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The recent Middle East conflict triggered unprecedented oil price volatility, with futures spiking to $120 before retreating to $80. I've increased exposure to energy stocks like SLB, HAL, and OIH, citing ongoing upside potential despite recent gains.
Energy markets are rattled as U.S. gas prices hit their highest levels since July 2024 amid Middle East tensions and supply risks in the Strait of Hormuz. Oil volatility surged after conflicting signals from the Energy Department, while AI momentum lifted Nvidia (NVDA), Chinese ADRs, and Oracle (ORCL) following strong earnings.
Odds are rising of a full-blown bear market soon, driven by peaking global liquidity and rising oil prices draining capital from risk assets. Global M2 money supply has likely peaked; without rapid central bank intervention or fiscal stimulus, risk assets face significant downside.
US stock benchmarks formed a decent bottom after a rough 10-day stretch. With the ongoing rebound still timid, we attempt to spot if the rebound will pursue.
Cheaper valuations for the sector's shares look like an opportunity.
Operator: Good day, and thank you for standing by. Welcome to the Q4 2025 KVH Industries, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Anthony Pike. Please go ahead. Anthony Pike: Thank you, Tanya. Good morning, everyone, and thank you for joining us today for KVH Industries, Inc.'s fourth quarter results, which are included in the earnings release we published earlier this morning. Joining me on the call is the company's Chief Executive Officer, Brent C. Bruun. A copy of the earnings release and a recording of today's call will be available on our website at ir.kvh.com. This conference call contains forward-looking statements that are subject to uncertainties that may cause actual results to differ materially from those expressed in these statements. Words such as “expect,” “may,” “intend,” “anticipate,” “will,” and similar expressions identify forward-looking statements, which include projections, plans, initiatives, and other future events. We undertake no obligation to update these statements, and you should review the cautionary statements in our most recently filed Form 10-Q under the heading Risk Factors. We will also discuss adjusted EBITDA, a non-GAAP financial measure. Our press release defines this term and reconciles it to GAAP net income or loss. Brent? Brent C. Bruun: Good morning, everyone, and thank you for joining us. The maritime connectivity market is undergoing a fundamental transformation, and 2025 was the year KVH Industries, Inc. proved it is positioned to lead it. Let me explain what I mean. For years, the maritime satellite industry was built on GEO technology: reliable, established, but limited in speed and capacity. The arrival of LEO constellations changed everything. Vessels that once relied on modest bandwidth can now access high-speed, always-on connectivity at sea. New providers are entering the market, customer expectations are rising, and the addressable opportunity is expanding rapidly. KVH Industries, Inc. saw this shift coming. We made a deliberate strategic decision to reposition our business around LEO airtime, subscriber growth, and high-value managed services. 2025 was the year that strategy began to pay off. Here is what we delivered. In the fourth quarter, service revenue grew to $28.3 million, a 27% increase from 2024. We contracted for our second Starlink data pool, a 300% increase from our initial pool, representing a $45 million 18-month commitment. We made this commitment with confidence. Demand for LEO airtime across our customer base is strong and growing. And we delivered our strongest adjusted EBITDA quarter of the year. For the full year, service revenue grew 2% to $98.4 million. That headline number understates the real momentum in our business. Stripping out the $7.7 million in U.S. Coast Guard revenue that did not reoccur in 2025, underlying service revenue grew 11%, a meaningful reflection of what our core maritime connectivity business looks like. We grew our subscriber base by approximately 2,000 vessels, a 28% increase, ending the year with more than 9,000 vessels under contract. That is a significant and growing installed base that generates recurring revenue and creates the platform for everything we are building. We surpassed 1,000 CommBox Edge subscribers. CommBox Edge will be integral to our vessel-based managed IT solution, which we plan to introduce in the coming weeks. This is the next chapter for KVH Industries, Inc., moving beyond connectivity into a broader, higher-value managed service relationship with our customers. We also expanded our global footprint, successfully completing the integration of a maritime communications customer base in the Asia-Pacific region, adding more than 800 vessels and more than 4,400 land-based subscribers. And we delivered $8.1 million in adjusted EBITDA for the full year, including $3.1 million in the fourth quarter alone, reflecting the operating leverage we are beginning to generate as the business scales. None of this happened by accident. We made deliberate choices: investing in LEO capacity, growing our subscriber base, reducing operating costs by 17%, and selling our Middletown facility to strengthen our balance sheet. The result is a company that is leaner, more focused, and better positioned than it ever has been. That financial strength gives our board the confidence to act. Given our recent top-line growth in a rapidly growing market, improving profitability, positive free cash flow, and no debt, our board continues to view our common stock as undervalued. With that said, the board has authorized an increase in our share repurchase program from $10 million to $15 million, which we believe is a prudent next step in returning value to our shareholders. Looking ahead, the satellite communications industry is undergoing a significant transformation. We are still in the early stages of that shift. In the coming years, new LEO-based providers will come to market, expanding the opportunity further. With our growing subscriber base, our demonstrated ability to integrate and scale new satellite technologies, and our vessel-based managed IT solution launching in the coming weeks, we believe KVH Industries, Inc. is uniquely positioned to capture this expanding market and deliver differentiated, high-value services to our customers. We enter 2026 with momentum, financial strength, and a clear strategy, and I have never been more confident in KVH Industries, Inc.'s direction. With that said, I will turn the call back to Anthony to review the financial details. Operator: Anthony? Anthony Pike: Thank you, Brent. With respect to our fourth quarter financial results, service gross profit was $9.8 million, which is up $1.1 million from the prior quarter. Service gross margin was 34%, which remained flat compared to the prior quarter. Airtime depreciation expense, which is a non-cash charge, represented 89% of service revenue in the fourth and third quarters, respectively, which impacted these gross margins. It is also worth noting that our cost of service sales related to our legacy network will reduce in 2026 as our minimum bandwidth commitment reduces by $7 million compared to 2025. As Brent mentioned, total subscribing vessels at the end of Q4 were just above 9,000, which is up 1% from the prior quarter and 28% from the beginning of the year. Vessel growth in the fourth quarter was lower than prior quarters this year due to the termination of two Southeast Asian low-ARPU fishing fleets. These two fleets contributed very little to our service gross profit. Total subscribing vessels were up 8% in the fourth quarter excluding the loss of these fleets in Q4, and 37% from the beginning of the year. Q4 operating expenses totaled $10.5 million compared to $9.5 million in the prior quarter. However, Q4 operating expenses included $900,000 of nonrecurring costs, which related to transaction costs from the acquisition we completed in Q4 as well as some restructuring costs. As Brent mentioned, our adjusted EBITDA for the quarter was $3.1 million, and capital expenditure for the quarter was $2.4 million, of which $1.4 million related to our ongoing ERP project and the fit-out of our new U.S. headquarters. Both of these projects will conclude in 2026. This compares to adjusted EBITDA of $1.4 million and capital expenditure of $1.6 million in the third quarter 2025. Our ending cash balance of $69.9 million was down approximately $2.9 million from the beginning of the quarter, and this decrease was driven by the acquisition we completed in Q4. Overall, we are very pleased with the fourth quarter performance, which shows a continuation in the execution of our strategy to focus on our recurring revenue business and the transition from our legacy to a LEO-driven maritime satcoms market. Our subscribed vessel count continues to grow, churn in our legacy network is being managed well, revenue has increased for the third quarter in a row with consistent margins, and our costs have remained under control, all of which resulted in our strongest quarterly adjusted EBITDA performance of the year. With all that considered, our guidance for 2026 is revenue of $130 million to $145 million and adjusted EBITDA of $11 million to $16 million. This concludes our prepared remarks, and I will now turn the call over to the operator to open the line for the Q&A portion of this morning's call. Operator? Operator: We will now open for questions. 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question will be coming from the line of Christopher David Quilty of Quilty Space. Your line is open, Chris. Christopher David Quilty: Thanks, gentlemen. Good results here. I had a question for you just first on the acquisition. I cannot remember when you bought it in the quarter. Is that $2.5 million sort of a good run rate that we should assume for that business on a go-forward basis? Anthony Pike: Yes. The business is actually a bit larger, Chris. But yes, $2.5 million is really the net impact. We did have a number of vessels that we were providing our VSAT service through this particular customer, and obviously, we will pick up the incremental margin on that, but $2.5 million per quarter is a pretty accurate close estimate. Christopher David Quilty: And I am assuming part of the acquisition is you will—would you actively convert those over to LEO, or let them sort of mature on their own? Brent C. Bruun: No. We will actively look to understand our customer base, we will work with them, and we will provide them with the best solution that is available for them. Our LEO-based services, to a large degree, are the best services that we could provide today. As we have demonstrated, we are doing great in providing LEO services. We are growing our installed base, the usage is up, and we have our new data pool, so it goes without saying that is our focus. Christopher David Quilty: And on the new data pool, Anthony, should we assume similar margin trends that we have been seeing with the prior pool? And the length of that of 18 months, I think, is shorter than your original plan, or was that also 18 months? Brent C. Bruun: Let me jump in there first, Anthony. It was a similar 18-month commitment. The fact of the matter is we depleted the pool prior to 18 months, so it might appear like it was less, but we still had some runway to go on that, which we did not need, which we are hopeful will be the same case with our next pool. As far as the margins, we anticipate consistent margins, but as I am sure you are aware, Starlink has implemented a terminal access charge, which in essence is a pass-through, so that might have a slight impact on the overall margins for the Starlink piece of our business, but I will let Anthony answer the specific question. Anthony Pike: Just as Brent said, really, the only change we expect on margins is probably driven a little bit by the terminal access charge. From a dollar gross profit perspective, that should not be materially affected at all, and the new deal we have should help us maintain our margins. Christopher David Quilty: Very good. And when you look at the product margins here, obviously, I actually just signed up for Starlink, and my antenna is free now—at least on the consumer side. We have seen some pressure across enterprise. Is that a business where you think you can maintain a breakeven, or does that become a loss leader over time? Brent C. Bruun: The plan is to maintain breakeven, but it is an enabler to the airtime. Breakeven or slightly better. Christopher David Quilty: Got it. Great. I will circle back into the queue. Brent C. Bruun: Thanks, Chris. Operator: I am showing no further questions. This will conclude today's program. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to the Kohl's Corporation fourth quarter 2025 earnings conference call. All participants are in a listen-only mode. After the speakers' remarks, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Trevor Novotny, Director of Investor Relations. Thank you. Please go ahead. Thank you. Trevor Novotny: Certain statements made on this call, including those regarding our projected financial results, business outlook, and future initiatives, are forward-looking statements. These statements are based on current expectations and assumptions and are subject to certain risks and uncertainties that could cause Kohl's Corporation’s actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the factors described in Item 1A, Kohl's Corporation’s most recent Annual Report on Form 10-K, and as may be supplemented from time to time in Kohl's Corporation’s other filings with the SEC, all of which are expressly incorporated herein by reference. Forward-looking statements relate to the date initially made and Kohl's Corporation undertakes no obligation to update them. In addition, during this call, we may refer to certain non-GAAP financial measures. Please refer to the cautionary statement and reconciliation of these non-GAAP measures included in the investor presentation filed as an exhibit to our Form 8-Ks as filed with the SEC and available on our investor relations website. Please note that this call will be recorded. However, replays of the call will not be updated, so if you are listening to a replay, it is possible that the information discussed is no longer current, and Kohl's Corporation assumes no obligation to update such information. With me this morning are Michael Bender, our Chief Executive Officer, and Jill Timm, our Chief Financial Officer. I will now turn the call over to Michael. Michael Bender: Thank you, Trevor. Good morning, everyone. Thank you for joining Kohl's Corporation’s fourth quarter earnings call. Before I begin this morning, I want to express my sincere gratitude to the entire Kohl's Corporation team. 2025 was a year of substantial change and notable progress. I appreciate the way our teams adapted and committed to new ways of working. We are ending 2025 in a stronger position than we started, though important work remains ahead of us. Thank you for your continued dedication and belief in Kohl's Corporation. During this transformational time for our business, we are taking a long-term view. We take accountability for our performance each quarter, while making decisions for the long term with the understanding that progress will not be a straight line. Over the past year, our efforts have been focused on resetting our foundation. This focus is intended to stabilize the business and strengthen our operational ability to build for a stronger future. In 2025, we made meaningful progress and this aggregate work has us moving forward in the right way. While we have made progress addressing issues and strengthening areas of our foundation, that work will continue to be the focus for most of 2026. Addressing operational opportunities and modernizing our processes and ways of working is critical for what comes next for Kohl's Corporation. There are no shortcuts. We are confident that the work we are investing in now is essential to improving our business and getting back to growth. During today’s call, we would like to discuss three items with you. First, we will review our fourth quarter performance. Next, I will provide an update on how we will execute against our key initiatives in 2026, and lastly, Jill will give more details on our Q4 financial performance as well as give guidance to 2026. Although we are not pleased with our top-line results in the fourth quarter, as comparable sales decelerated to down 2.8%, we are pleased with our strong inventory discipline and expense management helping to deliver diluted earnings per share of $1.07, well ahead of last year. We also strengthened our balance sheet, ending the year in a strong cash position with no borrowings on our revolver. While not the primary driver of these sales results, severe weather was responsible for about 70 basis points to our comparable sales decline as approximately half of our stores were closed during the winter storms toward January. Beyond the impact of winter storms, we have identified two primary factors impacting our Q4 top-line results. First, we have an opportunity to better execute our fall seasonal business. The softness in this category uncovered some operational opportunities for us regarding our inventory depth and allocation. We did not consistently have the right product in the right quantity in the right places. This issue was outsized in our smaller format stores which meant we were not consistently able to meet the demand in key moments. However, we continued to experience positive growth in our year-round businesses including the emphasis on core basics and essentials, which were not impacted by inventory allocation issues. Second, we needed to offer breakthrough pricing during our key holiday shopping periods to drive more excitement for customers to choose Kohl's Corporation. During the fourth quarter, we lost some competitive ground during high-traffic shopping windows, including Black Friday, Cyber Monday, and the week following Christmas. We know consumers are more value conscious and there is opportunity for us to regain share during these windows through strong promotional statements that better align to our customer needs and priorities. Consistent and differentiated value statements across marketing, in-store, and online will be a catalyst to improve our performance. While acknowledging and addressing these issues from Q4, we remain committed to the path we are on to improve the business. This year, we made significant progress resulting in a 300 basis point improvement in our comparable sales from last year. There were a number of areas that drove progress this year, beginning with our Kohl's card customer who improved 120 basis points from the third quarter, now running down mid-single digits. While this performance is not where we ultimately want it to be, we are encouraged by the significant progress we have made from the first half of the year, where these shoppers declined in the mid-teens. The re-engagement of this shopper is instrumental to Kohl's Corporation’s long-term success as they are the most productive customer we serve. Additionally, we remain pleased with the performance of our non-Kohl's card customers and new customer acquisition. Overall, we are proud of the progress we have made toward re-engaging our Kohl's card customers while continuing to attract and serve new customers. Next, we have made solid progress across our proprietary brand portfolio. Although these brands were down 3% overall in the quarter, our proprietary apparel was flat with the decline primarily driven by our home business. Our juniors business, which grew 8% in the quarter, continues to benefit from investments in our proprietary brand, SO. We are furthest along in our progress with this category as it has faster turns and shorter lead times. We are excited about taking this momentum from the juniors business and expanding the efforts throughout the remainder of the women's category. Petites is another area within women's that continued its great momentum, running up 26% to last year. This category benefited from the in-store presence we built with key proprietary brands LC Lauren Conrad and Simply Vera Vera Wang. Our men's and kids departments also showed strength in proprietary brands, both running positive comps in the fourth quarter. This strength was driven by brands like FLX, Tek Gear, Jumping Beans, and Apartment 9. Our home business underperformed largely due to softness in seasonal decor, particularly within our proprietary brands. We bought too deep, which limited customer choice for the various holiday celebrations. We also have an opportunity to be more competitive by offering better value through sharper price points in key seasonal items. Moving to the remaining lines of business, our accessories business continues to outperform. Our Sephora business grew 2% with comparable sales improving to flat in Q4. This was driven by our expanded holiday gifting sets and continued strength in our fragrance and hair care categories led by brands such as YSL, Valentino, and Paioli. Excluding Sephora, our accessories business increased low single digits led by the expansion of Impulse to nearly all doors in Q3 helping deliver over a 40% comparable sales increase versus last year. We also saw positive performance in our jewelry business with strength in our fashion and bridge jewelry. Our footwear business underperformed the company due to softness in active footwear and boots. We expected our boots business to remain soft in the fourth quarter and proactively reduced our buys based on pricing expectations. The strength in dress and casual footwear across men's and women's businesses partially offset this category softness. Beyond our category performance, it is also important to acknowledge that the consumer is behaving differently in this challenging macroeconomic environment. We know our core low- to middle-income customers continue to face financial pressure and they are seeking value. As we expect this customer behavior to persist, we are adapting our strategies to ensure we are delivering great value to better serve this customer. We have taken immediate action to address the opportunities and to build upon our strengths. As we move into 2026, we will continue to work on our key initiatives. This work is essential for setting up Kohl's Corporation for long-term success and will take time. In 2026, we are committed to continuing the progress we laid out in 2025 and have clear, actionable insights that we can build on. Starting with our first initiative, offering a curated and more balanced assortment that fulfills the needs across all our customers. As we work through our merchandise strategies, our goal is to invest in key styles and categories while reducing redundancy to ensure we have a purpose behind each product and brand. By exiting out of unproductive styles and offerings, we can reinvest into higher turning items to drive a more balanced assortment. In our apparel businesses, we are focused on increasing our investment into our basics, while also right-sizing our assortment offering in trending categories. By strengthening our core apparel business category, we ensure that our customers can consistently rely on us for the essential, high-quality items they need for daily life. In addition to our core business, we continue to find ways to curate our assortment into more fashion and relevant categories such as denim, dress, and activewear. In our women's business, we are broadening our denim assortment with more styles and fit through our key national partners such as Levi's and enhancing proprietary brands such as LC Lauren Conrad and Sonoma. Additionally, we will build on the momentum in juniors by introducing the Office Edit by SO to provide a new compelling assortment in the casual and dress categories. For our men's business, we are investing in the key item programs within proprietary brands such as Tek Gear and Sonoma, and we will expand upon successful brands like FLX with our new offerings of FLX Golf, premium pant, and fleece. In our kids business, we will differentiate with our proprietary brands by introducing merchandising statements and an expanded assortment of under $10 entry price points in SO and Sonoma. We will also expand key brands like Jumping Beans into Baby and FLX Kids to all stores by Q2. Last, we recently launched our new proprietary tween brand, Sea and Sky, in Q1. We are driving the next phase of growth in our Sephora at Kohl's Corporation business by strategically curating an exciting assortment. We successfully launched MAC, a leading makeup brand, in over 850 of our Sephora at Kohl's Corporation stores this month. This launch immediately delivers enhanced newness and a strong value proposition to our customers. Recognizing that newness is vital in the beauty industry, we are also preparing to expand assortment with proven brands like Tarte and Charlotte Tilbury. Additionally, we see further opportunity in 2026 to build on the successful launch of our Impulse initiative. Following the rollout of an Impulse queue line in nearly all of our stores, we have identified more ways to inspire our customers and drive highly incremental, impulsive shopping behaviors. To capitalize on this, we are implementing the Deal Bar and an Impulse toy tower, both of which are specifically designed to offer compelling value on items like seasonal home decor and trending toys with all products priced under $10. We are excited to roll out these offerings this spring to maximize key seasonal moments including Valentine's Day, Easter, and Mother's Day. In footwear, as we transition to spring, we expect our dress, casual, and active categories to gain momentum. We are focused on improving our inventory position and reducing overall choice to deliver better clarity on the sales floor while ensuring greater depth in key styles our customers are seeking. And lastly, in our home category, we will deliver more value through our investment into key proprietary brands such as The Big One, while simultaneously growing newly launched brands such as Mariana, Hotelier, and Mingle & Co. In addition, we will leverage key national brand partners who continue to deliver newness and innovation, including brands like Shark and Ninja. And finally, we are taking immediate action to recapture our seasonal decor business through offering greater customer choice and sharper price points on key items. Our second initiative is our focus on reestablishing Kohl's Corporation as a leader in value and quality. Value continues to be a focus and is especially important given the macroeconomic uncertainty. The majority of our customers are low to middle income. These consumers have been consistently under pressure and are being thoughtful with how they are spending their discretionary income. It is clear that when we offer value, it resonates with this customer. Kohl's Corporation has an opportunity to deliver more consistent, competitive value to all of our customers. In 2025, we took important initial steps to enhance our promotional strategies and increase brand eligibility in our coupons. These actions proved to be a critical first step, resulting in an improved trend particularly among our Kohl's card and loyalty customers. In 2026, our focus remains on building upon the momentum we have established and deepening our commitment to delivering undeniable value to every customer. We are executing a strategy that includes simplifying our promotional statements and deploying more personalized real-time offers. This allows us to be more targeted, rewarding our most loyal and deal-savvy customers while ensuring a compelling value breaks through to a broader customer base. We are also making meaningful investments to amplify our proprietary opening price point brands, which provide exceptional quality at an accessible price. These strategic adjustments will strengthen our competitive position and ensure we deliver incredible value to all customers. A key element of Kohl's Corporation’s value proposition is the power of our high-quality proprietary brands. This year, we are committed to increasing our investment into proprietary brands’ inventory, marketing, and experience. In the women's business, we are excited about the work we are doing to key proprietary brands, LC Lauren Conrad and Tek Gear. In stores, we are elevating the experience to improve findability and inspire our customers. To achieve this, we are adding improved signage for better wayfinding, highlighting key styles with mannequins, and adding “find your fit” communication to better help customers find the product and fit they desire. This experience will be completed with our LC Lauren Conrad brand in Q1, and we will complete the Tek Gear experience in Q2. We are also excited to build off the momentum of another strong proprietary brand in FLX. Last fall, we introduced FLX to our kids category in 300 stores. Currently, we have expanded this to 600 stores in Q1 and expect it to be rolled out in all stores by Q2. In addition to the investment we are making into our proprietary brands’ inventory and experience, we will be supporting them with a new marketing campaign celebrating our “By Kohl's” brands. The “By Kohl's” campaign will put a spotlight on the great brands that customers can find only at Kohl's Corporation. We will focus on several “By Kohl's” brands by highlighting style, quality, fit, and aesthetic. To accomplish this, we will be leveraging our Kohl's mom this spring, utilizing a strong cross-channel campaign, including fun social content, TV, and digital video. We are also creating a landing page on our website and app to better highlight the proprietary brands to our customers. And lastly, our third initiative is delivering a frictionless experience across our omnichannel platforms. A frictionless experience starts with reestablishing trip assurance for our customers. To address this, we are making deliberate changes to both our planning and supply chain process. Specifically, we are committed to investing in depth with plans to increase it in the high single digits while simultaneously curating our choice counts for greater clarity and relevancy. This strategy includes protecting our replenishment receipts and heightening our in-stock levels, all while improving inventory turn to ensure the freshness of receipts. These adjustments are designed to ensure that the right product, with sufficient depth, is available at the optimal time across all our stores. Encouragingly, we are already yielding positive results from the implementation of some of these disciplines. We successfully executed a substantially smoother transition of our spring receipts heading into 2026. Our spring seasonal categories have started strong. To complement our investments in clarity and depth, we are focused on delivering a more consistent shopping experience through improved inventory allocation, which directly strengthens our omnichannel performance. By increasing inventory depth and improving in-stock levels, we are better positioned to leverage our store-enabled fulfillment tools such as BOPIS and BOSS. These omnichannel options provide our