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Operator: Good morning, everyone, and welcome to the FB Financial First Quarter 2026 Earnings Call. Please note, this event is being recorded. At this time, I'd like to turn the conference call over to [ Rachel Dereski ] with FB Financial. Please go ahead. Unknown Executive: Good morning, and welcome to FB Financial Corporation's First Quarter 2026 Earnings Conference Call. Hosting the call today from FB Financial are Chris Holmes, President and Chief Executive Officer; and Michael Mettee, Chief Operating and Financial Officer. Please note FB Financial's earnings release, supplemental financial information and this morning's presentation are available on the Investor Relations page of the company's website at www.firstbankonline.com and on the Securities and Exchange Commission's website at www.sec.gov. Today's call is being recorded and will be available for replay on FB Financial's website approximately an hour after the conclusion of the call. [Operator Instructions] During the presentation, EFinancial may make comments, which constitute forward-looking statements under the federal securities laws. Forward-looking statements are based on management's current expectations and assumptions and are subject to risks uncertainties and other factors that may cause actual results and performance or achievements of FB Financial to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond FB Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks that may cause actual results to materially differ from expectations is contained in FB Financial's periodic and current reports filed with the SEC, including FB Financial's most recent Form 10-K. Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's earnings release, supplemental financial information and this morning's presentation, which are all available on the Investor Relations page of the company's website at www.firstbankonline.com and on the SEC's website at www.sec.gov. I would now like to turn the presentation over to Mr. Chris Holmes, FB Financial's President and CEO. Christopher Holmes: All right. Good morning. Thank you, Rachel. Thanks to everybody for joining the call this morning. And I'll always thank you for your interest in FB Financial. I want to start today's call by calling attention to a distinguished award the company received recently and what it means first thing. The bank received J.D. Power's Retail Banking Award in the South Central region for placing #1 among the banks in the region for customer satisfaction. J.D. Power surveyed over 100,000 banking customers across our region, surveying them about their satisfaction with their primary bank. And when the results were tabulated, [ FirstBank ] #1 on the list for overall customer satisfaction. FirstBank also ranked #1 in the subcategories of client trust and quality of our people. What made this award even more gratifying was that we weren't even aware that our customers were being surveyed. So the ranking is a result of our natural service behavior and not something that resulted from any special preparation. As bank investors, we watch every basis point of margin efficiency, return, et cetera, and every penny of EPS where we can struggle to find effective relative measures of the actual driver of superior sustainable bank performance, which is our ability to attract, satisfy and retain bank clients. This award is independent tangible verification of what I've known about our team. That's when stacked against the competition, we win. I want to thank our clients, who participated in the process and our associates, who are the FirstBank story and who takes such outstanding care of our clients you are literally the best at what you do, and I'm proud to be on the team with you. So with that, now let me get into the quarter. We reported EPS of $1.10 and an adjusted EPS of $1.12 and have grown our tangible book value per share, excluding the impact of AOCI at a compounded annual growth rate of 11.6% since our IPO back in 2016. Our net income was $57.5 million or $58.3 million on an adjusted basis, and our pretax preprovision net revenue or we may refer to as PPNR during the call, was $77.2 million or $78.2 million on an adjusted basis. So even with 2 fewer days in the quarter, we were able to grow our pretax preprovision net revenue versus the prior quarter. Revenue declined slightly during the quarter, but expenses have had an even greater decrease to keep our net income and profitability metrics in line with our expectations. We kept our PPNR return on average assets near our benchmark range of 2%, coming in at 1.93% or 1.95% adjusted. We're pleased with our returns. And as Michael will cover in his comments, our growth gained momentum during the quarter, giving us optimism about the remainder of the year. We're now [ 1/4 of the ] way through 2026. We continue to believe it's a great time to be a FirstBank. Our strategic pillars of award-winning client experience high associate engagement, operational efficiency and elite financial performance are all working together to grow our franchise and position us for continued success. When you add that to our -- when you add that our geography as one of the best in the country and our size is optimal to allow for both capacity and agility, we're optimistic about our path to creating shareholder value, both short term and long term. So before I turn the call over to Michael, I do want to acknowledge that like all of you, we're following the macro events of the time of our times closely. But most of these things, like geopolitical conflicts, technology disruptions, economic shocks and interest rate volatility are things that we have to react to versus exercise control over. What we do control is our position in preparation for a range of circumstances and risk scenarios with active and prudent management of our robust capital, robust liquidity and our high reserve levels. We remain in a position of strength and believe that we have the ability to perform through the various economic cycles as they come. So that I'll now turn the call over to our Chief Financial and Operating Officer, Michael Mettee, for some more color on the quarter. Michael Mettee: Thank you, Chris, and good morning, everyone. I'll begin my comments this quarter with the balance sheet. While we started the year at a slower pace than we originally anticipated, with annualized loan growth of approximately 4% deposit growth around 5%, we are seeing momentum build across the business in the right areas. Although these growth levels fell at the lower end of our internal expectations, the underlying activity and pipeline trends give us confidence that we are positioned to execute on the core fundamentals Chris outlined and drive improved results as the year progresses. During the first quarter, we began to see a more intense wave of competitive pressure, particularly around pricing. While profitability will always remain central to our decision-making, we're focused on striking the appropriate balance between disciplined returns and sustainable growth. Our strategy remains centered on building deep, long-term customer relationships that create enduring value for our shareholders. We will continue to be disciplined in acquiring new relationships and remain committed to protecting and strengthening our existing ones, always with a focus on delivering value to both our clients and shareholders. The company has the size and scale to compete effectively and win attractive deals when it makes sense to do so and do not hesitate to aggressively [ in competitive ] situations when warranted. Ultimately, our value proposition is not about being the low-price provider, it's about delivering peer-leading customer satisfaction through strong financial advice and trusted services. By keeping the client at the center of everything we do, we believe we'll be -- we will continue to drive improved profitability over time and create the same long-term value for our shareholders. On that front, March was our strongest month of the quarter. with upper [ single-digit loan ] growth and meaningful expansion in our loan pipeline. As we move through the second quarter, we're seeing the momentum continue, with a portion of that activity beginning to translate into on balance sheet growth. We expect second quarter balances to reflect continued improvement with additional pipeline conversion extending into the third quarter and larger volumes building into the back half of the year. On a full year basis, we continue to expect both loan and deposit growth in the mid- to high single-digit range, with growth increasingly weighted towards the second half as momentum builds. Turning to earnings for the quarter. pre-provision net revenue totaled $77.2 million or $78.2 million on an adjusted basis compared to $71.1 million in the prior quarter and $77.1 million on an adjusted basis. Net income also improved quarter-over-quarter despite the shorter reporting period, coming in at $57.5 million or $58.3 million on an adjusted basis. Our net interest margin for the quarter was 3.94%, representing a modest decline, driven primarily by balance sheet mix and the full quarter impact of rate cuts implemented late in the fourth quarter. Total loan yields for the quarter was 6.51%, with yields on new production towards the end of the quarter running a bit closer to 6.6%. On the deposit side, total cost declined to 2.27%, while rates on new production were approximately 2.7% around quarter end. Both loan and deposit yields were modestly lower than the prior quarter, reflecting benchmark rate cuts across the variable rate portion of our balance sheet. As we move deeper into 2026, we expect some additional pressure on margin as competitive dynamics remain elevated, and we continue to pursue targeted growth opportunities in our market. Based on current conditions, we would expect full year net interest margin excluding loan accretion, to be in the range of 3.7% to 3.8%, representing a modest decline from our prior guidance. We would expect second quarter margin to trend towards the lower end of that range before stabilizing as the year progresses. Finally, we would note that the interest rate environment remains uncertain, particularly around the timing and magnitude of future benchmark rate movements. As a slightly asset-sensitive balance sheet, changes in rates can be both favorable and unfavorable, depending on the direction and speed of those moves. While our margin outlook assumes a continuation of current conditions, modest rate actions, either higher or lower the current levels, will impact some of the competitive and growth-related margin pressure we've outlined. We'll continue to actively manage the balance sheet and pricing strategy to position the company as effectively as possible across a range of potential scenarios. Noninterest income declined $2.4 million during the quarter, primarily driven by lower secondary mortgage volume as well as absence of several nonrecurring items recognized in the prior quarter, including a higher BOLI benefit payout. In addition, the quarter reflected fewer calendar days relative to the prior period, which modestly impacted overall fee generation, particularly within mortgage-related activity. With mortgage, we saw a really strong start to the quarter, and that slowed as the quarter progressed due to the increased interest rate volatility and heightened uncertainty in the housing market and really the world economy. Shifting rate expectations and broader market dynamics impacted borrower sentiment and transaction activity, which weighed on production as rates moved throughout the quarter. Mortgage revenue also tends to exhibit some seasonality with activity typically building as we move further into the year. On the expense side, first quarter noninterest expense totaled $95.2 million, representing an approximate 11% decline from the prior quarter or roughly 7% on an adjusted basis. Personnel costs moderated as compensation-related accruals returned to a more normalized run rate. And merger and integration expenses declined as we completed the majority of costs associated with the Southern States combination. We also saw quarter-over-quarter reductions across several other expense categories as the year reset and teams maintained strong expense discipline. As a result, our efficiency ratio for the quarter was 55.2% or 54.3% on an adjusted basis, driven in part by our [ banking ] segment, which delivered an adjusted efficiency ratio of 50.9%. Looking ahead, we remain focused on disciplined expense management, with [ banking ] segment noninterest expense expected to range between $325 million and $335 million for the year and a total company efficiency ratio anticipated to remain in the low 50% range. Turning to credit. Our provision expense for the quarter totaled approximately $3 million, with our allowance coverage ratio ending the period at 1.49% of loans held for investment. Net charge-offs were modest at an annualized rate of 11 basis points, which was a slight uptick for us, but were driven by a small number of isolated borrower-specific situations rather than any deterioration tied to broader economic stress. In evaluating the allowance for the quarter, we gave additional consideration to potential macroeconomic events stemming from the conflict in the Middle East. We reviewed the most relevant economic forecast, assessed our portfolio for direct exposure to the recent increase in energy prices. While it remains early to fully understand the broader downstream impact of operating companies, our analysis focused on a limited set of industries most sensitive to near-term energy price shocks. Our exposure to those sectors remains minimal, and we believe our reserve levels are appropriate given the current risk profile of the portfolio. With respect to capital, we continue to be in a very strong position, supported by solid capital ratios and a robust liquidity profile that provide meaningful flexibility. During the quarter, we were optimistic in repurchasing shares amid purchases or periods of market volatility, and we remain well positioned to deploy capital thoughtfully as opportunities present themselves. Our capital ratios continue to reflect that strength with a common equity Tier 1 ratio of 11.5%, a Tier 1 leverage ratio of 10.4% and total risk-based capital of 13.4%. This strong capital foundation allows us to remain flexible in supporting organic growth, pursuing strategic opportunities and returning capital to shareholders where appropriate. In closing, I want to echo Chris' congratulations to our team on earning the J.D. Power recognition. This award is a direct reflection of our associates' commitment to our core values and the strength of our franchise, and it reinforces our focus on delivering consistent value to our customers, shareholders and communities. With that, I'll turn the call back over to Chris. Christopher Holmes: All right. Thanks for the [ call ], Michael. Thanks again to everyone joining the call this morning and for your interest in FB Financial. And operator, at this time, we'd like to open the line for questions. Operator: [Operator Instructions] The first question today comes from Dave Rochester with Cantor. David Rochester: On loan growth [ than ] the guide for the year sounded positive, but it sounds like you're also expecting those competitive pressures to continue. I was wondering where you're seeing the bulk of those pressures coming from? Is it larger banks, smaller banks? Is there any variance by market that's noticeable? And are you assuming more elevated paydown activity to continue as well? And I guess you'll just originate more to offset that to get to that mid- to high single-digit range. Just any thoughts there would be great. Michael Mettee: Yes. Dave. So some of the optimism, right, is the pipeline continues to build, and you can see the kind of the closing dates and [ site ] for a lot of those deals. I would say on the loan side, competitive pressure, generally larger institutions; we're seeing it really across the board. Nashville is obviously pretty competitive, but we're seeing it in a lot of our large metro markets, so whether that's Birmingham, Huntsville, Knoxville, Memphis; we saw some large payoffs in Memphis, where competition took us out on some deals this quarter. So it really is across the board. On the deposit side, I would actually say it's both large and smaller. We see community banks that have gotten really aggressive, specifically in the kind of 12-month [ CD ] space, but even interest checking rates that will make you blush a little bit, And then for the larger institutions, we're seeing money market rates well above 4 from regional banks that actually we haven't seen advertising market in quite a while. So I'd say it's coming from both sides. The optimism is the team has put in the work, has been working with our clients, both our existing clients and new prospects. There's a lot of kind of economic excitement. Even with everything going on in the world, people are pretty positive about the economic environment. And so deal flow is happening. And I would say that's across the company, whether that's in our communities of 7,000 people or metros of 4 million people. Christopher Holmes: Yes. And Dave, you mentioned paydowns, and we've seen some of those both second half of last year and into this year. And do we think that will continue? We do. There would be some of that, Michael mentioned, a couple of payoffs. We'll continue to see some of those. But it's okay. when we know about them, it's the expected ones that gets you. And so we do expect to continue to see those. But as you've heard, kind of where the pipeline is and what things look like, we're considering that in our -- as we're talking about net growth, we're talking about net growth. David Rochester: Okay. Great. That's great color, guys. I appreciate that. And maybe just one more. Just on the talent pipeline, obviously, a lot of disruption in the market. You guys have talked about this before. It seems like a good opportunity, but of course, everybody is trying to retain their people. Can you just give us an update on on what you're seeing there, the dynamics with conversations that are going on right now? And what -- how confident are you guys that you might be able to pick up some value add there over the rest of the year? . Michael Mettee: Yes, it's a daily topic here, Dave, right, is kind of offense and defense with regard to talent. And so I'd say conversation's heated up. I mean, we added, let's say, 15 revenue producers in the first quarter. We also lost a couple. And some of that is people going to other institutions and some of its retirements, things like that. But yes, these are really waterfall events. It's not necessarily who you think is acquiring your talent. But when one person moves, it opens up a door for someone else. And so you're constantly trying to keep your key players in your key markets, and that's both large and small, too. I think a lot of it, people equate to, I'll call it, Nashville or like a [ hunt fill ], but it's happening across the board in places like Jackson, Tennessee, Birmingham, Atlanta. So I feel good about the conversations. We're hot and heavy on a lot of recruiting. It's more important to me that we have the right people that fit our culture and our business opportunities versus putting numbers on a page, even though [ it's quite ] 15, it's much more important that those are the right people. And so that's where we continue to be focused, And we think we'll get more than our fair share of those right people as we move forward. David Rochester: On a net basis, that sounds really positive in terms of the ads that you just brought in, in the first quarter. What -- just curious, what areas are they in? Are they primarily loan producers, deposit guys? Is it commercial? Where are you seeing those adds? . Michael Mettee: Yes. So one point of clarity when I'm recruiting is I expect all of our bankers to be bankers, loans and deposits. So generally not bringing in just loan people sometimes bring in just deposit people. But even those are equipped to take care of their clients. 8 or so relationship managers, a couple of mortgage people and a couple of people that are focused really on consumer and small business relationship development. So -- and we do have a couple, I guess, loan-heavy businesses, right? So yes, it's positive. And we think we can continue the momentum. Christopher Holmes: Yes, David, and I think it's always, I think, a topic. And it's a little like the customer service topic I talked about. It's important. The one thing I would say about this one, it's kind of hard to get relative measures on talent because folks look at it differently. And for us, it's become something that we know that folks want to try to get their arms around. But it's not really a key performance metric for us in terms of we don't have a goal where we say we're going to hire this many this quarter, this many in the next quarter. We're looking for the right people at the right time. And there is a lot of movement. The one thing I would say is there's probably more movement and more recruiting going on, particularly in our metropolitan markets, [ but ] Michael said that even in some of our smaller markets than we've seen across the board. And typically, you see people going from smaller banks to larger banks, but we're seeing some larger banks, some much larger than we are, that are coming in to recruiting talent from banks even smaller than we are. And so it's just -- I think it's an interesting time. But again, Michael said it, you have to play offense and defense all the time. And defense is best played by making sure you've got a great place to work, making sure you've got engaged folks and making sure that you're taking good care of them, and that's as important as anything. That's how we view it. Operator: The next question comes from Russell Gunther with Stephens. Russell Elliott Gunther: I wanted to ask on the expense side of things, so really strong first quarter results but you guys have reiterated the banking segment expense guide for the year. So it'd just be helpful to get some color in terms of what's driving that sort of pickup over the course of the year. Michael Mettee: Yes. I mean it's a dose of expectation around performance picking up, which obviously impacts -- we're a performance-based company when it comes to [ competition ]. And so we want to expect peer-leading returns. And so that drives that number a little bit higher as we look out over the year. And some of that will come with growth there, [ Russell ]. There's not any expectations of huge like technology investments or anything like that. So it's more just maintaining our run rate expectations and performance-based comp type stuff moving higher throughout the year. Russell Elliott Gunther: Okay. And then just an adjacent follow-up. So curious, deal synergies were fully realized this quarter. In aggregate, did they come in, in line with what you were expecting or maybe better than modeled? And then bigger picture, what's a good kind of core expense growth rate or range to think about [ FB Financial ]? Michael Mettee: Yes. Actually, I would say from a combination perspective, we landed pretty much right on top of our deal expense number, maybe plus or minus [ is 20,000 or so ] . Christopher Holmes: It was really close, except I was just a shame. As Michael said, it's -- the difference is really immaterial because it's like in the -- on a fairly large number, it's down less than [ $1 million ]. And I actually think it may be just a hair under, but it's right on the number. Michael Mettee: Yes. And I'd say for -- we haven't done a real merger in 5 years. So it's good to kind of get set off and resharpen the knife a little bit. So yes, we're around expectations. I think the proof, right, Russell, is getting to that kind of 50% range by year-end as we continue to efficiency ratio to year-end as we get to the combined company make sure the revenue engine is still going, which is really important when you say synergy, I think about revenue as well in maintaining our ability to grow in our legacy Southern States markets. So yes, I think we're in a good spot there. And then I'd say 4% to 5% kind of core expense growth as you look forward, if I think about '27, which is a long ways away. But that would not include, back to Dave's question, talent acquisition and opportunities to really add teams and scale, but we'll maintain our expense discipline as we kind of look forward. Russell Elliott Gunther: Got it. Okay. And then just last question for me. would be circling back to the loan growth side of things, the mid versus high single digits. What are the largest drivers that would get you to the high end versus the low end? Michael Mettee: Yes. I mean [ the Tom ] -- some of it is just the time of the quarter, I guess. But if you think about the year, we have -- it is a competitive environment. And so people stepped in, other companies [ step ] in. And sometimes, we'll get really aggressive, and some customers are more price-sensitive than others. And so you can see large deals move one way or the other. But our pipeline, when I look at it on a confidence interval, and so we're pretty confident about where we are. But you could see some payoffs come in, like Chris said, the unexpected ones. [ What ] you hope doesn't happen. If you're really servicing your clients, you should know. But sometimes we're all surprised. Christopher Holmes: Yes. The other thing I would say, Russell, it goes a little bit like we talked about on the people side, in that as people -- as bankers move, that also makes customers more vulnerable to to move it to changing banks. And so as I think about one of the -- generally, we're looking at -- as we're rolling forward, we're looking at what we have, customers that we have and things that we know or in a pipeline. So part of the optimism is, we also are having more and more conversations with really, really solid customers that have big balances both in loans and deposits that are in play. And so you certainly [ don't about ] 1,000 of those by a long shot. But the more at [ bat ] you get, the more [ hits ] you get. And so we're getting more and more at bats. And so there's some optimism around that as we get into the -- because we're having a lot of those conversations now. And as you get -- you think some of those are going to [ hit ] as you get later into the year and as you get into next year, that seems to be picking up momentum. Operator: The next question comes from Stephen Scouten with Piper Sandler. Stephen Scouten: I guess one other kind of maybe point of clarification on loan growth. Could you give us a feel for kind of maybe the cadence of growth? I mean, obviously, you said the pipelines and growth picked up in the back of the quarter, but still a little bit below your expectations. So was the cadence just that things started off a little slower? Did you see any sort of demand pullback with all the macro, geopolitical events? And then talked about payoffs, but kind of do you have any sort of numbers there in terms of quarter-over-quarter payoffs or year-over-year that if that was part of the driver for the slightly slower-than-expected growth maybe? Christopher Holmes: Yes, on cadence, I don't know that I would -- I think I'd describe things as fairly steady and normal with the exception of a few big balance things. We did have at least couple of payoffs that were just big balance things, but we've talked about that before, and we anticipated some of that. . Other things, you do see a little bit of push down the calendar, if you will, or push forward some. Maybe that's related to just some uncertainty. But I wouldn't say that's a material event. I would just say that as we have continue to do what we do, make changes here and make changes there, remember, we had the disruption second half of last year of integrating FirstBank [ and ]Southern states. And that does create a little bit of distraction. And so as you really get back on a good cadence, use your word there. you just begin to see the momentum pick up. And so I wouldn't say there's anything unusual about it. Rather than you can see things bump a little bit maybe related to, I'll call it, economic uncertainty. But again, I wouldn't read too much into that. Those tend to be small bumps, not big bumps, like I said. But if it bumps, it could bump 30 days, but that could move it between quarters. And so we do see that, but we see that every quarter. Michael Mettee: Yes. And I'd tell you for [indiscernible] we did timing-wise, that's -- if you're sitting here in January, you're saying we really a tough start to the year here coming off... Christopher Holmes: At the end of January, you look at it and go, wow, so [indiscernible] . Michael Mettee: Yes. I mean, especially coming off what I'd say, were elevated payoffs in December. I mean we're running $600 million or so in payoffs and amortization of quarter. Steve. And so then you got -- you also have people paying down lines, and then you got new lines being extended and paying up. So it's a little bit of a moving target. But that kind of that 500 to 600 range is where I expect payoffs and paydowns to occur kind of on a quarterly basis, which means you got to be growing at $600 million, $700 million to get to that mid- to high single-digit plus increases in lines and things of that nature. So it was -- I mean, the first quarter was a bit elevated, but not so much over the fourth quarter because the fourth quarter is also elevated. Stephen Scouten: Okay. Really helpful color. I appreciate that. And then on the updated NIM guidance, only a couple of basis points below kind of where you were previously. Just kind of wondering, what, if any, rate cuts do you have built into that guidance? And kind of -- I know you said maybe not an overly material change one way or the other, but I would expect if we didn't get cuts, maybe that could lead you to the higher end of the range. And then the reason kind of for the decline, would that be just increase in deposit pricing pressure? Is that the biggest delta maybe quarter-over-quarter? Michael Mettee: Yes, you nailed it. So we have a rate cut in our NIM guidance. And that's what we had and when we talked about the full year in January. So yes. And like you said -- I mean it's basically a basis point or 2 lower, so I would call that pretty stable. So the reality is rates or -- yes, if you look at the forward curve, most would say it's probably a market, which has probably rates up at this point, right? We're slightly asset sensitive. It's probably worth kind of 3 to 4 basis points in margin. But then if I think about what you just said, deposit pressure and thinner loans, you kind of get back to the same place. So there's probably a little bit of upside in flat to up rate scenario. I would say any, what I'll call, stair-step rate movement, either direction is manageable, if the elevator is up and down, which really create a lot of volatility in your margin. So the team will be able to manage through either way, but we certainly prefer that stair-step. And Chris has [indiscernible] to our team all the time, it will never get easier than today to get deposits. And so we expect that, that to continue to be challenging in the right environment. Now you've got treasuries are attractive again with where rates are. And so that's a competitive pressure outside of the banking system as well as customers need to -- or companies need to fund loan growth and economic expansion. So it's a competitive market. It always is, but it's been a little bit more fierce as we turn the calendar. Stephen Scouten: Got it. Makes sense. And maybe just one housekeeping question just on the tax rate. Anything to note there? It looks maybe slightly elevated relative to the past this quarter. How to think about that? Michael Mettee: I think it's probably in this kind of 20% to 22% range is the normal operating are. We had some franchise tax that -- in excess tax that's kind of local state related that picked up this quarter. And so that drove the higher number. And so there's community opportunities where we can invest in our communities that can move that number around a bit. And so we do those when the deals make sense, and so you can see that move around, and that's what you saw late last year. But we're a pretty normal range here, maybe slightly lower on a go-forward basis. Operator: The next question comes from Brett Rabatin with StoneX. Brett Rabatin: Wanted to start off with just a strategy question, and you guys are now $16.5 billion in assets, headed to 20, I would guess, over the next couple of years organically. And I know when you think about FirstBank, it's very community bank oriented. And so I wanted just to get an idea, one, from a philosophy perspective, would you guys start to think about specialized lines of business, equipment finance, those kinds of things that might further drive the loan pipeline? And then just secondly, you guys didn't talk about the FirstBank way. I wanted to see where you guys were in your evolution of that and just if there's anything left that you guys were trying to do in terms of the franchise and how you do business? Christopher Holmes: Yes, Brett. So [ many means ] I'm afraid maybe one of our conference room is bugged. You're hitting on some topics that have been heavy topics over the last 2 months. And so let me see if I can just kind of run down and talk about some of those. We are -- you labeled us as a community bank oriented, which I would give a strong indication that, that continues, yes, strong message that, that continues, and that will continue. We think you heard us start off by talking about what our customers think about that. And that was J.D. Power. But if you look at [ Greenwich information ], that's very strong as well. And so we think we have a formula there and sort of a special sauce [ and ] how we run -- and our community orientation is really a key ingredient there. It's not the only only ingredient, but it's a key ingredient. So we'll continue that as we scale. And so we spend a lot of time -- I talked about -- I spend a lot of time strategizing [ moving ] over the last 60 days. But part of that strategy is how do we maintain that as we scale the company. And so that's really important to us, and you're going to continue to see that. You also mentioned specialized lines of business. So part of what we're working through is how we add some specialized lines of business. We have some today, manufactured housing being one, for instance, that we excel at. How do we continue to add some other lines of business like that and continue that community bank orientation, okay? And so that's an important part of the strategy. And what you labeled FB way, sometimes we'll talk about our -- internally, we're talking about our customer-centric business model. And that those two overlap and can even be used interchangeably sometimes. But again, heavy focus on that very thing, and we'll continue to do that in -- because that's just making us better. And again, we look -- literally yesterday, we sat around the conference room, we're talking about where we ranked in customer service, and one of our goals for our executive team, for our executive team to hit our objectives for the year, we have to increase that score. Even though we're #1, we have to increase that score by a certain percentage. And so that is a continuous process for us on how we basically keep that community bank orientation and continue to scale the company. So that's critical to us. And I'll give you another line of business that we've added in the last 90 days is the [ SBA ] line, okay? We haven't had that as a loan in the company. We've got -- we've dabbled. We've got just a few small [ SBA ] things out there that we had before this, but that's now a line when we have an [ oil ] that heads that [ Lane Rod ] who joined us. And so we are -- and so that's another example. So you're going to see exactly what you described, where we continue that orientation. But we do continue to grow certain lines and some certain verticals. Brett Rabatin: Okay. That's helpful. And then the other question I wanted to ask was just around -- there's an obvious expectation that there's going to be some market disruption in the Southeast with some of the recent transactions. Would you guys view -- Chris, would you view M&A as too distracting from here? I've had some color from some banks saying that they're just -- they think, focusing organically and looking to take advantage of maybe some of the other acquisitions that have happened here recently, it was a bigger opportunity. Just wanted to see if your philosophy has changed much, if any, around M&A and potential opportunities, particularly in maybe newer markets like North Carolina, et cetera. Christopher Holmes: Again, man, I'm afraid you got to a you have us bugged here because it's a frequent topic of conversation is exactly that with the organic opportunity, is it -- do we need to or too distracting to do M&A.? The answer for us is no. It's not. But we are very conscious of distractions ourselves. And so that does cause us to look at it strategically a little differently than we traditionally looked at it and probably causes us to be even more careful and picky, choosy about what we do because it needs to be both strategically compelling and financially compelling for us. And you have to be careful about markets. okay? We can generally keep distractions away from markets that don't have any involvement through overlap in a transaction, we can limit the distraction. And so those are all the things we consider. But we will still keep that arrow in our quiver, and we could exercise that on a transaction at any point. Operator: The next question comes from Steve Moss with Raymond James. Stephen Moss: I want to start just following up on the loan pipeline here that you guys spoke is stronger. Just kind of curious, where you're seeing the pickup in demand in terms -- by loan type, if you will? Michael Mettee: Yes, [ David ], I would say it's across the board, but I would say we'll caveat that a little bit more clear, more in operating businesses. That's really where we've been focused, is developing out that strength from a C&I perspective. If you look at the -- where we've gotten smaller, a lot of that is kind of nonowner-occupied [indiscernible] for construction over the last couple of years. And so some of the pressure that we faced in payoffs this quarter and late last quarter was -- if you think back that 2021 time frame, a lot of growth out of the company, a lot of it was in that construction and nonowner occupied CRE space. So you're seeing that kind of roll off. And [ when ] we're replacing it. We're still in those businesses and taking care of quants, and we still like those asset classes. But it's not growing at the same velocity. So it's much more about operating businesses and some owner-occupied real estate type of transactions. Stephen Moss: Okay. Great. Appreciate that color there. And then second question for me here just on the margin. You talked about the core margin. Just kind of curious as to where you're thinking. Any updated thoughts I should say on purchase accounting accretion here for differing quarters? Michael Mettee: Yes, I think it's going to be in that same kind of 15 to 17, 18 basis point range. I don't think you'll see it go up unless we get even faster payoffs. But I think it's going to be pretty consistent here. Stephen Moss: Okay. Excellent. All the rest of my question -- then one more question just on capital here. You guys bought back late in the quarter with the pullback. Just kind of -- should we expect you guys to be -- continue to be opportunistic? Or sitting at [ 99 TC ], more favorable regulatory environment, do you guys press the gas on that a little bit more? Christopher Holmes: Yes. We'll continue to be opportunistic when it comes to [indiscernible]. We're watching the volatility there, but we usually regard that as opportunistic, and we really haven't changed that stance. Operator: The next question comes from Catherine Miller with KBW. Catherine Mealor: I've got one more on the margin, just on deposit costs. Do you have the spot rate of where deposit costs ended the quarter? And let's just say we are in a position where we don't have any more rate cuts until maybe the very end of the year, so basically no more for '26. Do you think that your deposit cost increase from this kind of [ 280 ] interest-bearing level? Or you were just more stable? Michael Mettee: Yes, that's at [ 2 levels ]. So we think about total new originations were 270. That's fine low [ had ] honestly, like I said, of interest-bearing [ 283 ]. I think you probably see those increase a little bit, given where you have to acquire new customers, Catherine. So market rate is significantly higher to acquire new customers. The goal there is to translate that into relationships over time in full operating business and then you get back to more of an equilibrium. There's a bit of a disconnect reality-wise of where you can fund the company either through borrowing or brokered and wholesale versus kind of where I'll call the consumer retail commercial market is. It's actually significantly, I would say, higher to go out and acquire new customers versus funding the bank. So it's a balance. If rates are up or flat, Fed funds, I think you see competitive pressure pushing deposit costs modestly higher. But our goal is always to get the full relationship. Catherine Mealor: Got it. And then new deposit costs of [ 270 ], does that include noninterest-bearing or that's just on new interest bearing? Michael Mettee: That's inclusive. Catherine Mealor: Okay. So that's relative to your kind of [ 2.27 ]. So your cost of new is still higher than where you are today? Michael Mettee: Right, yes. And I will say this too, Catherine, just to clarify, the days, I think, of loading up on noninterest-bearing deposits and not paying your customers a lot of interest or interest is we don't really see that as a long-term. We obviously want all the operating accounts we can, but we also want a fair value proposition. And with all these fintechs and competitive market, we don't expect our customers to be