加载中...
共找到 39,317 条相关资讯
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.
Operator: Greetings, and welcome to the Data Storage Corporation Fiscal Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ms. Alexandra Schilt, Investor Relations. Thank you. You may begin. Matthew Galinko: Thank you. Good morning, everyone, and welcome to Data Storage Corporation's 2025 Fiscal Year Business Update Conference Call. On the call with us this morning are Chuck Piluso, Chairman and Chief Executive Officer; and Chris Panagiotakos, Chief Financial Officer. The company issued a press release this morning containing its 2025 fiscal year financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. Before we begin, please note that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to various risks and uncertainties described in the company's filings with the SEC. Except as required by law, the company assumes no obligation to update or revise forward-looking statements. I'd now like to turn the call over to Chuck Piluso. Please go ahead, Chuck. Charles Piluso: Thanks, Allie. Good morning, everyone, and thank you for joining us. First, I would like to acknowledge the delay in reporting our fiscal year 2025 results. which was necessary to allow additional time to complete our year-end audit. This was primarily driven by the complexity of several significant transactions during the year, including the sale of our CloudFirst subsidiary, the classification and settlement of many of our outstanding warrants and the completion of a tender offer. However, we are pleased to be here today to discuss our results in more detail. 2025 was the most consequential year for Data Storage Corporation's 25-year history. It was a year defined not just by strong financial results by decisive action. Action that fundamentally reshaped our company, strengthened our balance sheet and positioned us for a new phase. Over the past year, we made deliberate choice to unlock the value we had spent more than 2 decades building and redirect that value towards what we believe is a significantly larger opportunity ahead. We executed on that strategy in 3 critical ways. First, we monetized CloudFirst for a total transaction value of $40 million. That transaction generated approximately $31.6 million in net proceeds and a $20.1 million gain. We sold a strong asset at full value because we believe that capital could be deployed into opportunities with greater long-term potential. At closing, we had an estimated $41 million in the bank based on our cash balance of $10 million plus the sale of CloudFirst. Second, we returned $29.3 million of that capital directly to shareholders through a tender offer at $5.20 per share, reducing our outstanding share count by approximately 72%. That level of capital return is rare for a company of our size and reflects a core principle of ours, capital belongs to the shareholders. And when we generate it, we allocate it responsible, whether that means returning it or investing it for growth. Third, we reset the company. We entered 2026 debt-free with over $10 million in capital, a clean balance sheet and at this point, a simplified operating structure. From a financial standpoint, these actions resulted in record performance. We reported a net income of $19.2 million for the year compared to $500,000 for 2024. At the same time, I want to be very clear with investors this level of profitability reflects the CloudFirst transaction and other nonrecurring events. It does not yet represent earnings power of DTST, and we are being intentional and transparent. What it does demonstrate is our ability to create value and recognize and to realize that value and to act with discipline in how we allocate capital. Today, our core operating business is Nexxis and it's performing. In 2025, Nexxis generated $1.4 million in revenue, representing a 13.4% year-over-year growth. Gross margins expanded to 44.4%. And importantly, we improved the quality of the business by reducing customer concentration, with no single customer accounting for more than 10% of the revenue. Nexxis is lean, subscription-based recurring revenue business with improving margins and real operating leverage. And that brings us to the most important part of our story. What comes next? We have deliberately positioned DTST as a NASDAQ-listed acquisition platform with capital, flexibility and a clear mandate to identify, acquire and scale high-quality businesses in large and growing technology markets. We are actively evaluating opportunities in areas where we believe we have both a strategic alignment and the ability to add value, including AI-enabled vertical SaaS GPU infrastructure, cybersecurity and SOC-related services as well as scalable technology businesses with recurring revenue models. These are not abstract targets. These are markets with significant tailwinds where disciplined capital deployment can drive meaningful long-term returns. In fact, we've already identified and are actively pursuing a number of strategic opportunities with an emerging GPU infrastructure segment in enterprise technology. These areas are being shaped by strong tailwinds, including a rapid adoption of AI-driven workloads, ongoing data architecture, modernization and increasing demand for scalability, resilient digital infrastructure. Our focus remains on large evolving markets where demand visibility is high, and we believe we can deploy capital in a disciplined, accretive manner with an emphasis on opportunities that are offering compelling, risk-adjusted returns and clear avenues for long-term value creation. We are actively advancing these initiatives, positioning ourselves to stay agile and selective as they're developed. We expect to provide meaningful updates in the near term as these opportunities evolve. Importantly, we are only pursuing opportunities where we understand the consumer behavior and business deeply, and where we see a clear and credible path to value creation. At the same time, we are focused internally on improving efficiency. As we move through 2026, we expect corporate overhead to decline meaningfully as we transition from CloudFirst divestiture is completed. Our objective is to ensure that the earning power of this company is driven by operations, not onetime events. So when you step back and you look at DTST today, what you see is a company that has undergone a complete transformation. We have moved from a traditional cloud-based managed service model to a streamlined, well-capitalized platform with flexibility to pursue higher growth, higher-margin opportunities. We have demonstrated that we can build value that we are willing to realize it when the timing is right. And now we are focused on the next phase, building a company defined by our sustainable growth, disciplined execution and long-term shareholder returns. 2025 was about realizing value. 2026 and beyond will be out seeking opportunities, bringing together synergistic companies and creating shareholder value. Now I'd like to turn the call over to Chris Panagiotakos for a review of our financial results. Chris? Chris Panagiotakos: Thank you, Chuck. Good morning, everyone. As discussed on our last call, on September 11, 2025, we closed the sale of our CloudFirst business for $40 million. As a result of the transaction and in accordance with auditing and reporting standards, our ongoing financial reporting now reflects only our continuing operations, specifically our Nexxis subsidiary. Sales from continuing operations were $1.4 million for the year ended December 31, 2025, an increase of $164,000 or 13.4% compared to $1.2 million in the prior year. The increase was primarily attributable to continued growth in our Nexxis Voice and Data Solutions business driven by the addition of new customers and increased spending for existing customers. Revenue growth during the period reflects continued demand for our voice and data connectivity solutions and expansion of services within our existing customer base. Selling, general and administrative expenses for the year ended December 31, 2025, increased $348,000 or 9.1% to $4.2 million from $3.8 million for the year ended December 31, 2024. The increase was primarily driven by a $507,000 or 101.6% increase in noncash stock-based compensation primarily related to the accelerated vesting of equity awards in connection with the sale of the CloudFirst business, which triggered a fundamental transaction clause in equity award agreements with employees. Salaries and director fees increased $166,000 or 9.8% attributable to annual merit-based salary adjustments and bonuses. These increases were significantly offset by a $301,000 or 22.8% decrease in professional fees, primarily related to lower legal and consulting expenses in the current year. We expect expenses to decrease for the year ended December 31, 2026, as compared to the year ended December 31, 2025, since a significant number of its employees are no longer working for us and instead are working for the buyer of CloudFirst business, and we anticipate having lower legal and accounting costs. Net income attributable to common shareholders for the year ended December 31, 2025, was $19.2 million compared to net income of $523,000 for the year ended December 31, 2024. The significant increase in net income for the 2025 fiscal year was primarily driven by the gain recognized on discontinued operations. We ended the quarter with cash, cash equivalents and marketable securities of approximately $41 million at December 31, 2025, compared to $12.3 million at December 31, 2024. Thank you. I will now turn the call back to Chuck. Charles Piluso: Thanks, Chris. Before we open the call to questions, I just want to reinforce what we believe we're entering into an exciting new phase. We attended the NVIDIA conference a few weeks ago, which reinforced the magnitude of the opportunity emerging across both technology and business. The pace of innovation and the scale of investment underway are substantial, signaling a transformation shift across industries. At the same time, it sharpened our approach rather than competing directly in a capital-intensive area, such as the billions being deployed into GPUs and core infrastructure, we are focused on a disciplined participation. We have identified several key areas to focus to pursue that -- and we are advancing them deliberately allocating capital thoughtfully and concentrating on opportunities we see a clear differentiation and the potential to drive meaningful long-term value. Now I'd like to open it up for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Matthew Galinko with Maxim Group. Matthew Galinko: And congratulations on getting to this point in the transition. Maybe can you give us some sense of what valuations look like? Is it kind of what you expected when you started this process, particularly as you look towards some of the AI and HPC opportunities? Is there -- is it kind of within reason? Or is it over overheated at all? Charles Piluso: Thanks, Matt, and it's good hearing your voice. What's going on is after attending that conference, Matt, is that this is like nuclear energy. Some people are frightened, but most people are very, very excited. And what's happening on the equipment side of things, you can put your hands on and it's very, very tangible. On the software side, everyone uses the term, they're training. They're training their platforms, their software and all. So when we see the valuations really you hear things like someone that's not even at a beta side of the software, people are hoping to get $700 million and their pre-revenue. But for the most part, as I walk through the conference, I would say that NVIDIA has paid for everyone at that conference. It was huge out of San Jose. It was just amazing on it. But after spending 25 years in disaster recovery and business continuity, I went there with, Matt, one of our Board members. And we think we have an idea on a potential opportunity to be able to cost something out. That's something that we know pretty well. We're still testing the waters. We still have a lot of research to do on it over a period of time. But there are parts that you can play in that you're not going to get crushed or playing with someone that's raising or spend $50 billion on GPUs. So there are some opportunities given that based on our past experience that we see. So the valuations are all over the place. Most of the people that we spoke to -- and by the way, Matt, over the -- since September and we closed, we've spoken to 21 companies that we either have passed on, we've passed on, that are everything from a SaaS AI offering to an MSP to VoIP companies. And we're both basically seeing on the MSP side, you're looking really it's nonrecurring usually for the most part, unless it's software renewals. They're trading at 1x, but they're trying to get 2.5x revenue. It's according to the size that they really are. And on some of the AI stuff, I just have to say that 95% of everyone we've spoken to either at that conference and all, they're waiting to go buy their 120-foot yacht. So it's not there yet. But the excitement of what's going on is incredible. I think we potentially have some ideas on where we can play that separates us a little bit. But An answer to your question, Matt, it's just all over the place, you're hoping to, like I say, get a $700 million value. I mean, I'm sitting in a -- not that I'm a bar goer, but sitting in a hotel bar locked in with around 15 to 20 people that have pass-through that a lot of people kind of knew. And one guy was working on the software and his laptop sitting next to me, and they're going literally for a $700 million valuation. So I think it's all over the place. Everybody is trying to create water. It's a long answer, but it's that incredible, Matt. It's that incredible what's going on. Matthew Galinko: No, I appreciate the color. And maybe does having cash in the bank ready to deploy, get the counterparties a little more interested in the conversation? Or is that helping to kind of move things along in some of these conversations? Charles Piluso: Two of the things that we're kind of looking at, well, 3 things, which we always laid out. Oh, is there a reverse merger out there that will give stockholder value great value and all. We're not rushing to that, but people are approaching us and we're saying, well, gee, why can they do that and we can't. Why can they build something that has a $100 million market cap and more why can't we? So we're really not so focused on that now. We'll look at opportunities because they're approaching us. But there's also -- I'm going to call it the medium tech, the stuff that's not on fire, you could get burned. So there are some really good MSPs out there, and some of them have developed some AI software. So we've been talking to them, some of these companies about, well, how about we separate it and what's the meat and potatoes that your MSP and we look at doing something there. And then anything on the software side that for the term that everybody is still training still working on we'll create something as a joint venture or something where we have the opportunity to buy it if you actually deploy it. So you need to really get creative because most of the folks that are in this MSP space as well as VoIP companies as well. They caught on, and they're trying to develop the software so they can roll it out to their customer base that they have. And I think that's pretty good. But I don't think we have to give any value yet to that software. But it might be something that's good because organic growth is very tough and there might be some good cross-selling that goes on. So that's some of the stuff that we're looking at, let's go medium tech. Let's not -- while we're still looking at this other thing that we kind of feel that might be a good opportunity in the AI infrastructure GPU space. Matthew Galinko: Got it. And then maybe just last question for the existing business. Can you -- is it possible to give us a sense of what the quarterly run rate or burn would look like operating without a transaction currently? And generally, what your expectations for Nexxis are over the next year operating independently? Charles Piluso: Sure. I'll handle the Nexxis. I'll turn the [ burn ] over to Chris. Go on Chris, you have an idea of what our run rate was typically where a range of where you think it might be? Chris Panagiotakos: So I think the burn rate for 2026 will be probably about $2 million for the year. being a public company. Charles Piluso: Yes. So we think we can reduce some of that, Matt, in certain areas because the legal fees were pretty high. and we're still incurring some of them as we go through it. So we'll give it a range, that's an estimate. Don't hold us to it, but that's kind of what we're expecting on that. On the Nexxis side of things, they're growing. We own 80% of Nexxis. John Camello runs that does a great job. He has a small staff. He's adding some folks to it. I think he has to -- I don't want to say he has to, we have to allocate a little bit more money, not much, but to improve his inbound leads. He does a great job with agents and with shows, associations and all of that. But I think we have to spend a little bit of money not much to improve the SEO side of things. But he's profitable, he turned to profit. We never really allocated a lot of money in this sense to growth. It's been around for a while. We put money in as we needed it. But we haven't said, here's $100,000 get a digital marketing agency, get the lead flow going. We're trying to hold on to the cash we have, be very disciplined for the first acquisition, along with -- we have 2.1 million shares outstanding, give or take, it's a little bit more than that. But we want to be careful with that, that if we're going to say, hey, we're going to go raise money, which we would, that it's going to be an increase in value. Operator: [Operator Instructions] Mr. Piluso, I see no other questions at this time. I'll turn the floor back to you for final comments. Charles Piluso: Thank you. Thanks for the questions, Matt. As we enter this next phase from a position of real strength with capital on the balance sheet and a clean simplified structure and a clear strategic mandate. That combination gives us the ability to be selective, to be disciplined and to focus only on opportunities that we believe can create meaningful long-term value for our shareholders. At the same time, we remain grounded in execution. Our priorities are clear: Continue improving performance of Nexxis, deploy capital thoughtfully into areas that enhance our scale, expand our margins and strengthen the overall quality of our earnings. We are building with intention, and we are building for durability. And we do appreciate the trust and support of our shareholders. We look forward to updating you on our progress as we move through 2026 and execute on the opportunities ahead. Thank you. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to Bank7 Corp. First Quarter 2026 Earnings Call. Before we get started, I would like to highlight the legal information and disclaimer on Page 25 of the investor presentation. For those who do not have access to the presentation, management is going to discuss certain topics that contain forward-looking information which is based on management's beliefs as well as assumptions made by and information currently available to management. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties, and assumptions including, among other things, the direct and indirect effect of economic conditions on interest rates, credit quality, loan demand, liquidity, and monetary and supervisory policies of banking regulators. Should one or more of these risks materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected. Also, please note that this conference call contains references to non-GAAP financial measures. You can find reconciliations of these non-GAAP financial measures to GAAP financial measures in an 8-K that was filed this morning by the company. Representing the company on today's call, we have Brad Haynes, chairman; Thomas L. Travis, president and CEO; JT Phillips, chief operating officer; Jason E. Estes, chief credit officer; Kelly J. Harris, chief financial officer; and Paul Timmons, director of accounting. With that, I will turn the call over to Thomas L. Travis. Please go ahead. Thomas L. Travis: Thank you. As you can see, we are happy with our results today. We regularly say, probably a little boring in this area, but we have to thank our team of bankers, and I know some of them listen to these calls, and if you are on the call, thank you. We have a great group that has been together for a few decades, and it is very comforting to have such a strong, deep, broad team. That is why we produce the results that we do. I suppose it is a little boring for some people quarter after quarter where we are always putting up these fantastic results, but it takes a lot of effort, and we do not take many days off around here, and we do it the right way, and the results speak for themselves. Last quarter, I think the markets were expecting rate cuts in this quarter. Now the market is thinking maybe the rates will go the other way due to the increase in commodity prices associated with the Middle Eastern conflict. Who knows? The reason I bring it up is that we are really proud of our ability to manage our NIM and to properly mix our balance sheet, and we are not concerned about rates going down or rates going up. We are positioned either way. With all of that said, you can see the major metrics in the deck, and we are here to answer any questions. Thank you. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw the question, please press star then 2. Operator: At this time, we will pause momentarily to assemble our roster. Operator: Our first question comes from Nathan James Race with Piper Sandler. Please go ahead. Analyst: Hi. Good morning. This is Adam Pearl on for Nathan James Race, and thanks for taking my questions. Thomas L. Travis: Hey, Adam. Good morning. Analyst: Yeah. So maybe just starting on loan growth, it looks like average loan growth was pretty solid while some payoffs later in the quarter dragged down end-of-period balances. So I am curious if your expectations for loan growth have changed for the remainder of the year and, along with that, if you are seeing any noticeable change in demand within your energy portfolio. Jason E. Estes: Thanks for the question. This is Jason. I think our goals for the year remain intact. We are still thinking moderate single-digit, but I would say that coming off of the third and fourth quarter we had last year, where we had really robust growth that exceeded expectations in both quarters, we are not at that pace, so I would say it has slightly slowed down, but we had really nice bookings in the first quarter. Just expect the same from us this year. I do think, like last year, we offset really sizable early payoffs throughout last year. That is a routine thing for us. I think you will see more of that this year, in the second quarter in particular. We expect pretty sizable payoffs, and then we will just offset that with new loan bookings throughout the rest of the year. As it relates to the energy portfolio, I believe it is at a 10-year low. It was a little over 8% of the portfolio. In the energy space, most of your well-capitalized professional organizations really are not changing a lot as it relates to rushing out to drill, so to speak, just because this spike in energy prices, I do not think anyone believes that there is any stability in oil prices when it goes up due to what is going on in the Middle East. For us, we are opportunistic when those energy loan opportunities come along, but it is not a huge driver for our company. We are active and we like the portfolio we have, but I would not expect the energy piece to be causing a lot of dynamic change one way or the other. Analyst: Got it. That is super helpful color. Maybe shifting to the net interest margin. Some really nice expansion during the quarter. Wondering if you could provide some color on how you expect the net interest margin ex loan fees to trend assuming rates remain here through 2026. Kelly J. Harris: Hey, Adam. This is Kelly. We did make some really good progress on the liability side, cost of funds, and that was related to our talented bankers continuing to bring in some quality core deposits. That said, we are modeling core NIM in that same range, 4.40% to 4.45% from a core NIM perspective. On the loan fee side of things, kind of reverting back to the normal of 28 to 35 basis points. Analyst: Got it. And then lastly for me on capital management, given the strong profitability metrics, you should be building capital at pretty strong clips. I would be curious to hear your updated thoughts on M&A and just overall comfort level in letting capital levels build from here if the right partner does not come along. Thomas L. Travis: Well, clearly, as we sit here today, I think we ended the quarter at 15.96% on risk-based capital. Kelly J. Harris: We are probably over 16% today. Who knows? Thomas L. Travis: The need for us to accumulate more capital is not on the top of our minds, and we are more into growing organically, and then on the M&A side. We have always been active in the M&A space, and for the right strategic opportunities, we are going to continue to pursue those, and we think that would be an efficient use of the capital. Analyst: Got it. Thanks for taking my questions. Operator: Our next question comes from Will Jones with KBW. Please go ahead. Analyst: Yeah. Hey. Thanks. Good morning, guys. Jumping in for Wood Neblett Lay. I wanted to follow up on the margin discussion and specifically just talk about product cost. To Thomas L. Travis, you alluded that the market has all but pulled cuts out of the forecast. Maybe even we see up rates this year, but you guys see the margin more stable in that setting. Specifically with deposit costs, how would you characterize the competitive environment right now? In that scenario, is there a chance we actually see deposit costs trickle up toward the back half of the year just as competitive dynamics increase? Thomas L. Travis: I do not think you are going to see that. I do not think it is that dynamic, so to speak. It is really kind of a two-part question you ask. I do not see a massive fluctuation or any meaningful fluctuation in deposit costs, and that is absent a rate increase, so I am assuming that there is no rate increase. As far as the margin goes related to that, we provide that in the deck on the stability and the lack of volatility in the margin, so we do not expect anything materially different. Analyst: Okay. Got it. That is helpful. Could you call out some interest recoveries you saw this quarter? Would you be able to do that so we can think about a clean, more recurring margin run rate this quarter? Kelly J. Harris: From a core NIM perspective, I think the nonaccrual interest net-up was a little under $1.1 million. Analyst: And then on a fee perspective, was it closer to $1.07 million? And so, again, that reverts us back to that normalized— Thomas L. Travis: Core NIM of 4.40% and then 28 to 30-plus basis points on the fee side. Analyst: Got it. Okay. Very helpful there. I wanted to pivot to the credit discussion. I know there are puts and takes on credit each quarter, very little migration, generally speaking, and asset quality is strong, and you guys have really hit a zero provision for, call it, four out of five quarters. What is the messaging on the provision and reserve levels going forward? It feels like at some point that trend may have to give a little bit. I just wanted to get your views on the provision and where you see the credit story today. Jason E. Estes: It is a little bit challenging of a question to answer when we really do not know what the economy is going to do for the rest of the year. What we are looking at today—I think our credit book is as clean as it has ever been. There was some migration during the quarter. When you see that nonaccrual interest recovery, those loans were paid in full, and so we had multiple credits transition out with full payoffs. We had a couple of downgrades during the quarter, but on the surface, it looks like the numbers were fairly neutral. I cannot overstate how active we are in managing the loan portfolio from a credit quality standpoint. Let us say we grow the book again a pretty sizable amount and the economy stays the same—yes, we will have to provision a little bit more. If the loan growth is more timid—think low single digits—then we may not have to provision more. Let us see what is going on. There is quite a conflict going in the Middle East. Does that intrude into our daily lives here in a bigger way? So far, it has been a nonevent, especially within our credit book. We are going to stay true to our fundamentals and do the same things we have done for the last decade. Thomas L. Travis: I would also add that we have quoted a payoff for this Friday for the only really material remaining NPA that we have. We have a high confidence factor that that is going to happen. If that happens, the net effect would be NPAs of somewhere in that $4 million to $5 million range. When you look at $4 million or $5 million on our portfolio, I think that equates to about 25 bps or something like that. To echo Jason E. Estes’s comments, we certainly do not feel any pressure, absent the macro, to build more ACL, loan loss reserve. Analyst: Yeah. Okay. I appreciate all that context, and I am asking you to look into a crystal ball a little bit there. One last one for me on capital. We have talked about buybacks not really being an efficient use for you guys through your lens. Could you remind us—is that still how you are viewing the buyback, and does it look any more attractive today than it did, say, 90 days ago? Would love your thoughts there. Thomas L. Travis: Well, look, buybacks—we have often said this—that we are blessed with a very top 1% return on equity in our company. Because of that, we produce really good earnings per share, and we are not driven to reach for increasing EPS by doing share buybacks. We have been beneficiaries of strong earnings and growth. With that said, as we have said the last few quarters, we recognize that we are very, very capital heavy, especially for a company with no debt. At some point, the rubber meets the road. Generally speaking, our view is that share buybacks really do not add franchise value, and it is more of a short-term mechanism. I am not suggesting that we would never do one. What I am saying is that it has not been a critical need for us in the past. Clearly, if there were ever a time in the future where we felt like buybacks would make sense, it would probably be driven by a good share repurchase price and no other alternatives. Analyst: That is all fair enough. I appreciate all the color, guys. Thank you. Operator: Our next question is from Jordan Gendt with Stephens. Please go ahead. Jordan Gendt: Hey, good morning. Thanks for taking my question. I just had a follow-up on the migration on those downgrades during the quarter. Is there any additional detail you could give on the type of credits they were and the loan type and things like that? Jason E. Estes: Yes. We had a large builder/developer that we downgraded during the quarter, and that was the one Thomas L. Travis referenced that we think will pay off this week. That is the only industry-specific thing that I could get into. Jordan Gendt: Okay. Got it. And then just one more follow-up for me around the M&A discussion. Previously you have brought up the idea of doing an MOE. Is that still on the table, or would you be looking more toward downstream partners? Thomas L. Travis: I think the answer is both. Strategic matters are inherently long term in nature, and we have not deviated from our thinking on that. Jordan Gendt: Perfect. And then, actually, just one more. Could you touch on the fees and expense guidance going forward and maybe, you know, excluding the oil and gas impact? Thomas L. Travis: Q2 on the expense side, we are projecting internally in that range of $9 million to $9.25 million. On the fee side— Kelly J. Harris: Low end is $750 thousand, upwards of $850 thousand. Noninterest income. Jordan Gendt: Perfect. That is it for me. Thanks for taking my questions. Operator: Our next question comes from Nathan James Race with Piper Sandler. Please go ahead. Nathan James Race: Hi. Yes, maybe just a follow-up for Kelly J. Harris, on updated expectations for the impact of fees and expenses from the oil and gas. Kelly J. Harris: I think it will be continued expense offsetting the income, so not really material to the bottom line, but temporarily grossing up both sides of the P&L. Thomas L. Travis: And, Nate, this is Thomas L. Travis. As we mentioned last quarter—and I think the last two quarters, perhaps three—we have accomplished our goal. As you recall, the goal was to reduce the hit that we had on an energy loan, and we are delighted with the results. We are, what are we, 20 months into it? Kelly J. Harris: Yes, 20 months. Twenty months into it. Thomas L. Travis: We have accomplished our goal. I think that for us to continue to hold that asset is just not something that we would plan to do. As a reminder, we have signaled to the market that we look at it as a cash recovery versus a GAAP income item. If we do exit that portfolio, then we may have a very slight adjustment on the GAAP basis of recognized income, but on a cash basis, we already have accomplished what we wanted to accomplish. I bring all that up to say that it is a really small item. It is a real outlier item. We are delighted with what we have done and what we have accomplished, and I would expect that to be either gone altogether or diminished quite a bit over the next few months. Nathan James Race: Got it. Thanks for taking my questions. Operator: This concludes our question and answer session. I would like to turn the call back over to Thomas L. Travis for any closing remarks. Thomas L. Travis: Again, thank you for joining the call. We are delighted to be where we are and continue to produce these results. We are mindful of the macro Middle Eastern situation. When the inflation starts fighting as predicted because of the higher oil prices, we are prepared as much as anybody can be for it. In the meantime, it is steady as she goes for Bank7 Corp. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter Fiscal Year 2026 CarMax Earnings Release Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Lowenstein, VP, Investor Relations. Please go ahead. David Lowenstein: Thank you, Angela. Good morning. Thank you for joining our fiscal 2026 fourth quarter earnings conference call. I'm here today with Tom Folliard, Interim Executive Chair of the Board; Keith Barr, President and CEO; Enrique Mayor-Mora, Executive Vice President and CFO; and Jon Daniels, Executive Vice President, CarMax Auto Finance. Let me remind you our statements today that are not statements of historical fact, including, but not limited to, statements regarding the company's future business plans, prospects and financial performance are forward-looking statements we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our current knowledge, expectations and assumptions and are subject to substantial risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, we disclaim any intent or obligation to update them. For additional information on important factors and risks that could affect these expectations, please see our Form 8-K filed with the SEC this morning, our annual report on Form 10-K for fiscal year 2025 and our quarterly reports on Form 10-Q previously filed with the SEC. Please note, in addition to our earnings release, we have also prepared a quarterly investor presentation, and both documents are available on the Investor Relations section of our website. Should you have any follow-up questions after the call, please feel free to contact our Investor Relations department at (804) 747-0422, extension 7865. Lastly, let me thank you in advance for asking only 1 question and getting back in the queue for more follow-ups. Tom? Thomas Folliard: Thank you, David. Good morning, everyone, and thanks for joining us. Today, I'm going to provide some brief commentary on our performance during the quarter. I'll also introduce our new President and Chief Executive Officer, Keith Barr, before turning the call over to him to say a few words. After that, Enrique and Jon will speak to our fourth quarter results in more detail as well as highlight a few key expectations for fiscal year '27 before we open the line for your questions. During the fourth quarter, we made solid progress on the priorities outlined last call to strengthen the business. We improved sales trends by lowering our prices, investing in acquisition marketing and deploying an initial set of digital enhancements designed to drive conversion. We also continued streamlining our cost structure and lowering the cost to bring cars to market, helping us offer more affordable vehicles. Concurrently, we made meaningful progress on our SG&A reduction goals, CAF full spectrum ambitions and extended protection plan redesign. Before I get to Keith, I'd like to thank David McCreight for stepping into the role of Interim President and CEO over the past several months. As we search for the right leader to guide CarMax through its next phase of growth, David's leadership was critical in strengthening the business in the near term and solidifying the foundation for growth ahead. David will continue to be a tremendous asset to the company, serving as an independent Director of the Board. Well, the Board and I are thrilled to welcome Keith to CarMax. In searching for a CEO, we were looking for several attributes. First and foremost, a people-first leader who will fit well with CarMax's award-winning culture, an established proven leader with experience leading a complex business, someone with a strong customer focus and a track record of driving growth and strengthening brands, experience maximizing the benefits of an integrated omnichannel model and finally, experience leading digital transformation. Keith embodies each of these characteristics, making him the right choice to lead CarMax through a critical juncture and drive the company's next chapter of growth. I'll now turn the call over to Keith to introduce himself and say a few words. Keith? Keith Barr: Thanks, Tom, and good morning, everyone. I want to thank the Board for their trust in me. I am honored to join CarMax and lead this iconic organization alongside our talented associates. For more than 30 years, CarMax has helped shape the way people buy and sell used cars and in doing so, has earned something rare, the trust of its customers. A customer and associate-centric approach is central to how I lead, and I recognize right away that it is central to CarMax as well. This is one of the many things that attracted me to this team. CarMax has built something truly exceptional, a beloved brand, the combination of an unmatched physical footprint and strong digital infrastructure and an award-winning people-first culture. I am confident that we can build on this strong foundation and better serve our customers and unlock the significant opportunity ahead of us. Before joining CarMax, I spent my career in hospitality, holding numerous leadership roles in commercial, operations and technology and ultimately serving for 6 years as CEO of IHG Hotels & Resorts. I led a successful transformation that created value for shareholders through empowering associates and pioneering a better experience for customers that has become the industry standard. On the surface, hotels and used cars may seem different, but at their core, both businesses succeed by delivering the right product at the right price in the right way for the customer. My time in hospitality was defined by placing the customer at the center of every decision. The auto market is evolving quickly, and I believe a fresh outside perspective can be a real advantage, especially when it's grounded in respect for the complexity of the industry, a deep understanding of the competitive landscape and a clear focus on changing customer expectations. I believe there's a tremendous opportunity ahead to better meet the needs of today's consumer. CarMax's scale, including the fact that we reach 85% of the U.S. population is a competitive advantage in this market. Paired with our brand and culture, we are well positioned for success. Our recent performance has not reflected our potential and closing that gap is exactly what we are focusing on. I have been spending my first few weeks deeply familiarizing myself with every aspect of the business. This has included meeting many talented associates across the organization, both in our corporate offices and in the field, studying our customer and associate experience in both the buying and selling journeys, assessing our omnichannel capabilities and understanding our approach to reconditioning, inventory, pricing, marketing and CAF. In addition to the actions that Tom and David initiated during the fourth quarter, we're working hard to identify where we can improve. And when we have more detail, we will communicate our plans with you. What I can already say with absolute certainty is that we will put the customer at the heart of every decision we make to drive better performance. Through that lens, this is what we will prioritize. First, make CarMax the obvious and easy choice. That starts with consistently delivering 3 things that matter most to customers: a competitive price they trust is fair, access to a broad selection of high-quality vehicles and an end-to-end experience that meets the needs of today's consumer. Second, use technology to drive more differentiated experiences and efficiencies. We'll use software, data and AI in practical ways that make it even easier for customers to buy and sell cars and easier for our associates to serve them. That means reducing friction across the journey, personalizing the experience, improving how we match inventory and pricing to meet customer demand and ensuring a great experience both in our stores and online. Third, act with more urgency and intention while ensuring there is alignment across the organization. We will change what is not working, double down on what is and keep evaluating opportunities and risks as we move. We'll be bold, hold ourselves accountable and move with the speed as we build a durable long-term growth engine. These 3 priorities are where we'll begin. And I expect our work to evolve as I continue to listen, learn, engage with our teams and investors. We have a meaningful opportunity ahead of us as we strengthen the business and improve our execution to drive growth and returns. I look forward to sharing more about our strategy and long-term objectives in due time, and I'm confident in what we can accomplish. Now I'd like to turn the call over to Enrique to discuss our fourth quarter financial performance in more detail. Enrique? Enrique Mayor-Mora: Thanks, Keith, and good morning, everyone. During the fourth quarter, we improved our sales trends and made progress toward our SG&A reduction goal, which we now expect to be greater than the FY '27 exit rate reduction targets we had previously set. Our EPS during the quarter was impacted by restructuring costs as well as by a noncash goodwill impairment, while our margins decreased from the prior year quarter as we continue our focus on targeted price reductions and driving sales. During the quarter, we delivered total sales of $5.9 billion, down 1% compared to last year. Across our retail and wholesale channels, we sold approximately 304,000 vehicles combined, up 1% versus the fourth quarter last year. In our retail business, total unit sales declined 0.8% and used unit comps were down 1.9%. This marked a strong positive change in trend relative to the second and third quarters, which saw used unit comps of negative 6.3% and negative 9%, respectively. Sales performance in our fourth quarter was supported by the actions that Tom noted. Average selling price was $26,019, a year-over-year decrease of $114 per unit. Wholesale unit sales were up 3% versus the fourth quarter last year. Average wholesale selling price declined by $268 per unit to $7,776. We bought approximately 270,000 vehicles during the quarter, up slightly from last year. The actions that we implemented also supported a strong positive change in trend as compared to the third quarter, which was down 12% year-over-year. We purchased approximately 229,000 vehicles from consumers, with approximately half of those buys coming through our online instant appraisal experience. With the support of our Edmund sales team, we sourced the remaining approximately 41,000 vehicles through dealers, which is down 9% from last year. Fourth quarter net loss per diluted share was $0.85 versus $0.58 in earnings in the fourth quarter of last year. Adjusted earnings per diluted share, a non-GAAP measure, was $0.34 in the quarter compared with $0.64 a year ago. Our EPS this quarter was impacted by a few items. This includes a noncash goodwill impairment of $0.99, driven by a combination of a decline in our market capitalization, which coincided with a prescriptive impairment measurement period and pressured financial performance and restructuring charges of $0.20 related to corporate workforce reductions and the early abandonment of the underutilized space associated with our Edmunds office. Altogether, these items reduced EPS by $1.19 this quarter. Total gross profit was $605 million, down 9% from last year's fourth quarter. Used retail margin of $383 million decreased by 10%, driven primarily by lower profit per used unit of $2,115, which was down $207 per unit from last year's record high fourth quarter. Wholesale vehicle margin of $115 million decreased by 7% from a year ago with lower wholesale gross profit per unit of $940, a decline of $105 per unit, partially offset by higher volume. Other gross profit was $107 million, down 11% from a year ago. This was driven primarily by service. In line with the outlook we gave in the third quarter call, service was pressured by seasonal sales and the annualization of cost coverage levers taken last year. For the full year, service returned to profitability despite sales headwinds. CarMax auto finance income of $144 million was down 10% year-over-year. John will provide detail on CAF in a few moments. On the SG&A front, expenses for the fourth quarter were $611 million. When excluding the previously noted restructuring costs, SG&A was $577 million, down 5% from the prior year. SG&A dollars for the fourth quarter versus last year were mainly impacted by 3 factors. First, total compensation and benefits decreased by $31 million, driven by lower corporate bonus and stock-based compensation as well as lower CEC payroll following the actions taken last quarter. These savings were partially offset by $12 million in restructuring charges tied to our SG&A cost reduction efforts. Second, occupancy costs increased by $27 million, including a $21 million charge related to the exit of our Edmunds office lease. That action will support lower SG&A moving forward. The balance of the increase was primarily timing related. Third, advertising expense increased by $6 million, reflecting higher acquisition marketing spend. Turning to capital allocation. During the fourth quarter, we repurchased 1.3 million shares for a total expenditure of $50 million. As of the end of the quarter, we had $1.31 billion in repurchase authorization remaining. As we look ahead into FY '27, I'll highlight a few key areas. We expect to take a more dynamic approach to margin management as we run the business. As a guidepost for FY '27, we currently expect used margins for the full year to decline at a rate broadly in line with our fourth quarter year-over-year trend, although actual results may vary as we continue to optimize performance. We expect the first quarter to reflect the largest year-over-year decline at closer to $300 per unit as we lap record margins. This outlook reflects our pricing actions and our ongoing efforts to reduce logistics and reconditioning COGS in support of more competitive pricing and stronger sales. We have completed our EPP product redesign and testing and have begun our national rollout, which we expect will drive approximately $35 per unit in margins in FY '27. We will ramp throughout the year driven by the rollout plan. Regarding SG&A, we expect FY '27 exit rate reductions of $200 million, an increase over the previous guidance of $150 million. However, the year-over-year savings within FY '27 are expected to be offset primarily as we annualize over the materially reduced corporate bonus and share-based compensation in FY '26, which offsets approximately half of the FY '27 in-year savings, inflationary pressures and new location growth. With our focus on lowering vehicle pricing through lower GPUs and COGS efficiencies, we will be transitioning our SG&A efficiency metric to a per total unit ratio, which will consist of retail plus wholesale units. We expect SG&A to lever in FY '27 when excluding the restructuring charges incurred in FY '26. Regarding capital expenditures, we anticipate approximately $400 million of spend in FY '27, down materially from the past 2 years. The largest portion of our CapEx investment continues to be related to the land and build-out of facilities for long-term growth capacity in off-site reconditioning and auctions. In FY '27, we plan to open 4 new stores, 2 new off-site reconditioning and auction locations and 2 new off-site auction locations. Regarding capital structure, our priority remains funding the business and maintaining financial flexibility. We continue to take a disciplined approach to our capital structure, including managing our net leverage to preserve efficient access to the capital markets for both CAF and CarMax overall. With leverage slightly above our targeted range and as we focus on improving the business during this transitional period, we have paused our share buybacks. Our $1.1 billion authorization remains in place, and we remain committed to returning capital to shareholders over time. At this time, I will now turn the call over to John to provide more detail on CarMax Auto Finance and our continuing focus on full credit spectrum expansion. Jon? Jon Daniels: Thanks, Enrique, and good morning, everyone. During the fourth quarter, CarMax Auto Finance originated almost $1.9 billion, resulting in sales penetration of 42.8% net of 3-day payoffs versus 42.3% last year. The weighted average contract rate charged to new customers was in line with last year at 11.1%. Third-party Tier 2 and Tier 3 penetration in the quarter combined for 25.6% of sales, which was also in line with last year. The year-over-year increase in CAF penetration in the fourth quarter reflects our continued focus on expanding in Tier 2, supported by our flexible funding strategy and newest underwriting models. We expect our penetration growth targeting the top half of Tier 2 will accelerate in FY '27. CAF income for the quarter was $144 million, down $16 million from the same period last year. The loan loss provision was $74 million as compared to $68 million last year. Net interest margin on the portfolio was up slightly both sequentially and year-over-year at 6.3%. Consistent with the third quarter, credit losses in the fourth quarter were in line with our expectations. CAF's $74 million loan loss provision largely reflects expected charge-offs on newly originated loans, including those tied to our credit spectrum expansion primarily into the top half of Tier 2. Total reserves ended the quarter at $453 million or 2.78% of auto loans held for investment. We also designated a $100 million pool of nonprime loans as held for sale during the quarter, which does not require a loss reserve. As signaled previously, we anticipate leveraging future off-balance sheet funding transactions strategically as it supports our full spectrum growth strategy by balancing income and future provision risk. While CAF income was down year-over-year in the quarter, this is largely reflective of a reduced held-for-investment receivable base impacted by the $900 million 25-B transaction executed in Q3, coupled with lower origination dollars over the last few years. CAF realized approximately $5 million in servicing fees during both the third and fourth quarters. The third quarter also included a $27 million gain on sale as a result of the 25-B transaction. As we grow our volume in Tier 2, we will continue refining our funding strategy and earnings model throughout the year. We believe a diversified funding approach gives us flexibility to optimize returns beyond traditional third-party lender fees while maintaining appropriate risk discipline. More broadly, we see CAF penetration growth as a contributor to the larger strategic goal of retaining a higher percentage of finance income. As always, we will carefully consider the current state of the economy and consumer as we shape our strategy. I also want to provide an update on our redesigned extended service plan, MaxCare, which focuses on mechanical coverage and our new MaxCare Plus offering, which adds cosmetic protection. The redesign of these products is aimed at increasing penetration by improving affordability amid higher vehicle prices and has shown encouraging results across multiple markets to date. As Enrique mentioned, we have completed our product enhancement testing and expect to achieve nationwide rollout by Q2 of FY '27. Now I would like to turn the call back over to Keith. Keith? Keith Barr: Thank you, Jon. Before we open the line for questions, let me leave you with a few final thoughts. I want to thank Tom, David and all our CarMax associates for the foundation they have built. We made progress in the fourth quarter to improve affordability and streamline our cost structure. The time I have spent with associates in our offices and in the field has only reinforced my confidence in the opportunity ahead. We have a strong foundation, a powerful brand and our focus is clear: make CarMax the obvious choice for customers, use technology to create more differentiated experiences and efficiencies and operate with greater urgency and intention. If we do that well, we will build a stronger, more efficient business with the customer at the center of every decision we make. Before I close, I want to recognize a point of pride for CarMax. We were once again named by Fortune as one of the 100 Best Companies to work for, marking 22 consecutive years on that list. Even in my first few weeks here, I have seen the culture behind that recognition firsthand. The trust, care and support associates show for one another every day are real strengths of this company. I'm honored to be part of this team. I look forward to updating you on our progress in the quarters ahead and to sharing more about our strategy and long-term objectives in due time. Thank you for your continued trust and confidence in CarMax. With that, we will open the line for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Craig Kennison with Baird. Craig Kennison: Keith, congratulations on the new role. I guess I'd start with what are your general observations after the first few weeks in the role? And then more specifically, as you draw upon your experiences in the hotel industry, what are your thoughts on how to streamline the click-through experience at CarMax? It feels like that's an area where you lag the best-in-class experience. Keith Barr: Thanks, Craig. And yes, I'm thrilled to be here, and it's a pleasure to meet you. I think it's been great to get to know the team in the first few weeks. And what really stood out to me so far has been the caliber of our associates, both in the corporate office and in the field and the culture that's really, really palpable. I mean there's an amazing culture here in the company. And right now, we're focusing on sharper execution on the fundamentals of the business, about pricing, about selection, availability and experience. And so it's an amazing team. I think you're right, on the hotel experience, one of my rallying cries in my old role was how do we reduce friction in the customer experience. If it takes us 6 clicks to do something, how can we make it 3? What are the things that really matter most to customers and really understanding that end-to-end customer journey, both online and in-store and how we can streamline those processes. So that's going to be one of my main focuses in the omnichannel experience. It is just streamlining the experience and really making it easier for our customers. Operator: Our next question comes from Brian Nagel with Oppenheimer. Brian Nagel: Keith, welcome. Look forward to working with you. So my question, just looking at this quarter, I think one of the big efforts here has been the price -- I guess, price investments, so to say, in the used car business. So maybe you can discuss further what you saw in terms of elasticity and demand as you adjusted prices. How much of the -- while used car unit comps were still down, they did improve rather significantly from the prior couple of quarters. I mean how much of that could you attribute to these price investments? And I know you gave us the guidance for -- at least some guidance for the first quarter. But I mean, how should we think about these price investments going forward? Enrique Mayor-Mora: Yes, Brian, thanks for the question. The impact that we had on the quarter was really -- there are several things that we did, right? So we took our prices down. You can see that in the GPU. We increased our acquisition marketing spend as well. And we also made improvements to our online selling capabilities just through our website experience. I would tell you, out of those 3 things, pricing certainly, we believe, had the biggest impact, although we think all of those levers impacted our trend positively. And I'd tell you the results that we saw this quarter were pretty much in line with what we had expected given the actions that we took. And so we are really pleased with the change in direction. We are able to -- coming out of the third quarter, we made it very clear, like our objective right now is to get the sales flywheel going, and we're pulling these levers, and that's exactly what we saw. And we have those levers in place here moving forward as well. Brian Nagel: So could I follow up quickly, David, on that topic? I mean just is there a way to quantify, again, looking at the improvement, so to say, that we saw in used car unit comps here in fiscal Q4 versus Q3 and Q2. Is there a way to quantify, I mean, how much of that was a direct result of these efforts you took? Enrique Mayor-Mora: Yes. It's not really -- we haven't really talked externally about the price elasticity. We have a very deep understanding of price elasticity of -- it's not something we've necessarily communicated externally exactly what it is. But again, what I'd tell you is that change in trend and that change -- a positive change in direction, those 3 items drove it, lower prices, increased marketing, better selling capabilities online. But of those items, we do believe that our lower pricing had the biggest impact on the quarter. Thomas Folliard: Brian, it's Tom. I think it just proves price matters in this business. And we had let our -- as we said at the beginning of last quarter, we kind of had let our prices drift up where we weren't as competitive as we'd like to be. And so as Enrique mentioned, we took several actions immediately at the beginning of the fourth quarter. And as you noted, we saw a significant change. But clearly, the biggest one was price. And now as you've heard the team talk about cost, if we could get sales moving in the right direction and we can address some of the cost issues behind it, whether it's COGS or SG&A, we're going to have a fantastic business. But price really matters to the consumer. Operator: Our next question comes from Rajat Gupta with JPMorgan. Rajat Gupta: Look forward to working with you, Keith. I had an initial question, just to follow up on Enrique's comments around SG&A. How much of the $200 million do you expect to hit this year's P&L? And could you double-click a little bit more on some of the commentary around accruals and stock-based comp and how we should think about the magnitude there? And maybe any other guardrails around SG&A with respect to ad expense per unit, that would be helpful. Enrique Mayor-Mora: Yes. No, absolutely. Thanks for that. So a couple of things. I think one way to think about it is the exit rate dollars we have coming out of FY '26. And between the CEC actions we took last quarter, the home office actions we took this quarter that we talked about on the call as well as the Edmunds lease, all those things combined mean FY '26, we're exiting the year with about $100 million in savings. And as we said, we have a line of sight to another $100 million exit rate FY '27. So some of those will be recognized within FY '27, but really, you're looking at a full realization in FY '28 for the full annualization. What I would say, though, and as I said in my prepared remarks, in FY '27, the in-year savings, we do expect to be offset as we annualize over the materially reduced corporate bonus and share-based compensation. And that's about half of the actual expectations we have for savings in FY '27. Now in normal course of business, we don't expect those items to actually be around, right, and to have the same magnitude of impact. So that's really where you look at FY '28 and you say, okay, that would be a full annualization of the savings. So that's how to kind of think of FY '27 and the exit rate savings. Like look, we are laser-focused. And just to be absolutely clear, we are laser-focused on running as efficiently as we can. And I think us taking up our target from $150 million to $200 million is a sign of that intent. And so we're certainly plowing forward and excited about those savings. But again, the full impact will really be in FY '28. Did you have a second part of your question, Rajat? Rajat Gupta: I like just a quick follow-up for Keith. Yes. So just curious, like as you've had a chance to look at the portfolio a little bit, would you consider taking a look at just your store count as well and maybe think about pruning the number of locations you need, the density you need? I'm curious like how that would fit into how you're thinking about rationalizing and just creating more efficiency. Enrique Mayor-Mora: It's Enrique again. As we go through our strategic planning process here with Keith his new leadership, it's certainly something that we're going to be assessing. Like we're going to go through a strategic plan outlook. We're going to come back. And as Keith mentioned in his prepared remarks, we're going to come back at the appropriate time and communicate what those longer-term objectives are, what the goals are and the key underpinnings of that strategy. So at the current moment, I think that a lot is on the table, and that's something that we'll be assessing as part of the strategy. Operator: Our next question comes from Sharon Zackfia with William Blair. Sharon Zackfia: I guess as you think about kind of improving affordability and clearly taking this GPU hit currently, are you also kind of considering maybe relaxing some of CarMax' standards? And I don't mean on the mechanical side, but on the cosmetic blemishment side, is there an opportunity to sell a few cars with dent or modest scratches where it might be more affordable to the consumer and could be clearly disclosed given that most of the research is done online? Enrique Mayor-Mora: Yes, Sharon, thank you for the question. Certainly, if you look over the past year, right, we have taken what we internally call, but I think everyone kind of externally knows as well, like ValueMAX cars, so our older cars. We've taken the mix of our ValueMAX cars up pretty considerably this year, which is really a sign towards like we recognize, as Tom mentioned, pricing is key. Affordability is key. And so that's one way of thinking of us meeting the customer where they want to be met on price is just increasing our mix of ValueMAX. I think at the same time, taking a harder look at what -- how exactly can we even better do that is something as part of our strategy, we're going to consider because clearly, over the past year, sales have not been where we want them to be. And so we need to consider all potential levers when it comes to going to the market. I think the one thing that we will not change, though, is absolutely overall relative quality standards that we have and that we're known for. CarMax is known for a quality car, and that will continue. But there's probably items around the edges that we can take a harder look at and make sure that we meet today's customers' demands today, right? Sharon Zackfia: And Enrique, can I follow up? I know Keith has been there for like a minute, but is there any kind of time frame when we should expect kind of the strategic plan and some maybe more concrete benchmarks on SG&A per car and things like that? Enrique Mayor-Mora: Yes. You're right. Keith has been here a minute. So we will be -- we have our planning sessions that are underway here, and that will take we'll start doing those over the next quarter here. I think in June, you'll probably start to see some headlines maybe. I don't expect by June, there'll be a full strategic path forward. But in June, you'll start to get a sense of where we're going. And then certainly, after that, shortly after that, I would expect that we'd have a strong point of view on where we're going and the key metrics that go along with that and our outlook for the future, which we're really excited about. Operator: Our next question comes from Scot Ciccarelli with Truist. Scot Ciccarelli: So 2 strategic questions, if I may. First on sales. If price reductions and a $300 GPU drop were to accelerate comps to the positive range, would you expect it to push it even further because it's working? Or is there a floor on GPU levels that you're kind of thinking about? And then secondly, on the SG&A side, it sounds like you have an expectation to improve the customer experience, especially with online transactions. But can you help us reconcile like you're also expecting to cut OpEx and CapEx pretty significantly. And presumably, some of those things cost money. Enrique Mayor-Mora: Yes. Maybe just to start with SG&A. And so we have increased our target, right, from $150 million to $150 million to $200 million, and we'll continue to assess this at the right number. I think the key point here is that it's critical that we balance our cost reduction goals with our ambitions to grow the business, right? And to your point, there is a little bit of tension between the 2. And I fully expect as part of our strategic planning deliberations, that's going to be a topic, right? We want to make sure we're running as efficiently as possible, but we also want to make sure that we're actually funding the business appropriately. And that may mean reallocating certain resources. It may mean reducing certain resources and in certain areas, perhaps increasing resources, right? But that's going to be a key point of attention as we build out our strategy kind of moving forward. And then when it comes to price, I think the other lever to consider, right, that we're always focused on, but I think will take on heightened importance is COGS and reducing our COGS and logistics costs. Because when you do that, you actually then have multiple choices ahead of you. You can either just take it straight and give it to the customer. You can take it to margin to help offset some of that pressure or you can do a combination of the 2. And that's really something that we're laser-focused on kind of moving forward. And that certainly will be a key tenet of our strategy moving forward as well. Keith Barr: Scot, I'm just going to build on what Enrique said. In my past experience, becoming a more efficient business and lowering SG&A doesn't come at the expense of a great customer experience. You can actually improve quality, leverage technology and become a more efficient business at the same time. And I think that's what we're going to be very focused on. Spending time with the team in the stores, there's a number of opportunities for us to, again, make it easier for our associates to serve our customers and give a better experience for our customers, both in-store and online more efficiently. So I have done that before and looking forward to working with the team to do it again. Operator: Our next question comes from Daniela Haigian with Morgan Stanley. Daniela Haigian: Keith, congratulations on the role. Looking forward to