customers with greater speed and convenience while allowing us to utilize our ship-from-store capabilities more efficiently. We will continue to refine these tools to ensure a frictionless and reliable experience across all touch points, regardless of how or where our customers choose to shop. In addition to stores, we have an opportunity to modernize our capabilities and enhance our digital experience. We are focused on delivering a better experience and deeper connections through advanced personalization and contextual relevance, making every interaction with Kohl's Corporation more meaningful for the customer. We are enhancing our omnichannel capabilities across all digital touch points such as search, findability, and availability, as well as elevating our store-enabled services as key differentiators to maximize convenience and create the seamless, integrated shopping experience. And last, we are actively modernizing our site structure and foundational data architecture. This ensures our digital ecosystem is discoverable, high-performing, and fully prepared for a future driven by AI and agent technology. Now before I hand the call over to Jill, I would like to reinforce my perspective on the year. We have made meaningful progress in strengthening our foundation. I am confident that we are on the right path. While our fourth quarter results presented clear opportunities, we have already taken immediate action and are poised to build upon the strengths we have established. We are leaving 2025 in a measurably stronger position than when we entered it, and we are unwavering in our commitment to driving continued progressive improvements throughout 2026. I will now turn the call over to Jill. Jill Timm: For today’s call, I will provide additional details on our fourth quarter results and outline our fiscal year 2026 guidance. Net sales declined 3.9% in the quarter and 4% for the year. Comparable sales declined 2.8% in Q4 and declined 3.1% for the year. The decline was primarily driven by a decrease of transactions, specifically in stores. Store sales declined mid-single digits for both the fourth quarter and the full year, primarily due to a decline in transactions. Additionally, as Michael noted, our stores experienced a negative impact in January due to unforeseen weather conditions. Digital sales grew low single digits in the fourth quarter and were flat for the year. This performance was primarily driven by higher traffic, offset by lower conversion. We are pleased to have established a critical point of stability, ending the year flat. However, our goal was to drive more substantial growth in Q4, following the headwinds of the previous year. Our digital business has a higher penetration of our Kohl's charge customer, and although we are seeing improvement in this customer’s performance, it is still down mid-single digits, pressuring our digital business. In addition, we need to further elevate conversion through better availability and findability, which are being addressed through the inventory strategies Michael outlined. Moving down the P&L, Other Revenue, which consists primarily of our credit business, declined 9% to last year in Q4, an improvement from the third quarter driven by better Kohl's card performance. For the full year, Other Revenue declined 10%. As a reminder, at the beginning of the year, we shifted certain credit-related expenses from SG&A against our Other Revenue line. For the upcoming year, we will lap this adjustment so our Other Revenue should normalize and reflect the relative performance of our Kohl's charge customers. Gross margin in Q4 expanded by 25 basis points to 33.1% of sales. This expansion was driven by continued strong inventory management resulting in lower clearance markdowns. This was partially offset by increased cost of shipping as our digital penetration increased 220 basis points to 35% of total sales for the quarter. For the full year, our gross margin expanded by 34 basis points to 37.5% of sales. SG&A expenses decreased $76 million, or 4.9%, in Q4. Excluding the shift of credit-related expenses, SG&A declined 4.1%. The decrease in SG&A was driven by lower store, marketing, and fulfillment-related expenses. For the year, SG&A expenses decreased 4.1%, and excluding the shift of credit-related expenses, SG&A declined 2.8%. Depreciation expense was $174 million in Q4, a decrease of $9 million. For the year, depreciation declined $43 million to $700 million. The decline was mainly driven by closures of stores and one of our e-commerce fulfillment centers last year. Interest expense was $59 million in the fourth quarter and $288 million for 2025. This was a reduction of $15 million for the quarter and $31 million for the full year. The decrease was a result of the execution of an open market debt repurchase at a discount of $11 million in the fourth quarter and lower utilization of the revolver throughout the year. Our tax rate was 18% in Q4 and an adjusted tax rate of 16% for the full year. Adjusted net income in the fourth quarter was $125 million, resulting in adjusted diluted earnings per share of $1.07. Adjusted net income for 2025 was $186 million, or adjusted diluted earnings per share of $1.62. Moving on to the balance sheet and cash flow, we ended the year with $674 million of cash and cash equivalents, an increase of $540 million from 2024. Inventory decreased approximately 7% compared to last year. Our disciplined inventory management has enabled the more timely flow of transitional receipts, positioning us with stronger, fresher spring inventory as we enter 2026. Operating cash flow was $750 million in Q4 and $1.4 billion for the full year, a $700 million increase from 2024. Our capital expenditures were $64 million in Q4 and $372 million for the year. In addition, we achieved our goal of fully exiting the revolver with no borrowings at the end of the year, and we further deleveraged our balance sheet by buying back $87 million of long-term debt at a discount to par value during the quarter. In 2025, we returned $50 million to shareholders through our quarterly dividend. As previously disclosed, the Board, on February 25, declared a quarterly cash dividend of $0.125 per share payable to shareholders on April 1. Now let me provide details on our outlook for 2026. We believe the actions we are taking as well as the strategic initiatives laid out by Michael will allow us to continue making progressive improvements for the business in 2026. Our outlook reflects our confidence in our ability to execute against these initiatives with great discipline while considering the uncertain macroeconomic environment we continue to operate in. We remain cautious as our core low- to middle-income customers remain choiceful with discretionary spending. Our outlook for 2026 is as follows. For the full year, we currently expect net sales and comparable sales to be in the range of a 2% decrease to flat versus 2025, operating margins to be in the range of 2.8% to 3.4%, and earnings per share to be in the range of $1.00 to $1.60 per share. Now let me share some additional guidance details. We expect Other Revenue to be down 4% to 6%. The decrease is due to lower accounts receivable balances driven by sales underperformance in 2025 by our credit customer. Gross margin to be flat to down slightly, driven by increased proprietary brand sales offset by an increase in digital sales and promotional offers as we drive more value for our customers. SG&A dollars to be in the range of down 0.5% to down 1.5%. These savings will be driven by lower store payroll, marketing, and supply chain costs. Depreciation and amortization of $700 million, interest expense of $285 million, and a tax rate of 22%. We will continue to manage inventory tightly and expect inventory to be down low- to mid-single digits, and capital expenditures to be in the range of $350 million to $400 million. As we anticipate the new initiatives to take time to have an impact, we expect sales to build throughout the year. And although we are pleased with our start to Q1, specifically in our spring, seasonal, and year-round businesses, there is a lot of quarters still ahead of us. We expect Q1 comparable sales to be down low single digits with the remaining metrics balanced by quarter. We will now open for questions. As a reminder, to ask a question, please press star followed by the number 1 on your telephone keypad. Our first question comes from Charles P. Grom from Gordon Haskett. Please go ahead. Your line is open. Charles P. Grom: Thanks very much. Can you just talk about the “By Kohl's” campaign that you are going to launch this spring, what it is going to involve, and then laterally, what is your expectation for comps in 2026 amongst your Kohl's cardholder given the recent improvement that you saw in the back half of 2025? Michael Bender: Maybe I will take the first half of the question, Charles, and Jill can handle the second part. As far as the “By Kohl's” campaign, we have actually launched that already, and it is a continuation of our effort to make sure that the power of our proprietary brand portfolio is showcased and emphasized. So there is a marketing element to it that brings some of our most important proprietary brands together like FLX and others. It is also an opportunity for us to continue down the path, as we have been talking to you over the last three to four quarters, about the importance of the proprietary brand portfolio to our customers in general, but in particular to those that are Kohl's card-carrying members. It is a mouthful, sorry. And so it is an important next step for us to be able to showcase those brands in a way that elevates them and allows us to tell stories in an inclusive manner across both of our platforms of stores as well as digital. Jill Timm: In terms of the Kohl's charge holder, you know, obviously, it has continued to lag our performance this year, but showed stepped improvement from down mid-teens to down single digits at the end of the year. I would expect this to continue to improve based on a lot of the efforts that we are putting forth. First, they do over-penetrate in proprietary brands, so as we are making that investment back into those brands, it has resonated with that customer, one, because it provides incredible value. It is opening price point. We also need to restore the trip assurance with this customer, so investing back into depth will help with that as well, so when they come in they can find what they are looking for. A couple other key things that we have done is the coupon eligibility resonated with this customer as well as, as we have bought back into jewelry and petites. So I think you are going to see a build in this customer. It will probably still lag in the front half of the year. I think it will catch up in the back half of the year. The good news is our non-Kohl's charge customer has been running positive, and we continue to see new customer acquisition up as well. So those are definitely driving our business. We just need to get this customer back into parity with our comps, and I think that will happen more in the back half of the year as some of these new strategies start resonating more with that customer. Charles P. Grom: Okay. Great. And then just on the credit revenue line, you are guiding down 4% to 6%. Is there any geographical shift across the P&L that is happening? Or just maybe explain why you expect it to be down? And then just bigger picture, is there a way to size up how much of an impact the shift away from your proprietary brands over the past handful of years has actually had on your credit business given that I believe that the cardholders likely over-index to owned brands versus nationals? Just trying to understand the implications on some from credit because of the shift away from mix in recent years, and I guess the opportunity that that indirectly presents. Jill Timm: Yeah. I would say it is going to lag, so that is why we are down and lagging from a sales perspective. We are coming into the year with less accounts receivable, which is what really generates that interest revenue and the late fee revenue for us. So it is always going to lag. You make your purchase in month one. We do not start billing you till 30 days later. You do not start getting accrued into interest for 30 days, and then it really builds and accumulates. So it is always going to lag top line just given the lag of those purchases. I would agree. As we move into proprietary brands, they definitely over-penetrate into that category. We were really void of an opening price point in our store over the last couple years because we had not invested into proprietary brands, and this customer was finding that value elsewhere. The good news is she continued to shop us. We just got less frequency from this customer. So as we brought back coupons, we have brought back proprietary brands, we are starting to see that reaction to our customer, which is really what is driving that 120 basis point improvement in that comp from Q3 to Q4 and really moving from down mid-teens to down single digits by the end of the year. So big improvement. We continue to expect to see improvement, but it will lag on that credit revenue line just because of how the interest and late fees accrue the balances. Michael Bender: Got it. Charles P. Grom: Thanks a lot. Operator: Our next question comes from Mark R. Altschwager from Baird. Please go ahead. Your line is open. Mark R. Altschwager: Thank you. Good morning. Michael, you outlined several initiatives today. Which of these do you view as the most immediate catalyst for recapturing market share in 2026? Furthermore, how should we think about the scaling here, where these assortment pivots and other initiatives provide enough lift to drive a return to comp growth? Michael Bender: Yes. Thanks for the question, Mark. I would say, just carrying on Jill’s comment around proprietary brands, that has been a significant focus for us in the past, call it, eight to nine months or so in terms of restoring what we believe to be the proper balance. Again, we are not targeting a specific number that we are looking for from a mix perspective, but proprietary brands, for a number of different reasons, are really a focus for us in bringing and restoring the activity that we need with our customer. Jill mentioned the importance of the Kohl's credit card-carrying customer. They index heavily toward proprietary brands, so that will be a big focus for us. I think also beyond that, making sure that the continuation of the brands that we will be pushing forward, both national as well as proprietary, will be a big part of that. Our focus right now also is on making sure that we provide, I will say, maximum value to our customers. And so you are seeing us offer more in the way of, call it, $10 and under items. So look at toys as an example. We have a toy tower that we are rolling out to stores that has price points $4.99, $7.99, $9.99. Then the Deal Bar, which we have recently rolled out as well, which, if you walk into the entry of our store, provides another impulse opportunity and a pickup for customers, beyond what you can see as you are checking out in our queue line. So those are just a couple of examples of where we are focused right now. And more to come. Mark R. Altschwager: Thank you. And Jill, to follow up on the EBIT margin guidance, calling for about 50 basis points of compression at the low end. What specific headwinds are captured in that lower end, that 2.8% floor? What are you incorporating in terms of changes to tariff rates, if any, and just any further color you can provide on the expected cadence for the year on EBIT margin would be helpful. Jill Timm: Yeah. I think the biggest thing from an EBIT is on the down two it is just harder to leverage our SG&A costs just given the fixed-cost nature of our business. So I think we have done a really incredibly good job of bringing down our expenses over the last couple of years. We will continue to operate with that discipline into 2026 as well, but I think it just puts pressure on the EBIT expansion. Obviously, at flat, we are expanding the margin. So I think that shows our discipline in terms of how we are managing expenses, that we are able to have some expansion on the top end of the guidance. From a margin perspective, I think we have managed our tariffs incredibly well. We have actually offset that. So I do want to give a shout out to our sourcing and buying teams on how they have managed this dynamic environment in terms of still being able to expand our margin this year by over 30 basis points and 25 basis points in the fourth quarter. Next year, really, we are going to manage it the same way. So we think we have the right mitigation tactics to manage through tariffs. The big thing that we want to make sure that we are going after is value. We know we serve the middle- to lower-income customer. We know they have to be choiceful with their discretionary spend. And so a lot of what we are talking about today is how we can stand for value, whether that be through our proprietary brand portfolio, through the price points that Michael indicated with the $10 and under, also making sure that we are going to be able to break through with our promotional values as well. We want to give ourselves some room to be able to do that. We know our proprietary brand will be a tailwind in the mix as we definitely move more into sales there. But we also see digital as a growth opportunity. We were happy to get to a point of stability and putting a flat comp for the year, but we really think this can be a growth engine for us as well into 2026, which will then add some pressure to margin. So those are kind of some puts and takes. So margin, I would say, is not going to be a driver of the EBIT expansion, but rather it is going to be around our expense management and then obviously getting to that flat comp allows you to expand it on the top end. Michael Bender: Thank you. Operator: Our next question comes from Robert Drbul from BTIG. Please go ahead. Your line is open. Robert Drbul: Just a couple of questions from me. On the women's business, as you think about this year and I think the progress that you made last year, where are the biggest opportunities ahead? And I guess on the same line of questioning would be just in home, I think you think about what you have learned sort of Q4 in home, soft home, tabletop. Can you just talk through that category as well? And just curious on sort of online versus in-store, how you would merchandise that category? Thanks. Jill Timm: Sure. So from a women's perspective, I would say one big callout is juniors, Robert. It was up 8%, really seeing momentum behind our SO proprietary brand. Which, as you know, juniors is our fastest-turning business. We are probably the most mature in that curve in terms of how we went after our proprietary brand portfolio. So I think that is kind of the litmus test for us and really what we are going to continue to chase after, and that is where women's will continue to lead to. I think there are a couple of opportunities if I think about women's. We are in a denim cycle. So you are going to see us leaning into our proprietary brands LC Lauren Conrad and Sonoma, but also great national brand partners like Levi's. So that is going to be coming to life in our store as well. We know we had a little bit too many choices on our floor, so they are really going to be curating that assortment and putting more depth in so we can be in stock on those basics that we need. We went a little too far, I think, this year into core knits and sweaters, so we know we have an opportunity to curate that better as we get to the back half of the year. I am really excited about our spring seasonal selling. A lot of the changes that we learned from our missteps in fall seasonal, we have corrected, and we are starting to see that momentum as we called out with our spring seasonal businesses, which will only grow in volume as we move into March and April. So we are excited about that opportunity in front of us. So I think that women's really has the right formula from a juniors perspective, and they are going to continue to follow that as we move into the new year. From a home perspective, I think what we learned there was on seasonal decor, people like more choices. And so we went a little too deep in some categories. And we needed to give more choices from that perspective. So they have already corrected from that. We will move into it. So we know as we go into next year, do not go too deep on the Santa Claus and snowman, but have a little bit more array from a choice perspective and then having sharp price points. And so as we think about where we can add more value, particularly as we get into that seasonal business, that is where we will go. So we have a couple of places along the way. We did some small testing in Valentine's Day. See Mother's Day, Father's Day. So we have some moments to make sure we get it right before the big holiday season, but we feel good with the progress that that team has made and the steps they have already taken to correct what we saw during the holiday season. Robert Drbul: I guess, and if I could just ask a follow-up, which would be on the marketing expense, when you think about sort of how you are approaching reengaging with some of your credit customers, but also noncredit customers. Where did you end up in marketing, and can you just talk through the plans for 2026 in terms of, you know, leverage, not leverage, in terms of how much you are going to spend? Thanks. Jill Timm: Sure. I think marketing this year, we end up close to a similar ADAS as last year. Kinda that is my metric for how I look at the productivity. What I would say is we always look at opportunities. That team has done an amazing job of finding productivity and making our working media work harder for us. So it has been a way for us to save some money. However, we spend a lot of time with our Chief Marketing Officer about where and how we can invest back into drive sales. So if we see opportunities, we are definitely making those investments and making sure we get the return back off of the money. So even though there is some savings, I think if you look at that productivity factor, you will see it is pretty in line with where we have been. And it is a place that, if you look at versus where we plan to be, we will tend to invest back into because we know we can get the sales, particularly in digital. It is a very easy way for us to invest in, get some search terms, get some paid traffic in moving our digital business forward, and getting really good ROI out of it. So I think we have a very good system in terms of how we measure marketing, then how we make those investments to make sure we are getting the return back from an organization perspective. Michael Bender: Great. Thank you very much. Operator: Our next question comes from Dana Telsey from Telsey Group. Please go ahead. Your line is open. Dana Telsey: I know you have a very store base related to profitability. How are you thinking of openings and closings this year? And the small-store boxes? What is the game plan and remodels? And then, Michael, as you talked about the initiatives for top line growth, how do you see the framework of the store changing either by category, obviously at the impulse lanes? What does footwear and active mean for you this year? Thank you. Michael Bender: So I will try to take some of those questions. Thanks, Dana. The question around stores, and we have talked about this before, I think we have a store base of 1,150 stores roughly. The vast majority, well over 90%, are profitable. And as we look at that store base on an annual basis, we will continue, from a hygiene perspective, to make sure that we believe that those stores are positioned in the right spot and delivering what we need. So I would not anticipate any sort of grand plan of saying we are taking stores out or adding stores at this point. The focus for us is actually on optimizing what we already have, and we will be focused on making sure that we continue to push the stores’ productivity as far as we can going forward. We will look at stores like we do on an annual basis, like I said, and to the extent that there are opportunities for us to either relocate, those are opportunities for us. We can do that. But no major change in the store base expectation at this point. Jill Timm: I think, if footwear’s doing well from a dress casual perspective, we are seeing some green shoots there, particularly, like, in sandals. We knew boots was going to be tough. We bought that down just given the exposure to tariffs in that category. So that was an anticipated piece. I think the big piece of it for us, as you mentioned from an active perspective, is getting innovation and some movement from an innovation perspective in the footwear business. We have been working really closely with our top three partners. I think we do expect to see some momentum build in that category throughout the year, but I would say we would probably be set better from that perspective for back-to-school into fall, just because of the change that it does take to get there. So I would say, from a footwear perspective, I expect it to probably lag the front half of the year, but by the back half of the year, get back into parity from a comp perspective, just given we do have a big active footwear business and that will take some time to bring that innovation through from that perspective. And then in terms of, I think, your last question, if I wrote it down correctly, was the top-line framework for store changes. I think, you know, we have made some big changes in the last couple years. Obviously, Sephora coming in was a big moment for us. We had some missteps with the jewelry, so bringing jewelry back in, showing that and showcasing that, having accessories have a home behind the Sephora pad, and moving juniors back to the front of the store were some big showcases that we had in 2025. Clearly, putting juniors in the front was working. That cross-shopability with Sephora had persisted and been consistent for us, which is a good thing. Impulse lines and queueing lines have come in. We now have that in all stores, which we finalized at the end of the year. So that was a white space opportunity for us. And you are now going to see gifting zones as well, and those are going to be with the $10 price points. You are going to have more table towers, whether that be impulse, gift deals, and also in toys. And then we did some in-store showcases of our brands. So you will see, if you come in, we are showing more around Lauren Conrad. So you are going to have elevated signing, mannequins, really a much more curated assortment. That should be in stores now. And then Tek Gear will be the secondary brand that we are going to be supporting as well to showcase it. So investing in the proprietary inventory. We are investing in the marketing to build awareness, and we are investing in the in-store experience, as well as you are going to see it on our digital experience as well for the customers to showcase those brands. So really putting our effort behind growing back those proprietary brands which, as we know, provide incredible value and also resonate with that core loyal customer of ours as well. Michael Bender: And, Dana, just to add on to what Jill was saying, what you are hearing her talk about is trying to bring some fun and excitement back to particularly the store environment. So we talked to you before about the storytelling nature of—and what is important in being able to not only curate the right assortment, which is what our customers are asking for, but also do some storytelling. So whether it is the use of mannequins, the way we position an LC Lauren Conrad brand, like Jill just mentioned, in our stores, those are all important aspects of us being able to actually bring some fun back to the Kohl's Corporation environment and make sure that what we are offering is not just an item at a price but also a story around it, so that whether it is the entire outfit that we can display and talk to from a mannequin standpoint, those are the kind of things that are important for us that we think will help enhance the experience in-store for our customers as they engage with us. And then similarly online as well, telling that same story so there is a pull-through of that thread all the way through the experience that a customer can have where they want to engage with us online or in-store or all the different versions in between, like BOPIS and the rest. Operator: Our next question comes from Oliver Chen from TD Cowen. Please go ahead. Your line is open. Oliver Chen: Hi, Michael and Jill. Regarding trip assurance, what is the timing of that happening? And there are some things you can do sooner you have been doing than making happen. But how does it phase in quarterly? And as we also model Other Income, should we know about the comparisons and drivers throughout the year, as in profitability? Your company is quite sensitive to that line. It sounds like a lot is under your control, but what could be risk factors to the upside and downside on Other Income for us to consider? And third, you have been on an inventory management journey for many, many years. I think it is different now, but what is different in terms of breadth versus depth? It sounds like there are some decisions that were made that were self issues in terms of what you are choosing to do with basics and others. Thank you. Michael Bender: Yeah. So on the trip assurance question, Oliver, what I would tell you is that that work is well underway, and we have been focusing on that in large part in 2025 and it will continue into 2026 as well. The whole focus there is our customers count on us to actually have what they are looking for, whether it is online or in-store, particularly in-store. And what we have been doing is curating the assortment to the point where we have the appropriate level of choice and in many cases that means reducing the choice offerings that we have but at the same time actually going deeper on that so that, particularly in the basics area, and that work will continue. Our teams, collectively across the organization, have been working diligently on that over the last several months, and we feel like we are making good progress in that area. Jill, do you want to talk about the income? Jill Timm: Sure. I think when you reference Other Income, you are referencing the Other Revenue, Oliver. But it is going to be about our credit sales, and I think, you know, that is where it is going to ebb and flow. So as I mentioned, coming out of this year we have a lower accounts receivable balance just because it has been lagging. We need to build that back. So the guide of down 4% to down 6% will lag the comp just because of the ways that that build happens, the way that it revolves, and it generates that revenue. So I would say, you know, we are staying down flat to down two. We know our credit card customer needs to continue to improve. I think, you know, we can see that improvement more in the back half of the year, but it will still cause a lag on the Other Revenue line. So I think if you kind of look at that spread that we gave you, it is probably a good spread to use