asleep at the wheel, and we're not going to try to [ kick ] them down then to zero. Christopher Holmes: That's right. And as a matter of fact, sometimes we even wake them up. intentionally and say, "Hey, you will give you a better deal." And so that -- the days of -- that's really key back books, we view that as quickly coming to an end, which changes a lot of competitive dynamics. And so just viewing our window strategically and how we're thinking about it. Catherine Mealor: And then by product type, where do you think you see the biggest growth in deposits that just interest-bearing demand? Michael Mettee: Yes. So that's a -- you've obviously been in our treasury meetings and our Pricing Committee. The -- so we saw money market decrease this quarter because what we're talking about the aggressive nature of other rate offerings. So there's probably some work to do there just to get back to equilibrium on money market. CDs, we continue to see CD renewals and new production CDs as a growth opportunity. We saw that in the back half of the year and through the quarter. We've been more in the short and long kind of a barbell approach. We're seeing a lot of competition in that middle ground, which I'll call 12 to 15 months. So CDs are an opportunity, but getting some of our money market business back is probably the biggest lever Operator: [Operator Instructions] The next question comes from Christopher Marinac with Green Capital Research. Unknown Analyst: Can you talk about of securities as another tool to grow NII? I know it's not the focus of loans and deposits as we were all talking about. But just curious if securities are a component of how you continue to grow revenue. Michael Mettee: Yes. Chris, I mean the investment portfolio is about 9% of the balance sheet total assets. And so there -- we've been as high in the past that kind of 14% range, but that really comes down to funding in a lot of cases. And so there's not a whole lot of times where I would sit around and say, hey, we have excess deposits, so -- to go and invest in the investment portfolio. We'd much rather deploy through organic growth opportunities. But that certainly is a lever to do that. We've been mainly in kind of floating rate government-backed stuff from an investment portfolio perspective, it's been a higher-yielding asset than fixed rate mortgages and things of that nature. So we'll continue to do that. It's not top of the list. We want to be organic in nature. And if we stick at 9% to 10% or even if it went down a bit and liquidity levels remained in that 11% on balance sheet liquidity range, I'd be a happy person. I mean we deploying through loan growth. Christopher Holmes: Yes. Chris, I'd just add to this, when we're looking at banks, we're valuing banks, and we see wholesale funding and sometimes the wholesale assets on the balance sheet, we quickly discount that to zero. And so when we're thinking about our own company, we don't do that as a matter of practice. We think, "Hey, to be successful and to continue to be creating value, we've got to be adding what we call customer and that can take a lot of different forms." But I'll broadly call it customer assets and customer deposits, we think that's what we do. And if we don't continue to do that well, we won't continue to be able to sit at this table. And so that doesn't mean that there are times where we -- that doesn't mean that there are times where we might leverage up for some specific reason or if we know something is coming or something leaving. We will use that leverage, but we keep a lot of dry powder there to use. We just don't typically use it for revenue growth purposes. And when we are -- and when we think about our portfolio, we don't keep a very large investment portfolio. And basically, it's simply a liquidity vehicle for us. So if you also look at it in there, it's very vanilla and liquid in terms of its marketability because, again, that fits that same philosophy we're really trying to plow it into the assets that we think really grow our shareholder value. Unknown Analyst: Understood. And then just a quick follow-up on new accounts that you're opening, as you look at it internally, do you see net new account growth? And is there sort of a general pace that you're looking for [ as ] the next several quarters and years play out? Michael Mettee: Yes. We actually have been quite successful in growing consumer accounts over the past year. It's interesting, [ yes ], we're going through some of this generational shift, adding -- I don't know what the youngest generation is now because I'm getting older. But I'm must say adding millennials is a different structure. And you got to add a lot of those accounts for one baby boomer that may be passing away or what have you. So that evolution of your accounts, you got to add a lot of smaller ones. We like that actually. We like granular deposits and granular loans. So we're all for it. It just takes a little bit more time to grow your balances. So the number of accounts has been quite good. but the balance growth comes over a significantly longer period of time than adding $400,000, $500,000 deposit accounts when they're coming in 2,000 to 3,000 chunks. So it's been positive. I'll also say, back to Catherine's question, we've seen some success in savings in our savings account product, which is probably an odd thing for people externally to hear, but it helps add that younger generation. You got a savings account, [ it's ] got a companion checking account, and it's of interest to people that are not quite yet adults, but it's worked well for families as people move into the stages of life. Christopher Holmes: Chris, I want to add one thing that we have had good success in growing accounts. And we are -- we still -- about half our deposits are retail. And so we had a lot of small balance accounts, which Michael said, we love that construction on our balance sheet and the granularity that gives us and all the things, all the positive things that go with that. One of the other things we have done, which is not easy to do, and I won't say we're perfect at it, but we feel like it gives us a leg up as -- traditionally, in banking, we counted accounts even some banks have gotten in trouble for that in terms of how they did that and how they motivate folks to do that. We're very aware of that. And so we actually go through and define a relationship. And so we actually count relationships because you can add accounts. But frankly, some of them aren't very valuable, and they're not really a relationship. And so we have moved into relationship county. And it's paying some dividends. But we think it's going to be big dividends as we roll forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Chris Holmes for any closing remarks. Christopher Holmes: All right. Thank you all for joining us. We always appreciate your participation and your interest. And any further questions from either anybody in the investment community or analyst community, you can reach out to us directly. Everybody, have a great day. Thanks. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. At this time, I would like to welcome everyone to Creative Realities, Inc. 2025 Fourth Quarter Earnings Conference Call. This call will be recorded and a copy will be available on the company's website at cri.com following its completion. Creative Realities, Inc. has prepared remarks summarizing the interim results for the quarter along with additional industry and company updates. Joining the call today is Rick Mills, chief executive officer; Tamara Koshua, chief financial officer; and George Sautter, chief strategy officer and head of corporate development. Ms. Koshua, you may proceed. Tamara Koshua: Thank you, and good morning, everyone. Welcome to our earnings call for the fourth quarter ended December 31, 2025. I would like to take this opportunity to remind you that remarks today will include forward-looking statements. The words anticipate, will, believes, expects, intends, plans, estimates, projects, should, may, propose, and similar expressions, and the negative versions of such words or expressions, as they relate to us or our management, are intended to identify forward-looking statements. Actual results may differ materially from those contemplated by these statements. Factors that could cause these results to differ materially are set forth in our Form 10-Ks and other filings with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. We believe the use of certain non-GAAP measures, such as adjusted EBITDA and several important KPIs, represent meaningful ways to track our performance. A reconciliation of GAAP to non-GAAP measures is included in our public filings and in our earnings release that was issued this morning. It is now my pleasure to introduce Rick Mills, CEO of Creative Realities, Inc. Rick Mills: Thanks, Tamara. Good morning, everybody. We appreciate everyone joining today's call. I would like to start by giving some highlights of our Q4 financials and other recent developments, including our integration of the CDM business which we acquired in November. Given the sizable nature of this transaction and the transformative impact it brings to Creative Realities, Inc., it should come as no surprise that it took longer than normal to close our books for the fourth quarter. But first, I would like to take a moment to introduce our new CFO, Tamara Koshua. Tamara joined our team on December 1 — I know the date because it happens to be my birthday — so, Tamara, welcome aboard. She brings tremendous experience to the organization: thirty years of executing financial strategies across diverse industries, including manufacturing, technology, and services. Her expertise and leadership credentials include a strong dedication to achieving a high level of performance and orchestrating operational turnarounds. We believe Tamara is uniquely qualified to take on the challenges of integrating CDM into Creative Realities, Inc., finding synergies across the enterprise, ensuring margin expansion, and ultimately delevering the balance sheet, which should improve returns for our shareholders. She brings tremendous energy, is driving organizational change, is implementing value-enhancing process improvements, and is working to increase our cash flow. She is off to a great start, and we are excited to have her on board. More recently, we have also added a couple other key executives. On March 30, we added Jackie Walker as our chief experience officer. Jackie is a veteran digital transformation leader with more than fifteen years’ experience designing, operating, and scaling enterprise digital platforms at the intersection of customer experience, product vision, and commercial outcomes. She brings a combination of technical execution and business acumen, having authored the digital menu board and drive-thru strategies for seven of the top ten restaurant brands and two of the largest in-store retail media networks in the U.S. Her appointment marks an important shift for Creative Realities, Inc. as the company continues its transition into a software-first platform powered by data analytics and artificial intelligence. Jackie will be instrumental for our next era of growth. She possesses a unique ability to bridge the gap between complex engineering and the strategic needs of the world's largest brands, and we are very pleased to have her here as well. With Jackie's addition and the prior addition of Dan McAllister as our CRO, this rounds out our management team with industry-leading veterans who have track records of accomplishment at a pivotal time in our history, as we relaunch ourselves as a much bigger, more technology-focused, service-oriented leader in the digital signage space. We believe we now have the talent at the top to accelerate growth, enhance our margin, and deliver improved bottom-line results going forward. A couple other facts of the business: this past February, we completed the repurchase of all of Slipstream's 1.7 million outstanding warrants for $200,000. The repurchase of these warrants provides greater visibility for the future in our total shares outstanding, which we believe benefits the company as well as our shareholders, alleviating potential overhang on the stock. We want to thank Slipstream for their support in finalizing this transaction. Now let us review a few details of our current results. Tamara will go over the financials in greater detail, but some of the highlights: we posted revenue of $23.9 million in Q4 versus $11 million in the prior-year period, including $13.6 million of that revenue from CDM. Our fourth quarter gross profit was $11.5 million as compared to $4.9 million in fiscal 2024, and our consolidated gross margin was 47.9% versus 44.2% in the prior-year period. This reflects both improved mix and the positive impact from CDM joining the company. In addition, as of December 31, 2025, we had an annual recurring revenue run rate, or ARR, of $20.1 million versus $12.3 million at the end of the third quarter. In addition, we have $4.1 million of SaaS under contract that will come online through the balance of this year and be added to the January 2027 SaaS total. Adjusted EBITDA was $5.2 million for the fourth quarter of 2025 versus $0.5 million last year and $0.8 million in the third quarter. And just as a reminder to everybody, we closed the transaction on November 7, so our Q4 includes two months of the CDM performance, not the full quarter. We anticipate both adjusted EBITDA and our ARR will increase going forward due to the synergies and additional opportunities in our pipeline. We have substantially integrated CDM operations into Creative Realities, Inc. and we are making significant progress towards our integration goals this year. As you may recall, acquiring CDM more than doubled the size of our company and significantly increased our market penetration in Canada. CDM serves thousands of quick-serve restaurants, financial institutions, and retail establishments across North America, and the acquisition strengthened our ability to address the growth in retail media networks literally coast to coast throughout North America. In addition, we now own Canada's largest mall retail media network. This digital out-of-home, or DOOH, media network has over 750 screens with exclusive representation and revenue sharing across 95 shopping destinations. These locations include 76 of the 100 most productive Canadian shopping centers and nine of the ten busiest malls in Canada, serving approximately 750 million shopper visits annually. As previously announced, we expect synergies of at least $10 million across North America on an annualized basis by the end of this year, reflecting the operating efficiencies, margin enhancement opportunities, and the cross-pollination of our CMS and AdTech platforms. At present, we are currently north of 60% of the goal, and we continue to anticipate total company revenue to exceed $100 million in 2026, with adjusted EBITDA margin percentage in the mid-teens. Once all synergies are realized, adjusted EBITDA margins are expected to be above 20%, and free cash flow generation should be significant, allowing us to pay down debt and delever the balance sheet once again as we have done in the past after acquisitions. With all our advancements, unique applications, strong customer relationships, and proprietary technology, we have built a strong foundation for a bright future at Creative Realities, Inc. We expect revenue to accelerate, our backlog to grow, and margins to improve as the year plays out, putting us on track for a record performance in fiscal 2026. I will come back in a minute to talk about specific product and customer trends, but I will now turn it over to Tamara to share some additional comments on our financials. Tamara Koshua: Thanks, Rick. I am really excited to be part of the team during such an important time in our company's growth trajectory. An overview of our financial results for 2025 was provided in our earnings release and will be provided in our Form 10-Ks, which include the condensed consolidated balance sheet as of December 31, 2025, the statement of operations and cash flows for the three and twelve months ended December 31, 2025, and a detailed reconciliation of net income to EBITDA and adjusted EBITDA for the quarter ended December 31, 2025, as well as the preceding four quarters. While Rick reviewed our operating results briefly, let me provide more context related to our performance and outlook. In terms of the income statement, fourth quarter revenue more than doubled year over year to $23.9 million as compared to $11 million in the same period in fiscal 2024, with approximately $13.6 million from CDM. Revenue from our legacy Creative Realities, Inc. business decreased approximately 6% year over year, primarily as a result of project timing and decreased FAT. Hardware revenue rose to $6.6 million versus $3.9 million in the prior-year period, while service revenue increased to $17.3 million from $7.2 million in fiscal 2024, largely reflecting the CDM acquisition as well as deployment timing. Consolidated gross profit was $11.5 million for the fiscal 2025 fourth quarter versus $4.9 million in the prior-year period, and consolidated gross margin was 47.9% versus 44.2% in the fiscal 2024 fourth quarter. Gross margin on hardware revenue was 28% in 2025 as compared to 26.3% in the prior-year period, while gross margin on service amounted to 55.7% versus 53.9% in the fiscal 2024 fourth quarter, primarily due to an improved mix of services profit as a result of the CDM acquisition. Sales and marketing expenses in the fourth quarter rose to $2 million versus $1.4 million in the prior-year period, while general and administrative expenses increased to $8.9 million versus $4.2 million in fiscal 2024, again reflecting the acquisition of CDM which contributed approximately $3.2 million in expense. Approximately $1.2 million of G&A costs were one-time in nature, including legal, accounting, and consulting fees, as well as closing costs related to the transaction. As Rick indicated, we are well on our way to achieving the $10 million of synergies previously announced for fiscal 2026, although we are also investing in the Canadian media business and other technology initiatives meant to drive increased growth across the enterprise. The company posted operating income of approximately $0.5 million in 2025 compared to an operating loss of approximately $0.7 million in fiscal 2024. Creative Realities, Inc. reported a net loss of $1.9 million, or $0.19 per diluted share, in the quarter ended December 31, 2025, versus a net loss of $2.8 million, or $0.27 per diluted share, in the prior-year period. Adjusted EBITDA was $5.2 million in 2025 as compared to $0.5 million in the prior-year period. We anticipate adjusted EBITDA and cash flow to improve going forward as synergies are realized and, at the appropriate time, intend to reduce debt to decrease interest expense and strengthen our financial flexibility, as the company has done in the past. In terms of the balance sheet, as of December 31, 2025, the company had cash on hand of approximately $1.6 million versus $1 million at the start of 2025. As mentioned on prior earnings calls, we keep a minimum amount of cash in the bank as the company has set up a sweep instrument to apply funds against our revolving debt facility to better manage interest expense. Our gross and net debt stood at approximately $43.3 million and $41.7 million, respectively, at the end of the fourth quarter, as compared to $13 million and $12 million, respectively, at the start of 2025. The increase of our indebtedness is largely a result of financing the acquisition of CDM as previously discussed. As a reminder, we financed the transaction through a combination of debt and preferred equity, including a three-year $36 million senior syndicate term loan and $30 million of convertible preferred equity with a $3 conversion price provided by affiliates of North Run Capital. Going forward, as I just mentioned, we remain dedicated to using cash generation when possible to lower our debt and migrate to an optimized capital structure to support financial flexibility. However, in the near term, we are investing in the business to drive growth and improve technology applications across the organization. I will now turn it back to Rick for additional comments on the senior executive additions to the management team, reorganization of our sales team, some customer activities, and the CDM integration. Rick Mills: Thanks, Tamara. I have already discussed Tamara's background and unique fit for our business earlier on the call, but I do want to spend a few more moments to introduce Dan McAllister as our CRO and Jackie Walker as our chief experience officer. Dan has been a chief revenue officer at a SaaS company before. He has a history of accelerating go-to-market strategy and reengineering the revenue systems for sustainable growth. His proven track record in aligning sales, marketing, and customer service teams, along with enforcing team structure and process discipline, all lead to revenue growth. The sales organization here has been structured into vertical teams, each led by a senior executive and focused on a vertical market. By the way, this is a team of 42 folks — a sales team that has effectively tripled in size. These vertical teams fall into the following markets: sports and entertainment (also known as IPTV), QSR and fast casual restaurants, retail and financial, retail media networks including AdTech, lottery, and finally, malls and real estate (known internally as MRE). We are now better focused and prepared to go after new customers across the board. More recently, Jackie Walker has joined as our new chief experience officer. She will serve as the internal authority on how digital and physical environments converge. She brings, and will leverage, an outsider's perspective to disrupt legacy thinking, overseeing the strategic what and why of our software revolution while scaling our consulting practice into a high-growth, high-margin engine of the business. Jackie, welcome aboard. Now there is a lot of activity and news to discuss across our various business vertical markets, so let us start with the IPTV division. We have been awarded a new stadium project, which will be completed in the second half of this year. This is a new stadium build from the ground up. This is an $8 million project involving thousands of displays and IPTV throughout the entire venue. In addition, we are in the process of refreshing the entire IPTV system for a Major League Baseball team and several other stadium projects. This division, which is headed by Lee Summers, is expected to double revenue this year to over $17 million. Our QSR and fast casual restaurant division is managed by Natalie Mines, a fifteen-year veteran of Creative Realities, Inc. Our next-gen modular drive-thru digital menu board system, which we introduced in January, is continuing to increase revenue in this division. This drive-thru, version 2.0, is engineered to help operators streamline installation, simplify maintenance, and scale the drive-thru environment over time. This new system allows brands to expand from single digital screen setups to multi-screen configurations without replacing the entire structure. We are currently deploying this product for multiple customers and typically are installing ten new locations on a weekly basis, or over 500 a year. The retail, financial, retail media network, and AdTech team, headed up by Jessica Creases, has been extremely busy since the acquisition. We had a nice jump start on the year by renewing the SaaS contracts of two of the top ten largest financial institutions in North America — congrats to the team for getting that done. Our AdTech solutions are now in test by a number of large customers who are evaluating the monetization capabilities of their installed signage network. We would expect to see three or four deployments in the second half of this year. Today, we are also announcing a $6 million media network project that Creative Realities, Inc. is deploying across the lobbies of AMC Theatres in the U.S. Our partner, National CineMedia (NCM), is the leading cinema platform in the U.S., and the media representative for this new innovative network. We will install this network of 1,200-plus screens and large-format LEDs through the rest of 2026. This media network utilizes the Reflect CMS and our AdLogic AdTech software solutions. One other customer-specific update I would like to mention: North Carolina Lottery. The previously announced ten-year $54 million contract is in the process of deployment and has been migrated to the ReflectView CMS platform. The deployment of all 1,550-plus locations is expected to be completed in Q2, with a few remaining locations in Q3. Finally, let us talk about the start of 2026. We had a significant revenue impact in Q1 from the disruptive weather across the Midwest and Southeast. A major cold wave gripped much of North America from mid-January through mid-February, bringing incredibly low temperatures, snow, sleet, and freezing rain to the eastern two-thirds of the country. In addition, a very rare storm brought historic snowfalls to the Carolinas, specifically North Carolina. This caused $4 million or more of revenue to push to Q2. I want to remind everybody, this is not lost revenue — however, just delayed. Construction on many of our customers' new QSR facilities was suspended for thirty to forty-five days as the weather passed through. As a result, the February and March new location openings for these QSR customers were delayed until April, May, and some in June, including the installation of 500 locations for our lottery customer. This will shift revenue from Q1 into Q2 and maybe some into Q3. With that said, I want to be very clear. We continue to be bullish on our revenue and stand behind our earlier statements that our revenue in 2026 will exceed $100 million and our adjusted EBITDA will reach a run rate of 20% by year-end. Our pipeline remains robust. We expect to continue to land many new opportunities. We are in an excellent position to post higher growth and improved operating results going forward, and we remain on track for our best year ever. We will now open the call for questions. Operator, please go ahead. Operator: Thank you. To ask a question, please press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Our first question comes from the line of Jason Michael Kreyer with Craig-Hallum. Your line is now open. Jason Michael Kreyer: Wonderful. Thank you, gentlemen. Rick, can you talk about scale gains and how that has changed the go-to-market over the last several months since the acquisition, or just maybe the tone of customer conversations and how that has changed? Rick Mills: Great question, Jason. The tone of conversations is totally different. Number one, most customers recognize — particularly in some of our verticals, QSR specifically — we are absolutely at the top of the food chain, and so we are now in conversations that we would never have been in before. That is number one. Number two, those conversations are very serious because they understand we are now a true leader in the QSR and drive-thru space and approach us with a very different message than we experienced in the past. Jason Michael Kreyer: Good to hear. Thank you. Rick, we have talked for the last few quarters about deals that are sitting at the one-yard line — or I think you have even talked about the one-inch line. Any updates on that? I am also curious how you see the pipeline building with your AdTech capabilities. I know the last several wins that we have discussed have been more slanted to the QSR side, so I am curious how deal flow looks on deals that have advertising embedded in them. Rick Mills: Deal flow continues to be strong. Let us go back to the one-inch-line comment. First thing I would tell you is, we pulled one across the one-inch line with an $8 million stadium project — finally got that done. Number two, we announced on a prior call a large QSR had gone through an entire RFP — over 4,000 locations in North America — and they had selected us. We have been negotiating the contract, and we expect to actually sign that contract in the next couple of weeks. It has been a long time coming, but the contract is getting ready to get executed, and that will result in additional drive-thrus, etc., moving along. Retail media networks: primarily, we have had a couple of C‑store customers — one specific large C‑store customer — that has been in test for at least five to six months and is now moving to deployment. We are in conversations with three or four other customers who are interested in retail media networks. One is a large grocer — one of the largest grocery chains in the U.S. — so we are in significant conversations. Another is a significant C‑store chain. And I would say two or three what you would call traditional retailers that tend to be more in the luxury beauty area. We are having substantive conversations with a number of them. Last but not least, our sales force has literally tripled in size. We have 40-plus folks on the sales team who are out talking to customers every day. The number of folks we are actively engaged with has increased significantly. Part of that is due to our new position and stature in the industry — as one of the big guys. Number two, it is also the fact that I have 40-plus experienced folks out beating the streets, contacting customers every day across North America. A combination of all those things is really coming into play, and we feel very bullish about the next twelve to eighteen months. Jason Michael Kreyer: That was a solid recap there, Rick. Thank you for that. Last one for me: just want to touch on the lottery sector. I think the last time we talked, you have the big deployment right now in North Carolina, but I thought there was some potential momentum with other RFPs that were coming to market. Can you give us a recap of what you think that RFP landscape looks like today? Rick Mills: That is a solid question, Jason. Unfortunately, I do not have a solid answer other than we expected in 2026 seven to eight large RFPs coming out. We have yet to see that happen. We have one that we are actively participating in. We have a couple large West Coast opportunities that we are in discussion on, but I would not call them active RFPs. We are well positioned and we are certainly talking to every lottery that is interested. One thing I would tell you about the lottery market and what we have done with our current lottery customer is we are showing significant lift, and we have results of that to show other lottery customers and potential customers — that we can achieve substantial lift which results in significantly increased lottery ticket sales. Jason Michael Kreyer: On that point, your ability to take that lottery solution into C‑stores and create a cross-sell opportunity — does the rollout of lottery help build out a greater rollout in C‑stores? Do you see a network effect there? Rick Mills: Still unproven. Today, when we have rolled out lottery, it has been dedicated to lottery. We have not done a mix of in-store promotion and then layered in lottery, like a 50/50 mix. It has been 100% lottery. We are talking to some of our C‑store customers who have networks already deployed about improving their schedule and adding lottery on those screens to increase lift, but we have no results yet to talk about. Jason Michael Kreyer: Got it. Thank you. Keep up the good work. Rick Mills: Thanks. Operator: Our next question comes from the line of Brian David Kinstlinger with Alliance Global Partners. Your line is now open. Brian David Kinstlinger: Great. Thanks so much. Solid fourth quarter results. Prior to the announced partnership, had AMC been a customer of Creative Realities, Inc. or even CDM? If so, how much revenue did AMC generate last year? And then the second part of that question is, what is the installation revenue on this contract versus the potential recurring revenue based on your AdTech and media solution? Rick Mills: Great question, Brian. How are you, sir? Brian David Kinstlinger: Great. Thanks. Rick Mills: Good. Yes, AMC has been a longtime customer of CDM. Today, I would tell you it is a seven-figure customer in terms of deploying our software and managing all of the screens throughout every AMC theatre in the U.S. They are not a hardware customer — they have always procured hardware internally — so they are a software and content customer. When the opportunity came to build out a network, it made sense that Creative Realities, Inc. was already deployed throughout their locations, and we were doing a great job, so it was a natural fit for us. In terms of the hardware and installation revenue on this particular network, I am assuming it is going to be in the typical 70/30 range of hardware and installation, out of the $6 million bucket. Then there is ongoing revenue: it is our software and AdTech that will be running it — our CMS and our AdTech — and there is a revenue share for the next five years on that screen. Brian David Kinstlinger: Great. That is helpful and a great deal. This week, I think, 7‑Eleven announced store restructuring where it is going to close something like 600 stores and open almost 300 stores over the course of maybe two years. Is there any impact on your business from the store closings? And then, you have been a preferred vendor there — will there be a new RFP, or is that under your existing contract? Just talk about 7‑Eleven and what is going on there. Rick Mills: Great question. If there is an effect on Creative Realities, Inc., it would be de minimis or minimal. The closing of the 600 stores — if those stores had digital, which we do not know — they may have us uninstall digital and reinstall it in some other stores. In the 300 new locations, those typically are going to be full-size 7‑Elevens that are likely to include at least one if not two food concepts, and we would expect to do a number of screens there. Our contract with 7‑Eleven is in the process of renewal. It has not been signed, but we are at the end game for another three-year renewal with 7‑Eleven. We do not anticipate any change — that customer continues to grow. Brian David Kinstlinger: You mentioned it was helpful that the first quarter was impacted by weather. Clearly, that is going to be the worst quarter of the year. Any thoughts on which are the strongest — maybe the second and the third quarter — based on known installs at places like AMC and North Carolina? Rick Mills: I would tell you Q3 is setting up to be a significant quarter because, with the stadium install, a bunch of hardware will ship in Q3. A bunch of drive-thrus will go in during Q3 because that is the end of the construction timeframe across the eastern half of the U.S. They want to get those restaurants open in September–October, before it gets into bad weather. So, generally speaking, that is what we expect to be significant. Then we have this 4,000 locations across North America. Tamara Koshua: The other thing that I will add is that Q4 has the largest percentage of our media revenue with the CDM acquisition, so that automatically will increase the value in Q4. We do expect Q4 to be the largest quarter of revenue. Rick Mills: Great callout — I forgot that portion about a bunch of media revenue in Q4. Thank you. Brian David Kinstlinger: Already adding value. Last question for me: remind us of the expectations for interest expense and how much is cash obligation this year? Rick Mills: That is a great question. George or Tamara, any input on what that would look like? Tamara Koshua: It will depend on the debt levels of the revolver, but generally, the term loan is going to drive the lion's share of the interest expense we would expect to see, and that generally is somewhere between $0.5 million and $0.75 million a quarter. Brian David Kinstlinger: Thank you. Rick Mills: Brian, happy to go through that in detail on our one-on-one call. Brian David Kinstlinger: Great. Thank you, guys. Operator: Our next question comes from the line of Jon Robert Hickman with Ladenburg. Your line is now open. Rick Mills: Hello? Jon Robert Hickman: Hi. Can you hear me okay? Rick Mills: I can hear you just fine, John. Jon Robert Hickman: Most of my questions have been asked and answered. I wanted to drill down a little bit on the restaurant chain that you landed last year, and then there were some issues with installation because of the size of the screens. Where are you with those guys? Did you do business with them in the fourth quarter, and what is going on? Rick Mills: There was some SaaS revenue because we had some of their locations on our SaaS platforms. However, they have halted all hardware procurement and installs until the new contract was finalized. The new contract — we and the customer had internal dates to get it done by March 15. Here we are April 14, and we still do not have it signed. We do expect it to be signed in the next couple of weeks. We thought this was a brand-new win last year, and it is — they did an RFP, we won, and it is a contract that we had to create from the ground up. Jon Robert Hickman: There are a lot of franchisees in this particular customer. Has that been an issue? Rick Mills: It has not been an issue as we have started to deploy the SaaS across the franchisees. The franchisees are responsible for hardware updates, and should they desire to upgrade to a digital drive-thru, they would be responsible for that. We attended the franchisee show in January. The verbal indications we received from the folks who came by our booth indicated significant interest. I have talked to two or three franchisees that own 30 to 50 locations each that indicated they wanted to put digital drive-thrus in all locations. As you know, we have to take that with a grain of salt, because when it is time to write the check, who knows. But we do expect to see some growth in Q3 because, even if they turned it on today, we would not be installing drive-thrus in the next sixty days — it would be Q3 or Q4 revenue once we sign this contract. That is realistically the impact. Jon Robert Hickman: Out of the total addressable market — not including the AdTech side — do you have any estimate of your market share right now? Rick Mills: Really hard number to pin down. I would tell you in North America today, we are not 2%. If we were 1%, I would be surprised, at $100 million. George, any input? George Sautter: And, John, just to clarify, are we talking about market share or market penetration? Jon Robert Hickman: Maybe we can talk about both later today. Different question: now that you are combined with CDM and can get into a different level of contracts and opportunities, has your competitor outlook changed? Are the entities you are competing with different now? Rick Mills: We have always competed against the same three, four, or five competitors. Some were larger than us. Today, they are not larger than us. We occupy a different, unique position, and in some cases I am significantly larger than they are. We represent a real strategic advantage for the end-user customer to align with Creative Realities, Inc. as a supplier. Jon Robert Hickman: That makes sense. I will talk to you later then. Thank you. Operator: Our next question comes from the line of Kevin Sheldon, Private Investor. Your line is now open. Rick Mills: Kevin, how are you? Operator: Kevin, please check your mute button. I am currently showing no further questions from the phone lines. Mr. Sautter, are there any email questions? George Sautter: No. There are not. Operator: Thank you. I would like to turn the call back over to Rick Mills for closing remarks. Rick Mills: Let me conclude the call by thanking all our shareholders, clients, partners, and specifically the Creative Realities, Inc. and CDM employees for their continuing efforts, commitment, and support. We continue to work to transform Creative Realities, Inc. into the leading brand in digital signage solutions, and for many of you who have been on these calls for the last couple of years, you have seen us really execute in the market and continue to grow. Thanks for joining the call. We look forward to speaking with you again next quarter. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to Johnson & Johnson's First Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded. [Operator Instructions] I will now turn the call over to Johnson & Johnson. You may begin. Darren Snellgrove: Hello, everyone. This is Darren Snellgrove, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of business results for the first quarter of 2026, and our financial outlook for the full year. First, a few logistics. As a reminder, today's presentation and associated schedules are available on the Investor Relations section of the Johnson & Johnson website. at investor.jnj.com. Please note that this presentation contains forward-looking statements regarding, among other things, the company's future operating and financial performance, market position and business strategy. You are cautioned not to rely on these forward-looking statements, which are based on the current expectations of future events using the information available as of the date of this recording and are subject to certain risks and uncertainties that may cause the company's actual results to differ materially from those projected. The description of these risks, uncertainties and other factors can be found in our SEC filings, including our 2025 Form 10-K, which is available at investor.jnj.com and on the SEC's website. Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. This slide acknowledges those relationships. Moving to today's agenda, Joaquin Duato, our Chairman and CEO, will discuss our business performance and growth drivers. I will then review the first quarter sales and P&L results. Joe Wolk, our CFO, will then close by sharing an overview of our capital allocation priorities and updated guidance for 2026. Jennifer Taubert, Executive Vice President, Worldwide Chairman, Innovative Medicine. John Reed, Executive Vice President, Innovative Medicine Research and Development; and Tim Schmid, Executive Vice President, Worldwide Chairman, MedTech, will be joining us for Q&A. To ensure we provide enough time to address your questions, we anticipate the webcast will last approximately 60 minutes. With that, I will now turn the call over to Joaquin. Joaquin Duato: Good morning, everyone, and thank you for joining us. We said 2026 would be a year of accelerated growth and impact for Johnson & Johnson and with our strong Q1 performance, including our bid on consensus and raised guidance, you can see we are delivering on that promise. In the first three months of the year, we delivered operational sales growth of 6.4%. Our focus on areas of high innovation, high unmet need and high growth is delivering results today and for the future. Across each of our 6 key businesses: Oncology, Immunology, Neuroscience, Cardiovascular, Surgery and Vision, we have multiple differentiated assets to drive sustained growth and a strong competitive advantage. Our success is fueled by the strongest portfolio pipeline in the history of Johnson & Johnson. We currently have 28 platforms or products that generate at least $1 billion in annual revenue and we are aiming to add even more. Our unique combination of innovative medicine and MedTech, together with strong execution and industry-leading investment in innovation is delivering resilient growth. We are on track to meet our 2026 target of $100 billion in annual revenue for the first time and we are confident our progress will continue to improve into 2027 with line of sight to double-digit growth by the end of the decade. Let's start with Innovative Medicine where we delivered operational sales growth of 7.4% in the quarter with 10 brands growing double digits. In Oncology, we are aiming to cure and treat more cancers with the world's leading portfolio and pipeline. DARZALEX remains the gold standard in multiple myeloma and our #1 product with sales of $4 billion and operational sales growth of 18%. CARVYKTI, TECVAYLI and TALVEY also continued to deliver high double-digit growth reflecting the importance of our multiple myeloma portfolio across the full treatment journey. Progress in our pipeline accelerated in Q1 with the FDA approval of TECVAYLI plus DARZALEX FASPRO for relapsed or refractory multiple myeloma. That positions the regimen as a potential new standard of care as early as second line. In soli tumors, RYBREVANT FASPRO received FDA approval for subcutaneous monthly dosing for patients with EGFR mutated non-small cell lung cancer. RYBREVANT also received FDA breakthrough therapy designation in advanced head and neck cancer with new data showing overall response rate in first-line recurrent or metastatic head and neck cancer when combined with immunotherapy. The treatment is being further evaluated in the ongoing Phase III OrigAMI-5 study. And in high-risk non-muscle invasive bladder cancer, INLEXZO is outperforming all recent launches based on unique patients treated in the first 6 months post approval. In immunology, we continue to raise the bar in a category we have built for more than 3 decades from single innovations like REMICADE and STELARA to now a dual powerhouse of ICOTYDE and TREMFYA. TREMFYA had another very strong quarter with sales up 64%. It continues to be the fastest-growing IL-23 therapy in the U.S. and is now the share leader new patient starts in inflammatory bowel disease. And with last month's FDA approval of ICOTYDE for the first-line treatment of plaque psoriasis, we are once again transforming the standard of care for immunology patients. ICOTYDE is the first and only IL-23 targeted oral peptide and has the potential to fundamentally change how psoriatic disease is treated by offering a convenient once-daily pill. The full launch of ICOTYDE took place the same day as approval with the first patient receiving treatment that very day. While it is just the beginning, we're already seeing strong demand through our patient hub. Together, ICOTYDE and TREMFYA create a complementary category shaping portfolio. ICOTYDE is the first choice systemic treatment and TREMFYA is the first choice biologic treatment for patients with moderate to severe plaque psoriasis. ICOTYDE has the potential to be one of our largest products ever. TREMFYA is projected to deliver more than $10 billion in peak year sales. In neuroscience, we are focused on meaningfully improving outcomes in mental health. The U.S. launch of CAPLYTA in adjunctive major depressive disorder is building momentum and SPRAVATO continues its strong growth trajectory. Now let's turn to Medtech, where we reported Q1 operational sales growth of 4.6% with growth across all of our key focus areas. In cardiovascular, we are investing in the growing need for complex interventions. Johnson & Johnson is the market leader in heart recovery circulatory restoration and electrophysiology and we continue to deliver sustained growth. In heart recovery, Abiomed had another strong quarter as this shows with in circulatory restoration. And in electrophysiology, VARIPULSE our post-field ablation platform for atrial fibrillation keeps building momentum. Our confidence of continued leadership in electrophysiology was further strengthened by our recent launch of VARIPULSE Pro in Europe with 5x faster ablation, which helps streamline procedures and improve efficiency as well as our recent [ VARIPULSE ] 12 months data presented just a few days ago, we show a strong safety profile with zero reported strokes. We also continue to receive strong feedback in Europe for our Dual Energy THERMOCOOL SMARTTOUCH SF Catheter which we expect to launch in the U.S. later this year, having recently submitted a complete platform to FDA. And finally, we recently announced 12-month data for OMNYPULSE, our large focal tip PFA catheter, showing positive outcomes, no safety events and 100% procedural success rate. In surgery, our strong performance reflects the deep levels of trust and our expanding presence in the operating room. In Q1, we made progress on our OTTAVA robotic surgical system, and we are building on our recent de novo filing for approval with a second investigational device exemption trial now underway for inguinal hernia repair. In Vision, we are restoring sight to its healthiest state with expanding access globally for our ACUVUE OASYS MAX disposable lenses for presbyopia and astigmatism and our TECNIS intraocular lenses. Most significantly, we received FDA approval of TECNIS PureSee, the first and only extended depth of focus intraocular lens in the U.S. to maintain contract sensitivity comparable to a monofocal lens. 97% of patients reported no very bothersome visual disturbances like halos or glare. As you can see, we are off to a fast start in 2026, building momentum that will accelerate our impact and growth throughout the year and for the balance of the decade. The depth of our portfolio and pipeline has never been stronger, and I'm confident we'll continue to deliver on our commitments for 2026 and beyond. And with that, I will turn the call back over to Darren. Darren Snellgrove: Thank you, Joaquin. Moving to our financial results. Unless otherwise stated, the percentages quoted represent operational results and therefore, exclude the impact of currency translation. Starting with Q1 2026 sales results. Worldwide sales were $24.1 billion for the quarter. Sales increased 6.4% despite an approximate 540 basis point headwind from STELARA. Excluding STELARA, Johnson & Johnson grew double digits for the quarter. Growth in the U.S. was 8.3% and 3.9% outside of the U.S. Acquisitions and divestitures had a net positive impact on worldwide growth of 110 basis points primarily driven by the Intra-Cellular acquisition. Now turning to earnings. For the quarter, net earnings were $5.2 billion and diluted earnings per share were $2.14 versus $4.54 a year ago. Adjusted net earnings for the quarter were $6.6 billion, and adjusted diluted earnings per share were $2.70 representing a decrease of 1.4% and 2.5%, respectively, compared to the first quarter of 2025. I will now comment on business sales performance in the quarter focusing on the 6 key areas where meaningful innovation is driving our performance and fueling long-term growth. Beginning with innovative medicine where our financial results reflect the depth of our expertise and innovation in areas of high unmet need across oncology, immunology and neuroscience. Worldwide sales of $15.4 billion increased 7.4% despite an approximate 920 basis point headwind from STELARA which underscores the continued strength of our key brands and new launches. Growth in the U.S. was 9.6% and 4.3% outside of the U.S. Acquisitions and divestitures had a net positive impact of 180 basis points on worldwide growth primarily due to the Intra-Cellular acquisition. In oncology, starting with multiple myeloma, DARZALEX growth was 17.8%, primarily driven by strong share gains of 5.9 points across all lines of therapy with nearly 12 points in the frontline setting as well as market growth. CARVYKTI achieved sales of approximately $600 million with growth of 57.4%, driven by share gains and continued site expansion. TECVAYLI growth was 30.1% with sequential growth of 14.2%, driven by launch uptake and share gains from expansion in the community setting as well as the U.S. approval of TECVAYLI plus DARZALEX FASPRO. TALVEY growth was 72.8%, driven by share gains through expansion in the community setting. In Lung Cancer, RYBREVANT plus LAZCLUZE delivered sales of $257 million and growth of 80.5% driven by continued launch uptake in all regions, share gains and rapid uptake in RYBREVANT FASPRO. Share gains in both the first and second lines continue to drive strong sequential growth of 18.8%. In prostate cancer, ERLEADA delivered strong growth of 16.2% due to continued share gains and market growth. Within immunology, TREMFYA delivered impressive growth of 63.8%. Our IBD launch is driving significant momentum, and we continue to see share gains across all indications as well as market growth. STELARA declined 61.7% driven by share loss due to biosimilar competition, increasing adoption of novel classes and unfavorable patient mix. In neuroscience, SPRAVATO grew 44.5% and driven by continued strong demand from physicians and patients. CAPLYTA, which was acquired in Q2 of 2025 as part of the Intra-Cellular acquisition, delivered sales of $270 million for the quarter with continued strong momentum in our aMDD launch. Since aMDD approval in the U.S., CAPLYTA has had its highest ever new patient start volumes across all indications. Now moving to MedTech, where we delivered growth across each of our key focus areas, cardiovascular, surgery and vision. Worldwide sales of $8.6 billion increased 4.6% with a growth of 5.9% in the U.S. and 3.2% outside of the U.S. Divestitures had a net negative impact of 10 basis points on worldwide growth. In Cardiovascular, electrophysiology delivered growth of 9.5%, driven by our newly launched products, including VARIPULSE and commercial execution. Abiomed delivered growth of 14.4%, with continued strong adoption of the Impella technology. Shockwave delivered strong double-digit growth of 18.1% driven by continued adoption of coronary and peripheral products. Surgery grew 1.2% despite a negative impact of approximately 30 basis points from divestitures. Growth was driven by strength of the portfolio and commercial execution in biosurgery and wound closure, partially offset by planned surgery transformation impacts and competitive pressures in energy and endocutters as well as VBP in China across the portfolio. In Vision, contact lenses and other products grew 2.7%, driven by strong performance in the ACUVUE OASYS 1-Day family of products, as well as strategic price actions, further solidifying our leadership position. Surgical Vision grew 6%, driven by new product innovations, robust demand for premium IOLs and strong commercial execution, partially offset by competitive pressures in the U.S. Orthopaedics growth this quarter was 3.2% primarily driven by new product launches and strong commercial execution. Now turning to our consolidated statement of earnings for the first quarter of 2026. I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of goods sold deleveraged by 10 basis points, driven by the impact of tariffs and other operational drivers in the MedTech business, an unfavorable mix in the Innovative Medicine business. This was partially offset by favorable translational currency in the Innovative Medicine business. Selling, marketing and administrative expense deleveraged by 180 basis points, driven by heavier investment in new launches early in the year and increased investment related to the acquisition of Intra-Cellular in the Innovative Medicine business. Research and development remained flat at 14.7% of sales. Interest income and expense was a net expense of $43 million as compared to $128 million of income in the first quarter of 2025. The decrease in income was driven by a lower average cash balance and a higher average debt balance. Other income and expense was a net expense of $294 million as compared to $7.3 billion of income in the first quarter of 2025 with the change primarily driven by the approximate $7 billion talc reserve reversal in the first quarter of 2025. Tax rate on a GAAP basis in the first quarter of 2026 was 12.6% compared to 19.3% in the first quarter of 2025. This was primarily driven by the reversal of the talc settlement accrual in the first quarter of 2025, which did not reoccur and discrete tax benefits associated with employee equity programs in the first quarter of 2026. Lastly, I'll direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now let's look at adjusted income before tax by segment for the quarter. Innovative Medicine margin declined from 42.5% to 39.7%, primarily driven by heavier investment in new launches early in the year. Unfavorable product mix and certain favorable onetime items recorded in 2025, partially offset by favorable translational currency. MedTech margin declined from 25.9% to 22.3% primarily driven by the impact of tariffs in cost of products sold and certain favorable onetime items recorded in 2025. As a result, adjusted income before tax for the enterprise as a percentage of sales decreased from 36.6% to 32.5%. This concludes the sales and earnings portion of the call, and I will now turn the call over to Joe. Joseph Wolk: Thanks, Darren. Hello, everyone. We appreciate you joining us today. As Joaquin noted, we are seeing good momentum across our business, powered by our industry-leading portfolio, sustained investment in innovation and disciplined execution. We continue to advance our pipeline by bringing innovative new treatments to patients, which will meaningfully improve patient outcomes and fortify future performance, giving us a clear line of sight to double-digit growth by the end of the decade. Turning to cash and capital allocation. We ended the first quarter with approximately $22 billion of cash and marketable securities and $55 billion of debt for a net debt of approximately $33 billion. Free cash flow in the first quarter was approximately $1.5 billion. Clearly, this suggests a run rate below our full year projection as Q1 reflects payment timing changes on certain U.S. rebate programs and increased U.S. capital expenditures. However, these were expected, and we remain confident in our full year free cash flow outlook of approximately $21 billion. Our strong financial position and cash flow generation provides a competitive advantage, enabling us to maintain a consistent approach to capital allocation and investment in future innovation. Since announcing our plans to invest $55 billion in U.S.-based manufacturing technology and research and development through early 2029, we are well on our way to reaching that target. Through the end of 2025, we invested roughly $12 billion or 22% of the $55 billion with significant investment already underway in 2026. Our manufacturing investments include facilities in North Carolina and Pennsylvania, and we will have more announcements to come in upcoming quarters. Lastly, we recognize our shareholders value a growing dividend. Today, we were pleased to announce the Board of Directors' authorization for a 3.1% increase to an annual rate of $5.36 per share, our 64th consecutive year of dividend growth. Turning now to full year 2026 guidance. We are increasing our operational sales guidance to be in the range of 5.9% to 6.9%, with a midpoint of $100.2 billion or 6.4%. As noted last quarter, our financial calendar in 2026 includes a 53rd week, which provides a benefit of approximately 100 basis points. We do not speculate on future currency movements and last quarter, we utilized the euro spot rate relative to the U.S. dollar of $1.17. As of last week, the euro spot rate to the U.S. dollar has stayed relatively flat, with modest benefit from other major currencies. As a result, we estimate reported sales growth between 6.5% to 7.5% with a midpoint of $100.8 billion or 7%. Turning to other notable items on the P&L. We are maintaining our guidance for adjusted pretax operating margin to improve by at least 50 basis points in 2026. This will be driven by continued operating efficiencies with a portion reinvested to support new product launches and further strengthen the pipeline. As today's Q1 results reflect heavier investment is planned to occur in the first half of the year. As a reminder, our pretax operating margin guidance takes into account the costs from the 53rd week of operations and the announced voluntary agreement with the U.S. government to improve access to medicines and lower cost to U.S. patients. We are maintaining our guidance for net interest expense, net other income and the effective tax rate for the full year. Turning to adjusted operational earnings per share. We are increasing our guidance by $0.02 to a range of $11.30 to $11.50, representing 5.7% growth at the midpoint. As such, we now expect reported adjusted earnings per share of $11.55 at the midpoint or a growth of 7.1%. I'll now shift to some qualitative considerations on phasing for your models. As noted last quarter, we anticipate fairly consistent operational sales growth throughout the year with a higher fourth quarter due to the benefit from the 53rd week referenced earlier. In Innovative Medicine, the depth and strength of our portfolio will continue to drive accelerating growth this year. We expect contributions from our newly launched products across oncology, immunology and neuroscience to increase throughout the year. As Joaquin mentioned, we are excited by the launch of ICOTYDE as well as that of INLEXZO, our innovative new therapy for certain types of bladder cancer, which had sales slightly above $30 million in the quarter. On April 1, we received a permanent J-code for INLEXZO reimbursement, which will enable broader patient access and serve as an important catalyst for growth. In neuroscience, CAPLYTA continued to build momentum following its FDA approval in adjunctive major depressive disorder with new patient starts and total continuing patient growth outpacing the market. We believe this performance supports CAPLYTA's peak annual sales potential of greater than $5 billion, and we look forward to sharing additional data in bipolar mania later this year. In MedTech, our focus this year is on accelerating the adoption of our recently launched products. ETHICON 4000, our next-generation surgical stapler launched in the U.S. in 2025 is expected to launch in Europe shortly. In Vision, we continue to expand the TECNIS platform globally and look forward to the U.S. launch of TECNIS PureSee intraocular lens, which enables surgeons to address cataract-related vision loss and presbyopia in a single procedure. In electrophysiology, VARIPULSE Pro is an innovative step forward, introducing a new faster pulse sequence that reduces ablation time by 85%. We do anticipate some second half impact from volume-based procurement in China for electrophysiology products, which has been factored into our full year guidance. The Orthopedics business under the leadership of Namal Nawana, delivered a strong first quarter with encouraging momentum across key platforms. We are continuing to make targeted investments in the business and working towards a mid-2027 separation. We look forward to sharing further updates later this year. And as stated last October, we are evaluating all separation vehicles that create shareholder value and set up the DePuy Synthes business for long-term success. Turning to our pipeline. We have many important catalysts that we are looking forward to in 2026. In Innovative Medicine, we expect regulatory approval for TREMFYA for the inhibition of structural joint damage for patients with psoriatic arthritis. As this chart indicates, we also have many important upcoming data presentations across oncology, immunology and neuroscience including ERLEADA in localized and locally advanced high-risk prostate cancer, INLEXZO in high-risk non-muscle invasive bladder cancer; JNJ-4804 in ulcerative colitis and Crohn's disease and CAPLYTA in Bipolar mania. In MedTech, we anticipate the following approvals and regulatory submissions: OTTAVA Robotic Surgical System, VARIPULSE Pro in the U.S.; ETHIZIA in biosurgery and the Dual Energy THERMOCOOL SMARTTOUCH SF catheter in the U.S. Before we move to Q&A, we'd like to thank our colleagues around the world for delivering another solid quarter. Their execution continues to optimize our portfolio, advance our pipeline and deliver on our mission of improving and saving lives. Our diversified portfolio, robust pipeline and strong financial foundation position us to drive accelerating and sustainable growth while creating near- and long-term value for shareholders. Speaking of long term, we look forward to providing an in-depth look at our long-term strategy and the driving forces behind our path to double-digit growth. Please mark your calendars for December 8, the date of our Enterprise business review. With that, we are happy to take your questions. Kevin, can you please open the call for Q&A? Operator: [Operator Instructions] Our first question today is coming from Terence Flynn from Morgan Stanley. Terence Flynn: Great. Congrats on all the progress. I had a 2-part one on ICOTYDE. I was just wondering if you can remind us of how you're positioning that drug in the market now that have full details on the label and pricing? And also, how should we think about the ramp of reimbursement coverage there and any sampling plans? Jennifer Taubert: Thanks. Well Good morning, Terence. Hello, everyone. And I just wanted to start with a big thanks to the entire innovative medicine team throughout the world, really strong results in the first quarter with over $15 billion in net sales 7.4% operational growth really importantly, [ 11k ] brands delivering double-digit growth. And if you take a look at what is now 96% of our business that is not including STELARA, we actually grew at 16.6%. So really nice accelerating growth across the portfolio. So I'm thrilled to talk about ICOTYDE, really one of our outstanding products. And I've got to tell you it's off to a very fast start. The product was approved in March. And we're really, really happy with what we believe is a very differentiated label for the product is the first and only targeted oral peptide that precisely blocks the IL-23 receptor. ICOTYDE, maybe as a reminder, delivers complete skin clearance, favorable safety and the simplicity of a once-daily pill, and we think it's got the potential to become one of our biggest products. So we were day one launch ready for the product. And in fact, first patient was actually on medication within 24 hours of approval. We're seeing very strong early enthusiasm from both physicians and patients that reinforce our confidence in the potential for this product. A number of us were out at the AAD meeting as well. And the KOL receptivity to the strength and the simplicity of the label has been really encouraging things like no lab monitoring, the TV language that reflects the physician clinical judgment, no black box or drug interactions, really is giving us good confidence that this is going to be really the preferred choice and first choice for systemic therapy. In terms of early uptake, we're seeing so far about 1,500 patients already that prescriptions have been written for that are going into access and patient support service center, so already 1,500 and already over 1,000 unique customers that are writing. In terms of payers, our goal is to have both early and broad access. And we're in the middle of a very, very positive conversations with them to try to drive that early and very broad access. So more to come on that. In terms of the positioning. I can't think of a better portfolio than being able to have both ICOTYDE and TREMFYA for our folks and really for patients with ICOTYDE being the first and only targeted oral peptide is really going to become the preferred first-line systemic therapy. We know there are so many patients that keep cycling and cycling on topical therapies. Now the international psoriasis Foundation guidelines have changed so that patients after 2 topicals and trials of 4 weeks each really become eligible for systemic and advanced therapies. And so we think ICOTYDE fits right in this sweetspot as that first choice systemic. Likewise, TREMFYA holds a really unique and distinct position as well. And that really is the first choice biologic. And so TREMFYA is both structurally and functionally different from the other IL-23s. We've been able to demonstrate really durable complete skin clearance and in our case here, it's the first and only IL-23 that's got significant inhibition of structural damage. So we think it's really the first choice biologic, especially in patients that have active or suspected PSA or psoriatic arthritis. So we think that with that 1-2 punch, we have got the portfolio for psoriatic disease in patients and are really excited about both agents going forward. John Reed: Maybe I would just add one other thing, John Reed here, our study of ICOTYDE in psoriatic arthritis, should read out later this year. That's important given that about 1/3 of patients with psoriasis also develop psoriatic arthritis. And the studies in inflammatory bile diseases, Crohn's and colitis are often rolling that Phase III program. Operator: Our next question is coming from Larry Biegelsen from Wells Fargo. Larry Biegelsen: Congrats on a nice start to the year here. Tim, sentiment in the medical device space is relatively low right now because of a number of headwinds and concerns. You posted a respectable growth rate this quarter, but it was slightly below the Q4 growth rate and the comp in Q1 was relatively easy. So my question is, what are you seeing in your end markets? And how are you thinking about the remainder of the year? Tim Schmid: Let me jump right in and say that, as you know, we've been very clear, Larry, in articulating our strategy, which is focused on higher growth and higher innovation markets, and that includes our deliberate choice to prioritize our 3 focus areas of Cardiovascular, Vision and Surgery as we separate Ortho. And I can confidently say that, that strategy is working. And in short, while we're navigating a dynamic world and market like everybody else for us, Q1 unfolded as we expected the year to start seasonally quieter but operationally solid, and this was also not a one business or one region quarter, as you've seen by the results, we saw growth across the board. And overall, we're pleased with the 4.6% operational growth, especially given that Q1 is typically our most seasonally subdued quarter. And I think it's also worth noting, Larry, that while there were some easier year-over-year comparisons this by no means throughout the quarter. Specifically, the 210 basis points of onetime impact we referenced in Q1 of last year, which you will recall was a bit of a noisy quarter were almost entirely related to the items that occurred in 2024. And so those prior year events temporarily depressed the year-over-year growth rate, creating a [ lighter comparator ] but they did not affect on the underlying dollar sales. And so onetime items from 2024 fully lapped last year, and our Q1 performance reflects underlying operational execution and normal seasonality rather than any benefit from prior one-timers. So I'd say in summary, Larry, overall, Q1 played out largely as we anticipated, balancing normal seasonality with solid execution. And most importantly, nothing in the quarter changes our confidence in further acceleration as we look towards Q2 and the remainder of 2026. And we've got a lot of growth catalysts to be proud of. What I will say in terms of the underlying market is that it's solid and underlying demand is what we expected. Now we did see some procedural softness early in the quarter, but nothing that we would define really as material while certain regions, particularly here in the U.S., you will recall, we experienced some periods of severe weather in late January and early February. That was largely consistent with normal seasonal patterns and while there was some localized impact on procedure volumes due to poor weather in parts of the business, we would not categorize them as material or meaningful at an overall level. And so what I'm proud of is our teams are highly experienced in managing these types of short-term disruptions and our supply chain, our clinical support and commercial teams work closely with health care providers to maintain continuity of service and support patient care. And so in short, Larry, a strong quarter for us, consistent with our expectations, and we believe strongly in the robustness of our end markets. Thank you. Operator: The next question today is coming from Asad Haider from Goldman Sachs. Asad Haider: Great. Congrats on yet another solid quarter. For Joaquin, just going back to the goal of double-digit top line growth towards the end of the decade, that's still not something that's getting reflected in consensus models. And in light of your comment earlier that ICOTYDE could be one of your largest products ever, that would suggest an opportunity of at least $10 billion. So any updated views on what you see as the key product variances versus the Street looking towards the end of the decade? And related, how important is the BD lever in that growth algorithm? Joaquin Duato: Thank you very much. And look, again, as you can see, we are off to a fast start with momentum that will accelerate throughout the year in 2027. And as you mentioned, with line of sight to double-digit growth by the end of the decade. And I think it's a fair question. How is that possible for a company that this year in 2026 is going to deliver more than $100 billion. This is grounded in reality, as a matter of fact, it's already happening today. If you look at the first quarter of 2026, we are already delivering double-digit growth as total Johnson & Johnson when you exclude the STELARA. So it's already happening today. And it's based on our Pro portfolio and pipeline, the strongest in our history. And also, as the decade progresses we are going to see increasing impact in our revenue of our new product launches that are largely derisked in particular, as you mentioned, there's still an underestimation of the potential of ICOTYDE, in psoriatic arthritis and IBD, the potential of RYBREVANT in non-small cell lung cancer, head and neck, where we got breakthrough resignation on colorectal cancer and finally, the potential of INLEXZO in high-risk non-muscle invasive bladder cancer. By the way, INLEXZO got the J-code earlier in April. So I believe those are 3 particular products that remain underestimated that are already marketed. The same is true in MedTech where launches, especially in cardiovascular, including our next-generation PFA catheters and Impella ECP, along with OTTAVA in robotic surgery are not yet fully reflected as well as the fact that the separation of orthopedics will further lift our growth rates. So I think you -- when you take into consideration all those factors, you are going to get into a similar conclusion of double-digit growth by the end of the decade. Further, I would say that the strong sales growth will also drive operating leverage that will be further amplified when the U.S. DARZALEX royalties roll off in 2029. So taken together, this creates what some of you have called the cleanest growth story in health care. And we are going to be providing additional details in our enterprise review that will take place in December as we have announced today. Regarding BD, let me be clear, all these numbers do not include business development. This is based in the strong portfolio pipeline that we have today that is largely the risk, which increases the confidence in our ability to get there. When it comes to business development, I mean, that remains an important part of our capital allocation. As a matter of fact, I would say we have been ahead of the curve in our investments in M&A with the acquisitions during the last 2.5 years of Abiomed, Shockwave and intracellular. As I have commented in multiple times, our sweetspot remains early-stage deals like the one we did earlier this year with Halda Therapeutics, which brings a new platform in our oncology business. And at the same, I have to say that given the situation that I just described, our priority from a capital allocation perspective, our priority is to invest behind our portfolio of new product launches and our promising pipeline programs. So that's our priority today. We remain opportunistic from a business development standpoint but we do not depend on M&A to be able to deliver on that promise. So in summary, we see both revenue growth and operating margins improving and we reaffirm that we have line of sight to double-digit growth by the end of the decade. Operator: Our next question today is coming from Chris Schott from JPMorgan. Christopher Schott: Congrats on the progress. I just had a two-parter coming back to ICOTYDE. Maybe the first one, you mentioned 1,500 prescriptions so far. Is there any color on where those customers are coming from as we think about new patients versus those switching off orals versus those switching off injectables? And then just on the bigger picture view of ICOTYDE, as you mentioned, potential for the drug to become one of the company's largest ever. The pathway to get there, should we think about this as a similar dynamic to TREMFYA that skews more towards IBD versus psoriasis or is this one that could have more balanced sales by indication given, as you mentioned, the frontline potential of the drug in the psoriasis setting? Jennifer Taubert: Chris, thanks so much for the question. So in terms of the early information on ICOTYDE. Obviously, it is really early. So we're still getting information and I can tell you that there's a broad range of prescribers for ICOTYDE as we look across the medical community. We don't yet have data that is specific to exactly where that's coming from, what is exactly new, what they're switching off of, et cetera. So hopefully, we'll have greater granularity on that at our next call, next quarter. So obviously, it's pretty new and hot off the press. I think as we take a look at ICOTYDE, ICOTYDE is going to fit in psoriasis really firmly in that systemic first-line therapy area. And that is also a great opportunity there for market expansion. If you think there are so many patients that are cycling on topicals, they are resistant to moving into biologics for a number of reasons, whether it's needle phobia, perceptions around safety profile and things. We think not only given the size of the current systemic market and having significant impact there, but really being able to expand that broader is going to be key for ICOTYDE's success. I also think when you think about IBD and having an oral agent, we've got to see the studies pan out. But based on our goals there, we think that, that's going to be a similar very, very large opportunity. I think here, we're going to see maybe more of a balanced scenario given the strength that we really anticipate having in psoriasis, but I think both segments, both psoriatic disease and inflammatory bowel diseases are going to be very big offer a lot of potential and promise for ICOTYDE. John Reed: Yes, Chris, maybe just one other comment on that is that across most autoimmune diseases, about 70% to 80% of patients who are eligible for our biologics are not taking one. And so that's why we really think about this market expansion opportunity to offer patients the convenience of a highly effective very safe once a day pill. Operator: Our next question today is coming from Shagun Singh from RBC Capital Markets. Shagun Singh Chadha: I wanted to touch on some of your growth drivers within the Medical Device business. Abiomed post-ACC, some of our checks are suggesting that within the high-risk population, we could see up to a 30% reduction. How does that compare with your expectation? And it looks like the IDL space is looking to get increasingly more competitive. So how do you manage your market leadership position in that space? And then overall, as I think about all the drivers that you mentioned within medical devices, should we think about MedTech as a high single-digit growth contributor towards the double-digit growth that you've called out for total company by the end of the decade? Tim Schmid: Shagun, thank you for the question. And there's a lot in there. Let me try and unpack it. Firstly, we are really excited to be now significantly embedded in the cardiovascular space beyond the leadership position we hold in electrophysiology and with the acquisitions of both Abiomed and Shockwave, we've added to high-growth, high-margin businesses with tremendous trajectory for the future. And, as you know, grew 14%, almost 15% in the first quarter, and this is really driven by rapid adoption of Impella 5.5 and CP and what excites me most going forward is Abiomed's robust pipeline of not only technologies, but ongoing clinical studies showing the benefits of this technology. And you will know that in August of last year, we saw a new data from the DanGer Shock shop randomized controlled trial published in the New England Journal of Medicine, and this really confirmed the long-term survival benefit of Impella. These results found that up to 10 years when compared to the standard of care, routine use of Impella in patients who had a STEMI heart attack with cardiogenic shock lead to an absolute mortality reduction of 16.3%. And to put this in context, when compared with the control arm of 10 years, Impella CP patients gained an average of 600 additional days alive. I mean that is compelling. And so while you're always going to see new data and new studies come about, we believe that our evidence base for the products we have and the indications we have today are absolutely solid and will continue to drive performance in a category where we don't have line of sight to any significant competitor for the foreseeable future. I'll turn to Shockwave, 18.1% in the first quarter, and we're very pleased with that performance. The IVL market is one we completely have created ourselves through the acquisition of Shockwave and we continue to advance our leadership position. Now clearly, competition is coming. Competition is going to come to any space that is attractive and certainly one as attractive as IVL. But there's 3 reasons that we have confidence in our portfolio and our future. And the first thing really is our portfolio. The second is evidence, and it's our presence. And over the past 7 years, we've had -- we've earned the reputation of an innovative disruptor, launching 9 -- yes, 9 new coronary and peripheral catheters that have introduced a new standard of care when it comes to safely and effectively treating calcified lesions. And as a result, Shockwave IVL has become the preferred treatment strategy in most calcium cases worldwide where it has been used in now more than 1 million cases around the world, and global expansion has also increased since the acquisition as we had transitioned 10 markets to direct sales forces. We've expanded our presence to now cover 17 markets globally with J&J representatives where we can leverage our scale and the broader J&J organization to drive government relations and address any legal and market access opportunities. And while we will never take any competitor for granted, new competitive entrants into the IVL market, validate really Shockwave's robust portfolio in leading specific solutions. And while competitors are introducing some of the versions to our first-generation products from 2017, we're introducing our fifth generation coronary peripheral devices in 2026 and a single catheter offering will be difficult to compete against Shockwave's portfolio strategy and the improvements we've made over the years to reset the standard of IVL. And while new competitors are completing their first regulatory required clinical studies, we're continuing to invest millions in robust real-world clinical evidence with nearly 25,000 patient outcomes published across 600 journals to date, demonstrating our unique safety profile exclusively associated with Shockwave's ultrasonic acoustic platform and what physicians also appreciate is our contact easy-to-use and rechargeable generators, which require minimal capital expenditure. And back to the point of presence, these generators provide widespread access to Shockwave's IVL technology and they're available in almost every cath lab across the United States, and we actually have more than two generators in over 1,700 U.S. hospitals, and so very difficult for competitors to unseat us. Most importantly, I'd say is we remain hyper-focused on continuing to earn our innovative disruptor reputation with plans to launch at least one new IVL catheter per year that we expect will redefine the future of IVL in new indications and new disease states. And this year, we will launch our C2 Aero new coronary catheter, which from the early feedback we've got from physicians is going to be another standout product. I think to your final point around long-term prospects. We're excited about our growth profile and the catalysts we have to continue to accelerate MedTech from a mid-single-digit player into a higher single-digit player as we move towards the end of the decade. I will point to some big catalysts, especially in our surgery