seeing what you and the team will accomplish here. So I appreciate the overview on goals and understand we'll have to wait until June for the full strategic update. But I guess in the first 90 to 100 days here, what are the specific changes or low-hanging fruit that you'll prioritize to simplify that digital experience and improve conversion? And what are, I guess, areas or metrics that we can track against those goals? Keith Barr: Well, thanks for the question. Again, I've been here 4 weeks, which has been an amazing experience and spending time in the stores in the office and with the teams. And so I'm really enjoying learning about the car industry and understanding our strengths. And I guess I'll start there because I think -- the company has made great long-term investments in its digital platform and the geographic footprint. And the thing that we're focusing on is how do you connect that digital innovation with physical retail to create something that's really powerful that we can leverage to drive growth. The team right now is incredibly focused on the customer experience, particularly in digital and understanding how we can more efficiently move customers through the funnel, reduce friction. And to one of the earlier questions, like if it's taking us 10 clicks to do something, how can we do it in 7 or 5, really understanding what are the features and benefits that matter most. And so really making sure that we're driving customer acquisition, but then also more effectively moving customers through this experience, both online and in the stores. In regards to specific metrics, I think we're going to have to come back to you once we have a clear view on the long-term strategy because the metrics that are going to be most important in this business has to be aligned to those outcomes. So I don't know, Enrique, if you want to add anything else? Enrique Mayor-Mora: No, I think that's absolutely correct. And again, in June, maybe some signals in terms of where we're going. June is really not that far away. But I think thereafter is when we'll come back with kind of a fuller point of view on our strategy, the metrics to hold us accountable by that we'll hold ourselves accountable to. And again, we're really, really excited about where we are and our path forward here. Operator: Our next question comes from David Bellinger with Mizuho. David Bellinger: Keith, congrats on the new seat. Two areas where we were looking for a bit more detail. First one on conversion. I know you just talked about this a second ago, but how do you assess the level and quality of traffic that's coming into your site and your app? And just how you benchmark against others in the sector on conversion? And then second piece on vehicle inventories. Looking at your app, you've got 55,000 cars in there right now. That's been as high as 60,000 or 70,000. So as you implement some of these new tools, even some AI tools, is there an opportunity to operate the business with simply less inventory while still giving that core customer the breadth and depth that they need? Enrique Mayor-Mora: Yes. I think on the inventory piece, I think, look, that certainly is a key aspect that we need to consider, and we need to balance what is the right amount of inventory kind of by market, how quickly can we get it to customers. And I expect that will be a key component of our strategic deliberations as well, making sure we have the right amount of inventory. Is it less? Is it more? We'll end up seeing what that looks like. And in regards to conversion, I think as well, that's going to be a key point of view. Like this past quarter, I would tell you, conversion was relatively flat. Our selling opportunities were actually relatively flat as well. Our web traffic was up like 14% this past quarter. And for the first time in 5 quarters, we saw selling opportunities actually relatively flat as opposed to being down year-over-year. So positive movement there. And again, conversion was relatively flat. But I think the items that Keith has pointed out in terms of getting the customer through our website and buy a car in an easier way, in a faster way, undoubtedly is going to help our conversion rate when folks land on the website. And so pretty immediately, he's been here a hot minute, but already identifying, I think, the key areas of opportunity for us moving forward. And look, our goal is to drive selling opportunities and also drive conversion as well. Operator: Our next question comes from Jeff Lick with Stephens Inc. Jeffrey Lick: Question, Tom, since this is probably going to be your last call, we get the benefit of your wisdom. I was wondering if maybe you could just give a little -- any granularity or color on just as you drop prices, obviously, you didn't drop every price $207, some you dropped some you might even increase. Any color on where you do see more elasticity in terms of cohorts, age of car, where you're getting more traction versus where you're getting less or where it's not worth it to try to play the price game. Thomas Folliard: I think Enrique talked earlier about kind of optimizing the -- he talked earlier about optimizing the price and cost differences. As I mentioned, clearly, when we lowered price, it changed our -- changed the trajectory of our sales. And as you just rightly pointed out, when we say our margins are down $200, they're not down $200 on every car. You see all of our cars practically ended $998. That means we're more likely to drop a car at $1,000 -- like 20% of the car is at $1,000 to achieve the $200 price drop. And we are very analytical about that and how we approach it and do it in a way that we think will maximize the change in sales. The backdrop of that is we have to run a profitable business. And as Enrique mentioned, some of the things on cost, we felt like lower the prices, get sales moving in the right direction and then pay for it by taking cost out of the business. And I think that will be a theme for this team going forward as well, which is figure out how to grow the company. There's no reason we shouldn't be able to grow this business with our current footprint and do it in a profitable way. And that's a combination of pricing, margins, CAF, all the ancillary products that we sell. But look, I think it was great to come out of the quarter with a change in sales trajectory, and we believe that price was a big factor there. Jeffrey Lick: And then just a quick follow-up and maybe, Keith, you could chime in on your thoughts. I mean, Tom, if I think back, call it, 10, 15 years ago, when the world was really all brick-and-mortar, I think the thought -- the strategy was you're trying to have a used car lot that was a little more customer-friendly than your typical used car lot would lend itself to selling newer cars. And it seems like there's less competition, relatively speaking, in the -- your ValueMAX. I wonder is culturally, would you -- are you more willing now to explore that 7-, 8-year-old, 9-year-old sale and kind of mix the person who's coming in looking for that 3-year-old Jetta versus the person that's coming in looking for the 8-year-old Ford Explorer? Thomas Folliard: Again, we're a demand-driven business. And Enrique mentioned earlier about internally, we call it ValueMAX. It's really just an older car with higher miles, but we want to keep it at the same quality standard. I believe Enrique, our inventory is around 50% ValueMAX, that was 15%, 20% 10 or 15 years ago. So... Enrique Mayor-Mora: Yes. And again, this year, we have absolutely increased our sale -- inventory and sales of our older cars to drive -- to meet the customer where they want to be met on affordability to help support sales. But at the same time, Jeff, clearly, overall, if you take a look at the entire year, we're not where we want to be, right? And so I think it's -- we need to continue to assess from a sales standpoint. So we need to continue to assess what is the right level of inventory, what is the right age of inventory and the price points. And that will be part of our deliberation certainly. Thomas Folliard: Yes. And Jeff, it's a double-edged sword. You buy older cars with higher miles, they cost more to recondition and they take longer to recondition. So it's not -- and Keith said it earlier, it's the right car in the right place at the right price. And so it's a combination of those variables. Operator: Our next question comes from Michael Montani with Evercore ISI. Michael Montani: Welcome to Keith. Looking forward to working with you as well. I wanted to ask, if I could, John, if you could unpack a bit more some of the trends that we're seeing on the credit side with respect to roll rates and delinquencies, both in terms of on a like-for-like basis of credit quality and applicants as well as given some of the mix changes that have occurred maybe towards more upper end of your 2. Jon Daniels: Sure. Yes. I appreciate the good questions, Michael. With regard to roll rates and delinquencies, I think across the kind of the auto lending industry, lenders would say customers maybe absent exception of maybe the highest credit quality, the 800-plus FICO, they certainly are feeling the stress of affordability, inflation, et cetera. So those customers from mid-tier 1 all the way down to deep subprime are feeling the stress. Delinquencies are higher, roll rates are higher. And for us, as a lender, our job is to support them, help to service them and then set the reserve accordingly in preparation for that. And I think we've done that over the last -- at the end of Q3, we've hit our losses right on the mark in Q3 and Q4. So we feel good about where we sit. But there is a stressed customer out there, and we are thoughtful on that. That being said, again, it's a highly profitable business. We provide a fantastic card and a fantastic experience. So that's why we are willing to go into the Tier 2 space, and we are growing that space. You've got loans of value of $3,000, $3,500 on top of the Tier 1 business. So we look forward to growing that. So we have shifted our focus. Obviously, we will always take all the Tier 1 volume, but we're growing in Tier 2. We signaled that. We're at 43% penetration this quarter. We anticipate that accelerating over the course of FY '27. We've made market changes to grow that across the last year, including Q4. And so we will look forward to booking those that Tier 2 volume. We were approximately less than 10% of Tier 2 a year ago. We were closer to 20% in this quarter of Tier 2 and actually exiting the quarter, we're actually a little higher than 20%. So we look forward to taking on that volume, servicing that customer, reserving accordingly, nail in that and obviously generating more income for CarMax. Operator: Our next question comes from John Babcock with Barclays. John Babcock: I just have 2 quick ones here. I guess just first of all, on capital spending, you talked about how that's going to be down over the last couple of years. Are you able to provide any color in terms of where you're reducing spending, whether that's on the maintenance side or the growth side? Enrique Mayor-Mora: Yes. It's actually a little bit of both. And so number one, on the growth side, we're taking new stores down from 6 to 4, as I talked about in my prepared remarks. So that's one of the drivers. At the same time, from an off-site reconditioning and auction standpoint, we have spent the past several years buying the actual real estate when it comes to those sites. And so what you see this year is a little less on real estate spend as well. And then overall, just for our stores as well, just a little bit more heightened focus, just a little bit there, a little more heightened focus on prioritization of resources there. So you kind of see it across the board really. John Babcock: Okay. That's very helpful. And then also, just given everything that's going on in the Middle East right now, I was wondering, I know you've talked about lowering pricing and marketing spend and everything else you're doing to really try to drive more traffic, drive more consumer interest in CarMax. Just kind of curious, though, I mean, how have the Middle East tensions impacted what you're seeing? And do you think that's going to have a notable impact on your overall year-over-year growth trends? Or do you think that you can grow through despite that? Enrique Mayor-Mora: That's a great question. What I'd tell you is what I'd point you to really is more the industry, right, for the month of March. And in the month of March, the industry actually supported by a pretty strong tax season was pretty healthy. We're not going to talk about our intra-quarter performance. But I'd tell you, the industry itself is actually pretty healthy coming out of March or into March. And I'd tell you, moving forward, yes, I do think it's something that we need to watch between inflationary pressures, between what has now been on record the lowest consumer sentiment on record here. So it's something that we're watching, right? But at the same time, we are focused on what we can control. And what we can control, especially given now that we have a much more dynamic approach to margin management is we can react to what's happening in the market pretty quickly. And so we're excited to have that approach a little bit more dynamic, as I mentioned, and we'll control what we can control. Keith Barr: John, just to add one more thing there, which I've been really impressed about is just how the team has been talking about what's happening in the market. And so thinking about on the supply side as well, talking about, okay, do we have more -- bring more EVs into inventory? Do we bring in more gas-efficient vehicles as well, too. So constantly thinking about what does the customer want and how we make sure we can deliver that to them to drive sales. Operator: Our next question comes from Chris Pierce with Needham. Christopher Pierce: If we just fast forward a year from now and we're looking out to '28, would we -- I just want to sort of understand, is it lower prices, lower SG&A per unit and structurally lower retail GPU? Or are there levers you can pull on the retail GPU side of the world as well? And I'm just sort of asking because you've got a customer being aggressive on -- not a customer, a competitor being aggressive on financing rates to customers. Like what would happen if that competitor got aggressive on pricing as well? I'm just sort of curious how you can kind of -- could you pull this lever again and drive growth again? Or is this like a onetime lever and retail GPU needs to sort of move higher over time? Enrique Mayor-Mora: Yes. No, I don't think it's a onetime lever. Look, I think a year from now, yes, we are laser-focused on affordability for customers. That does move the needle. And so we need to now go back and figure out how to deliver on that. And as I mentioned earlier, certainly, a focus on COGS, logistics costs is going to take a heightened focus in our strategic planning process because, again, that is a lever that you can either give to the customer, you can either take the margin or you can do a combination of those 2 things. That is a very powerful lever, and it's one where we think we have opportunity and one that we're laser-focused on. But what I think is nonnegotiable is having -- being more price competitive. And we've actually seen that. We do track our relative price competitiveness on pretty much on a weekly basis here. And what we have seen is that, that price competitiveness has gotten better and pretty much in line with what we expected for the quarter. And so we've been pleased with that movement, and you saw the results. Jon Daniels: And Chris, I'll just add to that. As Enrique mentioned about -- you talked about the retail side and the retail margin, we've signaled and clearly have shown in what we're doing in the CAF side of it, there is clear opportunity on the finance margin, and we're going to go after that. We're excited about the EPP product and the added margin there. So we look at it holistically. We're going to look at it dynamically, and I think we can really support in those 2 buckets as well. Christopher Pierce: Okay. And then just, Enrique, if you could sort of help me kind of -- if I think about logistics as part of retail GPU, what kind of like lever are we talking about? Is that a couple of hundred dollars? Like just kind of bucket it a little bit. So if you do decide to take that back and pass something on like how much of a lever is that on retail GPU to the extent you can say? Enrique Mayor-Mora: Yes. No, I mean our overall spend on logistics is north of that, right? So -- but in terms of like where the actual dollars will come from, logistics is an opportunity we know just the actual labor that goes into reconditioning and all the costs associated with that parts, everything is an area of opportunity. But there -- we believe there's plenty of opportunity there to further increase and improve our price competitiveness. Operator: Our last question comes from John Healy with Northcoast Research. John Healy: Keith, I wanted to get a big picture question. I know we've talked a lot about the retail approach, but your view on the financing business, are you fans of it? Are you liking the approach to kind of maybe reach down a little bit deeper in that category? And then secondly, just as you look at the capital structure of the business, I always felt CarMax is unique in that it doesn't floor a lot of its inventory or much of it all. Is that something that you'd consider to do to maybe take advantage of maybe raising some capital to maybe recapitalize or buy in a lot of stock? Or how would you think about maybe even the need to have CAF and maybe try to be creative with that asset as maybe some other entities have recently done. So would just love to get your thoughts if that is something that's also on the table for you guys? Keith Barr: Thanks, John, and a pretty wide range of question. I'll take the first part, and I'll let Enrique talk about kind of capital structure. I was with the CAF team last week, and it was absolutely fantastic to spend time with Jon and his team to see just the caliber of talent we have there and how we're thinking about the business. And as we build our strategy moving forward, which we'll come back and talk more about in June, it's really understanding all the levers we can pull to make this a growth business and drive return to shareholders. And so CAF is going to play a key piece in that. That's going to be in the lending environment. It's also going to be in the other products that we can sell. And then how does that pair into our overall selling strategy for the business and getting the right price, right cars, improving logistics, too. And so CAF is going to be a critical lever for profit growth for this company moving forward, and we're going to really kind of see how it fits into the broader strategy overall. But I'll let Enrique talk about capital structure. Enrique Mayor-Mora: Yes, a couple of things. And certainly, the capital structure supporting CAF funding and all that is very dynamic, and it's a very exciting area for us. I think number one, on a floor plan, the revolver that we have is the most efficient use of capital when it comes to funding the CAF business. And so I would not expect that to change. What I would tell you, though, is from an overall CAF funding opportunity we are looking at, as we've talked about before, at alternative funding vehicles, right? So last year, we executed our first residual sale, which allowed us to have a gain on sale in the third quarter. So that's something that we intend on continuing to lever. We are really pleased with the execution of that deal and the reception that we had in the marketplace with that deal. But alternatively, we're also looking at different levers, too, such as a whole loan sales. Is that an opportunity, right? And there's multiple ways to access capital to support CAF, and we're exploring them all. We have a strong portfolio of banks and capital providers that we've been dealing with for years and years that are supportive of us. We also have some new potential partners as well out there that we're exploring those options with as well. So I would expect as the year unfolds here, you'll see us kind of exploring new ways to fund the CAF business. Keith Barr: Great. I think, operator, that's the last question. So thank you for joining the call today for your questions and for your support, and I look forward to getting to know all of you better in the quarters to come, and we will talk again next quarter. Operator: Thank you. Ladies and gentlemen, that concludes the Fourth Quarter Fiscal Year 2026 CarMax Earnings Release Conference Call. You may now disconnect.
Christopher J. Meade: Good morning, everyone. I am Chris Meade, the General Counsel of BlackRock, Inc. Before we begin, I would like to remind you that during the course of this call, we may make a number of forward-looking statements. We call your attention to the fact that BlackRock, Inc.’s actual results may, of course, differ from these statements. As you know, BlackRock, Inc. has filed reports with the SEC which list some of the factors that may cause the results of BlackRock, Inc. to differ materially from what we say today. BlackRock, Inc. assumes no duty and does not undertake to update any forward-looking statements. With that, I will turn it over to Martin. Martin S. Small: Thanks, Chris. Good morning, everyone. It is my pleasure to present results for the first quarter of 2026. Before I turn it over to Larry, I will review our financial performance and business results. Our earnings release discloses both GAAP and as-adjusted results. A reconciliation between GAAP and our as-adjusted results has been included in the table attached to today’s press release. I will be focusing primarily on our as-adjusted results. It has been a standout start to the year for BlackRock, Inc. Our first-quarter revenue, operating income, and earnings per share grew double digits. We expanded margins by over 100 basis points and we delivered 8% organic base fee growth. That is our seventh consecutive quarter at or above 5%, bringing the last twelve months’ organic base fee growth to 10%. What is driving that performance is deep engagement with clients. We are providing advice, insights, and access across the whole portfolio, allowing clients to efficiently implement both long-term strategic asset allocation moves and tactical exposures to navigate near-term themes in markets. These higher-velocity markets bring clients closer to our firm. BlackRock, Inc. is winning mindshare and wallet share reflected in $130 billion of net inflows in the first quarter. Organic growth is durable and broad-based. It is consistent across product, region, and client type. Firms we brought together deliberately are now compounding in our results and with our clients. You see it across the BlackRock, Inc. portfolio. Aperio flows are accelerating, as advisers bring tax-aware direct indexing into the core of accounts. iShares is leading the industry across active and index. Infrastructure fundraising and deployment are ahead of plan. 2026 unfolded in a more volatile market environment. Markets showed heightened sensitivity to incremental economic data, with volatility rising across rates, equities, and currencies. There is real, impactful geopolitical uncertainty. There is both excitement and anxiety about how artificial intelligence will impact day-to-day lives and business models. As capital reallocates and assumptions are challenged, markets can feel unsettled even when underlying fundamentals are sound. That dynamic is evident today. While headlines and sentiment remain uneven, BlackRock, Inc.’s performance tells a very different story. Our fundamentals are strong. Organic base fee growth remains well above target, and margin expansion continues to reflect the operating leverage built into our model. Momentum across our business continues to accelerate. That momentum is rooted in clients wanting to partner with scaled, trusted platforms, and they are consolidating more of their portfolios with BlackRock, Inc. Turning to our financial results, first-quarter revenue of $6.7 billion increased 27% year-over-year, driven by organic growth, the impact of higher markets on average AUM, the acquisitions of HPS and Preqin, and higher technology services and subscription revenue. Operating income of $2.7 billion was up 31%, and earnings per share of $12.53 was 11% higher versus a year ago. EPS also reflected lower nonoperating income, a higher effective tax rate, and higher share count in the current quarter linked to the closing of the HPS transaction on July 1, 2025. Nonoperating results for the quarter included $66 million of net investment gains, driven primarily by equity method earnings and noncash valuation gains on our minority investments. Our as-adjusted tax rate for the first quarter was approximately 23%. This reflected $57 million of discrete tax benefits related to stock-based compensation awards that vest in the first quarter of each year. We continue to estimate that 25% is a reasonable projected tax run rate for the remainder of 2026. The actual effective tax rate may differ because of nonrecurring or discrete items, or potential changes in tax legislation. First-quarter base fee and securities lending revenue of $5.4 billion was up 24% year-over-year, driven by the positive impact of market beta on average AUM, organic base fee growth, and approximately $230 million in base fees from HPS. On an equivalent day-count basis, our annualized effective fee rate was 0.2 basis point higher compared to the fourth quarter. Our fee rate benefited from outperformance of international equity markets relative to the U.S., along with client demand for international iShares exposures, and our structural growers in systematic equities, private markets, Aperio, and active ETFs. Performance fees of $272 million increased from a year ago, reflecting higher revenue from alternatives, which includes $121 million of performance fees from HPS. Quarterly technology services and subscription revenue was up 22% compared to a year ago. Growth reflects sustained demand for our full range of Aladdin technology offerings, and a full-quarter impact of the Preqin transaction which closed on March 3, 2025. Preqin added approximately $65 million to first-quarter revenue. Annual contract value, or ACV, increased [inaudible] year-over-year. We remain committed to low- to mid-teens ACV growth over the long term. Total expense increased 24% year-over-year, reflecting higher compensation, sales, asset and account expense, and G&A. Employee compensation and benefit expense was up 27%, reflecting higher incentive compensation linked to higher operating income and performance fees, and higher headcount associated with the onboarding of HPS and Preqin employees. Sales, asset, and account expense increased 25% compared to a year ago, primarily driven by higher distribution and servicing costs, and direct fund expense. G&A expense increased 14%, primarily driven by the impact of the HPS and Preqin acquisitions. Excluding the impact of the HPS and Preqin acquisitions, G&A would have increased a mid-single-digit percentage from a year ago. Our first-quarter as-adjusted operating margin of 44.5% was up 130 basis points from a year ago, reflecting the positive impact of markets on revenue and strong organic base fee growth. We continue to deliver higher margin expansion on recurring fee-related earnings. Excluding the impact of all performance fees and related compensation, our adjusted operating margin for the first quarter would have been 45.6%, up 180 basis points year-over-year. We repurchased $450 million worth of shares in the first quarter. At present, based on our capital spending plans for the year, and subject to market and other conditions, we still anticipate repurchasing at least $450 million of shares per quarter for the balance of the year, consistent with our January guidance. In the first quarter, BlackRock, Inc. generated total net inflows of $130 billion, led by strength across ETFs, active, and private markets. Record first-quarter ETF net inflows of $132 billion were led by index bond ETFs with $41 billion of net inflows. Precision exposures, core equity, and active ETFs added $39 billion, [inaudible], and $19 billion, respectively. Client demand for international diversification presents meaningful upside for BlackRock, Inc., particularly in areas like emerging markets and precision single-country allocations. This demand for premium exposures that are specific to iShares resulted in double-digit organic base fee growth for ETFs in the quarter. Retail net inflows of $15 billion reflected continued strength in our systematic liquid alternatives, active fixed income, and evergreen private markets offerings. Subscriptions for HPS’ flagship non-traded BDC continue, with approximately $150 million of subscriptions for the April window. Demand for Aperio and Spider Rock is also accelerating as financial advisers turn to these platforms for customized and tax-aware strategies. Aperio generated a record $13 billion of net inflows and Spider Rock added over $1 billion in the quarter. Aperio’s AUM has more than tripled and Spider Rock’s AUM has more than doubled in the five and two years, respectively, since their closings. Institutional active net inflows were $24 billion, driven by our LifePath target date franchise, private markets, and systematic strategies. These inflows were partially offset by a few client-specific active fixed income redemptions. Institutional index net outflows of $35 billion were concentrated in low-fee index equities. In private markets, we continue to see strong momentum supported by investment performance, differentiated deal flow, and the breadth of our client relationships. We saw an aggregate $9 billion of net inflows led by private credit and infrastructure and primarily driven by deployment activity. Finally, BlackRock, Inc.’s cash management platform saw $6 billion of net outflows in the first quarter. Cash management results reflected seasonal redemptions from U.S. government funds, partially offset by growth in customized cash mandates. BlackRock, Inc. is at its best helping clients navigate intense periods of transformation across industries, markets, and geopolitics. Capital is moving. Wealth management platforms, institutions, and consultants are evaluating their providers of asset management services. Our whole-portfolio model has a proven track record of capturing momentum and gaining share in these environments. BlackRock, Inc. is simultaneously a leading public markets manager, a scaled private markets platform, and a global technology company. That is not something that can be replicated overnight. Our clients know it. Our results prove it. We generated 8% organic base fee growth in the quarter and 10% over the last twelve months. At the same time, we grew revenue and operating income double digits and expanded margins by over 100 basis points. When clients are making big decisions about their portfolios, they are choosing BlackRock, Inc. because we can meet them across public markets, private markets, and technology all on one platform. We have the investment expertise, the technology, the global reach, and the track record. And we have nearly 25,000 colleagues—One BlackRock—working together to deliver excellence for our clients and growth for our shareholders. With that, I will turn it over to Larry. Laurence D. Fink: Thank you, Martin. Good morning, everyone, and thank you for joining the call. This was one of the strongest starts to a year in BlackRock, Inc.’s history. Clients awarded us with $130 billion of net inflows in the first quarter. That drove 8% organic base fee growth, representing our highest first quarter in the last five years. Technology services ACV grew 14%. Our margins expanded by over 100 basis points to 44.5%, and our firm’s effective fee rate moved upward. Over the last twelve months, clients entrusted BlackRock, Inc. with $744 billion in net new assets, powering 10% organic base fee growth. Our results reflect a global business with accelerating momentum, deep client engagement worldwide, and a platform built to compound through cycles. But our position reflects something larger than one quarter or even one year of results. The conversations I am having with clients around the world confirm what our results already show. Our business is becoming more global and more connected. Our brand is strengthening in every region in which we operate. I have seen it deepen even in the last few weeks in my trips to Mexico and Europe, and my conversations with colleagues and clients in the Middle East. I want to recognize the resilience and partnership from our employees, our clients, and our board members in the Middle East. We will continue to do everything we can to support them. In a world where capital is moving and provider relationships are being reevaluated, BlackRock, Inc. is a trusted destination. A major part of my role has always been spending time with clients. My 2026 schedule has already been filled with rich dialogue with CEOs, sovereign wealth funds, pension funds, insurance CIOs, wealth managers, and governments. In these conversations, I hear a consistent theme. The world feels different—not just uncertain, but different. The world is reorganizing around self-reliance. AI is reshaping how we live and how we work. Private markets are a large and growing part of the capital markets. Clients are turning to BlackRock, Inc. to help them understand what this means for their portfolios and for their beneficiaries. We are engaged with clients across every channel, geography, and asset class. Many of these conversations would not have been possible five years ago because the platform we now have built did not exist. We built it by bridging public and private markets, by expanding iShares into new regions and asset classes, by unlocking personal SMAs through Aperio, and by making active a true scale business through systematic alpha. BlackRock, Inc. is playing a role that goes beyond asset management. We are partnering with governments and clients to help more people grow with their economies and with their countries. Through iShares and our local platforms, we are helping turn citizens into investors in their local economies in India, Mexico, Japan, Europe, and beyond. Much of our work is focused on making retirement investing more accessible. Strong retirement systems depend on deep, functioning capital markets, and deep capital markets are built in part by the savings of people planning for retirement. BlackRock, Inc.’s role in retirement is resonating in every conversation I have with governmental leaders. Retirement is foundational to BlackRock, Inc. Our platform spans defined benefit and defined contribution and brings together public and private markets, active and index, and technology at a global scale. That combination differentiates us in the U.S. as plan sponsors consider the role of private markets in 401(k)s, but it is also shaping how we partner with clients in regions like the Middle East and India to build more durable retirement systems and local capital markets. We are invested ahead of our clients’ needs and secular forces driving growth in capital markets. We are more confident than ever in our model, and the breadth of our pipeline has never been greater. BlackRock, Inc.’s diversified platform is an advantage. We develop whole-portfolio solutions at scale. We are deepening client relationships and enabling more durable growth. It provides resilience and it gives us upside capture when market conditions shift. When clients rotate towards international exposures—as they did this quarter—BlackRock, Inc. benefits. iShares is a differentiator in that it indexes virtually every slice of global equities and bond markets, from broad benchmarks to emerging markets to single-country precision exposures. Demand for these premium exposures drove record iShares first-quarter net inflows of $132 billion, with net base fees double what they were compared to this time last year. Our active ETF platform has grown four times in the last two years to more than $110 billion in AUM. Net inflows of $19 billion led the industry. We said that we believe that active ETFs can be a $500 million or greater revenue generator by 2030, and we are already more than halfway there. Strong client engagement drove $3 billion of active equity net inflows. For BlackRock, Inc., active equity is a growth area. Our systematic equity offerings remain one of the leading investment performance engines. We are working on a number of other systematic equity assignments with clients around the world. Clients want to harness AI, decades of proprietary data, and BlackRock, Inc.’s track record of turning quantitative rigor into long-term investment performance. In retail active fixed income, we raised $2 billion, led by our top-performing unconstrained Strategic Income Opportunities Fund. We are firmly in the era of whole portfolios. Clients want advice. They need allocation and implementation across public and private markets together, at scale. A decade ago, fiduciaries’ best practice often meant diversifying across a number of managers. As portfolios and governance have grown more complex, our clients are increasingly choosing to work with fewer strategic partners—many times, just one. We see that shift reflected in the industry. Outsourced CIO assets have more than doubled over the last five years. This movement towards whole portfolios is playing directly to our strengths. Clients are choosing BlackRock, Inc. because we build together asset management and technology across public and private markets seamlessly in one integrated platform. The whole-portfolio construct has resonated for years in our institutional channel, where we have been entrusted with approximately $300 billion in large-scale outsourcing mandates over the last three years. In wealth, we are also opening new avenues of growth as demand for public/private, tax-aware investing reshapes how investors build their portfolios. BlackRock, Inc.’s wealth platform spans over $1 trillion in AUM, with global distribution across tens of thousands of financial advisers. It delivers seamlessly integrated public and private market solutions, model portfolios, and practice management capabilities. That is significant value as wealth management firms rethink their product shelves and look to do more with fewer partners. We are seeing demand across our wealth offering. That includes a record quarter in Aperio and Spider Rock, outsourcing mandates, and net inflows into liquid active and private market strategies, including net inflows into our LTIP 2.0 funds in Europe and our flagship non-traded credit BDC. The combinations of GIP and HPS with BlackRock, Inc. are surpassing the highest expectations we underwrote. GIP V closed above its $25 billion target and is already majority committed through recently announced deals like TCR, AES, and Aligned. Joining HPS’ origination and structuring expertise with BlackRock, Inc.’s relationship network has supercharged our combined origination capabilities. That has allowed us to be more selective while still actively deploying capital at scale. These businesses are not just integrating; they are accelerating. There has been a lot of attention on private credit, but the headlines do not reflect what clients are telling us, what our portfolio data shows, or where we see the market going. Demand is structural. Private credit serves an important role in the financing ecosystem. Banks, governments, and public capital markets cannot fully address the world’s growth and investment capital needs. That is not changing. Much of the focus has been on wealth vehicles like BDCs, interval funds, and tender funds. These funds make up around $550 billion in AUM—or about 25%—of the $2.2 trillion private credit industry. Institutional demand is actually accelerating. Institutions are increasing allocations to private credit as wider spreads are enhancing return potential and defaults—while normalizing—are still within historical standards. Private credit has historically offered asset-level yields approximately 150 basis points higher than comparable weighted traditional fixed income. New activity levels have been somewhat lower in the first quarter, which is seasonal and reflects market uncertainty. But new, regular-way direct lending is being quoted 25 to 50 basis points wider than where the market was in the fourth quarter, with select opportunities over 100 basis points wider. Periods of market dislocation are when private credit investment opportunities are most compelling. BlackRock, Inc.’s Private Financing Solutions platform benefits from a balanced and diverse client base across investor types and geographies. We have particularly strong representation among insurance companies and pensions as well as sovereign wealth funds and private market relationships. About 85% of Private Financing Solutions’ investor base is institutional-focused, leading to greater capital durability across market cycles. This enables us to remain active investors across markets, which should ultimately lead to better long-term risk-adjusted returns. Over the last five to seven years, relatively benign credit markets have lifted all boats. As the overall market environment becomes more complex, we expect to see much more dispersion in performance among private credit managers. That is an environment we like to compete in. We believe that HPS’ strong underwriting discipline and proactive risk management will compare favorably and ultimately will result in differentiated returns and share gains. Private credit has scaled rapidly, and the risk management infrastructure supporting it has not kept pace. That is a meaningful opportunity for Aladdin. We already have a comprehensive public-private workflow and data offering through Aladdin, eFront, and Preqin. We are positioning BlackRock, Inc. and Aladdin to be the language of private credit portfolios for transparency and risk analytics. We believe that the combination of Preqin and eFront data represents the broadest universal available in the markets. Aladdin’s value as an enterprise-wide operating system is only amplified in a world with more need for real-time, verified data on one single platform. We have visibility on strong future fundraising and deployment across multiple dimensions of our private credit platform. Institutional client demand for private credit continues to grow, particularly with insurance companies. This quarter, we signed a multibillion-dollar rotation into high-grade private credit from an existing insurance client. This will drive revenue growth as it is deployed over future quarters. We have a multibillion-dollar notified insurance pipeline for a similar mandate. Fundraising in HPS’ junior capital strategy is tracking well, and we saw approximately $150 million in HLEND April subscriptions. BlackRock, Inc. is at the forefront of innovation and advocacy in retirement. That includes reimagining how people save and spend across longer lives and working with plan sponsors and policymakers to deliver better retirement outcomes. The Department of Labor’s proposed rule is a major development towards a framework to include private assets in target date funds. BlackRock, Inc. will be at the forefront of this opportunity. We have a $600 billion LifePath target date franchise, where we saw $15 billion of net inflows in the quarter. That included $4 billion into LifePath Dynamic, our active solution. Our LifePath Dynamic range is well positioned to eventually include private markets exposure alongside public equities and fixed income. As private assets potentially enter the defined contribution market, plan sponsors need to partner with a target date provider with a long-term track record, private market scale, and technology and data to satisfy their fiduciary oversight. BlackRock, Inc. delivers on every one of those points. We have our leading DCIO business, a top-five alternatives platform, and a public and private technology and data platform. The DOL’s proposed rule is clear that fiduciary standards will demand rigorous data and performance benchmarking for private assets. It reinforces what we have been saying all along: plan fiduciaries will need institutional-grade data and performance benchmarks to make defensible allocation decisions. That is exactly what Preqin provides, and our leadership in target date, private markets investing, and data clearly differentiates BlackRock, Inc. with all our plan sponsors. This has been one of our strongest starts in BlackRock, Inc.’s history. It is not that we are benefiting from a favorable moment; we are benefiting from a durable platform—one that has been built over decades and is equipped for this type of environment, an environment where capital is moving and fundamentals are being reevaluated. The pipeline ahead of us is among the broadest I have seen at BlackRock, Inc. Momentum is accelerating. We are energized by the opportunities ahead. Most importantly, I would like to thank all of our BlackRock, Inc. colleagues for the work they do each day to deliver for our clients and our shareholders. With that, Operator, let us open it up for questions. Operator: We will now open the call for questions. To ask a question, please press star, then the number one on your telephone keypad. If you do ask a question, please take your phone off its speaker setting and use your handset to avoid any potential feedback. Please limit yourself to one question. If you have a follow-up, please re-enter the queue. We will pause for just a moment to compile the Q&A roster. Your first question comes from Michael Cyprys of Morgan Stanley. Michael Cyprys: Good morning. I wanted to ask about the wealth channel penetration. I was hoping you could update us on the progress penetrating U.S. and international wealth channels, particularly for alternative products. What milestones should we be tracking over the next 12 to 24 months? And what impact might we see from the uptick in redemptions across evergreen private credit products? Martin? Martin S. Small: Thanks, Mike. We are proud to manage more than $1 trillion of assets for wealth managers across the BlackRock, Inc. platform. It really covers every corner of a client portfolio—from models, separately managed accounts, ETFs, to private markets. We are also a technology provider. Our Aladdin technology sits on the desk of financial advisers, bringing institutional-quality portfolio construction right to their desktops. We have the largest client-facing team in the industry covering every corner of the U.S. marketplace—from full-service brokerage and wirehouses to independent broker-dealers and RIAs. We also have very strong relationships with private banks across the U.S., Europe, and Asia. We have a diversified product business, strong track records, and great distribution. You really see that come through in the first quarter: retail net inflows of $15 billion, driven by a record $13 billion into Aperio, $3 billion into liquid alternative strategies, as well as demand for Strategic Income Opportunities, active fixed income, and our evergreen private markets. That is nine consecutive quarters of retail net inflows, so this continues to be a durable, strong growth channel for us. Two areas are worth highlighting. First, growth in this channel is being driven by demand for whole-portfolio services and the move from brokerage to advisory, which has led to growth of ETFs and SMAs—two places where BlackRock, Inc. is an industry leader. It has also put a big focus on after-tax investing. For a long time, the language of the industry was pre-tax or asset-class-level returns. The fact is our clients pay for college, health care, and mortgages with after-tax dollars. Putting after-tax portfolio construction at the heart of what we do at BlackRock, Inc. for taxable investors around the world was core to the rationale for the Aperio acquisition, and it is really driving growth. Aperio net inflows were record levels for a fifth straight year in 2025, and we set a new quarterly record in the first quarter with $13 billion. Spider Rock added a quarterly record of $1 billion of flows with options overlays on top of SMAs. Within that $13 billion of direct indexing flows, about $9 billion was long-only traditional direct indexing, and $4 billion was in long-short strategies that can create additional tax-loss harvesting opportunities. We continue to believe long-short direct indexing with options overlays is going to be a great growth area, and we aim to double or triple that business in the near term. Second, model portfolios. In the wealth management segment, model portfolios are the same as OCIO in the institutional segment. They bring professional management, scale, convenience, and customization. ETF-based models are a huge part of an adviser’s growing practice. Roughly 40%+ of our iShares flows—particularly in the U.S.—come from model portfolios. We are expanding those solutions to include private markets within the convenience of a model portfolio. On evergreen, evergreen wealth strategies are a big part of retail access vehicles for wealth management platforms. Even with some moderation of private credit BDC flows, overall evergreen flows are pretty stable and steady. You see that in the industry data—interval funds, tender funds, private equity, real estate, secondaries, infrastructure, and so on. We think there is a great opportunity to continue to expand our evergreen lineup. We have our HLEND flagship, and we are on track to bring an “H” series of vehicles to market for private wealth over the course of 2026. You can find registration statements on the SEC’s EDGAR website for real assets (HREAL) and net lease strategies with HLEND (HNET). We launched HLEND E in Europe and are bringing a new GIP core infrastructure fund to market in Europe as well, which we think will be a great jumping-off point for private wealth. We have many ways to grow in wealth, and we remain very optimistic about our opportunities in ETFs, SMAs, liquid alts, private markets, as well as Aladdin, Aladdin Wealth, and models. We look forward to keeping you updated on our progress. Operator: Your next question comes from Craig Siegenthaler with Bank of America. Craig Siegenthaler: Good morning, Larry. Hope everyone is doing well. Two weeks ago, we received a proposal from the Department of Labor to help support DC plan sponsors’ decisions to select private assets in the $14 trillion 401(k) channel. Given your size with your target date franchise, what are your initial thoughts on the proposal? Also, any thoughts on whether you could launch a new series of target date strategies or use your existing strategies and just have a private allocation? Laurence D. Fink: Let me have Martin start with that, then I will finish it up. Let me just say one thing importantly. Every country we are talking to is refocusing on how they can expand their capital markets through retirement. More and more countries are focusing on becoming more self-reliant—whether in the form of technology or energy—and there is more conversation about being more self-reliant on their own fundraising needs. To do that is to move money from bank accounts into investable assets. Retirement is a conversation in every country. Let me turn it to Martin specifically with the DOL question. Martin S. Small: Thanks, Larry, and thanks, Craig. We are energized by the activity we have seen from policymakers, consultants, and plan sponsors. I have been doing this for 20+ years. We have seen more advancements on private markets in 401(k)s in the last 12 months than in the prior 20 years. I applaud the Department of Labor leadership for huge engagement with the industry, trade associations, consultants, plan sponsors, and companies. They have really sweated the details. The notice of proposed rulemaking the Department released is better than we expected and really paves the way for healthy engagement in this comment period about opportunities to make this even more compelling for plan fiduciaries and, most importantly, to deliver diversified professionally managed portfolios that bring together public and private markets for long-dated retirement portfolios. More than half the assets we manage at BlackRock, Inc. are related to retirement. As Larry mentioned, we are the number one DCIO firm with over $600 billion in target date funds, and we are a top-five private markets manager. We see a great opportunity to deliver for clients. The DOL’s notice emphasizes ERISA and a process-based review of six factors: performance, fees and expenses, liquidity, valuation, benchmarking, and complexity. Larry has been very clear about the value of data—especially Preqin data—on benchmarking and how plan sponsors and consultants can make good, fiduciary, process-based decisions under ERISA by leveraging institutional-grade data. We think that is a huge opportunity to do good while we do well—for plan sponsors and participants. We also think delivering performance, value for money, liquidity, and sound valuation within a target date fund is the best way to do this for DC plans. Inflows into 401(k)s almost all come through QDIA—target date funds, balanced funds, and managed accounts that look like those. As and when the new DOL rule takes hold, we believe a broader range of target date funds will benefit from the diversification of private markets in a professionally managed vehicle with fiduciary-sound decision-making. We have product coming to market with our partners this year—we are going to be launching LifePath with privates—all to build a track record so plan sponsors can get more comfortable with these structures as the DOL rule hopefully takes hold towards the back half of the year and we get really running in 2027. Laurence D. Fink: I would add a macro view. If we are going to really excel as a country—and across all countries—the need for more citizens to grow with their country by utilizing savings and translating that into investing, and having a complete range of investable products—whether passive or active, public or private—is very important. These are the types of conversations we are having across the spectrum of countries. There is a huge awakening of understanding the power of retirement and those flows through the capital markets. This is not just a U.S. phenomenon; it is being discussed in all corners of the world. Operator: Your next question comes from Alex Blostein of Goldman Sachs. Alexander Blostein: Good morning. You mentioned in your prepared remarks that in prior periods of dislocation, BlackRock, Inc. tends to gain share. We have seen it in multiple cycles when there is more money in motion. Does that happen again this time around? If so, could you add more specificity in terms of which products or asset classes BlackRock, Inc. is best positioned to gain share in if we do see more money in motion on the back of all this, and the implications for the firm’s organic base fee growth over the next 12 to 18 months? Laurence D. Fink: We have said it in different snippets, but I do believe our positioning in retirement, our positioning in infrastructure and privates, and our positioning in iShares—and the breadth and global footprint we have—are creating more and more opportunities. The speed at which we are deploying capital in GIP V in infrastructure speaks to that. More countries have a greater need to build out their infrastructure, especially with the AI revolution. More countries are getting back to self-reliance, including finding different sources of power and reducing dependence on energy imports. The need for building out solar, which I talked about in my Chairman’s letter a few weeks ago, is one example. It is our positioning across ETFs, the scale and granularity of our ETFs—unmatched by any other ETF provider—and the entire footprint that allows us to have these conversations globally. In the U.S., as Martin discussed, the role of Aperio in terms of tax-advantaged portfolios—especially as the threat of higher taxes and other issues rise—is strengthening the platform that BlackRock, Inc. systematically built over the last 20 years. If you think about the platform we built across public and private markets, and overlay investment technology, it has given us a unique ability to have conversations in all corners of the world. I cannot underscore enough the conversations we are having related to the growth and role of capital markets. I have had conversations even this week about the need for Europe to have a Capital Markets Union. We are having conversations across Japan and the Middle East and other regions. I was in Mexico last week talking about that role and opportunity. We are involved in these conversations at the government level and at the institutional level, and our platform also speaks to the wealth platforms worldwide. Martin? Martin S. Small: Larry captures the client perspective well. Alex, I would note that March 2026 was the worst month for broad markets since September 2022. In September 2022, broad stocks were down 10% and broad bonds were down 4% to 5%. In March 2026, stocks were down 7% to 10% and broad bonds traded down 2% to 3%. BlackRock, Inc. is getting better through market environments at taking share and delivering more sustained organic growth. We think we can confidently and consistently deliver 6% to 7% growth from our structural growth segments, with higher outcomes when markets are especially supportive or when clients rotate into higher-fee segments in any quarter. There are two broad vectors for this growth. First, structural growers—the all-weather growth products and services like ETFs, private markets, models, tax-aware strategies like Aperio and Spider Rock, and systematic. These are areas where we take disproportionate share as those structural trends advance. Second, whole-portfolio relationships. Clients want to consolidate business with fewer providers and are looking for more from the platforms they do business with. Share gains are a source of organic growth for scale players like BlackRock, Inc. If you look at industry flows for the last several years, the top five asset managers are 80%+ of flows. Yet this is still an extraordinarily fragmented business by assets and revenue. That ability to consolidate share is another avenue of sustained organic growth. My sense of today’s markets, across some of the private credit tumult, is that this is an opportunity for BlackRock, Inc. to take share—particularly in private markets across wealth platforms—where clients want more whole-portfolio relationships to put public and private markets together and manage practices through cycles. We think some of this shakeout in credit is good for our organic base fee growth profile, alongside the structural growers we are already confident in. Operator: Your next question comes from Mike Brown of UBS. Michael Brown: Good morning. A macro question: The Middle East conflict presents some geopolitical and macro challenges that could shift capital priorities. Are you seeing any change in sovereign wealth behavior as they think about allocations? Any read on Asia given added pressure to their economies from higher energy prices? Operator: Thank you. Laurence D. Fink: Specifically in the Middle East, we have not seen changes in behavior. This week I am meeting two finance ministers from the Middle East. In some of the co-investments we have done in the last few months, the Middle East has participated quite largely. We have an announcement forthcoming in the next week or so related to a retirement win we have in the Middle East. We see very little behavior change. Our dialogues are more constant, talking about how they should play this and what they should do. At this moment, we have not seen withdrawals from sovereign funds to the treasuries of these countries. If anything, money is continuing to flow into their sovereign funds; their investment behavior has not changed. Obviously, things could change if there is prolonged uncertainty and violence in the region. We are working closely with our friends and employees affected by this conflict. Over the course of last year, we built out our offices in almost every country in the Middle East with the idea that we see huge opportunities, and we are continuing to build those offices. There is stress at the moment related to the conflict, but we see no behavior changes at all. If anything, they are articulating more opportunities, not fewer. Related to places where higher energy cost is a tax: in some places, increases in energy costs are being absorbed by governments—happening in parts of Europe and Asia. That implies deficits likely rising and a need to build out infrastructure, and a need for more public-private partnerships—more realistic opportunities. I would argue this presents bigger and better opportunities across the board. That said, we do not have any insight as to how and when the conflict will end. We are in constant dialogue with our partners and friends in the Middle East. We probably have had more client calls and calls with leadership and governments than ever before. We are making sure we stay in front of our clients and remain a trusted partner. The evidence speaks loudly that we are one of their key trusted partners. Operator: Your next question comes from Brian Bedell of Deutsche Bank. Brian Bedell: Good morning. A two-parter around organic base fee growth and scaling that. Beta has always been your best incremental margin opportunity. As you grow organic base fee growth faster, do you see a better ability to scale that over time? Are you seeing more demand from outside the U.S.? You mentioned an incremental shift towards non-U.S.—do you see that continuing? And could you comment on the nice mix in the base fee rate? What are you seeing as the exit base fee rate for the quarter? I do not think I heard that. Martin S. Small: Thanks, Brian. We continue to deliver industry-leading margins over the cycle. As I laid out at our 2025 Investor Day, we continue to target a 45% or greater adjusted operating margin, with our margin on recurring fee-related earnings running higher. We expanded both operating and recurring FRE margins by over 100 basis points in the quarter. We did that in an environment where AUM actually finished on a spot basis lower than average. Our operating margin for the quarter was 44.5%, while the margin excluding performance fees and related comp was 45.6%. Looking forward, we have run BlackRock, Inc. at margins north of 45% before—close to 47% back in 2021. We did that at a time when we did not have a large-scale private markets franchise. Now we have added engines of infrastructure and alternative credit with our colleagues from GIP and HPS. Both franchises were north of 50% FRE margins when they joined BlackRock, Inc. Over time, we see two things. One, the margin on recurring fee-related earnings can trend upwards toward the trajectory of best-in-class private markets names—north of 50%—driven by the acquired businesses and highly scaled franchises in ETFs, digital assets, and systematic equities. Two, with constructive markets, a higher fee rate on flows—which we have been driving—and strong organic growth, we can pull the fully burdened operating margin of the company up as well. We have run the company at 47%, so I do not see 45% or 46% as a ceiling. As you mentioned, we had 8% annualized organic base fee growth in the quarter and 10% over the last twelve months—that is seven consecutive quarters over 5%. The fee rate was up 0.2 basis point sequentially, driven by strong market performance in our higher-fee public markets book, particularly EM and international equities, along with client demand for international iShares exposures and structural growers like systematic equities, private markets, Aperio, and active ETFs. Global equity markets improved in April. We always disclose the revenue-weighted index in the supplement, but the BlackRock, Inc. equity index is up about 5% in the first two weeks of April. At March, our base fee entry rate was approximately 2% lower than first-quarter base fees, but that has basically been recovered with April market performance. Operator: Next question comes from Dan Fannon of Jefferies. Dan Fannon: Thanks. Good morning. Could you expand upon some of the trends at HPS and private credit broadly, distinguishing between institutional conversation and activity versus what you are seeing in retail? Also, could you comment on deployment in this type of market? Martin S. Small: HLEND is one of the best-performing non-traded BDCs in the market. It has logged a 10.4% annualized total return since inception. It is one of the only funds among major peers with positive performance in 2026, with $840 million of Q1 subscriptions including the DRIP, and approximately $150 million for the April window. We continue to see good engagement with the HLEND base and across wealth clients for evergreen structures, and we believe we can grow there through time. I would offer that BlackRock, Inc. is in a different place than other firms on these questions. Our 2030 strategy is to drive organic base fee growth at 5%+ through a broad public and private markets platform, and our track record shows we can more consistently generate 6% to 8%. We are not reliant on any one engine or product. We may or may not go through a period of elevated redemptions relative to historical levels and more muted subscriptions in wealth channels for private credit funds—we do not know for certain. We see long-term demand for institutional-grade private credit as intact. HLEND flows and fee rates are generally accretive to our 2030 plan whether they are at 25%, 50%, or 75% of historical levels. We are broadening the evergreen lineup as mentioned—with real assets, net lease strategies, and Europe—so we think we have great opportunities to grow in wealth. The business is generally about 10% retail private markets at BlackRock, Inc., so call it 85% to 90% institutional. There, we have seen strong demand. If anything, with some of the retail pullback, we have seen stronger institutional fundraising and deployment. Some of the spreads we see today in direct lending and asset-based finance are among the most attractive on this market pullback. We are generally very constructive on institutional fundraising in and around private credit strategies. Operator: Your next question comes from Brennan Hawken of BMO Capital Markets. Brennan Hawken: Good morning. Thank you for taking my question. Curious to hear your plans—you filed for the IQQ. Curious to hear your plans around that and the NASDAQ complex, and whether you are considering a fee holiday to help your product gain scale. Looking at the S&P complex, it is much larger. If we see a chance for competing products to get launched there, do you think it would expand the pie versus cannibalize? Laurence D. Fink: Martin? Martin S. Small: Thanks, Brennan. We filed a registration statement with the SEC on the NASDAQ 100 Index ETF, the IQQ. Due to regulatory filing restrictions, we are not able to provide a lot of detail beyond what is in the filing. What I will say is that BlackRock, Inc. has a long-standing and continuously growing partnership with NASDAQ. We are already the largest manager of NASDAQ 100 ETFs outside the United States. We manage $25 billion across ETFs listed in Europe, Canada, and Hong Kong. In the U.S., we also have the NASDAQ Top 30 and Next 70 Index ETFs, as well as the NASDAQ Premium Income ETFs. IQQ is similarly trying to facilitate access for U.S. investors with an iShares quality option in one of the most widely tracked indexes. We are differentiated at BlackRock, Inc. with two distinct global ETF ranges—the U.S. and Europe. These scaled platforms enable us to port proven growth franchises and distribution approaches across geographies, which is a meaningful differentiator. We believe we can continue to grow access to these exposures with high-quality iShares institutional-grade management, and we look forward to keeping you updated on our progress once we get through the registration period. Operator: Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks? Laurence D. Fink: Thank you, Operator. Thank you all for joining us this morning and for your continued interest in BlackRock, Inc. We opened 2026 with one of our best starts to the year on record. We are aligning our platform alongside long-term client needs and structural growth drivers, and it is showing up in a meaningful way in our results. The strength of the firm—our breadth, our scale, our connectivity—positions us well to continue delivering value for our clients and differentiating long-term growth for our shareholders. Thank you, and have a good quarter. Operator: This concludes today’s teleconference. You may now disconnect.