as we move into the current year. There are no reclassifications, so it is very pure this year. So it should be an easier way for you to be able to model that. Oliver Chen: Has been a great new recruitment tool. What is your latest thinking on the best adjacencies next to that, and where are we given that there are lots of nice conversion opportunities? And lastly, Michael, this is simple but hard, but what do you think it takes to positive comp in stores? Like, there are a lot of great things happening, but what is your visibility or your thoughts on which ones will be the critical drivers just to get back to positive comps on multiple years of negative comps? Thank you. Michael Bender: Sure. On the Sephora question, we feel very good about the partnership there. In terms of the adjacencies, you know, we have moved juniors across from Sephora. So we feel like that was a positive move and is paying dividends for us in terms of a customer coming in for a Sephora purchase and then turning out and seeing what is available. That is a younger, oftentimes more diverse, more digitally savvy customer that comes in to shop for Sephora, and we want to make sure that the product that they see outside of the Sephora portion of the store is consistent with what they are looking for, and that move with juniors has been a big part of that. As far as getting back to growth, I do not want to pinpoint a date and a time to say it is going to happen. But the kinds of things that we are doing in terms of the progression that we have been on over the past year in particular, but over the last couple of years, I would say, are, I think, indicative of the progress that we are making. We have mentioned proprietary brands. We have mentioned the culling of the assortment. Those are all things that we think are right. I talk to the team all the time here about—I use the analogy—that we have got to get the product right, because that is what people ultimately come for. Experience and all the other things that are wrapped around it are important as well, and we are working on those as well. But we have got to get the product right to make sure that that is what the customer continues to come back around for. So we will continue to focus on building that space to get back to growth eventually. What I would tell you is that if you look at the progression that this organization has been on over the last, call it, a couple years, we had a negative 6 comp two years ago. We produced a minus 3 comp this past year in 2025. We are giving you guidance, as Jill mentioned in her commentary, of being flat to down 2. We came out of the fourth quarter roughly around a 2% if you back out the weather impact of the 70 basis points that we mentioned. And so we are guiding on the low end of where we are already performing. And if you build these capabilities on top of that, that is what we believe will get at least back to flat. And we have the ambition, obviously, to get back to growth through this eventually. And that is what the aim is. We understand that that is the lifeblood of any business, to grow. But we also want to be measured and disciplined in the way that we get there, particularly against the backdrop of the environment that we are operating in from an economic standpoint. Oliver Chen: Thanks for those details. Appreciate it. Best regards. Operator: Our last question today comes from Michael Binetti from Evercore. Please go ahead. Your line is open. Michael Binetti: Hey, guys. Thanks for all the detail here. Just on the comps, Jill, you suggested, you know, that we would be building to the flat to down 2% through the year. Maybe just a thought on trying to connect that to your comment on first quarter. Sounds like seasonal goods and some of the holiday decor was the headwind in fourth quarter, but the decor was stronger if the spring seasonals are getting better and the core was stable. How should we think—I am trying to think about trends in first quarter relative to the negative two to flat for the year. And then I am also curious. It sounds like, you know, with the coupon and shifting to expanding the coupon a little bit deeper, as you said, shifting to more of the entry-level price points to drive value, sounds like a good idea, very important. Can you just talk about how you are thinking about the range of outcomes for units versus AUR that could support the negative two to flat comp for the year? Jill Timm: Sure. So I think from a comp perspective, Michael mentioned it well. We anchored the low end on our current performance. If you look at fall, we exited the year down two. The flat shows that we are going to have progressive improvement throughout the year. So, really, by starting at the low singles that I guided for Q1, you would actually say your exit rate has to get positive to exit at a flat. So we do know we have to make some changes. Obviously, we had some missteps with fall seasonal. We made those corrections with spring. It started out great. It is a small portion of the business right now, so I think caution. I do not want to become overly optimistic. That is, you know, as you know, not my nature, but we feel good with that business. We feel good with our year-round business, which has actually continued to perform well even through the fourth quarter. So I think we are cautiously optimistic there, but there are a lot of macro headwinds. And we know our consumer is low- to middle-income. They are under a lot of pressure. Obviously, a lot of things happening today that are taking their discretionary income. So we also want to be mindful of the environment that we are operating in. We are kind of balancing that as we enter into this year. We also know a lot of these investments into depth are going to happen as the year progresses. We mentioned footwear. We know we have some new innovation, but we do not expect that till the back half of the year. So there are things that are happening, but it does take some time to make those moves. So we wanted to make sure we gave ourselves that room within the guide to be able to make those changes. And as we continue to show progressive improvements throughout the year, that will show that these efforts are working. But I think, as Michael mentioned in his prepared remarks, it is not going to be a straight line. I mean, there are going to be some ups and downs, and it is not just within these four walls that we get to control what is happening. We do have to be mindful of the external environment, which brings us to why the coupon and the opening price point is so important. We know that our customer, particularly the low- to middle-income customer, is going to over-penetrate in these value brands, so we need to bring that to them. We have seen—you know, gosh, I think if I look back for the last 20 quarters, Michael—we typically have seen a pretty flat average transaction value. Our issue continues to be traffic. So whether we are bringing in higher price point or lower price point, they will fill that basket. Our average transaction value typically has stayed relatively flattish. It really comes down to driving traffic, which you have heard a lot more about marketing in this call because we know we need to continue to drive that traffic both in stores and digitally. We have done an incredible job digitally. Our traffic was very solid in the fourth quarter. We need to continue to do that to the stores. And I think the investments we are making in that experience, like Michael outlined, is a way for us to bring in some more traffic as well as just a better flow of goods. We transitioned in January, which is probably the first time we have done that in a long time—bringing in newness, having those transitional goods. It gives that customer a better reason to shop. And just on that inventory management, it affords us more currency of inventory and pulling goods faster, which we also think could be a driver of trips. So I feel well positioned as we enter the year. But I would say that I am also just cautious, being mindful of the macro environment that we are operating in. Michael Binetti: Okay. Thanks a lot for all the help, Jill. Jill Timm: Great. Thanks, Michael. And we are out of time for questions. This will conclude today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Hello, and welcome, everyone, to Nuwellis, Inc.'s fourth quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please press. Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Leah McMullen, Director of Communications. Please go ahead. Leah McMullen: Thank you, Operator. And thank you all for joining today's conference call to discuss Nuwellis, Inc.'s corporate developments and financial results for the fourth quarter and full year as of December 31, 2025. In addition to myself, with us today are John L. Erb, Nuwellis, Inc.'s Chairman of the Board and CEO, and our newly appointed CFO, Carissa Schultz. At 8:00 a.m. Eastern Time today, Nuwellis, Inc. released financial results for the fourth quarter and full year 2025. If you have not received Nuwellis, Inc.'s earnings, please visit the investor page on the company's website. During the conference call, the company will be making forward-looking statements. All forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Any statements that relate to expectations or predictions of future events and market trends, as well as our estimated results or performance, are forward-looking statements. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. All forward-looking statements are based upon current available information, and the company assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. Please refer to the cautionary statements and discussion of risk in the company's filings with the Securities and Exchange Commission, including the latest 10-Ks. With that, I would now like to turn the call over to John. John L. Erb: Thank you, Leah, and good morning, everyone. I would like to begin by stepping back from the quarter and reflecting on the year as a whole. 2025 was not a continuation year for Nuwellis, Inc. It was a year of structural change and deliberate repositioning. While full-year revenue declined 5% compared to 2024, the defining characteristic of 2025 was not top-line variability. It was the strengthening of the company's operating foundation and the clarification of our long-term strategy. Throughout the year, we made intentional decisions to simplify the business, improve operational discipline, and concentrate resources in areas where clinical adoption and economic value are most aligned. A central initiative was the transition of manufacturing to KDI Precision Manufacturing. This was a significant operational undertaking requiring coordination across supply chain, quality systems, and production leadership. The objective was not short-term cost reduction. It was long-term reliability, scalable manufacturing alignment, and improved structural margin performance. As we move forward, this transition enhances operational predictability and strengthens our supply chain foundation. We also evaluated and refined our international commercial strategy. Portions of that business generated inconsistent returns and required disproportionate resources. During the year, we reduced exposure in certain markets and redirected focus towards geographies where clinical demand and commercial conversion are more predictable. That decision reflects discipline and prioritization. Over the course of the year, we also maintained access to capital through financing transactions that support operational continuity during a period of transition. We ended the year with approximately $1.2 million in cash and no outstanding debt. Liquidity management and disciplined capital allocation remain central priorities as we execute our strategy. Beyond operational and financial refinements, 2025 marked a critical clarification of strategic positioning. Historically, Nuwellis, Inc. has been described as a fluid management company. Over the course of the year, we sharpened our focus around the cardiorenal continuum. Our technology serves patients whose cardiac and renal conditions are tightly interrelated and where precision volume management directly influences outcomes across both organ systems. This alignment reflects where we see the strongest clinical traction and the most durable long-term opportunity. Growth in heart failure and pediatrics reinforces that our value proposition is most compelling within complex cardiorenal populations. Within this strategy, our pediatric program represents a meaningful extension of our platform. During the year, we expanded intellectual property supporting our pediatric device development and were the beneficiary of a National Institutes of Health grant to advance this program. The combination of strengthened IP protection and nondilutive NIH funding provides external validation of the clinical importance of this work and reinforces the long-term defensibility of our innovation within the cardiorenal continuum. Turning to the fourth quarter. Revenue was $2.4 million, an increase of 4% compared to the prior-year quarter and 9% sequentially. U.S. console sales increased 208%, reflecting stronger activity within targeted accounts. Gross margin expanded to 68.2% in the quarter compared to 58.4% in the prior-year period. Full-year operating expenses were $400,000 lower than the prior year, reflecting tighter expense management, improved forecasting discipline, and more select commercial deployment. These results reinforce a core operating principle. Where clinical adoption is established, utilization expands. Our strategy is not broad-based expansion across all possible customer opportunities. It is disciplined concentration in accounts and patient populations where clinical pull and economic value are demonstrable. Taken together, 2025 was a year of operational strengthening, portfolio alignment, disciplined capital management, and strategic clarity. The organization enters 2026 more focused, more disciplined, and structurally stronger than it was a year ago. As we begin 2026, we have further strengthened our financial leadership. Earlier this year, we welcomed Carissa Schultz as Chief Financial Officer. Carissa brings deep experience in medical technology, finance, and operational leadership. Her focus on forecasting precision, capital allocation discipline, and financial transparency supports the operating model we have refined over the past year. With that, I will turn the call over to Carissa for a detailed review of our results. Carissa Schultz: Thank you, John, and good morning. I will begin with fourth quarter performance before turning to full-year results and our balance sheet position. Revenue for the fourth quarter was $2.4 million, representing a 4% increase compared to the prior-year quarter and a 9% increase sequentially. The year-over-year improvement was driven by a 208% increase in U.S. console sales, with eight units sold compared to three in the prior-year period, and an 11% circuit average selling price increase. International sales increased 59% year over year, largely as a result of last-time buys from distributors whose territories we were exiting. These gains were partially offset by a 24% decline in critical care revenue. Sequentially, revenue growth was driven primarily by increased cath utilization, partially offset by lower console sales compared to the third quarter. Gross margin for the fourth quarter was 68.2%, an improvement of 9.9 percentage points compared to the prior-year quarter. Operating expenses for the quarter were $4.1 million, representing a $400,000 increase compared to the prior-year quarter. The year-over-year increase reflects higher professional services, recruiting activity, and targeted development initiatives. Operating loss for the fourth quarter was $2.4 million, flat with the prior-year quarter. Net loss attributable to common shareholders for the quarter was $2.4 million. Turning to full-year results. Revenue for 2025 was $8.3 million, a 5% decrease compared to the prior year. The year-over-year decline reflects lower consumables utilization, lower U.S. console average selling prices, reduced international contribution following strategic rationalization, and prior-year SeaStar sales prior to that agreement's termination. Heart failure and pediatrics grew 814% year over year, respectively, partially offset by a 19% decline in critical care. Full-year gross margin was 62%, three percentage points higher than the prior year. Operating expenses for the full year were $16.2 million, slightly lower than the prior year, reflecting improved expense discipline and forecasting rigor. Net loss attributable to common shareholders for the full year was $17.5 million, which includes a $6.4 million noncash warrant valuation expense and approximately $300,000 in executive severance expense. From a liquidity standpoint, full-year cash utilization was approximately $10.9 million. We ended the year with approximately $1.2 million in cash and no outstanding debt. During 2025, we raised approximately $7 million in net proceeds through financing activities, supporting operations during a period of structural transition. As we move into 2026, our financial priorities focus on gross margin consistency, disciplined expense management, enhanced visibility into commercial conversion, and prudent capital deployment. This concludes our prepared remarks. Operator, we would now like to open the call to questions. Operator: Thank you. And if you would like to ask a question, please press 1 on your keypad. To leave the queue at any time, press 2. Once again, that is star and 1 to ask a question. And once again, that is star and 1 if you would like to join the queue. We are showing one question comes from the line of Anthony V. Vendetti with Maxim Group. Please go ahead. Your line is open. Anthony V. Vendetti: Thank you. Yeah. So I wanted to, John, just talk about, you know, you said you had some operational changes this year and refocus of the business. Can you talk a little bit about, you know, where the salesforce and where your main focus is now versus where it was maybe a couple years ago? And then also, second part of the question is going to be on the Rendytek—if I am pronouncing it correctly—the acquisition, how those products are going to be incorporated into your current product portfolio. John L. Erb: Thanks. Sure, Anthony. Well, let me start off and say that in 2025, we reinforced our direct sales team. We had declined at the beginning of the year by several account territories, and we brought some folks on board, both account managers and clinical specialists, to bring us back up to the budgeted amount, which we saw that impact in the second half of the year. We are really beginning to see much greater growth in 2026. You know, at the beginning of the year this year, we were recovering from a product recall and from some quality issues that we really needed to redirect the business, and that was the primary reason we ended up going to contract manufacturing with KDI Precision Manufacturing. That has really brought stability to our supply and product quality that we are very pleased with. We also looked hard at expenses, looking at our cash burn and how we could reduce it. Internationally, particularly in the European Union, we have lost money, continuing year after year. We made the decision that we would exit the EU and basically successfully pulled out of that and reduced our cash burn. We also looked hard at an expensive clinical trial that was in place with the REVERSE-HF clinical trial. It was budgeted to spend an additional $3 million to complete the trial, take a couple of years, and the benefit of a very successful trial was still going to be two or three years down the road. So, again, looking at cash management, we made the decision to terminate that trial. We are actively now working with the principal investigators with the data that was completed to put together a publication with some positive results. So a lot of activity around refocusing the business. You know, the NIH grant that we received for pediatrics development of the renal replacement therapy devices is very positive for us. And we continue to grow in the pediatrics area. So I would say a bit of a refocus, not so much away from heart failure, but in addition to heart failure, really focusing on the pediatric nephrologist and the benefit that the Aquadex product was bringing to the pediatric marketplace. Let me see what else. I think that covered your main question. The second part of your question regarding Aurinia Tech, the value there is in critical care. You know, as we remove fluid after a patient has come off of the heart-lung machine, very gently and very carefully, which is what the heart needs, what the kidneys need, you know, after extubation from the heart-lung machine, they also measure all the fluid off, and renal output or urine output is another critical measure. What Rendiatek has is a technology basically that helps measure that renal or urine output in the ICU. What is exciting about that product is the opportunity that we are already working on to enhance the capability of not just measuring flow and measuring quantity, but also measuring the analytes or electrolytes that are in the urine. That is a key biomarker for kidney health, acute kidney injury. About 60% of patients in critical care that come off of the heart-lung machine do experience acute kidney injury. Rather than that urine being sent to the lab and waiting for lab results to come back to look at the potassium, sodium, oxygen level in the urine, they can get this bedside. So that was really the primary reason we were interested in the Rendiatek acquisition, that very differentiated capability that it will bring to the ICU. Anthony V. Vendetti: Okay, John. That is helpful. Maybe since it looked like fourth quarter sales were driven more by utilization within existing accounts versus new accounts, so RendiA Tech—is the focus going to be to try to get more utilization out of the current accounts as we begin this year and try to get Rendia Tech into all those accounts? And then where is your salesforce or territory manager number currently, and is that expected to be constant for this year, or do you expect to add as you move through the year? John L. Erb: Thanks. Sure. Well, let me start with the second part of that question. Right now, our total sales team is 24 individuals between account managers and clinical specialists. And that really brings it up to what was budgeted for a headcount in 2025, and I anticipate keeping it at that number through 2026. We have a lot of opportunity in existing accounts, and this is the first part of your question. We will focus on increased utilization. The sales team is primarily focused on critical care. We see critical care ICU—the cardiorenal issue in these patients that have gone through cardiac surgery—as a really big opportunity for the company. So that is a primary focus. Of course, we will continue to support our heart failure customers and patients and work closely in nephrology in the pediatric area as the product sees. But I would say that the majority of the focus is to grow the critical care business in existing accounts. A lot of these accounts are already heart failure accounts that we are expanding into critical care, and we see the Rendiatek acquisition as an opportunity to enhance utilization within those accounts. Anthony V. Vendetti: Okay. Thanks so much. That is very helpful. I will jump back in the queue. Operator: Thank you. And once again, if you would like to ask a question, please press 1 on your keypad now. We will pause for another moment. And once more, that is star and 1 if you would like to join the queue. Thank you. And at this time, there are no further questions in queue. I will now turn the meeting back to management for closing remarks. John L. Erb: Thank you. 2025 marked a necessary inflection point for the company. We made decisive adjustments to strengthen the operating model and clarify our strategic focus. As we enter 2026, we are doing so with renewed momentum, including the execution of our agreement to acquire Rendiatek and the planned expansion of our portfolio, the appointment of Ms. Schultz as our Chief Financial Officer, and additional capital to support operations. Entering this next phase, we are more disciplined, more deliberate, and aligned around the cardiorenal opportunity that will define our next phase of growth. The structural work completed in 2025 positions us to shift from refinement to execution in 2026. Our objective in 2026 is to translate strategic clarity into more predictable commercial performance. We will continue executing with discipline, concentrating resources in cardiorenal populations where clinical adoption and utilization are strongest, and driving deeper penetration within active accounts. We are actively integrating our recent acquisition of RoentDeck and plan to relaunch the Clarity product midyear. We also continue progressing development of Vivien, our novel pediatric solution supported by the NIH grant funding. We will maintain financial rigor, strengthen margin consistency, and prioritize capital efficiency as we scale. We appreciate the continued support of our shareholders, the drive and focus of our team, and look forward to updating you on progress throughout the year. Thank you, and goodbye. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Thank you for joining the Greenlight Capital Re, Ltd. fourth quarter 2025 earnings conference call. At this time, a question-and-answer session will follow the prepared comments. It is now my pleasure to turn the call over to David Sigmon, Greenlight Capital Re, Ltd.’s General Counsel. You may begin. David Sigmon: Thank you, Kevin, and good morning. I would like to remind you that this conference call is being recorded and will be available for replay following the conclusion of the event. An audio replay will also be available under the Investors section of the company’s website at www.greenlightre.com. Joining us on the call today will be our Chief Executive Officer, Greg Richardson, Chairman of the Board, David Einhorn, and Chief Financial Officer, Faramarz Romer. On behalf of the company, I would like to remind you that forward-looking statements may be made during this call and are intended to be covered by the safe harbor provisions of the federal securities laws. These forward-looking statements reflect the company’s current expectations, estimates, and predictions about future results and are subject to risks and uncertainties. As a result, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may impact future performance, investors should review the periodic reports that are filed by the company with the SEC from time to time. Additionally, management may refer to certain non-GAAP financial measures. The reconciliations to these measures can be found in the company’s filings with the SEC, including the company’s Form 10-Ks for the year ended 12/31/2025. The company undertakes no obligation to publicly update or revise any forward-looking statements. With that, it is now my pleasure to turn the call over to Greg Richardson. Greg Richardson: Thank you, David. Good morning, everyone, and thank you for joining us. I am pleased to report strong results for both Q4 2025 and full year 2025. We have been indicating for some time the confidence we have in our strategy and our positioning. It is gratifying to see this reflected in our results. In particular, we are making significant progress in generating underwriting profits. Q4 2025 is the tenth quarter out of the last 12 quarters in which we have delivered an underwriting profit. I am excited about Greenlight Capital Re, Ltd.’s potential as we enter 2026. The 2025 was an excellent quarter for Greenlight Capital Re, Ltd. with strong performance in both the underwriting and investment components of our strategy. We reported a net underwriting profit of $13,000,000, or a combined ratio of 92.1%, and a strong investment return from Solasglas of $36,000,000, or a 7.9% gain, driving net income for the quarter of $49,300,000. Our underwriting profit was driven by strong performance on our open market book, which delivered a 90.7 combined ratio. This was driven by strong core profitability, assisted by relatively benign CAT and large-loss activity, partially offset by some prior-year reserve development. On a large-loss side, we booked $2,000,000 of losses in the fourth quarter related to Hurricane Melissa, which made landfall in Jamaica in late October, and $2,700,000 related to an oil refinery fire loss. With regard to prior-year development, we strengthened reserves on our open market book by $5,500,000, driven primarily by casualty programs that are in runoff. Our Innovations book recorded a modest underwriting loss for the quarter of $400,000, or a combined ratio of 101.7%. This was primarily driven by a large loss of $2,100,000 on a surety account. For the full year 2025, we saw solid underwriting performance, with profitable underwriting each quarter except the first quarter, which was hit by the California wildfires. Overall, we delivered record underwriting income for 2025, an underwriting profit of $35,700,000, or a combined ratio of 94.6. Net income for the year was $74,800,000, which drove a 13.8% increase in fully diluted book value per share to $20.43. Turning to the 1/1 renewal season, it is a key renewal season for Greenlight Capital Re, Ltd. with approximately 60% of our business incepting on January 1. We are very pleased with how this key renewal period progressed. While market conditions showed softening across most lines, we believe pricing in general remains adequate, and we executed broadly in line with our business plan. I will provide an overview of our 1/1 book in key areas. Generally, our Funds at Lloyd’s book incepts at 1/1. We have written a significant FAL book for several years, and we are optimistic for the prospects of Lloyd’s in 2026. Despite the softening market, Lloyd’s is committed to maintaining underwriting discipline, and we support this focus. There has been an influx of capital seeking to target the Lloyd’s market after several years of strong profitability. As we have been active in this market for several years, we have strong relationships and we are able to maintain and grow our relationships with key partners despite the increased capital entering the market. This year, we grew our FAL book by approximately 21% due to attractive opportunities that were available to us. A material portion of our Specialty book also renews at 1/1. In general, the Specialty market saw some significant softening. We estimate rates were down 11%, although terms and conditions generally held firm. With many of our competitors looking to grow their Specialty books, the market was very competitive on signings. Our standing in the market and our timely upgrade to an AM Best rating of A helped protect our Specialty book, which grew by 6%. The third element of our book with a strong 1/1 focus is Property. We saw some significant weakening in the Property line and estimate rates are down 12%. Our Property book was broadly flat year over year, indicating exposure is up given the rate decreases. Our North Atlantic hurricane