business. Surgery is one of our larger portfolios. We are a dominant leader, both in the open and laparoscopic space. And we have an expectation to play a big role in the robotics space. As you know, we've submitted OTTAVA for approval. And assuming everything plays out, we expect that by the end of this year, we will be launching not one but two new surgical robotic programs, both with OTTAVA and MONARCH for urology. Now what we don't expect those programs to be significantly accretive to growth in the short term, they certainly will be accretive as we move to the back half of the decade. So another good example of an important catalyst that will take us from a mid-single-digit player into a higher single-digit player as we look to the back half of the decade. Operator: Your next question is coming from Alexandria Hammond from Wolfe Search. Alexandria Hammond: A few more on ICOTYDE. Can you walk us through the investments you guys are making on prescriber and patient education? And how important do you think advertising will be to kind of engage those new patients who might be nervous to start on a systemic therapy? And then just as a follow-up as well, with ICONIC-ASCEND trial set to read out imminently, how important could this result be those ongoing commercial discussions? John Reed: The study you mentioned in the head-to-head against the TYK2 inhibitor is, I think, just illustrates the best-in-disease profile for ICOTYDE in terms of having both that high-level efficacy combined with safety in the once-a-day pill. How much the direct-to-consumer is going to matter, I'm going to let Jennifer answer that question. Jennifer Taubert: Alex, it's safe to say that we are investing big in ICOTYDE to make sure that this brand can do all that it can do for patients. I think that the ease and the simplicity when you combine the clinical profile, the safety, the efficacy and then the ease of the product, we really believe that we've got a winner. And so we're investing to really get off to a very strong launch, that's with all of the appropriate field teams. Additionally, we've invested and built out what we believe are really best-in-class patient access and support services to help patients get on the medicine both get on and be able to stay on. And then we're continuing to evaluate the best way to make sure that both the clinicians, all the appropriate health care providers patients are aware of this important offering. So probably more to come on that, but please know that we're investing what we believe we're investing to win in this area. Operator: Our next question is coming from Joanne Wuensch from Citibank. Joanne Wuensch: Very nice start to the year. I'm going to pause for a moment on the ophthalmology franchise, in particular, your views on the U.S. surgical and U.S. contact lens market. I'm curious in particular about the almost 3% decline in the U.S. Surgical in the quarter and how to think about that recovery throughout the remainder of the year? Tim Schmid: Joanne, thank you for the question. Vision overall, delivered a solid first quarter with sales growth of 3.6%, which is really consistent with our expectations. You will recall that business tends to be slower in the first couple of quarters and then accelerate throughout the year. We've seen that over the last couple and certainly, 2025 was no exception. Keep in mind that Q1 is typically our lowest quarter, and we're confident that we will see acceleration through the remainder of the year. If you break it down into the two component businesses, contact lens grew 2.7%, driven by the ACUVUE OASYS 1-day family. And especially, as you heard earlier from Joaquin, the MAX multifocal products, and these latest launches really complete our family of daily disposables and are solidifying our leadership in the category with exceptional comfort, clarity and stability. And when I look to surgical vision, we grew 6%, driven by normal seasonality. We continue to see strong global momentum in premium IOLs led by TECNIS Odyssey and PureSee where we're outpacing the market globally, and this premium segment remains a key driver of value and differentiation. I think to your pointed question on U.S. performance, if we look at Surgical Vision growth in the quarter, it was offset in the U.S. due to competitive pressures as new entrants came into the market, which is not unexpected given the fierce stature of this portfolio. We also continue to expect some seasonality in our business as growth won't always be linear. That said, we remain confident in our clinical position with TECNIS Odyssey. And as we prepare for the launch of TECNIS PureSee in the U.S. later this year. And we have seen extremely strong uptake of TECNIS PureSee globally, nearly half -- it's actually almost 0.5 million eyes worldwide have already experienced a clearer uninterrupted vision with this premium IOL and TECNIS PureSee, which received FDA approval, this quarter is the first and only U.S. FDA-approved extended depth of focus IOL with no warning on loss of contrast sensitivity, which is a huge game changer for physicians and the comfort they have in recommending an IOL. In fact, 97% of patients reported no bothersome visual disturbances like halos or glares, which can often occur with other IOLs and we're really excited about the launch of PureSee here in the U.S., which will give surgeons an important new lens option for their patients. And as we continue to focus on the premiumization of our portfolio, we firmly believe that the combination of TECNIS Odyssey, which is in the market and now TECNIS PureSee will be a key driver of value and differentiation. On the back of this, we can confidently say that we expect accelerated growth in the back half of the year for our Surgical Vision business and Vision overall, including here in the U.S. So thank you again for the question. Operator: The next question today is coming from David Risinger from Leerink Partners. David Risinger: So my question is on JNJ-4804 the coantibody. Could you talk about your vision for its role in IBD treatment paradigms and the readouts that we should be focused on? And then since others have asked multiple questions. Joe, could you just share the [ MFA ] sales like you did in the first quarter for INLEXZO? John Reed: Yes. Thanks for the question about 4804. So just to remind the audience, this is our coantibody therapeutic that combines guselkumab, our IL-23 inhibitor, also known as TREMFYA together with our TNF inhibitor, golimumab and we are in a position to potentially be the first with a coantibody therapeutic in the IBD space. Now even with the best of therapies, more than half of patients with IBD do not achieve a complete remission, and so we see for patients where monotherapy is not getting the job done to then offer this dual therapy, the combined therapy is a fixed dose combination. So the Phase II data on that in both Crohn's and Colitis, there were two separate studies will be presented in the coming year at a medical conference. So you'll have an opportunity to see the details of the data there, and that will provide more insights into the specifics around the most ideal patient populations for this kind of co antibody therapeutic. But we're really excited to move this forward now with pace. The Phase III programs are underway and really excited to then try to break through these efficacy ceilings that have limited how many of these patients who battle with inflammatory bowel disease are able to achieve a complete remission and really get that mucosal healing from their therapy. Darren Snellgrove: David, thanks for the extra question there. We actually don't disclose the [ MFA ] sales at this point in time. So more to come on that. We actually have time for one last question. Operator: Certainly, our final question today is coming from Matt Miksic from Barclays. Matthew Miksic: Great. And congrats again on a really impressive quarter and start to the year. So you mentioned INLEXZO a couple of times, and I know you've talked at length about it in the past. Just wondering if you could give us a sense of what the commercialization plan and rollout looks like for that, given it's a slightly different delivery mechanism than many of your other therapeutics and kind of where you are with that? Any metrics you can provide would be great. And thanks again. Jennifer Taubert: Sure. So maybe as a reminder, despite recent advances in bladder cancer, unmet need in that area really remains significant and this is for bladder sparing options. There's almost 600,000 new patients diagnosed each year and another 400,000 that are recurring. So really, really big market opportunity. We've launched INLEXZO into the BCG unresponsive population and are really excited to be able to move forward in the coming years and to be able to broaden that population. As a reminder, we really designed the product to fit seamlessly into urology practice so that, relatively speaking, easy to insert and to retrieve and fits very, very nicely into practice. So how is the product doing? So INLEXZO's outperforming all the recent launches in the non-muscle invasive bladder cancer space. And that's based on kind of the unique patients that were treated in our first 6 months post approval. 1 in 5 eligible patients are starting on an INLEXZO regimen during the first quarter. And then what I think you really want to know is following our J-code approval which came at the beginning of April. What we saw in the first week was actually a over 50% increase in new patient insertions and the second week we that we have under our belt, we actually saw that jump up to almost 90% increase in new patient insertion. So consistent with what we've articulated on our expectations for this product once there's certainty reimbursement following the J-code, we're seeing play out in practice so far in the first couple of weeks. So very, very excited in that -- in the BCG unresponsive space and look to broaden that into broader populations John Reed: Yes. Just to remind with INLEXZO, we achieved the highest complete response rates ever seen for a therapy for non-muscle invasive bladder cancer achieved breakthrough designation from the FDA as well as the rapid review from FDA and in Japan, the PDMA accepted our submission based on the single-arm data, they've never previously accepted a submission based on single arm data just showing how exciting these data are and how much unmet need there is. I would also draw your attention to INLEXZO is just the beginning. Right behind that, we have the IRDA, intravascular drug-releasing system, this has erdafitinib, that is a small molecule targeted therapy that addresses the intermediate risk non-muscle invasive bladder cancer population. There, we achieved in the biomarker-defined population, complete response rates north of 90%. And that device also custom designed to deliver that payload delivers medicine for 3 months compared to INLEXZO, which is 3 weeks. So we just keep getting better and better as we do the next iteration, the next iteration around this intravascular drug-releasing system. Jennifer Taubert: And then in terms of our go-to-market model, this really represents the best of Johnson & Johnson and something that only a company like Johnson & Johnson with both an innovative medicine and a MedTech business. can do and bring to market. So in addition to the product that we've developed and the reimbursement and access support and that the sort of excellence that's coming out of the innovative medicine business, we've really been able to tap into MedTech and their world-class training institutes, their modular training that can literally go to the site of care. And so we're deploying that throughout the United States to make sure that urologists and their practices are up to speed on INLEXZO and fully trained to begin insertion for their patients as they deem fit. So really bringing the best of Johnson & Johnson to bear for this product. Darren Snellgrove: Great. Okay. Thanks, Matt, and thanks to everyone for your questions and your continued interest in our company. I'll now turn the call over to Joaquin for some brief closing remarks. Joaquin Duato: Thank you, everybody, for joining us today. As you have heard, Johnson & Johnson has the strongest portfolio pipeline in our history, and we are relentlessly focused on innovation that is delivering real impact for patients. With our Q1 performance, we are off to a strong start, reinforcing our confidence in the year ahead and our ability to raise the standard of care in our 6 key focus areas. Thank you for your interest in Johnson & Johnson. We'll see you at our late December, too, to give you more details on these new products that you were asking and enjoy the rest of your day. Operator: Thank you. This concludes today's Johnson & Johnson's First Quarter 2026 Earnings Conference Call. You may now disconnect.
Operator: And welcome to Citigroup Inc.'s First Quarter 2026 Earnings Call. Today’s call will be hosted by Jennifer Landis, Head of Citigroup Inc. Investor Relations. We ask that you please hold all questions until the completion of the formal remarks at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Ms. Landis, you may begin. Thank you, operator. Jennifer Landis: Good morning, and thank you all for joining our first quarter 2026 earnings call. I am joined today by our Chair and Chief Executive Officer, Jane Fraser, and our Chief Financial Officer, Gonzalo Luchetti. I would like to remind you that today’s presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements which are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filings. And with that, I will turn it over to Jane. Jane Fraser: Thank you, Jen, and good morning to everyone. We picked up right where we left off last year, with an exceptionally strong start to 2026. This morning, we reported net income of $5.8 billion for the first quarter with EPS of $3.06 and ROTCE of 13.1%. Four of the five core businesses saw revenue up double digits. Revenues were up sharply at 14% and we had another quarter of very healthy positive operating leverage. We continued strong performance across our lines of business, showing the benefit of a diversified model which continues to drive consistent, predictable revenue growth. Services, our crown jewel, had an exceptional first quarter. New mandates were up 40%, while the combination of client-driven growth and fees underpinned a 17% increase in revenues. Cross-border transactions were up 12%. Deposits grew by 16%, and assets under custody and administration were up over 20%. Markets crossed $7 billion in revenues for the first time in a decade. Equities was up nearly 40%, surpassing the $2 billion revenue mark driven by derivatives, prime services, and cash. And FICC, up 13%, saw notable performance in commodities and FX. Banking continued to build momentum, with fees up 12% amidst a record first quarter for us in M&A. ECM was up over 60%, while we continued to gain share with sponsors. We advised on the three largest deals so far this year—Paramount, McCormick, and EQT/AES—demonstrating how we are far better penetrating the C-suite. Supported by continued investment in talent, clients are increasingly looking to Citigroup Inc. for our advice in addition to our execution capabilities. With revenues up 11%, Wealth saw its eighth straight quarter of growth, and its returns continue to improve. As you know, its results now include U.S. retail banking. Citi Gold and retail banking were up 13% as we leverage our branch footprint to capture assets that our clients have with other firms. Investment revenue grew 11% with client investment assets up a pleasing 14%. U.S. Consumer Cards saw 4% revenue growth, with spend up 5%, and delivered a 19% ROTCE, as American consumers remained resilient. With our portfolio heavily weighted to prime, delinquencies and credit losses declined and are well in line with expectations. You can now see how we have lined up the reporting of this business with our strategy, as we focused on growing our general purpose portfolio and optimizing our private label portfolio. In the quarter, we demonstrated our continued commitment to returning excess capital to our investors with the repurchase of $6.3 billion of shares, and we are close to completing our $20 billion share buyback plan. We ended the quarter with a CET1 ratio of 12.7%, which is 110 basis points above our regulatory capital requirement, and our tangible book value grew by 8% from a year ago. As we look towards a new capital regime, whilst the latest NPR is an improvement upon the 2023 version, it is not yet where it should be, and we will be active in advocating for necessary changes in the comment period. These quarterly results reflect the execution of some of the most consequential changes in our firm’s history: our business investments, the transformation, the simplification, divestitures, delayering, and modernization. That said, and I know I have said this many times, we have not yet reached our destination. We will continue to be solely focused on executing our vision and relentlessly driving our business into the final phase of our divestitures, and we continue to drive down our stranded costs. In February, we completed our exit from Russia. We have entered into agreements with several prominent investors to sell 24% of Banamex in transactions that are expected to close in the coming months. And we are on track to close the sale of our consumer business in Poland this summer. The momentum we have established in our businesses can also be seen in our transformation, which remains our other top priority for the year. Ninety percent of our programs are now at or near our target state, and our firm is materially safer and sounder as a result of this work. We have started to reduce the spend on our transformation programs, resulting in an improvement in our operating efficiency this year and beyond. We are methodically deploying AI at scale across the firm and strengthening our defensive capabilities, and you will be hearing much more about this on Investor Day. Switching gears, the global macro economy today has weathered shock after shock. However, the impact of the Middle East conflict is hitting Asia and Europe harder than countries such as the U.S. and Brazil, which are more insulated from energy shocks. Clearly, the longer this goes on, the more pronounced the second- or third-order impacts are going to be around the world. And inflation is now a greater risk to growth and will likely cause central banks to lean towards more restrictive monetary policies. Consistent with our position throughout the last decade, we continue to be a source of trust and financial strength for our clients during turmoil. We intentionally designed a very resilient strategy that performs in different environments, and the last few years have borne that out. You can see it in deposit and loan growth, in our high-quality loan portfolios, and in our robust balance sheet, built on the foundation of disciplined risk management. And we have the capital we need to continue to grow as we support our clients. So with a very strong first quarter behind us, we remain well on track to deliver the 10% to 11% ROTCE for the year. At our Investor Day next month, we will lay out a clear vision for how we will continue to grow each of our five businesses organically and deliver sustainably higher returns over time. This is an exciting time for our firm. We have momentum behind us, and we are looking forward to sharing the path ahead with you next month. I will turn it over to Gonzalo, and then we would be happy to take your questions. Gonzalo Luchetti: Thank you, Jane, and good morning, everyone. Before I begin, I would like to start by thanking Jane and Mark for their support and providing a very smooth transition to my role as CFO. I am excited to build on the momentum they have created as we focus on delivering higher sustainable returns and value for our shareholders. As I step into the role, three elements stood out to me quite distinctively. First, we have a formidable foundation, underscored by a robust balance sheet, rigorous risk management, and a well-diversified business model. That gives me confidence in our ability to produce durable results. We are a source of resilience and strength for our clients in a range of environments. Second, I am excited about the opportunity to help deliver significant return improvement over time by driving client-led growth, continuously pursuing productivity improvement, and deploying capital to accretive return opportunities. Finally, I am highly energized by our relentless focus on execution. I see how each of our businesses and teams operate with urgency, focused on driving performance every single day, and my role will be to ensure we are strategically purposeful, tactically disciplined in resource allocation, and firmly in execution mode. I feel it is time to continue to elevate Citigroup Inc. and leave an indelible mark on a 200-year-plus iconic firm. With that, let me remind you that on April 3, we published a recasted historical financial supplement for our reportable business segments to facilitate comparability with the results this quarter and going forward. Additionally, results for the segments this quarter reflect the TCE allocations for this year, and we have included additional details on this in the appendix of the earnings presentation. Now turning to the quarter, I will start with the firm-wide financial results focusing on year-on-year comparisons unless I indicate otherwise, then review the performance of our businesses in greater detail. On slide six, we show financial results for the full firm, which demonstrate the progress we have made and the momentum of our strategy. This quarter, we reported net income of $5.8 billion, EPS of $3.06, and ROTCE of 13.1% on $24.6 billion of revenues, generating positive operating leverage for the firm and the majority of our five businesses. Total revenues were up 14% with growth driven by each of our businesses and legacy franchises, as well as the impact of FX translation, partially offset by a decline in Corporate/Other. Net interest income, excluding Markets, was up 7%, driven by growth across all businesses and legacy franchises, partially offset by a decline in Corporate/Other. Non-interest revenues excluding Markets were up 29%, driven by growth across all businesses and Other. Total Markets revenues were up 19%. Expenses of $14.3 billion were up 7%, with an efficiency ratio of 58%, which I will provide details on shortly. Cost of credit was $2.8 billion, primarily consisting of net credit losses in U.S. Cards as well as a firm-wide net ACL build of $597 million. On slide seven, we show the expense and efficiency trend over the past five quarters. As I just mentioned, expenses increased 7%, and you can see on the bottom of the slide we incurred nearly $500 million of severance as we target efficiencies across our expense base and bring down headcount. Excluding severance, the increase in expenses was 4%, primarily driven by FX as well as volume- and revenue-related expenses, including compensation and transactional and product servicing expenses, partially offset by lower legal expense. As you can see on the bottom right side of the slide, in addition to severance, growth in compensation and benefits included investments we have made to support growth in the businesses as well as performance-related expenses, partially offset by productivity saves, stranded cost reduction, and lower transformation expenses in Corporate/Other. It is worth noting that this expense increase was against 14% revenue growth, resulting in an improvement in our efficiency ratio of approximately 400 basis points. On slide eight, we show U.S. Cards and Corporate credit metrics. As I mentioned, the firm’s cost of credit was $2.8 billion, primarily consisting of net credit losses in U.S. Cards as well as a firm-wide net ACL build. Embedded in the firm-wide net ACL build is a farther skew to the downside scenario, reflecting the increased uncertainty in the macroeconomic outlook. Our reserves now incorporate an eight-quarter weighted average unemployment rate of approximately 5.4%, which continues to include a downside scenario average unemployment rate of nearly 7%. At the end of the quarter, we had nearly $22 billion in total reserves with a reserve-to-funded-loans ratio of 2.6%. We continue to maintain a high credit quality card portfolio, with approximately 85% of balances extended to consumers with FICO scores of 660 or higher, and a reserve-to-funded-loan ratio in our U.S. Cards portfolio of 8%. Looking at the right-hand side of the slide, you can see that our corporate exposure is 78% investment grade, and in the quarter corporate nonaccrual loans as well as corporate net credit losses remained low. We are confident in the high-quality nature of our portfolios, which reflect our robust risk appetite framework, rigorous client selection, and our focus on using the balance sheet in the context of the overall client relationship. This quarter, we included a slide in the appendix of the presentation that shows Citibank’s loan to non-bank financial institutions, including $22 billion of corporate private credit, which is 100% securitized, 98% investment grade, and not a significant component of our overall exposure. Turning to capital and the balance sheet on slide nine, I will speak to sequential variances. Our total assets of $2.8 trillion increased 5%, driven by growth in trading-related assets, cash, and loans. Net end-of-period loans increased 1%, with client-driven growth in Banking and Markets partially offset by a seasonal decline in U.S. Cards. Our $1.4 trillion deposit base remains well diversified and increased 3%, driven by growth in Services as we continue to deepen with clients with a focus on high-quality operating deposits. We reported a 114% average LCR and maintained over $1 trillion of available liquidity resources. In the first quarter, we continued to deploy capital to support client-driven growth while at the same time prioritizing the return of capital to common shareholders, as evidenced by the $6.3 billion in buybacks executed, which includes the benefit from the sale of the remaining operations in Russia. We ended the quarter at a 12.7% CET1 ratio under the binding standardized approach, approximately 110 basis points above the 11.6% regulatory capital requirement, including a 100 basis points management buffer. Turning to the businesses on slide 10, we show the results for Services in the first quarter. Revenues were up 17%, the best first quarter in a decade, driven by growth across both TTS and Securities Services. NII increased 18%, driven by higher average deposit balances and deposit spreads. NIR increased 15% as we continue to see strong activity and engagement with both corporate and commercial clients and across key high-growth segments, including e-commerce and fintech, driving momentum across underlying fee drivers with cross-border transaction value up 12% and assets under custody and administration up 21%, which includes the impact of market valuations as well as new assets onboarded. Expenses increased 14%, primarily driven by higher volume- and revenue-related expenses, higher compensation, as well as higher technology costs. Average loans increased 14%, largely driven by export agency finance and working capital loans. Average deposits increased 16% with growth across both North America and international, largely driven by an increase in operating deposits as we continue to deepen relationships with existing clients and onboard new clients. Services generated positive operating leverage and delivered net income of $2.2 billion with an ROTCE of 27%. Turning to Markets on slide 11. Markets had its best quarter in over a decade with revenues up 19%, driven by growth in both Fixed Income and Equities, with strong momentum across client segments, including corporates, asset managers, hedge funds, and banks. Fixed Income revenues were up 13% with growth across spread products and other fixed income as well as Rates and Currencies. Rates and Currencies was up 6%, driven by FX on higher volumes and optimization of the balance sheet, largely offset by Rates. Spread products and other fixed income were up 27%, primarily driven by strong growth in commodities. Equities revenues were up 39%, driven by continued momentum across derivatives, prime services, and cash. We grew prime balances by more than 50% with growth across both new and existing clients as well as higher market valuations. Expenses increased 11%, primarily driven by higher performance-related compensation as well as higher volume-related and legal expenses. Average loans increased 27%, primarily driven by financing activity in spread products. Markets generated positive operating leverage and delivered net income of $2.6 billion with an ROTCE of 18.7%. Turning to Banking on slide 12. Revenues were up 15%, driven by Investment Banking and Corporate Lending. Investment Banking fees increased 12%, driven by growth in M&A and ECM, partially offset by a decline in DCM. M&A was up 19% and represented our strongest first quarter in a decade, with continued growth in sell-side fees and strong performance with sponsors. ECM was up 64%, reflecting growth in follow-ons and convertibles against the backdrop of an active market. While DCM fees were down 6% amid lower non-investment-grade activity, we maintained our overall market share versus year-end 2025. Corporate Lending revenues, excluding mark-to-market on loan hedges, declined 3%. Expenses increased 20%, primarily driven by higher compensation and benefits reflecting performance and investments, and higher volume-related transaction expenses. Cost of credit was $132 million, consisting of a net ACL build of $126 million reflecting the increased uncertainty in the macroeconomic outlook and exposure growth, largely offset by refinements to loss assumptions. We continue to feel good about the high-quality nature of our Corporate Lending portfolio, with nonaccrual loans and net credit losses remaining low. Banking delivered net income of $304 million with an ROTCE of 15.8%. Turning to Wealth on slide 13. Revenues were up 11%, driven by growth in Citi Gold and Retail Banking as well as the Private Bank, partially offset by a decline in Wealth at Work. NII increased 14%, driven by higher deposit spreads and average balances, partially offset by lower mortgage spreads. NIR increased 5%, driven by 11% higher investment fee revenues, partially offset by the sale of the trust business. Net new investment asset flows were approximately $15 billion in the quarter, contributing to approximately $43 billion in the last twelve months, representing approximately 7% organic growth. This contributed to client investment assets being up 14%, which also includes the impact of market valuations and was partially offset by the sale of the trust business asset. Expenses increased 1%, driven by investments in technology and higher volume-related expenses, partially offset by lower compensation and benefits, including the impact of the sale of the trust business. Average loans were up 6%, as we continue to grow securities-based lending and deploy balance sheet to support clients and drive client investment asset growth. Average deposits were up 4%, largely in the Private Bank, as net new deposits were partially offset by outflows and a shift from deposits to higher-yielding investments, including on Citigroup Inc.’s platform. Wealth had a pre-tax margin of 18%, generated positive operating leverage, and delivered net income of $432 million with an ROTCE of 10.8%. We remain confident in the path to higher returns from here, as we continue integrating our retail banking business within Wealth and building on its improved performance this quarter. Turning to U.S. Consumer Cards on slide 14. As we have said in the past, customer preferences have continued to shift toward general purpose cards and as such, we have provided disclosures for this segment to show metrics split between our general purpose and private label portfolios. This quarter, revenues were up 4%, driven by growth across both NII and NIR. NII was up 3%, driven by higher interest-earning balances and spreads. NIR was up 14%, driven by lower partner payment accruals and higher annual fees. We saw momentum in underlying drivers supported by growth in general purpose cards, with acquisitions up 12%, spend volume up 6%, and average loans up 4%, partially offset by declines in private label cards. Expenses increased 1%. Cost of credit was $2.1 billion, consisting of $1.7 billion of net credit losses, which declined 11%, as well as a net ACL build of $350 million reflecting seasonal portfolio mix changes, the forward purchase commitment of the Barclays American Airlines co-branded card portfolio, as well as increased uncertainty in the macroeconomic environment. This was largely offset by lower seasonal volumes and refinements to loss assumptions. U.S. Cards generated positive operating leverage and delivered net income of $732 million with an ROTCE of 19.2%. Turning to slide 15, we show results for All Other on a managed basis, which includes Corporate/Other and Legacy Franchises and excludes related items. Revenues were up 15%, driven by growth in Legacy Franchises, largely offset by a decline in Corporate/Other. Growth in Legacy Franchises was driven by Mexico Consumer, which included the impact of Mexican peso appreciation, momentum in underlying business drivers, and a gain on the sale of an investment, partially offset by the impact of continued reduction from our closed exit and wind-down markets. The decline in Corporate/Other was driven by lower NII, which included a lower benefit from cash and securities reinvestment resulting from actions taken to reduce Citigroup Inc.’s asset sensitivity in a lower interest rate environment, partially offset by higher NIR. Expenses were down 4%, driven by lower legal and transformation expenses as well as expenses related to closed exits and wind-downs and professional services expenses. This was primarily offset by higher severance and the impact of FX translation. Cost of credit was $400 million, primarily consisting of net credit losses of $371 million driven by loans in Mexico. To close, we have included our full year 2026 outlook on slide 16. While there remains a lot of uncertainty at this point, our overall expectations are unchanged. Subject to macro and market conditions, we expect NII ex Markets up approximately 5% to 6%; NIR ex Markets growth driven by momentum in Services, Banking, and Wealth; and an efficiency ratio of around 60%. In terms of credit, we expect a total U.S. Cards NCL rate of between 4% and 4.5%, which is lower than the aggregate of the expectations that we provided previously for Branded Cards and Retail Services, reflecting the delinquency trends and loss performance we have seen year to date. The ACL will continue to be a function of the macroeconomic environment and business volumes. Additionally, we remain well positioned to return capital to shareholders and plan to provide more detail on our expectations for share repurchases going forward at our Investor Day in May. As we take a step back, the results in the first quarter represent significant progress towards our goal of improved firm-wide and business performance. We remain steadfast and focused on executing our transformation and confident in delivering our ROTCE target of 10% to 11% this year, and we look forward to laying out the path to delivering higher returns beyond that at Investor Day. With that, Jane and I would be glad to take your questions. Operator: At this time, we will open the floor for questions. If you would like to ask a question, please press 5 on your telephone keypad. You may remove yourself at any time by pressing 5 again. Please note, you will be allowed one question and one follow-up question. Again, that is 5 to ask a question. We will pause for just a moment. Our first question will come from Glenn Schorr with Evercore ISI. Your line is now open. Please go ahead. Glenn Schorr: Hi. Thanks very much. I think we get the great Trading and Banking results. I want to talk about Services if we could. One is if you could give any color on the $4 trillion win on the BlackRock middle office servicing ETF platform or portfolio. And then, two, maybe bigger picture, talk about what you think maybe I and the rest of us could be underappreciating in terms of the growth outlook in Services—tokenization as a good thing as opposed to maybe the threat that people might think it is? Thanks. Jane Fraser: Hey, Glenn, good to hear from you. Look, Services’ exceptional performance this quarter comes from successfully executing the strategy that Shamir and his team precisely outlined at our Investor Day two years ago—and then going beyond it. We have told everyone this is a through-the-cycle business which consistently delivers strong returns in a range of environments, and this quarter the team did just that. Revenues up 17%, deposits up 16%, fees up 14%, returns at 27%. This is firing on all cylinders. To your question, why is this business growing so much? The growth is coming from deepening with existing clients, new client acquisition, and new product innovations. Our investments over the last few years, I think, are best demonstrated by the 40% growth in new client mandates. We have a very high retention of existing client business, and we have what can only be described as exceptional win rates. We are the leading franchise not only in share but in innovation. You are seeing momentum across the board. For example, as you point out in digital assets, we are leading in tokenization. We have been investing in this for many years. I have talked about it on many of the recent calls. This is a benefit for us in driving and meeting more of our client needs in an always-on, real-time world. You are seeing us in real-time payments, where we are doing a lot of business with the global e-commerce juggernaut. And as you say, in Securities Services, we laid out a strategy of growing share with North American asset managers, ETF, and in other spaces. Frankly, BlackRock is the most recent win we have had; it is far from the only one. We are also benefiting from our focus on fee generation, which continues to make over 30% of our revenues across different macro environments. There is a reason we call Services our crown jewel. It is incredibly durable. Our offerings are deeply embedded in our clients’ operations; that creates lasting relationships and stable deposits. There is always a flight to quality when there are things going on in the world, and we are quality. Glenn Schorr: Maybe we could just follow up—there is a lot going on in the world. There was some conversation about linking you to some interest in being a bigger retail bank in the United States. Watching you fold the business into Wealth and tweaking the strategy, I know that lack of low-cost deposits has been a thing in limiting your profitability in the past, but you seem to be getting by now without that. I wonder if you could just comment in terms of just aspirations or not on that front. Thanks. Jane Fraser: Let me kick off. I want to be crystal clear: we are only interested in and focused on organic growth. Period. End of story for the whole firm. We have achieved a lot in the last five years; we have a lot more to do. There is a large organic growth opportunity ahead of us across all five of our businesses. That is what we are focused on, and we are excited about it. I would say, Glenn, and for everyone listening on the call, if you walk away from this call thinking of nothing else, let it be this: Citigroup Inc. has a lot of momentum, and we are not going to be distracted from it. Now, on the retail bank and what we are looking at there: the retail branch network is 650 branches. The deposit base that we have across Wealth and the retail bank in the U.S. is about $284 billion. The footprint is a targeted one. It is in six of the markets with an affluent client base, covers a third of the nation’s high net worth and affluent households, and 40% of the ultra-high net worth households. So it is highly aligned with the Wealth business. It is an important source of clients for our investment franchise. We saw a lot of top-line momentum from the franchise—last year, it was up 21% in the retail bank—and we look forward to continuing to improve its profitability and performance and realizing the synergies between it and Wealth. Organically. Operator: Our next question comes from Mike Mayo with Wells Fargo. Please go ahead. Mike Mayo: I just want you to be even more clear than you were already. So you are only pursuing organic growth. Does that mean that Citigroup Inc. is not pursuing a deal or an acquisition? There have been so many articles about Citigroup Inc. pursuing an acquisition. So are you saying Citigroup Inc. is not pursuing a deal, you are not thinking about Citigroup Inc. pursuing a deal, and that is a thousand percent off the table? Jane Fraser: I am always transparent. I am always straightforward with you. I want to be crystal clear: we are not interested in anything other than organic growth. Mike Mayo: Okay. And then a separate question, as it relates to the transformation. You are now up to 90% done. Since you are done with the safety and soundness part of the transformation, I have a tough time reconciling why the consent order is still on when regulators are focused on safety and soundness, but I am sure you put your best foot forward in that argument. What you can answer is the last 10%. Is there a last-mile problem with the last 10% of the transformation, or is this continuing to move forward? What is that last 10%? What is left? Jane Fraser: There are no challenges for us ahead that are inconsistent with our plan. 2025 was a real turning point for us on the transformation, and we just continued the strong execution into 2026. We have finished the vast majority of the work. As I have said earlier, 90% of the transformation programs are now at or mostly at Citigroup Inc.’s target state, and they are operating in BAU mode. What does that mean? For each major body of work, we defined our target state and the work that needs to be done to achieve that target state. We are at or nearly at those Citigroup Inc.