Operator: Good afternoon, and welcome to the Ecora Royalties Investor Presentation. Today, we're joined by CEO, Marc Bishop; and CFO, Kevin Flynn, for the presentation and the live Q&A. [Operator Instructions] I'd now like to hand over to Marc to begin the presentation. Marc, over to you. Marc Lafleche: Well, good afternoon, everyone, and thank you for joining us today for a call in relation to our 2025 results. On a number of fronts, 2025 marks a year of delivery. First and foremost, we saw 2025 representing an inflection point. For the first time in this business' history, critical minerals exposures generated more than half of our overall portfolio contribution. And this is primarily driven by our base metals exposures, which grew 150% year-on-year. So all in all, we're obviously very delighted to see our critical minerals royalties demonstrate what is a portion ultimately of the true underlying potential of the wider portfolio in the past year. Second, during the past year, we acquired a producing copper stream, the Mimbula Copper royalty, which has certainly augmented our exposure to copper and pro forma for that commodity, cemented copper at the core of our commodity exposure. And last, I think one of the key highlights of the prior year relates to the rapid deleveraging, which we demonstrated following the acquisition of the Mimbula Copper stream. Following the transaction's close, our net debt was just under $130 million, and we ended the year with net debt that was roughly similar to where we actually started the year 2025. So in other words, roughly flat, inclusive of a $50 million acquisition, which is a strong outcome, an indication of the portfolio's cash generation, but also second, the active steps we took during the year to unlock value from noncore assets. So pausing to speak about the prior year. And overall, it's quite clear to us anyways that 2025 is indeed a landmark year for this business. First, in relation to the commodity complexion with critical minerals representing for the first time ever, more than 50% of coal. But second, in terms of a reduction as we look to the future of an expected reduction in the volatility of the critical minerals royalties cash flows relative to those that we've seen historically with Kestrel, which is a royalty that has been in and out of our royalty area and on a quarter-to-quarter basis has created an element of volatility that we should see far less of into the future. And third, I think this is perhaps to us the most important point on this slide. We're now looking at a source of cash flows that have mine lives that are measured in decades and that compares to Kestrel, which is always measured in much shorter increments more recently in years. So this is a very exciting step forward when we think about the producing aspect of this portfolio and the business' quality of earnings, further supplemented by the organic growth that exists within the existing Ecora portfolio. Looking back 5 years, the critical minerals portfolio really has delivered. From 2020 to 2025, we see approximately 6x to 7x increase in contribution from specialty metals, uranium and base metals. But looking to the future, we still do appear to remain very much at the foothills of the organic cash generation potential that exists in Ecora. And the next 12 months -- 12, 18 months are very key towards derisking that 2030 profile, particularly those assets that are not yet in development -- not yet in production that are at the development stage. And this is summarized on the left of this slide, where what you see is a very layered dimension to our growth profile. For those who have been tracking Ecora for as long as Kevin and I have been with the business, I think what you'll see for the first time probably ever in Ecora's history, we now have a growth profile that's layered across volume growth from assets that are in production, volume growth potential from assets that are in production being expanded by brownfield expansions or being restarted from assets that are -- once we're in production that have stopped and are intended to revert near-term development, so assets that are far along the development curve, not yet in production, but greenfield growth. And then last, early stage or assets where we see not necessarily a path to income in the next 5 or 10 years, but a path to sizable capital appreciation potential in royalties like Patterson Corridor East, for example. So with that, I'll hand it over to Kevin to talk us through the financials for the prior year. Kevin Flynn: Thanks, Marc, and thanks again, everybody, for joining us today. Turning to our financial performance slide. So as Marc mentioned, this was really an inflection point in the year. Looking at our portfolio contribution, whilst there was a small decrease in the period of about 10%, that in no means tells the full story. And we'll touch on this in a little more detail on the next page in terms of the changing complexion of the business and also the significant growth that Marc touched on that drives the next wave of our evolution. Our adjusted earnings were a bit lower in the period. This really reflects the increased finance costs we assumed with the Mimbula acquisition. Although the deleveraging kicked in, in the second half of the year, our finance costs were on average higher, reflecting higher average borrowings. In addition, our overheads, whilst a reduction in terms of our underlying cost base, the U.S. dollar to sterling exchange rate movement led to an increased reported overhead in the period. So that impacted on adjusted earnings. But we should see some improvements and increases in adjusted earnings going forward as these catalysts kick in. In terms of free cash flow, another point that's quite important to reflect on with Kestrel representing less than 50% of our income is that our free cash flow conversion significantly increases. Kestrel has a high associated effective tax rate with it. And as its proportion of our overall contribution reduces, the free cash flow conversion within the portfolio increases. This slide shows our portfolio contribution in the year, and I'll use this as an opportunity just to run through briefly some of our key assets. The first one, Voisey's Bay, had a very strong year with contribution almost tripling in the period. This reflects a 113% increase in volumes, which is reflective of the ramp-up of the operation as it continues its underground transition. And we'd expect to see in 2026 full steady-state production being achieved here, which should result in increased production levels in 2026 before that then becoming a stable platform thereafter. Voisey's Bay also benefited from a significant increase in cobalt prices in the period. It's hard to believe that it's about a year ago sitting here that cobalt prices were about $13 a pound. Today, that number is closer to $30. And this reflects actions taken by the DRC in the period to really stabilize the cobalt market following a period of significant oversupply, which resulted in the DRC announcing first an export ban and then a quota-based system, which has really stabilized the pricing environment for cobalt. So good tailwinds to come in 2026 for our cobalt asset. Mantos Blancos was certainly a highlight in the period, generating $9.5 million based on record levels of production. And actually, this amount approximates to a running cash yield of about 20%, which we're very pleased with. We acquired this royalty for about $50 million in 2019. We would expect here to see volumes in 2026 a little bit lower as they go through a period of planned lower ore grades within the body. That should recover then in 2027. Mimbula represented our copper stream acquisition around this time last year, which Marc touched on. It's worth pointing out here that the $4 million reported really only represents 2 full quarters of production because due to a nuance in the accounting, we only recognize the revenue when the units are sold. So the quarter 4 production is sold in January of 2026 and will be reported in Q1 '26. So in 2026, we should see that transitional period of reporting for Mimbula disappear. I'll just pick out a couple of other highlights. Four Mile is our uranium royalty in Australia. Similar to Mimbula, this doesn't really tell the full story. Normalized sales patterns returned to this royalty in the first quarter of last year, but similar to Mimbula, this is reported based on cash sales. So the $2.2 million really only represents 3 full quarters of production here in the period. So we should see some revenue growth to come in 2026 based on more normalized levels of sales. Looking further down, it's worth remembering we do have some gold exposure in the portfolio through our EVBC gold royalty. which generated $3.2 million in the period based on very strong gold price environment, which again shows the virtues of a diversified royalty portfolio, certainly diversification across commodities. The operator here has signaled that there's reserve potential for a further 5 years. So good to have some gold price exposure in the portfolio in a strong gold price environment. And finally, Kestrel, which is now nearing the end of its economic life for Ecora. Kestrel met guidance in the period, although reported income was down. This is due to average coking coal prices being down around 35% in the period. The midpoint guidance for tonnage next year is about 1.1 million tonnes. And thereafter, Kestrel really starts its transition outside of the group's private royalty area. But the key takeaway from this slide, certainly, as Marc alluded to, is the quality of the earnings now within the portfolio. So if we look at our base metals portfolio, which was up 150% in the year, many of these assets have reserve lives that go into decades. And if we compare that to Kestrel at the bottom, which now has only about 2 or 3 years left, that really does show the potential and the cash flow potential to be generated from our core assets going forward. So to show you how the portfolio contribution, along with some portfolio initiatives has resulted in our meaningful deleverage in the second half of the year. This slide really shows it. The portfolio contribution, which is cash flow number of $55 million, really accelerated our deleveraging in the second half of the year. Looking at our capital allocation priorities, growth still remains our firm focus, and we were very pleased on that basis to acquire the Mimbula stream about a year ago for $50 million. At the time of doing that, we increased our borrowing facility to $180 million. And a lot of the conviction that we had to take on that additional debt was the visibility that we had in the near-term cash flow potential from our portfolio, along with some of the initiatives that we undertook subsequent to the acquisition to bring down our deleveraging. Amongst those, we accelerated the remaining contingent payments associated with our Narrabri thermal coal royalty disposal a number of years ago. And we also took the opportunity to dispose of our noncore Dugbe gold royalty in the middle of last year. Both of those actions realized $28 million, which effectively refinanced over 50% of the Mimbula transaction and brought our net debt down to the end of the year to similar levels to the beginning. To remind everyone about our dividends, we paid close to $7 million in dividends in 2025, which represents about $0.0281 per share on a cash basis. With our year-end results, we've proposed a final dividend of $0.014 for the final dividend, which combined with the interim dividend would bring a final dividend -- or sorry, a total dividend for 2025 to $0.02 per share. And I think it's very important in the context of our net debt to look at the table on the bottom right of the screen. This is a table we like to include to show based on guidance that's in the public domain or the guidance that we provide when applied to consensus price forecasts shows a path to deleveraging to the end of 2026 to $53 million from $85 million at the beginning and bringing this down further to $27 million by the end of 2027. At those levels, our debt position is very comfortable. We're very comfortably within our debt covenant limits. And with a $180 million debt facility provides a significant financing flexibility to continue adding to our royalty portfolio. And with that, I'll hand back to Marc. Marc Lafleche: Thank you, Kevin. Well, all in all, I think looking across the suite of our commodities during 2025 and to some degree, through carrying forward to the start of 2026, we've seen a really strong performance across the board. Copper, cobalt, uranium, rare earths, nickel all performed quite well. I think met coal was slightly soft over the course of last year, although we've seen that rebound to levels in early 2026 that are historically in line with averages. And one of the strongest performers, which has followed -- which is delightful to see following our acquisition of the Phalaborwa rare earth royalty, our rare earth prices, which performed exceptionally strongly in 2025, in part is becoming part of a geopolitical negotiating tool between China and the United States is in relation to tariff and trade policy. From a volume perspective, looking ahead at 2026, overall, from our base metals exposures, we anticipate volume growth. Mimbula is expected to continue to ramp up towards an expanded nameplate production capacity rate. Voisey's Bay, likewise expected to continue to ramp up towards nameplate throughput levels. As Kevin mentioned, Mantos Blancos production is expected to be slightly softer this year as mining goes through a lower ore head grade portion of the ore body and is expected to normalize in the future. Otherwise, overall, we anticipate other than Kestrel, where you expect roughly half the volumes overall continued volume growth in our critical minerals. I think we've touched on the key points here at Voisey's, but just taking a moment to touch on a few additional points. Year-on-year, we'd expect 12% to 25% volume growth at Voisey's. And touching on something that we've always highlighted as being very likely at Voisey's is the life of mine expansion that we've seen here, where the volume extended to 2044. And more recently, we've seen as part of Vale's Base Metals Day in late March, additional disclosures in relation to the Voisey's Bay ore body and to the likely and possibility life of mine expansion potential that exists, which is significant and really underscores what we've been indicating for many years is a possible of multi-decade life of mine expansion potential at Voisey's Bay in excess to the existing life of mine that already runs towards the end of the next decade. We touched on most of the key points at Mantos Blancos. So just zooming in on one on the far right, and that's the Phase 2 expansion study. I think we're delighted to have seen record performance in the last year. And in addition to what were very high levels last year, there's -- Capstone has alluded to the potential to increase production to potentially 100,000 tonnes compared to production last year and just above 60,000 tonnes of copper. That feasibility study in relation to Phase 2 is expected later this year. And we're very excited for that to be released. We think that's the key next step to demonstrate the value upside of this royalty. And as of yet, with the benefit of that further detail, hopefully, that will provide sufficient financial figures and forecast for Ecora research analysts to include this potential value in our revenue forecast, but also our net asset value estimates as well. I think we've touched on the key wins on this slide. So I won't touch in too much detail on any other than to just pick out one, which is the Cañariaco royalty. And that's specifically the key point to flag is the Fortescue, the multibillion-dollar iron ore and future-facing commodity mineral royalty company out of Australia has acquired control of this project, which is an incredible step forward in terms of the projects, our operating partner quality and capability to develop this project in the future. So bringing it all together for our base metals exposures, I think what this slide clearly demonstrates is that following the Mimbula acquisition last year, we have roughly doubled our attributable annual copper production solely with the Mimbula acquisition, which is a great step forward. And beyond that, with the existing assets in our portfolio, Ecora offers a copper pipeline to more than quadruple our attributable copper in this decade and the next. So all in all, while we really do feel that this slide highlights how we've cemented copper at the core of our portfolio that's fully paid for and that is amongst, if not the leading organic copper growth profile of any royalty company. Turning to key assets in the specialty metals and uranium side at Phalaborwa and over the course of the past 12 to 18 months, we've seen a number of key derisking milestones that continue to position this project for the publication of a feasibility study and subsequently a financing process. We've seen strong increases in underlying rare earth prices over the last 12 to 18 months. And turning on the uranium side, I think it's difficult to categorize the exploration program at Patterson Corridor East as anything other than geologically exceptional. NexGen is targeting a program in 2026 to further build upon last year's program, and we're very excited to update you soon and hopefully with some very continued positive news on further progress. Kevin mentioned that this was expected to be our final year of material contribution from Kestrels and you can see why on the map on the right hand of this slide. Over the course of this year, we expect roughly half of the volumes from the prior year. And then beyond that, sort of a tail between a few hundred thousand to 500,000 tonnes between 2027 to the end of the decade. And then last, at EVBC, as a result of strong gold prices, we've seen our operator partner, Orvana communicate the possibility to continue with EVBC in production towards the end of this decade. Should that be the case, carrying this asset well past its originally expected mine life and potentially benefiting Ecora from further upside and participation in what has been a very strong gold price backdrop. So bringing it all together in terms of key points, I think, number one, we anticipate further volume growth from our key base metals royalties in 2026. We anticipate a number of key potential derisking or project development milestones in relation to some near production development royalties that we're very looking forward to and hopefully, we'll be able to update you in relation to on our next call. Commodity prices have demonstrated a level of volatility year-to-date 2026. Nevertheless, remain at historically elevated levels. And should they remain at these levels, combined with the operator -- our operator partner volume guidance, we anticipate further rapid deleveraging, which positions the business very well for further growth and diversification. And last and certainly not least, I think the royalty model as it stands is very defensively positioned to the continued inflationary pressures that we see in the market today, more recently as a consequence of a conflict in the middle in our end, but have persisted for a variety of factors for the past 5 or 6 years at a minimum, if not more. So looking ahead, we do genuinely feel that Ecora is probably at the best it's ever been with a platform of key royalties generating from the producing side, generating income that's expected to run decades with a number demonstrating only a small portion of the portfolio's true longer-term underlying cash generation potential. And over the course of the next 12 to 18 months, we hope to see further derisking events that will further underpin that next wave of growth in this business and its portfolio. So with that, we thank you for joining us, and we're happy to take any questions you may have. Operator: Thank you so much to Marc and Kevin for the presentation. We've had a number of questions that have been pre-submitted and also submitted live. [Operator Instructions] But the first question that we have is, you're talking quite positively about the year, but when I look at the numbers, it feels mixed. What am I missing? Marc Lafleche: Well, I think when you look at the numbers, you are correct to see certain parts of our portfolio performing in diverging ways. So for example, further volume growth from our base metals assets. We anticipate some degree of volume growth from our specialty metals, for example, Four Mile. Gold on the back of -- on the expected volume from our legacy exposure to EVBC, expect some form of price tailwinds. And where you'd expect to see some form of downside relative to last year is specifically the Kestrel met coal royalty. So overall, you're expecting stronger contribution from the critical minerals and offsetting a weaker contribution from the legacy met coal exposure. Kevin Flynn: I think -- just to add to that, I think you are -- if you're looking at 2025 in isolation, you are missing the nuance of the Four Mile and the Mimbula assets, which don't represent a full run rate in the period. And also, you've got a blended average price of Voisey's Bay, which is much, much lower than what we currently have and what's expected to be for 2026. Operator: The next question, you kindly provided a little bit further clarification on the following. So the expected time line for revenue growth from newly acquired assets, e.g. copper streams and base metals. And maybe you could include the Mimbula deal. It sounds good, but when will we see cash flow through? I know that has been sort of covered in the presentation, but maybe anything you want to add on that? Marc Lafleche: So I think the first thing I'd point anyone to -- I think for -- in terms of time lines and additional details on the portfolio, I'd encourage you to review this slide, which gives you an indication of what key events are expected when. And in terms of Mimbula. Mimbula is in production. Mimbula contributed to our earnings profile last year. And the Mimbula asset is expected to continue to demonstrate volume growth over the course of 2026 in addition to production that was -- to which we received as part of our stream following the acquisition last year. Operator: Now you described this as the first year for critical minerals represent a major majority of your portfolio contribution. Is there a target split you're managing towards? And what does the ideal portfolio look like in 3 to 5 years? Marc Lafleche: If you look to the future in 5 years and working -- why don't we start that and work backwards. Based on the NAV, the portfolio's NAV and the development milestones as communicated by our operator partners, the #1 exposure as a percentage of NAV, but also revenue in 5 years is expected to be copper. Secondly, it would be base metals. And then more widely, you'd have in the suite of critical minerals, uranium and vanadium and rare earths as a smaller portion of the total. When we look to the future as sort of an optimal portfolio structuring, our intent is very much to keep the core of the portfolio in base metals, and we've been very deliberate in targeting copper as our core commodity exposure. We certainly will consider the wider suite of critical minerals. But even then in that context, our strategy and our desire is to retain copper as a core commodity exposure. Operator: Thanks, Marc. Your position in Largo Resources still stands today. What is your outlook and interest in Cañariaco Copper Project in Peru? Marc Lafleche: So we touched on this briefly in the presentation. Cañariaco, if I understand the question correctly, was recently acquired by Fortescue, which is, as I mentioned, a fantastic counterparty, very well capitalized, very experienced in the mining sector, has the capability to develop this type of project in time, both the wherewithal, financial experience, execution capability. I think this is an asset that historically has not garnered a huge amount of attention in the Ecora portfolio. I think the -- hopefully, following the acquisition by Fortescue, it will. It's an asset that has the potential to generate substantial income for us in time for many decades with enormous prospectivity beyond what's already been drilled out and evaluated in the resource. So it's something that we're excited about. And hopefully, we'll see more from Fortescue as they further explore and develop this asset and move it up the development curve in the next 12, 18, 24, 36 months. Operator: Now the next question. The top 5 ranked critical minerals according to the latest watch list from the Critical Minerals Institute are copper, gallium, tungsten, uranium and rare earth elements. As it stands, your portfolio has significant exposure to copper, which looks like will increase further, which is great. However, I understand your exposure to the rest, top 5 is currently rather insignificant. Uranium and rare earth elements is no more than 10% of the portfolio. And apparently, you have no exposure to gallium and tungsten. Other interesting metals you seemingly have no exposure to are lithium, palladium and aluminum. Could you expand on your plans for exposure to future-facing critical minerals other than copper? Marc Lafleche: Yes. So look, I think the first thing to note here is that when we think about our commodity selection, and when you think about constructing a portfolio, we've taken careful steps to keep the core of our NAV in commodities that have very deep, deep markets and very much to the degree possible that are less impacted by small changes in supply and demand. And I think certain critical minerals, which certainly small -- as a smaller percentage of NAV could be interesting to Ecora as it could have a disproportionate impact should they be too large a percentage of NAV, but just by virtue of small changes in supply and demand in very small markets can have very outsized impact on price swings. So what we've sought to do is build a portfolio that, in aggregate, offsets the volatility and diversifies commodity price movements from one commodity to another. And by no means do we feel that the commodity exposure we have today is complete. We would certainly consider and evaluate many other commodities in addition to those we have exposure to, some of which we've evaluated that have already been named. But really, that being said, our core strategy still remains within the context of having a diversified portfolio of critical minerals to retain copper at the core. Operator: Thank you. A similar type of question that's coming out here, but maybe if you want to expand a little bit more, Ecora has repositioned towards future-facing commodities. How do you decide the optimal balance between bulk commodities like coal and iron ore and transition metals like copper, stroke nickel? Marc Lafleche: I think the question in some ways, is a function of the expected longer-term supply-demand balance for those commodities and the outlook for those commodities over multiple decades. I think you can certainly make the case that the outlook over 2, 3 to 4 decades for copper is much stronger than iron ore -- or excuse me, is certainly much stronger than steelmaking coal and in part why we've allocated the portfolio away from its legacy in coal towards commodities that are expected to perform much more strongly over multiple decades. And secondly, typically trade at much higher valuation multiples. So in that sense, allocating cash flows from coal, which trades at low valuation multiples to buy royalties and commodities that trade at much higher valuation multiples is actually a very accretive way to grow the portfolio. And since we've seen even in the last 5 years, when you look at Ecora's trading multiples as the balance of the portfolio cash flow has diverged towards critical minerals, you have seen multiple expansion. And that's something that we think in time will be very accretive for our shareholders and has already demonstrated that it's the case in part. In terms of the entry point beyond that, I think one of the advantages of having a broader suite of commodities is you do have some flexibility to move between underlying commodities depending on where those are in their commodity price cycles. So in other words, if commodity price A is very expensive, you could pivot and look laterally at commodity price -- at commodity B, which may offer a more attractive entry point. But underneath it all, when we choose commodities, it's fundamentally driven by a long-term analysis of supply-demand balances and what are underlying long-term trends to try to position this portfolio to strong trends that ultimately we hope will benefit in pricing exceeding our investment cases at the time of making the investment. Operator: Next question, are you seeing plenty of opportunities out there? Or are good deals getting harder to find? Marc Lafleche: Yes. This is a pretty frequent question. And I think over time, we've to date anyways, consistently found opportunities. I think we look to the future with confidence. I think there's a clear need for capital. And I think there's a very clear need for the development and incremental supply in light of the demand growth trends we -- that are expected and we're seeing to date. So when we look at our investable universe, we do sense that we're investing into a demand -- a market that has a growing demand and a growing need for capital, which I think is quite positive. And look, I think as a group, we've always advocated patience is key, maintaining our investment -- our discipline and sticking to our investment criteria is key. So I think we -- as we've always done, be very patient and wait for the right opportunity to come along. That being said, we look to the future with confidence and feel as though we have every confidence that in time, we'll be able to continue to grow the business. Operator: Next question, what is the impact the Middle East conflict is having on Ecora now and potentially in the future? Marc Lafleche: It's something, obviously, we've been monitoring very carefully. I think to date, very difficult to see any direct implication, and that's something that we've looked at in our portfolio, but also in terms of engagement with our operator partners. Depending on the length of the conflict, the ultimate form of the conflict, the disruption to global markets, the conflict may or may not eventuate. It's very difficult to assess exactly how it could impact Ecora other than to say this is something that we're clearly monitoring. There's -- obviously, there's the impact from energy and the availability of diesel in the mining sector. But also there's an impact on the availability of sulfur as a precursor to sulfuric acid, which is an important reagent or chemical used in, for example, nickel, copper to some degree, sort of SXEW operations, uranium, cobalt to a degree. So yes, I think globally, it's far beyond just the impact of energy. In some instances, it could create issues for some producers, but the exact impact to Ecora, if any, is we'll have to continue to monitor and evaluate as things progress. Operator: Next question. Net debt peaked at USD 124.6 million in Q2 2025 and stood at USD 85.5 million at the year-end. What's your target leverage level? And at what point do you feel comfortable returning to a more active acquisition strategy? Kevin Flynn: Yes, I'll take that one. I think we don't necessarily have a target level of net debt in the business. I think one of the real virtues of the royalty model is that it does provide a derisked way of gaining exposure to the mining industry. I think to provide that through an overlevered structure dilute some of that virtue. Over the past number of years, we have leveraged our cash flows in order to continue our acquisition journey. We've deployed well over $0.5 billion in that period. But we've always done so with a view to the level of confidence that we've had in the cash being generated from the business to take those levels down to very manageable levels. Most recently was the Mimbula acquisition, where we did increase our leverage as the question rightly points out. But we have some initiatives to bring that down reasonably quickly. And I think if you look at our projections for 2026, based on consensus price forecast, that would bring our leverage -- operational leverage ratio down to about 1x at the end of the year. Those are very comfortable levels, but we don't necessarily have a targeted level of debt that we are comfortable with our operational leverage. Our debt facility is $180 million. We've got a further $40 million through an accordion feature to put on top of that for the right acquisitions. So if we're seeing a path through to about $50 million of net debt by the end of the year, that leaves us a lot of headroom under that facility in order to continue the growth ambitions. Operator: Have the management looked at increasing the 20% to 25% -- sorry, 25% to 35% dividend payout ratio as the latest dividends have been very disappointing with shareholders receiving only about 23% of what they received 3 years ago? Kevin Flynn: Should I take that? I'll take that. I think the capital allocation adjustments that were made a number of years ago was very much in the context of the pivot that we are now experiencing. If we look at where we were, we had an asset in Kestrel running off. And that asset itself had a lot of volatility. So I think where we are now with the growth profile we have in the business, I think it's very important for us that dividend growth is a function of free cash flow growth. And I think we have enough visibility on that going forward to see a path to dividend growth coming in that way. At present, we're comfortable with the 25% to 35% payout range as our assets continue to show their potential. Operator: Are there specific geographies or operators you're prioritizing or avoiding? Marc Lafleche: I think generally, our investment criteria is to target well-established mining jurisdictions and high-quality ore bodies and established operators. So that has been our focus historically, and that continues to be our focus for the future. Operator: And where do you think Ecora has a structural advantage that isn't yet reflected in the valuation? Marc Lafleche: I don't think it's any -- I think the share price at Ecora has obviously performed very strongly in the last 12 -- in the last, call it, 12 months. However, even then, the company trades relative to other royalty companies at quite a big discount. And I think the opportunity for investors that we're very excited about as shareholders of Ecora, Kevin and I, is the opportunity to -- for our revenue complexion to shift from, number one, short-dated cash flows at Kestrel to number two, to multi-decade royalties; and number two (sic) [ three ] to commodities in critical minerals that trade at much higher valuation multiples. When you combine those 2 together, there's enormous potential in the Ecora portfolio that is not reflected in the share price today. And thus, we're very excited for this next phase of growth in Ecora organically, but also as we look to acquire more royalties and diversify our sources of income. Operator: What opportunities are there for direct or indirect investment participation available to international investors? Marc Lafleche: I would say -- well, Ecora has a number of listings. So we're listed on the London Stock Exchange on the ticker ECOR. Ecora is listed on the TSX. The ticker is ECOR. And you can also trade via the OTCQX platform if you're based in the U.S. and would like to sell in U.S. business hours. The ticker there is ECRAF. Operator: And what do you think the market is missing in your valuation today? And what needs to happen for the gap to close? Marc Lafleche: Well, it's amazing what 12 months will do. I think 12 months, the answer would have been this portfolio needs and was -- we would have anticipated in '25, the portfolio demonstrating a portion of its cash generation potential from the critical minerals royalties. And that has happened, and we've seen a very strong share price reaction, almost 200%, just under 200% from 12 months ago roughly to today. So in that sense, I think there's a lot more to come in that regard over the next 5 years, where this portfolio has yet to demonstrate its true underlying cash generation potential. And as Kevin has said, the portfolio in the future is expected to generate this cash flow at a much lower effective tax rate, increasing cash conversion. So beyond that, I think that's the organic growth profile in commodities that are underpinned by really robust fundamental long-term demand trends. And beyond that, we're looking to diversify our sources of royalties and our sources of income and sources of growth. So we're really quite excited, Kevin and I, for what's next. Operator: Super. Well, that is all the questions we've got time for today. Maybe, Marc, I could hand back to you just for some closing remarks. Marc Lafleche: I think the short version to say is we feel that 2025 is a very important year and an important step forward for Ecora. That being said, there's still an incredible amount of work to go. I think we're very excited by this big step forward and the foundation that we've led, but we're highly motivated and energized to continue transport to building on these foundations that we now have to, in time, take this company to far beyond where it is today. So thank you for your interest, and thank you for joining our call. Operator: I'd like to thank both Marc and Kevin today for the presentation. That concludes the Ecora Royalties investor presentation. Please take a moment to complete the short survey following the event. The recording of this presentation will be made available on the Engage Investor. I hope you've enjoyed today's webinar, and thank you for your time.
Operator: Good afternoon, and welcome to the Ecora Royalties Investor Presentation. Today, we're joined by CEO, Marc Bishop; and CFO, Kevin Flynn, for the presentation and the live Q&A. [Operator Instructions] I'd now like to hand over to Marc to begin the presentation. Marc, over to you. Marc Lafleche: Well, good afternoon, everyone, and thank you for joining us today for a call in relation to our 2025 results. On a number of fronts, 2025 marks a year of delivery. First and foremost, we saw 2025 representing an inflection point. For the first time in this business' history, critical minerals exposures generated more than half of our overall portfolio contribution. And this is primarily driven by our base metals exposures, which grew 150% year-on-year. So all in all, we're obviously very delighted to see our critical minerals royalties demonstrate what is a portion ultimately of the true underlying potential of the wider portfolio in the past year. Second, during the past year, we acquired a producing copper stream, the Mimbula Copper royalty, which has certainly augmented our exposure to copper and pro forma for that commodity, cemented copper at the core of our commodity exposure. And last, I think one of the key highlights of the prior year relates to the rapid deleveraging, which we demonstrated following the acquisition of the Mimbula Copper stream. Following the transaction's close, our net debt was just under $130 million, and we ended the year with net debt that was roughly similar to where we actually started the year 2025. So in other words, roughly flat, inclusive of a $50 million acquisition, which is a strong outcome, an indication of the portfolio's cash generation, but also second, the active steps we took during the year to unlock value from noncore assets. So pausing to speak about the prior year. And overall, it's quite clear to us anyways that 2025 is indeed a landmark year for this business. First, in relation to the commodity complexion with critical minerals representing for the first time ever, more than 50% of coal. But second, in terms of a reduction as we look to the future of an expected reduction in the volatility of the critical minerals royalties cash flows relative to those that we've seen historically with Kestrel, which is a royalty that has been in and out of our royalty area and on a quarter-to-quarter basis has created an element of volatility that we should see far less of into the future. And third, I think this is perhaps to us the most important point on this slide. We're now looking at a source of cash flows that have mine lives that are measured in decades and that compares to Kestrel, which is always measured in much shorter increments more recently in years. So this is a very exciting step forward when we think about the producing aspect of this portfolio and the business' quality of earnings, further supplemented by the organic growth that exists within the existing Ecora portfolio. Looking back 5 years, the critical minerals portfolio really has delivered. From 2020 to 2025, we see approximately 6x to 7x increase in contribution from specialty metals, uranium and base metals. But looking to the future, we still do appear to remain very much at the foothills of the organic cash generation potential that exists in Ecora. And the next 12 months -- 12, 18 months are very key towards derisking that 2030 profile, particularly those assets that are not yet in development -- not yet in production that are at the development stage. And this is summarized on the left of this slide, where what you see is a very layered dimension to our growth profile. For those who have been tracking Ecora for as long as Kevin and I have been with the business, I think what you'll see for the first time probably ever in Ecora's history, we now have a growth profile that's layered across volume growth from assets that are in production, volume growth potential from assets that are in production being expanded by brownfield expansions or being restarted from assets that are -- once we're in production that have stopped and are intended to revert near-term development, so assets that are far along the development curve, not yet in production, but greenfield growth. And then last, early stage or assets where we see not necessarily a path to income in the next 5 or 10 years, but a path to sizable capital appreciation potential in royalties like Patterson Corridor East, for example. So with that, I'll hand it over to Kevin to talk us through the financials for the prior year. Kevin Flynn: Thanks, Marc, and thanks again, everybody, for joining us today. Turning to our financial performance slide. So as Marc mentioned, this was really an inflection point in the year. Looking at our portfolio contribution, whilst there was a small decrease in the period of about 10%, that in no means tells the full story. And we'll touch on this in a little more detail on the next page in terms of the changing complexion of the business and also the significant growth that Marc touched on that drives the next wave of our evolution. Our adjusted earnings were a bit lower in the period. This really reflects the increased finance costs we assumed with the Mimbula acquisition. Although the deleveraging kicked in, in the second half of the year, our finance costs were on average higher, reflecting higher average borrowings. In addition, our overheads, whilst a reduction in terms of our underlying cost base, the U.S. dollar to sterling exchange rate movement led to an increased reported overhead in the period. So that impacted on adjusted earnings. But we should see some improvements and increases in adjusted earnings going forward as these catalysts kick in. In terms of free cash flow, another point that's quite important to reflect on with Kestrel representing less than 50% of our income is that our free cash flow conversion significantly increases. Kestrel has a high associated effective tax rate with it. And as its proportion of our overall contribution reduces, the free cash flow conversion within the portfolio increases. This slide shows our portfolio contribution in the year, and I'll use this as an opportunity just to run through briefly some of our key assets. The first one, Voisey's Bay, had a very strong year with contribution almost tripling in the period. This reflects a 113% increase in volumes, which is reflective of the ramp-up of the operation as it continues its underground transition. And we'd expect to see in 2026 full steady-state production being achieved here, which should result in increased production levels in 2026 before that then becoming a stable platform thereafter. Voisey's Bay also benefited from a significant increase in cobalt prices in the period. It's hard to believe that it's about a year ago sitting here that cobalt prices were about $13 a pound. Today, that number is closer to $30. And this reflects actions taken by the DRC in the period to really stabilize the cobalt market following a period of significant oversupply, which resulted in the DRC announcing first an export ban and then a quota-based system, which has really stabilized the pricing environment for cobalt. So good tailwinds to come in 2026 for our cobalt asset. Mantos Blancos was certainly a highlight in the period, generating $9.5 million based on record levels of production. And actually, this amount approximates to a running cash yield of about 20%, which we're very pleased with. We acquired this royalty for about $50 million in 2019. We would expect here to see volumes in 2026 a little bit lower as they go through a period of planned lower ore grades within the body. That should recover then in 2027. Mimbula represented our copper stream acquisition around this time last year, which Marc touched on. It's worth pointing out here that the $4 million reported really only represents 2 full quarters of production because due to a nuance in the accounting, we only recognize the revenue when the units are sold. So the quarter 4 production is sold in January of 2026 and will be reported in Q1 '26. So in 2026, we should see that transitional period of reporting for Mimbula disappear. I'll just pick out a couple of other highlights. Four Mile is our uranium royalty in Australia. Similar to Mimbula, this doesn't really tell the full story. Normalized sales patterns returned to this royalty in the first quarter of last year, but similar to Mimbula, this is reported based on cash sales. So the $2.2 million really only represents 3 full quarters of production here in the period. So we should see some revenue growth to come in 2026 based on more normalized levels of sales. Looking further down, it's worth remembering we do have some gold exposure in the portfolio through our EVBC gold royalty. which generated $3.2 million in the period based on very strong gold price environment, which again shows the virtues of a diversified royalty portfolio, certainly diversification across commodities. The operator here has signaled that there's reserve potential for a further 5 years. So good to have some gold price exposure in the portfolio in a strong gold price environment. And finally, Kestrel, which is now nearing the end of its economic life for Ecora. Kestrel met guidance in the period, although reported income was down. This is due to average coking coal prices being down around 35% in the period. The midpoint guidance for tonnage next year is about 1.1 million tonnes. And thereafter, Kestrel really starts its transition outside of the group's private royalty area. But the key takeaway from this slide, certainly, as Marc alluded to, is the quality of the earnings now within the portfolio. So if we look at our base metals portfolio, which was up 150% in the year, many of these assets have reserve lives that go into decades. And if we compare that to Kestrel at the bottom, which now has only about 2 or 3 years left, that really does show the potential and the cash flow potential to be generated from our core assets going forward. So to show you how the portfolio contribution, along with some portfolio initiatives has resulted in our meaningful deleverage in the second half of the year. This slide really shows it. The portfolio contribution, which is cash flow number of $55 million, really accelerated our deleveraging in the second half of the year. Looking at our capital allocation priorities, growth still remains our firm focus, and we were very pleased on that basis to acquire the Mimbula stream about a year ago for $50 million. At the time of doing that, we increased our borrowing facility to $180 million. And a lot of the conviction that we had to take on that additional debt was the visibility that we had in the near-term cash flow potential from our portfolio, along with some of the initiatives that we undertook subsequent to the acquisition to bring down our deleveraging. Amongst those, we accelerated the remaining contingent payments associated with our Narrabri thermal coal royalty disposal a number of years ago. And we also took the opportunity to dispose of our noncore Dugbe gold royalty in the middle of last year. Both of those actions realized $28 million, which effectively refinanced over 50% of the Mimbula transaction and brought our net debt down to the end of the year to similar levels to the beginning. To remind everyone about our dividends, we paid close to $7 million in dividends in 2025, which represents about $0.0281 per share on a cash basis. With our year-end results, we've proposed a final dividend of $0.014 for the final dividend, which combined with the interim dividend would bring a final dividend -- or sorry, a total dividend for 2025 to $0.02 per share. And I think it's very important in the context of our net debt to look at the table on the bottom right of the screen. This is a table we like to include to show based on guidance that's in the public domain or the guidance that we provide when applied to consensus price forecasts shows a path to deleveraging to the end of 2026 to $53 million from $85 million at the beginning and bringing this down further to $27 million by the end of 2027. At those levels, our debt position is very comfortable. We're very comfortably within our debt covenant limits. And with a $180 million debt facility provides a significant financing flexibility to continue adding to our royalty portfolio. And with that, I'll hand back to Marc. Marc Lafleche: Thank you, Kevin. Well, all in all, I think looking across the suite of our commodities during 2025 and to some degree, through carrying forward to the start of 2026, we've seen a really strong performance across the board. Copper, cobalt, uranium, rare earths, nickel all performed quite well. I think met coal was slightly soft over the course of last year, although we've seen that rebound to levels in early 2026 that are historically in line with averages. And one of the strongest performers, which has followed -- which is delightful to see following our acquisition of the Phalaborwa rare earth royalty, our rare earth prices, which performed exceptionally strongly in 2025, in part is becoming part of a geopolitical negotiating tool between China and the United States is in relation to tariff and trade policy. From a volume perspective, looking ahead at 2026, overall, from our base metals exposures, we anticipate volume growth. Mimbula is expected to continue to ramp up towards an expanded nameplate production capacity rate. Voisey's Bay, likewise expected to continue to ramp up towards nameplate throughput levels. As Kevin mentioned, Mantos Blancos production is expected to be slightly softer this year as mining goes through a lower ore head grade portion of the ore body and is expected to normalize in the future. Otherwise, overall, we anticipate other than Kestrel, where you expect roughly half the volumes overall continued volume growth in our critical minerals. I think we've touched on the key points here at Voisey's, but just taking a moment to touch on a few additional points. Year-on-year, we'd expect 12% to 25% volume growth at Voisey's. And touching on something that we've always highlighted as being very likely at Voisey's is the life of mine expansion that we've seen here, where the volume extended to 2044. And more recently, we've seen as part of Vale's Base Metals Day in late March, additional disclosures in relation to the Voisey's Bay ore body and to the likely and possibility life of mine expansion potential that exists, which is significant and really underscores what we've been indicating for many years is a possible of multi-decade life of mine expansion potential at Voisey's Bay in excess to the existing life of mine that already runs towards the end of the next decade. We touched on most of the key points at Mantos Blancos. So just zooming in on one on the far right, and that's the Phase 2 expansion study. I think we're delighted to have seen record performance in the last year. And in addition to what were very high levels last year, there's -- Capstone has alluded to the potential to increase production to potentially 100,000 tonnes compared to production last year and just above 60,000 tonnes of copper. That feasibility study in relation to Phase 2 is expected later this year. And we're very excited for that to be released. We think that's the key next step to demonstrate the value upside of this royalty. And as of yet, with the benefit of that further detail, hopefully, that will provide sufficient financial figures and forecast for Ecora research analysts to include this potential value in our revenue forecast, but also our net asset value estimates as well. I think we've touched on the key wins on this slide. So I won't touch in too much detail on any other than to just pick out one, which is the Cañariaco royalty. And that's specifically the key point to flag is the Fortescue, the multibillion-dollar iron ore and future-facing commodity mineral royalty company out of Australia has acquired control of this project, which is an incredible step forward in terms of the projects, our operating partner quality and capability to develop this project in the future. So bringing it all together for our base metals exposures, I think what this slide clearly demonstrates is that following the Mimbula acquisition last year, we have roughly doubled our attributable annual copper production solely with the Mimbula acquisition, which is a great step forward. And beyond that, with the existing assets in our portfolio, Ecora offers a copper pipeline to more than quadruple our attributable copper in this decade and the next. So all in all, while we really do feel that this slide highlights how we've cemented copper at the core of our portfolio that's fully paid for and that is amongst, if not the leading organic copper growth profile of any royalty company. Turning to key assets in the specialty metals and uranium side at Phalaborwa and over the course of the past 12 to 18 months, we've seen a number of key derisking milestones that continue to position this project for the publication of a feasibility study and subsequently a financing process. We've seen strong increases in underlying rare earth prices over the last 12 to 18 months. And turning on the uranium side, I think it's difficult to categorize the exploration program at Patterson Corridor East as anything other than geologically exceptional. NexGen is targeting a program in 2026 to further build upon last year's program, and we're very excited to update you soon and hopefully with some very continued positive news on further progress. Kevin mentioned that this was expected to be our final year of material contribution from Kestrels and you can see why on the map on the right hand of this slide. Over the course of this year, we expect roughly half of the volumes from the prior year. And then beyond that, sort of a tail between a few hundred thousand to 500,000 tonnes between 2027 to the end of the decade. And then last, at EVBC, as a result of strong gold prices, we've seen our operator partner, Orvana communicate the possibility to continue with EVBC in production towards the end of this decade. Should that be the case, carrying this asset well past its originally expected mine life and potentially benefiting Ecora from further upside and participation in what has been a very strong gold price backdrop. So bringing it all together in terms of key points, I think, number one, we anticipate further volume growth from our key base metals royalties in 2026. We anticipate a number of key potential derisking or project development milestones in relation to some near production development royalties that we're very looking forward to and hopefully, we'll be able to update you in relation to on our next call. Commodity prices have demonstrated a level of volatility year-to-date 2026. Nevertheless, remain at historically elevated levels. And should they remain at these levels, combined with the operator -- our operator partner volume guidance, we anticipate further rapid deleveraging, which positions the business very well for further growth and diversification. And last and certainly not least, I think the royalty model as it stands is very defensively positioned to the continued inflationary pressures that we see in the market today, more recently as a consequence of a conflict in the middle in our end, but have persisted for a variety of factors for the past 5 or 6 years at a minimum, if not more. So looking ahead, we do genuinely feel that Ecora is probably at the best it's ever been with a platform of key royalties generating from the producing side, generating income that's expected to run decades with a number demonstrating only a small portion of the portfolio's true longer-term underlying cash generation potential. And over the course of the next 12 to 18 months, we hope to see further derisking events that will further underpin that next wave of growth in this business and its portfolio. So with that, we thank you for joining us, and we're happy to take any questions you may have. Operator: Thank you so much to Marc and Kevin for the presentation. We've had a number of questions that have been pre-submitted and also submitted live. [Operator Instructions] But the first question that we have is, you're talking quite positively about the year, but when I look at the numbers, it feels mixed. What am I missing? Marc Lafleche: Well, I think when you look at the numbers, you are correct to see certain parts of our portfolio performing in diverging ways. So for example, further volume growth from our base metals assets. We anticipate some degree of volume growth from our specialty metals, for example, Four Mile. Gold on the back of -- on the expected volume from our legacy exposure to EVBC, expect some form of price tailwinds. And where you'd expect to see some form of downside relative to last year is specifically the Kestrel met coal royalty. So overall, you're expecting stronger contribution from the critical minerals and offsetting a weaker contribution from the legacy met coal exposure. Kevin Flynn: I think -- just to add to that, I think you are -- if you're looking at 2025 in isolation, you are missing the nuance of the Four Mile and the Mimbula assets, which don't represent a full run rate in the period. And also, you've got a blended average price of Voisey's Bay, which is much, much lower than what we currently have and what's expected to be for 2026. Operator: The next question, you kindly provided a little bit further clarification on the following. So the expected time line for revenue growth from newly acquired assets, e.g. copper streams and base metals. And maybe you could include the Mimbula deal. It sounds good, but when will we see cash flow through? I know that has been sort of covered in the presentation, but maybe anything you want to add on that? Marc Lafleche: So I think the first thing I'd point anyone to -- I think for -- in terms of time lines and additional details on the portfolio, I'd encourage you to review this slide, which gives you an indication of what key events are expected when. And in terms of Mimbula. Mimbula is in production. Mimbula contributed to our earnings profile last year. And the Mimbula asset is expected to continue to demonstrate volume growth over the course of 2026 in addition to production that was -- to which we received as part of our stream following the acquisition last year. Operator: Now you described this as the first year for critical minerals represent a major majority of your portfolio contribution. Is there a target split you're managing towards? And what does the ideal portfolio look like in 3 to 5 years? Marc Lafleche: If you look to the future in 5 years and working -- why don't we start that and work backwards. Based on the NAV, the portfolio's NAV and the development milestones as communicated by our operator partners, the #1 exposure as a percentage of NAV, but also revenue in 5 years is expected to be copper. Secondly, it would be base metals. And then more widely, you'd have in the suite of critical minerals, uranium and vanadium and rare earths as a smaller portion of the total. When we look to the future as sort of an optimal portfolio structuring, our intent is very much to keep the core of the portfolio in base metals, and we've been very deliberate in targeting copper as our core commodity exposure. We certainly will consider the wider suite of critical minerals. But even then in that context, our strategy and our desire is to retain copper as a core commodity exposure. Operator: Thanks, Marc. Your position in Largo Resources still stands today. What is your outlook and interest in Cañariaco Copper Project in Peru? Marc Lafleche: So we touched on this briefly in the presentation. Cañariaco, if I understand the question correctly, was recently acquired by Fortescue, which is, as I mentioned, a fantastic counterparty, very well capitalized, very experienced in the mining sector, has the capability to develop this type of project in time, both the wherewithal, financial experience, execution capability. I think this is an asset that historically has not garnered a huge amount of attention in the Ecora portfolio. I think the -- hopefully, following the acquisition by Fortescue, it will. It's an asset that has the potential to generate substantial income for us in time for many decades with enormous prospectivity beyond what's already been drilled out and evaluated in the resource. So it's something that we're excited about. And hopefully, we'll see more from Fortescue as they further explore and develop this asset and move it up the development curve in the next 12, 18, 24, 36 months. Operator: Now the next question. The top 5 ranked critical minerals according to the latest watch list from the Critical Minerals Institute are copper, gallium, tungsten, uranium and rare earth elements. As it stands, your portfolio has significant exposure to copper, which looks like will increase further, which is great. However, I understand your exposure to the rest, top 5 is currently rather insignificant. Uranium and rare earth elements is no more than 10% of the portfolio. And apparently, you have no exposure to gallium and tungsten. Other interesting metals you seemingly have no exposure to are lithium, palladium and aluminum. Could you expand on your plans for exposure to future-facing critical minerals other than copper? Marc Lafleche: Yes. So look, I think the first thing to note here is that when we think about our commodity selection, and when you think about constructing a portfolio, we've taken careful steps to keep the core of our NAV in commodities that have very deep, deep markets and very much to the degree possible that are less impacted by small changes in supply and demand. And I think certain critical minerals, which certainly small -- as a smaller percentage of NAV could be interesting to Ecora as it could have a disproportionate impact should they be too large a percentage of NAV, but just by virtue of small changes in supply and demand in very small markets can have very outsized impact on price swings. So what we've sought to do is build a portfolio that, in aggregate, offsets the volatility and diversifies commodity price movements from one commodity to another. And by no means do we feel that the commodity exposure we have today is complete. We would certainly consider and evaluate many other commodities in addition to those we have exposure to, some of which we've evaluated that have already been named. But really, that being said, our core strategy still remains within the context of having a diversified portfolio of critical minerals to retain copper at the core. Operator: Thank you. A similar type of question that's coming out here, but maybe if you want to expand a little bit more, Ecora has repositioned towards future-facing commodities. How do you decide the optimal balance between bulk commodities like coal and iron ore and transition metals like copper, stroke nickel? Marc Lafleche: I think the question in some ways, is a function of the expected longer-term supply-demand balance for those commodities and the outlook for those commodities over multiple decades. I think you can certainly make the case that the outlook over 2, 3 to 4 decades for copper is much stronger than iron ore -- or excuse me, is certainly much stronger than steelmaking coal and in part why we've allocated the portfolio away from its legacy in coal towards commodities that are expected to perform much more strongly over multiple decades. And secondly, typically trade at much higher valuation multiples. So in that sense, allocating cash flows from coal, which trades at low valuation multiples to buy royalties and commodities that trade at much higher valuation multiples is actually a very accretive way to grow the portfolio. And since we've seen even in the last 5 years, when you look at Ecora's trading multiples as the balance of the portfolio cash flow has diverged towards critical minerals, you have seen multiple expansion. And that's something that we think in time will be very accretive for our shareholders and has already demonstrated that it's the case in part. In terms of the entry point beyond that, I think one of the advantages of having a broader suite of commodities is you do have some flexibility to move between underlying commodities depending on where those are in their commodity price cycles. So in other words, if commodity price A is very expensive, you could pivot and look laterally at commodity price -- at commodity B, which may offer a more attractive entry point. But underneath it all, when we choose commodities, it's fundamentally driven by a long-term analysis of supply-demand balances and what are underlying long-term trends to try to position this portfolio to strong trends that ultimately we hope will benefit in pricing exceeding our investment cases at the time of making the investment. Operator: Next question, are you seeing plenty of opportunities out there? Or are good deals getting harder to find? Marc Lafleche: Yes. This is a pretty frequent question. And I think over time, we've to date anyways, consistently found opportunities. I think we look to the future with confidence. I think there's a clear need for capital. And I think there's a very clear need for the development and incremental supply in light of the demand growth trends we -- that are expected and we're seeing to date. So when we look at our investable universe, we do sense that we're investing into a demand -- a market that has a growing demand and a growing need for capital, which I think is quite positive. And look, I think as a group, we've always advocated patience is key, maintaining our investment -- our discipline and sticking to our investment criteria is key. So I think we -- as we've always done, be very patient and wait for the right opportunity to come along. That being said, we look to the future with confidence and feel as though we have every confidence that in time, we'll be able to continue to grow the business. Operator: Next question, what is the impact the Middle East conflict is having on Ecora now and potentially in the future? Marc Lafleche: It's something, obviously, we've been monitoring very carefully. I think to date, very difficult to see any direct implication, and that's something that we've looked at in our portfolio, but also in terms of engagement with our operator partners. Depending on the length of the conflict, the ultimate form of the conflict, the disruption to global markets, the conflict may or may not eventuate. It's very difficult to assess exactly how it could impact Ecora other than to say this is something that we're clearly monitoring. There's -- obviously, there's the impact from energy and the availability of diesel in the mining sector. But also there's an impact on the availability of sulfur as a precursor to sulfuric acid, which is an important reagent or chemical used in, for example, nickel, copper to some degree, sort of SXEW operations, uranium, cobalt to a degree. So yes, I think globally, it's far beyond just the impact of energy. In some instances, it could create issues for some producers, but the exact impact to Ecora, if any, is we'll have to continue to monitor and evaluate as things progress. Operator: Next question. Net debt peaked at USD 124.6 million in Q2 2025 and stood at USD 85.5 million at the year-end. What's your target leverage level? And at what point do you feel comfortable returning to a more active acquisition strategy? Kevin Flynn: Yes, I'll take that one. I think we don't necessarily have a target level of net debt in the business. I think one of the real virtues of the royalty model is that it does provide a derisked way of gaining exposure to the mining industry. I think to provide that through an overlevered structure dilute some of that virtue. Over the past number of years, we have leveraged our cash flows in order to continue our acquisition journey. We've deployed well over $0.5 billion in that period. But we've always done so with a view to the level of confidence that we've had in the cash being generated from the business to take those levels down to very manageable levels. Most recently was the Mimbula acquisition, where we did increase our leverage as the question rightly points out. But we have some initiatives to bring that down reasonably quickly. And I think if you look at our projections for 2026, based on consensus price forecast, that would bring our leverage -- operational leverage ratio down to about 1x at the end of the year. Those are very comfortable levels, but we don't necessarily have a targeted level of debt that we are comfortable with our operational leverage. Our debt facility is $180 million. We've got a further $40 million through an accordion feature to put on top of that for the right acquisitions. So if we're seeing a path through to about $50 million of net debt by the end of the year, that leaves us a lot of headroom under that facility in order to continue the growth ambitions. Operator: Have the management looked at increasing the 20% to 25% -- sorry, 25% to 35% dividend payout ratio as the latest dividends have been very disappointing with shareholders receiving only about 23% of what they received 3 years ago? Kevin Flynn: Should I take that? I'll take that. I think the capital allocation adjustments that were made a number of years ago was very much in the context of the pivot that we are now experiencing. If we look at where we were, we had an asset in Kestrel running off. And that asset itself had a lot of volatility. So I think where we are now with the growth profile we have in the business, I think it's very important for us that dividend growth is a function of free cash flow growth. And I think we have enough visibility on that going forward to see a path to dividend growth coming in that way. At present, we're comfortable with the 25% to 35% payout range as our assets continue to show their potential. Operator: Are there specific geographies or operators you're prioritizing or avoiding? Marc Lafleche: I think generally, our investment criteria is to target well-established mining jurisdictions and high-quality ore bodies and established operators. So that has been our focus historically, and that continues to be our focus for the future. Operator: And where do you think Ecora has a structural advantage that isn't yet reflected in the valuation? Marc Lafleche: I don't think it's any -- I think the share price at Ecora has obviously performed very strongly in the last 12 -- in the last, call it, 12 months. However, even then, the company trades relative to other royalty companies at quite a big discount. And I think the opportunity for investors that we're very excited about as shareholders of Ecora, Kevin and I, is the opportunity to -- for our revenue complexion to shift from, number one, short-dated cash flows at Kestrel to number two, to multi-decade royalties; and number two (sic) [ three ] to commodities in critical minerals that trade at much higher valuation multiples. When you combine those 2 together, there's enormous potential in the Ecora portfolio that is not reflected in the share price today. And thus, we're very excited for this next phase of growth in Ecora organically, but also as we look to acquire more royalties and diversify our sources of income. Operator: What opportunities are there for direct or indirect investment participation available to international investors? Marc Lafleche: I would say -- well, Ecora has a number of listings. So we're listed on the London Stock Exchange on the ticker ECOR. Ecora is listed on the TSX. The ticker is ECOR. And you can also trade via the OTCQX platform if you're based in the U.S. and would like to sell in U.S. business hours. The ticker there is ECRAF. Operator: And what do you think the market is missing in your valuation today? And what needs to happen for the gap to close? Marc Lafleche: Well, it's amazing what 12 months will do. I think 12 months, the answer would have been this portfolio needs and was -- we would have anticipated in '25, the portfolio demonstrating a portion of its cash generation potential from the critical minerals royalties. And that has happened, and we've seen a very strong share price reaction, almost 200%, just under 200% from 12 months ago roughly to today. So in that sense, I think there's a lot more to come in that regard over the next 5 years, where this portfolio has yet to demonstrate its true underlying cash generation potential. And as Kevin has said, the portfolio in the future is expected to generate this cash flow at a much lower effective tax rate, increasing cash conversion. So beyond that, I think that's the organic growth profile in commodities that are underpinned by really robust fundamental long-term demand trends. And beyond that, we're looking to diversify our sources of royalties and our sources of income and sources of growth. So we're really quite excited, Kevin and I, for what's next. Operator: Super. Well, that is all the questions we've got time for today. Maybe, Marc, I could hand back to you just for some closing remarks. Marc Lafleche: I think the short version to say is we feel that 2025 is a very important year and an important step forward for Ecora. That being said, there's still an incredible amount of work to go. I think we're very excited by this big step forward and the foundation that we've led, but we're highly motivated and energized to continue transport to building on these foundations that we now have to, in time, take this company to far beyond where it is today. So thank you for your interest, and thank you for joining our call. Operator: I'd like to thank both Marc and Kevin today for the presentation. That concludes the Ecora Royalties investor presentation. Please take a moment to complete the short survey following the event. The recording of this presentation will be made available on the Engage Investor. I hope you've enjoyed today's webinar, and thank you for your time.