exposure on a 1-in-250 occurrence basis increased by 7% to $139,000,000, reflecting this increased exposure. Our Innovations portfolio renewals are not heavily weighted towards 1/1. Rather, they are more evenly spread throughout the year. For the business that did renew at 1/1, we saw strong growth with premium up 83%. Our Innovations business is less susceptible to market trends. This can be seen in the risk-adjusted rate change at 1/1, which was relatively flat. Importantly, we renewed our Outwards Innovations whole account quota share treaty at 1/1, with an increased cession from 28% to 33%, and materially improved terms. In addition, we accepted third-party capital into Syndicate 3456 for the first time. This provides a strong external validation of our syndicate performance to date. In recent days, we have seen an increase in tensions in the Middle East with the U.S. and Israel launching attacks on Iran, and Iran retaliating by bombing several other neighboring countries. Our thoughts are with the people in this region. It is difficult to comment on this fluid situation other than to say we hope that the war ends soon, thereby minimizing physical damage and loss of life. At this stage, while there have been media reports of isolated insured losses, we have not been notified of any large losses. In general, our policies contain a war exclusion. However, we do have some exposure to the conflict from specific marine war, aviation war, and war-on-land covers that we offer as part of our Specialty book. We continue to closely monitor developments in the region. As we look ahead towards 2026, we are optimistic about the opportunities ahead and Greenlight Capital Re, Ltd.’s positioning. Now I would like to turn the call over to David Einhorn. David Einhorn: Thanks, Greg, and good morning, everyone. The Solasglas Fund returned 7.9% in the fourth quarter. The long portfolio contributed 1.4%. The short portfolio contributed 4.6%, and macro contributed 3.1%. During the quarter, the 500 index advanced 2.7%. The largest positive contributors were long investments in gold, Brighthouse Financial, and Victoria’s Secret. Largest detractors included long positions in Green Brick Partners and Penn Entertainment, and a macro position in inflation swaps. Gold was the largest positive contributor as its price advanced 12% over the quarter. It was an exceptional year for gold as it appreciated 64% and was our largest positive contributor in every quarter of 2025. Brighthouse Financial shares advanced 22% during the quarter. After years of frustration with this investment, the company announced in November that it would be sold to a private equity firm for $70 a share. While this valuation represents just two thirds of book value, it provides us with a reasonable and welcome path to exit. Victoria’s Secret shares doubled during the quarter. In the past, the company built its brand around a highly aspirational image supported by supermodel-led campaigns. However, in recent years, management moved away from this approach to make the brand more inclusive. New management has since taken over and begun reversing those changes, including reinstating the company’s annual fashion show. During the quarter, the company posted strong results, delivering the largest revenue beat since its 2021 spin-off and significantly raising annual profit guidance. Green Brick Partners shares declined 15% during the quarter. After several years of strength, cyclical headwinds are now weighing on the housing sector as declining demand and home prices have created a more challenging environment for builders. As we remain negative on the state of the broad housing market, we have continued to fully hedge our exposure, and most of the Green Brick loss was offset by gains from our short basket of homebuilders. Penn Entertainment shares fell 23% during the quarter. The company faced competitive pressure and weaker results in its regional casino business, while the market continued to question Penn’s ability to reach breakeven in its digital sports betting and digital casino businesses. Encouragingly, Penn recently announced fourth quarter results that highlighted profitability in December within its digital segment and included improved guidance for regional casino growth and free cash flow in fiscal 2026. Inflation swaps were a detractor as inflation expectations declined during the quarter. We initiated several small long positions, including Antero Resources, a natural gas exploration and production company; Deckers Outdoor, a footwear and apparel company; Henry Schein, a medical product distributor; and Spectrum Brands Holdings, a consumer products company focused on pet care, home, and personal care. The Solasglas Fund returned 7.5% in 2025 compared to a 17.9% return for the 500. Solasglas returned 3.4% in January and 6.3% in February, bringing the 2026 year-to-date return to 9.8%. We continue to be concerned about the equity market valuations in the U.S. and believe that in the long term, this is not a great time to have a lot of equity exposure. Net exposure in the investment portfolio was approximately 29% at February, down from about 40% at year end. Greg, Tom, and the team have done a fantastic job with the underwriting portfolio while continuing our disciplined approach to risk taking. I believe this is a key factor that led to our upgrade from AM Best from A- to A in November. While Greenlight Capital Re, Ltd. is performing well and earning its cost of capital, I believe our share price does not reflect this. We believe that the company has the financial flexibility and capital strength, as exemplified by the rating upgrade, to be more aggressive on share repurchases to capture the discount being offered in the market. Now I would like to turn the call over to Faramarz to discuss the financial results in more detail. Faramarz Romer: Thank you, David, and good morning, everyone. During the 2025, Greenlight Capital Re, Ltd. reported net income of $49,300,000, or $1.44 per diluted share. Total underwriting income was $13,000,000, resulting in a combined ratio of 92.1%, which was 20 points better than the same period last year, which included 10 combined ratio points related to the Russia-Ukraine reserve strengthening. The 2025 fourth quarter combined ratio also benefited from eight points of improvement due to lower CAT and event losses, and 2.3 points of improvement related to underlying current-year attritional loss ratio. The improvement in combined ratio was partially offset by 1.8 points of higher expense ratio, mainly relating to variable performance-based compensation. Our net investment income for the quarter was $44,800,000 compared to $2,600,000 in 2024. $36,200,000 of the investment income related to our investment in Solasglas, which posted a strong 7.9% return in the quarter. The remainder related to interest income on our collateral and funds-withheld balances. In December, we appointed an insurance-focused, well-established third-party investment manager to manage a portion of our collateral assets that were previously invested in money market funds and other short-term deposits. We have allocated around $100,000,000 to be managed in a fixed-maturity portfolio under Board-approved investment guidelines. As of the year end, half of this had been deployed in the fixed-maturity portfolio, and the remainder is being deployed in 2026. You will see that we have added new disclosures in our 10-K relating to the fixed-maturity portfolio. This new initiative is expected to yield higher returns on our collateral assets while preserving a short duration and high credit quality. I will now break down the fourth quarter results by segment, starting with the Open Market segment. The Open Market segment reported a pretax income of $28,200,000, composed of underwriting income of $13,200,000 and investment income of $15,000,000. For the quarter, the Open Market segment grew net written premiums by 9% to $123,600,000, while net earned premiums grew by 11%. The increase in net earned premiums was spread across all lines of business, with the exception of the casualty book, the majority of which we had decided to nonrenew early in 2025. The Open Market combined ratio for the fourth quarter improved by 20.4 points to 90.7% compared to the same period in 2024. A lower attritional loss ratio, improved prior-year reserve development, and lower CAT and event losses contributed to the improved combined ratio. Overall, the Open Market segment had a strong performance during the quarter. Turning to the Innovation segment, we continue to see growth opportunities within this segment. The Innovation segment grew gross written premiums by $16,500,000, or 80%, to $37,100,000 during the quarter, mainly driven by the casualty line and by Syndicate 3456, which is presented under Multiline. The net earned premiums increased by $5,200,000, or 27%, to $24,200,000. The combined ratio for the Innovation segment was 101.7% during the fourth quarter, which included 8.7 points related to a large-loss event on a surety contract. The composite ratio improved by six points to 92.2%, driven by improvement in the attritional loss ratio and release of reserves due to favorable loss development. Compared to the same quarter last year, the expense ratio for the Innovation segment was 9.5% versus 3.3%, due to a combination of growth in personnel, higher incentive-based compensation, and an increase in nonpayroll costs related to the segment. We are investing in this business in preparation for growth in this segment, and we expect the expense ratio to normalize as the segment, including Syndicate 3456, gains scale over the next 18 to 24 months. During the quarter, the Innovation segment produced an underwriting loss of $400,000 and an overall net loss of $900,000. For the full year 2025, we reported $74,800,000 of net income, or $2.17 of diluted earnings per share, driven by $35,700,000 of underwriting income and $35,700,000 of investment income from Solasglas. Our full-year combined ratio was 94.6%, while Solasglas returned 7.5%. So both sides of our balance sheet contributed to a strong full-year performance. The Open Market segment generated $69,700,000 of net income in 2025, of which $37,600,000 related to underwriting with a combined ratio of 93.4%, which improved by 5.6 points over 2024. The majority of the improvement came from a lower attritional loss ratio, while an improvement in prior-year reserve development also contributed to a lower loss ratio. The Innovation segment reported a combined ratio of 100.2% for the year, resulting in a modest underwriting loss of $200,000. The gross written premiums for this segment increased by 28% to $121,600,000, representing 16% of our total premiums. While the loss ratio and acquisition cost ratio were consistent with the prior year, the expense ratio rose by 4.5 points for the reasons I mentioned earlier. Now let us turn to capital and debt management. During the quarter, we repurchased 201,000 shares for $2,800,000, bringing our full-year share repurchases to $9,800,000 at an average price of $13.76 per share. We have $20,200,000 remaining under the authorized share repurchase plan, and we plan to continue repurchasing shares given the discount to book value. During the quarter, we repaid $30,000,000 of our debt and currently have $5,000,000 of debt outstanding. During the year, we reduced our debt leverage ratio from 9.5% to 0.7%. At the end of the fourth quarter, our fully diluted book value per share was $20.43, an increase of 13.8% for the year. Over the last three years, we have grown our fully diluted book value per share by 42.6%, or 12.5% annually. To recap our performance during 2025, our premiums grew to the highest level in our history, we had a record year of underwriting income, AM Best upgraded our rating to A, and we significantly delevered our balance sheet. We feel the company is in a strong position going into 2026, and we believe we are well positioned to deliver another outstanding year of performance for our shareholders. That concludes our prepared remarks. The operator will now open the line for your questions. Operator: Thank you. We will now open for questions. You may press 2 if you would like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing 1. One moment please while we poll for questions. Our first question today is coming from Eric Hagen with BTIG. Your line is now live. Eric Hagen: Hey. Thanks. Good morning. Good to hear from you guys. You know, lots of attention right now on private credit. Some of the blue-chip asset managers taking in redemptions. You know, it is hard to handicap some of the credit risk out there for certain areas of the debt market especially. I mean, I think two questions related to that. One, is there a strong connection that you see between the capital flow, you know, in the reinsurance market and private credit? Maybe just the competitive landscape for other reinsurers which may be attached to larger asset managers? And then number two, I mean, how does this narrative around private credit play into your thesis that this is a riskier time for the equity market right now? Do you think it maybe drives the broader capital allocation policy over the near term? Thank you, guys. Greg Richardson: David, do you want to take that, and then maybe Faramarz could comment. David Einhorn: In terms of the asset side of our business, we do not have any private credit. We are public market investors and almost everything in the portfolio is public and able to mark to market on a quoted price. I think the broader concern that you are suggesting relating to private credit is, you know, fundamentally peripheral to our investment strategy, and I do not expect it to have much impact one way or another on what we are doing. Greg Richardson: Faramarz, do you want to comment? Faramarz Romer: Yes. I think David covered it. From an asset side, what we are seeing on the reinsurance side is generally the private credit is more prevalent on the asset-intensive reinsurers that are playing in the life annuity side. We do not have any life annuity business on our book. Our book is property-casualty and, as David said, we have no direct exposure to private credit. Eric Hagen: Thank you, guys. That is really helpful. Another one, I mean, the move to retire some of your debt, was that an opportunistic move to maybe just manage your leverage over the near term, or can you envision eventually returning to the debt market at certain valuations and how you think about that? Faramarz Romer: Yes. Thanks, Eric. Good question. So, you know, back in 2018, we had issued our convertible notes, and then when they came up for maturity, we converted those convertible notes into a term loan, and then earlier last year, we converted the term loan into a revolving credit facility for $50,000,000. So we feel that we have a pretty good ability now to, with the cash that is being generated from the business, our investment portfolio is well positioned, and given the interest rates where they were, we felt that it was better to pay down the remaining debt. We still have the ability on the revolver for, you know, if we ever needed to lever back up. But at this point, the best use of that cash was to pay down the debt and still have the ability in the future to increase our leverage if we needed to. Eric Hagen: Yep. Really helpful. Thank you guys so much. David Einhorn: Thanks, Eric. Operator: Thank you. Next question is coming from Kevin English, a private investor. Your line is now live. Kevin English: Yes. Hi, guys. Congrats again on a strong quarter. I guess, yeah, just to start as well, wanted to commend the management for, you know, being in the open market and backing up conviction with purchases. I think that shows a lot of faith in what you all are building. My question is really just around the investment ratio, which remains at 70%. I know we are up from the 50%. That was a reflection of the 02/2018 volatility. You know? But it does seem like the risk management of the investment portfolio has been revised since then. I think, on an unlevered ROI basis, it is, you know, the most profitable business line. So I understand not wanting to, you know, take, you know, excess exposure, you know, particularly at an inopportune time. This month is probably not the right time to be bringing it up. So coming off a really nice set of months here. But I just want to hear if there is any update there, particularly given the ability, you know, as David said, to flex the net exposure to kind of dictate kind of market exposure, you know, in that way. So yeah. Appreciate any context there, maybe update on timing as how you are thinking about it. Greg Richardson: David, do you want to start on that one? David Einhorn: No. Why do you not start? I will add in. Greg Richardson: Yeah. Listen. The performance of Solasglas has been terrific. We have a multi-pillar strategy. One of the great things about our investment strategy, it is very scalable. We can increase it. We can decrease it. We do not do it willy-nilly. It is Board-governed. But in addition to the sort of return we have been averaging over the past several years on that book, one of the nice things is that we do not get a 100% capital charge for it. So from our standpoint, in terms of use of the scarce resources, which we refer to as our AM Best capital capacity, it is actually a levered return. It is a very attractive return to us. It is volatile from quarter to quarter, so we have to mitigate that. But it is something we look at, and if reinsurance markets should soften, that is an avenue we have to enhance our ROE. Does that help? Kevin English: Yeah. No. No. Appreciate it. Thanks so much. Operator: Thank you. We have reached the end of our question-and-answer session. Ladies and gentlemen, that does conclude today’s teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Welcome to the Voyager Technologies, Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press 0. I would now like to turn the conference over to your first speaker today, Adi Padva, Senior Vice President, Corporate Development and Investor Relations. Mr. Padva, the floor is yours. Adi Padva: Thank you, and good morning, everyone. I am joined today by Dylan Taylor, our Chairman and Chief Executive Officer, and Filipe de Sousa, our Chief Financial Officer. Today's call includes forward-looking statements which involve risks and uncertainties detailed in our earnings materials and SEC filings, including the risk factors section of our IPO prospectus. We undertake no obligation to update these statements. We will also discuss non-GAAP financial measures. Reconciliation of these measures is available in our earnings materials on our website. I will now turn the call over to Dylan to begin with Slide 3. Thank you, Adi, and good morning, everyone. 2025 was a fantastic year for Voyager, which was founded just six years ago. Dylan Taylor: 2025 was the first year we operated as a public company, moving from building the platform to rapidly scaling it, and we are now well positioned to accelerate and industrialize our growth in 2026. In fact, based upon a record backlog, we are significantly raising our revenue guidance for the year and will provide more specifics on that raise in a moment. For the sixth consecutive year, we delivered growth. Our Defense and National Security segment grew significantly, up 59% year over year, driven by execution on Next Generation Interceptor and other classified programs. Our backlog increased 33% year over year, entering 2026 with $266,000,000 to support our accelerating growth. During 2025, we raised over $1,000,000,000, including executing on a successful IPO and issuing a follow-on convertible note, all strengthening our liquidity to fund innovation and strategic growth initiatives. We completed and integrated several acquisitions, expanding our capabilities to meet growing customer demand, which we expect to remain strong in today's geopolitical environment. These expanded capabilities are enabling us to advance several of our key initiatives, including Golden Dome. We established our orbital data center capabilities, launching the first space-hardened managed cloud infrastructure to the International Space Station. We enhanced our missile defense capabilities with integrated optical technology for Next Generation Interceptor and cutting-edge electric propulsion. We are enhancing space situational awareness with AI-enabled automated target recognition and intelligence analytics for space-based radar systems. Later in my remarks, I will provide more details on Estes Energetics, a significant growth opportunity for the company. Innovation is key to our strategy. Given the large opportunity set in front of us, we increased our innovation spend in 2025, which includes customer and internally funded R&D, to over 20% of revenue. Examples of the outcomes of our efforts include successful Critical Design Review of our throttable propulsion for NGI, new products such as AI-enabled edge computing, patented extraterrestrial manufacturing method for high-performance optical communications, and patented dust-repellent coating technology that landed on the moon aboard Firefly's Blue Ghost lander. We expect to accelerate our innovation spend going forward to strengthen our competitive moats and capitalize on our growing addressable markets. We are also expanding our innovation ecosystem through strategic partnerships. During the year, we formed new partnerships; VISTA, or Voyager Institute for Space Technology and Advancement, at the Ohio State campus, is a first-of-its-kind U.S. campus purpose-built to accelerate the commercial space economy within space research, manufacturing, and services by bringing together aerospace, defense, and commercial industries, academia, and government. We recently announced partnerships with the University of North Dakota and the University of Connecticut and anticipate expanding this ecosystem to other innovative campuses domestically and internationally. In addition to investing in technology and partnerships, we also continue to invest in our people. We added Paul Tildman as Chief Technology Officer. He joined us from Androle and was previously at DARPA and Microsoft. John Baum, as Chief Marketing Officer, a former fighter pilot who joined us after a successful career at the Department of War and was cofounder of Draken, and most recently, Shoshana Moody as Chief Administrative Officer with experience scaling emerging businesses such as Instacart and Lyft. Moving on to Starlab, a transformational growth engine for Voyager. We view Starlab as a generational investment opportunity built as an infrastructure-like platform with the potential to deliver attractive and enduring returns over multiple decades. During 2025, Starlab accomplished meaningful milestones, ending the year by completing our commercial Critical Design Review, a major technical milestone with NASA that validates the maturity of the program and clears the path to full-scale construction of the station. To date, we have completed 31 program milestones, generating $183,000,000 of cash receipts from NASA, which underscores both performance and disciplined execution. Many investors attended our first Investor Day in Houston in November, where they also toured the full-scale, high-fidelity Starlab mock-up at NASA's Johnson Space Center. It is the only commercial space station mock-up in the facility, right next to the ISS mock-up where NASA trains astronauts. During the year, Starlab secured meaningful capital from marquee investors and partners, including Janus Henderson, Sumitomo, Mitsubishi, Seven Grand Managers, and Space Applications Services, strengthening Starlab's balance sheet and reinforcing external confidence in the platform. Finally, we are seeing strong customer demand, and I am excited to share with you that Starlab's commercial payload capacity is fully reserved, providing early visibility into the future utilization and revenue potential. To summarize, in 2025, we strengthened the foundation of our growth engines in national security and commercial space, leveraging our disruptive innovation platform and multiuse technology stack. Acquisitions will continue to be an integral part of our growth strategy, and our strong financial position supports that effort. Now I will review our most recent acquisition, Estes Energetics, now Voyager Energetics, on Slide 4. Voyager Energetics strengthens the foundational layer of our missile defense and national security platform. Energetics, propulsion, and critical resources are essential to interceptors, solid rocket motors, and propulsion architectures that sit at the heart of modern missile defense and are highly applicable to Golden Dome. In an environment where supply chain sovereignty and domestic manufacturing capacity are strategic imperatives, control over these inputs directly impacts program execution, schedule readiness, and mission readiness. Estes converts a historically vulnerable segment of the value chain into a strategic advantage. Specifically, it provides the U.S. with controlled onshore manufacturing and surge capacity aligned with the Department of War's priorities at a time when freedom of maneuver and deterrence are increasingly important. Voyager Energetics also deepens our vertical integration across propulsion and interceptor architectures, increasing the portion of high-value content we control within missile defense systems. As programs such as Next Generation Interceptor and other advanced missile defense initiatives transition from development to production, this integration enhances throughput, improves margin durability, and reinforces customer confidence in our ability to deliver at speed and at scale. This acquisition is a great example of how we intentionally build Voyager, acquiring durable infrastructure-level capabilities that strengthen the industrial base, align tightly with customer priorities, and compound long-term returns for shareholders. Turning to Slide 5, I will now highlight our priorities for 2026. Our top priority for the year is to accelerate growth. First, as I mentioned previously, we are meaningfully raising our 2026 revenue guidance initially provided at our Investor Day in November to a range of $225,000,000 to $255,000,000, representing growth of 35% to 53% year over year. This acceleration relative to last year and long-term CAGR is driven by demand for our Defense and National Security technologies. Programs aligned with Golden Dome are expanding in scope and urgency. Signet, now bolstered with new AI capabilities, is also seeing higher customer interest, and importantly, acquisitions are adding to our growth momentum. Our next priority is building a sustainable platform for scaled growth. We recently broke ground on the Voyager American Defense Complex in Colorado, a major expansion advancing the Pentagon's urgent call for industry to accelerate domestic missile defense and tech munition supply. The Voyager American Defense Complex will be 150,000 feet for advanced manufacturing, operations, and testing, and designed to support high-volume production of military-grade components, propulsion systems, and energetics used to address the increasing demand from the Department of War. Next, we are making deliberate investments in technology innovation to meet customer demand. Our increased IRAD spend is focused on strategic campaigns directly aligned to customer priorities such as Golden Dome, mission-critical advanced electronics, dynamic space operations such as propulsion and navigation, and also AI and autonomous industrialization to shorten lead times from design to output. Finally, 2026 will be a pivotal year for Starlab as we transition to full-scale procurement and development. We anticipate NASA will soon release the RFP for the second phase of the Commercial LEO Development Program, or CLD, with a decision later in the year. We are highly confident in the modernized, cost-efficient, and commercially scalable solution that Starlab is delivering to NASA and other key stakeholders. The architecture is designed to provide continuous U.S. presence in low Earth orbit while enabling a broader transition to commercially led operations. As the program advances, we are expanding Starlab's commercial ecosystem, building durable partnerships across mission logistics, life sciences, biopharma, advanced materials, and other high-growth verticals. The approach strengthens demand visibility and reinforces Starlab's role as an ecosystem, not a single-use platform. The early demand signals of Starlab commercial capacity being fully reserved are reinforcing our confidence. So to recap, we closed 2025 very strongly despite a prolonged government shutdown, and our growth is accelerating into 2026, giving us the confidence to raise our full-year revenue guidance. We have tremendous opportunities to capture additional market share, and we will continue to fund innovation and IRAD to fully capitalize on these opportunities. With that, I will turn the call over to Filipe to walk through the financials in more detail. Filipe de Sousa: Thanks, Dylan. Turning to Slide 6, I will begin with the fourth quarter results. Net sales increased 24% year over year, driven by strong execution in our Defense and National Security segment. Growth was driven by continued progress on the Next Generation Interceptor program, classified programs, as well as contributions from newly acquired businesses. We ended the year with total backlog of $266,000,000, a 41% sequential increase from last quarter. This step-up reflects new program awards, expanding scope on existing programs, and contributions from acquired businesses, all of which are significantly improving our revenue visibility and accelerating growth in 2026. Adjusted EBITDA for the fourth quarter was a loss of $21,800,000 compared to a loss of $6,300,000 last year. The year-over-year change reflects investments in innovation, talent acquisition, and corporate infrastructure build. These investments are intentional and placed ahead of growth, establishing the operational foundation to ensure we scale efficiently. On the bottom line, adjusted EPS was a loss of $0.37. This compared to a loss of $2.90 in the prior year, with comparability reflecting a higher share count following our IPO. Turning to Slide 7, I will discuss segment performance for the fourth quarter. Defense and National Security net sales increased 63% year over year, driven by execution on Next Generation Interceptor, classified programs, as well as contributions from acquired businesses. Segment adjusted EBITDA was a loss of $4,500,000, reflecting increased R&D and talent investments. Space Solutions net sales declined 29% year over year, entirely due to the anticipated conclusion of a multiyear NASA services contract. Segment adjusted EBITDA improved to $2,300,000 compared to $1,200,000 in the prior year; here, our volume decline was more than offset by favorable mix and disciplined cost management. Today, while Starlab does not generate revenue, during the quarter, Starlab continued to achieve NASA milestones, generating cash receipts of $10,000,000, highlighting the continued execution progress and momentum. It is noteworthy that in addition to NASA milestone cash receipts, we are also seeing very strong support of Starlab from high-quality investors as part of Starlab's Series A capital raise. Now turning to Slide 8 to recap our full-year performance. For the full year, net sales increased 15% year over year, a 33% year-over-year increase excluding the planned wind-down of the legacy NASA contract within Space Solutions. The growth here was led by Defense and National Security expanding 59% year over year. Adjusted EBITDA for the full year was a loss of $69,900,000 compared to a loss of $30,000,000 last year. Adjusted EPS was a loss of $2.05 compared to a loss of $5.72 in the prior year. Turning to Slide 9 for a review of our full-year segment performance. Defense and National Security net sales increased 59% year over year, while segment adjusted EBITDA was a loss of $4,500,000. Significant growth in Next Generation Interceptor and classified ISR programs were the main growth drivers here. Space Solutions net sales declined 36% year over year and, as I mentioned earlier, primarily due to the planned wind-down of a legacy NASA services contract. Segment adjusted, there was a slight loss of $800,000. Starlab achieved 11 milestones during 2025, and we have achieved 31 milestones program to date, with milestone-based cash receipts since inception of $183,000,000. As a reminder, this is part of our $218,000,000 NASA Commercial LEO Development Phase 1 award to support program development and execution in replacing the International Space Station. Wrapping up here, we are encouraged by the momentum across our businesses, and we are increasingly confident in our ability to execute our backlog, scale our business, and deliver long-term value through disciplined growth and strategic investment. Let us turn to Slide 10 and cover our financial position. As we execute our growth strategy, we continue to operate from a position of financial strength and flexibility. We ended the year with $491,000,000 in cash and access to $213,000,000 in credit facilities, resulting in total liquidity of well over $700,000,000. Our liquidity supports a disciplined, growth-oriented capital allocation strategy. We continue to execute our targeted priorities within and for acquisitions, particularly opportunities that enhance our vertical integration or add differentiated capabilities, all the while also funding organic investments to develop new technologies and to further scale our existing platform. Turning to Slide 11. We are raising our 2026 net sales guidance to a range of $225,000,000 to $255,000,000, representing 35% to 53% year-over-year growth, and a clear acceleration from 2025. This growth is driven by demand in Defense and National Security, including Golden Dome–aligned programs as well as contributions from other areas. With the wind-down of the NASA services contract behind us, we expect to see Space Solutions once again return to growth in 2026. In 2026, we are making investments directly linked to opportunities we are seeing across our markets. Investment and incremental growth are clearly connected. We are investing because demand is expanding and customers are pulling us into larger, multiyear mission-critical programs. Gross margin for the year is expected to be in the mid-teens, reflecting targeted investments in manufacturing capacity ahead of growth acceleration. Notably, internally funded research and development will increase to approximately 20% of net sales, advancing mission-critical capabilities aligned with customer priorities, including national defense initiatives such as the Golden Dome, all the while continuing to also innovate across our existing platforms. We expect modest SG&A leverage as revenue growth begins to absorb public company costs. In addition to innovation investments, capital expenditures excluding Starlab are expected to be approximately $60,000,000 to $70,000,000. Here, we are focused on scaling domestic energetics and munitions production, advanced electronics and propulsion capacity, as well as product line enhancements. Importantly, these investments are tied to programs where we have line of sight to growing demand. Starlab enters its full system development phase in 2026 and is expected to ramp investment levels, executing to plan. Starlab investments, including operating expenses, procurement, and capital expenditures, will continue to be supported by diversified funding sources, including NASA's CLD program, other government entities, domestic and international, as well as capital markets. 