-defined target states for all the bodies of work except our data programs, and the remaining work of that 10% is primarily related to data used in our regulatory reporting. Mike, I am pleased with our progress on this. We are executing well. However, once we are operating well at our target state, what happens next? We pass that work over to our independent audit team for validation. Once it is validated, each major body of work is then handed over to our regulators; they go through their assessment and move to their closure process when they are satisfied with the work. This takes time, and let us be very clear: they control the timeline. So completing the work is just the beginning of the end. From an investor point of view, you can see the transformation expenses have started to come down as we complete the different bodies of work. This is helping create capacity for investments in AI and other strategic business priorities. At Investor Day, Mike, I will detail the many benefits that we have been gaining from the transformation. Operator: Our next question comes from John McDonald with Truist Securities. Please go ahead. John McDonald: Hi, good morning. Gonzalo, I was wondering if you could give a little bit of a take on the new Basel and GSIB proposals and what they mean for Citigroup Inc. Any initial estimates on the impact if they were approved as proposed? Gonzalo Luchetti: Thank you, John, and good morning to everyone. As we look into the rules, our expectation is that overall there will be a net benefit to Citigroup Inc. You have seen that in the estimates from the regulatory agencies as it relates to the Category 1 and 2 banks, and we see a moderate net benefit on what has been published. Of course, when you look at the full stack with the stress capital buffer, we expect an additional benefit there. Some puts and takes, of course. When you think about RWA and those pieces related to Basel III, you have components of retail and corporate credit providing a benefit, mitigated by operational risk, CVA, and market risk, as you probably would expect. On the other side, on GSIB, even if we probably have feedback for regulators there, at the same time you can see in this case that there is benefit from the reversion to the 2019 methodology as we have been advocating for. John McDonald: So does that result in a net benefit to Citigroup Inc. at this point, Gonzalo, in terms of the RWA presumably up a little bit and the GSIB down a little bit? Is there a net benefit that you see on the initial proposal? Gonzalo Luchetti: Moderate net benefit, yes. Thank you. John McDonald: Then just a question for you also on the efficiency ratio. You started off very strong at 58% even with the big severance in the quarter. Could you give some context to the target for 60% for the full year? What are the puts and takes if you are starting at 58%? I assume there is some seasonality from the first quarter, but just walk through the 60% target versus starting so strong at 58%? Gonzalo Luchetti: Thank you very much, John, and I am glad you kind of answered your own question there given how much you know about us. Maybe before I get into the specifics, it is worth grounding in how we think about expenses. Our approach is to maintain very strong cost discipline on a tactical basis and, in addition, to be driving structural efficiencies over time so that we can enable and allow ourselves to make the targeted investments that we think are necessary in order to drive our returns consistently to a higher place. That is really our mantra and what we are focused on. When you break down those expenses for the quarter and you have that 7% growth—obviously anchored by the 14% revenue growth, which drives that 400 basis point improvement in operating efficiency—you have the effect of the severance that you mentioned. You can see FX playing a role, revenue-driven transactional costs, and some compensation pieces. We are also making targeted investments. We have done it in Services; we are doing it in Banking; we are doing it in Wealth. For us, it is important to balance. As we look through the year, we are comfortable with around 60% for operating efficiency. It is primarily on the basis of, yes, seasonality—Markets usually has the strongest quarter in the first—and we also think it is important to balance that seasonality as well as recognize that we are making targeted investments so that we can get our returns to be higher. Our objective is very simple: we are focused on driving sustainably improving returns over time, not just short-term upside. Operator: Our next question comes from Ebrahim Poonawala with Bank of America. Please go ahead. Ebrahim Poonawala: Good morning. Following up on that, Gonzalo and Jane, appreciate the seasonality in the business. But when putting together the momentum you have, the way you are talking about just across businesses, we look at the 13% return on tangible equity that you earned this quarter. I have a hard time thinking why it should go down to the 10% to 11% range, even adjusting for some of that seasonality on expenses and Markets revenue. Maybe frame it—are there areas where Citigroup Inc. may be over-earning in any given quarter that is boosting the 13%, and if that logic is missing something? Jane Fraser: Let me jump in with one point, and I am going to go British on you. One good first quarter does not a full year make. The first quarter is always the strongest, and we do have an unclear macro environment ahead. We want to continue investing. I think what you are hearing from us clearly is we have confidence in being able to deliver the 10% to 11%. We want to keep investing in the business, as Gonzalo was just talking about. Revenue growth is important. We will be talking through the investments we want to make to continue the pretty impressive revenue growth we have had the last few years and intend to continue having. I would just make it as simple as that. Ebrahim Poonawala: Got it. Maybe just quickly on the capital front. It is good to see buybacks ramp up this quarter. As we look forward, do you think we stay in a holding pattern in terms of the CET1 ratio where it ended this quarter? How do we think about incremental capital leverage at Citigroup Inc. beyond just optimizing how capital is deployed? Gonzalo Luchetti: Thank you, Ebrahim. Good morning, and good to hear you. We have guided in the past that our objective through this year was to be at around 12.6%, and we are basically there as it relates to Q1. Let me walk you through what has been driving that. First, you can see us this quarter reducing the excess that we had above our regulatory capital and the management buffer that we have carried for some time. That gives you a signal that we are at or around where we want to be. We came at this from a couple of angles. First, the earnings power you saw in the quarter, which was very strong. In addition, we closed the sale of our Russia entity in the middle of the quarter; that released about $4 billion of capital. We have been very thoughtful and active in deploying that capital. You can see it in the results—the RWA deployment is to anchor the activities that we are driving with our clients and the intense engagement that we have with them. It is not a surprise that Markets also had a very strong quarter on the back of the support that we gave. So as you see us, a part of that goes to support accretive growth opportunities for our businesses, and another piece goes into the buybacks that we executed in the quarter, which are a high watermark at $6.3 billion. There will be more to come as we go into Investor Day. Jane Fraser: I would jump in with just three observations as well. First, GSIB is still gold-plated relative to the Basel standard. The economy has grown significantly since the original framework was created, but the current proposal does not fully account for that growth. We will be very active in advocating for that, as you have been hearing from some of the other bank CEOs. Secondly, there is still material duplication between the NPR and the current stress capital buffer—operational risk, market risk, and CVA—and that needs to be eliminated in the revised Fed SCB models. Third, our SCB still does not fully reflect our strategy, the divestitures we have made, and the risk profile the bank has today, which is so different from what it was in the past. Those three elements are things that we will be active on and, I hope, will help us going forward. Operator: Our next question comes from Jim Mitchell with Seaport Global. Please go ahead. Jim Mitchell: Hey, good morning. I think we all appreciate the breakout of the card business on its own, and we can see some solid profitability there. But it does also highlight the low profitability of the consumer branch banking segment. I know we will hear more of this at Investor Day, but can you just discuss what the issues are there and what you see as the opportunities to improve efficiency and returns in that segment? Gonzalo Luchetti: Thank you, Jim, and good morning. On the retail bank and how we think about the return profile: if you look at our ROTCE for the quarter at 10.8%, it is not where we want it to be, and we have more work to do. But if you think about it going back a year, it has almost doubled. We have made progress both in our retail bank franchise as well as in our Wealth franchise in terms of driving revenue growth and positive operating leverage, and that will take us home. The simplest version is: last year the Wealth business in aggregate with this new recast element was growing at 15%–16% revenue and 1% expenses—that is 15 points of operating leverage. This quarter you can see the 11% and the 1%, so another quarter of very strong operating leverage. That comes on the back of good momentum on deposit volumes, mix management, and pricing management, which give us confidence there is sustainability, as well as good levels of activity and focus on NIR and driving client investment assets so that we can, over time, balance the business between investments and deposits. The more quarters we can put together with solid revenue growth and discipline on expenses—while still investing for growth—the closer we will be to the ranges that you and we expect. I have good confidence; you can see the momentum. We know we have to show it still, but we have made progress and I have confidence in the immediate future. Thank you. Jim Mitchell: Great. And maybe just as a follow-up and pivoting to private credit. Any thoughts and detail on your exposures and how you are thinking about the credit risk there would be helpful. Gonzalo Luchetti: Sure. Thank you. A couple of thoughts. First, I feel very good about our position. We wanted to provide additional transparency and disclosure; you can see that on page 23. What gives me comfort: we have a very strong risk appetite framework. We are rigorous on customer selection. We do business with global multinational companies, sponsors, and asset managers—folks that have strong balance sheets and the ability to withstand different environments. Secondly, we are not one-product relationships; we are, in most cases, multi-country, multi-product, multi-year relationships. We have strong protections and look at concentrations—single name, country, geography, sector, industry—and correlations to make sure we are not missing things. You have seen great performance with NCLs and NAOs, both low and stable. You have seen us be very prudent in terms of reserves, and we feel we are adequately reserved. We are constantly stress-testing our portfolios, in private credit and elsewhere, to ensure that under a range of macroeconomic environments and event-driven aspects, we are passing our own tests. On the specifics: it is not a significant exposure for us—about $22 billion of loans; 98% investment grade because we have ample subordination in terms of position and protections. We have additional protections in terms of collateral; we have fraud controls; we utilize third parties where appropriate so that we do not rely solely on attestations and warranties. We feel very comfortable that we can navigate a range of environments with the portfolio, anchored in the strength of our risk appetite that we have built over time. Operator: Our next question comes from Analyst with Morgan Stanley. Please go ahead. Analyst: Hi, good morning. Gonzalo, I just wanted to clarify, as you have some of these business exits, I know you get a temporary benefit from CTA. Are you saying that gives you the opportunity to be more nimble on your capital deployment strategy, whether it is in buybacks or in the Markets business, as you get that benefit between the announcement and the actual deconsolidation? Gonzalo Luchetti: Thank you for the question. What I would say is, we always look for opportunities to deploy that capital constructively in accretive ways to support our businesses and our clients. Q1 gives a very good example of our behavior so you can see it in real life. On the back of the Russia event, with about $4 billion of relief, you have seen us both support our businesses—anchoring some of the results that you saw in Markets and a couple of other businesses—and at the same time execute the highest level of buybacks we have done in any quarter at $6.3 billion. As it relates to Banamex, as we have alluded in the past, there is a temporary capital benefit that happens both on the 25% sell-down that we executed during the fourth quarter last year as well as one to come when we complete the closing of the second tranche of the 24% that we announced recently, which will happen over the next few months. That is temporary in nature. Clearly, upon deconsolidation, you can expect the CTA to come back. We have been clear in the past that that will attract about an eight-and-a-half percent PPA adjustment that will flow through P&L, but in aggregate it is capital neutral. Analyst: Got it. Okay, great. And then maybe just pivoting over on the expense side. You have been pretty clear that as part of the transformation projects, Citigroup Inc. is not just delivering on the asks from the regulators, but also taking the opportunity to invest in modernizing. Beyond the transformation, how do you view your current tech stack versus where you want it to be, and how are you thinking about tech spend going forward? Jane Fraser: We will go into a lot of detail about this at Investor Day, including AI and the structured, strategic approach we are taking firm-wide. In three weeks, you are going to get a lot around all of this. We feel good about the modernization we have done, as we have moved our tech stack from a multiplicity of different platforms into singular platforms, and at the same time made sure that we have good, simple, singular processes end-to-end that we have been simplifying and automating over the last few years. We feel good about those investments, and about leading-edge innovations like Citi Token Services and Payment Express in Services; I could give you a long list in Wealth, in Markets, etc., but we will leave that for the 7th. Above everything, we also feel good about the investments we have made in our data and architecture, where we are on a single repository for all of our data for Institutional and a single one for Consumer—enormously beneficial in the world of AI that we are living in. Thank you. Operator: Our next question comes from Ken Usdin with Autonomous Research. Please go ahead. Ken Usdin: Thank you. Just a follow-up on the NII side. First, seeing the very strong end-of-period and average loan growth, and I know looking at the supplement there is a little help from FX translation in there. But upper single-digit growth—just wondering how sustainable that is, especially on the deposit side, and if you saw any environment-related benefits that possibly might not continue. Gonzalo Luchetti: Thanks very much, Ken, and good to hear you. On NII, what we guided for the year—on the deck—is 5% to 6% NII ex Markets growth, anchored by mid-single-digit growth for both loans and deposits. We are pleased that Q1 is a good showing against that. As you highlighted, there is a bit of FX playing a role for the 7% that we delivered, but we are comfortable with that guidance. The part I like the most is that most of that growth is anchored on client-driven activity—our commercial intensity, winning in the market with our customers. In Services and in Wealth, both are driving deposits—Services up 16% deposits, Wealth up 4%—all of that blends to the 11% that I think you were marking. In terms of loans, ex Markets, we are growing at about 5%, which is in line with our guidance. You can see that coming through in Wealth, in U.S. Cards, and also in Services with export financing and working capital. Most of the growth is driven by client activity. Pricing discipline helps—betas are quite stable for us, a proof that our value proposition is performing and how embedded we are with clients, our global network on Services, and the quality of our advice and engagement on the Wealth business. Our investment securities portfolio, as it rolls off through the year, can be reinvested at higher rates than before. Those also help, but it is really client activity that drives the bus here. Thank you. Ken Usdin: Great, thank you for that. As a follow-up, the first quarter also started above the range—7% ex Markets year-over-year. I know you are being conservative with the 5% to 6%. Can I assume that the American Airlines card is in the guidance? Why would you not continue at 7% if the volume side you just went through is pretty sustainable? Gonzalo Luchetti: Thanks very much, Ken. I give you points for a sneaky and smart way of asking if I want to update the guidance, and the answer is no at this stage. We are comfortable with the guidance. The American Airlines Barclays portfolio that is coming in in the second quarter is, of course, fully factored in. We feel confident in the client activity we are seeing, and at the same time, as Jane said earlier, for all those models out there, do not just do one times four. We have to manage through uncertainty in inflation, growth, and other pieces. Operator: Our next question comes from Analyst with Wolfe Research. Please go ahead. Analyst: Hi, good morning, and thanks for taking my questions. Jane, you have been crystal clear—using your words—on the commitment to focusing on organic growth. One factor which has contributed to below-peer returns is the large DTA or unallocated capital base. It remains stubbornly high. The pace of DTA utilization remains pretty tepid—about $1 billion or so over the last five years. I was hoping you could speak to drivers that would potentially support some acceleration in that DTA consumption, especially given your aversion to solving for it with higher North America earnings inorganically. Jane Fraser: I feel very good about our organic growth opportunities in North America. You are right, it is very simple: the driver of accelerating the DTA consumption is driving North American earnings. We are very focused on it. Every single one of our businesses is focused on it. It is also where we have been investing to support that growth. This will come the good old-fashioned way, and I feel confident that we are going to make very good progress. We will talk a bit about that in a couple of weeks’ time. Analyst: I anticipate a similar response in terms of additional color at Investor Day, but if you will indulge me, on the headcount reduction targets which you had spoken about a few years ago. Post the consent order, headcount increased from about 200,000 to 240,000; you had indicated that you would look to drive that closer to 220,000 or so employees. You are two-thirds of the way there. We are in a very different environment where AI-driven efficiency gains are much more tangible than they were a few years ago. Could you speak to your approach or philosophy to headcount management and resourcing in light of this new AI regime? Gonzalo Luchetti: Thank you. First, you saw this quarter a severance of about $500 million. That will enable us to take earlier actions in the year to contribute to our productivity and efficiency journey. On headcount, you can see it coming down quarter-on-quarter from about 226,000 down to about 224,000. Through the year, you would expect us to be coming down on headcount. As I said earlier, not only do we expect to drive expense discipline day-to-day, but in addition we are focused on structural efficiencies over time—benefiting from the investments we have already made in our transformation, where we modernized platforms; and continuing to drive automation with technology, as well as leveraging AI to further turbocharge self-funded investments. Operator: Our next question comes from Erika Najarian with UBS. Please go ahead. Erika Najarian: Hi, thank you. Just one follow-up for me because I appreciate that we are going to have quite a day in a few weeks. Jane, you talked about your stress capital buffer not reflecting your true risk profile. Obviously, we are not going to hear more on that until next year. You have also talked about Basel III endgame reform and GSIB reform being fine but not going quite far enough. I am wondering about that green bar on slide nine that represents your 110 basis point management buffer. Even after adjusting for seasonality and Wealth not hitting the marks quite yet and All Other, it implies a much higher return profile, even with this 12.7% CET1. I am wondering, as we think about the denominator and we get more clarity on reg reform, does that make a management buffer redundant? Jane Fraser: No. I am pretty clear, and I think Gonzalo has been as well, that what we are looking at for CET1 for the rest of the year is about 100 to 110 basis points above the regulatory minimum. That is the 100 basis points of management buffer. I think that is a good number for us at the moment, and I do not have plans to change it in the immediate future. Erika Najarian: Got it. Thank you. Operator: Our next question comes from Analyst with Jefferies. Please go ahead. Analyst: Hi, thanks for taking the question. I wanted to start with capital markets. Can you talk about the pipeline looking out to the second quarter and the rest of the year following a very strong first quarter? Gonzalo Luchetti: Thank you. Let me clarify—are you thinking more of Banking (M&A, ECM, DCM) or the Markets business? Analyst: The former rather than the latter. Gonzalo Luchetti: Thank you. The engagement with clients in the first quarter has been very robust. Jane alluded to this—we were advisors in the top three deals on the street, and we are pleased with the progress we made. We know we have more to go; that is why we are making the investments we are making. The M&A pipeline continues to be quite strong. We engage with global multinational corporations with resilient balance sheets; we are seeing good levels of engagement and activity. If the conflict were protracted and deeper over a longer period of time, that may introduce some risk of deferrals into the second half. In the sponsor space, it is a little less active and more cautious than on the corporate side. You see selectivity—good quality deals getting done in IPOs and in debt capital markets. There is a bit of flight to quality in an environment like this—more momentum and activity in M&A and in high-grade debt, more caution and moderation in high yield and IPOs, where quality is still happening but there is some risk-off. Jane Fraser: I would just add that most corporates have watched for and are not passive. We have been very actively engaged with clients—rerouting supply chains, hedging programs, liquidity. The pipeline goes well beyond capital markets. We benefit in North America from greater resiliency than other parts of the world face given the macro environment and the conflict in the Middle East. Analyst: Great, thanks for that. My follow-up is more housekeeping: can you provide us with an update on the expected timing of the Banamex IPO? Jane Fraser: We have made significant progress on the divestiture. First step is closing the latest tranche in the coming months, which will mean we have successfully divested 49%. That substantially advances our ultimate full exit. Given the accelerated pace of the sell-down we have just done, we do not anticipate any additional stake sales in 2026 ahead of deconsolidation in early 2027. The IPO most likely would be after that, when market conditions are favorable and when the regulatory requirements are met. As always, we will ensure that we exercise the ultimate full exit of Banamex in a way that optimizes value for all stakeholders, as we have done so far successfully. Operator: Our next question comes from Gerard Cassidy with RBC. Please go ahead. Gerard Cassidy: Hi, Jane. Hi, Gonzalo. Can you share just a follow-up on your advisory business and your talk about pipelines? As we all know, the regulators changed their leveraged loan restrictions back in November, giving banks more opportunities to finance higher leverage deals. Can you share your color—have you been able to use that yet? Will you use it? What opportunities does that provide to help you in the advisory business? Jane Fraser: The Fed has not changed their guidance on this, so we are still bound by that. Gonzalo? Gonzalo Luchetti: Not related to regulatory guidance, as Jane alluded to, but in that space we have been deliberate and very disciplined in our risk management. You have seen us expand our momentum there a bit—we were not very active a couple of years ago—and we have done it with a lot of care. We are seeing very good loss trajectory there. It comes in two parts: the left-hand bit in terms of distribution, where it is functioning well and operating normally; and on the hold book, where we see minimal NPLs, really performing well, and we are being very thoughtful and disciplined. Gerard Cassidy: Thank you. And, Jane, have you heard any word from the Fed whether they are going to follow suit with the OCC and the FDIC on these changes? Jane Fraser: I have not. Gerard Cassidy: Thank you. Then moving to consumer cards, Gonzalo, you pointed out how you break out the general purpose versus the private label card. Going back to earlier years, retail services were 33% of U.S. card loans—now they are much lower. With the advent of buy now, pay later and AI, is the retail private label credit card business a business that is going to have challenges in reaching profitability levels that they need to reach because of this competition? Gonzalo Luchetti: Thank you, Gerard. What we are seeing in the private label space—I would attach it more to changing customer behavior as it relates to borrowing preferences than to BNPL per se. That change has been underway for a number of years. That is why our investments are really in the general purpose card space—because that is where our clients are taking us. Over time, many retailers themselves are pivoting into co-brand relationships, and some of the more successful ones like Costco—which we have—and many others have made those pivots because they are following customer behavior. On discipline, you have seen us be very disciplined in terms of exits. Scale relationships work very well as it relates to returns. But where relationships have low scale, Jane has been the first to impress upon me that we are not in the business of hobbies. We have been very disciplined about exiting smaller portfolios where we did not see a path to improved returns, and we will keep that discipline. Operator: Our next question comes from Vivek Juneja with JPMorgan. Please go ahead. Vivek Juneja: Hi, thanks. A couple of clarifications. One is, what do you mean by “moderate” capital benefit, Gonzalo? Are you talking about 3%–5%? Any range in terms of under the current proposal for capital benefit? Gonzalo Luchetti: Vivek, thank you. The modeler in me appreciates the question, but we are not giving specifics at this time. Jane Fraser: We will be able to do that when we get the final proposal. Vivek Juneja: Okay. DTA—Jane, since you talked about it, any sense of the pace over the next couple of years? The pace has been very slow. Jane Fraser: I will give the CEO answer—which is “better”—and then pass it over to Gonzalo. Gonzalo Luchetti: Vivek, in the first quarter, the disallowed DTA increased by about $200 million quarter-over-quarter. That is attributable to higher U.S. income offset by seasonality of the carryback support—this usually happens. As you see us go through the year, and we have been clear on trying to increase U.S. earnings over time, we would expect that the disallowed DTA would reduce this year in the range of about $800 million. We are very focused on the multi-year path to accelerate that trajectory and really burn down that disallowed DTA. We will share more at Investor Day. Vivek Juneja: Okay. We will look forward to hearing more at Investor Day. Thanks, Gonzalo. Operator: The final question comes from Christopher McGrady with KBW. Please go ahead. Christopher McGrady: Great, thanks for squeezing me in. Going back to the tech/AI conversation for a moment, I am interested in how today’s outlays could ultimately yield ROE benefits and how you are thinking about that when putting together this Investor Day over the next few weeks. How does that influence the medium-term ROE outlook? Jane Fraser: You are going to hear a lot more about AI at Investor Day and how we are approaching it. With the rapid advances of the models and generative AI, we have established a more strategic, structured firm-wide approach that looks at four different buckets, which will ultimately yield ROE benefits. One is business strategies—covering revenue generation, client experience improvements, and potential changes to our business model—many with a direct driver to either revenue growth or ROTCE. The second—one I talk about often—is productivity and end-to-end process improvement. That work is simplifying our most complex and manually intensive processes leveraging both AI and automation. That is a direct operating efficiency benefit, with investments needed to get there, which we are making. A third area is defensive capabilities—covering cyber, fraud, AML, and general risk management—issue avoidance. We are also looking at longer-term talent and workforce implications. Our approach is structured and deliberate. It is not just about tech; it is about people, processes, and our business model. That is the framework we will run through in three weeks and how that translates into growth, ROTCE benefits, wallet capture, etc. Christopher McGrady: That is helpful, thank you. Follow-up: global rates are moving in various directions at any moment. Interested in the broader rate sensitivity—domestic, international—and how we should think about the whole Citigroup Inc. entity. Thank you. Gonzalo Luchetti: Thanks very much. We provide disclosures on IRR—which, even though it is a static measure, gives you a sense from a risk management perspective. On NII ex Markets—the vast majority of the growth we have baked in for the year is driven by client engagement and momentum reflected in deposit and loan volume growth. On interest rate sensitivity, you have two pieces. One is U.S. dollar sensitivity. You have seen us actively manage our balance sheet, bringing down our asset sensitivity over time to be more or less relatively neutral today as it relates to U.S. rates. We like that position given what is going on out there. On non-USD rates, we are structurally more asset sensitive. That has to do with our strategy. It is well-diversified sensitivity across 65-plus currencies, very much anchored by our Services and Wealth businesses around the world. Thank you. Operator: There are no further questions. I will turn the call over to Jennifer Landis for closing remarks. Jennifer Landis: Thank you all for joining the call. We look forward to talking to you this afternoon with any follow-up questions. Thank you. Operator: This concludes the Citigroup Inc. first quarter 2026 earnings call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter Fiscal Year 2026 CarMax, Inc. Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Lowenstein, Vice President, Investor Relations. Please go ahead. David Lowenstein: Thank you, Nikki. Good morning, everyone, and thank you for joining our fiscal 2026 first quarter earnings conference call. I'm here today with Bill Nash, our President and CEO, Enrique Mayor-Mora, our Executive Vice President and CFO, and Jon Daniels, our Executive Vice President, CarMax Auto Finance. Let me remind you, our statements today that are not statements of historical fact, including, but not limited to, statements regarding the company's future business plans, prospects, and financial performance, are forward-looking statements we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our current knowledge, expectations, and assumptions and are subject to substantial risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, we disclaim any intent or obligation to update them. For additional information on important facts and risks that could affect these expectations, please see our Form 8-Ks filed with the SEC this morning and our annual report on Form 10-Ks for fiscal year 2025 previously filed with the SEC. Should you have any follow-up questions after the call, please feel free to contact our Investor Relations department at (804) 747-0422, Extension 7865. Lastly, let me thank you in advance for asking only one question and getting back in the queue for more follow-ups. Bill? Bill Nash: Thank you, David. Good morning, everyone, and thanks for joining us. Our first quarter results highlight the strength of our earnings growth model, which is underpinned by our best-in-class omni-channel experience, diversity of our business, and a sharp focus on execution. Across the company, we are operating with a continuous improvement mindset. We are focused on growing sales and gaining market share, expanding gross profit, managing CAF's credit spectrum expansion, leveraging SG&A, and buying back shares. This focus, combined with our ability to provide a unique customer experience across our large total addressable market, provides a long runway for profitable growth. In the first quarter, on a year-over-year basis, we grew retail and wholesale unit volume. We delivered robust retail, wholesale, EPP, and service GPUs. We bought more vehicles from both consumers and dealers, achieving an all-time record with dealers. We grew CAF's net interest margin and continued to advance our full credit spectrum underwriting and funding model. We materially leveraged SG&A as a percent of gross profit. We doubled the pace of our share repurchases, and we achieved 42% EPS growth. This marks our fourth consecutive quarter of positive retail unit comps and double-digit year-over-year earnings per share growth. During the period, we delivered total sales of $7.5 billion, up 6% compared to last year, reflecting higher volume partially offset by lower prices. In our retail business, total unit sales increased 9%, used unit comps were up 8.1%. Average selling price was $26,100, a decrease of approximately $400 per unit year over year. First quarter retail gross profit per used unit was an all-time record driven by strong demand and operating efficiencies across our logistics network and reconditioning operations. Wholesale unit sales were up 1.2% versus the first quarter last year. Average wholesale selling price declined approximately $150 per unit to $8,000. Wholesale gross profit per unit was historically strong and similar to last year. We bought approximately 336,000 vehicles during the quarter, up 7% from last year. We purchased approximately 288,000 vehicles from consumers, with more than half of those buys coming through our online instant appraisal experience. Enrique Mayor-Mora: With the support of our Edmund sales team, we sourced the remaining approximately 48,000 through dealers, which is up 38% from last year. Our digital capability supported 80% of our retail unit sales during the first quarter, 66% were omni, and 14% were online. Relative to traditional and online-only dealers, we are the only nationwide retailer to offer an integrated, simple, seamless, and personalized experience to meet the largest and growing segment of used car buyers. According to Cox Automotive Research, as well as our own, the majority of customers shopping for used cars intend to transact via an omni experience. The combination of our associates, stores, technology, and digital capabilities all seamlessly tied together is a key differentiator that gives consumers the optionality to shop online, in-store, or a combination of the two. Our Net Promoter Score is the highest it's been since rolling out our digital capabilities nationwide. Supported by new record-high online and omni scores, reflecting that this experience is resonating well with customers. Our differentiating offering gives us a unique opportunity to reach more customers. To further capitalize on this opportunity, we're excited to launch a new marketing campaign later in the summer that will bring our omnichannel experience and our digital capabilities to the forefront for a broad set of consumers. And now I'll turn the call over to Jon to provide more detail on CarMax Auto Finance. Jon? Jon Daniels: Thanks, Bill, and good morning, everyone. During the first quarter, CarMax Auto Finance originated over $2.3 billion, resulting in sales penetration of 41.8% net of three-day payoffs, which was 150 basis points below last year. The weighted average contract rate charged to new customers was 11.4%, in line with last year's first quarter. Cash reduction in penetration was primarily driven by an influx of self-funded higher credit purchasers seen during the initial announcement of tariffs, and to a lesser degree, higher Tier 3 penetration, both of which more than offset our expansion since Q4. Third-party Tier 2 penetration in the quarter was down 100 basis points year over year to 17.7% of sales, while third-party Tier 3 volume accounted for 8% of sales, up from 7.5% last year. CAF income for the quarter was $142 million, which was down $5 million from FY '25. Net interest margin was 6.5%, up over 30 basis points from last year as customer APRs outpaced the increase in our funding costs. CAF's loan loss provision of $102 million was impacted by several notable items. First, Q1 is a seasonally higher sales and lower credit quality period, requiring a larger provision for newly originated volume. Second, loss performance within the quarter, particularly within 2022 and 2023 vintages, along with the uncertain economic outlook, necessitated additional loss reserves. Note that 2024 vintages remain largely in line with our original loss expectations. The last noteworthy item impacting the Q1 provision relates to CAF's continued build-out of our full spectrum lending capabilities. While we remain focused on increasing our penetration across the credit spectrum, we also want to carefully manage future risk from higher profit, higher loss receivables. To that end, during the quarter, we earmarked a held-for-sale pool of loans with a $632 million principal balance from our non-prime portfolio. That loan pool is intended to be fully sold off our balance sheet as a part of a non-prime securitization transaction. In the immediate term, this treatment removes the requirements to reserve for future losses expected on this pool of receivables. In the period in which the ABS transaction closes, capital book any gain realized by selling the financial interest in the loans. Also, risk of any financial impact from this pool due to future deterioration is removed once sold. This additional funding lever, as well as other off-balance sheet funding vehicles under consideration, will provide CarMax with significant flexibility, allowing us to mitigate risk while focusing on our growth plan. Loan loss provision of $102 million results in a total reserve balance of $474 million or 2.76% of managed receivables exclusive of auto loans held for sale. Note there was a reduction on this quarter's provisions stemming from $26 million in the reserve allocated to loans booked prior to the first quarter now classified as held for sale. As we reflect on the bigger picture, CAF has delivered solid income for yet another quarter. We see tremendous potential for the future. Now I'd like to turn the call over to Enrique to discuss our first quarter financial performance in more detail. Enrique? Enrique Mayor-Mora: Thanks, Jon, and good morning, everyone. As a reminder, last quarter, we provided a view into the strength of the earnings model that we have built as part of our omni transformation. This model is designed to deliver an annual earnings per share CAGR in the high teens when retail unit growth is in the mid-single digits. First quarter results delivered net earnings per diluted share of $1.38, up 42% versus a year ago. Total gross profit was $894 million, up 13% from last year's first quarter. Used retail margin of $554 million increased by 12%, with higher volume and per unit margin. Retail gross profit per used unit was $2,407, up $60 from a year ago, and a record high. Wholesale vehicle margin of $157 million was flat from a year ago, with an increase in volume offset by a slight reduction in per unit margins. Wholesale gross profit per unit was $1,047, which was historically strong, though down slightly from a year ago. Other gross profit was $183 million, up 31% from a year ago. This was driven primarily by a combination of EPP and service. EPP increased by $13 million or $9 per retail unit as we fully comped over margin increases taken in the prior year. Service recorded a $33 million margin, which was a $30 million improvement over last year's first quarter. We achieved this performance improvement through cost coverage, volume-based leverage, and efficiencies. On the SG&A front, expenses for the first quarter were $660 million, up 3% or $21 million from the prior year. SG&A to gross profit leveraged by 180 basis points to 74%, driven by the growth in gross profit and our ongoing actions to improve expense efficiencies. SG&A dollars for the first quarter versus last year was mainly impacted by compensation and benefits increase of $19 million. The majority of this increase was related to unit volume growth. We continue to deliver efficiency gains across the business. We are off to a strong start in achieving our goal of omni cost neutrality in fiscal year 2026 for the first time across three key metrics. In the first quarter, we were both more efficient versus pre-OMNI and versus last year per used unit, per total unit, and as a percent of gross profit. Recall that this compares the variable commission cost of selling and buying vehicles in our pre-Hyundai model to our cost now, which includes a new per unit commission as well as the cost of running our customer experience centers. A key driver of these efficiency gains and experience enhancements has been our strategic deployment of AI technology across our operations. A few key metrics that illustrate the progress we are making year over year include Sky, our AI-powered virtual assistant, realized a 30% improvement in containment rate. Our customer experience consultants' productivity improved by 24%. And phone and web response rate SLAs improved by double digits. We see tremendous opportunity to continue expanding AI applications across our business to drive both the top-line growth and operational excellence. Turning to capital allocation, we remain committed to creating long-term shareholder value. Our priorities are clear: invest in the core business, primarily through the reallocation of resources, evaluate new growth opportunities through investments, partnerships, or acquisitions, and return excess capital to shareholders. During the first quarter, we accelerated the pace of our share repurchases, buying back approximately 3 million shares for a total spend of $200 million. As of the end of the quarter, we had approximately $1.74 billion repurchase authorization remaining. Looking forward to the balance of the year, I'll cover a few items. We expect service margin to grow year over year predominantly in the first half of the year and to deliver a positive profit contribution for the full year, as governed by sales performance, given the leverage/deleverage nature of service. Recall that the first quarter is typically the strongest for service margin due to higher seasonal sales volume. Turning to marketing, we expect for the full year that our spend on a total unit basis will be flat year over year. Regarding CAF's funding strategy, our current plan is to execute the programmatic off-balance sheet sale of the financial interest in the non-prime securitization once a year. As Jon noted, we will also be assessing additional off-balance sheet funding levers to further accelerate CAF penetration while continuing to learn from our full spectrum models. Now I'll turn the call back over to Bill. Bill Nash: Great. Thank you, Enrique and Jon. Before I open it up for questions, let me summarize what you heard from us today about our strong first quarter. We delivered our fourth consecutive quarter of positive retail unit comps and double-digit earnings per share growth. We grew both retail and wholesale unit volume. Our sourcing efforts hit another milestone with a record dealer volume through Max Offer, and we continue to leverage our cost structure with meaningful SG&A improvement. Our digital capabilities and overall experiences are resonating with customers, as evidenced by our Net Promoter Score. We're also continuing to leverage AI across the business to further enhance the experience for both customers and associates and to increase operational efficiencies. We're taking the next steps in our credit expansion by delivering a new funding method for a portion of our non-prime portfolio that mitigates risk, gives us more flexibility, and supports the growth of CAF income. And we doubled our share repurchase pace. Our associates, stores, technology, and digital capabilities all seamlessly tied together enable us to provide the most customer-centric car buying and selling experience. This is a key differentiator in a very large and fragmented market that positions us to continue to drive sales, gain market share, and deliver significant year-over-year earnings growth for years to come. I want to thank our associates across the country for their dedication in delivering these results and providing an unmatched experience for our customers. With that, we'll be happy to take your questions. Thank you. Operator: Thank you. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question by pressing star 2. Once again, to ask a question, please press star and 1 on your telephone keypad. And your first question comes from the line of Brian Nagel with Oppenheimer. Your line is open. You may now ask your question. Brian Nagel: Nice quarter. Congratulations. Really nice quarter. Bill Nash: Thank you, Brian. Thank you. Brian Nagel: So I guess the question I want to ask, we've seen a nice acceleration here in your used car business. I know you don't typically talk much about intra-quarter trends or into the following quarter. But I would love to the question I ask is, I mean, how are you viewing sustainability here? You look at this, is it the business coming back? Is there anything unique to this reacceleration? And then a, you know, follow-up to that is, and you showed again in this quarter nice SG&A leverage, but as we're thinking about sales continuing to restrain in here, how should we consider expenses coming back into the model? To what degree expenses need to come back to the model to support those sales? Thanks. Bill Nash: Sure, Brian. I'll take the first one. Then Enrique, you want to talk about the expenses. As far as, you know, acceleration, look, Brian, we feel really good. I mean, first of just back up a second. We're really pleased that this is the fourth consecutive quarter of comp growth. Obviously, this quarter, we're pleased with the comps. Especially, you know, all three months were positive. As I think about the acceleration and we talked a little bit about this last quarter. I know, I think this month's quarter's performance is driven some by the macro factors, but I also think it's driven some by what we have control. And I would go back to some remarks I made in the last quarterly call, which is, you know, the quarter started off strong, and then we saw an uptick at the end of the quarter when there was speculation about the tariffs. And then I talked about that uptick towards the latter part of March, and then rolling into April, we saw another little uptick. And so April ended up being the strongest month for us. But would just go back to even before we saw that the initial uptick, the business was growing, was doing well. And I think that's a reflection of a lot of the work that we've done, you know, internally, whether it's the inventory management, it's our pricing, it's our savings, it's the omnichannel experience, continue to make that better. So I think this performance is both part market-driven. I think it's also driven by us. So, you know, we feel great about the rest of the year. As I said, at the beginning of the end of last year, that we expect to grow sales and gain share this year, and there's nothing that's changed that outlook. Enrique? Enrique Mayor-Mora: Yeah. For SG&A, you know, Brian, we spent the past couple of years being able to lever SG&A, and that's really given all the actions we've taken on focusing on efficiency. And, you know, we're committed to continuing to lever the business. I do think this quarter is really illustrative of the power of the model that we built. So strong comps, and we levered SG&A almost 700 basis points this quarter. And when you look at the increase in SG&A for this quarter, primarily, it was driven by variable cost. But, again, with those variable costs, we were able to lever again, by almost 700 basis points, taking us to the mid-70% in the first quarter. So, you know, we're committed to continue doing that, and you can see the power of the model here. Bill Nash: Yeah. And, Brian, the only thing I would add to that is that's a big focus for us is continuing that leverage and just we certainly like the additional volume and how it helps that, but we're also very much focused on continuing to find efficiencies, continuing to take SG&A out. And we just think there's a lot of opportunities still there. Brian Nagel: Thanks, guys. Again, congrats. Enrique Mayor-Mora: Thanks, Brian. Bill Nash: Thank you. Operator: Our next question comes from Scot Ciccarelli with Charisse. Please go ahead. Your line is open. Scot, your line is open. Scot Ciccarelli: Good morning, guys. Bill Nash: I apologize. Good morning. Bill, I know you guys don't guide, but with comp growth kind of bouncing around a bit the way it has, and comparisons getting much more difficult in the balance of the year, how should we, from an outside modeling perspective, be thinking about that comp growth on a go-forward basis? Are we thinking about stacks? Is that something that like two-year stacks or three-year stacks, is that relevant? I know, obviously, there's a lot of moving pieces on the macro, and you guys are making all the changes that you've already cited. But just from a broader perspective, like, how should we be thinking about this? Comp growth for the balance of the year? Bill Nash: Yeah. I'll tie it back a little bit to what I talked about and Brian, but, you know, as far as, like, you can look at two-year stacks, three-year stacks. They tell a little bit of a mixed story. I think that's you can't rely 100% on that because there's lots of dynamics that happen over the years. And you know, as far as the outlook for the rest of the year, look, we feel like we put ourselves in a good position. And as I said in to Brian's question, we don't we're not changing our outlook for the year based off of what we laid out there for the beginning of the year. And so we expect to continue to grow sales and continue to gain market share and nothing has changed that outlook. So okay. Scot Ciccarelli: And then I'll take a quick follow-up if I can. Can you just provide a little bit more color on the shift on the non-prime like if I heard you correctly, it sounded like there was going to be another $26 million provision. But you don't have to count it because it's now being held for sale. Was that correct interpretation? Bill Nash: Sure. Yeah. I can take that question, Scot. So first, overarching, let's just talk about the Help Yourself transaction. Broader picture, like, are super excited about our full spectrum strategy. You look at what we put in place, we bifurcated our securitization program. We've implemented our new models. We've executed two transactions where we held the future cash flows. This is the next step. The sell-for-sale transaction is something we have been thinking about along with other off-balance sheet transactions, but it was just the right time to move on this thing. So the mechanics of it is ultimately, for those receivables, you do not need to hold any loss reserve because you have intent to sell them. So those $630 million we're able to not have to put dollars into the reserve. So that works for you and your provision line. Beyond that, there's no future risk there associated with those receivables if there were deterioration. Mentioned that in the prepared remarks. So that, again, is a risk mitigant there. Especially really well targeted to this non-prime space, which we're looking to really drive growth in. On top of that, you're gonna capture the gain when this sale closes. Know when the sale will close, but you can imagine it's probably not in Q2, but sometime after that. Which is gonna bring all of those cash flows upfront for us. So rather than earning them over time, we get them right upfront. So, again, a really pivotal thing for us in our strategy and just an extra tool in our toolkit. Regarding the provision in the quarter, just as you mentioned, just to play that out, So, again, you had your origination volume, We signaled about a $100 million provision, at the in the Q4 call. We landed on that number, but there were puts and takes there. You had some increase in the provision from the true-up 2022 and 2023 vintages, which we've mentioned. The economic view that we have, we've put aside not an insignificant amount of dollars for that as well. But, again, this held for sale, you're able to offset some of that with dollars you no longer have to hold in the reserve. So long answer, wanna lay out the entire transaction. How it plays out, and how the provision was impacted by that. So, hopefully, that's clear. Bill Nash: I think, Scot, you know, I would add to that is we're really excited about the program. I think a simple way to think about it is that it really enables full spectrum and cap income growth mitigating risk. So it's a tool that we're excited about. As Jon had mentioned in his remarks, we're also looking at other ops balance sheet potential funding vehicles as well. To further accelerate and help us grow our full spectrum strategy. Scot Ciccarelli: Okay. Super helpful. Thanks, guys. Enrique Mayor-Mora: Yep. Operator: Thank you. Our next question comes from Michael Montani with Evercore. Please go ahead. Your line is open. Michael Montani: Yes. Hey, guys. Good morning. Bill Nash: Thank you. Michael Montani: Just wanted to ask, I guess, a two-parter, but the first part was you made a really interesting comment in the prepared remarks about doing a marketing campaign to kind of aware folks to your multichannel capabilities. So I'm just kind of wondering, can you share some basic levels of awareness kind of prior to that campaign and what exactly it is you're doing differently there. Enrique Mayor-Mora: And then I guess the follow-up was just also related to credit, which was, you know, does this signal that you'll be kind of increasing subprime penetration as a percentage of the loans that you're issuing as well? Michael Montani: And just how should we think about that? Bill Nash: Yeah. Great. I'll hit the marketing, then I'll pass it to Jon to talk about the subprime question. As far as the marketing goes in kind of awareness there, like, we've had we've built up our awareness on both digital capabilities and the fact that we can do an online sale. So that's been increasing through our marketing campaigns in the past. I think I talked about the last call, you know, we've gone with a new ad agency, seventy-two and Sunny, and we're really pleased with how the relationship is going. And you know, I cited some Cox information, and I did that purposeful because if you look at how customers want to buy, they intend to buy omni. But if you look at how the vast majority of them still buy today, it's all in-store. And I think what happens is consumers they want to buy a certain way, but then they settle. They go into a dealership and they're forced to buy a certain way. And what we want to make sure that we educate the consumers on is that, look, you don't have to settle. You don't have to go for the one way a deal has. You have optionality. So I think the campaign build-out is, like, don't settle. Like, you know, CarMax has the best no matter how you want to buy. And I think that is really gonna start to resonate folks as they're looking for options in the future. Jon, I'll turn over to you on the subprime. Jon Daniels: Yeah, Michael. I'll take that take your question on the subprime growth. And yeah. Fair question. Short answer is absolutely, we are looking to grow. We've signaled that very clearly. We made adjustments at the beginning of Q1 taking volume back. We signaled 100 to 150 basis points of growth. Now that was muted because of a lot of stuff that happened in the first quarter tariffs, etcetera. We cited that in the prepared remarks. But, yes, we are if you look at what we're doing from our full spectrum strategy, we're putting things in place that allow and fuel that growth, especially we think this hub for sale supports that. So if I were signaling, you know, a level to you of penetration, because, again, we're at 42, 43% historically, We said we want to grow that. I put the a great first step for us at 50%. We're not gonna get there this year. We will tell you as we grow that. But, yeah, that is our plan, and we're really excited about it. A tremendous amount of value as we grow this in the quarters and upcoming years. Thank you. Operator: Our next question comes from Chris Bottiglieri with BNP Paribas. Chris Bottiglieri: Hey, guys. Thanks for taking the question. So first off, congrats on the mental agility around the subprime funding. I think it's an interesting structure. Just have one clarifying question on that, but just a broader question on credit. What percentage of new originations were classified as held for sale? Were those part of the $26 million you cited or would that be incremental? And then my broader question is just, obviously, you elaborate on the, you know, the allowance stepping up and some of the factors that drove that. Much of this is, like, the macro environment with student loan lending? Like, are you seeing, like, as the credit scores have dropped and credit performance in the broader economy has worsened a bit, is that impacting capital? Is that measurable? Like what percentage of your customers have student loan debt? Just curious if that's having an impact at all. Jon Daniels: Sure. Yeah. Appreciate the questions, Chris. Sorry. Take them in order. So, you know, how do we think about the provision takedown from the held for sale? How much was it? From new originations versus the fourth quarter or previous originations we had on the books? That were already in the reserve. I'll just tell you the majority of it was from receivables that were already in the reserve. So, yes, certainly, some of it from Q1, but the majority, were already in the reserve. So it handles that one. Second question, give a little more flavor around what we're seeing in the step up in the reserve, the 2.76%. What we're seeing in performance and as it relates to student loans. Yeah. As I said in the prepared remarks, I think, you know, the twenty-two and twenty-three vintages certainly were, ones that performed more unfavorably in the quarter. We think we have appropriately reserved and adjusted accordingly. I did say in our prepared remarks, actually, 2024, we feel real good about. We're kind of on the mark there, you know, a year in on that stuff. A year plus in on that stuff. Regarding student loans, you know, let's give you some statistics there. In the cap portfolio, about 30% of that we can see the credit bureaus. 30% of our customers have student loans. We've been watching them as you might imagine, for, you know, for years now. With the thought of our payment's gonna be made, what forgiveness is done for those perform and how they performed. Ultimately, what I'll tell you is we have not seen a material change in those customers in the recent year as compared to what we've normally seen. So we're watching this very, very closely as payments are expected as it may impact their credit report, etcetera. We would hope that auto still remains top of wallet share for them. But we'll watch them closely, but no change today. Bill Nash: And, Chris, the only thing I would add there, when you think about kind of what I call the true-up, that was primarily driven by the '22 and '23 vintages. And I just want to remind everybody, even with that, they're still super profitable. And then to a lesser degree, the kind of the economic factors as you lean forward, not immaterial, but I want to make sure everybody understands it's more of the '22, '23s that are driving that. And even with that, they're still very, very profitable. Jon Daniels: Yeah. And to clarify that, last thing I'll tackle on there is unemployment rates, the big one that's driving that. Yeah. Again, not insignificant contributor. Chris Bottiglieri: But not the majority of it. On the economic factors? Correct. Yes. Bill Nash: Helpful. Thank you. Jon Daniels: Yep. Thank you. Operator: Thank you. Our next question comes from Sharon Zackfia with William Blair. Sharon Zackfia: Hi. Thanks for taking the question. I wanted to ask a question on CAF. With the move to full spectrum lending. How far have you gone into kind of the full spectrum so far? Like, how do we think about that for the second half of the year? And then in terms of increasing that cap penetration, I know there was, you know, there were moving parts in this quarter, but do you expect CAF penetration to increase, you know, year over year in the August quarter. Thanks. Jon Daniels: Yeah. Sure. Appreciate the question, Sharon. So let's just break down penetration as it typically sits. You know, CAF has been historically sitting in where it's originally where it's normally originated at 42 to 43%. We've cited our tier two and tier three players taking combined cost 26% of volume. As we grow, is definitely where we're looking to grow. So, we're looking to penetrate that. We think about I think really, yeah, since your question is, you know, how fast will we grow, where, you know, that's really where we're looking to grow down there. I think key for us will be we've got discretizations in play. Looking for the help for Sam transaction that we need to close. That's gotta happen. Just coming up anniversarying all our models. We put in place a 100 to a 150 basis points of growth at the beginning of the quarter. Now as we stated, tariffs really threw a bit of a snafu in that in showing that growth that we realized. But we have made move we have we have made progress as sort of that volume normalizes because so much of it came with none you know, it's coming up with our own financing. As that normalizes, you're gonna see that we have made progress on that. Again, we're gonna look to grow that. We will signal when that when that happens. But I think you're gonna see material growth. We would expect in the not gonna get there this year, Sharon, at that 50% number I labeled, but you're gonna see hopefully, material growth in the quarters to come. Bill Nash: Sharon, the only other thing I you know, when you think about the penetration speed, there's really two governors on that. One is having your funding available and that's certainly taken care of. The other one to to Jon's point, is is your credit model. Remember, you know, we had a lot of experience at the top. We had a lot of experience at the bottom, but then we put full spectrum credit model in there, which we're still testing. I mean, Jon, how long has that been in play that, you know? Jon Daniels: Yeah. August, we launched it. Yeah. So it just takes time to make sure your model is exactly the way. So those are the two governors. Sharon Zackfia: Thank you. Enrique Mayor-Mora: Sure. Thank you. Operator: Thank you. Our next question comes from David Bellinger with Mizuho. Please go ahead. Your line is open. David Bellinger: Hey, everyone. Good morning. Nice results, and thanks for the question here. Another one around the marketing spend in the new campaign and understanding the flexibility for consumers will be front and center. But is some of that new push being driven by this Omnicost neutrality that you mentioned in the prepared remarks? And suggested that CarMax is now ready to flow more digitally initiated volumes in a more profitable way going forward. We're just trying to gauge whether you're seeing a step change within the digital economics of the business and or opting to put more marketing dollars behind that now. Enrique Mayor-Mora: Yeah. I mean, that definitely enables, you know, the push on efficiency, the productivity, customer service, all of those things, again, fueled by AI, fueled by our associates, definitely enabling a better experience, but then makes us feel a lot better. About going out there and advertising and letting letting our customers know incredible experience and highly differentiated experience that they're gonna get through CarMax. Bill Nash: Yeah. I think, you know, David, the way I think about it too is, you know, FY twenty-five was a big year for most from an experience standpoint and really closing some of the last big gaps, you know, with the rollout of order processing and shopping cart. And so we feel like we're at a point where you're gonna go out and celebrate this and really point direct, you know, customer this fact that, like, you don't have to be forced into a fixed path. You better have best in class in store. You better have best in class omni. You better have a best in class online-only experience. And we feel like we're at that point where, like, we need consumers to understand you don't have to settle. So that's a lot of the thrust why we're thinking about it now in addition to the efficiency stuff that Enrique has already mentioned. David Bellinger: Great. Thank you both. Bill Nash: Thank you. Operator: Thank you. Our next question comes from Rajat Gupta with JPMorgan. Rajat Gupta: Great. Thanks for taking the questions. Just had, like, a couple of clarifications. Clarifications from like some of the commentary. Firstly, any color on how the second quarter might have started? We were anecdotes just your broader macro around, you know, some meaningful pullback from, like, just the pre-buy ahead of tariffs. Curious if your business has sold any of that here in June, any color you could give on there? And then just on CAF, I mean, obviously, a lot of discussion there. In the last quarter, you had given us some guidance around the provisioning. Cadence for the year. Any color you could give us on how the second quarter might look like especially in context of all the changes that are happening? You know, that would be helpful. Thanks. Bill Nash: Okay, Rajat. On June, look. We're nineteen days into it. We'll talk about June when we talk about the second quarter at the end of the second quarter. The only thing I would add to that is just you know, remember, or you may not know this, but the second quarter, we do lose a Saturday and it happens to fall out in the month of June and then you don't pick it up for the rest of the quarter. You won't pick Saturday up until the rest of the year. Jon, I'll toss you on the provision. Jon Daniels: Sure. Yeah. Yeah. For just think about the cadence of provision for the year. We would expect Q1 to be the high watermark here. We've made the adjustment that we believe needs to be made on those older vintages. We feel good about the twenty-fours. Obviously, notwithstanding the consumer and all that could happen in the future. But, again, we feel good about our reserve. Ideally, this just beer provisioning for new originations. The only thing that could throw that is what is our growth plan. Obviously, if we grow, you're gonna have to add provision accordingly for that non-prime space, but we'll signal that when we're gonna do any material more growth there. So Bill Nash: Yeah. I think the way you should think about it is what he talked about last quarter is we're going in the near term after the 100 to 150 basis points where we're well on our way there. Just got a little bit masked this quarter. Rajat Gupta: Understood. Great. Thanks for the color. Thank you. Thank you. Operator: Thank you. Our next question comes from Craig Kennison with Baird. Please go ahead. Craig Kennison: It's been a helpful call. I appreciate it. I wanted to ask a question. In the press release, you talked about digitally supported sales at 80%. That was down from 82% in the February. So I think you lost a point in Omni and a point in online. Know you're really focused on the omnichannel, but digital had been gaining share and clearly feels like the future. So I'm just curious if you can explain why that might have stepped back in this quarter. Bill Nash: Yeah. I think I think part of it is just is just seasonally. Craig. I mean, I don't really I mean, I think may I think Omni is actually up point and maybe online's flat or or or you know, maybe down point. But, I mean, I think it's more seasonally driven. I think the more interesting and the more relevant point is that we continue in the omni bucket. We continue to see more transactions, more pieces of these digital capabilities being used. And I think that's the more relevant point than, oh, did everybody go to online or did everybody go to omni? It's like, okay. Of your omni bucket, you're seeing that the number of steps that they're doing is continuing to increase. Craig Kennison: And then just to follow-up on the marketing comments you've made, how is AI changing the way you think about search engine optimization as part of this new marketing campaign? Bill Nash: Yeah. Well, I think, you know, I think the big new buzzword is GEO instead of SEO. And, you know, it's that generative engine optimization. That's what it's all about. It's like, how do you show up well? So it's critical. I think if you're only focused on SEO, you're gonna miss the boat. SEO is still super important. You still gotta focus that. But now you have to kind of also be really good at GEOs. So it'll play a big role in the marketing campaign. And I just think in marketing in general, I think, you know, generative AI there's just a lot of potential there. Craig Kennison: Thank you. Bill Nash: Thank you. Operator: Our next question comes from Jeff Lick with Stephens Inc. Jeff Lick: Good morning. Congrats on a great quarter, and thanks for taking my question. There was obviously this quarter's a lot of puts and takes in terms of you expanding the credit spectrum, you know, kind of the tariff surge, and then also, you guys have kind of been, you know, you indicated in your annual state leaning into a bit more the, you know, the value cars, you know, six to seven plus years. Maybe if you could just kind walk us through anything any callouts as the quarter progressed and you know, and how those buckets influenced your impressive comp? Bill Nash: Yeah. I appreciate the question, Jeff. Look, think take some of the noise like the credit spectrum expansion. Take that out. It's still a great quarter. Okay? Know? We're really pleased with it. And I think the credit expansion look. It's the next step. We've been working through that. It didn't we didn't contemplate the provision of the fourth quarter, but it's something we've been working on. So we're excited about that. I think you brought up an interesting point on just the age, you know. We did sell if I look at our let's call it, ten plus year old cars, you know, we increased we probably sold roughly 25,000 more of those cars. When I say it's like think about the ten-year-old, the 11-year-old, the 12-year-old. And that's by continuing to really kind of push in that area because we do know customers they're interested wanna buy. But even, like, this past quarter where we saw this higher no finance, those are folks that have higher credit, but interestingly, if you look at how they bought, they bought vehicles across the spectrum. In fact, our biggest growing contributor to sales this quarter was kind of bar it was the under $20,000 cars and the over $40,000 cars. And so I think having a good answer there for all those is gonna be critical. And that's an area that we'll continue to focus on without sacrificing the quality standards of CarMax. But that is a work track that we're definitely focused on. Enrique Mayor-Mora: And between those two is really the under 20,000 increase in under 20,000 that drove our comp. So that focus on affordability and internally, as you know, we just collar certain cars or older cars and more of a value max car. That was up five points. Year over year on the quarter. As well. So those that bleeds into under $20,000 car, so focus on affordability ability to meet the customer where they wanna be met. Met. Jeff Lick: Great. I'll get back in the queue. Let someone else ask a question. Congrats again. Bill Nash: Thank you. Enrique Mayor-Mora: Thank you. Operator: Our next question comes from David Whiston with Morningstar. Please go ahead. Your line is open. David Whiston: Thanks. Good morning. Curious if you can talk at all about how you see buyback spending trending the rest of the fiscal year relative to Q1 spend? And how financially stressed is the consumer right now in your opinion? Enrique Mayor-Mora: Yeah. On the share buyback, you know, what I'd tell you is our intent entering this year was to modest accelerate the pace of our buybacks as compared to last year. In the first quarter, based on valuation, based on cash flow dynamics, we saw an opportunity to sizably increase the amount of share we post clearly. So when determining the pace for Q2 and beyond, you know, we'll have the same considerations. Evaluation, cash flow dynamics, as well as the broader macro backdrop. Bill Nash: Yeah. And I think as far as the consumers you know, how stressed that look. I wouldn't categorize it as way more stressed than the last, but I certainly wouldn't say they're less stressed. And I think what you're seeing is some of the consumers are you know obviously, talked about the student loans. You can see some default on folks that have got student loans. We haven't seen any impact on our business. But I think there's also a little bit of kind of weight and see on tariffs, you know. While tariffs have impacted some prices, I think there's a lot of stuff was already a lot of things were already in the US before tariffs kicked in. So I think really, we'll you just need to watch going forward as prices go up on for everyday consumables, how that might push them. But I would say from a consumer sentiment standpoint, you know, they're probably a little less positive about the future, but I don't think it's necessarily showed up so much in the buying habits at this point. David Whiston: Thank you. Operator: And once again, that is star and one on your telephone keypad if you would like to join the queue. We will move next with Chris Pierce with Needham. Please go ahead. Your line is open. Chris Pierce: Hey. Good morning, everyone. You just walk me through cost avoidance and other cost of sales? I just I'm not sure what the model going forward. It was down $33 million year over year, and drove a pretty high. Yeah. I just love to hear about cost avoidance there and what to think about going forward. Bill Nash: Well, I'm sorry. Which line are you talking about? $7 million in other cost of sales versus 40,000,000 year over year? Enrique Mayor-Mora: Other I'd I know you're talking about service. We had an improvement of $30 million in service line in our in our gross margin. If that's what you're talking about, then, again, we had benefits coming there from cost coverage that we had taken, meaning we had taken some fees. To overcome some of the cost pressures we had last year. We saw a leverage on our on our largely fixed cost base in service. Right? So positive sales will create some leverage. And then we continue to go after efficiencies in that business as well. And we continue to deliver on those like we've committed to on an annual basis. That's why we saw the improvement, $30 million improvement in the service. Chris Pierce: So those that 95% other gross margin, that's something I mean, I guess, how should we think about other gross margin going forward given the impact it has on EPS? Enrique Mayor-Mora: Yeah. Other gross margin is certainly in line when when I talked about our our earnings model and our focus on being able to deliver high teen EPS growth over time and on know, mid single digit comps. That is something that we're focused on is continuing to grow that that margin, that other margin and key components in other margin are gonna be service like I just talked about, And the other component is our EPP products. Right? We saw our EPP margin go up again this quarter. I talked last quarter about we're we're undergoing some tests. In terms of product enhancements in our in our EPP products. We've been pleased with the results of those tests. In terms of product enhancements, those have to do with deductibles, terms, and we would expect to see a modest rollout in the back half of this year. And then with the full financial impact or more full financial impact as we head into FY twenty-seven. You know, we are laser focused on other gross profit as a as a vehicle for growth. In terms of fueling our EPS growth. Bill Nash: Yeah. I think, Chris, for your for your modeling standpoint, I think it goes to some comments earlier because a lot of that's being driven by service. And you know, the the the service in the first quarter is always the strongest we would expect, as we said last quarter, to to be profitable for the year. But you shouldn't expect the the the service gains equal like you saw in the first quarter for the for the rest of the year. Enrique Mayor-Mora: Yeah. And I can and yeah, I made a note of that in my prepared remarks as well. The first quarter is usually the strongest when it comes to service just because it's the highest volume. Quarter that we have just seasonally. And, again, you're levering on somewhat fixed cost basis, and so you're gonna lever more strongly there. But, again, we're committed to growing our other gross profit in totality. As part of our earnings model moving forward. And that's what you've seen now for the past couple of years. Chris Pierce: Okay. And then just lastly, going back to the first question, SG&A per retail unit was down mid single digits year over year, but it was sort of flattish if we look back two years ago. I just kinda wanna get a sense of where we are in fully levering, you know, Omnicost and how should you think about this kind of going forward? Bill Nash: Yeah. I don't we have have opportunity to continue to to lever our our costs, whether it be specific on the the sales side, when you're thinking about CEC expense, that kind of thing. Or just across the across the business. And we have initiatives in pretty much every single area. So we still feel like there's there's additional opportunity there. Enrique Mayor-Mora: Yeah. And what you certainly see from us is a commitment to doing that. It's been a couple years now where we've been levering and levering our SG&A. As a percent of gross profit. Whether comps were positive or whether comps were negative. We've been able to successfully lever our SG&A, and we intend on continuing to do that. Chris Pierce: Okay. Thank you. Bill Nash: Thank you. Enrique Mayor-Mora: Thank you. Operator: Our next question comes from it's actually a follow-up from Rajat Gupta with JPMorgan. Rajat Gupta: Great. Yeah. Sorry for the I just wanted to follow-up on the new off-balance sheet approach. And is it fair to assume that a lot of the incremental penetration that you see in the CAF of, you know, from 42 to 50% all of that will go through this off-balance sheet approach, you know, basically trying to understand, like, what's the mix gonna be what you are targeting in terms of on versus off-balance sheet forecast. Operator: Thanks. Jon Daniels: Yeah. Appreciate the question, Rajat, and a fair follow-up. So I think one of the things I wanted to drive home here was we think this is a periodic play for us. You know, it's it's obviously, we have our prime our higher prime deals. We don't think it's necessarily set up for this approach. Less volatility there, less risk in those customers. And the non-prime approach is especially as we grow from 42 to 50%, which you've which you cited and I think it really does set itself up to at some points in time, maybe we do wanna retain that risk and all the additional cash flows that come with it because there is additional value there. We're willing to to offload some of that risk take the cash upfront, And, again, maybe there's a little bit of a haircut there. But it I think it's an opportunistic play as we're gonna see. So maybe it's once a year. We'll see how it plays out, but I wouldn't think about it as an all or nothing play here at Bill Nash: Yeah. I definitely wouldn't think about it that way. There's, you know, there's you look at the tier one business, we aren't changing that. I mean, that we we hold on to think about it more being able to to expand on some things that, hey. At the end of the day, wanna carry you know. And so to Jon's point, it's don't think about it as all in one bucket or the other. It's gonna be a nice complement of the two. Jon Daniels: Yeah. They're definitely subprime receivables that we wanna keep. And hold for investment, and we'll continue to do that. Absolutely. And think of this play, and I mentioned it earlier, this kinda simplistically, you know, it's gonna enable our full spectrum and cap income growth over time. While mitigating some of that risk. So we're really excited for this program. But, yeah, you know, that's how I think about it. Rajat Gupta: Understood. That makes a lot of sense. And thanks for taking the question. Jon Daniels: Sure. Thank you. Operator: We have another follow-up from Jeff Lick with Stephens Inc. Please go ahead. Jeff Lick: Great. Thanks for taking the follow-up. I just wanted to double back or ask about retail GPUs. Surprised we actually haven't hit on this. It's a record twenty-four zero seven. First time we've seen that 2,400. You know, last quarter, you talked a little bit or and highlighted the improvements in logistics and then also recon, if we could get into the if you wouldn't mind elaborating on standalone recon centers to do that. Do those have an immediate impact, or does it is it actually dilutive for a few quarters or a year before they show up? And then I guess lastly, on GPUs, are the ten plus year old vehicles I'm assuming those might have higher GPUs than the chain average. So if you could just kinda talk about the improvements you're seeing there and where the trajectory might be? Bill Nash: Alright, Jeff. I'm gonna try to hit it. There's a lot in that question. I'm gonna try to hit it all, but you can keep me honest at the end. So then yeah. We're pleased with the retail GPUs. And I think the big the big thing there you should be thinking about and I talked a little bit about this last quarter. Because someone asked, hey. How do you think about reteach GPUs? And said, look. If you're modeling it, think about it on a yearly basis. And think about it being similar to what it was last year. But I also said, that, you know, on any individual quarter, it's gonna be up or down. And the reason I said that is you gotta look at the factors in the quarter. And you know, sometimes it's you know, if you think about all the different things that go into the decision, you know, think about elasticity and price competitiveness and variable cost and how you're improving on that and ancillary services that you attach or products that you attach there's gonna be some quarters where you know what? And this is one of those quarters. Like, look. We're gonna we're gonna take some of those savings you're talking about from the reconditioning and logistics, and we're gonna just flow them through to the bottom line. Now as far as the standalone reconditioning centers, look, our the benefits that we're getting from reconditioning and logistics, I just want to remind everybody, we've had large reconditioning centers all up until now. Because if you think about it, we have 250 plus stores, but we only have a little over a 100 places where we produce cars. We're seeing the benefits across the board. And it's so early on the reconditioning side. You know, we just opened up a couple more large recon centers. We are seeing some improvements there, but that's more towards the logistics because we're having to ship cars from, you know, less out of market and being able to put them right there in the market. They're not they're not I think we've got one that's probably fully ramped to capacity. I would expect to continue to get synergies outside of those, but you know, we're getting synergies across the board when you think about the reconditioning, and I would expect to continue to do that as we go forward. Did I miss anything? Okay. Oh, yeah. I did. I did. You asked about the six ten-year-old cars. Yeah. I yeah. The ten-year-old cars. I mean, hey, know, historically, we've talked about older cars. You bring them up to CarMax. Standard. They're generally a little bit of a unicorn. They will get a little bit more margin there. You're able to make a little bit more margin on those vehicles. So that's fair. Jeff Lick: Great. Well, nice progress there. Bill Nash: Thank you, Jeff. Jeff Lick: Thank you. Operator: We don't have any further questions at this time. I will hand the call back to Bill for any closing remarks. Bill Nash: Great. Thank you. Well, listen, thank you all for joining the call today and for your continued questions and your support and as always, I just want to thank our associates for everything that they do. And how they take care of each other and our customers. We will talk again next quarter. Thank you. Operator: Thank you. Ladies and gentlemen, that concludes our first quarter fiscal year 2026 CarMax, Inc. earnings release conference call. You may now disconnect.