Operator: Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's First Quarter 2026 Earnings Call. This call is being recorded. [Operator Instructions] We will now go live to the presentation. The presentation is available on JPMorgan Chase's website. Please refer to the disclaimer in the back concerning forward-looking statements. Please stand by. At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead. Jeremy Barnum: Thank you very much, and good morning, everyone. This quarter, the firm reported net income of $16.5 billion and EPS of $5.94, with an ROTCE of 23%. Revenue of $50.5 billion was up 10% year-on-year, primarily driven by higher Markets revenue, higher Asset Management and Investment Banking fees and higher NII, driven by the impact of balance sheet growth, predominantly offset by the impact of lower rates. Expenses of $26.9 billion were up 14% year-on-year, largely driven by higher compensation, including higher revenue-related compensation and growth in front office employees, as well as higher brokerage expense and distribution fees. The increase also reflects the absence of an FDIC special accrual release in the prior year. And credit costs of $2.5 billion with net charge-offs of $2.3 billion and a net reserve build of $191 million. And in terms of the balance sheet, we ended the quarter with a standardized CET1 ratio of 14.3%, down 30 basis points versus the prior quarter as net income was more than offset by capital distributions and higher RWA. This quarter's standardized RWA is up $60 billion, primarily driven by the Markets business, reflecting higher client activity, seasonal effects and higher energy prices which resulted in higher RWA across market risk and credit risk ex lending. Now let me spend a few minutes on the recently released Basel III endgame and G-SIB reproposals. I'll start by acknowledging that this has been a long journey and getting it done across multiple regulators and applied to the full set of U.S. banks is unquestionably a difficult task. With that said, we do have some concerns with elements of what's been put forward primarily with the G-SIB proposals. On the left-hand side, we show you our preliminary estimate of the impact on JPMorgan Chase next to what the Fed has disclosed for the Category I and II banks in aggregate. Our results are worse in each category, estimated RWA is higher, G-SIB is worse. And because our CCAR losses are below the floor, the Fed's reduction is not going to apply to us. The result is that under the proposed rules, our CET1 capital would increase around 4%, while the Fed's estimate for large banks is about a 5% reduction. Our long-standing position has been that the agency should calculate each component of the capital requirements correctly without regard to what that may mean for any specific firm or for the broader industry. And to the extent regulators want to add conservatism, they should make that explicit rather than embedding it in methodological choices. Turning to G-SIB on the right. The surcharge from the reproposed rule looks quite high when placed in the historical context as the chart clearly illustrates. As many of you know, we have been on the record for the better part of this last decade, advocating for averaging smaller buckets, GDP scaling and reweighting short-term wholesale funding to 20%, and we were glad to see many of those concepts in the NPR. However, while we have every reason to believe that the Fed's published estimate of a 3.8% reduction in capital associated with the G-SIB NPR is accurate when defined narrowly, it's important to understand that under the current rule, the surcharges for almost all of the G-SIB banks are scheduled to increase meaningfully over the next 2 years, simply as a result of recent growth in the system despite, in our view, no change in real-world systemic risk. In addition to that background increase, the proposed change in the short-term wholesale funding methodology adds about $22 billion of G-SIB specific capital, principally to the money center banks, of which we represent about $13 billion. While in the process, making the methodology less risk sensitive and less consistent with the Fed's original rationale for including it. This could have been addressed by better adjusting for growth in the system, but it wasn't enough. The net result is that we need to plan for 5.2% in 2028, a 70 basis point increase from the current 4.5% requirement, which, when combined with the RWA increase from the Basel III endgame NPR results in a total increase of about $20 billion of G-SIB capital based on our current balance sheet. This persistent miscalibration of the U.S. surcharge is obviously bad for international competitiveness. But more importantly, domestically, this means that the cost of credit from JPMorgan Chase to U.S. households and businesses is likely higher than it is from other domestic non-G-SIB banks. We recognize that we are larger and more systemically important than even large domestic peers. But in the end, the question is, how much more should the cost be? It is very hard to reconcile the principles articulated in the 2015 Fed G-SIB white paper with an outcome where JPMorgan Chase has $109 billion of G-SIB surcharge. Obviously, the rules aren't final yet, and this is what the common process is for. As Jamie wrote in his Chairman's letter, everyone wants to move on. So our comments will be very focused. But we feel strongly that the framework should be coherent and the system would, therefore, be better off with these outstanding points addressed. Now moving to our businesses. CCB reported net income of $5 billion. Revenue of $19.6 billion was up 7% year-on-year, predominantly driven by higher Card NII and largely on higher revolving balances and higher operating lease income in Auto. A few points to highlight. Notwithstanding the recent volatility in market and gas prices based on our data, consumers and small businesses remain resilient with consumer spend growth continuing above last year's pace. Average deposits were up 2% year-on-year and quarter-on-quarter, driven by account growth and moderating yield-seeking flows. Client investment assets were up 18% year-on-year, driven by market performance and healthy net inflows. And in Home Lending, originations of $13.7 billion increased 46% year-on-year predominantly driven by refi performance. Next, the CIB reported net income of $9 billion. revenue of $23.4 billion was up 19% year-on-year, driven by higher revenues across the businesses. To give a bit more color IB fees were up 28% year-on-year, driven by strong performance across M&A and equity underwriting, partially offset by lower debt underwriting. Looking ahead, client engagement and pipelines remain healthy, but of course, developments in the Middle East could have an impact on deal execution and timing. In Markets, fixed income was up 21% year-on-year with strong performance across the businesses, partially offset by lower revenue in rates. Equities was up 17% from increased client activity. Turning to Asset & Wealth Management. AWM reported net income of $1.8 billion with pretax margin of 35%. Revenue of $6.4 billion was up 11% year-on-year, predominantly driven by growth in management fees on strong net inflows and higher average market levels as well as higher brokerage activity. Long-term net inflows were $54 billion with continued strength across fixed income, equity and multi-asset. AUM of $4.8 trillion was up 16% year-on-year and client assets of $7.1 trillion were up 18% year-on-year, driven by higher market levels and continued net inflows. And before turning to the outlook Corporate reported net income of $699 million on revenue of $1.2 billion. In terms of the full year 2026 outlook, we continue to expect NII ex Markets to be about $95 billion. We now expect total NII to be approximately $103 billion as a function of market NII decreasing to about $8 billion, predominantly due to rates, which we expect will be primarily offset in NIR. The adjusted expense outlook continues to be about $105 billion and the Card net charge-off rate continues to be approximately 3.4%. With that, we're now happy to take your questions. So let's open the line for Q&A. Operator: [Operator Instructions] Our first question comes from Steven Chubak with Wolfe Research. Steven Chubak: So maybe to start on the AI cash tool, which, Jamie, you commented on in your letter. There's been lots of focus on this particular at least launch given that this is a tool which could potentially result in some consumer deposit pressure as well as drive some impact on increased competition as well as higher deposit betas. I was hoping you could just speak to how you see deposit competition unfolding as similar smart tools become more widespread? James Dimon: Yes. So it's a great question. And obviously, there's early stages for this particular product. So you have to look at it literally segment by segment, how people manage their money, how they want to manage their money. People are pretty astute at it, particularly the higher net worth. They have tons of choices. They often have money at many different places. And so the question for us is, how can we make it easier for them to manage their money in a way they're comfortable. Most of you on this call, you have in your mind, how much days in a checking account and then you write a ticket to a money market fund or a deposit account, something like that. And that's all we're trying to do. And we provide great values to people. If you're a customer of JPMorgan, I remind people, if you have this product, you have ATMs, you've got branches, you've got advice, you have instant payment systems like Zelle. So we look at the whole basket, how we can do a better job for the client. And yes, it may squeeze some margin somewhere and create more competition somewhere, that's life. Jeff Bezos has always says, your margin is my opportunity. And I kind of agree with that. We're trying to look at the world from the point of view of the customer, what more can we do with them. And this is really early stages. And as you know, there's tons of competition out there for the money. Jeremy Barnum: Yes, exactly. And Steve, the only thing I was going to add to that, it's sort of understandable that's just gotten attention because it has sort of AI in it, and it's kind of interesting. But as Jamie says, like -- and as you highlighted in your question, competition for deposits has always been very intense. It continues to be intense and we have both external and internal competition from higher-yielding alternatives and people sort of optimize that and that's part of running the business. And as also Jamie just alluded to, this thing is like kind of not even live yet and it's sort of targeted at a very small subset of the client base, particularly clients with investments where we think there's an opportunity to take a larger share of the investment wallet as part of this. So I would -- it's understandable the amount of interest that it's gotten, but I think the right way to think of it is sort of as an experiment right now. Steven Chubak: No, that's helpful context. And maybe switching gears just to the Basel III capital proposal. Certainly helpful in terms of how you frame some of the shortcomings, some potential areas for improvement. But maybe just focusing in on the RWA inflationary impacts. Does the guidance that you've laid out contemplate any mitigating actions you might pursue? Is there any potential mitigation that you envisage? And do you have any preliminary views just on the magnitude of SCB relief that you could see from the removal of some of the double counting of markets or operational risk. I recognize that piece is a little bit more opaque. Jeremy Barnum: Yes. I mean those are interesting questions. I think, obviously, we are kind of well-practiced over the course of the last 1.5 decades on understanding the rules in detail. And ensuring that we're using our financial resources efficiently to support the client franchise. And I think the hope is that the rules land in a stage where there is nothing in them, which sort of takes an otherwise good and healthy business and makes it completely noneconomic. I think we've alluded to a couple of areas where if you look at the presentation slide on the bottom right-hand side, we talked about targeted RWA clarifications needed. There's this issue with like high-yield repo collateral and some stuff about advised lines where the proposal is a little bit unclear about what the actual impact would be, and in some versions of the world, we think it creates irrational results. But broadly, I don't think this is a story about optimization at this point. I think this is a story about a rule set that is converging to a place and then we need to just grow the business and deploy the resources to serve our clients. Obviously, we have said a lot about G-SIB on this page. And I guess I don't really have more to say unless you ask a big question on G-SIB, but that is the one area where we think it's kind of a significant disincentive to a particular type of business, in particular some markets business. And I guess I would just make the point that we've often made publicly that the depth and breadth of U.S. capital markets is a key competitive national advantage. And regulatory capital rules that at the margin discourage a dynamic secondary market in the United States with active participation by banks is, in our view, sort of not great. So that's part of the reason that we're so focused on G-SIB because it disproportionately affects that business. Steven Chubak: And anything you could speak to just in terms of the removal of the double counting? Jeremy Barnum: Yes. Sorry, I forgot about that part of your question. Yes. So as you know, like we're currently below the floor, right? So obviously, if that is like the new normal, then if the double count is addressed by removing further things from stress testing, it wouldn't have any impact. If the double count is addressed by modifying the operational risk calculation in RWA, then it might have some impact. And obviously, it's far from guaranteed that we will be a bank that is permanently below the floor. But I suspect that issue is more relevant for institutions whose business mix is such that they're going to tend to structurally be above the floor. It's a little bit unclear for us as things settle down, whether we're going to bounce around above and below the floor or tend to be structurally above the floor. We'll see. But I think removal of the double count is definitely something we support. It's probably not our #1 priority at this point because some progress has been made on that front. James Dimon: Yes. Can I just also just mention on the market -- global market shock, it's never been -- in the real world, all these years, including during the COVID and then before the great crisis is nothing like what they have. And we already have $80 billion or $90 billion of capital for the trading books. So those numbers are just -- they're completely out of whack in reality. And operational risk capital, I can't avoid saying it is another crazy obtuse, one in 1,000-year thing. And then worse than that, in my opinion, they create risk-weighted assets. Every company in the world has operational risk and they artificially create risk-weighted assets, which do not exist. And this locks up a lot of capital and liquidity for eternity for no good reason. And I understand there's operational risk. I think there are real ways to measure it, by the way, which I'd point out, which is not this artificial over-architected academic exercise, but there's operational risk and margin loans that are late and using subprime collateral as opposed to prime collateral and how you process things. And that's what they should really be focusing, reducing actual operational risk as opposed to these calculations but you can't change. Like if you -- if it all come to the mortgage business and you got out of the mortgage business, it still stays there. Like who would do something like that. And so it's time to really look at this stuff and do it right. Operator: Our next question comes from Erika Najarian with UBS. L. Erika Penala: Jeremy, my first question is for you. You modified the Markets NII outlook given the change in rates between end of February and today. I'm wondering, as we think about the ex Markets NII number of $95 billion, you retain that. What are sort of the offsets to higher rates and the asset sensitivity if we don't have cuts for the rest of the year? Jeremy Barnum: Yes, sure. So it's a good question because I think we have said that we're asset sensitive and rates are a little bit higher as a removal of the cuts in the back half of the year. And so you might have otherwise expected us to revise the NII ex Markets up a little bit. But just to do a little mental math, the EAR that we've just disclosed is $1.8 billion. As a result of the fact that the cuts were pretty backdated. The impact on the full year average is only about 20 basis points. So the amount of upward revision that you might have otherwise expected is really quite small when you do that math. And there were some other bits of up and down noise, and some rounding effects. So that is essentially the reason the numbers aren't changed. So I don't think there's too much to read into it. L. Erika Penala: Got it. Perfectly clear. And my second question is for Jamie. Of course, we were all unpacking your Chairman's letter from a few weeks ago. And one of the topics that you wrote about and you've spoken about at length in the past, is on private credit. And I think we fully appreciate what JPMorgan's view here is. But given all of the headlines that this topic has garnered, I guess the question here for you and your team is, if we do have a recession and higher defaults and higher severity and cumulative losses in leveraged lending, what is the ultimate loss back to the banks? Because as we understand, the banks are fairly well protected in terms of structure. And while you addressed this in your letter for those that maybe hadn't had time to read it and that are listening to this call, do you think that if we do have a default cycle in private credit, that it will be systemic? James Dimon: No, I mean I was quite clear, I don't think so, and I gave the big numbers. Private credit leverage lending is like $1.7 trillion, high-yield bonds are something like $1.7 trillion, bank syndicated leveraged loans are like $1.7 trillion, investment-grade debt is $13 trillion, mortgage debt is like $13 trillion, and there's a lot of other stuff out there. And I pointed out that I think there's been some weakening in underwriting and not just by private credit elsewhere. And there will be a credit cycle 1 day. And I think when there's a credit cycle, losses will be worse than people expect relative to the scenario. I don't think it's systemic. It almost can't be systemic at that size relative to anything else. But when recessions happen and values go down and people refi at higher rates, there will be stress and strain in the system. Are people prepared for that? I can't speak for other banks, but these are -- most of these things are on top of -- you have to have very large losses in private credit before at least it looks like banks are going to get hit or something like that. So it doesn't mean you won't feel some stress and strain, and that you might have to do something about it, but I'm not particularly worried about it. I'd be more worried about when there's a credit cycle, how is that going to filter through the whole system? That, to me, is a bigger issue. But I also pointed out, corporations in general, the debt is not too high. Consumers, in general, the debt is not too high. Most of the excess debt is in government debt at this point. And so there are positives and negatives you look at what's going to happen if there's a cycle. And of course, we always worry about what happens in the cycle. And like I said, I think it will be worse than people expect. And you can go look at what happens in other cycles to various credit and industries, et cetera. The other thing which almost always happens is that there's an industry which surprises people. If you go back to the year 2000, people were surprised, there was utilities and telecom, [indiscernible] Grandma stocks that got hit, things changed. And you go into '08, it was media companies and newspapers, Warren Buffett stocks, things changed. This time, you have all the Twitter [ reporting ] about software, which we'll see. It might be software or it might not. But something always happens that people don't expect in credit. Operator: Our next question comes from John McDonald with Truist Securities. John McDonald: I wanted to ask a question about reserves. Could you talk about scenario weighting and how you're evolving views on the macro risks out there factor into your reserve setting process and how that played out this quarter? Jeremy Barnum: Yes, John, good question because I think at a high level, if you look at the allowance, it's like quite small, and you might wonder like what's going on there given everything that's happening in the Middle East, especially given our historical stance about wanting to be conservative and concerns about the geopolitical dynamics. So a couple of things in there. One, as you know, we start the reserve, the allowance calculation process with a sort of model-based approach that's based on economic forecast. And actually, just to make it easier to track, let me start with a little bit the punchline, which is we actually did not change the weights this quarter. And so with that said, on sort of unchanged weights flowing through the economic outlook actually lowered the weighted average unemployment rate in the allowance build up from 5.8% to 5.6%. So that created some tailwinds across the numbers primarily in consumer, but also a little bit in wholesale. And we also had a little bit of a release consumer in Home Lending, I think it was about $150 million, which was an HPI -- or maybe $110 million or something. But anyway, which was an HPI upward revision, so kind of unrelated to everything else. Under the covers, there are some builds in wholesale as a function of loan growth and also some idiosyncratic downgrades here and there, nothing dramatic. But in the place that you would expect to see allowance build, you are seeing some. But at a high level, we did sort of have a very conscious debate about this as a company, like should we add downside skew to the weight this quarter given everything that's going on. And our conclusion was that the existing kind of conservative bias in the allowance was sufficient, and we would just wait and see to see how things developed. And to the extent that things hopefully, they don't. But if we get some of the downside case outcomes with higher energy prices that wind up having an impact on the core global economic outlook, then that would actually flow naturally through the process. And so we'll we can see kind of how that plays out. John McDonald: Okay. And then separately, I was wondering about any changes to your outlook for loan and deposit growth, your balance sheet growth was very strong this quarter, a lot of it seeming to be in the Markets business. So I'm just looking for more color on the drivers of growth this quarter and how it affects your outlook for loan and deposit growth this year? Jeremy Barnum: Sure. So I would say that this quarter's growth, yes, as you said, primarily Markets, primarily low-density stuff that's not contributing a lot to RWA, secured financing of various sorts, and a lot of that is seasonal. So there is a sort of background trend of growth in the size of the Markets business and in the size of the Markets balance sheet, but I don't think that anything happened this quarter that was sort of particularly off trend in that respect. In terms of the firm-wide overall outlook, I think, arguably the single most significant number is the what we said about Card loan growth expectations at Company Update, which is that we said we expected 6% or maybe a little bit more. and that hasn't really changed. That's still kind of our core expectation. In the rest of the franchise, it's really pretty modest growth overall. We actually have some headwinds in Home Lending as a result of some First Republic portfolio roll-off and stuff like that. But to a significant degree, some of that's going to get driven by acquisition financing, that we hold on balance sheet for a while, that some of that's a little bit of a driver this quarter as well. And of course, if things deteriorate, which we very much hope they don't, that tends to produce lower loan demand. So we'll see what happens there, but we're going to be there for our clients for whatever they need. And then the final building block of this is Markets, which, as you know, has been actually, interestingly enough, the primary driver of wholesale loan growth recently. But there, it's going to be very opportunistic. A lot of it is kind of the data center lending type stuff and related things where we're going to participate when the terms make sense, but we're going to be very willing to walk away if we don't like it. And so that's going to be more a matter of just seeing what the opportunity set looks like and how we feel about the risks. Operator: Our next question comes from Manan Gosalia from Morgan Stanley. Manan Gosalia: Jamie, Jeremy, you have one of the best views in -- on the U.S. consumer. You mentioned that the economy is resilient, the consumer is healthy. Could you give us some more color on what you're seeing there? How resilient is consumer spend and credit if energy prices remain high? And are there any signs of cracks that you're seeing at all? Jeremy Barnum: Yes. So it's a good question. It's the right question. It's a question we get a lot, and I sort of struggle to say something new and interesting every quarter. There really is not anything new or interesting to say this quarter. We've looked at it through every angle. Early roll rates, delinquency rates, cash buffer, spend, discretionary spend, non-discretionary spend, it all looks consistent with prior trends and fundamentally, healthy. So let me add maybe just a little bit of nuance in the context of energy prices and what's going on this quarter. So I think gas or energy cost is something like 3% of the typical consumer's expenditure, at least in our portfolio. So it's not nothing, but it's not overwhelming. We've looked to see if there's kind of evidence in there of people trading, decreasing other discretionary spending to adjust for higher gas prices, but it's just kind of not enough yet to be visible. I would caution, though, I think it remains fundamentally the case that the biggest single reason that the consumer credit performance is healthy is that the labor market is strong. And if you get bad outcomes in the Middle East, much higher energy prices or other problems that sort of do eventually [ track ] what has been, I think, from many people's perspective, a surprisingly resilient American economy and a very resilient U.S. consumer, and that winds up having knock-on effects on the labor market, then you will see that come through, clearly. But right now, in the end, the story remains the same, which is resilient consumer that's doing fine despite higher gas prices. James Dimon: Yes. And I would just add, we're really getting too fine-tuned here, but it's being helped right now by higher tax refunds too. Jeremy Barnum: Yes. Exactly. Manan Gosalia: That's really helpful. And then a separate follow-up just on the trading business. One is, are you seeing any signs of bad volatility here? Or are things -- were things in March still pretty good? And then if we look at trading assets that were up pretty significantly quarter-on-quarter. Was there anything specific in the environment that drove that? Was that business as usual? Or is this some of the deployment -- the ongoing deployment of excess capital, Jeremy, that you've been talking about? Jeremy Barnum: Okay. So sorry, I think there are several embedded questions in your follow-up questions. So let me try to do this efficiently. So in short, no, we haven't really seen any so-called bad volatility. I mean, I'm sure there are pockets of that in some markets. But broadly at a high level. I think what we mean by that is the types of extremely gappy discontinuous markets with low liquidity that keep clients on the sidelines. And as I say, I'm sure there have been pockets of that in certain subsegments of certain asset classes. But in general, that has not been a characteristic of this quarter, which is, I think, part of the reason that the performance has been very good. On trading assets, as I said a second ago, I think that was mostly BAU growth, mostly seasonal, low-risk density, and not particularly a function of capital deployments one way or the other. I think to the extent that, that plays out, that will be a longer-term phenomenon. And just to refer you back to my comments at Company Update, I think, to really get that right, you need both to free up capital, but also to free up liquidity to allow banks to deploy against the broadest possible set of opportunities to support the real economy, not just kind of high-risk density opportunities that require less liquidity per unit of capital. Operator: Our next question comes from Mike Mayo with Wells Fargo Securities. Michael Mayo: Jamie, in your CEO letter, it was mentioned, you talked about private credit, and you mentioned the $1.7 trillion private credit market, which didn't really exist 2 decades ago, as you know, how much of that $1.7 trillion would you say is a substitution effect from banks to private credit? And how much of that might be types of credit you never would have originated in the first place? And with the regulatory changes and with what's happening in the market, do you think you can recapture some of that share? And more generally, what are you doing with regard to the collateral? There was news headlines in this past quarter that you're becoming more conservative with that? And lastly, what kind of spreads are you getting? Are the spreads improving on this or staying the same? James Dimon: Yes. So those are all really good questions. So the trillions actually was there before. There was always this, and the banks did it. In some ways it was arbitrage because banks were really discouraged from doing leverage lending over a certain amount of leverage. And then of course, the competitive world finds new ways to do things, which we're not against how they do it. There's a little bit of rate arbitrage and all these various things. But I do think -- I mean it's really hard to say that half of it probably was arbitrage that banks can pick up some of that. Banks also look at relationships differently. When a bank does a loan in middle-market leverage lending, that's what this is. We've been doing this for a long period of time. When we look at the relationship too extensively, not just the loan, but the rest of the relationship, payments, custody, asset management type of services, et cetera. So maybe some will come back. I'm not particularly concerned about it. And the spreads, you can just track how spreads move around. Every bank does it differently. And every bank charges differently and stuff like that. But depending on how concerned they are, they going to raise their spreads and what they're charging for private credit. Private credit spreads themselves and what they charge their clients have gone up and down. And you've actually seen loans go back and forth every now and then from the private credit market, the bank syndicated loan market. So we'll see. And we always had what we call marking rights to look at the underlying collateral, and that's just a right that protects you and gives you certain rights, things like that. Obviously, if you ever see credit getting worse, and it's gotten not terribly worse, the actual credit which a lot of these private equity -- private credit guys are pointing out, the actual credit hasn't gotten that much worse. There are pockets where it has. And credit spreads themselves haven't gotten much worse in general, but there are pockets where it has. So we'll be watching it closely. We think we're okay on all of that. It remains to be seen. I think the big point to me, Mike, I don't think it's systemic, but I do think with the credit cycle, and I'm not referring to private credit here, because of underwriting and leverage and PIKs and competition, and we've had a cycle for a long time. A lot of people are late to this game, I just don't expect every player is going to be the same. I think some will be -- it won't be a bell curve, there'll be something different than that. And people may be surprised that some of the players aren't particularly good at it, and that business will probably come back to banks. Michael Mayo: And then separately, Jeremy, you mentioned no change in the core NII despite being asset sensitive. And in terms of the deposit growth, you had some really amazing deposit growth and then you kind of hit an air pocket for a little while in this quarter, consumer deposits were up 2%. I guess taxes probably helped that out. Is this the start to getting back on that higher deposit growth path or not yet? Jeremy Barnum: Well, I think air pocket is a little bit of a strong word, but fair enough. I recognize the dynamic that you're describing. And I think it's a little bit too early to sort of say, like, yay, like we're back with like super robust consumer deposit growth, partially because of your point actually about tax. I think you're right, that probably is contributing a little bit right now. But at a high level, we talked about at Company Update, our consumer deposit growth expectations being low to mid-single digits. And I think that is still the belief, and I think we'll be a little bit more confident in that, as you say, once we get through tax season. So maybe we'll know a little bit more next quarter. But I will say that through the lens of like net new checking accounts, where I think we said in the EPR that we did over 450,000 this quarter. So that driver of sort of long-term consumer deposit franchise growth is in place. And it just becomes a question of at the margin, how yield-seeking flows develop and what that does to kind of balances per account as we talked about at Company Update. So it's the right question, something we're watching a little bit early, but unchanged expectations and some signs, as you point out, that the trends might be improving slightly. And then just to complete the picture, on the wholesale side, as you'll recall, last year was an exceptionally strong year for wholesale deposit growth. So our expectations for this year were a little bit more modest. Actually, the year is starting out pretty well, some of the typical year-end seasonal increases that we tend to see roll off have not quite rolled off to the extent that we would have expected. So I still think the core view is for significantly less robust growth than last year. But from a core franchise perspective, things feel pretty good there. Operator: Next, we will go to the line of Gerard Cassidy with RBC Capital Markets. Gerard Cassidy: Jeremy, obviously, the first quarter, the expense levels were a little elevated relative to the full year guide, if you annualize it out, of course. Can you give us some color that how you're going to bring down the following 3 quarters to be able to hit the year-end guide that you gave us at about $105 billion? Jeremy Barnum: Yes. So I would somewhat discourage you from like annualizing quarterly expense run rate because there's a lot of seasonality in the volume and revenue-related component of that as a function of the seasonality of the Markets revenue in particular. But I think -- and I think in reality, as you well know, Gerard, that's kind of like not how we manage the company, meaning I don't think you meant this obviously, but the implication of your question is that, like, "Oh, the numbers are a bit high in the first quarter, let's like run around and find some expenses to cut in order to meet our guidance." And that's kind of like not how we do things like we just manage the expenses holistically every day of the week. But at a high level, I think you're actually getting at something important, which is that when you consider the exceptionally strong performance of the Markets and Banking business this quarter, you actually might have otherwise expected us to revise up the full year expense guidance. Because realistically, I think no one could have -- it's impossible to imagine that we would have budgeted the level of performance that we saw this quarter in Markets and Banking and that -- yes, yes. I'm almost done. James Dimon: No. What I'm saying some of it's expected to be quite good. I hope every quarter is this good, and then our expense target, we would be, love to spend more money because we did so well. Jeremy Barnum: Okay. But I still want to make my point, which is that, Gerard, I would discourage you from drawing the conclusion that for the purposes of the whole year, we are going to see the amount of implied internal offset between volume and revenue related and other expenses that is implied in the failure to revise the guidance this quarter. It's just a little early in the year. So let's see how things play out in the next quarter or so. James Dimon: I'd say that if volumes -- and if every quarter was as good as this quarter, we will spend more than $105 billion for a very good reason. Jeremy Barnum: Yes. No question about that. Yes. James Dimon: The $105 billion is not a promise, it's an outcome of business results. Gerard Cassidy: Which you've said in the past, Jamie, good expense growth, we all completely understand. As a follow-up question on digital assets, stablecoin, on the continuum that we're on for adopting these types of new technologies. Can you guys give us an update where you see this moving in terms of deposit impact possibly. But more importantly, payments, obviously, you're a very large payments company. And how are you guys assessing it? Jeremy Barnum: Sure. I mean there's like so much to say on the stablecoin front. Obviously, there's a lot of like legislative and regulatory stuff going on. I think, Gerard, your question is a little bit more about sort of long-term impact on the payments ecosystem. So I guess, through that lens, I would actually start with the wholesale business and talk about all of the innovation that we've done in sort of modernizing payments through Kinexys and the way that some of that is starting to play out and giving a lot of our customers kind of exciting new features like programmable money and different hours and the associated tokenized deposits and all that type of stuff. So we're super excited to embrace this type of innovation and be part of it. And the question a little bit is how does that relate to our existing franchise and in the context of wholesale payments, I think it's just part of an overall product offering. I think sometimes people think that you're going to have some stablecoin thing that's going to like radically disrupt the existing wholesale payments paradigm. And I think that's not quite the right way to look at it, only because wholesale payments is already an incredibly efficient, extremely low-margin business with very sophisticated clients. And so it's not as if -- a little bit to Jamie's earlier comment, it's not like there's one of these like your margin is my opportunity type situation in wholesale payments. It's already a very modern, very technologically sophisticated, pretty low-margin business where we're constantly delivering innovation, including with some of these sort of new technologies. On the consumer side, people talk about like what is the consumer use case for stablecoin. And one version of it, it's like digital cash and there's all the obvious like KYC implications of that. And I think maybe that's where you get a little bit into the legislative and regulatory front where there are some new developments on that whole thing associated with this notion of like, to what extent is the payment of rewards or proxy for interest, and that sort of turns it into, instead of stablecoin being an interesting form of innovation, it's just regulatory arbitrage, so that you can run a bank without being subject to the important regulatory protections, both prudentially and for consumers in terms of KYC and stuff like that. So we're eager to compete. We're eager to innovate. We're innovating all over the place. We definitely support the certainty that comes from this legislation. But as we get close to some form of finalization there, it's very important with the same product be regulated, same risk be regulated in the same way, and it doesn't become the case that you just create a giant arbitrage back door for the prohibition on the payment of interest for stablecoins. So we'll see how that plays out. Operator: Our next question comes from David Chiaverini with RBC Capital Markets (sic) [ Jefferies. ] David Chiaverini: Actually with Jefferies. So I wanted to follow up on the consumer deposits. So interest-bearing deposit costs were down nicely in the quarter. Could you talk about the opportunity going forward in light of the changes in the forward curve? Jeremy Barnum: Okay. That's an interesting formulation. I sort of don't actually know the number you're quoting, but I suspect it's just a function of the rate curve, and at the tops that came through last year. Go ahead, Jamie. James Dimon: I would just keep it simple. The margin would be about what it is today, give or take, a couple of basis points up or down. There are a lot of factors in there, like what kind of accounts you're opening, tax refunds and all that kind of stuff. But roughly the same for now. Jeremy Barnum: Yes. I mean I was going to pivot to the broader question, I guess, which you talked about in terms of opportunity. And I think that there's the -- as Jamie says, there's just the yield curve flowing through the high beta portions of deposit franchise. And then there's the low-beta portion of the franchise, where I wouldn't say there's "a lot of opportunity to price down," because I think as is well known, the price there is already quite low, but it's in the context of an overall service bundle where a lot of clients with relatively low balances are getting a lot of value in the package. So I guess I would leave it there. David Chiaverini: And then shifting over to a follow-up on private credit. So there's still a lot of attention on this in the banks. I think the banks are well protected. But can you remind us of the structure of these loans in terms of typical advance rates and embedded credit enhancement that protects your position? James Dimon: I think you're asking for too much information. They are seeing their loans on top of leveraged loans, so you're senior to the actual loans themselves. And each one is different, the loan-to-value, the triggers on loan-to-value and all the things like that. But you can probably figure those out or if you look at the disclosures on the BDCs, et cetera. Jeremy Barnum: Yes. I do think it's reasonable to sort of remind, I guess, the market of some things that we've said before about this space, right? So yes, each client, each relationship is a slightly different structure. But at a high level, as Jamie points out, it's a senior position. The portfolios are well diversified. There are a number of protections that we have, conservative advance rates, good underwriting, sector concentration caps, cash flow traffic mechanisms, et cetera, et cetera. So as we often say, nothing that we do is riskless, but this is a space that we're quite comfortable with as a function of very close scrutiny on the way that we do the business and ensuring that the underwriting is high quality and then we've got a bunch of structural protection in place. James Dimon: And the BDCs have statutory rules that they can't exceed in terms of loan to -- loans at the parent, which is sometimes one and sometimes a little bit more than that. Operator: Our next question comes from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess just one question on AI, one on the risk side, one on the opportunity side. On the risks, maybe Jamie or Jeremy, if you can just give us a sense of it's very hard for investors and for us from the outside to handicap cyber risk. We saw the headlines last week around LLM-enabled cyber risks being discussed in D.C. Like is this a different level of risk? And how would you characterize the preparedness of the banking system to handle this if something were to happen and we see headlines, I'm just wondering what would be the implications of that as we think about just systemic risks, et cetera. James Dimon: So cyber -- we've been talking about cyber risk for a long time. In fact, I think I said in the Chairman's letter, it is our largest risk. So I think JP -- every industry is different. So in context, I think JPMorgan is very well protected. We spend a lot of money. We've got top experts. We're in constant contact with the government. We're constantly updating things, but AI has made it worse, it's made it harder. Of course, we read about Mythos, which we're testing now and looking at it and it does create additional vulnerabilities. And maybe down the road, better ways to strengthen yourself too. But the cyber risk isn't isolated to banks. It's like you can look at almost any industry. And also banks, of course, are attached to exchanges and all these other things that create other layers of risk, which we work with a lot of people to protect themselves. So it is a complex one. It's a full-time job, and we're doing it all the time. And while we're trying to get the benefits of AI, we also are very cognizant of the risk of cyber. I think the government is aware of it, too. And remember, you have cyber criminals, you have cyber states, you have cyber everywhere, and that's why you have to be quite careful. So I'd say the banks in total are rather well protected, that doesn't mean everything that banks rely on is that well protected. Jeremy Barnum: Yes. And I think there's one just minor extension of what Jamie said that is worth pointing out, which is, obviously, he's specifically been talking about the importance of being prepared for cyber risk for many, many, many years. But I think even more recently, even before this sort of latest set of headlines around the latest Anthropic models, there's been a clear understanding that AI and generative AI, in particular, brings both risks and opportunities from the cyber risk management perspective. So it's not like this is the first time that anyone's thought about the way in which these more recent generative AI tools can both make it easier to find vulnerabilities, but then also potentially be deployed by bad actors in attack mode. So obviously, now you've got an even higher level of attention as a result of the apparently much greater capabilities of the latest models, but that is still happening on a continuum that we've been engaged with for really quite a long time. James Dimon: And then for everyone on the phone, I think it's also important to look at, a lot of it is hygiene is your new software being tested before it goes in place? Did you ask them to do certain things to protect their company? How do you protect your data, how do you protect your networks, your routers, your hardware, changing your pass codes? I mean, a lot of it is just doing all those things right can dramatically reduce the risk. And you've seen a lot of banks they haven't had some of those risks like ransomware and things like that, at least not that I know of. Jeremy Barnum: Yes. Knock on wood. Ebrahim Poonawala: No, that was helpful because I think it's something that investors struggle with. On the opportunity side, I think what -- it feels like the productivity boost, which for us translates into what the long-term efficiency ratio could be meaningful from AI deployment just given the speed at which the technology is evolving. Maybe talk to that, and also, does it create new business opportunities where maybe it's extending the perimeter of JPMorgan's business into new things that were harder to do and are now easier to sort of put together and grow as a business, given AI-driven technologies? James Dimon: So on the first question, I think it's a bad idea to think you're going to deploy AI and improve your efficiency ratio because in the competitive world, I'm going to do it, everyone else is going to do it, and the benefits will be passed on to the marketplace. It's not like you're entitled to have your ROE go to 50%, and that will stay there because you do it better than everybody else. You may get a head start, you want a head start, but I think that's just not a rational thing that somehow that will be the ultimate outcome. But the second question, absolutely, it creates opportunities because if you just take our consumer business, it's true in all businesses, but just take the consumer business with the data you have and now we call it Connected Commerce, where you do travel and offers and all of these various things that people want. So you can use your relations with the clients, the data you have to make the client happier. We do a lot to reduce risk and fraud and scam by using AI. We do a lot better job of prospecting. We offer AI services to clients, et cetera. So it will enhance a lot of things you can do directly, and it will create more adjacencies in my opinion, if you can use it quickly and wisely. Operator: Our next question comes from Matt O'Connor with Deutsche Bank. Matthew O'Connor: I want to start with a big picture question on trading. It's been amazingly strong this quarter, the last few years, really no matter whether markets are good or bad. We've had shocks in commodities this quarter, rates, credit, equities, and it's not just you and others kind of managing well, but it does seem like the client base is also managing it very well. And just wondering if you have any thoughts on that, on why it's been so consistently strong across a variety of environments. James Dimon: Yes. So just to put it in the big picture, first of all, our folks do an excellent job. And if you meet with them, you'd be very impressed with their knowledge, their brainpower. And we buy and sell almost $4 trillion a day. And you make a little bit each time you buy and sell, and then you have to manage the exposure and the risk. So they do a great job in that. Every now and then you're on the wrong side of something in a credit or a commodity or rate side or something like that. And you see that. But to me, that's kind of the cost of doing business. That's like a retailer having inventory that they can't sell. The real question is, do you serve your clients every day with great products and great service and great execution? And the answer is yes. And that's where the real business is. And what you see today is much more volume and the volatility, which generally helps because it makes spreads a little bit wider, all things being equal. There will be times where you're going to be sitting here and we're going to say that volatility killed us, if you were on the wrong side of something. But in general, you're serving huge investors around the world who have $350 trillion with so much products and services. That's the business of trading. And I remind people, it's not that different when you go to Home Depot, they have inventory. They put it in, they put it out, they mark it up. They mark it down. They don't call it trading, but there's that element of risk management there. So fabulous people doing a great job for clients, very conscious of the risk they take. Sometimes they we take a risk that -- we were wrong, and we're okay with that. We never panic over that. And you've never seen us say, "My God, we were on the wrong side of this trade." No, because we're there serving clients. And very often, you're on the wrong side of the trade because the client wants to sell, and you're not really dying to buy, but you do it anyway to serve a client. And so it's a business. It's a very good business. Jeremy Barnum: And just one minor extension of that I think supports the larger point is the thing we've said a couple of times now, which is, yes, the revenues have been great and the performance is very good. We're deploying a ton of capital in this business actually and a lot more over the last few years. And I think the returns that we're getting are good there, they're actually below the 17% for the company as a whole, that's fine, and we're serving clients and it's much better than alternative uses of capital. But I think the important thing to understand is that it's not as if you're getting giant amounts of revenue growth with the same capital base in ways that you might think are unsustainable. Part of what's going on here is that we're deploying more capital and getting healthier returns on it. Matthew O'Connor: That's helpful. And then I guess a good segue into kind of a broader capital management question. Obviously, a lot of comments on the reproposals. And -- but as we think about kind of capital management going forward, any updated thoughts on you still have a big buffer obviously, on today's required levels, 3 years from now or 2 years from now? I mean you generate a ton of capital, obviously, very solid buybacks this quarter. You grew organically, as you mentioned. But just any updated thoughts on how to think about capital allocation going forward? James Dimon: Yes. So obviously, we have a lot of excess capital. Today, we measure around $40 billion. Obviously, that can change depending on ultimate rules and regulations. And we prefer to deploy the capital serving clients. And the way you see us serving clients, we have more bankers, innovation economy, more global banking, doing commercial banking overseas, opening countries, opening payment systems, opening branches, that is ultimately what deploys capital over time, building the client base. It doesn't happen overnight. The outcome isn't deploy capital. I mean the goal isn't to deploy capital, it's build wonderful businesses that use capital intelligently over time, developing with a client, mainly with a client focus on it. And I think when I look at the world today, if you look at the world that is so big and so complex and the capital needs, when you look at the small -- we're one of the biggest small business bankers out there, but look at the capital needs of countries today. The remiliturization of the world, the infrastructure that people need. I think there'll be huge capital needs of companies, a huge mergers. I mean some of these companies, when I look at them, we're not big enough to serve them anymore. And so we think there will be more opportunity to serve large clients in the ways that they need it, over time, and that could be M&A, it could be countries, it could be helping them build the infrastructure they need. And that will happen over time. We're not in a rush. Our preferred way of using capital is not buying back stock today. We're doing it, fair market value and all that, but I'd rather buy back stock when we think it's a real discount, and the ongoing shareholder gets the benefit of buying it cheap. In fact, I want to remove that little thing that says cash returns to investors, which is a dividends and stock buyback. I don't particularly like that because I think it puts you in an artificial position thinking that's always a good thing when it's not. Jeremy Barnum: Very well. I'll add that to list. Next question. Operator: Our next question comes from Glenn Schorr with Evercore ISI. Glenn Schorr: That last comment leads into my question. I'll just merge my question and follow-up together because it's easier. So those things that you just mentioned, Jamie, on the big capital needs, some of those are very long duration. I'm curious on how much you think of that plays into a long-duration private markets balance sheet or can big public banks finance that? And so you mentioned in your letter, the market might be a little too relaxed about higher for longer rates. And I'm curious how you see that playing into all these direct lending double-B and single-B credits that need to get refinanced. And while we're at it, the follow-up is, can you size your private credit exposure? So sorry to smush that all together, but I'll end it on that. Jeremy Barnum: So Jamie, sorry, if you don't mind, let me just answer Glenn's second question first because I think it would be useful for the market to have the size number out there. So I'll do that quickly and then if you want to take the first part of the question. So Glenn, let me just frame this in context because I think the question of private market exposure and the definition of that. It means, as you know, a lot of different things, a lot of different people. So let me just quickly run through. You remember, last quarter, we did a walk in the context of NBFI from the $330 billion in the Call Report to the $160 billion that we consider core NBFI exposure, which we defined in that context, I won't go through that again. So inside of that $160 billion, there's about $50 billion that we would call private credit, and it's essentially the portion of that $160 billion of NBFI, which involves leveraged loan investors. So that's some of the stuff that we've been talking about on this call in terms of back leverage and BDC lending that has all these characteristics in terms of underwriting, diversification, cash flow trapping, et cetera, which is why we're broadly comfortable with it. So I just thought it would be worth sizing that in that context. There are obviously other pieces of that, like direct lending or subscription lines that are variously in or out of various different measures and that you could consider like in a broader definition. But our sense is that thing that the people are interested in is this kind of like leveraged loan, back leverage type stuff and that's about $50 billion for us. So with that, I'll hand it back to Jamie for the first half... James Dimon: Yes. So the way I look at it, so banks aren't going to warehouse very long-dated stuff in their balance sheet. But when you have investment grade, even large non-investment grade, private markets and public markets are going to come together. The people have to make markets on those things, do research and those things. I think it's going to be harder for private credit to do, not all of them, but to do large investment grade stuff, though, they've done it. But like I said, they have to compete with us on that, and we're willing to do it too. We always take the customers too. They want to do a large direct lending, investment-grade deal, we will present that side-by-side with a banks syndicate alone or something different. But I do think you're going to see a lot of creative capital, a lot of creative financing. A lot of the institutions out there need long-dated assets, think of pension plans and social security plans, all these various things like that. So our job is to intermediate, to come with the ideas to turn it over, sometimes put it on the balance sheet. The stuff in the balance will be shorter dated, but it's all opportunity. And I think the requirements of the world are going up fairly dramatically in the infrastructure at large. Almost everything is infrastructure today, you have utilities and roads and bridges and data centers and GPUs and so it's all there, but we're going to do a great job serving clients. And so we're not worried about that. But I do think you'll see in certain categories, private markets and public markets come a lot closer in how they look at value and trading and secondary markets, et cetera. Operator: Does that concludes your question, Glenn? Glenn Schorr: Yes. I just to chime in there, the higher-for-longer part, and if that has an impact on some of that single-B, double-B paper that's coming due for refinancing? James Dimon: Yes. No. Glenn, that's like a basic risk management where when you look at the world, you got to look at what's going to happen in a recession. I'm not talking about -- I'm not forecasting anything, I'm simply saying, for JPMorgan, we have to be prepared for a recession, and that you can have stagflation. You see people mentioned that we have to be prepared for stagflation. Obviously, if you have stagflation, and higher rates for longer and credit spreads gap out, that will put a lot of stress and strain on leveraged companies as they refinance. And those get fixed. Sometimes people put in more capital credit, sometimes reduce their CapEx plans. It's not an immediate disaster overnight, but it would put a lot more stress and strain on people. And I'd pointed out that if there's a credit cycle, I do expect it will be worse than people think relative to the scenario. It's not a disaster. We're used to the credit cycles. We'll be big boys about it. But asset prices will go down, credit spreads will going down. People may get a little nervous about some of those things. We don't think it's systemic. That's more, I would put it in the category of traditional recessionary behavior. Operator: Our next question comes from Jim Mitchell with Seaport Global Securities. James Mitchell: Just maybe a quick question on Investment Banking. It seems like activity held up pretty well in March. But just wanted to get your thoughts on that. Has there been any pushing out of any pause on activity levels and pushing out of the pipeline? Just any thoughts on the pipeline and how you're looking in the near to intermediate term? Jeremy Barnum: Sure. Yes. I mean I think it's true that activity held up well. The other thing that I think is worth noting is that some of the robust result this quarter is the result of actually accelerated timing on M&A deal closure and some of that was as a result of faster-than-expected regulatory approval. So that's obviously all to the good. But I think it's sort of unrelated one way or the other to like overall sentiment. On the question of overall sentiment on the pipeline, I would describe it as resilient, maybe surprisingly resilient, given everything that's going on. But I also think the time lines in the Middle East are kind of quite short. There are deadlines or negotiations. I think it's reasonable for people to kind of proceed with their plans in the hope or maybe expectation that we get relatively quick resolutions. But if things start getting derailed, I would be surprised if you don't see some impact on sentiment and on deal decision-making. But for right now, it seems quite resilient. James Mitchell: Okay. And just a follow-up on the balance sheet growth in markets. It has been strong, I think, up over 20% year-over-year. Would you saying when you think about the impact of the G-SIB surcharge on JPMorgan specifically, does that start to impinge your ability to grow that as much as you want? How is that factoring into your capital decision in the Markets business? Jeremy Barnum: I think the short answer is yes. And that's a big part of the reason that we spent -- the time that we spent today talking about the problem for the surcharge. It disproportionately accrues to the Markets business and disproportionately accrues to the relatively low risk density type of stuff that the client base really needs and wants these days. And that's why we think it's important that regulators think very carefully about what they're actually trying to achieve here. James Dimon: I'll add one other thing. We will obviously use our brainpower to do something I don't like doing, which is trying to find a lot of ways to serve our clients properly and reduce the G-SIB charge, which is usually called arbitrage. So I'm not sure the outcome is great for the system, but we will find ways to do it. Operator: Our last question comes from Kunpeng Ma with China Securities. Kunpeng Ma: This is Kunpeng of China Securities. I have a quick follow-up on private credit. I totally agree with Jamie that there is no systematic risk at this moment, as long as we assume that every type of capital expenditures continue with good yield outlook. So it comes down to the company-specific questions, like how does JPMorgan ensure its capability of selecting the top-tier projects? How do you ensure you stay with those good guys and stay away from those bad guys? James Dimon: Yes. So we are quite disciplined on credit. There are certain things we turn down. We don't like the covenants, the underwriting or the ability to move assets out of the secured company or something like that. And we're perfectly willing to have our balance sheet go down. If in fact, we think credit is getting stretched, you will see us not make loans, not because we don't want to. We're just not willing to meet those terms. And so that's how we do it. We underwrite -- when it comes to most clients, including private credit, we underwrite the company, the loans, the covenants, all those various things. And credit is a discipline. Like I said, loans or all of them are an outcome of doing good business. Sometimes if the loan book drops 10% next year, we would be completely fine if we thought the loans that we were walking away from where irresponsible. Operator: Does that conclude your question? Kunpeng Ma: Yes, yes. Jeremy Barnum: Thanks very much. Thanks everyone... James Dimon: Thank you, everybody. Operator: Thank you all for participating in today's conference. You may disconnect at this time, and have a great rest of your day.