2026 is a pivotal year towards delivering on our long-term financial framework. To emphasize, we continue to target a 25% organic growth CAGR, gross margins in the range of 30% to 35%, resulting in mid-teens adjusted EBITDA margin excluding Starlab, and low-teens free cash flow margin, again excluding Starlab. Starlab, once in orbit, is expected to generate $4,000,000,000 of annual revenues and $1,500,000,000 of annual free cash flow, providing a significant value creation opportunity for shareholders. In summary, we continue to invest in growth to support accelerating demand for our mission-critical capabilities with a clear line of sight to scale, operating leverage, and cash generation as execution builds. This framework balances our near-term execution with durable long-term value. With that, I will turn it back over to Dylan. Dylan Taylor: Thank you, Filipe. To wrap up on Slide 12, 2025 was a year marked by transformational execution for Voyager, backed by customer momentum and supported by a platform purpose-built for mission urgency and scale. We strengthened our foundation by entering the public markets, delivered strong growth, completed strategic acquisitions that deepen vertical integration, and advanced Starlab through major milestones. Each step expanded capability and reduced risk. The opportunities ahead across missile defense, national security, and commercial space are funded, measurable, and accelerating, and we are well positioned to convert that demand into sustained growth and long-term shareholder value. I am confident in our team, our strategy, and the strength of our technology stack as we execute in 2026 and beyond. Operator, we are now ready to take questions. Operator: Thank you. The floor is now open for questions. In the interest of time, we ask that you please limit yourself to one and one follow-up. Thank you. Your first question comes from Ron Epstein with Bank of America. Please go ahead. Ron Epstein: Yeah. Hey. Good morning, and thanks for all the detail on the call. Dylan, I was wondering if you could just go into some more detail on what really prompted the revenue guide and what you are feeling really comfortable about to do that. Dylan Taylor: Well, I appreciate it, Ron. Good to hear from you. So a couple points I would make. First of all, it is a terrific environment for our products and services in general. Certainly, defense spending, as we know, is on the increase, but probably more importantly than that, structurally, the way the Department of War is procuring products and services is evolving, and it is really playing to our strengths. It is really leaning into the innovation side of things. Everything is being challenged in terms of legacy programs versus new advanced technologies, so that is playing directly into our strengths. It is a great environment: record pipeline, record backlog. And then if I dive deeper into the demand signals, it is really across the board. It is everything from our advanced electronics capability, which is really seminal to a lot of these programs. We are seeing the demand signal very strong in propulsion on multiple programs factoring into Golden Dome. The energetics business that we just acquired, we are seeing huge demand signals on that as well as the Department of War looks to replenish their stockpiles. And then I would say also on communications, sensing, and data processing, huge demand signals on that as well. So it is really across the board, and that is why we have the conviction, based upon the record pipeline and based upon the record backlog, to raise revenue guidance into the year. Ron Epstein: And then maybe just as a follow-up to that. On Starlab, with a NASA administrator set and things seeming more stable on the top of NASA, when would you expect a down-select decision on the Starlab? Dylan Taylor: Definitely this year, Ron. We still anticipate a down-select this year. To be more precise, it is difficult to say. We would anticipate the RFP is going to come out in the next 60 days or so, and basing that on language that was in the NASA authorization bill, which has passed committee. But if you figure roughly, I do not know, four to five months for selection once that RFP is out, then that would be late summer, early fall. But I would definitely anticipate selection within calendar year 2026. Ron Epstein: Got it. Got it. Thank you very much. I will jump back in the queue. Adi Padva: Thank you, Ron. Operator: Your next question comes from the line of Myles Walton with Wolfe Research. Please go ahead. Myles Walton: Thanks. Maybe, Filipe, you gave us a number of the moving pieces on the EBITDA walk. Could you maybe flesh that out if you want to get to sort of a range? And then relating to the higher CapEx, we have seen a lot of the missile providers find a way to get what are effectively advances, but basically higher milestone payments coincident with the CapEx expenditures to lessen the load on free cash flow. Could you touch on that as well? Filipe de Sousa: Myles, I will take the first one and just ask you to repeat the second question for me. But from an EBITDA perspective, you are 100% right. We are guiding to an EBITDA loss in 2026. It should not come as a surprise. We continue to see tremendous opportunity to grow our business and invest in our business, so as part of that, we are accelerating a significant amount of our own internally funded research and development. We know that there is a strong signal for demand for our product, for innovative solutions that we already have and are contracted, and the next generation of those, and so we are going to continue to invest in growing our business. We see a strong signal, as Dylan mentioned earlier, from the marketplace that that is going to continue. It is not just a short-term duration, so we are going to continue to invest in our business here in 2026. Important too is as we start to scale and grow through the back half of this year, we anticipate still achieving our longer-term aspirations of being EBITDA positive exiting 2027 and being free cash flow positive in 2028. And so that is a really important element to make sure that investors and analysts alike understand. We are committed. In fact, if anything, we are infused with the increasing demand for our product and see opportunity to actually potentially achieve some of those targets earlier than we had previously anticipated despite investment here in 2026. Dylan Taylor: Myles, just to touch on the second part of your question, if I understood it correctly. We are seeing tremendous demand on the propulsion missile defense side across multiple programs. So I think part of what I would want to communicate on that is in addition to Next Generation Interceptor, our technology is quite relevant to other programs, whether it is THAAD or PAC-3 or some of these others. And so two things are happening. One is our technology continues to be relevant to being specced in on those programs, and then the second part is the demand for the quantities under those programs are increasing, given the geopolitical circumstances in the world. And then touching on another part of your question, which is, is there nondilutive funding and/or milestone payments available for these programs? The answer to that is yes, and we are absolutely driving that and expect some additional detail and announcements on that as we roll forward into 2026. But right now, we are not communicating any of that quite yet; we are not in a position to do so. But you are absolutely right. There is a lot of nondilutive funding available to accelerate not only these programs, but the quantities on these programs. So we are very optimistic that that is going to be very beneficial as we look to scale our propulsion technology as well. Myles Walton: Yep. Yeah, that was the question, Dylan. Thank you. And just one follow-up if I could. The Starlab percentage ownership at this point by Voyager, following the fundraising, where does that sit today? Dylan Taylor: I believe we can get you an exact number, Myles, but I believe we are sitting at about 60%. Yeah. It is just north of 60%. I think it is 61% last time I checked, but we can get you a precise number. Myles Walton: That is perfect. Thank you. Dylan Taylor: Sure. Thanks, Myles. Operator: Your next question comes from the line of Seth Seifman with JPMorgan. Please go ahead. Rocco (for Seth Seifman): Good morning. This is Rocco on for Seth. Good morning. How should we think about growth in Defense and National Security next year? Should NGI remain the main growth driver, or are there other growth drivers that should be called out in 2026? Dylan Taylor: Yeah, no, it is really across the board. So NGI for sure on the propulsion side of things, that is a big part of it. I wish I could give you more specificity on the Golden Dome in general, but there are a lot of programs associated with Golden Dome that are being specced in currently. Those award announcements have not been made public yet, but rest assured, our technology is quite relevant to those various programs, so stay tuned on that. And then as I mentioned earlier, in addition to the propulsion technology, we are seeing huge demand signal on the advanced electronics part of our business, which is really foundational to a lot of defense programs in general, and then the energetics side, as I mentioned, and then advanced communications and sensing. So a lot of our SIGINT, data processing, the SIS, mostly in the intelligence community and classified programs, we are seeing strong demand signals there as well. So yeah, it is really across the board, with an emphasis, I would say, on propulsion. Filipe, would you add anything to that? Filipe de Sousa: Yeah, I certainly—well, one, I would want to remind everybody how diverse our Defense and National Security portfolio is today, especially with the strategic acquisitions of Exotera and Estes in the back half of last year. So to kind of reframe, certainly this past fourth quarter, NGI was a significant driver of our growth. NGI actually grew over 100% year over year in Q4. NGI was up about 100% year over year in the calendar year 2025. As we enter 2026, bear in mind about $200,000,000 of our backlog sits within Defense and National Security, and only about 25% of that is actually tied to NGI, which is fantastic. Program as a base, and we look forward to the scaling of that program as we move from design phase here in 2026 into low-rate production and high-rate production 2027, 2028 respectively. Just as a key reminder to investors, we are far more diversified than just Next Generation Interceptor, as important a program as it is to us. Dylan Taylor: Yeah, and the final point I would make is, again, record backlog and that record backlog is based upon record pipeline. So we really like the visibility we are seeing and the demand drivers we are seeing. And, you know, as a management team, the way we think about value creation is build pipeline—that is why we are super excited about the record pipeline—make sure that we turn that into backlog, and, of course, we are at record backlog, which then transfers into revenue, EBITDA, and then cash flow. So the funnel, Rocco, is just tremendous, and we are super bullish about the demand signals that we are seeing. Rocco (for Seth Seifman): Right. And digging into that funded backlog in Defense and National Security, it has more than doubled quarter over quarter. Should we think about the unannounced Golden Dome awards as being the primary driver there of the growth, or is there another program to call out? Filipe de Sousa: Yeah, it is not included. It is not included. So think of this as things that have been announced, and things that have not been announced are not yet in those numbers. I go back to the initial question from Ron, asking us about the confidence in our visibility and our revenue guide for 2026. And, obviously, it starts with that record backlog position. But it is also—and I do not mean to sound overly enthusiastic; I am supposed to be the CFO, I am more of the realist here in the room—but we are tremendously excited by the pipeline and how that is going to crystallize for us over the course of not just the first half of this year, but as we extend out to the back half of the year. We know this administration is going to be heavy into upping the defense budget, the defense allocations, if you would, and clearly a lot of the onshoring demand that we are excited about is not reflected in this backlog. It is all in front of us in terms of order opportunity first into our 2026. We have to get through 2026 first, but as we look out to 2027, it will make for yet another acceleration in the growth profile for Voyager. Rocco (for Seth Seifman): Great. Thank you. Dylan Taylor: Thank you. Operator: Your next question comes from the line of Justin Lang with Morgan Stanley. Please go ahead. Justin Lang: Good morning. I am on for Christine today. Thanks for taking the questions. Appreciate all the detail at the top on the Estes. I was hoping you could provide a little more color on how that business factors into your 2026 outlook, how you think about synergy capture from here, and we have heard a lot about fragility within the missile propulsion supply base, so just curious if you could size the magnitude of investment required to build out capacity in that business? And then I have a follow-up. Thanks. Dylan Taylor: Yeah, so I will take a stab at that, and I will pass it over to Filipe to talk about the cost portion. But yes, the energetics portion of our business is going to be increasingly strategic and critical. If you look at the value chain for propulsion and missile defense in general, but also factoring into things like munitions, which is another key focus of the administration, within that value chain, energetics is one of the key components not only from a value capture standpoint, but also as a critical supply chain input. And it is at the confluence of not only the fact that this is essential to make these systems work, but it is also at the confluence of the administration's priority for critical chemicals, which is the same strategic orientation that they had towards critical minerals like antimony and things like that. So that is a key focus. It also is at the confluence of onshoring. A lot of these energetics are currently not made in the U.S. So there are a few factors here. One is we can control more of the production inputs, which gives us more control over the supply chain, which ultimately gives us speed to market, which is what the customer is asking for. Furthermore, it allows us to build out this Voyager ADC, the American Defense Complex, which is relevant to all of our propulsion technologies. There is actually some CapEx offset with the Estes Energetics acquisition we made. We are able to use some of their facilities to offset some CapEx that we had anticipated with our TDAX technology, so we are super excited about that. And then the other thing, which is not in our numbers but we are still, I think, very optimistic about, is all of this is eligible for nondilutive funding from the government under this critical chemicals framework and onshoring framework. So I think that is another opportunity for value capture and CapEx offset. So when you think about this Voyager American Defense Complex and what it is supporting, it is not only supporting the energetics business, which is a critical input, it is setting us up for scale production for our entire propulsion technology suite. So think of this as a foundational investment that is going to lead to huge scaling and upside on the revenue side for propulsion more generally. So we are super excited about that. I think it is going to be ultimately a critical competitive advantage and moat that we are going to have that other providers are not going to have, and I think it is completely aligned with the administration's goals, stated goals, for these critical inputs as well. So with that, I will pass over to Filipe. Filipe de Sousa: Yeah, good, and again, thanks for the question. So one thing I think I would really start by highlighting is as we have acquired these businesses, the first thing that Voyager looks to do is integrate the businesses into our portfolio. So do not think of these as a standalone operation going forward. We will quickly integrate them. As Dylan mentioned, it is not just Estes; it is Exotera, it is our former predecessor Valley Tech business. It is all really part of our strategic defense portfolio. And so Estes, along with Exotera, which does nothing but strengthen our vertical integration around propulsion, is tied to multiple growth drivers, including Golden Dome. Estes alone, from an energetics perspective, adds over a billion dollars of opportunity to our pipeline. So, again, back to the backlog, $266,000,000 entering the year, very little of that tied to energetics. The opportunity is all in front of us. We know the demand is real. The U.S. government continues to call for it. We highlight $60,000,000 to $70,000,000 of CapEx in 2026—of course, that is all excluding Starlab. A significant portion of that is going to be tied to the Voyager American Defense Complex. Again, it is not only specifically Estes or energetics related. It is also tied to propulsion, the broader propulsion portfolio, and supporting our grander Golden Dome growth drivers and initiatives. Justin Lang: Got it. That is great color. And then sort of relatedly, just on Golden Dome specifically, as that opportunity set takes shape, just curious the signal you are getting from the customer; they are really stressing on industry sort of desktop front here and you are seeing maybe a pay-to-play type dynamic emerge? Any color there would be helpful. Dylan Taylor: Yeah. Well, again, record pipeline. About $1,600,000,000 of our record pipeline is associated with Golden Dome opportunities. So we are super bullish on the opportunity that we see. In terms of the procurement strategy, which is really, I think, embedded in your question, we are seeing the customer in the Department of War looking for new ways to incentivize commercial providers to not only spec the technology they need, but to move faster to develop these systems. And, of course, that need is urgent. I think that plays to our strengths, because we are more maneuverable, more entrepreneurial, more flexible, more adaptable than certainly a lot of the legacy players in this space are. So we actually welcome this, I would say, creative procurement approach that the customer is asking for. And then, ultimately, keep in mind the technologies that we are putting into play into Golden Dome have already passed things like Critical Design Review on Next Generation Interceptor. So this is already proven technology. So even if it is a milestone-based contract, we have a lot of confidence that the tech is already going to work, as opposed to, let us say, developing systems that might have unproven technology being specced in. We could be more specific on the Golden Dome, but currently we are not able to talk specifically about the specifics of those contracts. But I would say, generally speaking, the customer is looking for new and innovative ways to procure that are disrupting the status quo approach. Filipe de Sousa: I think, Dylan, if I could just double down and emphasize. So think of not just the CapEx, but the innovation investment that we have planned for here in 2026. It is extremely deliberate, and it is a deliberate investment ahead of growth, not ahead of opportunity. If we did not have line of sight to orders in our pipeline, line of sight to larger programs that are scaling in terms of moving from design phase into production phase, we would not be making these investments ahead of this growth. So it is just to reiterate our confidence in what that growth profile looks like. And of course, like Voyager has demonstrated in years past, being ahead of the curve, if you would, so not necessarily waiting for the opportunities to knock on our door. We are positioning ourselves to capture a great share of that market as it unveils and evolves. Dylan Taylor: Yeah, and I just want to emphasize one thing. Our record backlog does not include the upside from the Golden Dome opportunities. Justin Lang: Perfect. Thank you. Operator: Your next question comes from the line of Greg Conrad with Jefferies. Please go ahead. Greg Conrad: Good morning. Dylan Taylor: Morning, Greg. Adi Padva: Morning. So you spent a lot of time talking about the Defense and National Security side. If maybe we could talk about Space Solutions a little bit. I think you said now that some of the wind-down is behind them, you expect it to return to growth in 2026. What do you see as the biggest drivers of that, and any way to maybe quantify the growth expectations for Space? Filipe de Sousa: Yes, so I will take that, Greg. Just a reminder: fourth quarter revenue down, entirely driven by the planned wind-down of the NASA low-margin services contracts. As we reset 2026, we see continued demand for mission management services on the ISS as it certainly continues to operate today, and think of that as the bridge to Starlab, which we are already seeing continuous demand for. And, in fact, we know it is our current mission management services customer relationships, managing things on the International Space Station today, that is leading to that overbooked commercial demand that we are seeing on Starlab already. So as we look out to 2026 and 2027, we continue to see low Earth orbit as a demand driver. Looking out even beyond, certainly the focus on lunar, and perhaps we can talk a little bit about the announcement we made today in that space and how that lends itself to that. I think that there is upside opportunity in Space Solutions. I look forward to seeing it return to growth in 2026, albeit modest relative to our Defense and National Security business, which is supported by a tremendous amount of backlog entering the year. But make no mistake, Space Solutions continues to be a growth driver and a growth focus for Voyager. Dylan Taylor: Yeah, and I would just add, we are very bullish on Space Solutions. We have spent a lot of time talking about the defense side, but we also see great demand on the Space Solutions side. Just to reiterate our strategy there, we call it the three L's, which is LEO, Lunar, and Lagrange, Lagrange being a proxy for deep space. So we will have more to talk about on our Max Space investment probably on our next quarterly call because that is fresh. But think of us as focusing on the technologies that enable administration goals in all three of those domains—low Earth orbit, the lunar environment, and deep space. And so we have relevant technology already that applies to all three of those domains, and we are going to look to fund IRAD and/or make acquisitions and/or investments in technologies that are, again, going to address all three of those domains. And as Filipe pointed out, we see huge opportunity in lunar and the return to the moon with lunar infrastructure. And then, of course, a lot of our foundational mission management business is leading directly to these demand signals we are getting on Starlab, which is really positioning us well to capture the majority of the market share available in low Earth orbit. So we are feeling very bullish about that. One hundred percent of our commercial demand for Starlab is already reserved, which I think is a fantastic outcome given the fact that we will not be in orbit for another 36 months. Greg Conrad: And then maybe just as a follow-up, that is a good transition to Starlab. Any way to maybe quantify some of the financial impact in 2026? I think most of the numbers you gave are ex-Starlab thinking about, you know, innovation, CapEx, and then it seems like some offset given you have sold out the payload capacity. How should we think about the free cash flow usage and any inflows tied to Starlab in 2026? Filipe de Sousa: Okay. Okay. Yep. Yeah, Greg, I think it is really important to note in terms of planning cash flow around Starlab in 2026 is, one, I am driving a—think of it as a cash-neutral profile, meaning it is not just about free cash flow, but it is also about our successful fundraising for Starlab, and that is nondilutive capital as well as dilutive capital through our successful Series A for Starlab that has been ongoing. We anticipate, obviously, NASA to step in during the year as well. It is going to be also the other international space agencies. As we start to approach the latter part of the year, we will start to see some pre-advanced fundings come in from customers already. To that point, and I will highlight, I know we have talked a lot about our record backlog in the $266,000,000, but just to highlight and be fully transparent with everybody, there is actually $6,000,000 of backlog associated with Starlab, which is quarters ahead of when I would have expected to actually have hit. And so back to the growing demand, growing necessity for a low Earth orbit replacement for ISS, and Starlab is great positioned to do so. We feel great about that. From a financial perspective, Starlab is intended to be, if you would, cash neutral for the year. We do anticipate free cash flow to be a cash outflow that will be funded by both dilutive and nondilutive capital coming in during the year. I think that is the important piece to highlight. From a Voyager perspective, just to remind everybody, the JV structure actually reduces Voyager's capital exposure to Starlab. Our diversified funding within Starlab itself limits Voyager's capital burden, and again, just to highlight the early demand visibility and the diversified customer base we see for Starlab gives us tremendous excitement as we look out to later in 2026 and certainly 2027 as we start to move from design into actually constructing the new station. Greg Conrad: Thank you. Filipe de Sousa: You bet. Thank you. Operator: Your next question comes from the line of Michael Leshock with KeyBanc Capital Markets. Please go ahead. Michael Leshock: Hey, good morning. I wanted to ask on the government shutdown and what you are expecting from the catch-up there to how that plays out in 2026. Is there one quarter that might see the biggest benefit, or is that relatively consistent as the year progresses? And then on the NGI program, can you provide any color on next milestones or key watch points for NGI to hit its target for LRIP in late 2026? Is there any facility or capacity expansions that are needed to hit your target and drive the strong growth that you are seeing there? Filipe de Sousa: I can take that as well. And good morning, Michael. Thanks for making the call. The government shutdown had a minor, relatively small impact that is actually in the fourth quarter. We probably would