global landscape has really shifted because these are -- we work mostly with aerospace and defense customers. That's where samarium cobalt, magnets kind of really shine. And so that part of the market is very sensitive to just-in-time inventory ordering, and we deal with customers that are very -- the economy is dependent on them. Our national security is dependent on these customers. And so the stakes are very high. Clearly, our customers were rattled when we were not able to deliver product on schedule because of these export restrictions. And it wasn't just us, it was everybody they were buying from in China. And so what we've seen, and this is where we believe there's a lot of bullishness around Arnold, and we think the upside trajectory for this company over the next few years is well above trend. There is a desire for a lot of our global customers to source their material in a more stable geography. And they're looking for U.S. or European or other Southeastern Asian country like Indonesia has got a Neo mine that's coming on. There is a big effort to diversify the supply base out of Mainland China, which is where it exists today. As we said in our prerecorded script, there's only a handful of us that can do that. And so we sit in a pretty good position to be able to secure a lot of additional business and drive our business growth much faster than it otherwise would be. And that's why notwithstanding the short-term pain we suffered in 2025, I think in terms of underlying enterprise value of the Arnold business, this was a massive positive to that, and we expect it to manifest in future growth rate of earnings. Operator: [Operator Instructions] And I'm not showing any further questions. I would now like to turn the call back over to Elias Sabo for any closing remarks. We do have one question... Elias Sabo: Thank you all for... Operator: Our next question comes from Cris Kennedy with William Blair. Cristopher Kennedy: Congrats on Pat's retirement. Just wanted to follow up on the last comment you made about Arnold. I mean it was almost a year ago when you had the Investor Day and you kind of gave long-term organic revenue growth targets for each of the subsidiaries. Any updated thoughts on that framework that you provided previously? Elias Sabo: Yes. I would say, obviously, clearly, Cris, we were wrong with Arnold in 2025. And so let's assume that we kind of get back to a normal baseline, which '24 would serve as a normal baseline year. I think we would expect those growth rates temporarily because I don't know if this is a long-term shift. That actually looks into use of robotics and other things that may have longer-term demand generation that is outside of what we are seeing today. In the short term, though, let's say, 3 to 5 years, we would expect a materially higher growth rate from Arnold given the supply chain disruptions that we talked about and the resourcing of production. Cristopher Kennedy: Okay. And how about the other subsidiaries now that you have more working capital to allocate potentially that Lugano has gone? Elias Sabo: Yes. No, we'll obviously talk more about that on our Q4 call and about our 2026 guidance. But I would say largely, our companies outside of Lugano are performing with the exception of Arnold that we mentioned are performing in line with expectation. Where we've noted we find things that are doing a little bit better is the Honey Pot. And I would say 5.11 is struggling a little bit because of tariffs. But largely, BOA, PrimaLoft, the other businesses, Sterno, they're performing in line with where our expectations are. And I'm not sure if you just went 1 year hence from last year's Investor Day, there'd be a lot of change. It probably would be more maybe 5.11's growth rate is a tad lower and Honey Pot is a tad higher. Cristopher Kennedy: Got it. Okay. And then I understand you're not going to give commentary in 2026. But can you just remind us of kind of what the free cash flow conversion is of the business or how we should think about that? Stephen Keller: Yes. Thanks. It's a great question. I think it's really important to think about because 2 things have really changed since last year, which is one is Lugano no longer in the portfolio, which is a significant user of working capital. Our underlying businesses now generate a substantial more amount of cash. That, coupled with the elimination of the common dividend suggests that we will, from a free cash flow perspective, be creating pretty significant free cash flow. We actually expect -- depending on working capital usage and the timing, we'd expect that in 2026, that we should generate between $50 million to $100 million of free cash flow after everything, after interest, after dividend, after preferred dividends and CapEx, et cetera. So that is a marked change from, I would say, where we have been historically. And so that is something that we're -- that's one of the reasons why we're very confident in the fact that we will be able to organically delever on top of looking at these more strategic, more rapid delevering activities. Operator: I would now like to turn the call back over to Elias Sabo for any closing remarks. Elias Sabo: Thank you, everyone, for joining our call today. We understand this has been a very difficult last almost year for all of us. We are really excited to be caught up, and we look forward to speaking with you all again in another couple of months and previewing our 2026 expectations. Thank you, and have a great day. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.