Operator: Welcome to the Albertsons Companies' Fourth Quarter and Full Year 2025 Earnings Conference Call, and thank you for standing by. [Operator Instructions] This call is being recorded. I would like to hand the call over to Cody Perdue, Senior Vice President, Treasury, Investor Relations and Risk Management. Please go ahead. Cody Perdue: Good morning, and thank you for joining us. With me today are Susan Morris, our CEO; and Sharon McCollam, our President and CFO. Today, Susan will provide an overview of our fourth quarter and full year 2025 results and update you on our strategic progress, highlighting areas of particular focus as we enter fiscal 2026. Then Sharon will provide the details related to our fourth quarter and full year financial results and our outlook for 2026 before handing it back to Susan for closing remarks. After management comments, we will conduct a Q&A session. I would like to remind you that management may make forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC. Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to update or revise any such statements as a result of new information, future events or otherwise. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these financial measures to the most directly comparable GAAP financial measures can be found in this morning's earnings release. And with that, I will hand the call over to Susan. Susan Morris: Thanks, Cody. Good morning, everyone, and thanks for joining us today. In the fourth quarter, our teams led with operational agility and strong execution. Despite greater-than-expected pharmacy headwinds, identical sales increased 0.7%, while our resilient operating model and ongoing productivity drove better-than-expected adjusted EBITDA of $903 million. For the full year, we delivered results in line with our expectations, while investing in capabilities that strengthened our business, further positioning us for long-term growth. Also during fiscal '25, we returned more than $1.8 billion to shareholders through share repurchase and dividends, underscoring our commitment to shareholder returns and disciplined capital allocation. Throughout 2025, our teams leaned into a new day, executing with focus amidst a volatile and uncertain macro environment. The results we delivered validate the effectiveness of our investments, the progress we're making across the business and the strength of the foundation that we have built. As we enter 2026, we do so with confidence as reflected in today's outlook. This confidence is further reinforced by our announcement this morning to increase our quarterly dividend by 13% and refresh our existing share repurchase authorization to $2 billion. But before we talk more about the fourth quarter and 2026, I want to step back and talk about how we see the future of Albertsons and how we're positioning the company to win in a competitive value-focused grocery environment that requires differentiation. At the core of our strategy is a clear conviction. The future of grocery is personal, and true personalization is a durable competitive advantage. Our mission is to become the most-loved grocer in the neighborhoods we serve by transforming routine transactions into differentiated customer connections and experiences that deepen engagement. It's not a reinvention of who we are, it's a deliberate build on strengths that already differentiate us and give us the right to win. We have one of the strongest store networks in the country. In our markets, our stores are within 15 minutes of approximately 120 million people, giving us a structural advantage in trip frequency, pharmacy access and fast same-day fulfillment. Put simply, our store network cannot be replicated and is further strengthened by our team, our data, AI and next-generation technology capabilities, which allow us to personalize a customer's entire experience. We also have the scale and capabilities to deliver sustainable value. In our stores, we provide market tailored fresh offerings and value-enhancing services. In e-commerce, we offer speed, convenience and variety from our store-based fulfillment model. In pharmacy, we don't just fill prescriptions, we immunize and treat our patients along their wellness journey. And we have a strong loyalty engagement where deep relationships with our banners and brands provide us the data and insights to personalized experiences at scale. These foundational strengths working together bring our strategy to life under 3 tightly connected pillars: a winning footprint, a customer-centric experience and balanced value. Our winning footprint is not only a critical differentiator but a deep and structural competitive advantage that enables both convenience and local relevance. We're taking a disciplined market-by-market approach to banner optimization, store modernization, market densification where we have the right to win and store rationalization where the economics are structurally challenged. This is not about growth for growth's sake, it's about optimizing return on investment, elevating the customer-centric experience and ensuring that every store plays a clear role in winning in its local market. To elevate the customer experience, we're creating scalable yet personal experiences, experiences that are differentiated, combine caring service, quality and fresh, convenience, value and own brands, all while remaining simple and easy for our customers to navigate. To deliver this, we're building on capabilities and offerings where our brands already have credibility and our customers' trust. Fresh is a great example. Our customers know they can trust us with their custom birthday cake order, to have perfectly trimmed steaks for their barbecue or to be there for them with our fresh-cut options. We're leaning into our strength as a scaled Fresh destination combining service, solutions, innovation and expertise to drive both loyalty and share. We're also expanding into what we call food now, broadening our role in customers' daily lives by providing meal solutions that allow us to compete for a larger share of food occasions, not just the weekly stock up. Today, our deli and prepared foods drive more than 1/3 of total trips, and we have outsized share of wallet that continues to grow in this area. At the heart of our mission, we are deepening the personal digital and loyalty relationship, connecting online and in-store experiences so customers feel recognized, seen and valued wherever they engage with us. The outcome we're driving here is simple. Customers don't just shop with us, they choose us. We're very clear-eyed about today's consumer. They remain focused on value, making a balanced value proposition more critical than ever. Our approach to this is deliberate and sustainable. Scale is a real advantage that we will leverage every day, including capitalizing on buying better together at the national level, expanding our own brand penetration, and growing our retail media platform, all to provide fuel to reinvest in value. At the same time, we're accelerating automation and AI-enabled tools across merchandising stores and supply chain to improve efficiency to add further fuel for investment. We are surgically investing where it matters most to our customer. That includes getting sharper on key value items and driving own brand penetration, both funded through structural margin improvement in productivity, not short-term trade-offs. But it also includes the convenience, speed and value we can offer with our assortment. The result is building a balanced value equation that works for customers, and in turn for all stakeholders while protecting long-term returns and making us our customers' retailer of choice. Underpinning all of this is our team powered data-driven and AI-enabled company, using technology not to replace the human element, but to amplify it. As we look ahead, our focus is on building a company that can grow sustainably through all cycles. We have a clear path to accelerating revenue growth, strengthening margins and improving returns while staying true to what makes Albertsons distinctive. Becoming the most loved grocer in our neighborhood is how we bring this to life, while building on the initiatives and capabilities we've been focused on, making grocery personal at scale, earning customers for life and delivering long-term value for shareholders. I'll now turn back to the quarter to highlight the progress we are making across our priorities that continue to strengthen our foundation and position us for sustainable, profitable growth in fiscal 2026. Technology and AI fit at the center of our transformation. Our 4 big bets: digital customer experience, merchandising intelligence, labor optimization and supply chain optimization are not pilot programs. They're all long-term structural initiatives designed to drive growth and expand margins. This quarter, we continue to see tangible progress. In digital customer experience, AI-driven capabilities are modernizing the way customers shop, delivering personalization that drives higher conversion, larger baskets and greater loyalty. Merchandising intelligence. Automated insights and intelligent pricing tools are improving category decision-making and supporting structurally stronger margins. We are in flight with tools that are reimagining price and promotional strategy as well as category management and assortment decisions. Labor optimization. Our generative AI scheduling tools will improve forecast accuracy, reducing complexity for associates and driving labor efficiency. In supply chain, our AI power demand forecasting and computer vision are improving availability, quality and freshness, while lowering inventory and fulfillment costs. As part of our investments in supply chain, we've launched Gateway, a proprietary AI-powered tool that boosts inventory efficiency and replenishment for promotional center store SKUs. All of these initiatives are building the modern technology-enabled Albertsons that will define our competitiveness in fiscal 2026 and beyond. Our digital and e-commerce business continues to be a strong growth engine, building on the momentum that we delivered throughout fiscal '25, digital penetration surpassed 10% in Q4, a new milestone for our omnichannel ecosystem. Our first-party business continues to scale rapidly and contributed nearly 90% of our 16% digital growth this quarter as we continue to elevate our customer experience. Our AI-enabled shopping assistance, already showing meaningful lift in basket size, continues to enhance personalization, and we see significant runway ahead as customer adoption increases. The strength of our store-based fulfillment model also continues to differentiate. Our proximity advantage enables speed and efficiency at scale as we continue to fulfill more than half of digital orders in under 3 hours. Additionally, the vast majority of delivery households are eligible for a 30-minute flash delivery, which is our fastest growing digital segment. We maintained strong conviction in digital as a driver of sustainable growth and margin expansion as we scale retail media, enhance marketing efficiency and strengthen loyalty engagement. Our third-party business also remains a convenient choice for some customers and is a gateway for introducing new customers to our first-party offering. Our loyalty ecosystem continues to be one of our strongest competitive advantages, creating deeper stickiness and fueling our strategy. Membership grew 12% to more than 51 million members, with more frequent transactions, easier reward redemption and higher spending among engaged households. The program's momentum reflects both simplicity and relevancy. Customers are gravitating toward immediate value, including increasing redemption through the cash off option, which is clear evidence that we're meeting their needs in a value-focused environment. Loyalty is also a flywheel for growth. It enriches our data, strengthens our media collective and helps us personalize promotions with increasing precision. Across the board, loyalty is driving higher lifetime value, deeper omnichannel engagement and a more predictable, resilient revenue base, all essential components of our long-term growth algorithm. Our media business gained further momentum in Q4, driven by deeper integration across our platform. By embedding media into the customer journey and merchant partnerships, we're delivering targeted, measurable value at scale. In the quarter, our personalized ad pilots delivered a 90% lift in conversion and click-through rates, validating a clear path to scale personalization, driving higher relevance and improved return on ad spend. This approach is translating into a structurally attractive profit stream that amplifies and fuels our core retail business. Our customer value proposition continues to strengthen, making shopping more affordable, intuitive and personalized across our market. By combining our rich store, customer and category level data with disciplined price investments, we are delivering clear, more consistent value. Through targeted pricing actions, improved loyalty-driven promotions and continued own brands innovation, we're reinforcing trust with customers who increasingly expect transparency and consistency in their weekly shop. Our approach remains deliberate, protect affordability, sharpen value perception and use data-driven personalization to meet customers where they are across income levels, trip types and missions. The results, a value engine that supports growth and protects margins through all cycles. In pharmacy, we delivered improved profitability despite top line pressure from the government-mandated Inflation Reduction Act that took effect this quarter. This performance reinforces our confidence in our strategy to improve pharmacy stand-alone profitability, while also driving materially higher customer lifetime value among customers who shop both pharmacy and grocery. Looking ahead to 2026, we remain focused on increasing operational productivity through expanded central fill, enhanced procurement and the scaling of higher-margin services while maintaining disciplined management of reimbursement and regulatory headwinds. Finally, productivity remains a foundational pillar of our strategy and a meaningful source of both fuel and flexibility. Across fiscal '25, our teams executed with discipline, unlocking efficiencies across labor, store operations, supply chain, merchandising and global capability centers. This included a deliberate focus on reducing shrinking expense and improving units per labor hour, driving better in-store execution and structurally lower cost. Importantly, this work does not reset in 2026, it builds. As we enter fiscal '26, we are scaling the same productivity engine further through a $2 billion 3-year productivity program, supported by our technology agenda and our 4 big bets in AI. Our progress continues to strengthen our operating model and reinforce our ability to grow through all cycles. Our teams delivered a strong close to fiscal '25, and we are entering fiscal '26 from a position of confidence, clarity and momentum. With that, I'll turn it over to Sharon to walk through our financial results and 2026 outlook. Sharon McCollam: Thank you, Susan, and good morning, everyone. It's great to be here with you today. Before turning to results, I want to briefly update you on this morning's announcement of our proposed nationwide opioid legal settlement framework. This framework provides for a $774 million settlement payable over 9 years that was recorded during the fourth quarter. This proposed settlement is a meaningful step toward resolving our opioid-related litigation without any admission of wrongdoing or liability. We remain committed to patient safety, strong pharmacy practices and being a constructive partner in addressing the opioid crisis as communities' needs evolve. Now let me turn back to our fourth quarter results. In Q4, we delivered better-than-expected adjusted EBITDA and adjusted EPS despite industry-wide pharmacy dynamics that pressured reported identical sales. ID sales in Q4 increased 0.7%, net of approximately 145 basis points of pharmacy-related headwinds versus the expectation we provided in our Q3 outlook of approximately 65 to 70 basis points. These headwinds were primarily driven by a greater impact from the Inflation Reduction Act, which I will call IRA, and broader industry affordability dynamics. Specifically, IRA pricing and mix pressure accelerated more quickly than expected, while the industry shifted toward a higher generic to brand mix. Together, these factors represented an approximate 105 basis point headwind to ID sales in the quarter. Importantly, while the top line impact was meaningful, the margin impact was favorable as generics are structurally more accretive. In addition, we saw a greater moderation in GLP-1 growth, driven by tighter payer criteria and increased direct-to-consumer penetration. This represented an incremental 40 basis point headwind to identical sales compared to our Q3 outlook. So in total, pharmacy created an approximate 145 basis point headwind to our Q4 ID sales expectations, with better-than-expected adjusted EBITDA flow-through. In grocery, units in ID sales in Q4 remained pressured in our lowest income cohorts. And deflation also created a meaningful sales headwind as we cycled the significant egg shortages from a year ago, a dynamic that we expect to persist into the first quarter of 2026. Gross margin in Q4 was 27.2%, a decline of 25 basis points year-over-year, excluding fuel and LIFO. The decrease in gross margin rate continued to be driven by the mix shift impact of outsized growth in digital sales, while productivity benefits offset our surgical price investments. The gross margin rate also reflected the favorable rate impact associated with lower sales due to the pharmacy IRA. Selling and administrative expense, excluding the impact of fuel and the opioid settlement framework, improved by 2 basis points year-over-year as we continue to accelerate productivity and cost-containment discipline. The SG&A rate also reflected the unfavorable rate impact associated with lower sales due to the pharmacy IRA. Q4 interest expense increased $40 million to $141 million, compared to $101 million last year due to higher borrowings in the extra week in the fourth quarter of 2025 compared to 2024. Adjusted EBITDA in Q4 was $903 million, including approximately $68 million related to the 53rd week, and adjusted EPS was $0.48 per diluted share as productivity continued to drive fuel for investment and the bottom line. For the full year, identical sales increased 2%, and we generated $3.9 billion of adjusted EBITDA. This performance reflects the resilience of our operating model and our ability to continue to drive productivity across the business. These results reflect our financial agility to both reinvest in the business and return capital to shareholders, which brings us to capital allocation. I want to reiterate our capital allocation priorities. First, invest in the business to drive growth and value for our customers. Next, maintain and grow our dividend, which we increased 13% this morning to $0.68 per share. And finally, opportunistically repurchase shares while maintaining a strong balance sheet. In order of these priorities, we invested $1.84 billion in capital expenditures in fiscal '25 to modernize our store fleet, advance our AI, digital and technology capabilities and elevate our supply chain. In the store fleet, we remodeled 94 stores and opened 9 stores as we refresh the asset base for long-term growth. In AI, digital and technology, we accelerate our investment in our 4 big bets as we create greater structural cost advantages, deepen customer loyalty and unlock new profit pools. Also in fiscal '25 from a cash return to shareholders perspective, we returned $1.8 billion of capital to shareholders, including $322 million in dividends and nearly $1.5 billion in share repurchases, including the completion of our $750 million accelerated share repurchase program. As we look forward to 2026 and beyond, we remain confident in the strength of our balance sheet and our cash flow generation. As such, now that the ASR is complete, the Board has again increased our remaining share repurchase authorization to $2 billion in total, which we expect to opportunistically complete over approximately the next 3 years. We ended the year with our net debt to adjusted EBITDA ratio at 2.24x, demonstrating the strength of our balance sheet and capacity to fund growth and return capital to our shareholders. Finally, in the fourth quarter, we opportunistically refinanced $2.1 billion of existing bonds in 2 tranches, $1.2 billion of 5.625% notes due 2032 and $900 million of 5.75% tack-on notes due 2034. These proceeds were used to refinance our $1.35 billion 2027 and $750 million 2028 note maturity. I'll now walk through our 2026 outlook. As we look ahead to 2026, we view the year as an important step in returning the business to earnings growth, while continuing to invest in the capabilities that support sustainable long-term value creation. Our strategy remains focused on the areas where we see the greatest opportunity to drive profitable growth. Digital continues to be a powerful engine as we expand our base of loyal, engaged customers and scale the business in a disciplined and increasingly profitable way. At the same time, our focus on cost control and productivity remains central to our approach, enabling us to reinvest in high-impact initiatives, expand margins and maintain financial strength. In pharmacy, we expect continued improvement in the underlying trajectory of the business. Excluding the top line headwinds associated with the IRA, we believe pharmacy scripts will continue to grow, supported by immunizations in value-added clinical services that enhance customer engagement and profitability. With that backdrop, our fiscal '26 outlook represents a year in line with our long-term algorithm and a double-digit TSR, including our expected dividend yield and share repurchases. Identical sales are expected to be in the range of 0% to 1% or 1.5% to 2.5%, excluding the 150 basis point headwind from the IRA and assuming near flat reported pharmacy sales. Looking at quarterly cadence, we expect identical sales in the first quarter to track below our full year range, including the IRA and significant ongoing egg deflation. As we move beyond this dynamic, we anticipate a sequential improvement in sales trends throughout the year. Adjusted EBITDA is expected to be in the range of $3.85 billion to $3.925 billion, representing growth of approximately 2.5% at the top end of the range, excluding the 53rd week impact in 2025. Adjusted EPS is expected to be in the range of $2.22 to $2.32, including approximately $600 million of share repurchases during fiscal '26, underscoring our confidence in the business and our commitment to returning capital to shareholders. The effective income tax rate is expected to be in the range of 24% to 25% and capital expenditures are expected to be in the range of $2 billion to $2.2 billion as we accelerate our investment in new stores, remodels, AI-powered technologies and digital capabilities. Taken together, we believe fiscal '26 marks an important step forward, delivering adjusted EBITDA growth, strengthening earnings resilience and positioning the company to create sustained value. And with that, I'll turn it back to Susan for closing remarks. Susan Morris: Thanks, Sharon. As we look ahead, 3 things should be clear. First, Albertsons has a differentiated growth model built to win in a highly competitive industry, and is rooted in proximity, customer centricity and balanced value. Second, fiscal 2026 is the year where the investments that we've made begin to translate into accelerating earnings power and improving returns. And third, our confidence is grounded in the strength of our productivity engine, efficiencies we are driving across the business that expand margins, fund reinvestment and give us the flexibility to grow through cycles. The environment remains dynamic and competitive intensity across food retail is not easing, but our strategy is built for this reality. We have a defensible footprint that creates everyday convenience, distinct fresh experiences, a differentiated digital and loyalty ecosystem that deepens engagement and lifetime value of pharmacy business with long-term earnings power and an AI-enabled operating model that strengthens margins, improves execution and compounds returns over time. Above all, our confidence in the year ahead comes from our people. To our 280,000 associates, thank you. Your resilience, your commitment to customers and pride in our banners bring our strategy to life every day, whether it's delivering fresh, high-quality food, supporting customers on their wellness journeys or serving communities with care. You are the foundation of our success. And as we advance our transformation, we will continue to invest in the tools, technology and support systems to help you do your best work. I want to thank all of you on the call today for your time and support. We know who we are, how we win and where we're going. And we're building a company that can grow sustainably, generate strong cash flow and deliver long-term value for shareholders. We look forward to sharing our progress with you in the quarters ahead. I'll now turn the call over to the operator for questions and answers. Operator: [Operator Instructions] And our first question is from the line of Leah Jordan with Goldman Sachs. Leah Jordan: I wanted to start out on productivity, you talked about your efforts building as we go through '26. Just -- can you provide more detail on what you've been vetted regarding productivity within the guide as we move through the year? And how we should think about the split between COGS and SG&A at this point? Sharon McCollam: Yes, we just reset our productivity to $2 billion over the next 3 years. You can think of that ratably over that period of time. And when you look at the big areas that, that comes out of, it's going to be our store operations, including shrinkage and Rx, you're going to see us buying better together. Sourcing, both GNFR and in the admin areas, we expect to see benefit supply chain. So we have amplified our activities in this area materially, and we feel very confident in the delivery of this new productivity target over the next 3 years. Susan Morris: Leah, what I would add to that is that the strength of the productivity really shown through for us in FY '25. We showed that we can fund strong investments, still deliver EBITDA. And as Sharon mentioned, as we think about the shape of productivity moving forward, the fact that we raised our expectations there from $1.5 billion to $2 billion over the next 3 years, that shows that we believe there's more to be had. We mentioned our AI big bets, and we're starting to see returns there on those investments. Our buying better together is yielding strong results, and we can talk more about that. The bulk of the savings though will be coming through the SG&A side of the business. Leah Jordan: Okay. That's very helpful. And then I just wanted to follow up on the ID sales guide. Thanks for the color, Sharon, on the improving sequential outlook for the year. But just if you can provide more detail on the grocery side of the house, your view of volumes and inflation as we move through the year? Susan Morris: So Leah, what I would say there -- and I'll hand it over to Sharon, is first, remember -- and we shared this in the script. The reported IDs of 0% to 1% include about a 150 basis point headwind from the IRA. So if you think about that, the underlying business will be running closer to 1.5% to 2% range. Also, remember that we're thinking about this not just about how we grow top line, but the quality of top line growth. And there are several things that we mentioned in the call. We've got the advantage of proximity and trip frequency. We're now looking at how we can optimize our stores to drive better returns. From a customer-centric perspective, we're really engaging deeply in loyalty, digital personalization and increasing our fresh penetration to drive frequency and lifetime value. And from a pricing perspective, we're closing pricing gaps where it matters, but we're doing it with productivity funding, not through margin erosion. Sharon, anything to add? Sharon McCollam: Yes. And Leah, your question is how do we see the cadence ex Rx as we move through the year. We're expecting the industry units to remain pressured, particularly in the first half of the year and expect Q1, we said it will actually be below our guidance range in total, including IRA. And then we will have sequential improvement as we move through the year and expect likely to be positive in the back half. Operator: Our next questions are from the line of Mark Carden with UBS. Mark Carden: So to start, just on the pricing front, some of your larger competitors continue to talk about investing in their value propositions. Have you seen much of a step change on this front? And then you talked about being able to fund your anticipated changes with your productivity initiatives. Just curious if you see much risk or need to make any deeper investments in the year ahead in any of your specific markets like you did this past year? Susan Morris: Mark, thanks for the question. So a couple of things. First of all, we closed the gap on pricing versus MULO in the fourth quarter. So we are seeing improvements there. And I think we shared a year ago, we have a very different price position across the many markets that we operate in. So our approach is very surgical, not broad-based. We're investing where it matters most to customer value perception, especially in key value items on our private label, our own brands, and also through loyalty and personalization. We're funding that through structural productivity and margin improvement, not looking for short-term trade-offs, and that's how we're improving the price competitive perspective of our business, but also protecting long-term gross margin growth. Mark Carden: Great. That's helpful. And then with everything that's going on in the Middle East, can you walk through the main implications you expect to see from higher fuel prices? Do you see demand destruction or trade down tend to accelerate when the price of gasoline is at a certain level? Does it change your inflation outlook? And just broadly speaking, how impactful do you expect it to be on your fuel margins? Susan Morris: Yes. So we're still expecting industry inflation -- food inflation to run around that 2% range. That said, you should know that we have not been passing through that inflation at the 2% rate. We've been working on that to help bolster our price position surgically across the company. And as we look forward, from a fuel perspective, what I would say is maybe this and just thinking about the consumer for a second. We do see units remaining pressured across the industry, and that pressure certainly is unevenly distributed. What we're seeing is increasing pressure on the lower income cohorts. It's reflected in ongoing affordability changes, we're seeing further pressure from staff regulation and so forth. So -- and by the way, the middle and income customers remain more stable in terms of the pressures that we're seeing there. But that said, we recognize our customers are focused on value. Our lower income households are most elastic, and that's why we continue to describe our value actions as very surgical. We're trying to improve the value perception where it changes behavior, again, while protecting long-term returns through productivity funding. Operator: Our next question is from the line of Edward Kelly with Wells Fargo. Edward Kelly: Yes. Could we just start with the gross margin, and I'm curious if you could provide a bit more color on how you're thinking about the gross margin in the upcoming year. There's a number of, I think, puts and takes here. And just curious as to whether you think that's a line item that we'll continue to improve. Sharon McCollam: Yes. So in 2026, we will continue to see benefit from the IRA. So you can anticipate that there will be a positive coming from that piece of it. On the mix shift side where we are seeing the digital business continue to grow, while less than previous years because of the improvement we're seeing in profitability in the digital business, it's still not running -- obviously, margins of the grocery business. So we see the digital mix still playing out. And the investments that we're making price and others, we've got the productivity to offset it. So we should see the margin flat to slightly better as we progress through the year in 2026. And when we think about that, the previous question about how is the Iran situation affecting us. One of the things to keep in mind is what we know at this point, we've included the pressures that the higher fuel costs will provide related to our transportation and the distribution expenses, et cetera. Obviously, we're expecting that -- hoping that this comes to an end in some shorter period of time. If that continued throughout the year, there could be some incremental pressure, but we are very comfortable right now with what we've included in our outlook. Edward Kelly: Okay. And then I just wanted to follow up on the guidance that you talked about with the share repo. I think you mentioned $600 million this year and $2 billion in 3 years. With cash -- with CapEx going up and the opioid sentiment, there's roughly, I think, a $300 million incremental headwind there. Can you just talk about what the offsets are to that? How you're thinking about leverage within the context of all of that? Just kind of curious as to the drivers of the cash flow to deliver the share repo. Sharon McCollam: Yes. So one area -- when you look at the big bets and you listen to the initiatives that are underlying our productivity, we are expecting in 2026, an improvement in working capital. And our guess would be that half of that probably will be funded by working capital improvements. In addition to that, we continue to believe that we are going to be able to take this CapEx and invest it, improve the store fleet, see the benefits in the back half of the year coming from the 4 big bets and be able to then at the back half of the year further accelerate working capital. So from a leverage point of view, we're very comfortable with where we are and we will see how this progresses through the year, but feel very confident in the returns that we will see from those capital investments. Operator: Our next question is from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: First, more of a philosophical question. It looks like the implied guidance is flattish margins, you can correct me if I'm wrong. If the comps end up being a little bit better at the high end, are you in reinvest mode at almost -- at any cost? Or do you let that flow through to earnings? How should we think about that both this year and the next couple of years? Susan Morris: Simeon, thanks for the question. So I'll start and I'll ask Sharon to chime in a little bit as well. So first and foremost, we want to -- I want to underscore the impact of our productivity agenda. And again, as I mentioned before, when you look at the results from FY '25, we've shown that we can actually deliver strong productivity and strong EBITDA flow-through. And we're scaling that further in FY '26. And that agenda is now accelerated and amplified by our 4 AI big bets, which are already yielding real results. We're starting to see increased customer take on AI-enabled shopping assistance. We're seeing a basket lift size there. In merchandising, we're already in flight with tools that help us reimagine price and promo and manage our margin spend very, very effectively. We've talked about supply chain helping us with our in-stock perspective and optimizing inventory levels through our proprietary gateway forecasting capability. So we see strong improvements there. We think it will be a very balanced year from that perspective. Sharon? Sharon McCollam: And Simeon, as I think about if units inflected faster than we expected and we saw real momentum with our customer, we will evaluate when that moment comes. But to get that flywheel going and to get that momentum going, we will definitely invest behind the customer and the growth because long term, that will be a catalyst for staying in the algorithm and maybe even improving the algorithm over time, and that would be our goal for 2026. Simeon Gutman: Okay. And then a follow-up. It sounds like you have a digital advantage and you have the assets and capabilities in place to drive it. Can you tell us the KPIs? When you report the e-commerce growth, how -- like what level of growth are you targeting? What level of growth are you satisfied by -- like -- and are you turning -- are you bending the curve in -- across all markets? Are you seeing some progress scattered across your regions? Susan Morris: Thanks, Simeon. So we're very pleased with the results of our digital penetration. We shared on the call that it's now surpassed 10%. If sales grew 16% in the fourth quarter, but what's important to note there, it's over 40% to your stack. And by the way, we're not done. We think there's still a lot of upside there. We're excited about the growth. 90% of that roughly coming from our first party, which is very attractive for us because of the relationship with the customer and the data side. On the other side of it, execution has been strong. More than half of our orders are delivered in less than 3 hours. Our Flash delivery, under 35 minutes, I believe, is one of our fastest-growing verticals in that space. And then we're really excited about the improvements that we made from a 5-star service program. We've gained return customers because we're delivering better in-stock, on-time deliveries and high-quality fresh products that we're committing to our customers. Operator: Our next question is from the line of Paul Lejuez with Citibank. Paul Lejuez: Curious if we can we go back to the fuel for a second. I'd love to hear what your assumption is for fuel profits in F'26? And also, if you have witnessed any change in consumer behavior since gas prices have increased over the past month or so? And then I also wanted to ask about your own brand's performance in 4Q relative to the rest of the store and what your assumptions are for F'26 on own brands? Susan Morris: So we are seeing, again, a shift in the consumer, primarily localized with the lower income consumers that shift towards the value. We've spoken about the increase in auto cash back on our loyalty program. So we are starting to see some changes there. At the same time, we're also still seeing consumers making trips to multiple retailers. So we'll watch that closely over time. And then we anticipate to see it -- an uplift in our fuel rewards program moving forward. Sharon? Sharon McCollam: And from a fuel perspective, at this point in time, again, within our forecast, we are assuming that this conflict is going to end in a reasonable period of time. And assuming that's the case, we're expecting -- let's think of it, in the near flat trajectory for 2026. Paul Lejuez: And then the own brand penetration as you look out to F'26? Susan Morris: So on brand, as we mentioned before, we're seeing fairly flat penetration at this moment in time, but it's one of our top priorities as we move forward into 2026. We've made some pretty significant investments in restructuring the team, in cost negotiation improvements, while also amplifying -- we're certainly protecting the quality that we have. So one of our primary initiatives in terms of driving value now and through the rest of 2026 is absolutely increasing own brand penetration. Operator: Our next question is from the line of John Heinbockel with Guggenheim Partners. John Heinbockel: Susan, I want to start with -- can you talk about the lag between value perception and reality, right? And how long that takes to shift? And I know it will probably differ market by market. With that in mind, is it reasonable to think about exiting '26 with the positive food volumes? Or is that ambitious given the industry backdrop? Susan Morris: John, thanks for the question. So it's a very philosophical view, by the way. From a value perception to a reality perspective or -- what we're seeing there is really doubling down on how we're communicating to customers about value and what it means to them specifically. You'll hear us talking a lot about personalization. And of course, that means personalized offers through our app and so forth. But the value perception can come in a variety of ways, simplified pricing at the shelf level. Yes, of course, personalized offers coming through our app, but it also comes through relevance in terms of assortment at store level, variety and quality of fresh, which, by the way, as a reminder, we're already in the neighborhoods where our customers live. So our ability to deliver that fresh fast, whether it's in-store or online, that proximity is an advantage that we have there. Your second part of the question was, remind me? John Heinbockel: Well, just what's -- is it ambitious to think about food volumes inflecting as an exit rate at the end of the year? Susan Morris: Yes. So we absolutely see an inflection as we go throughout the year. Clearly, the customer -- consumer remains pressured in the first quarter, and we're seeing that as much as the industry is, but we expect that to increase sequentially over time. Sharon, would you add to that? Sharon McCollam: And John, I just -- when I answered the question about the cadence through the year of the ID sales, I said that in our outlook, we are assuming that we do get to positive at that point in time. Industry unit is going to be a catalyst that underlies that, and we will see what happens with industry units as they progress through the year as well. John Heinbockel: Great. And then my follow-up just on, right, sourcing better together, and that's always been a really large opportunity, right, given the base. Where are we on that? Because it sounds like most of the incremental productivity agenda is SG&A. Is there still an equally large opportunity in COGS? And is that still over that 3-year time period? Susan Morris: John, great question. So yes, absolutely, there is more to be had from buying better together. And we were talking about this earlier. I'd say we're somewhere around the fifth inning, if you want to think about it that way, the fourth or fifth inning. What's materially changed is we've not only put new leadership in place since late last summer, we've also reconstructed the team here, and we're already working differently with our vendor partners. Some examples, we used to have 3 national sales events. It will be 5 this year. We've already worked with our vendor partners on securing -- I'd mentioned this a moment ago, lower owned brands costs. We're now in discussions with our top vendor partners on how we can amplify the value equation for our customers, but do so in a way that protects our margins by asking them to lean in differently and helping us fund that growth as we move forward in the future. Operator: Our next question is from the line of Rupesh Parikh with Oppenheimer. Rupesh Parikh: I just want to go back to the new higher CapEx range. Is this a new baseline level we should think about going forward? And then in terms of the plans to open up new stores, is there any more color in terms of the number of new stores? And if there's a geography tent and the expectation for store closures? Sharon McCollam: In the new store fleet modernization program, there will be incremental new stores next year. We haven't given a number yet. But think about maybe -- not maybe, up 50% from this year. And then on remodels, we are amplifying our remodels materially in that number. So do I expect it to be a new baseline? These are easily measurable. You open, you've remodeled, you see the result that you get. Assuming that we see those kinds of returns that we're expecting based on the work we did in 2025, we would likely remain in this range, but we'll let you know how it's going throughout the year, and we'll give you an outlook for '27 later in the year, obviously. Rupesh Parikh: Great. And then my follow-up question, just on retail media. Just curious, the key priorities for the year? And then as you look at the efforts this past year, any major surprises of note? Susan Morris: Rupesh, what I would just say there is that we continue to accelerate growth in our media collective. And over the past year, the team has done a phenomenal job of improving return on advertising spend for our vendors, speeding up the rate at which we're able to feed back that data to our vendor partners so they can make better decisions on how they move forward. We've opened up inventory substantially and are leveraging that inventory well. I think we shared in the script also that we have been highlighting some experiments on personalized ads, which is -- which has had incredible take rate from a customer perspective, but also delivers a really strong return from our vendors for our vendors. So we're looking at acceleration there. So as a key driver of not only productivity and funding our digital business, we also see the media collective as a strong source of building relationships with customers and driving unit growth in the future. Operator: Our next question is from the line of Tom Palmer with JPMorgan. Thomas Palmer: You gave some helpful detail on ID sales expectations as 2026 progresses. I just wanted to maybe tie that in with the expected cadence of earnings growth and to what extent we should think about earnings, excluding the extra week, of course, aligning with that cadence of ID sales? Sharon McCollam: Yes. So in the first quarter, that will be our most pressured quarter because of the fact that the comp sales will be below the ID sales range due to the dynamic of the IRA and on top of that, the egg deflation. But when we start getting into Q2, Q3 and Q4, we are expecting adjusted EBITDA growth in every quarter improving sequentially as we get through the year as our productivity kicks in. Thomas Palmer: Great. And then I wanted to follow up just on the CapEx. You mentioned both store investments and technology and some expected benefits materializing in the second half, is that mainly related to the technology benefits? And then when we think about some of the store level investments, when do we start to see those becoming more of a contributor? Sharon McCollam: Yes. On the early remodels we do in the year, you should start seeing benefit as you get into the back half of the year. And that -- but they're going to be coming throughout the year. So it's a small benefit in this year, and you'll see it obviously in 2027. And then on the investments that we are making, we've been making them all year on the 4 big bets. And many of those, like, as an example, one of the ones Susan spoke to, Gateway, in her prepared remarks, actually launched nationwide in February. So the benefit from that initiative, we would start to see growing as we go throughout the year. Operator: Our next question comes from the line of Scott Mushkin with R5 Capital. Scott Mushkin: So my first one just goes to loyalty. You guys are seeing some really nice growth there. But on a unit basis -- and you guys correct me if I'm wrong, but on a market share unit basis, it seems it's in the grocery business, maybe flattish to down. And so I was wondering like kind of square that for me? Because your loyalty is growing really fast. I think you said trips are up, but yet, it looks like there's a little market share erosion. So I was wondering if you can kind of walk me through that? Susan Morris: Sure. So thanks for the question, Scott. Yes, as you stated, we definitely see industry units under pressure. And I think we saw a further decline in the industry from Q3 to Q4. That's true for us as well. That pressure is concentrated, as we mentioned before in our lower income cohorts. And this is where we look at our role is to turn our footprint, our proximity into preference for our customers through sharper value, stronger loyalty engagement, differentiation in fresh, better omnichannel experience and all of those types of things. So we are -- we mentioned before, units will be -- are pulling tougher in the first quarter, but we expect and plan for a gradual improvement as we go on throughout the year. Our initiatives are built to drive that improvement. And again, leveraging the value of our proximity, fresh and personalization are some of the key drivers that we're using to achieve that growth over time. Scott Mushkin: Perfect. And then my second question, just again, like John is maybe a little more philosophical. When you think about your kind of natural shelf price versus your promoted price, how do you guys think about that vis-a-vis the maybe high, pretty high price point at the shelf without it being promoted and the impact on the value perception? Susan Morris: Sure. So what I would go back to is what I mentioned a few minutes ago and just speak to the fact that we definitely look at price market by market. Our price position is very different across the country, depending where we're at. And so that's a very surgical approach that we take because of that, where we can massage promotional in one area. We're working on frontline pricing in another. In previous quarters, we mentioned the investments that we've made, largely in frontline pricing, also in promotional pricing, but in our 3 divisions. We've seen strong customer feedback, strong improvements. We're very pleased with those results. But again, even across those 3 deployments, if you will, the execution has been slightly different. One market might need heavier promotional increases, another market might need more relief from a frontline perspective. So a very surgical approach for us moving ahead. Operator: Our final question is from the line of Robby Ohmes with Bank of America. Robert Ohmes: I'll wrap it into one question. There's actually -- it's really just 2 follow-ups. The first, I think -- I can't remember, Sharon, I think you mentioned the moderation in GLP-1 growth was more than expected. I was hoping you could give a little more color on is that expected to continue? And does that have a -- should we think that it's going to be a negative headwind, obviously, to store traffic? And then the second one was on, I think, Susan, you mentioned you have seen more increased cross shopping. Is that, again, another headwind to store traffic? And overall, how is store traffic looking as digital keeps increasing as well? Sharon McCollam: Let me take the GLP-1 comment. So in our ID sales forecast for 2026, we have assumed that this GLP-1 pressure will continue and -- to some extent, and only because of the clampdown from the payers. Many health plans have made a decision not to pay for GLP-1s for consumers in 2026. So for weight loss only, where it's being taken for weight loss only. So we do think it is possible that, that will continue during the year. As far as the question related to GLP-1s and traffic, this is -- many of our GLP-1 customers are already customers of the store. If they were not taking GLP-1s, I believe they will continue to come to our store. So I see this is a very unique drug and has a lot of implications as it relates to food. So I don't know that I would immediately make that correlation. I will let Susan talk about traffic in the stores and our customers and where we see that happening. Susan Morris: Thanks, Sharon. And also just a side note, too, on the pharmacy, we are still growing script count. I want to make sure that comes through clearly. And that's important for us for a variety of reasons, including the traffic side, but as well as building larger baskets and customer lifetime value. From a traffic perspective, what I would say is -- we would say traffic has been fairly steady. And what our focus has been is we've got great proximity. We're already in the neighborhood that serve our customers today. So how do we stop that second trip? And that's where we're focused on increasing in-stock, which we've done. That's where we're focused on fair pricing -- fair frontline pricing, again, surgically across the country, great promotions funded by our productivity, and then excellence in fresh. So if we're giving our customers what they need at prices they're willing to pay in their neighborhood, that's how we think about stopping that second trip. That's why the investment in our store fleet is so important to us. That's why we're thinking about this customer-centric experience, again, loyalty, digital, pharmacy, fresh penetration, all of those things so that we can give them the balanced value equation that resonates uniquely with them. Operator: At this time, we've reached the end of our question-and-answer session. I'll turn the floor back over to Susan for closing remarks. Susan Morris: So before we wrap up, I just want to thank our investors and analysts for your questions and your continued engagement. And to any employees that might be listening in, thank you for the work that you do every day to serve our customers and strengthen our business. We appreciate your ongoing support and look forward to continuing dialogue. Have a great day. Operator: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.