have had even bigger backlog, even more orders to report in Q4 if not for the prolonged government shutdown. So as excited as we are about total record backlog of $266,000,000, that would have been higher. So I look forward to Q1, and certainly Q2, being perhaps a little bit higher in terms of orders than historically speaking we would have seen. From a revenue perspective, that delay in the fourth quarter probably means our first quarter will be a bit muted from an actual revenue crystallization perspective, and so we would anticipate revenue to accelerate through the year in 2026. But the government shutdown, for what it is worth, does not necessarily impact Voyager that significantly. The underlying demand drivers here, these national security growth drivers, are not temporary. Obviously, with the geopolitical environment that we are in today—last quarter we were talking about the impact potentially of the prolonged impact of the Ukraine war with Russia, now we have the Iran conflict, etcetera—if anything, these things are just depleting our national security resources, and Voyager is well positioned to replenish that. And it is not going to be a six- or twelve-month resupply mission. This is going to be a multiyear growth support driver for Voyager. Dylan Taylor: Yeah, the only other thing I would say is that, given the fact that we were shut down for half of the fourth quarter, call it 90 days, the fact that we essentially hit our revenue target, I think, is a very good fact, and I think shows not only the resilience of the diversification of the business, and again, exiting the year with record backlog, record pipeline, raising revenue guidance, all on the heels of a prolonged government shutdown, I think, is a very good fact. Filipe de Sousa: As for NGI, we work very closely, obviously, with the prime, Lockheed Martin. Just case in point, we have continued to stay on time and stay on schedule from our perspective irrespective of other potential supply chain issues. Ultimately, we will take that final order through a full low-rate production from the customer when it is ready. We do anticipate those orders to come in the second half of this year as we move into low-rate production next year. As far as the manufacturing capacity and investment, to be clear, we are investing in the Voyager American Defense Complex ahead of demand for Golden Dome opportunities in excess of, or incremental to, Next Generation Interceptor. We know that those opportunities are real. We are working very closely with other primes, not named Lockheed Martin, as an example, on various initiatives and various programs, and so that is the reason why we are making that investment. That said, we are well positioned as we scale on NGI when Lockheed is good and ready. Michael Leshock: Great. Thank you. Adi Padva: Thanks, Michael. Operator: Your next question comes from the line of Sam Brandes with Wedbush Securities. Please go ahead. Sam Brandes: Hi, everybody. I am on for Dan. Looking ahead to 2026, can you walk us through the two or three most critical growth drivers or milestones—whether contract awards, Starlab development targets, program execution gates—that you would point to as the clearest proof points that Voyager's long-term thesis is well on track? Dylan Taylor: Well, we have a lot more than three. I will try to pick the biggest three. I think a few things. One is continued delivery of our propulsion technology on programs like NGI, but I would say more specific to that would be being announced on additional programs of record, including Golden Dome programs and including legacy programs of record. I think evidence that we can hopefully talk about in the public domain here in the near term that would show that we are getting traction on additional programs, I think, would be a key indicator and validation point, and that would be—in addition to the record backlog that we have already talked about—this is all incremental. So I think that is one thing. A second key thing would be our ability to scale our production capacity, because that is really what is going to set us up for a remarkable 2027–2028, both from a revenue growth perspective, but also from an operating leverage, EBITDA, free cash flow, all the things that we anticipate. And then the third thing I would say, which is relevant, is the successful outcome of CLD Phase 2, which, of course, is the space station selection by NASA, and we anticipate that selection to happen within calendar year 2026. And we feel very good about our strategic position there. And then just to emphasize, we have ample liquidity—lots of dry powder on the balance sheet. We are seeing huge opportunities not only for internal investment to drive growth, but also still on the acquisition side as well. So those would be three pillars that I would put out there, and we have a lot more than just those three, but I think those are three to keep an eye on. Sam Brandes: Great. Thank you. And you guys made five acquisitions in 2025. Where do you think are the remaining capability gaps in the portfolio? And when do you think the strategy shifts from capability filling to driving scale as the company further matures? Dylan Taylor: Thank you. I think we have already made the pivot or shift to that second part. We are in scale mode for sure. I think on the capability side, there are a few areas that we are still interested in exploring. Anything in power and propulsion—we are going to continue to look at the value chain there. How do we go faster? How do we scale capability and production availability? We will also be responsive to the needs of the customer as we have been with this critical chemicals and onshoring initiative that we talked about. On space exploration, I think the lunar environment is something that we are really keen on. There is a huge opportunity there with NASA's focus on going back to the moon and going back to the moon to stay, and we are very well positioned with our technology to be a major player in that domain as well. So I think those are two key areas. And then I think our acquisition pipeline is quite robust, and we are seeing a lot of opportunities there. I think one way to think about this might be geographic expansion as well that would lead to other customers around the world that would be non-U.S. based. I think that is a huge growth opportunity for the company. Nothing imminent there, but I think that is another area that we can scale our business. So those are some thoughts, and, yeah, happy to dive deeper with you on any of those points. Dylan Taylor: Thank you. Operator: Mr. Padva, I would like to turn the conference back over to you. Adi Padva: Thank you very much. We will now take a couple of questions from Fei Technology. First one: As Voyager seeks to grow content in missile programs, how should we think about the incremental investment required to supply programs like PAC-3 or others which have higher production rates relative to Next Generation Interceptor? Dylan Taylor: Yeah. Well, thank you for the question. I really appreciate that. So a couple ways to think about this. Our Voyager American Defense Complex—we are building that out in anticipation not only of addressing the record pipeline that we have, but scaling from there. So this would be existing programs of record, missile defense programs of record like PAC-3, like THAAD, like Trident, like others, but in addition to that, opportunities on things like Golden Dome, which have not been announced publicly yet. So think of the American Defense Complex as setting the table for us to take advantage of all these demand signals that we are seeing, and we are confident with the investment that we are planning in 2026 for the Voyager ADC. We will not have additional incremental investment in order to capture these large pipeline and backlog opportunities that we see, so we feel very good about that. Adi Padva: The next question: Given that NASA is expected to award the CLD Phase 2 later this year, what is Voyager's strategy in case NASA further delays the Phase 2 selection to 2027, for example? And do you have any other financing to maintain the 2029 launch schedule without the federal funding? Dylan Taylor: Yes. Well, we do not anticipate a delay outside of calendar year 2026. There was a NASA authorization bill that just cleared the Senate Commerce Committee here recently, and it specifically says the RFP is within 60 days, so I do not anticipate the RFP pushing in or the selection pushing into 2027. The other thing about the Starlab joint venture model is it is fantastic from a Voyager perspective because there is a lot of capital flexibility in that model. So the cost structure itself—well, first of all, the JV is actually raising third-party capital into the JV, so that is one key point. But the second key point is the way the joint venture is set up is a lot of the cost structure is in procurement and integration, and those things can be modulated, and the time that those costs are spent can be chosen at our option, as opposed to, let us say, some of the competitors have very, very, very heavy run-rate cost structure, and if there is a delay in procurement on their side, their cash burn is extremely high. Our model is different, and that gives us much more capital flexibility in our approach. Adi Padva: This concludes our questions. I will hand it back to Dylan for closing remarks. Dylan Taylor: Well, thank you, everybody. We are super excited about our 2025, the record backlog that we have going into 2026, the growth opportunities we see in the company throughout all of our growth vectors, including power and propulsion, energetics, space solutions, Starlab, and the like. So with that, I want to thank everybody for joining the call. Thanks for your interest in Voyager Technologies, Inc., and we look forward to speaking with you after we wrap up Q1. Thank you. Operator: Thank you. This concludes today's Voyager Technologies, Inc. fourth quarter and full year 2025 financial results conference call. Please disconnect your lines at this time and have a wonderful day.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Custom Truck One Source, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. Please note this conference call is being recorded. I would now like to hand the conference call over to your host today, Brian Perman, Vice President of Investor Relations for Custom Truck One Source, Inc. Brian Perman: Thank you, Operator, and good morning. Before we begin, we would like to remind you that management's commentary in response to questions on today's call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the risk factors section of the company's filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during the call in the press release we issued this morning. That press release and our fourth quarter investor presentation are posted on the Investor Relations section of our website. This morning, we also filed our 2025 10-K with the SEC. Today's discussion of our results of operations for Custom Truck One Source, Inc., or Custom Truck One Source, Inc., is presented on a historical basis for the three months and year ended 12/31/2025 compared to prior periods. Joining me today are Ryan McMonagle, CEO, and Christopher Eperjesy, CFO. I will now turn the call over to Ryan. Ryan McMonagle: Thanks, Brian, and good morning, everyone. We delivered a strong finish to 2025 with record quarterly revenue driven by continued momentum in our core end markets, and strong execution by our team. In the fourth quarter, we generated revenue of $528,000,000. Adjusted EBITDA was $121,000,000. Up more than 18% year over year. For the full year 2025, we saw record revenue of $1,944,000,000, up 8%, and adjusted EBITDA was $384,000,000, up 13% compared to 2024 and ahead of the midpoint of our guidance. The key driver of our performance in the quarter was continued strength in our rental business, as the improvements we saw in the third quarter in the transmission and distribution markets continued into Q4. Our rental fleet averaged just under 84% utilization during the quarter, the highest in almost three years, supported by continued growth in OEC on rent. Average OEC on rent in Q4 was just under $1,400,000,000, up 14% year over year. During Q4, both utilization and OEC on rent reached historically high levels, while we saw the anticipated seasonal slowdown in both measures in December. So far in 2026, both have rebounded as expected with utilization currently at approximately 82% and OEC on rent well above year-end level. We ended the year with total OEC of $1,640,000,000, the highest quarter-end level in our history, supporting our expectation for continued growth in our rental business. Our trucks and equipment continue to power the people who strengthen and build critical infrastructure in the U.S. and Canada. The market has been focused on the durability of demand in T&D and our ability to convert improving rental KPIs into earnings and cash flow, and we believe our Q4 results speak directly to that. Bidding activity and ongoing conversations with our customers lead us to believe that these conditions will persist through 2026 and beyond. While TES performance in the fourth quarter was below our expectations, end market demand is healthy and order activity remains strong. While TES saw sequential revenue growth in the quarter, revenue was down 8% year over year, primarily due to our customers pulling forward capital spending to earlier in the year in anticipation of potential tariffs and price increases and an atypical year-end dynamic, with some customers deferring deliveries into 2026. Additionally, we did not fully experience the lift in spending of our customers taking advantage of the accelerated depreciation provisions in last year's federal tax and spending bill. Despite those facts, TES finished the year with revenue of $1,100,000,000, up 4% for the full year and our highest annual level ever. New sales order backlog ended the year at $335,000,000, up more than $55,000,000, or 20%, from Q3. Our backlog has continued to grow so far in 2026, and as of yesterday, stands at around $370,000,000. As we have noted in prior periods, backlog can move quarter to quarter with delivery timing and production schedules, so we also focus on order activity and conversion. We saw strong year-over-year net order growth of 21% in Q4 driven by year-over-year growth of 12% in orders won during the quarter, with particular strength coming from local and regional customers. Despite slower growth in the infrastructure end market, the continued strength in order growth in our ongoing conversations with our customers provide us with the confidence to expect another year of growth in TES. This confidence is increased by our recently announced partnership with HyAV, a manufacturer of truck-mounted cranes and forklifts. This partnership strengthens our ability to serve customers across multiple end markets while supporting our long-term growth strategy. It broadens our product portfolio, enhances our service capabilities, and allows us to deliver more complete solutions in key markets we already serve, such as building supply, forestry, and rail. In addition, this year, to better support our TES customers post-sale and grow our parts and service revenue, we are investing in a focused initiative to expand our aftermarket service capacity. This effort, which will impact multiple locations in our existing branch network, will ensure that our TES customers continue to get the high level of post-sale service that they have come to expect from Custom Truck One Source, Inc. Both the HyAV partnership and our expanded parts and service offering highlight our commitment to continuing to invest in TES and position our sales business to grow its presence and market share and to strengthen our connection with our customers. Before I turn it over to Chris, I want to highlight a few items related to 2026. First, beginning with the quarter ending 03/31/2026, we will move from our current three-segment reporting and will report results under two segments: Specialty Equipment Rentals, or SER, and Specialty Truck Equipment and Manufacturing, or STEM. This change aligns our segment reporting with how we currently evaluate the business and provides enhanced transparency to investors, with a clear basis of comparison to the industry peers of each of our primary businesses. We plan to provide additional details prior to reporting Q1 2026 earnings, including recasting historical financials and our 2026 guidance to align with the new reporting structure. Second, we are providing our full-year 2026 outlook. We expect revenue in the range of $2,005,000,000 to $2,120,000,000 and adjusted EBITDA in the range of $410,000,000 to $435,000,000. Chris will provide additional details in a few minutes. Our 2026 guidance reflects our continued optimism about our business, as long-term sustained end market demand buoyed by secular megatrends and our ability to provide exceptional execution on behalf of our customers set us apart from our competition. Our long-standing relationships with our strategic suppliers and customers continue to be keys to our success. I continue to have the highest degree of confidence in the Custom Truck One Source, Inc. team and want to thank everyone for their hard work and dedication that helped achieve our strong results in 2025. We look forward to updating everyone soon. With that, I will turn it over to Chris to walk through the numbers in more detail. Christopher Eperjesy: Thanks, Ryan, and good morning, everyone. I will start with consolidated results for the quarter and full year, then discuss segment performance, our balance sheet, liquidity, and leverage, and finally, our 2026 outlook. Our fourth quarter and full year 2025 results reflect stronger operating performance across the business and improved rental fundamentals, particularly in our T&D end markets. For the fourth quarter, total revenue was $528,000,000 and adjusted EBITDA was $121,000,000. For the full year, record revenue of $1,944,000,000 was 8% ahead of 2024, and adjusted EBITDA was $384,000,000, a year-over-year increase of 13%. Before I move to the segments, a quick note on our GAAP results. For the fourth quarter, GAAP net income was approximately $21,000,000, and for the full year, GAAP net loss was approximately $31,000,000. Year-over-year comparability on net income was impacted by the $23,500,000 gain on a sale-leaseback transaction in 2024. Excluding that prior-year sale-leaseback gain, underlying net income improved meaningfully year over year, reflecting higher gross profit, disciplined SG&A management, and lower interest expense. Turning to our segments. In ERS, fourth quarter revenue was $207,000,000, up 20% versus the same period last year, driven by strong double-digit growth in both rental revenue and rental sales activity. For the full year, ERS saw 17% year-over-year revenue growth. We finished 2025 with rental adjusted gross margin and rental sales gross margin at the highest quarterly levels of the year, allowing ERS to grow its adjusted gross margin for the year despite a less favorable mix of rental and rental sales. The strong performance in ERS in the fourth quarter and for the full year was driven by significant improvement in our key rental KPIs throughout the year. In Q4, utilization averaged 83.6%, up approximately 470 basis points versus Q4 2024. Average OEC on rent in the quarter was $1,380,000,000, up $166,000,000, or 14%, versus the same period in 2024. For the year, average utilization and OEC on rent were up more than 500 basis points and 14%, respectively. On-rent yield in the fourth quarter was 38.7%, reflecting both sequential quarterly and year-over-year increases. Non-rent yield remained within our targeted upper-30s to low-40s range, and we continue to see opportunities for rate improvement as transmission mix grows and pricing discipline holds. Our improved metrics throughout 2025 reflect both increased rental activity and the continued scaling of our fleet to meet demand. Net rental CapEx in Q4 was more than $40,000,000, and our fleet age at year-end was just over 2.9 years. Our OEC in the rental fleet ended the year at almost $1,640,000,000, up more than $120,000,000 versus the end of 2024, and up $15,000,000 in the quarter. The growth in OEC reflects our strategic investment given the strong demand environment we continue to experience across our primary end markets, particularly in T&D. While we expect to continue to invest in the fleet in 2026, we expect maintenance CapEx to be lower in 2026 compared to 2025, which should contribute to increased free cash flow generation this year. In TES, fourth quarter equipment sales were $284,000,000. As Ryan noted, the year-over-year decline primarily reflects purchase timing, including equipment purchases pulled forward earlier in the year and continued pricing pressure on certain truck sales. While quarterly revenue was down versus 2024, full-year TES revenue was up 4% and set a new annual record. Gross margin in the segment was 15.6% in Q4, the highest quarter of the year and up from 15.0% in Q3. The improvement reflects our expectation that market pricing pressure would ease somewhat in the second half of the year as inventory levels began to come more into balance. Importantly, our new sales backlog ended Q4 at $335,000,000, up more than $55,000,000 sequentially and within our expected range of roughly four to six months. We have continued to see strong order growth so far in 2026, and our backlog currently stands at approximately $370,000,000, up more than 10% since year-end. In APS, fourth quarter revenue was $37,000,000. Gross margin remained stable at 27%. Full-year APS gross margin was just under 24%, a year-over-year improvement of almost 120 basis points. Turning to the balance sheet and liquidity. With 2025 adjusted EBITDA of $384,000,000 and net debt of $1,650,000,000, we finished the year with net leverage of 4.3x. This represents an improvement of almost a quarter turn from 2024 and a half turn from the quarter-end high of 4.8x at the end of 2025. Availability under our ABL was $248,000,000 as of December 31, and based on our borrowing base, we have more than $200,000,000 of additional availability that we can potentially access by upsizing our existing facility. Free cash flow generation and deleveraging remain key focus areas for us. We made tangible progress in the fourth quarter. Inventory declined by more than $100,000,000 during Q4, which supports lower working capital needs and lower interest expense on our variable-rate floor plan liabilities over time. We expect to continue to reduce inventory and floor plan balances in 2026, which will contribute to free cash flow generation. With respect to our 2026 guidance, the macro demand environment across our key end markets remains very strong. We expect the TES segment to continue to benefit from a favorable macro demand environment as well as our strong relationships with our key customers and chassis and attachment suppliers. Our strong order backlog supports this. In our ERS segment, we had strong momentum in 2025, and we expect this trend to continue in 2026. Demand for our equipment that serves the T&D end markets continues at record levels, and we expect the vocational rental market to provide incremental growth as we further penetrate this expanding end market. We finished 2025 with an average age of our fleet at just over 2.9 years, down more than a year since the beginning of fiscal 2022. As a result, we expect to be able to significantly reduce our overall investment in our rental fleet in 2026 while continuing to generate growth. We expect to grow our rental fleet based on net OEC by mid-single digits in 2026, with a net investment in our rental fleet of approximately $150,000,000 to $170,000,000, a meaningful reduction from over $250,000,000 in 2025. After prior years' investments in inventory driven by the strong demand environment, we expect to continue to make progress on further net working capital improvements in 2026 as we continue on our path of reducing inventory months on hand to our targeted range of below six months. As a result, we expect to generate more than $50,000,000 of levered free cash flow and reduce our net leverage ratio to meaningfully below 4x by the end of fiscal 2026, while progressing toward a 3x net leverage target in 2027. Our initial 2026 guidance reflects total revenue in the range of $2,005,000,000 to $2,120,000,000 and adjusted EBITDA in the range of $410,000,000 to $435,000,000, resulting in year-over-year revenue growth of 3% to 9%, and adjusted EBITDA growth of 7% to 13%. We expect non-rental CapEx of $40,000,000 to $50,000,000. Our segment guidance for 2026 is as follows. We are projecting ERS revenue of $725,000,000 to $760,000,000, TES revenue of $1,125,000,000 to $1,200,000,000, and APS revenue of $155,000,000 to $160,000,000. Finally, as Ryan mentioned, beginning in Q1 2026, we will report our results under two reportable segments, Specialty Equipment Rentals, or SER, and Specialty Truck Equipment and Manufacturing, or STEM. Upon implementation, the new SER segment will consist of our historical ERS segment and a proportion of our historical APS segment, and the new STEM segment will consist of our historical TES segment and a portion of our historical APS segment. We will also begin reflecting intercompany activity between the two segments, which will ultimately be eliminated in consolidation. This new segment reporting reflects how we currently manage the business and how we allocate resources, and we believe this new presentation better reflects the positioning of Custom Truck One Source, Inc.'s strategies and operations portfolio. In early April, we will provide more information, including a recasting of certain historical financial information to align with and provide comparability to the new two-segment reporting going forward. We also will recast our guidance based on the new two-segment reporting at that time. We believe our new segment realignment will better reflect key economic drivers, capital intensity, and margin profiles of the respective new segments, as well as align our external reporting with how management allocates capital and evaluates performance. In addition, we believe this change will allow us to provide a clearer picture of the true earnings potential of each segment. In closing, I want to echo Ryan's comments regarding our continued strong business outlook. Despite significant macroeconomic uncertainty last year, our 2025 results and the continued strong fundamentals of our end markets allow us to be optimistic about the long-term demand drivers in our industry and our ability to produce significant adjusted EBITDA growth this year. With that, Operator, we can open up the lines for questions. Operator: Thank you. Your first question today comes from the line of Scott Schneeberger from Oppenheimer. Your line is open. Daniel Hultberg: Hey, good morning, guys. This is Daniel on for Scott. Thank you for taking our question. Regarding the guidance, what do you expect to see in the market to achieve the high end of that range? And what could be potential upside drivers? Thanks. OEC on rent yield inflected to year-over-year expansion in the fourth quarter. How do you view the pricing environment and pricing as a contributor on a go-forward basis? Thanks. Ryan McMonagle: Yeah. No. Daniel, good to talk to you. And look, I think our guidance is really an indication of what we see happening in the market right now. So we are seeing really strong T&D demand, Daniel. So I think the high end would be that continuing or improving throughout the year. And then I think it would be some of the vocational market or the infrastructure market seeing a pickup. So we are starting to see some positive trends so far this year, but I think that would be picking up even further. And, obviously, any of the political or economic uncertainty that is out there right now, if that calms or there is less of that, that would be a positive tailwind for us as well. Yes. So we are seeing good demand there, Daniel. You are right. It did inflect to the positive. I think OEC on rent was up meaningfully versus where it was this time last year, last 2024. And so we are seeing the opportunity to increase price. Obviously, there is some inflation coming through there in terms of the cost of adding new assets into the rental fleet, but we did pass some price increases through at the end of last year, beginning of this year, so starting to see some of that. Some of that you see in the numbers as we reported in terms of on-rent yield as well. Operator: Your next question comes from the line of Michael Shlisky from D.A. Davidson. Your line is open. Michael Shlisky: Hi, good morning. Thanks for taking my questions. The 84% almost you saw in 4Q for utilization, multi-year high, but you have always said it sounds like a little bit above what you used to call your sweet spot at around 80%. Operationally, have you gotten to a point where you can sustainably keep it at 84% and be able to serve customers properly, given that you are not going to be investing as much in 2026 in some new assets? Just give us a sense as to how you are going to balance the availability of assets and what looks like to be a little bit higher utilization going forward. And being where you are now and maybe just through most of the first quarter here, have you seen any one-time storm impacts in the Northeast and parts of the country that saw some big-time snow and some of the clogged drains and downed power lines, etcetera? Or was it very much a T&D-focused, everyday business? And then lastly, from my end, some quarters you give us a sense of first half or second half, how you might be earning. Are there any unusual seasonality items in any given quarter of the year? Anything you can comment on 2026 first half, second half, anything being pulled forward in the first quarter, etcetera? Ryan McMonagle: Yeah. Michael, good to talk to you, and thanks for the question. I would say this. I think the team has done a great job of executing on keeping the fleet up and running. And so I think we are really proud of how the team is performing there. I would still say the right way to think about normalized levels is that high-70s to low-80s. As you know, Q4 is generally when utilization peaks just because of all of the transmission equipment that is going out after the summer, and so that is what we saw really at the beginning of Q4. And so I think the team has done a good job. I think execution is important. I think, as you know, we have de-aged the fleet, the fleet is now under three years. I think we said 2.9 years is the age of the fleet, and so, obviously, that helps from keeping utilization high. And so I think we are in a good position heading into Q1. I mentioned in my comments that we are back at about 82% from a utilization perspective, and that is a very strong level from an overall utilization perspective. I would say it is the latter. It is T&D-focused everyday business. We are seeing strong demand in transmission right now, and then I would say good continued demand on the distribution side of things. Christopher Eperjesy: Yes, Michael, this is Chris. I think historically we have