Operator: Greetings, and welcome to Rent the Runway's Q4 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cara Schembri, Chief Legal and Administrative Officer. Thank you. You may begin. Cara Schembri: Hello, everyone, and thanks for joining us today. During this call, we will make references to our Q4 fiscal year 2025 earnings presentation, which can be found in the Events and Presentations section of our Investor Relations website. Before we begin, we would like to remind you that this call will include forward-looking statements. These statements include guidance and underlying assumptions for the first quarter and fiscal year 2026 and statements regarding our 2026 business plans and initiatives and financial position. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially. These risks, uncertainties and assumptions are detailed in today's press release as well as our filings with the SEC, including our Form 10-K that we plan to file shortly. We have no obligation to update any forward-looking statements or information, except as required by law. During this call, we will also refer to certain non-GAAP financial information. This presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in our press release, slide presentation on our investor website and in our SEC filings. And with that, I'll turn it over to Jen. Jennifer Hyman: Thanks, Cara, and thank you, everyone, for joining today. One year ago, we announced that we were making our biggest inventory investment in Rent the Runway history to drive growth. We made a calculated bet based on over 15 years of data and experience that increasing our inventory investment was the strongest lever to unlock customer growth. Today, I am proud to report that this strategy has been successful. In fiscal year 2025, we grew our active subscriber base by 20%, ending the year with 144,000 subscribers. Our goal -- our growth was primarily a result of our inventory strategy and a return to customer obsession throughout the company, marked by a year of continuous transformation of our customer experiences and marketing to make Rent the Runway easier to use, more personalized and more centered around our community. Our customers have responded with record levels of enthusiasm. Our subscription Net Promoter Score grew 39% versus last year and has more than tripled since 2022. We also improved the health of the Rent the Runway model by completing a strategic recapitalization that reduced our total debt from approximately $319 million to $120 million, strengthening our balance sheet and adding investors around the table who are focused on equity value creation. We believe that the data is clear. More choice leads to higher customer loyalty. Inventory-related cancellations dropped 7.6% year-over-year in Q4, and our engagement metrics from app visits to hearts per subscriber have accelerated throughout the year. Today, our average subscriber visits our app 15 times per month, an almost 50% increase over 2024 levels. As we enter fiscal year 2026, we remain committed to our inventory focused strategy and are continuing to make large investments in inventory, but are taking it to the next level. If 2025 was about inventory acquisition, 2026 is about discovery. We are working to move beyond the traditional e-commerce grid and leveraging AI technology to deliver the closet of her dreams with more choice and flexibility than ever before. We are also embarking on a new set of revenue-generating strategies to expand the services we bring to our customers and brand partners, including piloting an online marketplace, launching B2B dry cleaning services, expanding our advertising revenue program and more. First, I want to take you through our 2026 inventory plan, which is built on three pillars. One, opportunistic procurement. In a tumultuous retail environment, premium brands are seeking immediate liquidation of inventory. We see a rare opportunity for Rent the Runway to access high-cost categories and elevated brands at attractive economics. Two, exclusive design momentum. Building on the success of 2025, we are expanding our exclusive design partnerships. These collections are designed to provide our customers with brands they demand at roughly 40% lower cost on average; three, revenue share growth. We also expect a significant increase in the number of brands and the overall percentage of inventory in our Share by RTR program, which allows us to scale inventory with lower upfront costs. To maximize the value of this inventory, we aim to revolutionize the way our customers explore it, reimagining the front-end experience through AI-driven enhancement. Over the next few quarters, we are planning a series of innovative launches designed to improve the customer experience. One, via outfit groupings. Traditional e-commerce often makes you search for one unit at a time in a sea of endless grid pages, which can exhaust the user and drive online conversion to be lower than off-line conversion in retail. We're working to transform our experience to help our customers discover complete looks and curated aesthetics. Our customer will no longer have to do the work of imagining what combination of items they should rent together or how one would wear a specific item to make it more dressy, more casual, appropriate for the office or vacation ready. Think of this as having a stylist in your pocket at all time. Two, via a robust PDP. We are also transforming the product detail pages from a traditional landing page into a living experience. This includes adding more visual versatility, seeing items on different models and sizes, images and motions and AI-driven styling and fit advice so customers feel like renting the item is less of a risk for them. And, three, via conversational search, improving use case search functionality. Ultimately, our vision is a state-of-the-art conversational agent that allows her to search for what to wear to a destination wedding in Italy rather than just moral dress. While our customer-facing AI investments prioritize discovery, we are also focused on leveraging machine learning to improve our back-end operations, which we expect to drive team productivity and margin efficiencies. Via one, quality control. We are integrating AI technology into our quality control processes, which is intended to optimize quality and cost in our operations. By utilizing computer vision to identify wear and tear, we believe we can better salvage inventory, ensuring more units remain in peak rotation for longer while reducing manual labor costs. Two, via dynamic pricing. We also plan to leverage machine learning to move toward even more efficient dynamic pricing, which we expect to better maximize the yield of the units in our ecosystem. And three, via team productivity. We are also infusing AI into how we work. For example, we are utilizing AI-assisted coding to increase the velocity of our technical team. We expect that this will enable us to ship more product updates and new features like our recent back in-stock notifications faster and more efficiently. Alongside our technical evolution, our goal is to drive growth in fiscal year 2026 through bold authenticity. The paradigm for brand expansion has shifted. While acquisition via paid ads was once the primary lever, we believe that today's consumers demand more genuine connection. In 2025, we successfully piloted an expansion of our organic community-led channels. Our Muse Program, a community-generated content engine, surpassed 13 million impressions in Q4 alone, while our City Ambassador Program that we launched in October 2025 has scaled rapidly to over 1,000 on the ground evangelists. In full year -- fiscal year 2026, we are reallocating a significant portion of our paid marketing budget to further scale this word-of-mouth engine. Furthermore, we're leaning into answer engine optimization and SEO strategies designed to ensure Rent the Runway is the top destination for discovery online. By optimizing for how the next generation discovers fashion on TikTok, Instagram and AI search interfaces, we want Rent the Runway to be the premier destination for fashion. Membership flexibility and revenue optimization. We will also aim to drive higher revenue per customer in 2026 by expanding membership flexibility. In fiscal year 2025, we saw significant success with our subscription add-on business, which accelerated throughout the year, driven by the launch of back-in-stock notifications in Q1, followed by add-on pricing transparency and instant gratification one-off shipments in Q3. In Q4 2025, our add-on revenue was up 67% versus the prior year. In 2026, we plan to build on this traction by scaling our resale and reserve businesses for our customers through smarter pricing and discounting. Our customer wants more from Rent the Runway, and our goal is to give her the freedom to get exactly what she wants precisely when she wants it. Lastly, this year, we are aggressively pursuing revenue diversification by leveraging our existing infrastructure and high-value customer base to build a more robust ecosystem. In March, we launched a pilot of our Rent the Runway marketplace with a small subset of our most loyal subscribers. The marketplace is designed to fill the gap that exists in our customers wardrobe between her rental assortment and the total look she desires by providing a highly curated assortment of shoes, shapewear, basics, beauty products and more available for purchase. The goal is to increase the attach rate of orders by providing the wardrobe essentials that complete her rental book. Our research shows the demand. 86% of members surveyed are interested in purchasing these complementary items from us. Beyond the closet, we are also focused on scaling our advertising and media business, which we expect to grow significantly this year. While we've tested various iterations of what our media business could look like in prior years, we've seen success with 360-degree brand partnerships, connecting our customers with significant brand partners like Air France, who recognize the value of our highly engaged, high net worth customer who's often at a pivotal life moment where she is making meaningful financial and lifestyle decisions. Finally, we are taking steps to monetize our best-in-class logistics infrastructure through initiatives like B2B dry cleaning services, which we launched with one partner in March. While these initiatives are all still in early stages, we aim to lay the groundwork to realize meaningful revenue and margin expansion over the coming months and years with this diversification. In short, we are not sitting still, we are actively working to build a durable multifaceted platform that defines the future of fashion consumption. To conclude, I firmly believe that Rent the Runway is in the strongest position in years, operating from a foundation of financial stability and renewed growth. As we look forward to fiscal year 2026, we are committed to staying at the forefront of the modern consumer experience with a laser focus on defining the next era of fashion discovery by leveraging AI technology, doubling down on authenticity through our community and providing unrivaled flexibility for our customers. With that, I'll hand it over to Sid. Siddharth Thacker: Thanks, Jen, and thank you, everyone, for joining us. I believe that fiscal year 2025 marked an important turning point for Rent the Runway. As Jen mentioned earlier, we accomplished a return to strong ending active subscriber and revenue growth by Q4 and significantly improved our balance sheet. Further, we believe we've set a solid foundation for future growth by adding almost double the new receipts in fiscal year 2025 compared to fiscal year 2024. Units with inventory per subscriber grew over the course of the year, and we expect that our subscribers will continue to feel the benefits of this inventory investment in the years to come. Fiscal year 2025 also provides a playbook for future growth that we intend to execute on in fiscal year 2026 and beyond through a combination of product and inventory-driven initiatives. I'd like to take a moment to discuss free cash flow for fiscal year 2025 and why we believe we will see improving trends in fiscal year 2026. The accomplishments described above were accompanied by higher cash consumption with free cash flow declining to negative $46 million in fiscal year 2025 from negative $7.2 million in fiscal year 2024. The primary reason for this decline is our decision to front-load inventory investments in fiscal year 2025 to more rapidly improve the customer experience and ignite growth. We typically monetize our inventory over several years, and I'm pleased with the results of the additional investments we have seen so far. As a reminder, subscriber growth is highly free cash flow accretive in the years after a subscriber is acquired, given we only need to replace inventory that is lost, damaged or sold to a subscriber in subsequent years. The replacement cost of that inventory is typically a fraction of the initial investment in inventory we need to make for growth. We expect to make good underlying progress on both growth and free cash flow in fiscal year 2026. Given the step change in inventory purchases in fiscal year 2025, we don't anticipate significant increases in new inventory receipts in fiscal year 2026. Despite this, we believe that the combination of a large inventory buy in fiscal year '25 and our fiscal year '26 purchases will result in continued improvement in the inventory experience of subscribers in fiscal year 2026. While we do expect higher revenue share payments in fiscal year 2026 as the base of revenue share inventory increases, we expect significantly lower capital expenditures for rental products. This, combined with a higher subscriber base and the remaining impact of our August 2025 price increase is expected to result in improved free cash flow in fiscal year 2026 as outlined by our adjusted EBITDA and rental product acquired guidance. In summary, we feel good about our accomplishments in fiscal year 2025 and look forward to continued progress this fiscal year. Let me now review results for the fourth quarter before turning to Q1 and full year 2026 guidance. We ended Q4 '25 with 143,796 ending active subscribers, up 20.1% year-over-year. Average active subscribers during the quarter were 146,356 subscribers versus 126,148 subscribers in the prior year, an increase of 16% year-over-year. Subscriber growth was driven primarily by a higher base of active subscribers at the end of Q3 '25 versus the same period in fiscal 2024, higher subscriber acquisitions due to higher marketing and promotional activity and improved subscriber retention versus Q4 '24. Ending active subscribers decreased 3.4% from 148,916 subscribers in Q3 '25, primarily due to seasonal factors. Total revenue for the quarter was $91.7 million, up $15.3 million or 20% year-over-year and up $4.1 million or 4.7% quarter-over-quarter. Subscription and reserve rental revenue was up $13.2 million or 20.4% year-over-year in Q4 '25, primarily due to higher average subscribers and higher average revenue per subscriber due to the subscription price increase effective August 1, partially offset by lower reserve revenue versus Q4 '24. Other revenue increased $2.1 million or 17.8% year-over-year. Fulfillment costs were $21.6 million in Q4 '25 versus $20.2 million in Q4 '24 and $24 million in Q3 '25. Fulfillment costs as a percentage of revenue was 23.6% of revenue in Q4 '25 compared to 26.4% of revenue in Q4 '24. Fulfillment costs declined as a percentage of revenue primarily due to higher revenue per order driven by our August price increase, partially offset by higher transportation costs as a result of carrier rate increases and higher warehouse processing costs. Gross margins were 38.6% in Q4 '25 versus 37.7% in Q4 '24. Q4 '25 gross margins reflect lower fulfillment and rental product depreciation and write-off costs as a percentage of revenue, partially offset by higher revenue share costs as a percentage of revenue due to greater Share by RTR inventory levels. Q4 '25 gross margins increased quarter-over-quarter from 29.6% in Q3 '25, primarily due to lower fixed revenue share costs as a percentage of revenue due to seasonally lower receipt of Share by RTR inventory, the impact of higher revenue per order and fulfillment expenses as a percentage of revenue and the impact of a full quarter of the price increase implemented last quarter. Q4 '25 operating expenses were 3.6% higher year-over-year due primarily to higher technology expenses. Total operating expenses, which include technology, marketing and G&A were 37.9% of revenue in Q4 '25 versus 44% of revenue in Q4 '24 and 45.1% of revenue in Q3 '25. Adjusted EBITDA for Q4 '25 was $18.3 million or 20% of revenue versus $17.4 million or 22.8% of revenue in Q4 '24. Note that adjusted EBITDA margins for Q4 '25 were positively impacted by 2.1% due to the reversal of incentive compensation accruals during the quarter. The decrease in adjusted EBITDA as a percentage of revenue versus the prior year is primarily a result of higher revenue share expenses as a percentage of revenue due to greater Share by RTR inventory levels, partially offset by lower operating expenses as a percentage of revenue and lower fulfillment costs as a percentage of revenue. Free cash flow for Q4 '25 was $0.5 million versus $2.1 million in Q4 '24. Free cash flow decreased versus the prior year, primarily due to higher purchases of rental products on account of our inventory strategy for fiscal year 2025. Free cash flow for fiscal year 2025 was negative $46 million compared to negative $7.2 million in fiscal year 2024 on account of the significant investment in inventory to improve customer experience and drive revenue growth. I will now discuss guidance for Q1 2026 and fiscal year 2026. For Q1, we expect revenue to be between $85 million and $87 million, representing growth of between 22% and 25% versus Q1 '25. The sequential decline in revenue from $91.7 million in Q4 '25 is primarily expected to be driven by lower resale revenue in Q1 '26 versus Q4 '25. Note that this sequential decline in retail revenue is consistent with prior years and reflects higher sales of inventory during the holiday season. We expect Q1 '26 adjusted EBITDA margins to be between negative 5% and negative 7% of revenue compared to negative 1.9% of revenue in Q1 '25. The decline in adjusted EBITDA margins year-over-year despite higher revenue and the impact of our August '25 -- August price increase primarily reflects significantly higher revenue share expenses. Fixed revenue share payments are expected to be higher in Q1 '26 due to a much larger proportion of inventory receipts from our revenue share channel versus Q1 '25. We also expect higher variable revenue share expenses due to the higher base of revenue share inventory acquired throughout fiscal year 2025. For fiscal year 2026, we expect double-digit growth in revenue versus fiscal year 2025. I wanted to point out a few factors to keep in mind when thinking about revenue growth this year. First, revenue growth beginning in Q3 '25 was positively impacted by the price increase enacted in August of 2025. As a result, we expect stronger year-over-year revenue growth in the first half of fiscal 2026 compared to the second half when we begin to face comparisons against prior periods that already have the impact of the price increase. Second, ending active subscriber growth in Q4 '25 of 20.1% versus Q4 '24 was influenced in part by the significant decline in active subscribers towards the end of fiscal year 2024 on account of reductions in marketing spending. We expect to see a deceleration in year-over-year ending active subscriber growth versus the 20.1% growth seen in Q4 '25 in subsequent quarters as we compare against periods with more robust subscriber additions in fiscal year 2025. Regardless, we feel good about the underlying progress of the business and expect, as mentioned earlier, double-digit revenue growth for the full year. For fiscal year 2026, we expect adjusted EBITDA to be between 4% and 7% of revenue compared to 7.5% of revenue in fiscal year 2025. We expect full year 2026 adjusted EBITDA as a percentage of revenue to be negatively impacted by a significantly higher mix of revenue share units as a percentage of the new buy versus fiscal year 2025. This, combined with higher revenue share units received throughout fiscal year 2025 will result in higher revenue share expenses as a percentage of revenue in fiscal year 2026 versus fiscal year 2025. As outlined in our press release, we expect rental products acquired in fiscal year 2026 to be between $45 million and $50 million compared to $74.9 million in fiscal year 2025, a decline of approximately $25 million to $30 million year-over-year. It is important to think about adjusted EBITDA margins in conjunction with our guidance for rental products acquired through our non-revenue share channels when thinking about the cash impact of our adjusted EBITDA margin guidance for the fiscal year. As you know, revenue share payments are expensed and affect adjusted EBITDA, whereas payments for non-revenue share inventory are reflected as capital expenditures and don't affect adjusted EBITDA. As our inventory mix continues to shift towards revenue share, our guidance for adjusted EBITDA margins and rental products acquired should be considered together to understand the impact on cash. We feel good about the underlying progress on cash consumption in fiscal year 2026 versus fiscal year 2025. Finally, I would emphasize that the macroeconomic and geopolitical environment remains highly uncertain with potential impacts on transportation costs, fuel surcharges and consumer confidence. Our guidance is based on current conditions and assumptions, and does not contemplate material deterioration or volatility in these factors. Accordingly, actual results may differ materially if such conditions change. In conclusion, we're pleased with the improved growth momentum we have seen. I echo Jen's conviction that Rent the Runway is in the strongest position it has been in several years. We look forward to continuing to delight our customers and to driving sustainable growth along with improving free cash flow in the years ahead. Thank you, everyone, for joining us. We look forward to speaking to you next quarter. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Welcome and thank you for joining the Wells Fargo & Company First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to withdraw your question, press 2. Please note that today's call is being recorded. I would now like to turn the call over to John Campbell, Director of Investor Relations. You may begin. John Campbell: Good morning. Thank you for joining our call today where our CEO, Charles Scharf, and our CFO, Michael Santomassimo, will discuss first quarter results and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our first quarter earnings materials, including the release, financial supplement, and presentation deck, are available on our website at wellsfargo.com. I would also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-Ks filed today containing our earnings materials. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filings and the earnings materials available on our website. I will now turn the call over to Charles Scharf. Charles Scharf: Thanks, John. I am going to provide some brief comments about our results and update you on our priorities. I will then turn the call over to Michael Santomassimo to review first quarter results in more detail before we take your questions. Let me start with our first quarter financial highlights. We saw continued positive impacts from the investments we have been making with diluted earnings per share increasing 15%, revenue increasing 6%, loans growing 11%, and deposits up 7% compared to a year ago. Revenue growth was driven by a 5% increase in net interest income and an 8% increase in noninterest income. Our consistent focus on investing across all of our businesses helped contribute to broad-based revenue growth with each of our operating segments increasing revenue from a year ago. Consumer Banking and Lending revenue grew 7% and Commercial Banking revenue grew 7% as well. Within our Corporate and Investment Bank, we saw an 11% increase in banking revenue and a 19% increase in markets revenue. Wealth and Investment Management grew 14%. While expenses increased, driven by higher revenue-related expenses, we remain focused on expense discipline. At the same time, we are increasing our investments in areas like technology, including AI, as well as in advertising, while continuing to execute on our efficiency initiatives which has resulted in 23 consecutive quarters of headcount reductions. With revenue growing faster than expenses, pre-tax, pre-provision profit grew 14% from a year ago. Credit performance remained strong, and our net charge-off ratio was stable from a year ago at 45 basis points. Given that nonbank financial lending has generated a lot of interest lately, Michael will do a deep dive into that portfolio later in the call. But I will say we like the risk-return profile of the portfolio, given our deep understanding of the collateral, the diversification across both clients and asset types, and structural protections in place. And finally, we returned 5.4 billion dollars to shareholders in the first quarter, including 4 billion dollars in common stock repurchases, while continuing to operate with significant excess capital. Turning to the progress we made during the quarter on our strategic priorities. Last month, we closed our final outstanding consent order, bringing the total to 14 terminated since 2019. We are incredibly proud of the hard work and unwavering commitment that was required to reach this milestone and understand the importance of sustaining our risk and control culture. With this work behind us, we are now focusing more fully on accelerating growth and improving returns. We are seeing momentum across many business drivers, which we highlight on Slide 2 of our presentation deck. Let me share some of them starting with our consumer franchise. In the first quarter, we launched two new travel-focused reward credit cards available exclusively to new and existing Premier and Private Wealth clients. Over the past five years, continued enhancements to our credit card offerings have driven higher purchase volume and loan balances, which were both up from a year ago. New account growth remains strong, increasing nearly 60% from a year ago, driven by higher digital and branch-based openings. We also had continued strong growth in our auto business. Originations more than doubled from a year ago, benefiting from being the preferred financing provider for Volkswagen and Audi vehicles in the United States as well as our methodical return to broad-spectrum lending. Importantly, credit performance has remained strong and in line with our expectations. We have continued to invest in marketing to help drive new primary checking accounts, and consumer checking account openings increased over 15% from a year ago. While this momentum is encouraging, we are not yet growing accounts at the pace we expect to over time. As customer expectations evolve, we continue to modernize our digital offering, complementing our in-person service with seamless mobile experiences. The momentum continued in the first quarter, as mobile active users surpassed 33 million, Zelle transactions increased 14% from a year ago, and Fargo, our AI-powered virtual assistant, reached over 1 billion customer interactions less than three years since its launch. We had continued momentum in our Wealth and Investment Management business, with client assets growing 11% from a year ago to 2.2 trillion dollars. Company-wide net asset flows accelerated in the quarter, reaching their highest level in over ten years. Turning to our commercial businesses. In Commercial Banking, we continue to hire coverage bankers to drive growth, and we are seeing the early signs of success with higher new client acquisition as well as loan and deposit growth. Average loans and deposits both grew by approximately 5 billion dollars in the first quarter, demonstrating accelerating momentum. We are also continuing to grow our Banking and Markets capabilities while not significantly changing the risk profile of the company. We continue to invest in senior talent to improve client coverage and broaden our product capabilities in investment banking. These investments helped drive 13% revenue growth from a year ago. While market conditions can change, the outlook for investment banking remains strong, and we entered the second quarter with a strong pipeline driven by M&A and equity capital markets. We continue to grow our Markets business amid a mixed and volatile trading environment, with revenue up 19% from a year ago. Client sentiment is cautious but engaged as macro and geopolitical uncertainty has increased, and clients have largely shifted to a more selective and defensive posture. Finally, we completed the sale of our railcar leasing business at the beginning of the quarter. We have now substantially completed our efforts to refocus and simplify the company by exiting or selling 12 businesses since 2019. Let me now turn to the future. I want to start by highlighting what we are watching in the economic data. The U.S. labor market continues to cool in an orderly but uneven fashion, with few signs of systemic stress. Layoff activity remains contained. Weekly jobless claims reinforce this picture and are not signaling labor stress. The unemployment rate dipped to 4.3% in March, but this continues to reflect slower rehiring and longer job searches, not renewed labor market strain. Despite slowing employment momentum, U.S. economic growth has held up. The U.S. consumer remains resilient in the aggregate but increasingly bifurcated beneath the surface. Spending has held up into early 2026 despite slower job growth, supported by higher-income households, steady wage growth for incumbent workers, and continued access to credit. However, confidence indicators and underlying balance sheet trends point to rising stress for less affluent consumers. Upper-income consumers continue to benefit from elevated equity prices, home equity, and cash buffers accumulated earlier in the cycle, allowing discretionary spending to remain firm. By contrast, lower-income households are more exposed to higher interest rates and energy prices. Financial markets have absorbed these crosscurrents with resilience, but we expect continued volatility driven by geopolitical headlines and outcomes as well as the unfolding impact of higher commodities prices. Turning to what we are seeing from our customers. The financial health of consumers and businesses remains strong. Consumers are spending more than a year ago, which includes spending more on gas, but they have not slowed spending on everything else. Gas represented 6% of our total debit card spend and 4% of our total credit card spend before the rise in oil prices. They now represent 75% of debit and credit card spend. Note that these numbers are higher for low-income households. We have seen historically that it often takes consumers several months to reduce their spend levels on other categories to adjust for higher oil prices. And while we do not know the exact timing, we would expect to see the same in the second half of the year. We also expect that higher energy prices will impact other goods and services. The duration and severity will be driven by the level and duration of higher oil prices. The ultimate impact on credit performance is not yet clear due to the uncertainties I just mentioned, but the strength across our consumer portfolios, including lower charge-offs and improved early-stage delinquencies in our auto and credit card portfolios from a year ago, provide time for consumers to adjust their behaviors. Having said that, at this point, it is likely there will be some economic impact based on what has already occurred, but there are both risks and potential mitigants, so it is hard to predict the ultimate impact. Middle market and large corporate clients are in a similar position. They have been resilient, and balance sheets are strong, but they tell us they are approaching the remainder of the year cautiously. As we grow our balance sheet, we are cognizant there are risks that we do not yet see in our data and will respond accordingly. Putting all of this together, it is likely energy prices will have some impact on the economy, but we feel good about where our customers and our company stand today. We have managed credit well over many cycles and are well-positioned to support our customers and navigate a variety of economic scenarios. Turning to the recently proposed capital rules. We appreciate that the work our regulators have been doing is based on analysis, interagency coordination, public comment, and a focus on reforms that unlock economic potential. Importantly, the proposals are designed to maintain a strong and resilient banking system that allows the industry to support the flow of credit and help grow the broader economy. We continue to work through the details, but view the proposals as a constructive step in supporting our role in serving households and businesses. If the proposals do not change, and based on our current balance sheet composition, we estimate that under the new rules, our risk-weighted assets could decrease by approximately 7%. Regarding the G-SIB surcharge, under the current proposal, we expect to remain around 1.5% for the foreseeable future even as we continue to grow. In closing, we delivered solid financial results in the first quarter that were consistent with our expectations. We have clear plans in place and are focused on driving continued organic growth and increasing returns across the franchise using our broad set of capabilities. We are executing our plans, and I am encouraged by the momentum we have built and continue to have confidence that we can continue to deliver stronger results in all of our businesses. I will now turn the call over to Michael. Michael Santomassimo: Thank you, Charlie, and good morning, everyone. Since Charlie covered the key drivers of our improved financial results and the momentum we are seeing across our businesses on Slide 2, I will start my comments on Slide 3. Our first quarter results included 135 million dollars, or 0.04 dollars per share, of discrete tax benefits related to the resolution of prior period matters. Income taxes also benefited from the annual vesting of stock-based compensation, and the amount of the benefit in the first quarter was similar to the amount in the first quarter of last year. Turning to Slide 5. Net interest income increased [inaudible] or 5% from a year ago and decreased 235 million dollars, or 2%, from the fourth quarter. Most of the decline from the fourth quarter was driven by two fewer days in the first quarter. The reduction also reflected the full-quarter impact of the rate cuts in the fourth quarter of last year on our floating-rate loans and securities. This decline was partially offset by higher markets net interest income, higher loan and deposit balances, as well as continued fixed asset repricing. I also wanted to explain the 13 basis point decline in net interest margin from the fourth quarter. As expected, the largest driver of the decline was the growth in the balance sheet in the Markets business. As we have highlighted in the past, while the majority of these assets are lower ROA, they also have lower risk and are less capital intensive. Our ability to support this client activity should lead to more business. Second is the growth in interest-bearing deposits and other short-term borrowings. And lastly, the impact of lower interest rates. When we provided our full-year guidance last quarter, we anticipated some margin contraction for these reasons, and I would expect additional margin compression next quarter. I will update you on our full-year net interest income expectations later on the call. Moving to Slide 6. We had strong loan growth with both average and period-end loans increasing from the fourth quarter and from a year ago. Period-end loan balances grew 11% from a year ago and exceeded 1 trillion dollars for the first time since 2020. Average loans increased 87.8 billion dollars, or 10%, from a year ago, driven by growth in commercial and industrial loans as well as growth across our consumer portfolios, except for residential mortgage. Turning to Slide 7. Last quarter, we provided more detail on our financials except banks loan portfolio. Today, I want to build on that by giving you an even deeper look into the portfolio's composition and risk profile. I will be anchoring my comments on how these loans are reported in our 10-Qs and 10-K, which we think is a better way to understand our portfolio. We also report loans to nondepository financial institutions in our call reports. Since we often get questions on how these disclosures differ, we have included a reconciliation in our appendix to illustrate the differences. At the end of the first quarter, financials except banks loans totaled approximately 210 billion dollars, or 21% of our total loan portfolio. While our financials except banks category is large and has been growing, it is comprised of many different types of lending and collateral. We have been making these types of loans for many years, and we typically have broader relationships with these institutional clients. As with any loan portfolio, there are inherent risks, but we are comfortable with our exposure based on the profile of borrowers, the diversity of collateral, our historical loss experience, and our underwriting practices and lending structures. The lending structures and overall risk management are run by specialist groups with expertise in assessing and structurally mitigating the risks associated with these types of customers, products, and collateral. Our underwriting reflects the specific risk profiles of the counterparty, as well as our assessment of the collateral. These loans are generally secured with advance rates that provide significant margins of protection against expected losses during periods of stress. From a year ago and increased two basis points from the fourth quarter. Commercial credit continues to perform well, and we are not seeing signs of systemic weakness. Commercial net loan charge-offs increased modestly from the fourth quarter to 24 basis points of average loans. Lower commercial real estate losses were offset by higher losses in our commercial and industrial portfolio, driven by a single fraud-related loss in the real estate finance category in the financials except banks portfolio. After this issue emerged, we reviewed the portfolio and believe this was an isolated incident. Consumer net loan charge-offs increased modestly from the fourth quarter to 78 basis points of average loans, reflecting seasonally higher credit card losses. Compared to a year ago, consumer net loan charge-offs declined eight basis points with improvements across our consumer portfolios as well as continued net recoveries in our residential mortgage portfolio. As Charlie highlighted, consumers remain resilient. We continue to closely monitor our portfolios for signs of weakness but have not observed recent deterioration or meaningful shifts in trends. Nonperforming assets as a percentage of total loans were stable with the fourth quarter and declined modestly from a year ago. A modest increase in our allowance for credit losses for loans was driven by higher commercial and industrial and auto loan balances, largely offset by lower allowance for commercial real estate office and credit card loans. As we highlighted last quarter, if loan growth remains strong, all else equal, we will have to continue to add to the allowance to