Operator: Ladies and gentlemen, welcome to Tims China's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. At this time, I'd like to turn the call over to Patty Yu, Tims China's Public and Media Relations Manager for prepared remarks and introductions. Please go ahead, Patty. Unknown Executive: Hello, everyone, and thank you for joining us on today's call. TH International Limited announced its fourth quarter and full year 2025 financial results earlier today. A press release as well as an accompanying presentation, which contains operational and financial highlights are now available on the company's IR website at ir.timschina.com. Today, you will hear from Yongchen Lu, our CEO Director; and Albert Li, our CFO. After the company's prepared remarks, the management team will conduct a question-and-answer session. You will find the webcast of today's earnings call on our IR website. Before we get started, I'd like to remind you that our earnings presentation and investor materials contain forward-looking statements, which are subject to future events and uncertainties. Statements that are not historical facts, including, but not limited to, statements about the company's beliefs and expectations are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and our actual results may differ materially from those forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC. This presentation also includes certain non-GAAP financial measures, which we believe can be helpful in evaluating our performance. However, those measures should not be considered substitutes for the comparable GAAP measures. The accompanying reconciliation information related to those non-GAAP and GAAP measures can be found in our earnings press release issued earlier today. With that said, I would now like to turn it over to Yongchen Lu, our CEO Director. Please go ahead, Yongchen. Yongchen Lu: Thank you, Patty. Good morning and good evening, everyone. Thank you for joining us today. As we just celebrated the 62nd anniversary of the globally renowned Tim Hortons brand and the seventh anniversary of Tims China. We're excited to continue serving our innovative and locally relevant offers to our fast-growing loyalty guests. As of December 31, 2025, China stood as the largest international market in Tim Hortons global history by a number of stores. We continue our growth trajectory, generating total system sales of RMB 1.57 billion in 2025, a 7.6% increase compared with 2024, fueled by mainly 25 net new store openings and expanding our store network to 1,047 across 92 cities in China. Food sales as a percentage of the total revenues account for 33.4% in Q4 2025, increased from 24% in Q1 2023. Orders with food items account for 51% of total orders in Q4 2025, increased from 45.2% in Q1 2023. 2025 marks a critical transition year for the company. We further solidified our differentiated strategic positioning in Coffee Plus freshly prepared food, completed made-to-order renovation of over 74% system-wide stores while strategically pruned certain underperforming stores, especially those remote MTO express stores. On same-store sales growth, we managed to achieve overall comparable transaction growth of 2.7% in 2025, but we had to apply higher discounts on delivery business to mitigate intensified competition due to aggregator platform dynamics, which led to 2.4% decline in the same-store sales growth for system-wide stores in 2025. Despite the headwinds of fierce competition, especially from low-priced local brands, our team demonstrated strong resilience and maintained our margins well at both store and corporate levels. 2025 full year company-owned and operated store contribution margin was 7% compared with 7.4% in 2024, which was primarily attributable to the temporarily increased delivery-related costs due to aggregator platform dynamics. 2025 full year adjusted corporate EBITDA margin actually improved by 1 percentage point. With further optimized store capital expenditures and enhanced store unit economics, our 2024 vintage [ year ] company-owned and operated stores generate store contribution margin of nearly 15% in 2025 and expect to achieve a payback period of 2 to 3 years. Our 2025 vintage [ year ] stores are still new, but are ramping up right now. We believe they will have similar unit economics too. In the meantime, our company-owned and operated store in Tier 1 cities, including Beijing, Shanghai, Guangzhou and Shenzhen and in those cities with 10-plus stores generate over 10% and 7% store contribution margin in 2025, respectively, outperforming other tier cities with lower store density. We will continue adding more company-owned and operated stores in existing stores to achieve a high economy of scale. In 2025, we strategically expanded our store footprint while maintaining capital efficiency, delivering absolute convenience for our customers. Leveraging the franchisee partnerships, we accelerate market penetration entering 92 cities by year-end, including the debut of our first stores in Nanchong in Sichuan Province, Datong in Shanxi Province and Xinxiang in Henan Province during the fourth quarter of 2025. This growth strategy not only further strengthen our brand presence, but also ensure sustainable scalability through optimized resource allocation. Since we launched our individual franchise business in December 2023, we have received over 10,000 applications and successfully opened over 300 stores by the year end of 2025, showcasing continued market confidence in our franchise model. We have witnessed reasonable returns for our franchise stores. For instance, our franchisee stores in special channels, including railway stations, hospitals and highway rest areas generated store contribution margin of high teens in 2025 and are expected to achieve a payback period of approximately 2 years. We will accelerate opening franchise stores on these special channels. In the meantime, our sub-franchisee business contributed steady cash flows and profitability. Profits from other revenues achieved a year-over-year growth of 55.7% in 2025. Product innovation has always been an important strategic focus for us. In 2025, Tims China accelerate product innovation across both beverages and food, launching a total of 178 new products, 96 new beverages and 82 new food items, which contributed over 25% of our top line sales and offerings have run very strongly with customers. Seasonal beverage highlights during the fourth quarter included the pomegranate, low cheese and oat latte series, offering a diverse and differentiated flavor portfolio. We also focused on adding non-coffee beverage offerings complementary to existing product portfolio during the after cheese daypart. Total number of non-coffee beverage cups accounted for approximately 18.3% of total beverage cups sold in 2025 compared to 14% in 2024. On the food side, we continue to strengthen breakfast dayparts and launched several campaigns to promote lunch daypart in 2025. For instance, we introduced a breakfast combo with expansion of croissant lineup with new offerings such as cheese chicken and [ loaded ] coconut cheese croissants, which suits the morning routines and offering greater value, building on our classic bagel breakfast fests; the croissant combo includes protein-rich options like meat and catering to high energy needs in colder months. Meanwhile, the croissant itself like the excess frying, are perfect for those wanting highly but not very -- not overly caloric breakfast. In addition, Tims China now continue to broaden its bagel sandwich range, introducing new products, including the Black Truffle Mushroom Bagel and the Spicy Pickled Cabbage Beef Bagel, further enriching its [ savory ] menu. We continue to strengthen our leadership in the bagel platform, selling a total of over 80 million bagel and bagel sandwich products cumulatively as of the end of 2025. The fourth quarter being the holiday season saw us rolling out a series of marketing campaigns designed for these special occasions from Halloween to Thanksgiving and Christmas, we joined the festive spirit with creative promotions and theme activities to grab consumer attention. During the first quarter, Tims China continued to enhance brand relevance and consumer engagement through a series of marketing and product innovation initiatives. The company strengthened its cultural positioning through high-profile collaborations, including a limited edition partnership with the hit TV series of The Vendetta of An as well as a co-brand campaign with People's Daily [indiscernible] to celebrate China's National Day and honor everyday heroes across the country. These initiatives leverage cultural storytelling to deepen consumers' connections and drive social engagement. In parallel, Tims China advanced its sustainability initiatives by expanding its Bring Your Own Cup program and increasing the incentive to RMB 8 per cup. As of now, the program had attracted over 200,000 participants, reducing carbon emissions by approximately 8 tons, equivalent to planting around 360 trees. The company also introduced eco-friendly stores in collaboration with Tencent's CarbonXmade program using carbon capture technology to convert industrial carbon dioxide into sustainable materials. SGS certification confirms that every 100 straws store 3.185 grams of carbon dioxide, reinforcing Tims China's commitment to sustainable product innovation. As of December 31, 2025, our registered loyalty carbon members exceeded 31 million, reflecting a remarkable 29% year-over-year growth. The average number of members per store has now surpassed 29,600, serving as a strong catalyst for our growth and clearly demonstrating our consumers' ongoing support for Tims China's loyalty programs. At this time, I would like to turn it over to our CFO, Albert Li, to discuss our fourth quarter and full year 2025 financial performance in more detail. Dong Li: Thank you, Yongchen. We continue to strive for excellence in delivering high value for quality, healthy products and thoughtful services to our ever-growing customers. In the fourth quarter, we achieved positive net new store openings and continued our strong momentum in system sales, achieving a 4.0% year-over-year growth. Our overall monthly average transacting customers reached 3.43 million during the fourth quarter of 2025, a 14.3% increase from 3.01 million in the same quarter of 2024. Additionally, digital orders as a percentage of total orders rose from 86.1% in Q4 2024 to 89.3% in Q4 2025. We continue to enhance our digital capabilities to meet the growing demand for delivery and takeaway services. Total number of delivery orders increased by 33.7% year-over-year during the fourth quarter of 2025. Amidst macroeconomic volatility and intensive market competition, our team demonstrated strong resilience and achieved profitability improvement through enhanced operational efficiencies, supply chain optimization and rigorous cost controls. In Q4 2025, our adjusted corporate EBITDA margin improved by 3.3 percentage points year-over-year. During the fourth quarter of 2025, our total revenues dropped by 7.3% year-over-year, which was mainly due to the closure of certain underperforming stores, benefiting from the expansion of our franchised store network with the number of our franchised stores increased from 446 as of December 31, 2024, to 485 as of December 31, 2025. Our system sales increased by 4.0% year-over-year to RMB 359.4 million during the fourth quarter of 2025. We are committed to improving our financial performance by refining store unit economics and boosting operational efficiencies at both store and our corporate levels, setting the stage for our long-term sustainable growth. Specifically, through refinements in our supply chain capabilities and economy of scale, we reduced the 2025 full year food and packaging costs as a percentage of revenues from company-owned and operated stores by 1.4 percentage points year-over-year. We continued to streamline our operations by pruning underperforming stores, optimizing unit economics, refining staffing arrangements and optimizing store managerial efficiency. These actions led to a reduction in 2025 full year store labor costs and other operating expenses as a percentage of revenues from company-owned and operated stores by 0.8 percentage points and 0.1 percentage points year-over-year, respectively. We expanded our branding initiatives and promotional offers to drive traffic. Our marketing expenses as a percentage of total revenues increased by 1.2 percentage points year-over-year. Our adjusted general and administrative expenses as a percentage of total revenues decreased by 7.4 percentage points year-over-year, which was mainly attributable to a RMB 9.7 million, USD 1.4 million decrease in credit loss of accounts receivables. Turning to liquidity. As of December 31, 2025, our total cash and cash equivalents, time deposits and restricted cash were RMB 129.7 million (USD 18.5 million) compared to RMB 184.2 million as of December 31, 2024. The change was primarily attributable to cash disbursements on the back of the expansion of our business, partially offset by the drawdown of additional bank facilities. In the meantime, with the issuance of the USD 89.9 million 2025 senior secured convertible notes and the amendment to our existing 2024 unsecured convertible notes in December 2025, we have successfully repurchased the entire outstanding amount due under our variable rate convertible senior notes due 2026. Looking ahead to 2026, with profitability being front and center of everything we do, we will continue to enhance our supply chain capabilities and efficiencies, roll out our differentiating made-to-order fresh and healthy food preparation model to drive traffic, optimize overall store unit economics and accelerate the expansion of our successful sub-franchising. I will now turn it over to Yongchen for concluding remarks followed by Q&A. Yongchen Lu: Thank you, Albert. Before we turn to Q&A, I would like to take this opportunity to once again express my heartfelt gratitude to our customers, employees, business partners and investors for your continued support and dedication and trust. Together, we have created an overwhelming community of over 31 million loyalty club members, a unique Coffee Plus freshly prepared healthy food business model, offering the best value for quality products as an international coffee brand, differentiated and comprehensive store formats with over 1,000 stores in 92 cities, most of which are made-to-order stores with expected payback period between 2 to 3 years and a unique advantage of offering franchising opportunities as an international coffee brand. With these milestones behind us, we are steadfast in our commitment to sustainable growth and to generating long-term value for our shareholders. I will now turn the call over to Patty for today's Q&A session. Patty? Unknown Executive: Thank you, Yongchen. We will turn it over to Q&A session and open it up for our registered questions. Let's begin with our first question. Amber, please go ahead. Operator: [Operator Instructions] We will now take our first question from the phone line of Steve Silver of Argus Research Corporation. Steven Silver: So over the past few quarters now, you've highlighted franchise stores in special channels such as the railway stations, hospitals and highway rest areas. And you cited their strong contribution margins and the 2-year payback periods. So while you mentioned in your prepared remarks that you see openings under this model accelerating, can you quantify at all how much of a part of the future store mix you expect these channels to comprise? And really what impact do you expect this to have on future operating results? Yongchen Lu: Yes, sure. Thank you, Steve, for your question. I mean the beauty of the stores on special channels, especially on railway stations and highway rest areas, it's purely dine-in business. So they don't rely on delivery. And also, we don't need to give discounts on those stores in the special channels. So those stores have very high gross margins and low delivery cost despite the rent might be higher, but still those stores are generating high teens store contribution margin. And the payback is very attractive around 2 years, even lower than 2 years. So I mean, in China, there are a lot areas, there are thousands of stations, airports, rest areas in highways and hospitals. So we have generated the momentum in those channels. As we mentioned, we are the only -- essentially, we are the only international coffee brand that open to individual franchise. So we are tracking a lot of interest from those franchisee partners. So this year, we will accelerate our openings on those channels. Steven Silver: Great. And so company-owned and operated store contribution margins have now been negatively impacted by the higher delivery costs over the past few quarters. Is the company doing anything specifically to mitigate these risks in 2026 to improve same-store sales growth as well as the store contribution margins? Dong Li: Okay. Steve, thank you for the question. I think I will take this one, right? So as you have mentioned, due to those aggregator platform dynamics in 2025, which led to a very aggressive subsidies that we have been seeing. So that, I think, on one hand, drives higher delivery orders and also higher percentage of our delivery revenue mix. And in the meantime, we have also like suffering from actually increased delivery costs because of this. So I think overall, it's within our expectations because we want to manage our top line growth, our same-store sales, our margins and also our pricing well. So actually, we are taking every step to maintain or even expand our store contribution margin. So as you can see, even though I think the whole year 2025 store contribution margin for company-owned stores was slightly decreased from 7.4% to 7%, I think overall, we have, in the meantime, actually increased our gross margin. So the food and packaging cost as a percentage of revenue actually has decreased by 1.4 percentage points. And in the meantime, we are still in the process of pruning some of the underperforming stores and achieving better economy of scale. Labor costs, as you can see, the full year 2025 labor cost has also improved as well as store other operating expenses. So we will do everything we can actually to mitigate potential delivery costs and I think in the meantime, we are also like negotiating with those delivery aggregator platforms to -- actually to strike a better cost on the delivery cost. So in terms of the delivery cost per order, we want to improve the cost structure to streamline the delivery cost per order as well. And I think lastly, we are also actually increasing some of the pricing on the delivery products. So that is true to mitigate the potential headwinds from higher delivery cost. So overall, I think our goal is to at least maintain and even achieve certain margin improvement on our store contribution margin despite the -- in terms of the aggressive subsidized from those delivery aggregated platforms might still continue in 2026, but we expect that trend might be mitigated or might be like slowed down this year. Thank you, Steve. Steven Silver: That's helpful. And one more, if I may. So in 2025, net store growth was positive, but it was a little more modest than maybe what previous thoughts might have been around store expansion. Yet at the same time, the franchise applications sounds like it continues to be very, very strong. And the loyalty membership continues to expand significantly, almost 30% in 2025. So I'd love to hear your thoughts in terms of the underlying demand in terms of what we might think about for system sales growth in 2026. Yongchen Lu: Yes. I mean we are in the process of pulling the underperforming stores for the past 2 years, and we'll do so this year as well. As you know, we opened a lot of high rent stores during 2019 to 2022 and even 2023, higher rent larger store format for the brand building and also the rent back then was very high, much higher than the current situation. So we are in the process of continuing of pruning those underperforming stores. So that's why you see the revenue for company-owned and operated stores has dropped last year and this year for the last 2 years. So I mean, in this year, we will continue to prune some underperforming stores, but as we mentioned, we -- the newer base of our stores have higher store contribution margins, for the stores we opened in 2024 and 2025 have store margin around 15%. So this newer vintage of store format has been approved. So we'll continue to open such format for both company-owned and franchise stores. So we target to achieve net store openings this year of at least 100 and might even more when we see the capital secure. So I mean that's kind of the process. So we'll continue to expand the network and that's the plan for now. Operator: Our next question comes from the phone line of [ Fooly Ho from TF Securities ]. Unknown Analyst: I have 3 questions. The first one is about gross margins. Your gross margin improved by 1.4 percentage points in full year 2027. This is quite impressive. Can you explain more on the factors behind this? And how would you expect your gross margin in 2026? Dong Li: Thank you, Fooly. I think I will take this question related to gross margin. So as you have mentioned, so our food and packaging costs as a percentage of revenue from company-owned and operated stores actually decreased from 31.5% in 2024 to 30.1% in 2025, representing an improvement of 1.4 percentage points. And in the meantime, I also want to highlight that if you take a look on the fourth quarter 2025, the cost percentage was 29.4%. Actually, it represents a 2 percentage point margin improvement from the fourth quarter of 2024. So I think the overall improvement was mostly because of the following factors: the first one is better economy of scale as our overall GMV has increased and our overall store network has expanded. And two, we have tried actually many ways in terms of -- on the supply chain optimization projects. So especially on existing food and packaging materials. So we have almost renegotiated the unit cost and in terms of the overall pricing for the -- with each of the supply chain vendors. And I think thirdly, we have optimized our discounts program actually, so that basically, we have improved the average pricing a little bit, especially we have increased the pricing on delivery products, which definitely would help on the margins. And fourthly, we have also seen higher margin on our new product launch. As we have mentioned, we have actually launched nearly 180 new products -- new LTO products in 2025. And most of this like new LTO products had higher margins. And I think lastly, we have also optimized the recipe of existing core products and some other like material costs and also in terms of the transportation and freight costs. This has also contributed to our overall margin expansion in 2025. So going forward, I think we will continue to implement the above measures and plans. And we target to further reduce our food and packaging costs as a percentage of revenues by another 1 to 2 -- at least 1 to 2 percentage points in 2026. So that would be our target for this year. Thank you, Fooly for your question. Unknown Analyst: Very clear. The second one is about margin profile. You mentioned company-owned and operated stores in Tier 1 cities and in those cities with 10-plus stores generated over 10% and 7% store contribution margin in 2025, respectively, outperforming other tier cities with lower store density. Can you explain more details about the differences on margin profile of these stores? Yongchen Lu: Okay. I'll take this one. Thank you for your question. I mean it's a good question. I think the density really matters. I mean -- so I mean the more stores we have in the city, the more brand awareness we have in the city and the more efficiency on the marketing campaign and lower cost on delivery and supply chain and more efficiency on the management. So density really matters, the data clearly shows that. We have the highest margin on Tier 1 cities. And as we mentioned earlier, for the 2024 and 2025 vintage stores, our store margin is up at about 15%. And most of the stores are operating in the Tier 1 and the high-tier cities. So we'll continue to add more company-owned and even franchisee stores in existing cities to add density. And density really helps on everything. Unknown Analyst: Okay. And the last one is about store count target. What's the store opening and closure target for 2026 and expected mix between company-owned and operated stores and franchise stores? Yongchen Lu: Yes. We just answered the question -- the similar question from Steve. So we target to achieve net store openings of at least 100, including both company-owned and franchisee stores. And we are very happy to see our new ventures have very high margins. So we'll continue to open and although we will continue to prune some underperforming stores, we should be able to achieve net store openings again at least 100 this year. Operator: I'll now hand back to Patty to read any questions coming through via the webcast. Unknown Executive: It seems that we have no questions online. Is that right, [ Amber Lee ]? Operator: That's correct. So at this time, there are no further questions. So with that, we conclude today's question-and-answer session. I'd like to hand the call back to Yongchen for his closing comments. Yongchen Lu: Yes. Thank you all for your time. It's been a challenging year, but we have been able to improve our margins and achieve net store openings, and we expect to even improve our margins further this year and achieve accelerate openings this year. So stay tuned. We'll see you soon. Thank you. Dong Li: Thank you. Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Thank you for standing by. Welcome to the Gloo Holdings Fiscal Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Oliver Roll, Chief Marketing and Communications Officer. Please go ahead, sir. Oliver Roll: Thank you, operator. And thank you to all of you for joining our fiscal fourth quarter and full year 2025 earnings conference call. We will be discussing Gloo's performance for the fourth quarter ended January 31, 2026, as well as our results for the full year 2025. We'll also be providing guidance for our Q1 and full year 2026. Joining me on today's call are CEO and Co-Founder, Scott Beck; and CFO, Paul Seamon. Our Executive Board Chair and Head of Technology, Pat Gelsinger, will also join the Q&A session. Before we begin, please be reminded that this call will contain forward-looking statements, which are based on Gloo's current expectations, but which are subject to risks and uncertainties relating to future events and/or the future financial performance of Gloo. Actual results could differ materially from those anticipated in these forward-looking statements. A discussion of some of the risks that could cause actual results to differ materially from our forward-looking statements can be found in today's press release and elsewhere in our filings with the Securities and Exchange Commission, including our prospectus dated November 18, 2025, and our annual report on Form 10-K that we expect to file later this week. Our SEC filings are also available on Gloo's Investor Relations website at investors.gloo.com and the SEC's website. In addition, during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP metrics to the most directly comparable GAAP metrics as well as the definitions of each measure, their limitations and our rationale for using them are included in today's press release and in our Form 10-K. And now, I'll turn the call over to Scott. Scott Beck: Thank you, Oliver, and thank you for joining our 2025 fourth quarter and year-end earnings call. Q4 was a strong quarter for Gloo that exceeded our guidance and capped a strong year in 2025, our first year as a public company. In Q4 2025, we more than quadrupled our revenue compared to the prior year period. We also exited 2025 with a much stronger balance sheet following our November IPO and the conversion of a significant majority of our debt into equity. We're also making good progress towards adjusted EBITDA profitability as reflected in our Q1 guidance of more than 30% improvement in adjusted EBITDA from Q4. We remain confident in achieving adjusted EBITDA profitability in Q4 2026 and continue to expect to approach adjusted EBITDA profitability in Q3. These results and our confidence in the future reflect the unique value that we are delivering against 2 mission-critical needs across the faith and flourishing ecosystem, the need to modernize technology and the need to expand reach. Our growth is driven organically as well as through continued expansion from accretive, strategic acquisitions that strengthen our platform. Before I go deeper into our strategy, I want to briefly revisit the ecosystem that we serve because that context is important to understanding both our opportunity and our results. Gloo is building the leading technology platform for the faith and flourishing ecosystem. This is one of the oldest and largest sectors in the world, yet one that remains highly fragmented and materially underserved by modern technology. At the center of this ecosystem are 2 interconnected groups. First are churches and frontline organizations, or CFLs, which serve people and communities directly. The second are network capability providers, or NCPs, which equip them with the tools, services, resources and infrastructure that they need to succeed. At the heart of the ecosystem, we also see 2 mission-critical and unmet needs. One is the need to modernize technology, including systems, data, workflows and core operating infrastructures. The other is the need to expand reach, deepen engagement and increase donor support in more effective and scalable ways. The Gloo platform is built to address those needs through 2 core areas of focus, powering technology and powering reach. Our solutions that power tech help organizations modernize their operations and build the foundation required to adopt new technologies effectively. Our solutions that power reach help organizations expand awareness, strengthen engagement and grow support through differentiated marketing, media and fundraising. Underpinning everything is the company's growing leadership in applied AI. We're leveraging the latest innovations in agentic AI, foundational models and services from top AI companies. We're combining that with the AI advancements across our own platform. As part of this strategy, we're taking over more of our customers' work that can now be executed by AI. We take over a customer's technology operations, we modernize them, and then we apply agentic AI to deliver significantly better outcomes at lower costs, while also creating higher margins for Gloo and highly durable revenue streams. This allows AI to be uniquely applied to the real operations, workflows and mission-critical activities of churches, ministries and not-for-profits in ways that protect theological integrity, strengthen relational ministry and advance human flourishing. This approach is supported by forward-deployed engineers, similar to the models used by Palantir. We understand customer operations and build tailored agentic solutions that create meaningful, repeatable value. Over time, we believe that expands our opportunity well beyond software spend into the much larger labor budgets that sit behind it. We believe Gloo is uniquely positioned to lead applied AI in the faith and flourishing ecosystem by helping customers harness those capabilities in practical, mission-aligned ways. I now want to turn to our broader platform strategy and how we continue to strengthen it over time. As the platform expands, it benefits from a powerful flywheel effect. Each new capability, solution and network capability provider makes the platform even more valuable to the churches and the frontline organizations that we serve. And as more of these organizations engage, the platform becomes more valuable to the network capability providers and the partners serving them. Strategic acquisitions are a key part of strengthening that flywheel, enhancing our ability to power tech and power reach for our customers. Earlier today, we announced our latest example of that flywheel in action. Today, we announced a definitive agreement to acquire Enterprisemarketdesk, known as EMD, a leading Workday Service Partner that provides consulting, implementation and operating services to small and midsized organizations and not-for-profits. This is an important addition to our solutions for powering tech. Workday is a leading ERP platform in the faith and flourishing ecosystem and often the preferred solution for many of the Gloo enterprise customers, creating clear synergies between the 2 companies. EMD offers a full suite of services, including Workday deployments, application management services and staff augmentation. This strengthens the Gloo 360 value proposition and expands our ability to help customers modernize core systems and transform IT in more strategic ways through our applied AI. This aligns with our core strategy of taking over and modernizing the work of an organization, using forward-deployed engineers, then applying agentic AI, thereby delivering better results at lower cost while at the same time creating higher margins for Gloo. Workday offers a major set of capabilities that we see many of the organizations in the faith and flourishing ecosystem using more often. Workday implementations are long-cycle engagements that will lead to larger digital transformation mandates that Gloo 360 is uniquely able to support. In addition, we successfully completed the acquisition of Westfall Group during the quarter. Westfall is the leading platform for major donor engagement in the faith and flourishing ecosystem. Its addition has expanded our donor development capabilities and strengthened the strategic fit and synergies with Masterworks, which we acquired in 2025. Together, these moves reflect our disciplined approach of adding best-in-class network capability providers as Gloo Capital Partners, strengthening the platform and reinforcing the flywheel. Westfall Group has been immediately accretive since close, and we anticipate EMD will be immediately accretive upon close as well. Now let me turn back to the importance of AI to our strategy. Underpinning everything we do is our growing leadership in applied AI. Our applied AI strategy is focused on 3 areas. First, we're building the core AI capabilities we believe the ecosystem needs, including agents, values-aligned AI, unified data infrastructures and trusted chat-based interfaces. Second, we're embedding AI across our solutions to improve automation, personalization, data integration and overall customer outcomes. Third, we're helping both our customers and Gloo itself put AI agents to work and evolve toward more agentic operating models so that the ecosystem can focus more time, energy and resources on mission. We believe this strengthens our platform, accelerates innovation across our portfolio and reinforces our leadership in applied AI for the faith and flourishing ecosystem. Let's turn to customer momentum. We're seeing strong customer momentum across our portfolio. We continue to close larger strategic deals with 2 customers now expanding to almost $10 million of annual revenue. We also closed several agreements valued at more than $1 million, including an exciting expansion in the university segment through our work with Jessup University. This is the first example of us bringing the full breadth of the Gloo platform to a large university, and it's a strong validation of the value that we can provide this very large market segment. We also announced a new strategic technology partnership with InterVarsity Christian Fellowship/USA with Gloo's 360 powering its enterprise technology operations. That will enable InterVarsity to spend less time managing systems and more time engaging students and faculty across more than 700 campuses in the United States. It's a strong example of how, by powering their technology, we can help organizations modernize operations while increasing mission impact. Separately, we also expanded our partnership with YouVersion in Brazil, establishing a co-located engineering presence alongside their regional hub to strengthen the cultural alignment with their team while building engineering capacity in the region. In a moment, Paul will take you through our guidance for Q1 and the year ahead. We remain super confident in our strategy and our outlook for 2026. Our confidence reflects the strength of the platform that we're building, the flywheel to continue to strengthen as we scale and the momentum that we're seeing across the business. It also reflects the role AI is increasingly playing as an accelerator across both powering tech and our powering reach solutions. We believe our AI is unlocking enormous possibilities for ministries, churches and network capability providers to grow their reach and to expand their impact. Our focus on applied AI and bringing agentic workflows into the faith and flourishing ecosystem in practical mission-aligned ways uniquely positions us to capture that opportunity. Taken together, that gives us confidence in our guidance, our path to profitability and the long-term value that we believe we are delivering to our customers and to our shareholders. Paul, over to you to talk about our numbers in more detail. Paul Seamon: Thank you, Scott. Our fourth quarter 2025 results were strong, with revenue beating our guidance and adjusted EBITDA at the upper end of our guidance range, giving us solid momentum as we ended the year. Revenue for the quarter was $33.6 million, an increase of 418% compared to the same period last year, and 3.3% sequential growth compared to Q3, which is good performance given the seasonality characteristics of our industry. Year-over-year results were driven by solid organic growth across our portfolio as well as the acquisitions of several capital partner businesses, most notably, Masterworks and Midwestern. Platform revenue totaled $20.1 million, an increase of $13.8 million from Q4 of last year, and 1.6% sequential growth. As a reminder, platform revenue includes advertising, marketplace and subscription offerings. Much of the sequential growth was driven by Gloo 360 and Igniter, partially offset by some Masterworks advertising revenue that shifted into Q3 as we previously discussed. Platform solutions revenue was $13.5 million, up 6% sequentially, supported by strong performance from Barna and the addition of Westfall Group. Going forward, Westfall's donor events and design business will primarily contribute to Platform solutions revenue, and together with Masterworks, will strengthen our solutions for powering reach by supporting customers' fundraising throughout the year and around key events. Cost of revenue in the quarter was 76.5%, an improvement from 83.4% in the prior year period. That improvement was driven by growth in higher-margin business lines and improved pricing in some areas. We expect improvement to continue throughout the year. Adjusted EBITDA improved $0.7 million sequentially to negative $18.6 million. This improvement reflects incremental gains across nearly all of our Gloo businesses and capital partners and includes acquisition costs related to the Westfall Group acquisition, which we do not adjust out. Westfall did not contribute to adjusted EBITDA as January is seasonally slower for fundraising activity. There are also 2 important noncash items to note that significantly reduced net income in the quarter. First, share-based competition was higher than normal due to nonrecurring IPO-related award activity as noted in our Q3 10-Q. Second, the line item loss from the change in fair value of financial instruments reflects derivative calculations affected by our share price. If our price declines in a quarter, we will generally record a loss in this line, and if our share price increases in a quarter, we will generally record a gain. In Q4, this number pressured net income and therefore, EPS. As of January 31, 2026, we had $57.3 million of cash and cash equivalents. I'd like to now turn to our Q1 and full year 2026 outlook. As Scott mentioned, we continue to guide to first quarter revenue of $36 million. For the quarter, we expect adjusted EBITDA loss to narrow to negative $12 million, representing more than $6 million of sequential improvement as we grow revenue, improve cost of revenue and continue to aggressively manage operating expenses. We remain focused on progressing towards adjusted EBITDA profitability in Q4. Our full year 2026 revenue outlook is now $190 million, which includes the addition of EMD. While we continue to see M&A opportunities, we are confident in our ability to achieve this guidance without any additional acquisitions. As we move through 2026, we continue to expect meaningful sequential improvement each quarter and expect profitability in Q4 2026. For Q1, we expect a weighted average share count of approximately 80 million shares. Looking ahead, we're excited about scaling the business and applying Gloo AI internally as we become more efficient and using it externally to help customers better serve their constituents. With that, back to you, Scott. Scott Beck: Thanks, Paul. With that, operator, we're ready to take the first question. Operator: [Operator Instructions] And our first question comes from the line of Richard Baldry from ROTH Capital. Richard Baldry: You probably don't want to name them, but I'm curious if you can maybe just broadly describe the 2 customers that are nearing $10 million a year in revenue and maybe how replicable that could be across the total addressable market you're looking at? Patrick Gelsinger: Yes. Thank you. This is Pat. And we see that these customers are now taking more of the different offerings of Gloo. And that's part of what's making these accounts larger, right, is that they're Masterworks, Westfall Gold, Gloo 360, AI customers. So as we're aggregating more of those capabilities, these account relationships are becoming very large. Obviously, these are some of the larger customers in the ecosystem, but we continue to win more customers at the million level, a number of those are maturing. I mean multimillion customers, and we do see that these are very large customers in the ecosystem. So we do think there is replicable to having more customers get to that level of relationship. Overall, the key point is that these are big accounts, and we're establishing big, trust and deep, enduring relationships with them across the increasing breadth of the portfolio of our offerings. Richard Baldry: Then maybe you addressed it a little bit, but can you talk about sort of the funnel for $1 million-plus deals, how that's changing now that you're a public entity with sort of greater visibility, how that's changed as you've rapidly scaled the portfolio and your revenues? Sort of is that pipeline like sort of picking up because of the capabilities you have now? Patrick Gelsinger: Yes. I'll say there's probably 3 aspects to the pipeline to just highlight. So one is, it is just getting bigger, right? The more we're building our sales capacity, we're seeing more accounts that we are engaging with, more salespeople have reference accounts that they can. Secondly, move horizontally. And that's one of the things that's exciting. We do see that we're able to move to other customers in that segment. So we're able to land and expand within an account. We're able to land and expand within the segment. We're also seeing the sales cycle, if anything, shorten. And that's probably maybe the most exciting aspect of the growing momentum in sales, that the more reference accounts that we have, the more we're able to then replicate that into other segments. And like we saw this quarter, we closed our first major multi-offering university, and we expect that we'll have many other universities that will be able to replicate that kind of sales motion, with InterVarsity, one of the reference customers. The campus ministry segment is showing replicability as well. So it really is a very positive aspect to the business. As the accounts get bigger, we're able to see the sales funnel increase and the acceleration in those accounts as well. Richard Baldry: Switching gears, if we look at the AI part of the business, can you talk about how far into it you feel you are in terms of rolling out products and services based upon it? And then maybe second stage, how far you're into adopting internally tools for efficiency purposes operationally? Patrick Gelsinger: Yes. And maybe I'll start and ask Scott to add to this one. The first would be is, I see AI, overall, in the first inning period for the industry writ large. So there's a lot to go. And for most of our accounts, we're even earlier than the first inning, right? We're just getting started because in many cases, we're just starting the 360 engagement. We're about to turn on some of the first agentic capabilities. So I'd say this is very early, and we see tremendous opportunity to build on those offerings for the accounts, internally or further along. And we have more of our internal businesses, our capital partners, taking advantage of our AI capabilities today. We're using it across many different aspects of our business today. But again, we see a lot more opportunity, which will only improve our speed of operation and the margin of the business. This idea of applied AI was one that we really believe that we can be operating in that space for many, many years to come because the market is large, the customer needs are large, the gap in technology is large and the benefits of AI and particularly this idea of agentic applied AI that it's not just addressing how to do things better, but it's also literally turning people and manual processes in the service offerings in the future, this is something we think is an industry trend and what we're uniquely applying to the segment of the market. Scott? Scott Beck: Yes. Thanks, Pat. Yes, Rich, in addition to that, AI is actually driving a lot of demand for Gloo 360. It's one of the reasons that we're seeing these bigger deals come in because it's just now gotten to the point with keeping up with technology for ministries where their primary job is not to be a technology company. Their primary job is to go out and do mission, to translate Bibles, to work on campuses to be able to help people and their communities. And now all of a sudden that AI has come on the scene, it's just accelerated the reality of not being able to fully keep up. And so us being able to show up and to be able to help them with that is, I think, a big driver for overall demand. Now as I stick with 360 for a second, in addition, what we've been able to do is pull work out of these different organizations, literally pull the SaaS technologies as well as the people out of the organization, being able to help that move to a whole next level and then applying AI to that to be able to deliver better results to the organizations that we're serving at a lower cost and then being able to keep applying the AI to that, which allows us to be able to improve margins and pass that along to the rest of the system. So there's a lot happening there. And then we also announced this quarter or just this last month, our Gloo AI Studios. And Pat, you can just chime in for finishing up here, but really providing developers infrastructures that can be used beyond Gloo. Patrick Gelsinger: Yes. And just to add to that, we just finished Missional AI, a major AI conference for the faith and flourishing industry. And at it, we announced Studio AI (sic) [ AI Studio ], now a full set of API services, pay for services. We have a growing set of developers now taking advantage of that because we really see part of our mission is not just what we do in our offerings, but enabling a broad ecosystem to build on the foundational capabilities that Gloo AI provides. Richard Baldry: Maybe last for me. Could you just generally discuss the M&A environment? Sort of curious how it's impacting the faith and flourishing world. It's obviously been valuation is pretty depressed in the open market as people are fearful about the disruptions of generative AI. And sort of if you can walk through a backdrop of that, it would be helpful. Scott Beck: Sure. I'll take that. It basically goes back to what I was just talking about. AI, from our standpoint, is definitely a friend in that entire process. As the SaaS tools out there, big system of record tools, for us to be able to take on those tools, to be able to integrate with them, to be able to build workflows, AI-powered agentic workflows on top of those historical infrastructures, whether it's a church management system in a church or whether it's a Salesforce or a Workday in some of these big enterprise customers, our ability to basically build the workflows on top of that and then to be able to power that back into the ecosystem, that's just a great thing for us. So we don't see ourselves being negatively impacted at all as a result of some of the conversations around SaaS. In fact, we see it as basically being able to further power our business and power our strategy. Richard Baldry: Thanks. Congrats on a great quarter and a great outlook. Scott Beck: Thanks, Rich. Operator: And our next question comes from the line of Yun Kim from Loop Capital. Yun Suk Kim: All right. Congrats on the quarter, Scott, Paul and Pat, and also on the EMD acquisition announcement. First, maybe, Paul, can answer this, but obviously, Gloo 360 is doing very well. Is scaling that business a key driver behind your margin improvement this year? Or is there other parts of your business that's even bigger margin driver than Gloo 360? Paul Seamon: Gloo 360 is definitely key each quarter. It steps up incrementally, both on the growth side and on the margin side. So it's a big contributing factor along with AI rolled into that. So I'd say those are #1 and #2 together. Yun Suk Kim: Okay. And then on the EMD, any additional details you want to share with us, like the revenue run rate and then also the margin profile? Patrick Gelsinger: Yes. Just a few things on EMD to start with. Overall, we just have seen and part of what motivated us to do this acquisition was that Workday was already being well adopted by our ecosystem. In fact, some 40-plus percent and growing of 360 customers are already using Workday. So we saw it as a great fit for our offerings and acceleration of what we're doing with areas like 360 already. So super great fit for that, and we see ourselves having these deep relationships with customers only enhanced. We're, as Scott mentioned in his formal remarks, accretive from day 1. So we do see that as being beneficial to our journey. As we indicated at the beginning of the year, we saw a couple of M&A. We've now completed both of those. So we're very confident and we raised our guidance as a result financially. We're not giving specific sizes on the deal itself, revenue. But between this and Westfall Gold now being completed, we satisfied that portion of the growth that we had indicated of our inorganic growth for the year. Overall, we see great synergies as well. Then we're supplying many of the customers we are already engaging with. So we do see synergy sales being a benefit to our ecosystem. And finally, this is a path for improving margins over time. As we expand our unique relationship with Workday and the benefits that it brings to the ecosystem, this will only be more accretive over time as we get deeper and deeper on these key assets that provide value. And finally, building our AI capabilities, as Scott already indicated before, it will only enhance what we can do and use the unique capabilities, both at Workday and the broader capabilities of Gloo AI. Yun Suk Kim: Okay. Great. I just want to better understand the cross-sell opportunity with EMD. Is that primarily selling Workday and related services to your current installed base or even more around converting certain customer segment of EMD to Gloo 360? Patrick Gelsinger: Yes. And it's actually quite a bit both because some of the accounts that were in the Gloo 360 pipeline were already being serviced by EMD. And that's part of what got us actually quite excited because some of those accounts that we hadn't yet broken into were now becoming Gloo customers, and we expect that the land and expand opportunity as a result has only accelerated. We also see, because of their depth of capabilities, that we'll be introducing it into accounts where we already have activities, and that will have a much richer set of capabilities to accelerate Workday deployments into a number of Gloo accounts already. Finally, EMD was servicing customers that weren't even in our pipeline today. So we do see some market expansion opportunity for us. So I'll say, it's yes, yes, and yes, for the synergy opportunities. Yun Suk Kim: And then just lastly on Gloo AI Studio. I know you already mentioned it, but is that targeted at customers wanting to customize their Gloo AI solutions? Or is that a precursor to potentially opening up your platform and maybe getting into the partner ecosystem where you try to develop a ISV ecosystem? Patrick Gelsinger: Yes. We unquestionably see this as building an ecosystem of developers that are aligning with faith and flourishing. Some of the accounts that are already doing these type of AI app development and they might be looking at whether they would want to do that on Anthropic or Google or Amazon or Microsoft, well, we offer all of those models through the Gloo AI Studio, but we add guardrails, protections and testing to validate that it meets the values and expectations of these customers. And those are part of what the Gloo AI Studio provides. So we're finding increasing resonance for people to say, yes, I want the best models that are there in the industry, but I also want them to be safe and trusted. And that's the value that Gloo 360 is adding on top of enabling the best AI capabilities in the industry. So we expect that this ability for us to service big customers like YouVersion and we're partnering with them on many AI builds but a much broader set of customers as they want to build their own applications but doing it with a trusted partner like Gloo. Operator: [Operator Instructions] Our next question comes from the line of Matthew Harrigan from Benchmark. Matthew Harrigan: I'm curious what the reaction right out of the blocks is on Gloo AI Studio in terms of partners who have used it. I mean in February, you saw this rapturous reaction to Seedance in terms of the implications for the entertainment industry, and I imagine that's kind of an overreach comparison. But do you think the ease of use is good? I mean do you think -- are people really interested? Are people getting utility out of it right away? Patrick Gelsinger: Super early. And I'm sure in a quarter or 2, when we've been in market for more than just a couple of weeks, we're going to have a much better signal. But the response so far is we're getting mails that people were using other people's platforms and tools, very excited to move their apps over on top of Gloo AI Studio. So we definitely have some early positive anecdotal signals that give us a lot of confidence. We're also coming into a developer season for Gloo, right? We just had Missional AI and we launched Studio just in front of that on purpose. We have a virtual developer event over the summer. And then we have our big Hackathon in the fall. So we -- every 2 months, we have a major developer event over the next 4 months. So it's going to be an exciting time for us to build that momentum. We're measuring the results of this on a daily, weekly basis as we're starting to see token count rising, API calls, revenues start to materialize. So it's just the beginning of an exciting new capability for Gloo. Matthew Harrigan: And that since we have kind of a 2-headed monster here between myself and Dan, a question from Dan. When you add these capabilities, and clearly, you're getting a lot more pull demand, as you get more awareness in the marketplace, when you look at the sales cycle, when you get a big contract in a given vertical, does the next win come pretty quickly in a tighter sales cycle? Or are people looking to emulate what other guys are doing and they don't want to be left behind in a certain sense in terms of the implementation of the software and the AI capabilities that you offer? Patrick Gelsinger: Yes. We're definitely seeing that, and that's very much what I was trying to indicate earlier that we're able to see the sales cycle close, particularly for the next account within a segment, right? And as we saw with InterVarsity this quarter, it was in the same segment where we also had other activities with campus ministries. We do expect that we'll see very similar within the university segment. When we have reference accounts, we're able to move across those segments quite effectively. So it's land, expand and expand, expand in the segment, expand the offerings from Gloo as though we build more of our capabilities for those customers. And overall, I'll say the sales cycle and having led major software and SaaS model, how rapidly we're able to convert accounts is really pretty impressive so far. Matthew Harrigan: I'd rather suspect that sales number is going to be light. You won't refrain from more M&A activity, but congratulations, lots of momentum. Operator: And our next question comes from the line of Jason Kreyer from Craig-Hallum. Jason Kreyer: I'll echo my congrats on the quarter. Wanted to maybe start on the M&A front. We went into the year expecting a couple of deals and kind of a defined revenue contribution. You've done a couple of deals. It seems like we're in the vicinity of that revenue contribution. Just curious, we're pretty early in fiscal '26 yet, so what are your thoughts on other M&A opportunities that might present themselves over the duration of the year? Scott Beck: Yes. Thanks, Jason. We've got a significant pipeline from an investment standpoint -- from an acquisition standpoint. However, we've been really focused on getting the synergies out of the current transactions that we've done. That's been a big focus of us so far this year, and it's going to be a really important driver to get into that EBITDA profitability by Q4. That being said, we do have a pretty significant pipeline. We will be super disciplined as a result of that. There may be more this year, but we need no more to be able to hit the numbers that we've got for guidance, and we need no more to be able to get to the EBITDA profitability. We are -- we've had the good fortune of being able to be best in breed for this ecosystem, been very picky in terms of the transactions that we've entered into. But a great example is the work that we did last year as a result of Masterworks and the great boost that, that's been able to give us in terms of massive synergy across the reach. And as Paul was talking about a little bit earlier in terms of the organic growth from 360 and the improvement in the margins from 360, we're seeing the same thing in Masterworks. So one is powering tech. The other one is powering reach. But we can continue to be very disciplined as the year goes forward, even though we do have a good pipeline. Jason Kreyer: Thanks, Scott. I want to build on that. You're seeing more profitability flow earlier in the model than we anticipated. Nice guide in terms of improvement for Q1. You're moving forward that profitability for FY '26. Maybe just talk about the drivers there. Are you finding you don't need as much OpEx as you thought? Or is it more a product of the revenue outperformance and getting scale there? Just any way to define it would be great. Paul Seamon: Great question, Jason. It's a combination of both. So first of all, as we talked about or announced in December, we took a look at our cost structure, removed some redundancies there, and that flows through first quarter as it begins to hit, which helped our guide in the incremental EBITDA improvement. And then secondly, the businesses are scaling really nicely across everything we talked about, reach, tech, Masterworks, 360, all the different businesses. So as those take steps each quarter, you start to see it in first quarter and then each incremental one going forward as we work towards adjusted EBITDA profitability in the fourth quarter. Scott Beck: Yes, I'd jump in and add just a lot of operating discipline as well, which we're excited about. We couldn't be more proud of our capital partners, the organizations that we've made investments in and the organizations that we've acquired. I mean it's just like the leadership have stayed. They've -- they're invigorated. We're bringing synergies to the table in terms of on technology and in terms of cross-selling and channel, but the capital partners are doing great. It's super exciting to see the synergy that's coming from that, the enthusiasm that continues to be there, and we're super grateful for them. Operator: And our next question comes from the line of Ryan Meyers from Lake Street Capital Markets. Ryan Meyers: I guess the first question, are there any material cost pressures or risks we should be aware of in fiscal year '26? Paul Seamon: I don't think anything significant that we haven't talked about before that's not normal. Nothing stands out in terms of cost pressures. Ryan Meyers: Got you. And then I know you don't disclose the actual number, but are you seeing more of the revenue base becoming recurring? Or how is that shaping up? Scott Beck: Yes. I mean as you look at the work that we're doing with Gloo 360, as you look at the work that we're doing with Masterworks, I mean, more and more of that is just locked-in recurring revenue. And I just love what we've been doing in terms of this idea of taking over work. There's been some really good commentary on that as well. Recently, there's been an article that some research published by Julien Bek, a Partner at Sequoia, and it was really the title of that is Services: The New Software. And what he's pointing out there is a little bit of the older model was sell tools in and let people do work on top of those tools. Whereas at this point, what you're able to do is actually pull work out, and when you pull that work out, you pull those tools and you pull that work out and then you're able to be able to sell that work back into the organization. Well, not only is it much bigger because you got the tools revenue and you've got the work revenue, you got that labor revenue on top of it, but it is incredibly sticky, right? It's very, very durable, which we like to see. He makes a quote that says, "A company might spend $10,000 on QuickBooks and $120,000 on the accountant to close the books. The next legendary company will just close the books, right?" And that's really what we're focused on with a lot of what we're doing, not just the 360 but also at Masterworks, where we're forward-deploying people into those organizations, we're pulling work out of those organizations, being able to deliver them better results at a lower cost, being able to then set ourselves up for really good long-term relationships, very recurring in their nature and then really freeing them up to be able to focus more of their energy on going out and chasing and scaling their mission, which is what it's all about at the end of the day. It's about helping those organizations help people flourish, help communities flourish and be able to enable those organizations to thrive. So -- and all of that then becomes more recurring by its very nature. Even if some of that you think of as a service, it is a very deeply embedded long-term agreement that delivers services or work back into those organizations. Operator: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Scott Beck, Co-Founder and CEO for any further remarks. Scott Beck: Yes. Thanks a lot. Let me start by saying, I couldn't be more excited by where we're at today. We've been on a long journey here. We spent more than a decade building the foundation for this business, investing in the platform and the trusted relationships in the mission that continues to guide our work. And today, I believe that Gloo is better positioned than ever as the leading technology platform for this ecosystem and as the leader in applied AI for this ecosystem. And all of this is pointed toward being able to use technology as a force for good. Our aim has always been that. And it's just we've made tremendous progress toward that. Also super thankful. I just got to say, we're super thankful for the organizations that have -- that trust us with that. We do this wholly and perfectly, right? And we're getting better every day. But they trust us with it, they journey with us on it, and we're super grateful for that. Also thankful for the team, for our capital partners, I talked about them earlier, as well as the investors. We've got a lot of investors that got us to this point and new investors that are on the journey. But with all of this, our goal remains really clear, to build a large, profitable mission-driven business that serves those who served. And we're committed to doing that with discipline, transparency and a focus on long-term value creation for our shareholders but also for the customers that we serve. Personally, I thank God for the opportunity to be able to serve this ecosystem to best ensure that the organizations can thrive and so that they can go into their communities, they can work with the people and help them flourish to become all that they're born to be. Thank you all for taking time today to listen to our call. As always, we remain available to answer questions. Feel free to reach out at any time. With that, operator, that concludes our time. Operator: Thank you. And thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Moritz Verleger: Good morning and good afternoon to from wherever you are joining us virtually today, and welcome to the tonies earnings call for the financial year 2025, a landmark year where tonies didn't just meet ambitious targets, but again redefined the global benchmark for connected screen-free children's entertainment. My name is Moritz, and I'm the new Head of Investor Relations. Being born and raised literally 20 minutes from here, it is my pleasure joining tonies on its path from being a local hero to becoming a global icon. With me today are our CEO, Tobias Wann; and CFO, Hansjorg Muller. Tobias will start with last year's business highlights, and Hansjorg will walk you through the financials before we finish with the outlook for the financial year 2026. As usual, after the presentation, we will continue with the Q&A session, and we invite you to submit your written questions through the Q&A function during the presentation already. I will hand over the floor to Tobias to kick things off. Tobias Wann: Thank you, Moritz. Welcome to the team, also from my side again. And also a warm welcome to all of you on the call. Today, we are indeed looking back on a landmark year for tonies. 2025 was full of success and innovation. We strengthened our leading market position as the global #1 for kids audio. All indicators point the right way. Our global footprint is getting deeper and deeper. Our installed base grows. We are now around 11.8 million Tonieboxes activated in more than 100 countries. And those Tonieboxes are in heavy use. Our content portfolio appeals to kids in more ways than ever, inspiration, education, entertainment and now also gaming. But one thing is true as ever. It all starts with listening. And kids are listening close to 5 hours per week with their Toniebox, 5 hours of playtime, creativity and engagement over algorithms and screens. 2025 reinforced the appeal and unique position of tonies in family homes across the world. And it shows us that we are on the right track as we evolve tonies into a true global icon. We once again delivered on our full year guidance. In fact, we surpassed our expectations slightly despite a challenging environment. At the top line, we saw double-digit growth across all markets, increasing group revenue by 36% at constant currencies, an outstanding achievement. DACH returned to double-digit growth at high profitability levels. North America once again showed how much potential we can still capture, growing the largest region in our portfolio by more than 40%, simply remarkable. And a 68% growth rate in Rest of World speaks for itself, particularly when that region already delivers over EUR 140 million in revenue. While we pursue a strong top line growth, we are also very focused on improving profitability. This year, we expanded our margin to 8.6%, a great success considering the environment we've been in. You're familiar with the model that's behind the success. Our installed base grows exponentially in 2025, boosted by Toniebox 2. Every Toniebox we sell fuels subscription-like revenue through figurines and now games. The more boxes in homes, the more Tonies families buy year after year. That flywheel is spinning and it's spinning faster than ever. To give some perspective, not even 1.5 years ago, we celebrated 100 million Tonies sold over a span of roughly 8 years. Now 18 months later, we reached 156 million Tonies sold, 43 million Tonies just in 2025. So we are clearly on a roll, and let's take a look now at the underlying highlights. First and foremost, 2025 was the year of our biggest innovation since the first Toniebox launched back in 2016. With Toniebox 2, we have created a foundation for the next chapter in our growth journey. We opened up our product portfolio for new target groups, new growth vectors and new opportunities. We performed in all of our markets. North America remained a growth engine despite U.S. tariffs. DACH showed how we grow even in a more established market. And Rest of World showed the momentum we built once we really get into a market. One key to the success, strong partnerships, with retailers and with the world's greatest licensing partners. 