talked about the first half/second half split being, on the revenue side, mid- to high-40% first half, and then low-50s to mid-50s second half of the year. Similar on EBITDA. EBITDA is a little more, I would say, broader spread, so mid-40s in the first half to mid-50s in the second half of the year on the EBITDA side. Just to give a little bit of color for Q1, we do expect it to be a strong quarter. Directionally, we think top-line revenue will be up mid- to high-single digits, and EBITDA, we think, will be up double digits year over year. And based on Ryan's comments, a big driver of that is going to be our rental business. So I would index higher on rental versus new sales, but we think it is going to be a strong first quarter. Operator: Your next question comes from the line of Justin Hauke from Robert W. Baird. Your line is open. Justin Hauke: Oh, great, thanks for taking my question here this morning. I guess I just wanted to, and I appreciate, as always, the commentary about the orders being the driver of the TES segment. But I guess if I just look at the backlog where you were a year ago, you had $370,000,000 of backlog, you did $1,100,000,000. Backlog is a little bit lower, I guess in February it is probably about flattish, but you are looking for pretty good growth there. So I was just thinking about the order trends and, given the pull-forward in demand that you saw in 2025, maybe just talk about the cadence of how you expect the TES segment to perform throughout the year and just the confidence behind it. Thank you. I guess my next question, I think one of the other factors you were thinking about in the past for demand in 2026 on the sales side was some of the emission standards that were going to be hitting in 2027 that looks like have been pushed back. I am just curious if that is something where you are seeing any deferrals on that side or anything from the emission standards? Thank you. Ryan McMonagle: Justin, good to talk to you, and thanks for the question. Look, I think 4% growth for the year, we feel good with that number for last year for 2025. You are right. The leading number that we are watching—there are two numbers that we are watching. One, backlog—so it was up sequentially from Q3 to Q4, up 20%. And then the number that I watch closely is orders won. So orders won in the quarter were up 12% versus last fourth quarter, and so I think that is a positive indicator. And then, as we have talked about, sitting here as of yesterday, I think we gave guidance that backlog was up to $370,000,000. So it is back right to that four months on hand number, which is broad guidance that I think we have given in the past. And so I think that plus, obviously, how the first two months are shaping up are where we have some comfort in the growth range that we provided, which I think is 3% to 9% growth for the segment, and I think that feels pretty good. Do remember last year, we saw Q2 was a very big quarter for us last year because we felt it was that real big pull-forward from some of the tariff activity. So I would think about smoothing it out a little bit. Yeah. It is a great question, and we are still watching it. The EPA mandate 2027 is still in play. I think we are still waiting on more clarity around the warranty component of that in particular, still. So, if you look at the order boards from some of the OEMs, especially around Class 8 chassis, at the beginning of this year, I think they would say that they are seeing some pre-buy activity from some of the over-the-road customers. I would say we have not seen a lot of it yet. There could be a little bit of an uptick this year from pre-buy, but we feel like we are in a great position with our chassis OEM suppliers, have good inventory on the ground, and then we just have such good relationships with those OEMs that we feel like we will be able to continue to get the chassis that we need to meet demand from our customers. Christopher Eperjesy: No, I think Ryan nailed it. We did have—I think we mentioned in Q2 that we had two months that were above $100,000,000, which were the first non-December months that were above $100,000,000. So as you are looking at how this year is going to play out, certainly, Q2 of this past year was much stronger than what would typically happen for the reasons Ryan just laid out. Operator: Your next question comes from the line of Nicole DeBlase from Stifel. Your line is open. Naim Kaplan: Hi, good morning from Deutsche Bank. Yeah, this is Naim Kaplan; I do not know what happened there. So, yeah, thanks for taking my question. You continue to speak about the strength of vocational. So kind of just wondering what gives you confidence in that sustainability and any part of vocational in particular that is standing out. Okay. That is helpful. And then on gross margins, so they were up year over year in ERS, but down in TES relative to prior year. Do you have any color on that and maybe the outlook for those segments in 2026 in terms of gross margins? And I have the same question on ERS as well. Okay. Perfect. Thank you for your time, and I will pass it on. Ryan McMonagle: Yeah. I would say we are seeing good strength in transmission and distribution in particular. So I think that is where we are seeing good demand, which obviously is into our forestry business as well right now. So I think we are seeing really, really good demand there. I think we did make the mention that we did not see as big of a year-end buy in some of the vocational categories. So, dump trucks, water trucks, service trucks, roll-offs—a lot of those are where we normally see a big year-end buy where we did not see that happen last year. We are seeing decent order uptick in those categories, and so I think that is where we have some level of confidence that that will improve heading into 2026. But I think the broad theme of transmission and distribution, which is 55% to 60% of our overall revenue, is certainly where we are seeing the strongest demand right now. Christopher Eperjesy: Yes. This is Chris. I will start. We have kind of given an indication—I think I heard you ask about TES, so I just want to make sure. We have given guidance that our range is to be within a 15% to 18% gross margin range over a cycle. Throughout the year, we talked about pricing pressure, that there was more product available out there, so we were seeing some of that, and so we were at the lower end of that range. We started out the year at just over 15%, and Q3 was 15%, but then we did see about a 60 basis point increase here in Q4 to 15.6%. But I think the way to continue to think about it is we are going to target to stay within that range and do everything we can on the cost side, and where opportunistically we can take pricing, we will. But no specific guidance to give other than the guidance we have given to stay within that narrow range. So ERS—just focusing on rental—you know, we have talked about low- to mid-70% adjusted gross profit range. We were much stronger than that in Q4. I think it is the highest it has been for some time, certainly the past couple of years, at 78%. That really was driven by high utilization and lower repair and maintenance relative to the size of the fleet. And so we would expect, with this higher level of utilization, that we should be able to continue to stay in that mid-70% plus range. And then on the used equipment side, we have been in that roughly mid-20s to high-20s range, and do not expect to be any different than that on a go-forward basis. Operator: Your next question comes from the line of Brian Brophy from Stifel. Your line is open. Brian Brophy: Yeah. Thanks. Good morning, everybody. Appreciate you taking the question. With net CapEx coming down this year, curious how much you expect to age the fleet by as a result and how much runway there is to continue to age the fleet after this year? Thanks. Understood. That is helpful. And then any color on what drove SG&A lower relative to a year ago in the fourth quarter? And how are you guys thinking about SG&A this year? Thanks. Appreciate it. I will pass it on. Ryan McMonagle: Yeah. Great question and good to talk to you. Look, the fleet is young right now at 2.9 years, and so we think there is the ability to age the fleet months, I think, would be the right guidance, not years, with the activity of this year. And the fleet being so young at 2.9 years, I think there is plenty of room to be able to age it. So I think it is in a good spot, and as Chris' guidance was lowering the maintenance CapEx components while still being able to grow the fleet overall in 2026, you are right that there will be some aging. We do not expect it to have a meaningful impact on gross margin or utilization performance in the fleet, and so we think it is a good time to do that with the demand environment as strong as it is right now. Christopher Eperjesy: And I think another way to characterize it is if you look out over the last four years, on average, it has been about a quarter of a year to 0.3 years of de-aging of the fleet each year. I think the important point is it will not de-age. We will not be continuing to de-age, so that is really where we are picking up the bulk of the net investment this year. Yeah. We have been taking a closer look at SG&A and, where possible, being disciplined. We certainly have made, in certain places, some cuts. We are certainly looking at controlling our spending everywhere we can. The way I would look at 2026 is modest growth, so low single-digit type of growth, and I would not expect there to be any material increase year over year. Operator: Again, if you would like to ask a question, press. Your next question comes from the line of Abe Landa from Bank of America. Your line is open. Abe Landa: Maybe just first on the inventory levels, which have been moving lower. How much lower do you expect it to be this year? What is the potential impact on the floor plan? And then maybe how much current months on hand do you have? That is very helpful. And then maybe a question on the re-segmentation. Why today? Is there any sort of structure or any cost actions that need to be taken that are associated with it? And I guess, lastly, is there anything we should read into the recent implementation about maybe the future of Custom Truck One Source, Inc., whether it is one or two entities. Great. Thanks for answering my question. Christopher Eperjesy: I will start. So we finished the year at $930,000,000. I think our net investment in inventory, which is the way we look at it—so we look at inventory less the floor plan payables—was about $275,000,000. We have given guidance that on our whole goods inventory side, which is the vast majority of our inventory, our target is to get below six months, which we think we can get close to by the end of this year, which would be roughly another $100,000,000, maybe a little bit more than that, but roughly $100,000,000 of gross inventory. And then, typically, the way we think about that is 30% to 50% of that would flow through to the net inventory number as we pay down the floor plan of, call it, 70% to 85% of the value of the inventory. And so it would probably provide between $25,000,000 and $50,000,000 of net working capital pickup in 2026. I would not read anything into it. Currently, this year, this is the way we are managing the business. We think it will provide a little bit better clarity to investors in terms of how they look at the business because they are two very unique businesses with different investment profiles. One is a little more asset intensive. One is a little bit asset light. Margin profiles are different. And the APS segment really is supportive of those two different segments. If you look on the ERS side, it really is supporting keeping the rental fleet up and running. And so we just felt like today we are running the business as these two segments, and we think it makes more sense to report that way. And there is no associated cost with the re-segmentation. Certainly nothing to do with the re-segmentation. We certainly are always looking at our cost structure in any given year. We have continuous improvement and other initiatives that we do. But I would not say there is anything specifically related to the re-segmentation. We always look at our sites. We rationalize sites. We add sites. That I would say is not directly correlated with the re-segmentation. Operator: And that concludes our question and answer session. I will now turn the call back over to Ryan McMonagle for closing remarks. Ryan McMonagle: Thanks, everyone, for your time today and your interest in Custom Truck One Source, Inc. We appreciate the continued engagement and look forward to updating you next quarter. In the meantime, please do not hesitate to reach out with any questions. Thank you again. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to FreightCar America's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. An audio replay of the conference call will be available on the company's website within a few hours after the call. I would now like to turn the call over to Chris O'Dea with River on Investor Relations. . Chris O'Dea: Thank you, and welcome. Joining me today are Nick Randall, President and Chief Executive Officer; Mike Riordan, Chief Financial Officer; and Matt Tonn, Chief Commercial Officer. . I'd like to remind everyone that statements made during this conference call relating to the company's expected future performance, future business prospects or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Participants are directed to FreightCar America's Form 10-K for a description of certain business risks, some of which may be outside of the control of the company that may cause actual results to materially differ from those expressed in the forward-looking statements. We expressly disclaim any duty to provide updates to our forward-looking statements, whether as a result of new information, future events or otherwise. During today's call, there will also be a discussion of some items that do not conform to U.S. generally accepted accounting principles or GAAP. Reconciliations of these non-GAAP measures to the most commonly directly comparable GAAP measures are included in the earnings release issued yesterday afternoon. Our earnings release for the fourth quarter and full year 2025 is posted on the company's website at freightcaramerica.com along with our 8-K, which was filed at market close yesterday. With that, I will now turn it over to Nick for opening remarks. Nicholas Randall: Thank you, Chris. Good morning, everyone, and thank you all for joining us today. I'll start with a brief review of our full year performance and then share how we're thinking about the business moving into 2026. 2025 was a challenging year for the North American rail market with industry new build rates at some of the lowest levels we've seen in more than a decade. While we continue to view this as a temporarily muted with underlying fundamentals remaining strong. We have positioned ourselves well to maintain resiliency in any market cycle. Against that backdrop, our focus for the year was on disciplined execution, profitability and positioning the company for long-term success. We did just that, and I'm proud of how the team executed. We delivered significant margin expansion, generated $31.4 million in free cash flow, gain delivering market share across the markets we serve, advanced our tank car readiness and lastly, expanded our aftermarket platform through the acquisition of Cardium railcar components, accomplishments that effectively strengthened our financial position and expanded our industry presence. For the year, both revenue and deliveries within our expected range, while our profitability improved meaningfully. Gross margin expanded over 260 basis points. And on a per car basis, adjusted EBITDA rose approximately approaching 10% growth year-over-year, reflecting our diversified mix, improved operating leverage and cost discipline across the platform. We also generated over $31 million of adjusted free cash flow, up approximately 45% year-over-year reflecting our ability to translate earnings expansions into cash. I want to pause on that put because it's important in what was a down year for the industry we not only maintained, but enhanced profitability and cash generation. That speaks to the progress we've made over the past several years, building a leaner, more flexible manufacturing footprint. In particular, our continued growth in conversion and retrofit programs reflects our focus on controlling the factors within our influence to drive profitable growth. These programs require meaningful engineering expertise, manufacturing flexibility and disciplined operational execution, capabilities we've intentionally strengthened across our platform. By structuring our operations to support this level of complexity, we are able to deliver consistent margin performance and attractive returns even when new build volumes remain below long-term replacement levels. Throughout 2025, in addition to our customized solution in conversions, retrofits and other specialized railcar programs, we gained share in new car deliveries across the markets we serve, further demonstrating how our commercial strategy continues to resonate with customers as our flexible manufacturing presence enables us to gain ground on multiple fronts. In addition, from an operational standpoint, our ability to drive performance improvements through programs like TruTrack which focuses on driving consistency and quality, throughput and cost execution along with our broader operational initiatives is working effectively to improve margins and production discipline. We continue to refine plant flow and production sequencing within our Castanos facility driving improved throughput, better cost absorption and greater margin consistency across our manufacturing lines. Importantly, these are structural improvements that make us fundamentally a more efficient and dynamic company that can flex our manufacturing capabilities to support our customers in any market condition. Next, we continue to execute on our strategic road map, advancing our vision FreightCar America as a scaled, integrated rail platform. During the fourth quarter, we completed the acquisition of Carly Railcar Components, a leading distributor of railcar components. This transaction expands our aftermarket capabilities further diversifies our revenue mix and broadens our reach across key regional footprints. Importantly, Carly represents our first acquisition in the aftermarket space and serves a foundational step in building a more robust recurring revenue platform. The acquisition reflects our disciplined approach to capital allocation, prioritizing opportunities that are adjacent to our core manufacturing business enhance our value proposition with our customers and generate attractive returns relative to internal growth investments. With a strong balance sheet and cash generation, we are increasingly well positioned to build on this momentum. We will continue to evaluate strategic, value-accretive opportunities, particularly within the aftermarket and that are aligned with our core rail markets, deepen customer relationships and enhance long-term returns on invested capital. Additionally, we remain focused on progressing tank car redness for this year's retrofit programs and as we have discussed previously, that earliness remains on schedule, and we are prepared to start shipments for our retrofit order in the back half of this year. While the larger opportunity lies in new builds, we view our fulfillment of this retrofit contract as a key step in achieving our longer-term goals. Looking ahead, we ended the year with a backlog of 1,926 railcars by the $137.5 million. reflecting a diversified mix of conversion programs and new car rail builds, providing meaningful visibility into our 2026 production. Our near-term focus is on converting that backlog into profitable deliveries while maintaining the same discipline that define our performance in 2025. As we move into 2026, our priorities remain clear: deliver consistent margin performance, generate strong free cash flow, continue expanding our aftermarket and tank capabilities and deploy capital in a disciplined manner that enhances long-term returns. The operational progress we have made positions us well to execute against those priorities while maintaining flexibility in a dynamic market environment. We remain mindful of ongoing uncertainty in the railcar newbuild market as industry deliveries continue to run below long-term replacement levels. However, history has shown that prolonged underinvestment ultimately leads to a normalization of demand as fleets age and replacement needs reascertain shelves. As I stated earlier, fleet fundamentals and end markets remain strong. And it's a matter of time before this course corrects. As that normalization occurs, FreightCar America is well positioned with a flexible operating model ample capacity and a broader portfolio of offerings and the financial strength to capitalize on emerging opportunities. In summary, 2025 was a year of progress despite a difficult market environment. We improved margins, generated strong cash flow, strengthen the balance sheet and advance our diversification strategy. positioning the company to grow both organically and inorganically as industry conditions evolve. With a disciplined commercial strategy, a lean and flexible operating model and an efficient manufacturing footprint we are well positioned to adapt to changing conditions and deliver sustainable, profitable growth over the long term. With that, I'll turn it over to Matt to discuss the industry dynamics. Matthew Tonn: Thank you, Nick, and good morning, everyone. I'll provide some perspective on the industry environment and how we position the business commercially throughout 2025. As Nick mentioned, 2025 was a challenging year for the North American railcar market with new build activity running well below historical replacement levels. Customers remain cautious prioritizing capital discipline and fleet optimization over a large-scale expansion. However, underlying fleet fundamentals remain intact with aging equipment and deferred replacement building across multiple car types. . For the full year, we increased our delivery market share by nearly 300 basis points even as total industry deliveries declined to approximately 31,000 railcars from 42,000 in the prior year, reflecting the strength of our commercial strategy, disciplined operational execution and ability to align closely with customer needs. Industry orders also moderated with North American new railcar holders totaling approximately 20,000 units compared to roughly 25,000 in the prior year. Within this environment, we secured approximately 3,250 total orders, including roughly 2,500 new railcar orders, allowing us to maintain new car order share despite lower overall volumes. At the same time, the balance of our orders came from conversions, retrofits and other specialized programs underscoring that our commercial approach extends beyond traditional new builds. These customized projects require engineering expertise, detailed planning and manufacturing flexibility, capabilities that meaningfully differentiate us in the market. By intentionally structuring our operations to support this complexity, we are able to both compete effectively in new car production and support demand with higher value specialized programs. This balanced strategy expands our addressable opportunities and supports profitable growth even when broader industry volumes remain below historical levels. As we move into 2026, backlog visibility provides a stable foundation entering the year. As Nick stated, we exited 2025 with a backlog of 1,926 railcars valued at $137.5 million, representing a diversified mix of conversion work and new car builds. Although backlog levels reflect the broader moderation in industry new car order activity, the composition remains balanced with a meaningful portion tied to specialized and conversion programs. In summary, our commercial strategy is working effectively to maintain order share despite industry headwinds, and we are maintaining the flexibility needed to support customers today appropriately while preparing for a normalization in demand. As a reminder, long-term replacement requirements across the North American fleet continue to suggest annual industry demand in the range of approximately 35,000 to 40,000 rail cars, supported by aging equipment and mandated retirement thresholds. While timing remains uncertain, these structural drivers remain intact. With that, I'll turn the call over to Mike to walk through the financial results in more detail. Mike? Michael Riordan: Thanks, Matt, and good morning, everyone. I'd like to begin with an overview of our full year 2025 financials and then share a few fourth quarter highlights. I'm pleased to say that 2025 marked another year of strong profitability despite the challenging demand environment, underscoring the strength of our operational execution, favorable manufacturing cost structure and an enhanced product mix. While our results were solid, industry-wide volume pressure continued to weigh on top line performance reinforcing the importance of our ability to pivot and provide conversion rebody and retrofit programs for customers as well as focus on margin discipline and cash generation. . For the full year, we achieved revenues of $501 million on 4,125 units represented [Audio Gap] for the full year was $44.8 million, representing a $1.8 million increase or a 4.2% improvement from 2024 and effectively demonstrating our successful efforts to enhance profitability. Lease expenses previously classified with an interest expense will be recorded in cost of goods sold as a result of an accounting classification change for our Castanos lease. This change would have reduced our adjusted EBITDA by approximately $3.5 million in 2025 if it had occurred at the beginning of the year. The change has no impact on cash flow, operating income, net income or earnings per share. Adjusted net income for the full year was $18.1 million or $0.50 per diluted share, accounting primarily for the impact of certain noncash items, including a noncash tax benefit of approximately $51.9 million we recorded in the second quarter due to the release of a valuation allowance on our deferred tax assets. This more than offset the $32.2 million noncash adjustment related to warrant liability, which fluctuates each quarter in line with changes in our share price, which as a reminder, solely reflects accounting for the warrant holders investment and does not impact our fully diluted share count. As we have mentioned in prior calls, we remain focused on enhancing cash generation. In 2025, we delivered $34.8 million in operating cash flow and free cash flow of $31.4 million, a 44.8% increase over the prior year. This strong cash generation further supports our balance sheet as we ended the year with $64.3 million in cash and provides us with the optionality to capitalize on future opportunities as they emerge. Turning to fourth quarter highlights. Consolidated revenues for the fourth quarter of 2025 totaled $125.6 million with deliveries 1,172 railcars and compared to $137.7 million on deliveries of 1,019 railcars in the fourth quarter of 2024. The year-over-year change was driven by delivering converted railcars in the fourth quarter of 2025 that carry a lower average selling price, while the comparable 2024 period contain only newly manufactured railcar deliveries. Gross profit in the fourth quarter of 2025 was $16.8 million with a gross margin of 13.4% compared to gross profit of $21 million and gross margin of 15.3% in the fourth quarter of last year. This year-over-year change primarily reflects mix impacts, partially offset by continued productivity improvements and cost discipline. SG&A for the fourth quarter of 2025 totaled $9 million compared to $9.4 million in the fourth quarter of 2024. Excluding stock-based compensation, SG&A as a percentage of revenue increased approximately 50 basis points, driven by the heavier mix of conversion programs versus new car builds in the fourth quarter of 2025 compared to the prior year. In the fourth quarter of 2025, we achieved adjusted EBITDA of $10.4 million compared to $13.9 million in the fourth quarter of 2024, reflecting mix impacts across the comparable periods. For the fourth quarter of 2025, we reported a net loss of $16.6 million or $0.52 per share. This result includes $19.9 million of noncash adjustments related to share appreciation accounting, partially offset by a $2.1 million noncash acquisition-related gain. Excluding certain items, adjusted net income for the quarter was $4.9 million or $0.16 per diluted share compared to adjusted net income of $8 million or $0.21 per diluted share in the fourth quarter of last year. In 2025, capital expenditures totaled $3.4 million reflecting disciplined investment that is consistent with our maintenance cycle. Supported by strong cash generation, we ended the year with $64.3 million of cash and cash equivalents and low net debt operating at the low end of our targeted leverage range of approximately 1 to 2.5x. Looking ahead, we expect capital spending to be $7 million to $10 million in 2026. This is comprised of maintenance level spending of approximately $4 million to $5 million as well as spending to complete our previously announced investment to vertically integrate aspects of tank car manufacturing, reinforcing our measured approach to capital allocation. Importantly, with 4 production lines in place and the flexibility to activate a fifth line relatively quickly, we have embedded capacity within our existing footprint to flex as market conditions improve without requiring significant incremental capital investment. This allows us to focus on disciplined capital deployment towards initiatives that enhance long-term value. The acquisition of Carly railcar components is a strong example of our approach and represents an important step in scaling our aftermarket platform, which generates attractive returns for our shareholders. We also continue to advance our tank car retrofit capabilities in a measured manner positioning the business to participate in adjacent opportunities as demand develops. As we look ahead, we'll evaluate additional complementary opportunities that expand our platform and strengthen our revenue profile to further enhance the stability of our cash flows support more consistent performance across market cycles and drive long-term value for our customers and shareholders. With that, I'd like to turn the call back over to Nick to share our outlook for 2026. Nicholas Randall: Thanks, Mike. For the full year 2026, we are forecasting revenues between $500 million and $550 million, up 4.8% year-over-year at the midpoint of the range. This expectation is based on an expected deliveries between 4,000 to 4,500 railcars, an increase of approximately 3% to the midpoint range. We expect adjusted EBITDA guidance between $41 million and $50 million for the full year, representing a year-over-year increase of 10.4% at the midpoint versus our lease adjusted EBITDA for fiscal year 2025. We expect a stronger second half