support higher loan balances. Turning to capital and liquidity on Slide 15. Our capital levels remain strong with our CET1 ratio of 10.3%, within our stated 10% to 10.5% target range, and well above our CET1 regulatory minimum plus buffers of 8%. We repurchased 4 billion dollars of common stock in the fourth quarter, and common shares outstanding were down 6% from a year ago. We continue to have excess capital to support clients and to repurchase shares. Moving to our operating segments, starting with Consumer Banking and Lending on Slide 16. Of note, to better align branch-based activities, the financials associated with Wells Fargo Premier clients that primarily receive wealth management and financial planning services in our consumer bank branches are now included in Consumer, Small, and Business Banking results instead of Wealth and Investment Management. Prior period results have been revised to reflect this change. Consumer, Small, and Business Banking revenue increased 9% from a year ago driven by lower deposit pricing, higher deposit and loan balances, as well as growth in noninterest income. Credit card revenue grew 5% from a year ago due to the higher loan balance driven by higher purchase volume and new account growth. Home Lending revenue declined 9% from a year ago. Third-party mortgage loans serviced for others was down 18% from a year ago as we continue to reduce the size of our servicing business. While originations increased from a year ago, loan balances have continued to decline. The rate of reduction has slowed and should continue to moderate throughout the rest of the year. Auto revenue increased 24% from a year ago due to higher loan balances, and auto originations more than doubled from a year ago. Turning to Commercial Banking results on Slide 17. Revenue increased 7% from a year ago, driven by higher revenue from tax credit investments and equity investments. Loans grew 4% from a year ago with broad-based growth from new and existing customers. As a reminder, the growth rate was impacted by the business customers that were transferred to Consumer Banking and Lending in the third quarter of last year. Absent this impact, the growth rate would have been 7%. Turning to Corporate and Investment Banking on Slide 18. Banking revenue increased 11% from a year ago, driven by higher loan and deposit balances and growth in investment banking revenue. Commercial Real Estate revenue declined 21% from a year ago, reflecting the gain from the sale of our commercial mortgage servicing business included in our results last year. Markets revenue grew 19% from a year ago, driven by higher revenue across most asset classes, reflecting disciplined balance sheet usage, supportive market conditions, and higher customer activity. Average loans grew 23% from a year ago with strong growth in Markets and Banking. On Slide 19, Wealth and Investment Management revenue increased 14% from a year ago, driven by growth in asset-based fees from increased market valuations as well as higher net interest income due to lower deposit pricing and growth in deposit and loan balances. As a reminder, the majority of WIM advisory assets are priced at the beginning of the quarter, so second quarter results will reflect market valuations as of April 1, which were down from January 1 but up from a year ago. Turning to our 2026 outlook on Slide 21. So far, our net interest income for 2026 is largely playing out as expected. We are retaining our guidance of 50 billion dollars, plus or minus, of net interest income this year. As I pointed out earlier, we had strong customer engagement in the first quarter with growth in both loans and deposits as we continue to transition back to growth, which we have supported with investments in marketing and bankers. In addition, similar to last year, we expect net interest income to grow over the course of the year, including Markets. Looking at the key drivers of NII, starting with loans, our outlook was based on average loan growth of mid-single digits from fourth quarter 2025 to fourth quarter 2026. Average loans grew 4% in the first quarter from the beginning of the year, and if demand remains strong, average loan growth could be higher than the mid-single-digit increase we had previously assumed. We have also grown deposits, and as we said when we provided our outlook last quarter, much of the growth was from interest-bearing deposits, particularly in our commercial businesses. As a reminder, when the asset cap was in place, these deposits were limited, and now that it has been lifted, we are successfully growing these deposits. While they are higher cost, they are important to our strategy of deepening relationships with our clients. We expect this trend to continue throughout the year. We have also successfully grown interest-bearing deposits in our consumer businesses, while we are enhancing marketing and increasing activity in the branches to drive stronger, low-cost checking account growth. Balances in these accounts are smaller than commercial balances and can take longer to grow. If interest rates stay higher for longer, we will have to monitor deposit mix trends to see if there is any impact on noninterest-bearing deposits, which could put some pressure on net interest income, excluding Markets. In terms of interest rates, our outlook assumed two to three cuts by the Federal Reserve. The market currently expects fewer cuts, which, all else being equal, is positive for NII excluding Markets. However, interest rate expectations are constantly changing. The rate cuts we assumed were expected to occur later in the year, so if we get fewer cuts, it would be beneficial but would only have a modest impact on this year's net interest expectations. Also, longer-term rates are currently a little above the expectations at the beginning of the year but have been volatile year to date, so that could be a small positive if rates remain elevated. In terms of Markets NII, as we all know, it is always hard to forecast but even harder in a dynamic macroeconomic environment like the one we are in now. Higher rates could result in lower Markets NII from what we expected at the beginning of the year, but as of now, our expectation of approximately 2 billion dollars in 2026 seems appropriate. Regarding our expense outlook, first quarter expenses were in line with our expectations, and therefore, our guidance has not changed, and we still expect 2026 noninterest expense to be approximately 55.7 billion dollars. In summary, our improved first quarter financial results reflect the continued momentum across the company. We delivered broad-based revenue growth with increases in both net interest income and noninterest income from a year ago. We maintained strong credit discipline, grew loans and deposits, returned capital to shareholders, and maintained our strong capital position. I am encouraged by the growth we are seeing across key business drivers in both our commercial and consumer businesses and excited to continue building on this momentum to deliver even better results going forward. We will now take your questions. Operator: At this time, we will begin the question and answer session. If you would like to ask a question, please first unmute your line and then press star 1. Please record your name at the prompt. If you would like to withdraw your question, you may press star 2 to remove yourself from the question queue. Once again, press star 1 and record your name if you would like to ask a question at this time. We will now open the call for questions. Our first question will come from John McDonald of Truist Securities. Your line is open. John McDonald: Hi, thanks. Good morning. Mike, I was hoping you could give a little more color on the estimated impact of the new regulatory proposals. I think you said your initial estimate is a 7% decline in RWA. Could you give us a sense of the breakdown there between credit risk RWAs and what is driving any potential improvement there, as well as your initial take on op risk and market risk? Michael Santomassimo: Sure, John. Thanks for the question. If you just take the big broad categories, market risk is not a big driver. It is not moving much for us in the proposal, so it is kind of flattish. Op risk is going to go up for sure, but much less than we thought from the original proposal. The big decline is on credit risk, and that is given the nature of our portfolio. The biggest driver in the credit risk portfolio is getting the benefit for investment-grade credits, both public and nonpublic investment-grade credits. That is going to be the biggest driver in the commercial loan space. Then you do get a significant benefit on the mortgage portfolio and to a lesser degree on auto and a couple other portfolios. That is how you get to about a 7% decline overall. Obviously, you did not ask about it, but also on G-SIB, it feels like we will be around where we are, plus or minus a little bit depending on how the proposal plays out for a period of time, given the recalibration that was done there. So net-net overall, very constructive for us, and it seems like it is heading in the right direction and allows us to continue to do really smart things to support clients across all of the portfolios. John McDonald: Okay. Thanks. And then on a related note, the outlook for ongoing NIM compression presumably continues to weigh a bit on ROA. So kind of wondering how does that interact with your goal of improving the ROTCE towards your medium-term goal? And do you expect to be able to lower the TCE because of these possible changes and the mix in your balance sheet? Michael Santomassimo: There is a lot in there, so let me try to unpick some of it. As we came out of the period when the asset cap was in place, we knew that the place we were going to see the growth first is in repo, for the vast majority of it Treasury repo, and then there are other aspects to it. It is low ROA, low risk, good returns, and it then allows us to do much more with those clients as we provide them what they think of as valuable financing capacity. I think as we go through this period, you are going to see ROA come down. As that stabilizes and matures and we get a little further into this growth period, that will start to moderate and you will start to see it either stabilize or start to grow as we start to add in the other business activity that we expect to see. It should not be dilutive to our TCE. We are starting to see some of the onboarding come to a conclusion. Some are in process. Some of the clients that are going to do more with us as a result of the financing take time to ramp up. They do testing with you, and we are starting to see that come through, whether it is prime, other trading that they do with us, and across a number of the asset classes. You will start to see that incrementally get added into the mix overall. I will point out we are seeing some of it. Markets revenues are up 19% from last year, so we are starting to see some of that come through. And as Charlie noted, we expect to grow the Markets business in the context of also improving overall returns for the company and do not believe it will be dilutive or get in the way of us getting to that 17% to 18% return. We are either going to get the increased flows at a strong ROTCE or we are not going to use the balance sheet for it, and we are very confident at this point that we will get the returns for it based on the conversations and the things we have seen with our clients so far. There is a lag in terms of adding the customers and then them building up the business, whether it comes in NII or fees. It takes a while to do the onboarding with a lot of the brand name clients that you would all recognize. It generally comes in and then kind of chunks along the way once you are onboarded. But all of it is going pretty smoothly right now, and we are expecting to start to see more of that come through over the coming quarters. So you will see that incrementally come in each quarter. Operator: The next question will come from Ken Usdin of Autonomous Research. Your line is open. Ken Usdin: Thanks. Mike, I was just wondering if you could follow that point that you talked about and John mentioned about the NIM going forward. Is it just a mix of assets that you are seeing in terms of on the commercial side related to your Markets business versus commercial? Can you talk us through what you are seeing in terms of earning asset mix going forward and the types of loans and if that is what is weighing on the NIM? Michael Santomassimo: Sure, Ken. On the NIM, what you really saw are three things in the quarter. First is the impact of the growth in the Markets balance sheet impacting the NIM. Again, that is not going to grow at the same pace forever, so you will see that moderate. We are getting some netting benefits now as it gets bigger, and you will start to see some of that come through in a little bit of a different trajectory as you look at the coming quarters. Second, you see interest-bearing deposits grow, so they become a bigger percentage of the overall deposit mix, and that is exactly what we expect to be seeing right now. As we came out of the asset cap, we knew that was the place we were going to be able to grow first. So they become a bigger percentage of the overall mix. It is great to see that clients across the Commercial Bank and the Corporate and Investment Bank are moving business, in some cases back to us that we had pre-asset cap, and the engagement has been really good. Those deposits are priced where the market is, which is competitive, but we are not leaning in on price to grow there. Third, you got a little impact from rates coming off the back of the fourth quarter. You will see a little bit more compression from the first two drivers, but it will be less as we go into the second quarter. That will start to moderate as we go and we see other parts of the balance sheet grow and repo growth trajectory slow a bit. When you look at the loans side of things, while there is always a little compression happening across different pockets of the portfolio, that is not the place that is driving the NIM compression. It is a competitive environment for loans, but we are not seeing irrational things, and we are not chasing spreads across the loan portfolio just to see growth. I think that is really important to note. Ken Usdin: Okay, great. And follow-up on your point you made about taking a deeper look through the finance portfolio and thinking that that one-off item was a one-off. Can you talk to us about what you went through there? And thank you for all the color you gave on those extra slides. Your relative confidence that that one got caught and that the rest of the book looks pretty good underneath it. Any comment on any migration you might be seeing at all? Michael Santomassimo: I will reiterate that was a fraud situation. We took all of the lessons we saw coming off the back of that individual circumstance and sent teams in to all the clients, particularly in the European portfolio, and did an in-depth review of the procedures within the firm and the collateral perfection that we have across the different portfolios. We spent a lot of time and effort across the different teams. We brought in independent people and teams. We have done a lot of work to revalidate the processes, and then as you do in these things, you follow the money trail and trace back all the flows that you expect to see coming through the different bank accounts. At this point, we feel confident that was an isolated event. Operator: The next question will come from Scott Siefers of Piper Sandler. Your line is open. Scott Siefers: Really appreciate the expanded disclosures on the NDFI exposure, and then it looks like the credit performance and overall risk profile certainly seem to be holding up. In a sense, NDFI reminds me a little of where we might have been with office CRE a few years ago, not necessarily in the actual quality, but in that for most banks, it does not have the potential to do meaningful damage, yet it generates so much distraction that a lot of banks a few years ago decided it was not worth participating in that CRE given the distraction caused from other good things that were going on. I wonder if you can maybe add a thought or two about with NDFI, how you balance the good quantitative risk-reward against the qualitative aspects of the amount of airtime it consumes and how that discussion goes, if at all. Charles Scharf: Thanks for the question. I think it is totally different than CRE exposure. When you look at the risk characteristics of a CRE loan and what our protections are, what the attachment points are, all that kind of stuff, and then go through a lot of the stuff Michael walked through in terms of the different pieces of lending we have here, really bad things need to happen for us to lose money in most of these portfolios. We can go deeper on some of these things to the extent you want to do it. We feel really good about the way these things are structured and the client selection we have. I would say I would put your question into two categories. Number one, we are not reacting today relative to where we are lending to the amount of airtime it is getting. Over time, we do have to be thoughtful about how large any one asset class should be, including who the borrowing base is and things like that. Those are the types of conversations we are very much engaged in, as we are in everything that we do, to make sure as a company we have the right kind of diversification. Hopefully, by providing the kinds of disclosures we did here and continuing to be as transparent as we can, investors will feel as good about what we are doing as we do. Scott Siefers: Perfect, thank you very much for that. Then, I think we have all been surprised at how well lending momentum has performed year to date for the industry, particularly on the commercial side. It certainly seems to be the case for you all as well. If anything, Mike, from your comments it sounds like you are feeling better about how the full year could play out. Maybe a thought or two about what it would take for customers to start to pull back on some of their borrowing plans given all the volatility, macro concerns, etc. It has been kind of confounding to see how well trends have held up. Michael Santomassimo: It is an interesting point. We are not actually seeing utilization increase in people’s revolvers yet. A lot of the growth we have been seeing is coming either from some growth in the nonbank financial space, some growth from new clients we have added, and some other drivers that then spread across the commercial book. What we have not really seen yet is that increase in the utilization of revolvers. It is not necessarily that we expect a pullback. It could be quite the opposite. If people start to get more comfortable, then you could see some growth come from the core commercial banking middle market-type client who has been somewhat cautious now for the better part of a year plus, waiting to see how the environment develops. So I think the probabilities are maybe more weighted that way than a pullback, given we have not seen a lot of utilization increases so far. Operator: The next question will come from Ebrahim Poonawala of Bank of America. Your line is open. Ebrahim Poonawala: Hey, good morning. Just wanted to follow up very big picture, Charlie and Mike. The path to the 17% to 18% ROTCE is looking quite tough given what is happening with the margin. I get the repo book growing and the deposit mix on interest-bearing. But as investors think about the stock and how realistic it is that over the next, let us say, a year or two, Wells can be a 17% to 18% ROTCE company, that feels a bit tough. I am not sure if you agree, and maybe that two-year timeline was super aggressive. Would love some context around how you are thinking about this today. Michael Santomassimo: Thanks, Ebrahim. We are actually really confident in the path to get from where we are, roughly 15%, to 17% to 18%. If you think about some of the key drivers: on the consumer side, our credit card business has seen really good growth across originations and balances, but it has not contributed a lot to profitability given the upfront cost of marketing and the allowance you have to put up. As long as we get the credit box correct, which we believe we do given the performance we are seeing, it is just a matter of time before that more meaningfully contributes to profitability, and you will start to see a little of that this year as the earliest vintages mature. As more vintages mature, that will incrementally come into the P&L. We continue to grow the wealth business. Our Wells Fargo Premier offering that offers wealth management advice through the branch system will continue to add high-return fees, and we are seeing really good flows there. We have roughly 2,500 advisers across the branch system already, and that momentum is building. As we increase branch productivity and grow core checking accounts again, you have a lot of growth drivers across the consumer side. In the wealth business, as that business grows through improving net flows and recruiting, you will see contribution as well. On the commercial side, in the Commercial Bank, we have been adding roughly a couple hundred commercial bankers over the last 18 to 24 months. We are really starting to see traction as we add new clients. A bunch of the loan growth in the Commercial Bank is actually driven by those new clients. As we add payments and deposit work with them, that will grow. In the Corporate and Investment Bank, investment banking is making incremental progress, but we have a long way to go to monetize the investments we are making. We see really good progress quarter after quarter in terms of the deals we are involved in. As we talked about, the Markets business will be a contributor. We are not overly reliant on any one thing to get us there. As we continue to have good expense control and optimize capital, including how Basel III is playing out, there are a bunch of different paths to get us to that 17% to 18%, which should give you a lot of confidence it is achievable in a reasonable amount of time. Once we hit that, we think there is more to do. Charles Scharf: Let me just add a couple of things. We feel as confident as ever in that target. There is absolutely nothing that has changed. We do not have a business model where points of view like that should change quarter on quarter. The only thing that would create dramatic changes is if we thought we got something very wrong or if there was some huge event that we missed. None of that is the case. We are building the underlying organic growth business by business. The reason we have confidence is because we are seeing KPIs across every one of our businesses growing in a reasonable way. You do not want to grow too quickly. We want to see this consistently, business by business. We are transparent that we have room to improve performance in every one of these businesses. We are very confident the things we are doing will ultimately lead to increased profit, faster growth, and higher returns. Nothing has changed from last quarter or the quarter before that in terms of how we feel about that. Ebrahim Poonawala: That is very comprehensive. Thank you. Just one quick follow-up. On and off, there is a lot of chatter on what Wells can do on M&A in banking and wealth. I am not sure there are too many financially attractive deals available today given where the stock trades. Give us a mark-to-market on how you are thinking about deals. Charles Scharf: We spend more time answering questions about it than we do actually thinking about doing deals. We are focused on organic growth. We think we have a differentiated opportunity versus the people we compete with because of where we have come from, being so constrained, and match that with the quality of the business and the opportunities that we have. We are entirely focused on that. It does not mean that we will not look at smaller things, and you can never say never, but we are not spending time on it. We are not focused on it. This is the opportunity that we are focused on, and we feel really great about it. Operator: The next question will come from Erika Najarian of UBS. Your line is open. Erika Najarian: Hi, good morning. On the Basel III endgame estimate, the 7% RWA decline, all else being equal, we are calculating that would give you about 80 basis points of net new excess capital. A couple of questions: is that the right way to think about it? If so, combined with the G-SIB of 1.5%, and assuming you sustain the floor on SCB, Wells would be at a minimum of 8.5%. Contemplating all of that, would you run this company at lower than 10% CET1? Michael Santomassimo: We are not at the point where we are going to put a new target out. We have to see how the rule gets finalized, and it is going to be a year plus before it gets implemented. In the future, if our capital requirements change, there is no floor at 10%, and blocks can change. We are still going to stick with the 10% to 10.5% target for now. Charles Scharf: There is no magic to 10% to 10.5%. We do not want to put the cart before the horse and start talking about something before it is finalized. Things can change, but when these rules are finalized, we will look at what our requirements are. We will have the conversation about how much excess we want to run now that there is more certainty and then make a decision. The trajectory is very favorable for us. We just do not want to get ahead of ourselves and say we are going to change where we are running at this point before things are finalized. Directionally, there is a place to go here. Erika Najarian: Got it. Just wanted to add clarity to the RWA discussion given the positive direction on the denominator. My follow-up is thinking about the net interest income questions another way. You reported a year-over-year increase in net interest income of 5% despite 20 basis points of year-over-year net interest margin compression. If we think about year-over-year net interest income growth as balance sheet-driven at the same pace, say 4% year over year, with maybe a little bit of stability in the NIM in the second half of the year, we get to that 50 billion dollars plus or minus. Is that the right different way to think about it rather than just the quarterly cadence? Michael Santomassimo: Let me give you some of the drivers underneath it and see if that gets to what you are asking. As you look to how we get from where we are to the 50 billion dollars plus or minus, we expect to continue to see loan growth each quarter. Break that down: on the consumer side, mortgages should stop declining, you will see growth from the first quarter in card—first quarter has some seasonality coming off the holidays—and we expect continued growth in auto. Overall, consumer loans continue to grow throughout the year. We expect growth in deposits, again largely interest-bearing. We are not relying on significant growth in noninterest-bearing this year. That will build over time as we are more successful growing checking accounts. We have not assumed a big deployment into securities; if we see we have a good amount of excess cash, we could do more in securities as well to pick up some extra NII. Then you have the path of rates. If rates stay higher for longer than people expected at the beginning of the year, that alone will be a net positive. We will see how that plays out across all the other variables, including any change in deposit mix. Ultimately, we have a really achievable path to 50 billion dollars, and if all works out, it could be better than that depending on how it all plays out through the rest of the year. Markets-related NII will swing around a bit depending on the path of rates, but largely offset on the fee side. Operator: The next question will come from John Pancari with Evercore. Your line is open. John Pancari: Morning. On the expense topic, I know you saw about a 3% year-over-year increase. You cited investments in technology and advertising and ongoing business investments. You are confident in the 55.7 billion dollars guidance. Can you talk to us about any pressures that you are seeing that may move you off that target, or give more detail on your confidence in attaining that target despite somewhat pressured levels in the near term? Michael Santomassimo: The only real pressure we see would be revenue-related expenses to the extent that in our asset and wealth business we generate higher levels of revenues and have commissions tied to that. Everything else is continuing to track relative to what we thought in the guidance, and the revenue-related comp is still tracking to that. Nothing has changed relative to our views on overall expenses. It is a continuation of the story we have been talking about: we are increasing the level of investment in areas important for the franchise, and we are driving efficiencies in other parts of the organization. We still see the opportunities to do that and contain the expense base while we are able to grow revenues and increase pre-tax, pre-provision profit. Charles Scharf: Your question might have implied pressure relative to consensus, but in reality we are exactly where we thought we would be relative to the guidance we gave. We feel really confident about what we have given. The bulk of the roughly 440 million dollars year-over-year increase is really revenue-related comp in WIM. The rest is very small on a net basis across the company. We feel good about the guidance we have. John Pancari: Got it. Thanks for that. And then on the additional NDFI disclosures, appreciate the detail and the quantification of the BDC exposure at about 8 billion dollars. Can you help us frame the broader private credit exposure and any impact of regulatory input around this? Michael Santomassimo: The short answer on the last piece is no. We are comfortable with our exposures, and that is where the conversation starts. The majority of our private credit exposure sits in the Corporate Debt Finance bucket, which is on page 10 of the presentation—about 36.2 billion dollars. That is the vast majority of the exposure. Operator: The next question will come from Manav Gosalia with Morgan Stanley. Your line is open. Manav Gosalia: One clarification on your response to Erika's question. Just given the clarity on the capital rules, you are suggesting that the bias would be to eventually take down the 10% to 10.5% CET1 target. In other words, as you get the benefit of the lower RWAs, the excess capital you free up would be something available to deploy quickly? Michael Santomassimo: What we said was that we are running our excess today based upon today’s capital rules. When the capital rules get finalized, we will reevaluate what that is and how big a buffer we think we need at that point in time. Period. End of story. Charles Scharf: That is a positive. If our RWAs go down, we have to think about what is going on in the environment at that point in time and what we are comfortable doing, but directionally it is constructive for us relative to how much capital we ultimately need to hold. Michael Santomassimo: All else equal, if our CET1 percentage goes up as a result of lower RWA, that gives us more capacity to deploy to support clients or return to shareholders. We are mixing RWAs, capital requirements, and dollars of excess capital. It will come down to how much dollar excess there is and how we expect to use it. Manav Gosalia: That is clear. Thank you. As we get some of these changes that benefit the mortgage banking business both on originations and servicing, is there anything that Wells would do to lean in, and is there more long-term opportunity for either of those businesses? Charles Scharf: We are very comfortable with the plan we have in our Home Lending business today, which is focusing on people who are broader clients within the bank. It is not just capital levels that drive our desires in this business. It is the operational risk embedded in there. It is the reputational risk. There is a note relative to making mistakes—foreclosing on behalf of others, following the rules, and whatnot. There is a certain level of sizing that we are comfortable with, and we do not see that changing. On the servicing side, the capital rules are not really changing much other than removal of a penalty rate if you get too big. That does not change much there on the servicing side of the capital. Operator: The next question will come from Gerard Cassidy of RBC Capital Markets. Your line is open. Gerard Cassidy: Thank you. Good morning, gentlemen. Mike, can you share with us what the scenario weighting was this quarter when you look at your loan loss reserves, including macro risks with the hostilities in the Middle East, and how that may have affected how you addressed the reserves this quarter? Michael Santomassimo: For a while, we have had a significant weighting on our downside scenarios, and that weighting has not changed. Every quarter, the scenarios change a little. In this quarter, if you look at the unemployment rate as one example, the peak unemployment rate went up four basis points in our scenarios to a little over 6%—6.01% to be exact. When we look at all the different scenarios, as we know it today based on what we think can happen as a result of what we are seeing, we think the scenarios cover anything that is probable at this point. Other variables moved around a little bit, but not a lot. We have maintained that significant downside weighting, and we will keep it that way at this point for the quarter. We think that is appropriate for where things stand. Gerard Cassidy: As a follow-up, possibly for you, Charlie. You talked about organic growth—that is what you are focused on. You finally closed on the rail leasing deal, and all the regulatory orders with the exception of the one for BSA are behind you. Putting that one regulatory order aside, can you share with us this organic growth—are we going to see it really start to materialize more on the consumer side, commercial side? What are you seeing over the next 12 to 24 months? Michael Santomassimo: I will take that and Charlie can chime in. We are starting to see it everywhere. If you go back to page 2 of the presentation, we tried to summarize some of the key things we are seeing across each of the businesses. In Consumer Banking and Lending: new checking account openings up 15%, credit card accounts up 60%, auto originations up 2x what they were last year. In the CIB, we saw banking revenue up 11%, markets up 19%. Our share was stable, but we had good growth in equity capital markets on the investment banking side. In Wealth, we continue to have really strong recruiting across the different channels, client assets up 11%, revenue up 14%. We saw good loan growth and deposit growth in that business. In Commercial Banking, we are seeing the benefit of the investments we have been making come through with both loans and deposits up, and even better, new clients added to the platform are up substantially from prior years. These things take time. We are not claiming victory. We have a lot more to do to improve performance across each of these businesses, but a lot of that organic activity is coming through in the numbers, and you can see it in many of the metrics we put out. Operator: The next question comes from Chris McGratty of KBW. Your line is open. Chris McGratty: Good morning. Thank you. Mike, on the NII, when you talk about the fluidity of the cuts in the forward curve—two to three cuts last quarter and maybe nothing now—how much of an impact does it have on the fourth quarter exit run rate? It is more of a jumping-off question for 2027. Michael Santomassimo: That is going to have a bigger impact for next year than this year. Where we end the year will matter a lot more as we go into 2027. You can annualize it. When you look at our 10-Q and see the sensitivities there, that is a good way to start to dimension what it means for a full year, particularly coming out of the fourth quarter. I would start there with your modeling. Any changes in the forward curve will have a little bit of an impact this year, but not super big because they were all back-weighted. Chris McGratty: Thanks for that. And the 7% reduction in risk-weighted assets—was that better or worse than you thought you might see from the proposals? Michael Santomassimo: It is hard. We had a bunch of stuff we made up anticipating what we might see, but as others have put it, it is like a 1,200-page proposal, so any of those estimates we had going in were kind of meaningless. The areas that we benefit from are the areas we had commented on, and we believe they got it right. Do we think it is perfect and they got everything exactly right? No. But it was directionally where we thought. Operator: The next question will come from Vivek Janaeja of JPMorgan. Your line is open, sir. Vivek Janaeja: Mike, a quick clarification. The private credit exposure—majority of it is in the Corporate Debt Finance of 36 billion dollars. Is that all private credit exposure, and the BDCs are a subset of that? Michael Santomassimo: Vivek, that is all private credit exposure, and it is the vast majority of our private credit exposure—the 36 billion dollars. The BDCs are a subset of that. Vivek Janaeja: Got it. That is all I wanted to check. Thanks. Operator: The next question will come from Saul Martinez of HSBC. Your line is open. Saul Martinez: Hey, thanks for squeezing me in. Sorry to beat a dead horse with the net interest income, but NII ex-Markets was only up 2% year on year. If I look at loan growth excluding Markets lending, it was up 8%. Deposit growth has been good. It does seem like you are seeing some core margin pressure there. More color on what is driving that? Is this competitive dynamics in deposits? Are you competing on pricing on lending and deposits? Is there a risk that you are pricing loans and deposits in a way that is sacrificing returns in order to foster growth? Michael Santomassimo: Rates are driving it, number one. Interest rates coming down year on year is driving it. We saw rate cuts last year. We are seeing growth in the interest-bearing deposit side. Noninterest-bearing are slower to grow as we build the checking account growth we talked about. On the lending side, on the consumer side we are not seeing compression there. Spreads are in a little bit on loans across some of the commercial side, but nothing super significant. We are not out there competing on price to try to grow the balance sheet. You are seeing those things come through in the underlying results, which is exactly what we thought would be happening as we rolled out the guidance in January. On competition on pricing in deposits, we are not seeing competition on pricing that is unusual. We are growing interest-bearing stuff faster than noninterest-bearing, but it is all at rates within where we thought they would be. If we do a good job, as I alluded to, we should be growing the noninterest-bearing further down the line as we bring on more of these relationships and have more balances to work with customers both on the consumer and business side. Saul Martinez: Got it. On reserving, maybe a follow-up. Your reserve rate for C&I is about 1%. It has been about 1% for a while. NDFI is a big part of that. It sounds like the NDFI portfolio generally has a lower loss content than the balance of the book. Do reserves reflect that? Has there been any change in your views of loss content in those portfolios which would influence how you are reserving for those books? Michael Santomassimo: No change in our thinking as we look forward in terms of loss content. In most of those portfolios, losses have been virtually nothing for a long period of time. The allowance is lower and not changing materially at this point. Operator: Our final question will come from David Chiaverini with Jefferies. Your line is open. David Chiaverini: Hi, thanks for taking the question. Starting on the capital markets outlook and the pipeline, can you frame the outlook following a strong first quarter here? Michael Santomassimo: We still expect that the financing markets are wide open, so we expect to see a lot of activity on the debt side—both investment grade and leveraged finance. There is plenty of money on the sidelines to be put to work there, and that has been the case for a while. On the equity capital markets side, you have seen some delay in IPO activity in the latter part of the first quarter. Assuming some of the volatility subsides or stabilizes, you may see some of that start to come back. There is certainly a pipeline of companies waiting to go. In the meantime, you have seen a lot of activity on convertibles and other parts of the ECM wallet. Overall, the pipeline and the expectation is still to see a pretty active rest of the year. David Chiaverini: Great, thanks for that. Shifting over to your credit card account growth, which is very strong. What are the drivers behind that? Is it more rewards, more marketing, better rate? What are some of the drivers there? Michael Santomassimo: It starts with really good, compelling, simple products. Over the last five years, the team has replatformed every product we had in the market, starting with our Active Cash card, which is a very simple 2% cash-back value proposition, and then adding a series of products since then. We have had really good reception from both existing and new clients to the bank for products that are very easy to understand and compelling. Over the last three quarters, we have seen an uptick in originations as our branches become more productive in helping customers get the right card. We have also seen an increase in customers coming to us directly looking for the cards as awareness grows and the size of the portfolio increases. We are increasing advertising—both targeted and more general—in the card business and the broader consumer business. That, plus more targeted efforts in digital, is driving increases. It is a combination of the products we have and us getting better at targeting originations, and our credit quality is still really strong. Michael Santomassimo: Thanks everyone for the questions. We will see you next time. Operator: Thank you all for your participation in today's conference call. At this time, all parties may disconnect.