2025 highlights include new formats with Disney and a landmark collaboration with Pokemon launching in 2026. Let's take a closer look. We have talked a lot about Toniebox 2 before and deservedly so. We had a beloved, innovative product in our first-generation Toniebox. It never went out of fashion. To the contrary, we built a global platform and a huge installed base with it. With Toniebox 2, we took this winning formula even further. We kept everything that made Toniebox 1 a global success, but added new dimensions of interaction and play that open up entirely new growth vectors for us. And once again, we fueled the growth of our installed base. The nuances here matter because this drives both top and bottom line growth. Tonies has always been positioned right at that intersection of tech, toys and content. Now we are adding gaming to that mix. Alongside Toniebox 2, we introduced Tonieplay, a new category that perfectly complements our audio-first approach. We have created the foundation to bring so many new ways to our platform, to engage, to interact and to play. So let's have a look at how our new flagship device introduced itself to kids and families around the globe. Toniebox 2 has become an immediate success. Our fantastic team worked really hard for that. Long before the first Toniebox 2 was sold, we made sure we had high availability across the world. Then, a flawless global launch drove adoption early on and fantastic customer feedback continued that dynamic. In Q4, our most important quarter, around 80% of all Tonieboxes sold were Toniebox 2. We've stopped production of Toniebox 1. So it won't be long before every Toniebox sold is a Toniebox 2, which will fuel our flywheel even more. Our promise to families is simple, we deliver on their real needs, inspiration, entertainment, education, experience that support good child development without screens. Imagination, independence and wonder before algorithms and endless growth. With Toniebox 2, we have taken that promise further. We have now the foundation to build an ecosystem that reaches humans throughout their first decade of life, younger and older kids alike. For us as a business, engaging families earlier and retaining them for longer means unlocking new growth vectors. We've added a younger age group to our target audience, kids between 1 and 3 years. To drive early adoption, we evolved both our product and our content portfolio. We now develop formats designed specifically for children aged 1 and up. The highlight here, My First Tonies. The range of soft, squeezable characters built around the needs of the very youngest. Simple and tactile, they introduce first sounds and language in a gentle, playful way that resonates. In North America, where we first launched them, My First Tonies averaged 10% higher listening time with 1-year olds compared to Classic Tonies. And keep in mind, My First Tonies offer relatively short content tailored to the attention span and instincts of toddlers. So what that tells us, babies and kids love their My First Tonies so much that they are listening to their favorite animals over and over again. Fully developed in-house, this new content format is now ready to win over children all over the world. Now let's turn to the other end of the age range. Here, Tonieplay is our highlight, bringing interactive screen-free gaming to older kids. Approximately half of households with 6-plus year olds that upgraded to a Toniebox 2 have adopted Tonieplay already. That clearly shows the Toniebox can add new dimensions of wonder at a later stage in childhood. And while Tonieplay is a full new category, we are also evolving other formats. Pocket Tonies, our Educational Content Tonies, Book Tonies, our long-form audio. Together, they now account for around 60% of our portfolio for older kids and drive strong engagement. With Book Tonies for example, we are seeing engagement rates up 25% compared to Classic Tonies. That confirms what we always believed, older kids want more depth, and we are delivering it. We are growing our platform, our user base and our formats. And in doing so, we maximize the appeal of our global Tonies brand. One moment that clearly stood out to me happened over the holiday season, our own Tonies Christmas miracle you could say. More Tonieboxes than ever before were unwrapped under Christmas trees around the world. That we expected. But we didn't anticipate this tonies became the most downloaded app across all categories in the app stores, #1 in the U.S., DACH, U.K. and France, ahead of ChatGPT, Meta AI, Google Gemini, Amazon Alexa, Garmin, tech that was gifted to adults. I couldn't help but smile thinking of our global icon ambition. So Toniebox 2 is clearly the #1 choice of kids and parents, and of industry experts, too. We set an industry standard with Toniebox 1 10 years ago, and we are doing it again with Toniebox 2. We are really proud that My First Tonies have already won the prestigious ToyAward in the Baby & Infant category at Nuremberg Toy Fair in January. Given our focus on winning young kids for Tonies, that means a lot. Toniebox 2 won the Best EdTech Innovation Award at the Consumer Electronics Show in Las Vegas this year. And in Australia, we are not just the Overall Product of the Year but also, the Product of the Year for Infants and Pre-Schoolers. So clearly, we are shaping the industry, be it in toys, be it in tech. Tonies leads the way these awards reflect the appeal of our product, our platform and our brand. Let's move from awards to bar charts, maybe not as shiny, but equally exciting. Looking at our markets, I'd like to start with North America, our largest territory and growth engine. Let's be clear, we faced a challenging macro environment with tariffs and economic uncertainty. And despite this, we delivered 40% growth in constant currency while increasing profitability. How did we do this? We listened to our customers and embedded Tonies further and further in families' lives, with higher visibility and through strong execution within our organization. As everywhere else, Toniebox 2 created excitement like we never did before. We captured Times Square. We were featured in Walmart's Holiday TV Spots alongside household brands like Apple and Nespresso. Throughout the year, we delivered day-to-day moments of joy with outstanding collaborations. Just to give you some examples, Ms. Rachel Tonie has seen incredible demand. And Snoop Dogg's Doggyland has been a great success that showcases the diversity of our content in North America. Next up, market presence. Shoppers that look for Tonies, find them. And shoppers that don't know Tonies yet, see us. That's because you cannot miss us in stores of all major retailers as we continue to expand. The impact we have on kids and on family routines in the U.S. is noticeable across the broader toy industry. In 2025, no other preschool toy brand grew as strongly as the Toniebox. We accomplished this in a year in which every international company had to deal with tariffs. One year after the so-called Liberation Day, I can say with confidence and with pride, our team managed it exceptionally well. We increased prices and saw no material impact on demand. That signals very clearly how much families in the U.S. value our products. And we diversified our supply chain ramping up capacities outside of China. The result is what you can see here on the left-hand side of this slide. Distribution channels, whoever wants to be successful in our industry needs to play the omni-channel game, and we are mastering it. D2C, wholesale, marketplace, each channel contributes individually and feeds into another as a self-sustaining flywheel. Families discover us in store, buy online, return to retail and vice versa. Still, retail partnerships are particularly important in building market presence. They underscore our intent to be a staple in family's lives and drive brand recognition. Building on the strong nationwide footprint, we continue to scale. In 2025, we increased permanent points of sale in North America by 12% from 6,500 to 7,300. One highlight, in particular, our long-standing partnership with Walmart where we moved from the consumer electronics section into the toy category. That has been a significant shift because it means every family browsing for toys now finds Tonies exactly where they are looking. That placement drives discovery and ultimately growth. Now let's turn to our most established market, DACH. DACH is not only where our home is, it's where every second family household already owns a Toniebox. 80% of our target group know our brand, and it's our most profitable market. That's why we are particularly pleased that we accelerated growth here again, increasing our top line growth rate by nearly 5 percentage points year-over-year to 16%. Toniebox 2 played a pivotal role creating unmatched buzz around the launch, but we delivered innovation beyond that with Book Tonies and our My First Tonies. Our success in DACH, our blueprint market, underscores Tonies' potential to grow fast, sustainably and highly profitably even in a more developed environment. We didn't only grow with the new signature device and innovation beyond the box. We are also constantly looking for new ways in distribution, growing our retail presence even further. We opened up a new channel with our TikTok Shop, and we successfully tested our first-ever Tonies vending machine. So more than 9 years after selling our first Toniebox in Germany, our customers in DACH are hungrier than ever to buy from us. Let's also have a look at our Rest of the World region. Our international markets, France, U.K., Australia and New Zealand grew 68% in constant currency, a fantastic result considering we've established ourselves across these markets in a relatively short time. France delivered a very strong performance. No other brand gained as much market share as Tonies even in one of Europe's most competitive markets, our playbook works. In the U.K., we gained market share as well and increased our installed base to over 1 million Tonieboxes. And in Australia and New Zealand, 2025 was our first full year of operations, and we are already serving more than 500 points of sale. One of them was something truly special, something we have never done before. Right in the heart of Sydney, we opened the world's first tonies store, a completely new way of bringing tonies to where families are. We gave children memorable experiences, not just through the Toniebox, but by meeting the heroes like Emma Memma, for example. We make the Tonies brand visible, tangible and experiential beyond any shelf placement. In addition, we added 3 major retailers in 2025 in Australia, Target Officeworks and JB Hi-Fi. Brand connection and distribution built at once, that is how we grow in new markets. It's been very important to me and many others here in the company, beyond our products, we lives our values as a company. Tonies is a force for good, across the world, together with our community. We show up in people's lives far beyond the point of sale, art, charity, celebrations. This is what defines us. At Kunstpalast Museum in Dusseldorf, we enabled children to experience art in a whole new way. In London, our tonies cab delivered presents to hospitals during the holiday season. In Toronto, we participated in the Santa Claus parade. And our Toniepalooza events continue to attract more than 40,000 visitors a year. Our mission makes us who we are, and it truly sets us apart. The same goes for our business collaborations. Through our partners, we continuously reach new audiences, surprise fans and deliver on their wishes. The most recent example is our Cuddle Tonies, launched in partnership with Disney. Our work with Disney goes far beyond a traditional licensing relationship. It's actually a true creative partnership. With Cuddle Tonies, we collaborated closely from the very beginning, shaping a more intimate listening experience. The characters speak directly to the child, a calming story-led moment designed for comfort and connection. Disney produced the in-character performances to ensure absolute authenticity. Together, we curated stories, guided the audio experience and layered music and sound design. That way, we bring each world to life in a way that feels uniquely suited to Tonies. The result, continued innovation for us and a new category for Disney, an audio-first plush built around narrative and immersion. This reflects the trust an iconic brand like Disney places in our expertise. We are helping Disney and so many other fantastic brands bring families the best possible experience through audio-first storytelling. And we've got many more partnerships like this. This year, Pokemon will join our lineup. The top global toy property for 4 consecutive years, loved by multiple generations, kids and adults alike. This is a landmark partnership for tonies. Tonies will be the first partner to bring audio storytelling to the Pokemon universe, creating a completely new way to engage with Pikachu and his friends. This partnership demonstrates the power of our platform. The biggest brands want to reach new audiences in our community. We tap into their fan bases and together, we deliver genuinely new experiences for everyone. That reinforces our market position. And just as important, it shows the pull of tonies globally. So before we break down our numbers in more detail, let me recap the strategic progress we made last year. The final quarter of 2025 captured what tonies is all about. Q4 has always been essential for our success, a moment of truth, the peak of our commercial calendar and once again, we delivered -- we increased revenues by 39% in constant currency, surpassing the EUR 300 million mark. We sold 1.4 million Tonieboxes and more than 21 million Tonies in 1 quarter alone. We know how to scale when it matters. We know how to execute in retail with existing and with new partners. Our integrated supply chain is highly resilient, capable of handling exceptional peak season demand. We create unparalleled buzz with great IPs and strong retailer partner integrations. And we onboard new Tonies families fast and smoothly, thanks to our brand-new app, and also a customer happiness team that loves our brand as much as our fans do. It's a great privilege to excite our customers and to deliver a product that spreads joy and happiness, even in peak times. I am proud that in 2025, we proved it again. And with this, I now hand over to Hansjorg, who will take you through our financial results. Hansjorg Muller: Thank you, Tobias. Thank you very much. Now before I get into the numbers, of course, I wouldn't want to miss this milestone. Since December, you all know, tonies is listed on the SDAX and of course, I totally share the excitement of this little listener here. So a very proud of this achievement. Very pleased that our performance as one of the fastest growing German companies is reflected in our share price performance and in our capital markets standing. And let me tell you, we are ready to continue this journey and we're bringing receipts for our confidence. Let's look at the results. The headline is straightforward. In 2025, we delivered. We aimed for group revenue growth above 25% at constant currency, and we delivered 36%. We aimed for North America revenue growth above 30% at constant currency and delivered 40%. Then, we aimed for an adjusted EBITDA margin between 6.5% and 8.5%, and we delivered 8.6%. So we grew or sustainably and profitably, and we did so despite a generally challenging macro environment. I don't need to explain to you the extraordinary situation around tariffs we faced earlier in the year. Being able to pull this off is remarkable for us. Our top line growth was fueled by all markets and our international expansion in particular. Our revenue share from markets outside of DACH has now climbed to 66% as expected as we aspire to become a global icon. Our Toniebox performance was strong and accelerated year-on-year as it should when you launch a new signature device. We're moving according to plan, locking in future figurine and games revenue through Toniebox sales. We improved our adjusted EBITDA margin to a higher contribution margin mainly, and we achieved this despite macro headwinds, including tariffs. Our regional EBITDA margins improved everywhere. North America stood out, giving almost 7 percentage points year-on-year. DACH continued to improve from an already high base. And the rest of the world is already clearly in the green. Then free cash flow. We did make the strategic choice to build up higher than usual inventory levels ahead of the launch of Toniebox 2 and other new content categories to maximize their commercial impact. And while that had an effect on our free cash flow, it was an investment that paid off, especially as we look at the cash available balance, including unused credit lines, EUR 138 million to further fund innovation and expansion ourselves. Now let's dive deeper and start with the P&L. Our focus is and remains on profitable growth, and we have achieved exactly that, as you can see here. I want to highlight a few figures. First, our contribution margin. It was already strong last year at 34.5%. This year, we continued our cost savings programs that together with a continued and expected product mix shift, improved contribution margin by 2.5 percentage points to 37%. This, in turn, was the primary driver to expand our adjusted EBITDA margin, which improved by 1.1 percentage points so that we surpassed the upper end of our guidance. Now let's take a closer look at our full year top line by diving deeper into our markets. You already heard from Tobias that each of them contributed double-digit growth. Overall, group revenue came in at EUR 630 million, EUR 276 million, of which from North America, EUR 214 million from DACH, and EUR 141 million from the Rest of the World. Each market has its own story and pace, but overall, they are following similar dynamics at different scales. Another figure we're keeping close track of is our international revenue share. It continues to grow, and we are very pleased with that. International revenue now accounts for 2/3 of our total as our regions outside DACH are growing even faster than our home market. Let's take a look at our category split next. Toniebox 2 was not only our flashy headliner launched last year, but also a shining star when it comes to performance. Overall, Toniebox revenue grew by 21% in constant currency. That matters because every Toniebox sold is a leading indicator of future tonies revenue. A growing installed base means growing subscription-like figurine revenue, and that structurally drives margin. This year's results also show the dynamic and the expected revenue mix shift toward Tonies figurines and games. With 43% growth, revenue in that category grew faster than others, fueling our margin expansion as planned. Last but not least, the positive development of our Accessories & Digital business contributes to our overall growth with a category increase of 25%. Now moving from full year to Q4. Tobias already discussed the drivers behind our strong year-end performance. I want to focus now on the numbers. Group revenue in Q4 was EUR 313 million, roughly half of our annual revenue as is typical for us. Also in Q4, we saw double-digit growth in every market and every category. We registered above full year growth rates at group level in DACH and in North America, a testament to our ability to accelerate our momentum when it matters. On the right-hand side of this chart, you can see the category split. Here, I'd like to provide some context on the Toniebox growth rate. In Q4, we recorded 18% growth year-over-year, slightly below the full year figure of 21%, which is simply because Q3 already captured significant launch effects from Toniebox 2. On to segment reporting. Last year, we achieved profitability in all regions for the first time. This year, all markets improved even further. So we're progressing according to plan. Looking at our EBITDA margin, DACH continues to be our main profitability driver. The 24.6% EBITDA margin is a further improvement from an already high base, supported by operating efficiencies. DACH remains our profitability blueprint that we translate to other markets. We are seeing the success of implementing that playbook when we look at North America. A margin improvement of almost 7 percentage points year-over-year, we're nearing double digits. It's an outstanding development, driven by a favorable product channel mix as well. And Rest of the World is a success story of its own. Despite still being in a very high-growth phase, despite having just completed the first full year in Australia and New Zealand, we're already expanding our Rest of World margins. Finally, on group level, we improved EBITDA margin from 7% to 7.7%. Our journey of sustainable, profitable growth continues. Now I want to take a closer look at the development of our adjusted EBITDA margin. Overall, the increase here was supported by a higher contribution margin, which is comprising COGS, licensing and fulfillment. As mentioned earlier, notable benefits were improvement in COGS, cost of goods sold, driven by product mix shifts towards figurines but also our continuous cost savings efforts, which more than offset the negative impact of U.S. tariffs. With regards to licensing, increasing the share of Tonies Originals sold, supported licensing costs favorably while the ongoing U.S. wholesale expansion improved further our fulfillment costs. These 3 positive drivers more than made up for the negative 1.4 percentage point other category. That was related to beneficial one-off effects in 2024, which we then didn't have in 2025, mainly driven by foreign exchange and an adverse one-off effect in 2025. As a result, we increased our adjusted EBITDA margin by 1.1 percentage points to 8.6%. One of my favorite slides. As we said before, our business is resilient. Our organization is resilient. 2025 proved it. And we are on track to show it again this year. Markets will remain volatile, and our proven toolbox to manage this uncertainty is not part of our reality. Tariffs didn't go away, but we managed them well. We now have a stable response set up. We have sourcing flexibility across production, and we have effective commercial levers. We made targeted price adjustments successfully, means our toolbox of measures proved effective throughout the year. We also have a toolbox to address production challenges. Device components, namely memory chips, have increased in cost for us as well as for other players in the tech sector. So in addition to the just mentioned commercial mitigation measures, here, we're also equipped with expertise and access to alternative more cost-effective memory technologies. So the Toniebox inventory that we equipped us with and the memory chip inventories that we secured already give us flexibility to shift production towards these more economical alternatives, if necessary. Consumer sentiment is and remains key for our demand. But we have a great advantage over classic entertainment properties because we offer a value proposition that families tend to not compromise on, as time has shown. We offer great experiences for their children. That gives us strong stickiness even in a challenging consumer environment. Our platform drives loyalty, and key IP launches continue to drive acquisition and engagement. And lastly, we're prepared to mitigate currency effects. Our business model is, to a significant extent, naturally hedged on the bottom line, and flexible financing for working capital puts us in a solid position. 2025 has shown how resilient tonies is. We're capable of executing our strategy even in times of volatility. I see us well prepared for 2026 and another successful year of profitable growth. And with that, let's take a look at our guidance. Back to you, Tobias. Tobias Wann: Thanks, Hansjorg. 2025, as you have heard, was a great year, and we are convinced 2026 will be, too. Our ambition to grow tonies sustainably and profitably is reflected in our guidance. For the full year, we expect group revenue growth of more than 20% in constant currency to above EUR 760 million. North America revenue growth of more than 30% in constant currency, and an adjusted EBITDA margin between 9% and 11%. As always, this guidance assumes no material deterioration of consumer sentiment or force majeure events. We continue to scale tonies globally, profitably, sustainably from a position of strength. So we are excited for another great year. And with this, I'd now like to open the floor for your questions. Moritz, please take over. Moritz Verleger: Thank you, Tobias. [Operator Instructions] I see the first questions are already in. Why did free cash flow decrease from 2024 and become negative? Tobias Wann: Thank you. That's a perfect question for the CFO. Handing it over to you, Hansjorg. Hansjorg Muller: Thanks, Tobias and Moritz. Yes, happy to take that one. I think let's start with the fact that 2024 was a milestone year operationally, also financially, and we achieved our targets probably earlier than expected. For 2025, what's really different is that we intentionally built up strategic inventory to fully support the launch of TB2, but also 3 new content categories, right? We established 3 new categories, which is Tonieplay, My First Tonies and Plush Tonies. This kind of investment didn't happen in 2024, nor is this ongoing recurring investment that we'd expect in 2026 in a comparable fashion. So it's not entirely comparable year-on-year, and considering that forward-looking, although we're not guiding on free cash flow, we expect this to improve coming out of this onetime inventory buildup to secure commercial success for Toniebox 2 in the new categories. Moritz Verleger: Thank you. The next question is on the guidance. You guided for 25% growth in 2025 and delivered more than 30%, congrats, but why do you expect decelerating sales growth for 2026? Tobias Wann: Thanks for the congrats. I'm happy to take this one. So let me actually make this really clear. 2025 was a great year for tonies. And we really believe 2026 will be as well. I may want to -- I think I read the question in a sense that I probably should put our guidance into perspective here. In 2025, we added around EUR 150 million in revenue. So for 2026, our 20% constant currency growth implies at least another EUR 130 million, so -- while we do this, while improving our overall profitability. So in percentage terms, that's naturally less than 2025, given the significantly higher baseline. But in absolute terms, this is a very continued strong, very strong momentum. And let's also be clear, we are delivering this despite geopolitical headwinds that do dampen customer -- consumer sentiments across the board. And I want to be explicitly saying that we have never experienced consumer sentiment issues and are confident also for 2026 because we have such a strong, high-quality product. So outside of DACH, we expect the growth rate of more than 30%, and they will be supported by new franchises, as I explained, by exciting new product innovations. DACH will continue to grow. We've seen exceptional growth, and we clearly expect it to continue, probably not necessarily always double-digit growth rates here. But again, we are very confident that this will be another great year for tonies. And I think this is very, very strongly reflected in the guidance that I have presented. Moritz Verleger: Okay. Next one is on sourcing and memory chips. How is the shortage and price increases in memory chips affecting your earnings forecast? What additional costs were incurred in securing the necessary memory chip capacity? Tobias Wann: Hansjorg, since you actually talked about memory chips already, you may want to take that one. Hansjorg Muller: Sure, will do. Yes, great question. And I think I'll start with -- according to our estimate, any remaining volatility that the memory chip market should give us, we think we've already covered in our guidance or captured in our guidance. So we don't expect this to break out from there. Of course, we have significant mitigating actions that we've undertaken the last months. I've already mentioned earlier, we have access to and experience with various technologies, changing between memory chip components to more economical ones where necessary. We also equipped ourselves with inventory. Like we've pointed out earlier, we have a significant inventory balance at the end of 2025. This plays into a strategic advantage now because it actually gives us the ability to potentially change production to lower cost memory components. Plus, we have, of course, the inventories that we secured already on those memory components. Hence, all of these are reasons together with the commercial levers that we have, just like we did for tariffs, that gives us confidence that we've covered any potential fluctuations, uncertainties already in our guidance. Moritz Verleger: Okay. Next one is on geographic expansion. If you're saying Australia and New Zealand had an exceptional positive start, are there any plans to use Australia and New Zealand as a blueprint for further geographical expansion? Tobias Wann: Thank you for that question. I actually love to talk about this topic in Australia specifically. And yes, I agree, 100%, Australia and New Zealand has been an exceptional success. We have a great team in Australia. We had, from the very beginning, a very strong comprehensive retail penetration. And this is clearly also a very powerful proof of concept of what I call usually or describe usually as global pool, right? We have, as I said before and said in many previous calls, the Toniebox is active in over 100 countries. That's what I mean with significant global pool. Moving into a market like Australia just shows how we capitalize on that global goal as we enter and scale in those markets that we see being already penetrated in some way, shape or form with Toniebox. And yes, I mean, Australia, it's been our fifth major market launch. And every time, we have, we find and improve the playbook. We are tailoring our go-to-market strategy to each -- so each of those market entries is more efficient or better than the last, and we continue to do so. And we will continue to leverage this global momentum or global pull also in the coming years. However, I hope you understand that I'm at this very moment, not ready to share specific time lines or country sequences for the next phase of our road map. But very clearly, you can see with Australia and all the other countries, we know what we do here. We're getting better, and we have those -- all those remaining countries that we can still enter and that creates a lot of excitement on our end as well. Moritz Verleger: Okay. The next question is a double question on Tonieplay. Can you give a first indication on how Tonieplay sales per Toniebox 2 are trending? And the second part of the question is, could you share first indications how Tonieplay impacts customer behavior and stickiness. Weekly playtime has increased by 10 minutes year-over-year. Was it driven by Tonieplay? Are there any cannibalization effects on other product groups? Tobias Wann: There's a lot of specific questions. So let me dissect this. What I can tell you, Tonieplay had a really strong start, as I've shown you in the presentation in its respective target age group. And the user feedback that we are getting is extremely positive. For example, you can see this going through the website we use on tonies.com. As I said, approximately half of households that have a 6-plus year old and that upgraded to a Toniebox 2 have adopted Tonieplay already. That's a significant number. And it shows that the Toniebox, the new Toniebox can add new dimensions at a later stage childhood. That's exactly what we wanted to prove and it's working. However, I mean, obviously, I understand where you're going with the question, but we needed to also be patient. We will definitely need at least a good 12-month full cohort life cycle to actually draw deep conclusions. But I can tell you, from all I can see and all we are seeing here as a team, we're off to an exciting start. And with regards to playtime and the second question, if I remember it correctly, again, we're only 6 months in the market. And it's relatively early to draw those conclusions. We see a very positive momentum, and we see clearly customer adoption, we see stickiness. At this point, we are not commenting on any specific metrics, but I can tell you that we see a significant share of our users already showing strong adoption and retention of Tonieplay over multiple weeks. And let's also be clear, there's strong IP coming up. We talked about the Hasbro games. Those are extremely exciting games. We -- the one we can talk about in public is the MONOPOLY Game, and I've played it myself, and I can tell you playing MONOPOLY with Toniebox is an awesome experience. I can't wait for all of you to try this out. So there is so much to come, and there's so much to explore, I wouldn't even think of talking about cannibalization and these type of things. This is all growth layering on top of growth. Moritz Verleger: Okay. The next question is on inventory. Can you shed some more light on your relatively high inventory levels in terms of composition, product categories, etc? Tobias Wann: Hansjorg, do you want to take that? Hansjorg Muller: Sure. In fact, it's similar what I stated earlier. Our strategic inventory buildup was mainly driven by supporting the TB2 launch, but also, we established 3 new categories, right, Tonieplay, Plush, and My First Tonies. And this -- investment and launch of this magnitude hasn't happened in the year before, nor happening in the year after. So that's why this year stands out. I would also add our fiscal year ends in the same week as our most busy peak period of the year. So by definition, whatever we do in that last month has quite an impact on financial KPIs. But operationally, we get a lot of credit for what we did here because it secured us that commercial moment. And we have the benefits throughout a longer time period now throughout 2026. Moritz Verleger: Okay. The next question is on interest and taxes. Interest income was EUR 8 million in the first half of the year and EUR 0.3 million in financial year 2025. Could you explain this? And what we should expect in financial year 2026? You paid cash taxes in 2025. How much tax loss carryforwards do you have left? And what tax rate should we expect for '26, '27? Tobias Wann: Hansjorg, you're in such a great flow, I'll let you continue. Hansjorg Muller: Yes. I think there's 2 questions here. Let me try to answer this without getting too technical. So the first one on interest. Yes, there was -- we were tracking positively for the first half of the year and then negatively for the second half of the year. The main driver, actually the sole driver of this is the valuation of our warrant shares, which basically led to this benefit at lower share price in the first half of the year. And then, our share price strongly climbed during the second half of the year, leading to an inverse position. The good news here is that our warrant shares actually either settle or expire throughout this year. So at the end of this year, we will have quite a simplified capital structure and this volatility nor financial impacts will no longer have to be reconciled. So simplification to be expected here. Tax, yes. This is another point where 2025 -- 2024 and 2025 are a bit difficult to compare like-for-like because 2024 was in relative terms, a lot more driven by tax loss carryforwards than 2025 is, and we don't guide on effective tax rates. But I think the 2025 environment is probably more representative of what's happening going forward. Moritz Verleger: Okay. In the interest of time, let's take 2 more questions. The first one, let's call it, on sales channels. Where is your Tonies vending machine located? Could you imagine rolling it out further? Tobias Wann: Yes. I love the question. Thank you for that one. It's a real highlight. This is why I'm smiling, and something that we have discussed for a while here as a team and worked on. And it's a typical example of great tonies inventions and engineering capacity. So the first real life vending machine, Tonies vending machine is located in Aachen here in Germany in our home DACH market, not far from Dusseldorf. So it's, as I said, a really good example of us constantly exploring channel innovations. I also talked about our own store in Australia and New Zealand. We talked about TikTok Shops and all of the things and now the vending machine. While I cannot share any specifics here on rolling out those vending machines globally, I can tell you, and you can hopefully see, I am and we are excited about this. And this one vending machine is already really working well. So there is no reason to assume that this will be the last. Moritz Verleger: Okay. Thank you. The last one on licensing costs. Licensing costs in North America seem to be structurally lower than in the DACH region. Hence, once the mix in North America shifts towards figurines, could contribution margins in North America exceed the current DACH levels of 38%. Tobias Wann: Hansjorg, do you want to take that? Hansjorg Muller: Thank you. I think, again, quite a few questions lumped into one. Let me try to dissect. The main driver of our licensing ratio, the percent of licensing cost of revenue is, in fact, time from launch because the further away we progress from launch, the more our mix will evolve towards figurines. That means, the more figurines, the more licensing cost. So expect right, as we grow also in the U.S., we are not as far progressed from launch as in DACH, for example. So that mixed development will further continue. A second point, I would mention here. And by the way, this mix evolution is also our main profit driver, whilst there may be an impact on licensing, the main driver of our ever-growing profitability is the further away from launch we are, the further our mix shifts to more profitable tonies versus the box, right? This is all as planned per our standard, call it, business model. The second component that I would mention here is the fact that licensing ratios always breathe a bit from year to year because it's primarily driven by what we launch in that year, right? And sometimes you satisfy a certain listening need better with a licensed product and sometimes you satisfy better with an own production. We don't do this necessarily to drive an improved licensing ratio. We do this to best satisfy the listening desires of our listening -- of little listeners, and the licensing ratio is an outcome. And yes, of course, structurally or high level, we want to be -- we want to have a healthy combination of licensed and owned. Moritz Verleger: Okay. This concludes our Q&A session. In case of open questions, we will follow up during the next couple of days. Before Tobias finishes with the key takeaways, let me quickly highlight the next events to come until our Q1 results on May 13. Hansjorg and myself will be at Metzler Small Cap Days in Frankfurt on Thursday, followed by IR-only events in Munich and Madrid. Following Q1, the 3 of us will be at the Berenberg European Conference in New York and organize the roadshow with Kepler in Paris later in May. The next big milestone on the events side will be our first Capital Markets Day since IPO on June 18 in London. We have a great agenda in mind with full Management Board attendance in person on that day. So Tobias, please take over again for the key takeaways and final remarks. Tobias Wann: Thank you, Moritz. Thank you all for the great questions. I really enjoyed it. It was an engaging discussion, I think. Let me close today's presentation with a short summary as always. We delivered in 2025, and we are ready for a strong 2026. Key takeaways. First, 2025 was a very strong year across all markets. Despite macroeconomic challenges, we grew in every market by double digits. We expanded our margin, we achieved our goals and we delivered our biggest ever product launch. Second, Toniebox 2 has taken over a smashing success with customers and partners alike. We have not only launched a new flagship product, we have created strategic levers for future growth. Third, we will continue our profitable growth journey in 2026. We aim for double-digit growth across all markets, again with expanding our profitability. Fourth, Moritz just mentioned, at our Capital Market Day in June, we will share more details on our midterm road map. We have big ambitions, and we are excited to share how we will continue to grow into a global icon. And finally, tonies is well positioned for 2026 and beyond. We have a clear plan. We have a strong pipeline. I'm really excited to tell you much more in the coming months. So now, thank you all for joining today's call, for your continued interest, and for your trust in tonies. Take care. Goodbye.
Operator: Greetings. Welcome to the SurgePays Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Valter Pinto, Investor Relations at SurgePays. You may begin. Valter Pinto: Thank you, operator, and good afternoon, everyone. Welcome to the SurgePays 2025 Fourth Quarter and Full Year Financial Results Conference Call. Today's date is April 14, 2026. And on the call today from the company are Brian Cox, President and CEO; and Chelsea Pullano, Interim Chief Financial Officer. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see SurgePays' most recent filings with the SEC. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the events that occur after this call. Copies of today's press release are accessible on SurgePays' Investor Relations website, ir.surgepays.com. And SurgePays' Form 10-K for the year ended December 31, 2025, will also be available on SurgePays' Investor Relations website. And now I'd like to turn the call over to President and CEO, Brian Cox. Kevin Cox: Thank you, Valter. Good afternoon, everyone, and thank you for joining us. Today, I will walk through our 2025 performance and what we proved operationally and how that directly translates into our outlook for 2026. For the full year 2025, we generated approximately $57 million in revenue, including $16.2 million in the fourth quarter. As you review our results, it's important to understand the progression of the year. We saw steady growth from Q1 through Q3, with revenue increasing from approximately $10.6 million in Q1 to $11.5 million in Q2 and then reaching $18.7 million in Q3. That third quarter was an inflection point that demonstrated the scalability of our platform when capital is deployed into subscriber growth. Q4 of 2025 is best understood in the context of what we demonstrated in Q3. In Q3, we deployed capital into subscriber acquisition and saw a clear step-function and increase in revenue. That quarter proved the scalability of our model when capital is applied. In Q4, we made the decision to pull back on that level of spend and focus on capital discipline and efficiency. As a result, revenue in Q4 declined sequentially from Q3 but remained significantly higher than Q4 of 2024. That is the key point. We proved we can scale, and we demonstrated discipline in how we manage that growth. Just as importantly, Q4 included items that are not indicative of our current operating run rate, including legal and certain noncash expenses. For the full year, total general and administrative expense declined to approximately $20.1 million from $27.5 million in 2024. That reduction reflects the cost actions we began taking as we exited the ACP period and repositioned the business. At the same time, we continued to invest in the core infrastructure of the business, including our retail distribution network, our wireless platform and our digital acquisition capabilities. Today, we are not reliant on a single subsidized program. We have multiple revenue channels, including government-subsidized wireless, LinkUp Mobile prepaid, wholesale MVNE relationships and our point-of-sale fintech and data platforms. We believe that diversification fundamentally changes the quality and durability of our revenue. We are not demand constrained. We are capital disciplined. This leads directly into how we are thinking about 2026. Many of our investors remember what occurred during the ACP period. We leveraged existing capital relationships to fund subscriber acquisition, and the result was revenue growth and meaningful stock appreciation. We are now executing a similar strategy but with a materially stronger foundation. We have multiple independent revenue streams. We have an established retail footprint of more than 9,000 locations. We have a customer acquisition engine through ProgramBenefits.com, and we have additional monetization layers, including wholesale and in-store media platforms. That combination should allow us to deploy capital into growth while also improving the underlying economics of the business. Turning to the balance sheet. We ended 2025 with approximately $1.7 million in cash. Since year-end, we have taken additional actions to reduce our operating expense base and improve efficiency across the organization. Based on actions already taken, we estimate our current monthly cash burn at the end of Q1 2026 to be approximately $250,000 to $300,000. This is a meaningful shift from the cost structure exiting 2025 and reflects an even more disciplined operating model as we move forward in 2026. The key takeaway is this. We have already demonstrated that when we deploy capital, we can scale revenue quickly. Now we are combining that capability with a more efficient cost structure and multiple revenue streams. We believe that positions us to drive growth in a more controlled and repeatable way. With that, I will turn the call over to Chelsea to walk through the financials in more detail. Chelsea Pullano: Thank you, Brian, and good afternoon, everyone. I'm honored to step into the role of Interim Chief Financial Officer at such an important time for SurgePays. I want to thank Brian and the Board for their confidence. I'm excited about the opportunity to help support the company's next phase of growth by strengthening financial discipline, improving transparency and helping drive our path towards profitability. Now turning to the results. For the year ended December 31, 2025, total revenue was approximately $57 million compared to $60.9 million in 2024. The decrease was primarily driven by the expected decline in subsidized revenue following the expiration of the Affordable Connectivity Program in mid-2024. Despite that, we saw strong performance in our point-of-sale and Prepaid Services segment, which increased by approximately $26.1 million year-over-year, partially offsetting the decline in MVNO revenue. Cost of revenue for 2025 was approximately $67.6 million compared to $75.2 million in 2024. Gross loss improved to $10.6 million compared to $14.3 million in the prior year. We expect continued improvement in gross margins as we scale higher-margin revenue streams and benefit from the cost structure already put in place. Selling, general and administrative expense, excluding depreciation and amortization, declined to approximately $19.2 million from $26.3 million in 2024. This reflects reductions across multiple expense categories, including compensation, professional services and contractor expenses. Net loss from operations was approximately $30.7 million compared to $41.8 million in 2024, representing a significant improvement year-over-year. Net cash used in operating activities was approximately $21.3 million for 2025, reflecting the transition period following the end of ACP and the investments made to reposition the business. Net cash provided by financing activities was approximately $10.5 million, primarily from the use of our at-the-market facility and additional capital raises during the year. As Brian mentioned, we've taken meaningful actions since year-end to reduce our operating expenses, and we are seeing those improvements reflected in our current run rate as we move through the first quarter of 2026. It's important to note that in the fourth quarter, our SG&A included approximately $2.3 million of nonrecurring expenses, including legal costs and noncash items, which are not indicative of our ongoing operating expense run rate. At December 31, 2025, we had a working capital deficit of approximately $16.2 million compared to a surplus of $11.8 million at the end of 2024. This reflects a shift in the business following the expiration of ACP and the timing of liabilities and capital deployment. We continue to actively manage our liquidity and capital structure with a focus on supporting growth initiatives while maintaining financial discipline. Overall, 2025 was a transition year for the company. We repositioned the business, reduced operating expenses and established the foundation for a more diversified and scalable model. As we move into 2026, our focus is on executing against that foundation, improving margins and driving growth across our core revenue channels. I will now turn the call back to Brian for closing remarks. Kevin Cox: Appreciate it, Chelsea. I want to close with this. 2025 was about proving the model and resetting the foundation of the business. We demonstrated that when we deploy capital, we can scale revenue quickly. We also made the necessary adjustments to operate more efficiently and build a more durable business. We are now moving forward in 2026 with multiple revenue streams, a significantly improved cost structure and a clear path to growth. We understand the market's concerns around capital and execution. Our focus is on showing, not telling. You will see that in how we manage expenses, how we deploy capital and how we grow the business. We believe we are positioned to execute, and we look forward to updating you on our progress throughout the year. Thank you for your time and continued support. I will now pass it back to the operator for questions. Operator: [Operator Instructions] Our first question comes from Ed Woo with Ascendiant Capital. Edward Woo: Congratulations on all the progress, Brian. I had a question. I know you're not giving out guidance, but what should we be most excited about of the various products you have that's going to be the biggest driver for revenue this year? Kevin Cox: Ed, thanks for the question. I think as we look forward, interestingly enough, we've got the subsidized wireless. We've got LinkUp Mobile, and we've got some other kind of exciting things we've talked about that are going to start showing up on the financials. If you had to pin me down right now, LinkUp Mobile is doing really well. Starting an MVNO, a prepaid wireless company from scratch, the team has done a phenomenal job. It's definitely a grind getting traction in the market. And keep in mind that while some of that is sold online, the majority of it is sold through dealerships and setting up relationships with dealers and sending out point-of-sale materials, getting SIM cards, training folks and then that store has your product and usually, let's say, 3 other prepaid companies as well. So that's a big deal for us, and it's staying power, and that's cash flow. And I think that's going to be the one that you'll start seeing some pretty significant numbers off of. And there's some -- I think we've got some pretty exciting news coming up with LinkUp Mobile that I wish we had crossed a couple of thresholds before today, so we can talk about it today, but it will give us something to talk about in the upcoming months. Edward Woo: Great. And one last question I have is, you guys, like I said, serve the underserved markets through your convenience store operators. What are you hearing from these operators in terms of the economy is how are their customers? Are they doing better? Are they worse? Are they open to new products, et cetera? Kevin Cox: I love this question. As you know, most of the folks on our team have been in this prepaid subprime, underserved, underbanked. There's a lot of words for it, and there's different scopes. The largest scope would be the subprime market. But our market at a time of where things are difficult and may be more expensive in the economy as they say, too much month, not enough check, there's always going to be a segment on the lower end of that socioeconomic that's not really affected. They're already lower income. It doesn't really hit them as much. I mean when certain things -- your essential services are taken care of by the government, you're kind of below the water break line. If you think about the ocean where waves are crashing, the ups and downs, you're a little bit below that break line. But what's interesting as we've expanded the scope of our company and our target market into the subprime market, we do push up into people that do spend money that do have money that don't specifically rely on the government who are getting squeezed. And I think what we're seeing, the ebbs and flows of all the folks on our team that we talk about this often, 20 years we've been doing this. And when times in the economy get a little difficult, that's when people take a step back and are more aware of their spending, more aware of value. So we've always done the best and had our best runs when things in the economy were tough because that's when people will listen to you if you're offering a better value. Otherwise, it's just a rut in the road, I'm going to pay $40 a month for my wireless service because that's just what I do and I just pay it and I do it 2 20s on the countertop, boom. But when things are tough and putting 2 20s on the countertop at the convenience store kind of pulls a little bit more for me. It feels a little heavier when I lay it down. Well, then if I look over and say, "Hey, wait a minute, I got a company here that will give me the exact same thing for $30. What is that? Well, tell me about LinkUp." So I think that it's actually an opportunity for us, and it opens people's eyes. They're looking up. They're aware of their finances. They're aware of other value. So -- and we look to capitalize on that. We never wish ill on the economy. But historically, we've done our best and had our best runs when there's -- I don't want to say blood on the street, that's not accurate, but when the economy is going through a difficult time. Operator: [Operator Instructions] We have reached the end of the question-and-answer session. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Mama's Creations Fourth Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, Luke Zimmerman of Investor Relations with Mama's Creations. Thank you, and you may begin. Luke Zimmerman: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Mama's Creations Fourth Quarter and Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]. This conference is being recorded today, April 14, 2026, and the earnings press release accompanying this conference call was issued after the market closed today. On our call today is Mama's Creations Chairman and CEO, Adam L. Michaels; and CFO, Anthony Gruber. Before we get started, I'd like to note that some of the statements on this call will be forward-looking statements that reflect management's current expectations about future operating and financial results. Although management believes the expectations and assumptions are reasonable, they remain subject to significant risks and uncertainties. Actual results for future periods may differ materially from what is stated or implied during today's call. For more information, please refer to the forward-looking statements section in today's press release and the risk factors disclosed in the company's most recent Form 10-K and any subsequent reports it files with the SEC. Please also note that today's call will include a discussion of adjusted EBITDA, which is a non-GAAP financial measure. Important information, including required disclosures containing a reconciliation to the most directly comparable GAAP measure is also detailed in today's press release. At this time, I'd like to turn the call over to Chairman and CEO, Adam L. Michaels. Adam, the floor is yours. Adam Michaels: Thank you, Luke, and thank you to everyone for joining us today. I'd like to welcome you to our fourth quarter and fiscal year '26 financial results conference call. Fiscal '26 was, without question, the most transformational year in the history of Mama's Creations. We grew revenue 39% to $171.7 million, expanded adjusted EBITDA over 50% to $15.4 million, completed a transformative acquisition that nearly doubled our manufacturing footprint and capped the year with a record fourth quarter that saw revenue grow 61% to $54 million. But what excites me most is not the numbers. It is the foundation we have built, the team we've assembled and the strategic position we now hold. This organization entered fiscal '26 as a high-growth deli prepared foods company with ambition. We exit fiscal '26 as a scaled platform with the capabilities, capital and conviction to become the leading one-stop shop deli solution in the country. As always, let us start with the macro trends. I learned early in my career that it is much easier and cheaper to ride a wave versus creating your own and the deli prepared space is a tsunami. On the consumer front, the generational shift towards deli prepared foods continues to accelerate. Fresh format grocers saw the largest bump in food traffic in 2025 with double-digit year-over-year increases. Grocery stores are also capturing a growing share of short mid-day visits from quick service restaurants as consumers replace restaurant meals with more cost-conscious and healthier options. For the Supermarket News retailer expectations survey, 55% of retail respondents said deli and food service is the category they expect to have the most success with in 2026 and 2/3 of retailers plan to introduce more grab-and-go or prepackaged prepared foods this year. Meanwhile, meat sales hit a record high of $112 billion in 2025, with 77% of shoppers agreeing that meat and poultry are part of a healthy diet, up more than 20% since 2020. We continue to be in the right place at the right time with the right product portfolio. Now we have the platform to capture far more than our fair share. While we have made substantial progress over the past 3.5 years and built a rock-solid foundation from which to build a market-leading platform in the deli category, our fundamental 4C strategy has not changed. Cost remains our first C, and the Bay Shore integration personifies the work Skip and his team are doing to deliver quarterly improvements in our gross margins. The integration of Crown 1's Bay Shore facility has exceeded our expectations. What started as a 42,000-square-foot acquisition with room for improvement last summer has become a well-integrated third pillar of our manufacturing network. Procurement and logistics are 100% centralized. Production has been rebalanced across all 3 facilities to optimize capacity, reduce overtime and improve absorption. The team at Bay Shore has embraced the Mama's culture. Mama has learned from the Bay Shore team and their premium product capabilities are opening doors to customers we could not previously access. And the results speak for themselves. Bay Shore's gross margin has improved meaningfully since the acquisition, and we remain on track to bring that facility in line with our mid- to high 20s gross margin corporate target. The cross-selling opportunity between our legacy customer base and Crown 1's premium accounts is just beginning to materialize, and we expect this to be a meaningful growth driver in the coming fiscal year. But Bay Shore is not our only location that is shedding costs and strengthening capabilities. As you see in our Q4 numbers, our favorable chicken costing in Farmingdale, coupled with fixed asset absorption in our Costco rotation in East Rutherford improved our gross margins and delivered superior bottom line results. Controls is our second C. And while my wife taught me that I should not have favorites, this C is a little dear to my heart because without controls, we can't have the other Cs. And I could tell you that Q4 did not disappoint. With food safety top of mind in our industry, I am proud to report that not 1, not 2, but all 3 of our facilities achieved a third-party SQF score of 98 recently or excellent, the highest results category. What makes this even more impressive is that 2 of the 3 audits this year were unannounced, meaning while you might wake up on a particular day to a fresh cup of coffee, Mario, Julia and Eric woke up to a third-party inspector for a 2-day inquisition. And all 3 blew it out of the water. Congratulations to the entire team who show us every day what Mama's quality really means. I'm also excited to share that we continue to add more analytical capabilities for our teams because what gets measured gets improved. Q4 saw the introduction of our Power BI platform as well as further expansion of our planning and procurement capabilities. Thank you, John, for leading our technology infrastructure and Alberto for guiding our forecasting capabilities. Controls is not a tagline or a word on a page at Mama's. It's how we run our business every day to ensure we execute with excellence. If Cost and Controls get us to the party, it is our third C, culture that keeps us there. The Bay Shore acquisition brought tremendous management talent to our Mama's family and allowed us to build our first-ever enterprise-wide shared services model. In January, Abby led the design, communication and rollout of a new model for Mama's, increasing responsibilities for leaders, recognizing standouts with new promotions across all 3 sites and driving an overall empowerment culture, solidifying our 1 plant 3 locations mantra. To improve communications and culture, we implemented a new employee one-stop shop portal to share messages across the organization and build community for our nearly 600 associates. Last month, Mama's Pantry, our first intranet site open for business, reinforcing our physical community with a digital extension available 24/7 365. We are even more excited to share next quarter the work we've been doing around learning and development at Mama's University. As my mother, who was a teacher for over 25 years in the public school system taught me, you are truly never too old to go back to school. Our Catapult strategy, our fourth and final C, delivered extraordinarily strong results this quarter and throughout fiscal '26. Let me speak to the Costco journey, which exemplifies our progress. Just 3 years ago, we had approximately $0.5 million in Costco sales, limited to one product in one region. By fiscal '25, thanks to Scott and the team, we have grown that to $10 million in annualized sales with active promotions across multiple regions of the country. In Q1 of fiscal '26, we launched our first digital MVM, which essentially matched all of the fiscal '25's full year Costco business in a single quarter. We continued ramping throughout the year with strong rotations across multiple items, culminating in Q4 with our first-ever national print MVM, a true milestone that set the tone for the types of volumes we can achieve. This was the trophy achievement for volume movement at Costco. Based on this success, capturing new customers and accelerating item velocities, earlier this year, we were informed that we achieved everyday item status in the Northeast, the very region where our Costco journey began. This is a landmark milestone that positions us for a steady-state, repeatable and plannable business, and we expect our everyday success in the Northeast will lead to even more rotations and new item introductions across all 8 of Costco's regions. Our operations team executed flawlessly throughout this growth, delivering on meaningful quarterly builds without a hitch, which solidifies tremendous trust with our retail partners. Beyond Costco, Chris and his team are ensuring our Catapult strategy is delivering across the entire retail landscape. At Walmart, we added another item in Q4 following the breakout success of our 4-count chicken item and are launching 7 new SKUs in up to 2,000 stores, all branded, which represents exceptional penetration. At Target, we're approved for 2 branded SKUs, one already on shelf, launching in 750 stores with plans to ramp up to approximately 2,000 stores. And at Food Lion, we've already expanded to roughly 1,200 stores across the Southeast and Mid-Atlantic with 5 branded SKUs. These placements represent a significant validation of our product innovation, quality and operational excellence. We are growing at 5x the category growth rate, a category that has recently been growing units ahead of dollars, which is rare in food and reflects strong consumer demand and trials. A key driver of our Catapult success is our commitment to quality. Our NAE, No Antibiotics Ever chicken initiative is a significant quality differentiator that resonates with today's consumers. We're also leveraging our Bay Shore acquisition to cross-sell capabilities and new products into both our legacy accounts and our Crown 1 customer base. Another Catapult strength in Q4 was the work Lauren and her team are doing on the marketing front, which accelerated velocities and introduced new customers to Mama's. Our Instacart programming made Costco's MVM the most successful campaign in Mama's history. An unheard of 65% of consumers were new to brand, which creates a flywheel effect that turns trial into repeat. December, the peak of our Costco MVM saw our best month ever on Instacart and the partnership Lauren and Chris built made Mama's the #1 meatball on Instacart for all of Q4. The team's work delivered continued double-digit ROAS with Walmart, and Q4 saw new effective brand partnerships and collaborations with Brooklyn Bread and Mike's Hot Honey, all with the intention of driving trial, awareness and deepening relationships with our consumers. This commitment to quality and visibility is being recognized, most recently in Progressive Grocers 2026 Editors' Picks list for the best new products, where our cheese-stuffed chicken meatballs received worthy recognition. Looking to fiscal '27, we're planning to meaningfully increase our branded sales across our retail footprint through new introductions like at Walmart and Target and by transitioning legacy private label items to branded like at BJ's and Publix. And we have set a strategic goal of adding net plus 2 SKUs or items in each of our top 10 accounts. Our trade and marketing investments are delivering strong returns with digital and in-store programming generating measurable lifts in consumer awareness and retail velocities. As I look to fiscal '27, I see a business that is fundamentally different from where we were even 12 months ago. We have a scaled manufacturing network, a diversified and growing customer base, a strengthened balance sheet with significant M&A capacity and a team that has proven it can integrate with excellence. Our path towards $1 billion in revenue is clearer than ever, and I am confident in our ability to deliver sustained profitable growth for years to come. I'd now like to turn the call over to Anthony Gruber, our Chief Financial Officer, to walk through some key financial details for the fourth quarter and fiscal '26. Anthony? Anthony Gruber: Thank you, Adam. Moving to the financial results. Revenue for the fourth quarter of fiscal '26 increased 60.7% to $54 million as compared to $33.6 million in the same year ago quarter. Revenue for fiscal year '26 increased 39.2% to $171.7 million as compared to $123.3 million in the prior year. The increase was primarily due to item expansion at existing customers, successful high ROI promotional activities that accelerated velocities, initial placements at new customers and the acquisition of Crown 1. Gross profit increased 53.8% to $14 million or 25.9% of total revenues in the fourth quarter of fiscal '26 as compared to $9.1 million or 27% of total revenues in the same year ago quarter. Gross profit increased 41% to $43 million or 25.1% of total revenues in fiscal '26 as compared to $30.5 million or 24.8% of total revenues in the prior year. The fourth quarter gross margin was impacted by the continued ramp of the Crown 1 facility, while the improvement in full year gross margin reflects the operational efficiencies, procurement optimization and stabilized commodity costs across the platform. Operating expenses totaled $10.9 million in the fourth quarter of fiscal '26 as compared to $7.2 million in the same year ago quarter. As a percentage of revenue, operating expenses declined to 20.2% from 21.4% in the prior year quarter. For the full year, operating expenses totaled $35.9 million as compared to $25.7 million in the prior year. As a percentage of revenue, operating expenses were 20.9% in fiscal '26 as compared to 20.8% in the prior year. The change was partially due to the Bay Shore acquisition, new digital strategies and enhanced product marketing, new management hires and further technology upgrades to drive actionable insights faster and deeper into the organization. Net income for the fourth quarter of fiscal '26 increased 37.5% to $2.2 million or $0.05 per diluted share as compared to net income of $1.6 million or $0.04 per diluted share in the same year ago quarter. Net income for fiscal '26 increased 43.2% to $5.3 million or $0.13 per diluted share as compared to net income of $3.7 million or $0.09 per diluted share in the prior year. Fourth quarter net income totaled 4.1% of revenue as compared to 4.8% in the same year ago quarter. Adjusted EBITDA, a non-GAAP measure, increased 77.4% to $5.5 million for the fourth quarter of fiscal '26 as compared to $3.1 million in the same year ago quarter. Adjusted EBITDA increased 52.5% to $15.4 million in fiscal '26 as compared to $10.1 million in the prior year. Cash and cash equivalents as of January 31, '26, totaled $20 million as compared to $7.2 million as of January 31, '25. The significant increase was primarily driven by improved profitability, strong operating cash flow generation and ongoing working capital optimization. As of January 31, '26, total debt stood at $5.4 million. The robust balance sheet, combined with our credit facilities and strong cash flow generation positions us extremely well to pursue the organic and inorganic growth opportunities that Adam described. This completes my prepared comments. Now before we begin our question-and-answer session, I'd like to turn the call back to Adam for some closing remarks. Adam? Adam Michaels: Thank you, Anthony. As I reflect on fiscal '26, I'm incredibly proud of what our team of nearly 600 associates across all 3 facilities has accomplished. We have taken every step deliberately and strategically guided by our 4 Cs framework: cost, controls, culture and catapult. From strengthening our cost structures and controls in the early days to building a world-class culture founded on operational excellence and continuous improvements to now catapulting this company towards its next phase of growth through our disciplined financial management and strengthened balance sheet, we have built a platform for sustained success. Looking ahead to fiscal '27, our strategic priorities are clear and focused. First, we'll continue to optimize our integrated 3-facility network, maximizing efficiency, driving margin expansion and increasing capacity utilization. Our operations team have shown they can scale flawlessly, and this is our core competitive advantage we will continue to leverage. Second, we will deepen and expand our retail distribution through the aggressive ramp of our major new wins at Target, Food Lion and Walmart, while simultaneously expanding our club channel partnerships with Costco, Sam's Club and BJ's. Third, we will deploy our strong financial position and balance sheet to pursue accretive acquisitions that add capacity, capabilities, categories and customer access to our platform. The $40 billion deli prepared foods market is large, growing and fragmented. Consumer preferences are moving decisively in our direction. Retailers need partners who could simplify their deli operations and deliver quality, variety and reliability at a national scale. That is exactly what Mama's Creations does. And our vision is to become the leading national one-stop shop deli solutions provider. With our strengthened platform, balance sheet and track record of execution, we are better positioned than ever to capture this generational opportunity and deliver sustained value for our shareholders. I want to thank our team for their extraordinary dedication and execution. And to our shareholders, thank you for your continued support and confidence. The best is truly yet to come. With that, operator, let's open the line for questions. Operator: [Operator Instructions]. And our first question comes from the line of Brian Holland with D.A. Davidson. Brian Holland: Boring stuff first. Looking ahead to fiscal '27, can I assume that the double-digit growth outlook holds... Adam Michaels: Yes. Thanks, Brian. Yes. Look, I'm proud of the team. The team is just getting started. Hopefully, you're seeing like I am opening new doors. You're seeing getting more average items carried into each of those doors. And the work that Lauren and team are doing on the marketing continues to accelerate the velocities. So yes, I feel -- we feel comfortable that double-digit growth will continue to gain meaningful share for the year ahead, absolutely. Brian Holland: Looking on that, obviously, as you get bigger and you amass these bigger wins, you create tough compares for yourself, obviously, with Costco. So just as we think about modeling sensitivities here, would any of these quarters in 2027 potentially be less than double digits just because of what you have to lap? Obviously, I'm thinking specifically about Q1 or Q4. Adam Michaels: Where is the love, Brian? Come on. Where is that positive mental attitude that I'm looking for? Look, Chris is doing a job. The entire sales team is doing a job. And like I've shared with many of you, we have these lapping charts. Chris absolutely understands that there are some -- there was programming last year that we have to replicate and accelerate. So I will continue to tell you that, first of all, we will continue to gain meaningful share, right? The category is growing in the mid-single digits right now. I think that we can continue to grow that. And yes, it's on Chris and team and it's on Skip and operations to keep up with Chris to ensure that when we see programming ahead from last year, we have to, again, meet that and accelerate it. So I'm going to keep to our double-digit growth aspiration. Brian Holland: On M&A, I believe Skip has final say on when you could pull the trigger on the next acquisition. I think that's tied to Crown 1. What's the latest there as far as M&A readiness? Adam Michaels: Yes. No, I am super proud of the Bay Shore team, Andy and Roger, Tony, everybody, Mario. We're ahead of the plan. Obviously, there's still more to do. We're not fully integrated, right? We have to get the technology in. But I feel like we're in good shape. You know me if I'm not on the road with you guys, I am on the road visiting other facilities, which I've been doing in the past month. I think we're in good shape. Look, let me repeat, this is really important. We want to do acquisitions. We don't need to do acquisitions. The internal team is doing an awesome job. There is so much to invest in to accelerate growth. But with the team doing such a good job here means I got -- I don't got much to do and allows me to go out and look at other opportunities. And if we could find something that is accretive to our business, both in the sense of getting new customers, getting new capacity, accretive in the sense that while it might be dilutive in the gross margin space because we're good at improving things, we're not looking for a turnaround. So they have -- it has to be accretive to our EPS. And if we find something great at the right price and Skip tells me he's ready, then we're ready to go. Brian Holland: Last one for me. It strikes me more than I studied this category, you referenced a $40 billion category. I'm sort of surprised by how immature it is, right? And it kind of interesting, I think your success sort of proves that out the merits of having a branded presence in this category, which historically it didn't have. So as we think about all these wins that you're -- it's great to tack on the wins and more stores and more items per store. But sort of like the next wave after that is kind of category advisory to some of these retailers. And it seems crazy for me to think that a company with less than $200 million could take on a role such as that. But I'm just wondering how your success is manifesting as far as relationship building with these types of large retailers who might be looking at your success and asking you to help them think about because that's really kind of the last action, I think, to retail customer connectivity and relationship solidification, I'll stop there. Adam Michaels: Yes. No, I think I agree with what you're saying. Obviously, the deli category is not as mature as center aisle. The category captain C is not as clear. But look, I will tell you the amount of time that our sales team is on the road not selling per se, but a major customer, the biggest grocers and retailers in the country are calling us to say, "Hey, I'd love for you guys just to come and speak to my leadership team and tell them what you're seeing in the category," I think that's pretty amazing. And what happens is great quality, great service. And when a customer wants a new item, the first call is they're giving us a call. And that's what I think -- I talk about this flywheel effect. That's what continues to accelerate our growth more and more. So I love what the Chris and the sales team are doing to be that category adviser. And that doesn't mean we're going to have $1 billion of sales tomorrow. However, it makes it much more likely that we're going to have that $1 billion of sales a couple of years from now, and that's what we're building towards. We are in this for the long game without a doubt. Operator: Our next question comes from the line of Eric Des Lauriers with Craig-Hallum. Eric Des Lauriers: Congrats on another strong quarter and a really exceptional year here. My first question, I noticed a big step-up in trade promotion spend in Q4. It's great to see. I know it's been sort of an area of focus. You commented on the -- all the success you had on Instacart, around the Costco, MVM. And I'm just wondering how much we should sort of attribute that nice step-up in Q4 kind of specifically to that Instacart, Costco commentary? And how much of it was kind of more broad-based, a result of your improved profitability and cash flow. I guess, ultimately wondering, is this sort of a seasonal kind of onetime Costco MVM thing? Or does this represent a bit of a step-up or a new normal going forward? Adam Michaels: Yes. Thanks, Eric. And again, the credit goes to the team. Everyone is doing an incredible job. Actually, I love, I'm glad you called that out. It's pretty amazing. So if we're at -- what do we had a 26% gross margin with nearly 10 points of trade. I'll let you guys do the math yourself, you know how that works with gross to net. That puts into perspective what the true gross margin could have been if we're not investing in the future. One thing that I've been looking at is overall just the amount of investments that we've been making between more marketing, right? I think we're up like 70% on marketing for the year, literally a crazy amount of what are we like 4x trade. This is huge -- even stuff like I know you can't add the 2 numbers together, but depreciation, right, because we're investing in equipment and everything. It is amazing what we've accomplished from a profitability standpoint while making these massive investments. I'm super proud of the team. Directly to your point, you've heard me say it before, we will continue to invest the trade as long as our gross margins are in the mid- to high 20s. And you saw us being in the mid- to high 20s this time around. We're able to substantially invest in our trade. What do we get for that trade? Crazy success at Costco, already got an everyday item in the Northeast. So clearly, the ROI is there. Also to your point, we look at it every quarter, right? Peter, Chris, myself, Anthony, we look at trade every single day. And if we have the gross margin, we'll lean into the trade. And equally, the good news is trade isn't set quarters ahead, even months ahead necessarily. If things are getting softer, meaning we know chicken is accelerating now. Obviously, freight is a bit more of a challenge now. That means that we have to pull it back. So again, we look at it week-to-week, month-to-month to decide what the right trade rate is for the quarter. Eric Des Lauriers: Very helpful. I appreciate that color. And then just a follow-up for me. You mentioned some new technologies that you're bringing into Bay Shore. Could you just kind of remind us overall how to think about CapEx for 2027? What kind of equipment technologies are you guys looking at? And how to think about dollar amounts and timing here as we update our models? Adam Michaels: Yes. I mean this is where Anthony is so helpful to us, right? So you know our rule, right? You don't get to spend CapEx if you're not making it from cash flow from operations. We spend -- the plan is to spend mid- to high single-digit millions of dollars a year. Again, only if we have the cash flow from operations, we are very structured in that manner. But yes, there's always more equipment. We're doing exceptionally well now with these -- remember, I spoke to you guys about this map technology that extends shelf life naturally. We just bought 2 more of those. But again, we're talking about hundreds of thousands of dollars, a couple of hundred thousand dollar pieces of machinery, this is not like the grills, if you remember a year or 2 back, where the grills are $1.5 million each. So these are still -- these are smaller things. Again, we want to keep investing. Eric, you've toured our plants before. You know that I love buying more stuff that reduces complexity, that accelerates things, that reduces the need for the manual labor that I can now put the people in other places. So the more I can do that, obviously, the happier I am, happier Anthony is. And obviously, that's going to improve our gross margins. Operator: Our next question comes from the line of George Kelly with ROTH Capital Partners. George Kelly: First from me is on input pricing just around chicken and beef. Wondering if you can update us just on what you've seen recently. And I think especially beef continues to be pressured. Adam, I think you just mentioned that chicken has been a little pressured here recently, too. Wondering how you're planning to kind of adjust pricing or what you're planning to do to respond to what you're seeing? Adam Michaels: Yes. Thanks, George. You guys definitely get your money is worth out of us in the sense that there is no dull day. As you mentioned, beef, it's funny, beef, I'm a little happier about because beef has gone up, as you guys have all seen and it's in the paper. But it's been relatively stable. Now relatively stable high, but still, I'm all about stability. Chris and team have done a great job. Again, we're very transparent with our partners, our retail partners. The goal is not for us to get more margin, but we can't lose money because then we can't help you if we're out of business. So we have been successful in getting the price increases in to maintain our margins. There is some delay a little bit. It could be anywhere from 30 days to 60 days. But beef, I do like the stability, but I'm telling you, I don't think it's going to go down and Alberto is the boss here. I don't think it's going to go down anytime soon, certainly not before the end of summer. But again, we have the pricing. We're still working on more pricing, and I think we're in good shape there. Chicken, again, I'll always find the positive. Chicken is just a bell curve, right? Chicken always goes up around this time of year. It has gone up. We were very lucky that Q4 tended to be a little bit lower. The great news about this is we're contracted, right, for close to 70% of our chicken sales. Now that doesn't mean we're immune to it, right? There's also the 30%. There's also some things we have that are -- have a floor and ceiling, so it moves up. But again, the sales team has done a great job at looking -- we're so much more proactive now. We actually show -- I told you guys about Expana, that's money we spent. It's a forecasting system that's all over the -- it's a global forecasting system on commodities. You could see what's going to happen. They're pretty accurate, and we share that with retailers in advance. And the answer is, hey, guys, we think it's going to go up. I'm putting my price increase in now. And if it doesn't go up, I'm happy to pull it back. I'd be remiss, though, pricing is just one piece of it, right? Skip and his team are doing an incredible job. Again, trimming is a big lever. We have to do more of that. We have to sell more of the bottoms. But there's work that Alberto and procurement are doing to and I look at this positively, there's still so much more for us to do, right? We've been in Bay Shore 7 months. So there continues to be efficiencies from a procurement perspective. From a process perspective, I mentioned earlier that 1 plant, 3 locations, you've heard me say that before, we're moving stuff around all the time. And we had excess capacity in Bay Shore. So that's great. That means we got to do the Walmart, the new Walmart stuff there, the new food Lion stuff there. So with Skip helping us by lowering our costs, with Chris helping us by raising our prices, again, I certainly can't sit back with my hands up, but we are very intentional and very proactive in everything that's happening with beef, with chicken. Obviously, you guys know about what's going on in freight, a little pressure on freight. So we're way ahead of it. Freight is another good example where we're increasing our MOQs, minimum order quantities, right? So maybe we don't get all of the pricing we need passed on freight. But if I could make the process more efficient, if I get more in the truck, guess what happens, my costs go down, and then I could offset that increase. So all these things we're thinking of well ahead of them actually happening. George Kelly: Okay. Okay. That's helpful. And then second question for me is on Crown. So I believe you were -- with respect to the legacy product portfolio there and some of the legacy customer base, you were managing that, potentially taking pricing, potentially sort of exiting some of the less productive SKUs. And that was a process that was maybe starting a few months ago, early this calendar year, I think. Just curious how that's gone. And when we think about the sequential growth at Crown, should we anticipate that sequential revenue number to perhaps dip a little bit before stabilizing and growing? Or like now that you've had it longer, how should we think about the sequential build on Crown's revenue? Adam Michaels: Yes. Look, we're right on track. I think I told everybody that just like we did in Creative Salads and like we did with Olive Branch, the first year of Bay Shore is about getting the economics right, and that means getting price increases, changing up the products to improve the margins. There might -- we might have to exit some items, and we're doing just that. The expectation, again, that I believe I've shared pretty consistently is my hope is that Crown is actually flat for the year, right? We're going to lose some stuff, but then add some stuff. And if we can be flat for the year on Crown, that would be a great success because our gross margin is going to be significantly higher on that flat growth. I think it's amazing, again, what Chris is doing, right? We have one sales team. It doesn't matter what facility it's being produced out of. Chris and his team have had great partnerships with our new customers that we're really excited about. Actually, I haven't even shared yet, but I guess I could share now like we're -- we actually have gotten wins already using our Bay Shore facilities and equipment. We have the shredded chicken, which is awesome, which is a big Bay Shore item. We actually sold that into one of our legacy Mama's Albertsons accounts and Shaw's. We're able to -- I mean, the team is amazing. The team has already sold some of our cheese-stuffed chicken meatballs, legacy Mama's products into a Bay Shore customer with Wakefern. So no, I love what the team is doing. And I'm as bullish, if not more bullish, than I was, oh my goodness, I don't know, when I started this process last February, I think it's been like 1.5 years, it's been crazy. But no, the team is doing a great job, really great job. Operator: Our next question comes from the line of Ryan Meyers with Lake Street Capital Markets. Ryan Meyers: Congrats on another quarter of great progress. And just kind of following up on the last question, thinking about gross margins for Q4 actually came in ahead of what I was looking for and expecting. But should we be using what you guys reported here in the fourth quarter in gross margin as a new baseline? And as we progress through 2027, you guys will continue to trend towards the target you gave in the Analyst Day of the mid- to high 20s? Or is there anything gross margin-wise that we should be aware of in 2027? Adam Michaels: Look, overall, I try as hard as I can not to run the business quarter-to-quarter. Brian asked the question earlier around gross margin. And no, I certainly don't think we're going to -- God forbid, we're negative or even below double-digit growth. But there might be some quarters that were much higher, some quarters that were closer to that because just timing of promotions. Gross margin is similar, right? So we know, hopefully, I've been clear with everybody since I think -- I don't know, I think this is my 14th conference call, if you could believe that. We're in the commodity business. So that means that there's ups and downs throughout the year, right? It's always harder in the summer. I think we were -- we had some tailwinds in Q4 with the lower chicken prices, and we had really good absorption with the Costco rotation. We will continue. Again, I -- we're planning for and I feel confident that we will be higher 4 quarters from now than we were this quarter. I feel really good with that. But from quarter-to-quarter, depending on what season we're in, we might have a point or 2 dip up or down. So I wouldn't expect it just to keep going up because, again, we have to take into account the seasonality of chicken and beef prices, depending on particular promotions and rotations. So hopefully, that's helpful. But I will tell you, and I feel confident that we will have -- our gross margins will be higher a year from now than they are today. Ryan Meyers: Okay. Fair enough. No, that makes sense. And then thinking back to some of your prepared remarks that we had talked about on the call, the emphasis on the branded side of the business and the branded products. Can you remind us what the mix between branded and private label is right now? And then maybe are you seeing more demand for your guys' private label products or more demand right now for the branded side of the business? Adam Michaels: Actually, I don't know if it's just the magic of Chris and his team, but I'm seeing a lot more branded. I mean, so think about it, the last 3 wins, first with Food Lion, 5 out of 5 were branded. Walmart, 7 out of 7 were branded. Target, the 2 items that they pulled -- that they're pulling are both branded. So it seems that it's accelerating. I think I've given you guys examples of stuff that was historically private label like Publix or BJ's, they're now asking it to be branded. So I think that there's more momentum. Look, we've -- remember, I spoke to you guys about this flywheel effect. I think what I say, 65% of people that were on the Instacart that bought in Q4 were new to brand. That means that they had never heard of MamaMancini before, Mama's Creations and they bought. Now they're a loyal customer, and now they're going to look out for more MamaMancini products or Mama's Creations products. So I would expect that we're going to accelerate the percentage of branded because just quite honestly, it sells better. We've shown, we've proven. The velocities are higher when you call it MamaMancini's. Why wouldn't the retailer want that? But that said, if a retailer is absolutely adamant that I am only a private label customer, why would I not sell them a private label item. But you don't get a penny discount, right? Same. That's why Anthony allows me to stay here. Margins -- the price is the same price. It doesn't matter whether it's branded or private label. Operator: Our next question comes from the line of Anthony Vendetti with Maxim Group. Anthony Vendetti: Okay. Just a couple of quick questions. I was just wondering the -- if you can give us an update on the progress of transitioning all your chicken products to antibiotic-free. And what's the expectation for that being completed? Adam Michaels: Yes, it's pretty cool. So many people want us to do the NAE chicken, particularly Chris' wife Rachel. She's all into fitness. So she likes the NAE. We're all there. So 100% of what we're purchasing now is NAE chicken. It's going really well. Anthony Morello, remember the guy that started Creative Salads. He's been doing a great job helping us. He's our chickens art. He got amazing pricing for us. I think I told you another reason why Crown was such a great acquisition is it more than doubled our chicken needs and made us a legitimate player in the marketplace that allowed us to have some pricing power. So we got great pricing. And again, when you're up, right, from a sales perspective, when you're head-to-head with somebody and one is conventional and the other one is NAE, and I'll make it even harder for us or harder for Chris. If we're penny more, would you pay a penny more to be able to have an NAE product to be able to claim NAE, that's a pretty good selling point. So I love what we're doing. It's just one more piece that differentiates us in the marketplace and holds us in place. Again, I gave you the example of 2 head-to-head. We're in there with NAE chicken and someone else comes in with conventional chicken. Wow, yes, they're going to try to save a penny, but it's way worth keeping the NAE chicken. So it's another moat that we've created for ourselves, which is great. Anthony Vendetti: No, that's excellent. And in terms of average, Adam, you mentioned average items carried has gone up. Do you have specific or I'm sure you do, but any specific metrics you can share with us, whether it's across the entire portfolio or in particular stores, let's say, Costco, where the number of items carried in those stores have gone up either on a numbers basis or percentage basis over the last 12 months? Adam Michaels: Yes. I think it's -- like I've shared with you, it's harder because we've been concentrating a lot of our sales, which in the club channel, which is where I think consumers are going, and they tend to have fewer items. I'll tell you that in Q4, for last year, I did look -- so 9 of our top 10 customers were either the same, if not more items than they were a year ago. And the other one that wasn't at the time, all I just got another item back in. So it's just bad timing. But I know that every customer, and you heard Chris say at the Investor Day that his goal and actually his bonus, he has to get 2 new items into each customer. Just the Walmart, the 7 items at Walmart has gotten him on a good start, right, and the 5 items at Food Lion. So I feel great. Everything that we said we wanted to do, we are getting more items in on every major customer. So yes, hopefully, that's helpful. Anthony Vendetti: Okay. That's helpful. And then lastly on Costco. So there's 8 regions. How many regions are you currently in? Are you in all 8 regions? And if you're not, what is it going to take to get into the rest? Or can you talk about just the opportunity to expand the Costco relationship in fiscal '27? Adam Michaels: Yes. So remember, so with Costco, we're always in somewhere we're doing lots of different things. I think if you put a gun to my head right now, I think we're in 3 or 4 regions right this minute. But literally, every month, every quarter, it changes. I honestly don't even share with you guys just because I'd bore you to death on every time we get another meatball rotation, right, just because it's happening all the time. Scott and team are talking to Costco. Actually, they had a meeting today. Actually, I couldn't even fake that. Scott and Chris had a meeting with Costco today on another opportunity. So we're constantly speaking to them. We are top of mind to them, all 8 regions. And again, I think what I'm looking for from Chris and Scott and where the 3 of us are aligned is we're looking for some set of -- it's a combination of a couple of things, permanency. I don't know if that's a real word. And an example of that, like we're an everyday item in the Northeast. There are more opportunities to get that, rotations of our existing products. And I very much hope and expect to be able to share with you guys new items that we're getting in. The only thing that I can't tell you guys is we're going to get into a new region because I apologize, we're in all 8 regions. But I definitely want to be telling you guys we're getting new items in that we haven't done in the past. Just as a reminder, last year or the year before, I don't know, 5 or 6 items, we had a meatloaf, [indiscernible] green peppers, 3 different types of sauces, beef meatballs, chickens -- cheese-stuffed chicken meat balls. Those are just items we've had in Costco recently. So I love Costco as a partner. Yes. I just -- and I expect we're always going to be somewhere, and I'd love it at some point this year, just like we did last year, I would hope to share with you guys that for some point in time, we're in all 8 regions at once. Operator: And we have reached the end of the question-and-answer session. And therefore, I would like to turn the call back over to CEO, Adam Michaels, for closing remarks. Adam Michaels: Thank you, operator, and thank you again to each of you for joining us today. Fiscal '26 showed what this organization is capable of when every element of the strategy is aligned and executing. Our revenue growth, margin expansion, successful integration and strengthened financial position have prepared us for what I believe will be an even more exciting fiscal '27. We have the platform, the people and the products to execute on our vision of becoming the leading national one-stop shop deli solution provider. We are riding a wave that is only getting stronger with a shift that has been reinforced with capital and capacity and an embolden crew who are harnessing these new capabilities. Our strategy has charted a course for deli leadership, and we are unwavering in our commitment. As always, we appreciate our shareholders' continued support and look forward to updating you on our progress in the quarters ahead. Thank you. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Moritz Verleger: Good morning and good afternoon to from wherever you are joining us virtually today, and welcome to the tonies earnings call for the financial year 2025, a landmark year where tonies didn't just meet ambitious targets, but again redefined the global benchmark for connected screen-free children's entertainment. My name is Moritz, and I'm the new Head of Investor Relations. Being born and raised literally 20 minutes from here, it is my pleasure joining tonies on its path from being a local hero to becoming a global icon. With me today are our CEO, Tobias Wann; and CFO, Hansjorg Muller. Tobias will start with last year's business highlights, and Hansjorg will walk you through the financials before we finish with the outlook for the financial year 2026. As usual, after the presentation, we will continue with the Q&A session, and we invite you to submit your written questions through the Q&A function during the presentation already. I will hand over the floor to Tobias to kick things off. Tobias Wann: Thank you, Moritz. Welcome to the team, also from my side again. And also a warm welcome to all of you on the call. Today, we are indeed looking back on a landmark year for tonies. 2025 was full of success and innovation. We strengthened our leading market position as the global #1 for kids audio. All indicators point the right way. Our global footprint is getting deeper and deeper. Our installed base grows. We are now around 11.8 million Tonieboxes activated in more than 100 countries. And those Tonieboxes are in heavy use. Our content portfolio appeals to kids in more ways than ever, inspiration, education, entertainment and now also gaming. But one thing is true as ever. It all starts with listening. And kids are listening close to 5 hours per week with their Toniebox, 5 hours of playtime, creativity and engagement over algorithms and screens. 2025 reinforced the appeal and unique position of tonies in family homes across the world. And it shows us that we are on the right track as we evolve tonies into a true global icon. We once again delivered on our full year guidance. In fact, we surpassed our expectations slightly despite a challenging environment. At the top line, we saw double-digit growth across all markets, increasing group revenue by 36% at constant currencies, an outstanding achievement. DACH returned to double-digit growth at high profitability levels. North America once again showed how much potential we can still capture, growing the largest region in our portfolio by more than 40%, simply remarkable. And a 68% growth rate in Rest of World speaks for itself, particularly when that region already delivers over EUR 140 million in revenue. While we pursue a strong top line growth, we are also very focused on improving profitability. This year, we expanded our margin to 8.6%, a great success considering the environment we've been in. You're familiar with the model that's behind the success. Our installed base grows exponentially in 2025, boosted by Toniebox 2. Every Toniebox we sell fuels subscription-like revenue through figurines and now games. The more boxes in homes, the more Tonies families buy year after year. That flywheel is spinning and it's spinning faster than ever. To give some perspective, not even 1.5 years ago, we celebrated 100 million Tonies sold over a span of roughly 8 years. Now 18 months later, we reached 156 million Tonies sold, 43 million Tonies just in 2025. So we are clearly on a roll, and let's take a look now at the underlying highlights. First and foremost, 2025 was the year of our biggest innovation since the first Toniebox launched back in 2016. With Toniebox 2, we have created a foundation for the next chapter in our growth journey. We opened up our product portfolio for new target groups, new growth vectors and new opportunities. We performed in all of our markets. North America remained a growth engine despite U.S. tariffs. DACH showed how we grow even in a more established market. And Rest of World showed the momentum we built once we really get into a market. One key to the success, strong partnerships, with retailers and with the world's greatest licensing partners. 2025 highlights include new formats with Disney and a landmark collaboration with Pokemon launching in 2026. Let's take a closer look. We have talked a lot about Toniebox 2 before and deservedly so. We had a beloved, innovative product in our first-generation Toniebox. It never went out of fashion. To the contrary, we built a global platform and a huge installed base with it. With Toniebox 2, we took this winning formula even further. We kept everything that made Toniebox 1 a global success, but added new dimensions of interaction and play that open up entirely new growth vectors for us. And once again, we fueled the growth of our installed base. The nuances here matter because this drives both top and bottom line growth. Tonies has always been positioned right at that intersection of tech, toys and content. Now we are adding gaming to that mix. Alongside Toniebox 2, we introduced Tonieplay, a new category that perfectly complements our audio-first approach. We have created the foundation to bring so many new ways to our platform, to engage, to interact and to play. So let's have a look at how our new flagship device introduced itself to kids and families around the globe. Toniebox 2 has become an immediate success. Our fantastic team worked really hard for that. Long before the first Toniebox 2 was sold, we made sure we had high availability across the world. Then, a flawless global launch drove adoption early on and fantastic customer feedback continued that dynamic. In Q4, our most important quarter, around 80% of all Tonieboxes sold were Toniebox 2. We've stopped production of Toniebox 1. So it won't be long before every Toniebox sold is a Toniebox 2, which will fuel our flywheel even more. Our promise to families is simple, we deliver on their real needs, inspiration, entertainment, education, experience that support good child development without screens. Imagination, independence and wonder before algorithms and endless growth. With Toniebox 2, we have taken that promise further. We have now the foundation to build an ecosystem that reaches humans throughout their first decade of life, younger and older kids alike. For us as a business, engaging families earlier and retaining them for longer means unlocking new growth vectors. We've added a younger age group to our target audience, kids between 1 and 3 years. To drive early adoption, we evolved both our product and our content portfolio. We now develop formats designed specifically for children aged 1 and up. The highlight here, My First Tonies. The range of soft, squeezable characters built around the needs of the very youngest. Simple and tactile, they introduce first sounds and language in a gentle, playful way that resonates. In North America, where we first launched them, My First Tonies averaged 10% higher listening time with 1-year olds compared to Classic Tonies. And keep in mind, My First Tonies offer relatively short content tailored to the attention span and instincts of toddlers. So what that tells us, babies and kids love their My First Tonies so much that they are listening to their favorite animals over and over again. Fully developed in-house, this new content format is now ready to win over children all over the world. Now let's turn to the other end of the age range. Here, Tonieplay is our highlight, bringing interactive screen-free gaming to older kids. Approximately half of households with 6-plus year olds that upgraded to a Toniebox 2 have adopted Tonieplay already. That clearly shows the Toniebox can add new dimensions of wonder at a later stage in childhood. And while Tonieplay is a full new category, we are also evolving other formats. Pocket Tonies, our Educational Content Tonies, Book Tonies, our long-form audio. Together, they now account for around 60% of our portfolio for older kids and drive strong engagement. With Book Tonies for example, we are seeing engagement rates up 25% compared to Classic Tonies. That confirms what we always believed, older kids want more depth, and we are delivering it. We are growing our platform, our user base and our formats. And in doing so, we maximize the appeal of our global Tonies brand. One moment that clearly stood out to me happened over the holiday season, our own Tonies Christmas miracle you could say. More Tonieboxes than ever before were unwrapped under Christmas trees around the world. That we expected. But we didn't anticipate this tonies became the most downloaded app across all categories in the app stores, #1 in the U.S., DACH, U.K. and France, ahead of ChatGPT, Meta AI, Google Gemini, Amazon Alexa, Garmin, tech that was gifted to adults. I couldn't help but smile thinking of our global icon ambition. So Toniebox 2 is clearly the #1 choice of kids and parents, and of industry experts, too. We set an industry standard with Toniebox 1 10 years ago, and we are doing it again with Toniebox 2. We are really proud that My First Tonies have already won the prestigious ToyAward in the Baby & Infant category at Nuremberg Toy Fair in January. Given our focus on winning young kids for Tonies, that means a lot. Toniebox 2 won the Best EdTech Innovation Award at the Consumer Electronics Show in Las Vegas this year. And in Australia, we are not just the Overall Product of the Year but also, the Product of the Year for Infants and Pre-Schoolers. So clearly, we are shaping the industry, be it in toys, be it in tech. Tonies leads the way these awards reflect the appeal of our product, our platform and our brand. Let's move from awards to bar charts, maybe not as shiny, but equally exciting. Looking at our markets, I'd like to start with North America, our largest territory and growth engine. Let's be clear, we faced a challenging macro environment with tariffs and economic uncertainty. And despite this, we delivered 40% growth in constant currency while increasing profitability. How did we do this? We listened to our customers and embedded Tonies further and further in families' lives, with higher visibility and through strong execution within our organization. As everywhere else, Toniebox 2 created excitement like we never did before. We captured Times Square. We were featured in Walmart's Holiday TV Spots alongside household brands like Apple and Nespresso. Throughout the year, we delivered day-to-day moments of joy with outstanding collaborations. Just to give you some examples, Ms. Rachel Tonie has seen incredible demand. And Snoop Dogg's Doggyland has been a great success that showcases the diversity of our content in North America. Next up, market presence. Shoppers that look for Tonies, find them. And shoppers that don't know Tonies yet, see us. That's because you cannot miss us in stores of all major retailers as we continue to expand. The impact we have on kids and on family routines in the U.S. is noticeable across the broader toy industry. In 2025, no other preschool toy brand grew as strongly as the Toniebox. We accomplished this in a year in which every international company had to deal with tariffs. One year after the so-called Liberation Day, I can say with confidence and with pride, our team managed it exceptionally well. We increased prices and saw no material impact on demand. That signals very clearly how much families in the U.S. value our products. And we diversified our supply chain ramping up capacities outside of China. The result is what you can see here on the left-hand side of this slide. Distribution channels, whoever wants to be successful in our industry needs to play the omni-channel game, and we are mastering it. D2C, wholesale, marketplace, each channel contributes individually and feeds into another as a self-sustaining flywheel. Families discover us in store, buy online, return to retail and vice versa. Still, retail partnerships are particularly important in building market presence. They underscore our intent to be a staple in family's lives and drive brand recognition. Building on the strong nationwide footprint, we continue to scale. In 2025, we increased permanent points of sale in North America by 12% from 6,500 to 7,300. One highlight, in particular, our long-standing partnership with Walmart where we moved from the consumer electronics section into the toy category. That has been a significant shift because it means every family browsing for toys now finds Tonies exactly where they are looking. That placement drives discovery and ultimately growth. Now let's turn to our most established market, DACH. DACH is not only where our home is, it's where every second family household already owns a Toniebox. 80% of our target group know our brand, and it's our most profitable market. That's why we are particularly pleased that we accelerated growth here again, increasing our top line growth rate by nearly 5 percentage points year-over-year to 16%. Toniebox 2 played a pivotal role creating unmatched buzz around the launch, but we delivered innovation beyond that with Book Tonies and our My First Tonies. Our success in DACH, our blueprint market, underscores Tonies' potential to grow fast, sustainably and highly profitably even in a more developed environment. We didn't only grow with the new signature device and innovation beyond the box. We are also constantly looking for new ways in distribution, growing our retail presence even further. We opened up a new channel with our TikTok Shop, and we successfully tested our first-ever Tonies vending machine. So more than 9 years after selling our first Toniebox in Germany, our customers in DACH are hungrier than ever to buy from us. Let's also have a look at our Rest of the World region. Our international markets, France, U.K., Australia and New Zealand grew 68% in constant currency, a fantastic result considering we've established ourselves across these markets in a relatively short time. France delivered a very strong performance. No other brand gained as much market share as Tonies even in one of Europe's most competitive markets, our playbook works. In the U.K., we gained market share as well and increased our installed base to over 1 million Tonieboxes. And in Australia and New Zealand, 2025 was our first full year of operations, and we are already serving more than 500 points of sale. One of them was something truly special, something we have never done before. Right in the heart of Sydney, we opened the world's first tonies store, a completely new way of bringing tonies to where families are. We gave children memorable experiences, not just through the Toniebox, but by meeting the heroes like Emma Memma, for example. We make the Tonies brand visible, tangible and experiential beyond any shelf placement. In addition, we added 3 major retailers in 2025 in Australia, Target Officeworks and JB Hi-Fi. Brand connection and distribution built at once, that is how we grow in new markets. It's been very important to me and many others here in the company, beyond our products, we lives our values as a company. Tonies is a force for good, across the world, together with our community. We show up in people's lives far beyond the point of sale, art, charity, celebrations. This is what defines us. At Kunstpalast Museum in Dusseldorf, we enabled children to experience art in a whole new way. In London, our tonies cab delivered presents to hospitals during the holiday season. In Toronto, we participated in the Santa Claus parade. And our Toniepalooza events continue to attract more than 40,000 visitors a year. Our mission makes us who we are, and it truly sets us apart. The same goes for our business collaborations. Through our partners, we continuously reach new audiences, surprise fans and deliver on their wishes. The most recent example is our Cuddle Tonies, launched in partnership with Disney. Our work with Disney goes far beyond a traditional licensing relationship. It's actually a true creative partnership. With Cuddle Tonies, we collaborated closely from the very beginning, shaping a more intimate listening experience. The characters speak directly to the child, a calming story-led moment designed for comfort and connection. Disney produced the in-character performances to ensure absolute authenticity. Together, we curated stories, guided the audio experience and layered music and sound design. That way, we bring each world to life in a way that feels uniquely suited to Tonies. The result, continued innovation for us and a new category for Disney, an audio-first plush built around narrative and immersion. This reflects the trust an iconic brand like Disney places in our expertise. We are helping Disney and so many other fantastic brands bring families the best possible experience through audio-first storytelling. And we've got many more partnerships like this. This year, Pokemon will join our lineup. The top global toy property for 4 consecutive years, loved by multiple generations, kids and adults alike. This is a landmark partnership for tonies. Tonies will be the first partner to bring audio storytelling to the Pokemon universe, creating a completely new way to engage with Pikachu and his friends. This partnership demonstrates the power of our platform. The biggest brands want to reach new audiences in our community. We tap into their fan bases and together, we deliver genuinely new experiences for everyone. That reinforces our market position. And just as important, it shows the pull of tonies globally. So before we break down our numbers in more detail, let me recap the strategic progress we made last year. The final quarter of 2025 captured what tonies is all about. Q4 has always been essential for our success, a moment of truth, the peak of our commercial calendar and once again, we delivered -- we increased revenues by 39% in constant currency, surpassing the EUR 300 million mark. We sold 1.4 million Tonieboxes and more than 21 million Tonies in 1 quarter alone. We know how to scale when it matters. We know how to execute in retail with existing and with new partners. Our integrated supply chain is highly resilient, capable of handling exceptional peak season demand. We create unparalleled buzz with great IPs and strong retailer partner integrations. And we onboard new Tonies families fast and smoothly, thanks to our brand-new app, and also a customer happiness team that loves our brand as much as our fans do. It's a great privilege to excite our customers and to deliver a product that spreads joy and happiness, even in peak times. I am proud that in 2025, we proved it again. And with this, I now hand over to Hansjorg, who will take you through our financial results. Hansjorg Muller: Thank you, Tobias. Thank you very much. Now before I get into the numbers, of course, I wouldn't want to miss this milestone. Since December, you all know, tonies is listed on the SDAX and of course, I totally share the excitement of this little listener here. So a very proud of this achievement. Very pleased that our performance as one of the fastest growing German companies is reflected in our share price performance and in our capital markets standing. And let me tell you, we are ready to continue this journey and we're bringing receipts for our confidence. Let's look at the results. The headline is straightforward. In 2025, we delivered. We aimed for group revenue growth above 25% at constant currency, and we delivered 36%. We aimed for North America revenue growth above 30% at constant currency and delivered 40%. Then, we aimed for an adjusted EBITDA margin between 6.5% and 8.5%, and we delivered 8.6%. So we grew or sustainably and profitably, and we did so despite a generally challenging macro environment. I don't need to explain to you the extraordinary situation around tariffs we faced earlier in the year. Being able to pull this off is remarkable for us. Our top line growth was fueled by all markets and our international expansion in particular. Our revenue share from markets outside of DACH has now climbed to 66% as expected as we aspire to become a global icon. Our Toniebox performance was strong and accelerated year-on-year as it should when you launch a new signature device. We're moving according to plan, locking in future figurine and games revenue through Toniebox sales. We improved our adjusted EBITDA margin to a higher contribution margin mainly, and we achieved this despite macro headwinds, including tariffs. Our regional EBITDA margins improved everywhere. North America stood out, giving almost 7 percentage points year-on-year. DACH continued to improve from an already high base. And the rest of the world is already clearly in the green. Then free cash flow. We did make the strategic choice to build up higher than usual inventory levels ahead of the launch of Toniebox 2 and other new content categories to maximize their commercial impact. And while that had an effect on our free cash flow, it was an investment that paid off, especially as we look at the cash available balance, including unused credit lines, EUR 138 million to further fund innovation and expansion ourselves. Now let's dive deeper and start with the P&L. Our focus is and remains on profitable growth, and we have achieved exactly that, as you can see here. I want to highlight a few figures. First, our contribution margin. It was already strong last year at 34.5%. This year, we continued our cost savings programs that together with a continued and expected product mix shift, improved contribution margin by 2.5 percentage points to 37%. This, in turn, was the primary driver to expand our adjusted EBITDA margin, which improved by 1.1 percentage points so that we surpassed the upper end of our guidance. Now let's take a closer look at our full year top line by diving deeper into our markets. You already heard from Tobias that each of them contributed double-digit growth. Overall, group revenue came in at EUR 630 million, EUR 276 million, of which from North America, EUR 214 million from DACH, and EUR 141 million from the Rest of the World. Each market has its own story and pace, but overall, they are following similar dynamics at different scales. Another figure we're keeping close track of is our international revenue share. It continues to grow, and we are very pleased with that. International revenue now accounts for 2/3 of our total as our regions outside DACH are growing even faster than our home market. Let's take a look at our category split next. Toniebox 2 was not only our flashy headliner launched last year, but also a shining star when it comes to performance. Overall, Toniebox revenue grew by 21% in constant currency. That matters because every Toniebox sold is a leading indicator of future tonies revenue. A growing installed base means growing subscription-like figurine revenue, and that structurally drives margin. This year's results also show the dynamic and the expected revenue mix shift toward Tonies figurines and games. With 43% growth, revenue in that category grew faster than others, fueling our margin expansion as planned. Last but not least, the positive development of our Accessories & Digital business contributes to our overall growth with a category increase of 25%. Now moving from full year to Q4. Tobias already discussed the drivers behind our strong year-end performance. I want to focus now on the numbers. Group revenue in Q4 was EUR 313 million, roughly half of our annual revenue as is typical for us. Also in Q4, we saw double-digit growth in every market and every category. We registered above full year growth rates at group level in DACH and in North America, a testament to our ability to accelerate our momentum when it matters. On the right-hand side of this chart, you can see the category split. Here, I'd like to provide some context on the Toniebox growth rate. In Q4, we recorded 18% growth year-over-year, slightly below the full year figure of 21%, which is simply because Q3 already captured significant launch effects from Toniebox 2. On to segment reporting. Last year, we achieved profitability in all regions for the first time. This year, all markets improved even further. So we're progressing according to plan. Looking at our EBITDA margin, DACH continues to be our main profitability driver. The 24.6% EBITDA margin is a further improvement from an already high base, supported by operating efficiencies. DACH remains our profitability blueprint that we translate to other markets. We are seeing the success of implementing that playbook when we look at North America. A margin improvement of almost 7 percentage points year-over-year, we're nearing double digits. It's an outstanding development, driven by a favorable product channel mix as well. And Rest of the World is a success story of its own. Despite still being in a very high-growth phase, despite having just completed the first full year in Australia and New Zealand, we're already expanding our Rest of World margins. Finally, on group level, we improved EBITDA margin from 7% to 7.7%. Our journey of sustainable, profitable growth continues. Now I want to take a closer look at the development of our adjusted EBITDA margin. Overall, the increase here was supported by a higher contribution margin, which is comprising COGS, licensing and fulfillment. As mentioned earlier, notable benefits were improvement in COGS, cost of goods sold, driven by product mix shifts towards figurines but also our continuous cost savings efforts, which more than offset the negative impact of U.S. tariffs. With regards to licensing, increasing the share of Tonies Originals sold, supported licensing costs favorably while the ongoing U.S. wholesale expansion improved further our fulfillment costs. These 3 positive drivers more than made up for the negative 1.4 percentage point other category. That was related to beneficial one-off effects in 2024, which we then didn't have in 2025, mainly driven by foreign exchange and an adverse one-off effect in 2025. As a result, we increased our adjusted EBITDA margin by 1.1 percentage points to 8.6%. One of my favorite slides. As we said before, our business is resilient. Our organization is resilient. 2025 proved it. And we are on track to show it again this year. Markets will remain volatile, and our proven toolbox to manage this uncertainty is not part of our reality. Tariffs didn't go away, but we managed them well. We now have a stable response set up. We have sourcing flexibility across production, and we have effective commercial levers. We made targeted price adjustments successfully, means our toolbox of measures proved effective throughout the year. We also have a toolbox to address production challenges. Device components, namely memory chips, have increased in cost for us as well as for other players in the tech sector. So in addition to the just mentioned commercial mitigation measures, here, we're also equipped with expertise and access to alternative more cost-effective memory technologies. So the Toniebox inventory that we equipped us with and the memory chip inventories that we secured already give us flexibility to shift production towards these more economical alternatives, if necessary. Consumer sentiment is and remains key for our demand. But we have a great advantage over classic entertainment properties because we offer a value proposition that families tend to not compromise on, as time has shown. We offer great experiences for their children. That gives us strong stickiness even in a challenging consumer environment. Our platform drives loyalty, and key IP launches continue to drive acquisition and engagement. And lastly, we're prepared to mitigate currency effects. Our business model is, to a significant extent, naturally hedged on the bottom line, and flexible financing for working capital puts us in a solid position. 2025 has shown how resilient tonies is. We're capable of executing our strategy even in times of volatility. I see us well prepared for 2026 and another successful year of profitable growth. And with that, let's take a look at our guidance. Back to you, Tobias. Tobias Wann: Thanks, Hansjorg. 2025, as you have heard, was a great year, and we are convinced 2026 will be, too. Our ambition to grow tonies sustainably and profitably is reflected in our guidance. For the full year, we expect group revenue growth of more than 20% in constant currency to above EUR 760 million. North America revenue growth of more than 30% in constant currency, and an adjusted EBITDA margin between 9% and 11%. As always, this guidance assumes no material deterioration of consumer sentiment or force majeure events. We continue to scale tonies globally, profitably, sustainably from a position of strength. So we are excited for another great year. And with this, I'd now like to open the floor for your questions. Moritz, please take over. Moritz Verleger: Thank you, Tobias. [Operator Instructions] I see the first questions are already in. Why did free cash flow decrease from 2024 and become negative? Tobias Wann: Thank you. That's a perfect question for the CFO. Handing it over to you, Hansjorg. Hansjorg Muller: Thanks, Tobias and Moritz. Yes, happy to take that one. I think let's start with the fact that 2024 was a milestone year operationally, also financially, and we achieved our targets probably earlier than expected. For 2025, what's really different is that we intentionally built up strategic inventory to fully support the launch of TB2, but also 3 new content categories, right? We established 3 new categories, which is Tonieplay, My First Tonies and Plush Tonies. This kind of investment didn't happen in 2024, nor is this ongoing recurring investment that we'd expect in 2026 in a comparable fashion. So it's not entirely comparable year-on-year, and considering that forward-looking, although we're not guiding on free cash flow, we expect this to improve coming out of this onetime inventory buildup to secure commercial success for Toniebox 2 in the new categories. Moritz Verleger: Thank you. The next question is on the guidance. You guided for 25% growth in 2025 and delivered more than 30%, congrats, but why do you expect decelerating sales growth for 2026? Tobias Wann: Thanks for the congrats. I'm happy to take this one. So let me actually make this really clear. 2025 was a great year for tonies. And we really believe 2026 will be as well. I may want to -- I think I read the question in a sense that I probably should put our guidance into perspective here. In 2025, we added around EUR 150 million in revenue. So for 2026, our 20% constant currency growth implies at least another EUR 130 million, so -- while we do this, while improving our overall profitability. So in percentage terms, that's naturally less than 2025, given the significantly higher baseline. But in absolute terms, this is a very continued strong, very strong momentum. And let's also be clear, we are delivering this despite geopolitical headwinds that do dampen customer -- consumer sentiments across the board. And I want to be explicitly saying that we have never experienced consumer sentiment issues and are confident also for 2026 because we have such a strong, high-quality product. So outside of DACH, we expect the growth rate of more than 30%, and they will be supported by new franchises, as I explained, by exciting new product innovations. DACH will continue to grow. We've seen exceptional growth, and we clearly expect it to continue, probably not necessarily always double-digit growth rates here. But again, we are very confident that this will be another great year for tonies. And I think this is very, very strongly reflected in the guidance that I have presented. Moritz Verleger: Okay. Next one is on sourcing and memory chips. How is the shortage and price increases in memory chips affecting your earnings forecast? What additional costs were incurred in securing the necessary memory chip capacity? Tobias Wann: Hansjorg, since you actually talked about memory chips already, you may want to take that one. Hansjorg Muller: Sure, will do. Yes, great question. And I think I'll start with -- according to our estimate, any remaining volatility that the memory chip market should give us, we think we've already covered in our guidance or captured in our guidance. So we don't expect this to break out from there. Of course, we have significant mitigating actions that we've undertaken the last months. I've already mentioned earlier, we have access to and experience with various technologies, changing between memory chip components to more economical ones where necessary. We also equipped ourselves with inventory. Like we've pointed out earlier, we have a significant inventory balance at the end of 2025. This plays into a strategic advantage now because it actually gives us the ability to potentially change production to lower cost memory components. Plus, we have, of course, the inventories that we secured already on those memory components. Hence, all of these are reasons together with the commercial levers that we have, just like we did for tariffs, that gives us confidence that we've covered any potential fluctuations, uncertainties already in our guidance. Moritz Verleger: Okay. Next one is on geographic expansion. If you're saying Australia and New Zealand had an exceptional positive start, are there any plans to use Australia and New Zealand as a blueprint for further geographical expansion? Tobias Wann: Thank you for that question. I actually love to talk about this topic in Australia specifically. And yes, I agree, 100%, Australia and New Zealand has been an exceptional success. We have a great team in Australia. We had, from the very beginning, a very strong comprehensive retail penetration. And this is clearly also a very powerful proof of concept of what I call usually or describe usually as global pool, right? We have, as I said before and said in many previous calls, the Toniebox is active in over 100 countries. That's what I mean with significant global pool. Moving into a market like Australia just shows how we capitalize on that global goal as we enter and scale in those markets that we see being already penetrated in some way, shape or form with Toniebox. And yes, I mean, Australia, it's been our fifth major market launch. And every time, we have, we find and improve the playbook. We are tailoring our go-to-market strategy to each -- so each of those market entries is more efficient or better than the last, and we continue to do so. And we will continue to leverage this global momentum or global pull also in the coming years. However, I hope you understand that I'm at this very moment, not ready to share specific time lines or country sequences for the next phase of our road map. But very clearly, you can see with Australia and all the other countries, we know what we do here. We're getting better, and we have those -- all those remaining countries that we can still enter and that creates a lot of excitement on our end as well. Moritz Verleger: Okay. The next question is a double question on Tonieplay. Can you give a first indication on how Tonieplay sales per Toniebox 2 are trending? And the second part of the question is, could you share first indications how Tonieplay impacts customer behavior and stickiness. Weekly playtime has increased by 10 minutes year-over-year. Was it driven by Tonieplay? Are there any cannibalization effects on other product groups? Tobias Wann: There's a lot of specific questions. So let me dissect this. What I can tell you, Tonieplay had a really strong start, as I've shown you in the presentation in its respective target age group. And the user feedback that we are getting is extremely positive. For example, you can see this going through the website we use on tonies.com. As I said, approximately half of households that have a 6-plus year old and that upgraded to a Toniebox 2 have adopted Tonieplay already. That's a significant number. And it shows that the Toniebox, the new Toniebox can add new dimensions at a later stage childhood. That's exactly what we wanted to prove and it's working. However, I mean, obviously, I understand where you're going with the question, but we needed to also be patient. We will definitely need at least a good 12-month full cohort life cycle to actually draw deep conclusions. But I can tell you, from all I can see and all we are seeing here as a team, we're off to an exciting start. And with regards to playtime and the second question, if I remember it correctly, again, we're only 6 months in the market. And it's relatively early to draw those conclusions. We see a very positive momentum, and we see clearly customer adoption, we see stickiness. At this point, we are not commenting on any specific metrics, but I can tell you that we see a significant share of our users already showing strong adoption and retention of Tonieplay over multiple weeks. And let's also be clear, there's strong IP coming up. We talked about the Hasbro games. Those are extremely exciting games. We -- the one we can talk about in public is the MONOPOLY Game, and I've played it myself, and I can tell you playing MONOPOLY with Toniebox is an awesome experience. I can't wait for all of you to try this out. So there is so much to come, and there's so much to explore, I wouldn't even think of talking about cannibalization and these type of things. This is all growth layering on top of growth. Moritz Verleger: Okay. The next question is on inventory. Can you shed some more light on your relatively high inventory levels in terms of composition, product categories, etc? Tobias Wann: Hansjorg, do you want to take that? Hansjorg Muller: Sure. In fact, it's similar what I stated earlier. Our strategic inventory buildup was mainly driven by supporting the TB2 launch, but also, we established 3 new categories, right, Tonieplay, Plush, and My First Tonies. And this -- investment and launch of this magnitude hasn't happened in the year before, nor happening in the year after. So that's why this year stands out. I would also add our fiscal year ends in the same week as our most busy peak period of the year. So by definition, whatever we do in that last month has quite an impact on financial KPIs. But operationally, we get a lot of credit for what we did here because it secured us that commercial moment. And we have the benefits throughout a longer time period now throughout 2026. Moritz Verleger: Okay. The next question is on interest and taxes. Interest income was EUR 8 million in the first half of the year and EUR 0.3 million in financial year 2025. Could you explain this? And what we should expect in financial year 2026? You paid cash taxes in 2025. How much tax loss carryforwards do you have left? And what tax rate should we expect for '26, '27? Tobias Wann: Hansjorg, you're in such a great flow, I'll let you continue. Hansjorg Muller: Yes. I think there's 2 questions here. Let me try to answer this without getting too technical. So the first one on interest. Yes, there was -- we were tracking positively for the first half of the year and then negatively for the second half of the year. The main driver, actually the sole driver of this is the valuation of our warrant shares, which basically led to this benefit at lower share price in the first half of the year. And then, our share price strongly climbed during the second half of the year, leading to an inverse position. The good news here is that our warrant shares actually either settle or expire throughout this year. So at the end of this year, we will have quite a simplified capital structure and this volatility nor financial impacts will no longer have to be reconciled. So simplification to be expected here. Tax, yes. This is another point where 2025 -- 2024 and 2025 are a bit difficult to compare like-for-like because 2024 was in relative terms, a lot more driven by tax loss carryforwards than 2025 is, and we don't guide on effective tax rates. But I think the 2025 environment is probably more representative of what's happening going forward. Moritz Verleger: Okay. In the interest of time, let's take 2 more questions. The first one, let's call it, on sales channels. Where is your Tonies vending machine located? Could you imagine rolling it out further? Tobias Wann: Yes. I love the question. Thank you for that one. It's a real highlight. This is why I'm smiling, and something that we have discussed for a while here as a team and worked on. And it's a typical example of great tonies inventions and engineering capacity. So the first real life vending machine, Tonies vending machine is located in Aachen here in Germany in our home DACH market, not far from Dusseldorf. So it's, as I said, a really good example of us constantly exploring channel innovations. I also talked about our own store in Australia and New Zealand. We talked about TikTok Shops and all of the things and now the vending machine. While I cannot share any specifics here on rolling out those vending machines globally, I can tell you, and you can hopefully see, I am and we are excited about this. And this one vending machine is already really working well. So there is no reason to assume that this will be the last. Moritz Verleger: Okay. Thank you. The last one on licensing costs. Licensing costs in North America seem to be structurally lower than in the DACH region. Hence, once the mix in North America shifts towards figurines, could contribution margins in North America exceed the current DACH levels of 38%. Tobias Wann: Hansjorg, do you want to take that? Hansjorg Muller: Thank you. I think, again, quite a few questions lumped into one. Let me try to dissect. The main driver of our licensing ratio, the percent of licensing cost of revenue is, in fact, time from launch because the further away we progress from launch, the more our mix will evolve towards figurines. That means, the more figurines, the more licensing cost. So expect right, as we grow also in the U.S., we are not as far progressed from launch as in DACH, for example. So that mixed development will further continue. A second point, I would mention here. And by the way, this mix evolution is also our main profit driver, whilst there may be an impact on licensing, the main driver of our ever-growing profitability is the further away from launch we are, the further our mix shifts to more profitable tonies versus the box, right? This is all as planned per our standard, call it, business model. The second component that I would mention here is the fact that licensing ratios always breathe a bit from year to year because it's primarily driven by what we launch in that year, right? And sometimes you satisfy a certain listening need better with a licensed product and sometimes you satisfy better with an own production. We don't do this necessarily to drive an improved licensing ratio. We do this to best satisfy the listening desires of our listening -- of little listeners, and the licensing ratio is an outcome. And yes, of course, structurally or high level, we want to be -- we want to have a healthy combination of licensed and owned. Moritz Verleger: Okay. This concludes our Q&A session. In case of open questions, we will follow up during the next couple of days. Before Tobias finishes with the key takeaways, let me quickly highlight the next events to come until our Q1 results on May 13. Hansjorg and myself will be at Metzler Small Cap Days in Frankfurt on Thursday, followed by IR-only events in Munich and Madrid. Following Q1, the 3 of us will be at the Berenberg European Conference in New York and organize the roadshow with Kepler in Paris later in May. The next big milestone on the events side will be our first Capital Markets Day since IPO on June 18 in London. We have a great agenda in mind with full Management Board attendance in person on that day. So Tobias, please take over again for the key takeaways and final remarks. Tobias Wann: Thank you, Moritz. Thank you all for the great questions. I really enjoyed it. It was an engaging discussion, I think. Let me close today's presentation with a short summary as always. We delivered in 2025, and we are ready for a strong 2026. Key takeaways. First, 2025 was a very strong year across all markets. Despite macroeconomic challenges, we grew in every market by double digits. We expanded our margin, we achieved our goals and we delivered our biggest ever product launch. Second, Toniebox 2 has taken over a smashing success with customers and partners alike. We have not only launched a new flagship product, we have created strategic levers for future growth. Third, we will continue our profitable growth journey in 2026. We aim for double-digit growth across all markets, again with expanding our profitability. Fourth, Moritz just mentioned, at our Capital Market Day in June, we will share more details on our midterm road map. We have big ambitions, and we are excited to share how we will continue to grow into a global icon. And finally, tonies is well positioned for 2026 and beyond. We have a clear plan. We have a strong pipeline. I'm really excited to tell you much more in the coming months. So now, thank you all for joining today's call, for your continued interest, and for your trust in tonies. Take care. Goodbye.
Global investors are cautious, but not betting against stocks. Earnings are likely why.
Wall Street executives said they were stress‑testing or monitoring private credit portfolios as the asset class comes under scrutiny, but said they were comfortable with their exposure.
Bank of America's latest survey shows investor sentiment at its most pessimistic level in months—but that may be a contrarian signal for stocks.
Senate Banking Committee Chair Tim Scott said Tuesday that his panel will hold a hearing next week to consider President Donald Trump's nominee for Federal Reserve chief, Kevin Warsh, and predicted that the Senate will confirm Warsh “in the next several weeks.”