year cadence that will scale up to our guided numbers. With that, I'd now like to open up the line for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Mark Reichman with Noble Capital Markets. Mark La Reichman: So the revenue guidance is $525 million at the midpoint. Now the aftermarket business did about $27.1 million for the full year 2025, you made the Carly acquisition, which I'm assuming will contribute $13 million to $15 million. So to kind of divide those 2 groups, is $40 million to $41 million an appropriate revenue estimate for the aftermarket business in your view? Michael Riordan: Mark, this is Mike. Yes, I'd say that's a good view of what we would be expecting for 2026. . Mark La Reichman: And then secondly, the interest expense was about $17.6 million for the full year. And so with this change with the lease, that's about $3.5 million. So would you expect that interest expense to decline to kind of maybe $14 million to $15 million? And how are you thinking about maybe paying down debt or reviewing the balance sheet capitalization? Michael Riordan: Mark, this is Mike again. Yes, I think you're thinking about that right. There will be the portion of interest expense that will now be in COGS, which would get you to about $13.5 million I would expect that interest expense to go down a bit as we do have debt repayments we'll be making here in Q1 as part of our term loan, and we'll see that keep getting a little lower and generating more free cash flow as we pay down debt and continue to work on our capital structure. Mark La Reichman: So it actually could be lower than, say, $14 million or $15 million for the full year 2026. It sounds like. Michael Riordan: Correct. Bascome Majors: Okay. And then just lastly, on the free cash flow, where you back out the purchase of property, plant and equipment, is that $4 million to $5 million of maintenance capital, is that equivalent to purchase of plant, property and equipment. . Michael Riordan: Yes. Yes, that would be right there. . Operator: Our next question comes from the line of Iva Prcela with North Coast Research. . Iva Prcela: On the line to asking question for Aaron Reed. And then my first question is you talked about the margins extending during the quarter. What extent of that was driven by mix? So was it just a higher proportion of higher-margin cars? Or was it more operational improvements or pricing? Nicholas Randall: Iva, this is Nick. There was -- obviously, both those will influence it. Productivity is where we get the larger of the 2 enhancements in Q4. Obviously, mix can vary quarter-to-quarter. Productivity is the 1 we really sort of drive to focus because that repeats a word going as we drive and make those productivity improvements in. But what we observed in Q4 was more primarily driven by productivity and operational improvements. . Iva Prcela: All right. Perfect. And then also in the guidance you provided, are can car retrofit volumes included within that? Or should we think about those as incremental to the delivery outlook for '26? Nicholas Randall: So they are in there. We're pretty committed before that, that's a multiyear program. So it's not the full program is in 2026. It was a portion of the program. is in 2026, and it rolls in through 2027 as well. But it's in line with what we've said in prior calls and the prior amounts, but it's -- yes, towards the back end of 2026, that program kicks in. . Operator: Our next question comes from the line of Brendan McCarthy with Sidoti. Brendan Michael McCarthy: Great appreciate you taking my questions here. Just wanted to start off on your industry outlook. I think you mentioned 31,000 deliveries in 2025. I have you about a 13.3% market share. And then for 2026, what's your outlook on industry deliveries and your corresponding market share? Matthew Tonn: And, Matt, Tonn here. When we look at the overall industry, we do believe that we'll see deliveries in the $25,000 to $30,000 range. order activity will probably follow suit to what we saw in 2025. So we are expecting some moderation of order activity with increases in activity as we get into the second half of the year. . Brendan Michael McCarthy: Understood. I appreciate that. And that might -- I think according to my rough math that might put your market share closer to 15%, 16%. Is that accurate? And what would drive that uptick there from 2025? Matthew Tonn: Yes. So your numbers are accurate for how we track it. I would say this about the overall market. Our differentiation and our approach to the market is 1 of collaboration with customers where they find value in what we bring with engineering expertise capabilities not only on the new car front, but also on the conversion retrofit front. We see opportunities for growth in both of those areas in the marketplace. . Brendan Michael McCarthy: Understood. I appreciate that detail. And then breaking down the 2026 guidance a little bit, what assumptions would really cause deliveries to come in at the low end of 4,000 in 2026? And then on the other side, what would cause deliveries to come in at the high end, around 4,500. Michael Riordan: So I'll start with that one, and then Matt can probably fill some additional details in this. So if I know you recall this time last year, -- we talked about uncertainty in the outlook for the year would favor us given our agility and our ability to convert orders reasonably quickly and be able to bring things as a pipeline and all the value proposition we have. And that's what transverue. So we gained market share last year despite a prevailing backdrop of sort of reduction across the industry. And I expect this to be similar this year is where customers are facing any level of uncertainty. We're able to offer some certainty on the timing and the agility and the response time to build. And as Matt says, not just new builds, but on conversions and rebodies as well, where that may be a better alternative for a customer rather than an outright new car. So I think that's what -- the main drivers are going to be. This time last year, there was a lot of uncertainty around tariffs. We answered those questions on were fully USMCA compliant, a lot of our end users have now got on questions that they didn't have last year regarding to tariffs and inputs and outputs across the freight network. And then we've got some uncertainty more recently on oil prices, et cetera, generally oil prices, if they're sustained higher for a bit longer, typically favor rail. So there's a number of macro economics, which I think will definitely favor the back half of this year with railcar demand, and we expect to see that just on seasonal timing such as harvests and various product deliveries which need for rail. And then if oil prices stay high, you would expect to see more things move to rail due to pure economics of the freight efficiency. And the underlying process of the rail industry, the metrics are pretty decent for their industry. The velocity is pretty good. The utilization is pretty good. So it's a reasonably healthy industry propping that up. which would imply that this is more pent-up demand as opposed to demand that's being deferred indefinitely. So a lot of those things really sort of go into our thought process of how we look at that forecast. And the forecast is, as you mentioned, the unit volume is it doesn't take into account whether it's a rebody or it's a new car, it's still a unit. So I think that's where we've got some confidence in the amount of units we can ship the deliberation will be, whether it's a new or retrofit car, and that can be obviously dictated by a number of different macroeconomics, but Matt anything I missed on that. Matthew Tonn: One other comment. Majority of what we talk about in the industry right now is replacement demand. It's certainly the cycle that we're in. However, we play in multiple market segments where there is new business demand that derives the needs for new railcars. And oftentimes, that new business is tied to infrastructure build-out. -- and permitting. And at times, those can be accelerated or delayed. So when we look at that gap of 4,000 to 4,500 a lot of -- a lot of that gap is tied to the timing in which those infrastructure improvements are completed and the demand for the cars are known and permitting. But we're in a really good position with those particular segments. It's just a matter of time when those fall into '26 and then the latter part of the year or maybe put it early '27. . Brendan Michael McCarthy: Understood. And I really appreciate the color there. And as it relates to your capabilities in rebuilds and retrofits, what are you seeing as far as demand goes? It seems like order flow picked up there in 2025 from 2024 -- are you seeing relatively higher demand there on that front, just maybe considering some of the economics around the new build market. . Matthew Tonn: Yes, we do because it does offer customers significant price savings and value of the rail asset. A lot of it is tied to the existing railcar underutilized assets that are what we call the donor cars that are used in the conversion process. But we do believe that the demand for conversions is long-standing, and we continue to operate in the marketplace to develop those opportunities as those ores come in. . Brendan Michael McCarthy: Got it. Got it. And last question for me, just on the backlog, just entering 2026, where the current backlog level is as well as considering your outlook for deliveries of 4,250 at the midpoint. It seems like the backlog covers a smaller portion of that compared to recent years. What can investors -- what can we take away from there as we look into 2026? Nicholas Randall: There's a couple of things. One is we've done a lot of work on leaning out our operations, and that translates into the productivity improvements you saw in Q4 as a financial productivity improvements in Q4. What that allows us to do is be a lot more agile in our manufacturing footprint and take opportunity to retool or rebuild lines to be more optimized in a quieter period and then have them be able to scale up capacity without significant infrastructure during busier periods. So we're able to respond to those market dynamics in a way that doesn't require major infrastructure changes, which I think is a benefit to us. That's what we referred to last year and our ability to sort of capture that. We do believe that the back half of this year will be the busier half of shipments. A couple of reasons for that is similar to last year is we may build items in Q2, and then we ship prebuilt and built items in Q3 and Q4. So you just see those delivery dynamics going through that way. And then you often see period with our customers the way they preapprove their large capital expenditures, their order placement may be drift towards the end of Q4 into Q1 and sort of this time of year. late Q1 into Q2 as those CapEx approvals coming through. And we populate those into our pipeline. So we've deliberately constructed and build our infrastructure to take that sort of uncertainty from the marketplace, then to turn it into a strength that we can respond with agility and to the customers' needs and be able to run multiple capacity levels concurrently on different lines. So when 1 product is in demand, we can ramp up that productivity on that line and then wind down on a different line if demand isn't there in that period of time. So a lot of that work that translates to productivity is being able to accommodate those sort of customer cycles that come through and been able to still offer that guidance on shortened lead times and shortened prep times from customers. Michael Riordan: Just on the order gestation period can be a long period. What we talk about is booked orders. So obviously, we have visibility prior to it being booked -- and I think Matt mentioned before, there's some projects were maybe permitting or maybe something which is just a trigger point that's going to convert to an order. So we can have a sense of visibility and security around order placement, it's just prebook, but we only communicate actually booked orders, which is where we were able to give a confidence on our guidance, which may, may not have the fully booked commitment behind it, but we have the work and the process and the pipeline that supports it, both internally and with our customer discussions, if that makes sense. That makes sense. Operator: Our next question is a follow-up from Mark Reichman with Noble Capital Markets. Mark La Reichman: First, I just wanted to ask about the industry. I mean -- it seems like the orders of kind of the deliveries -- orders and deliveries have kind of lagged by choice. I mean, you had the tariff uncertainty, there's economic uncertainty. But the opus that we get to past replacement cycle. And so I was just wondering, it's not like the industry is out there all using new equipment or don't need the equipment. Is there a metric that you look at? I mean, can you look at like retirements versus deliveries to try to get an indication of when you might expect orders to accelerate in terms of -- and is that 40,000, -- do we think that that's a good number? Or are there some structural dynamics that were there either because of different types of cars are doing more with less, that might suggest either a lower or higher number? Matthew Tonn: Yes, Mark, you look at the mandated age of a railcar for retirement is 50 years. So you can back that up with some certainty on the build in the late '70s and into the early '80s to understand what's going to fall out. Some of those cars have already fallen out, but many of them are still operational. And depending on which forecast you look at, somewhere between 150,000 and 200,000 railcars are going to fall out in retirement over the course of the next 4 years. So with some certainty, we can look at that metric to understand what cars, what car types are going to require replacements in that time frame. And there are some differences when we look at capacities, you have higher-capacity cars today. both in cubic capacity and in gross railroad. But overall, it's a pretty good indicator of what we see that will fall out. And of course, we monitor the new car opportunities based on market segments and growth in various markets where the new rail demand is required. Mark La Reichman: And you're pretty well positioned across the cycle because you have a pretty healthy conversion business, and you can do rebodies and you've got the parts business. Now -- when I look at just margins, so in the manufacturing Segment, margins were about 12.2%, 13.5% for the year. So we're kind of assuming 13.5% in 2026. The aftermarket business was 33.6% in the fourth quarter, just under 35% for the full year. I mean, do you think those -- do you see any items kind of affecting your margins in 2026 relative to 2025? Michael Riordan: Mark, this is Mike. I think for a manufacturing segment, I think that's a good basis to go on into 2026 based on the pipeline and mix we see. I think it will be pretty similar. On the aftermarket, I think as we integrate our acquisition and move down the line, we should see some accretive generation there and some enhanced margin, but that will probably be a little more towards the back half of '26 going into '27 as we continue to scale that business. . Mark La Reichman: Okay. And then just lastly, if you could just remind me, I think the orders for fourth quarter were like 348. Just how long does it take for these orders to convert into deliveries? Matthew Tonn: You're correct on the order volume. It can take anywhere from a year down to days. It sort of depends on the customer the need, the planning of that particular customer. I will tell you, though, that as Nick mentioned, our ability to pivot and meet customer needs based upon the flexibility, operational excellence of the plant allows us to be able to meet customers' needs very quickly and in short lead times. . Operator: I am not showing any further questions at this time. I would like to turn the call back over to Nick Randall for any further remarks. Nicholas Randall: Thank you. 2025 was a year of disciplined execution and resilience despite one of the weakest North American new build markets in more than a decade. We expanded margins, gained share in markets we serve and delivered strong cash generation. Gross margin improved meaningfully, up 260 bps and adjusted EBITDA increased, reflecting mix improvements, operating leverage and cost discipline. We continue to generate strong free cash flow of $31 million, up 45% year-over-year and ending the year with over $64 million of cash and low net leverage. We are making strategic progress to strengthen our platform through the completed acquisition to bolster our aftermarket business and remain on track in advancing our [indiscernible] retrofit readiness program. Looking ahead, we are positioned for continued success in 2026 with a strong year-end backlog, strong free cash flow generation and a balance sheet to drive durable growth. With that, thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oracle Corporation Third Quarter Fiscal Year 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. To withdraw your question, press star 1 again. We kindly ask that you please limit yourself to one question. I would now like to turn the conference over to Ken Bond, Head of Investor Relations. Please go ahead. Ken Bond: Thank you, Regina, and good afternoon, everyone. Welcome to Oracle Corporation's third quarter fiscal year 2026 earnings conference call. On the call today are Chairman and Chief Technology Officer, Lawrence Ellison; Chief Executive Officer, Clay Magouyrk; Chief Executive Officer, Mike Cecilia; and Principal Financial Officer, Doug Caring. A copy of the press release and financial tables, which includes supplemental financial details on our most recent quarter, guidance for our future results, a GAAP to non-GAAP reconciliation, and a selected list of customers who purchased Oracle Cloud Services or went live on Oracle Cloud recently will be available from our investor relations website. As a reminder, today's discussion will include forward-looking statements, and we will discuss some important factors relating to our business. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from the statements being made today. As a result, we caution you from placing undue reliance on these forward-looking statements and we encourage you to review our most recent reports, including our 10-Ks and 10-Q, and any applicable amendments. Finally, we are not obligating ourselves to revise our results or these forward-looking statements in light of new information or future events. Before we go to the Q&A portion of the call, we will begin with a few prepared remarks. I will now turn the call over to Doug. Doug Caring: Thanks, Ken. Let me start by highlighting the changes we are making to our earnings press release and this call. In the press release, we have laid out clearly and explicitly the supplemental financial metrics that we otherwise would have provided on the earnings call so that each of you has the information in writing and in advance. Then as it relates to our approach to the earnings call itself, I will be very brief and then turn it over to Mike and Clay to provide more substantial thoughts on our business, after which, all of us, including Larry, will be available to take questions. In terms of the results for Q3, we had a tremendous quarter that exceeded expectations across the board. Our momentum continues to accelerate with Q3 being the first quarter in over 15 years where both organic total revenue and organic non-GAAP EPS grew at 20% or better in USD. As we highlighted in the press release, I will quickly mention a couple things and then hand the call over to our CEOs. First, in January, TikTok US completed the separation of its US data operations from ByteDance into an independent company in which Oracle Corporation now holds a 15% equity stake along with a seat on the board. In terms of impact to our financials, there is no impact to the revenue related to the services we have been providing as their technology vendor. That is continuing to the equity investment. We will be accounting for this under the equity method and we will recognize our share of the new company's earnings for the period from the close of the investment in late January to March 31, in our Q4 results, as there is a two-month reporting period time lag. It will be recorded as nonoperating income or loss on our income statement and is incremental and additive to our financials. Second, in February, we announced our intent to raise up to $50 billion in debt and equity financing along with the statement that we do not expect to issue any additional bonds beyond this amount in calendar year 2026. Within days of the announcement, we raised $30 billion through a combination of investment-grade bonds and mandatory convertible preferred stock, with a record order book that was substantially oversubscribed. As noted in our release, we have not yet initiated the at-the-market equity portion of the financing program. Finally, I would be remiss not to remind everyone we are reporting our financial results just 10 days after the last day of the quarter, despite the increasing size and complexity of our business. Using Oracle Fusion, we continue to close and file our financial results faster than any other company in the S&P 500, providing us with a significant strategic advantage as well as an opportunity to help our Fusion customers do the same with their businesses. With that, let me now turn the call over to Mike. Mike Cecilia: Thanks, Doug. And as Doug just detailed, we really had an excellent quarter across the board. We continue to see strong execution, so let me say a few words about our applications business. Oracle Corporation has the fastest growing, most complete suite of cloud applications in the market, full stop. Our SaaS solutions are industry-complete platforms—highly scalable, trusted, secure, and regulatory-compliant systems and processes in which our customers trust us to run the systems that run their businesses. In constant currency, cloud applications revenue was up 11% in the quarter, reaching an annualized run rate of $16.1 billion. Within that, Fusion ERP was up 14%, Fusion SCM up 15%, Fusion HCM up 15%, Fusion CX up 6%, NetSuite was up 11%. Industry SaaS solutions for hospitality, construction, retail, banking, restaurants, local governments, and telecommunications combined, were up 19%. So, certainly, very happy with the applications growth in the quarter. In the context of that, I will say a few words about the reported SaaS apocalypse. You have all heard the theses or theory that new companies coding quickly using AI will spell the end of SaaS. I do not agree with that at all. I do think that AI tools and their coding capabilities would be a threat if we were not adopting them, but we are—and very rapidly. Oracle Corporation is using the best AI coding tools and the best developers not only to accelerate our SaaS business, but to deliver solutions that enable entire ecosystems across numerous industries. The use of AI coding tools inside Oracle Corporation is enabling smaller engineering teams to deliver more complete solutions to our customers more quickly. We are building brand new SaaS products using AI and also embedding AI agents right into our existing applications and suites. Embracing AI with small engineering teams, we have just built three brand new CX applications: lead generation and qualification, sales orchestration and automated selling, and our new website generator. In fact, we just used the website generator to build and launch the new oracle.com. We have built these new CX products to help our customers sell, not simply to administer a forecast or generate email opens. These are three products that salesforce.com does not have. And, of course, salesforce.com also does not have OCI, the AI data platform, Fusion ERP, and complete industry suites. AI-powered end-to-end ecosystem automation platforms are quite unique to Oracle Corporation. In addition to that, we have already delivered well over 1,000 agents right inside our horizontal back-office and industry applications. This does not even include the agents that our customers are building themselves or the fleet of agents that we are using internally. These are AI features built right into our applications and existing processes. And a great example, I think, is in health care: our brand-new AI-powered EHR—electronic health record—system is live in the market and the results are quite clear. We are reducing administrative overhead, we are allowing clinicians to see more patients, we are improving access to care, and we are increasing provider satisfaction. In another example, in banking, we provide a comprehensive AI-powered SaaS platform, including everything from commercial banking, retail banking, investment banking, anti-money laundering, financial crimes and compliance, payments, supply chain financing, CX, ERP, and HCM. That banking suite alone contains hundreds of embedded AI agents, all available at no additional cost to our customers. In retail, our AI-enabled solutions span merchandising, assortment planning, supply chain management, point of sale, commerce, and, of course, ERP, CX, and HCM. In summary, these are not systems that can be replaced by a small collection of these features cobbled together and bolted on in the name of AI. So, yes, some smaller or single-focused SaaS players may well be disrupted. But Oracle Corporation will not be among them. Now let me focus on a few key wins in Q3 in the application space—and, by all means, this is a very short list, not an exhaustive list. Memorial Hermann Health System selected Fusion ERP, SCM, and HCM. This was a win over Workday. University of New South Wales also selected Fusion ERP and HCM—also a win over Workday. Gray Media selected Fusion EPM and ERP—a win again over Workday and also over SAP. Investec Bank selected Fusion EPM and ERP over SAP. HID Global Corporation also selected Fusion ERP and SCM over SAP. Ethiopian Shipping and Logistics Services Enterprise selected Fusion ERP, SCM, and HCM—again, over SAP. A major Wall Street bank elected to standardize on Fusion ERP for the entirety of their business, all of their business units, replacing SAP, full stop. Loudoun County Public Schools selected Fusion ERP, EPM, HCM, and SCM. The JM Smucker Company selected Fusion ERP and EPM. Westfield Insurance picked Fusion ERP, EPM, HCM, and Procurement. Mitsubishi UFJ Financial Group, an existing cloud customer and database customer, are now moving into both our Fusion ERP and industry SaaS applications. Zain KSA Kuwait, an existing major tech customer, is moving EBS to the cloud to support their growth. So just this very small list of major applications wins in the quarter. In the quarter, we had over 2,000 customers go live in Q3. When you think about our industry applications and our Fusion applications put together, over 2,000 went live, and, more importantly, we continue to see the median time to go-live decrease. A very small sample of go-lives in the quarter: Hearst expanded their ERP with EPM as well as HCM. JM Huber Company is now live across Fusion ERP and SCM. Emirates Health Services went live with HCM, which enabled a comprehensive HR, payroll, and talent suite to elevate their workforce management. Niagara Bottling went live on SCM, moving from on-premises ERP to Fusion. Seadrill is now live across ERP, HCM, SCM, and EPM. Again, with 2,000 go-lives in the quarter, that is just a very, very short list of go-lives, but you can see, hopefully, not only momentum, but multi-pillar momentum with these customers. I also have an equally short list compared to the overall list of key tech wins in Q3. Lockheed Martin selected OCI high-performance compute to scale AI across their environments efficiently. Rhombus selected OCI Compute, Networking, and Storage for AI video and security across all of their workloads. Lucid Motors selected OCI core services for data and connectivity in order to expand into European markets. Infomart in Japan selected OCI for their mission-critical B2B platform. Claro Brazil selected OCI Alloy for Sovereign AI. Air France-KLM, which is a multicloud win, featuring a win with the Oracle Database at 13x performance improvement at a significantly lower cost for Air France-KLM. Activision Blizzard, an existing Oracle E-Business Suite customer, was also an Oracle Database at Azure win. Oracle Corporation's embrace of AI across our strategic applications is leading to broader enterprise conversations with our customers involving our full stack: OCI, AI Data Platform, Fusion applications, industry suites. These conversations are about ecosystem automation. They are not about single apps. They are about automating the entire ecosystem and they are further enabled by our simplified go-to-market model, which we spoke about in our last earnings call. This is allowing us to close more multiproduct deals with more customers combining the power of the Oracle Database, our OCI platform, our AI tooling, and our complete applications suites. In constant currency, cloud applications deferred revenue was up 14% versus in-quarter cloud applications revenue growth of 11%, which further supports our acceleration thesis. Clay, I will turn it over to you. Thank you, Mike. Clay Magouyrk: Okay. So I am going to talk about two segments of our business: our multicloud database and AI infrastructure. Both are growing extremely quickly. Multicloud database revenue grew 531% year over year. AI infrastructure revenue grew 243% year over year. Both also have demand that exceeds supply and a clear execution plan from Oracle Corporation that will rapidly turn that demand into profitable recurring revenue. Oracle Database has run on any hardware and operating system for decades. Oracle Database cloud services up until recently were only available in a single cloud: OCI. We created our multicloud partnerships with first Microsoft, then Google, and finally Amazon to bring the best database platform to all clouds. Those partnerships unlock an enormous backlog of demand—our database customers who want to use our database in other clouds. This quarter, we achieved an important milestone: we have global region coverage in all of our partner clouds. We now have 33 regions live with Microsoft and 14 live with Google. We delivered significant growth with AWS, beginning Q3 with two AWS regions live, exiting Q3 with eight AWS regions live; we will exit Q4 with 22 AWS regions live. AI is also accelerating the adoption of our database cloud services. The rapid improvement in model coding skills and agentic abilities pushes customers to move their most valuable data into our cloud services. They need access to the latest AI features, to support vector embedding, MPT server access, and advanced security controls. Customers also need their data to be colocated with the agents themselves, and our multicloud database makes that easy. Our multicloud architecture brings the best of Oracle Cloud to our partner regions. This ensures that we will rapidly turn billions of pipelines into highly profitable database service revenue. Demand for AI infrastructure, both GPU and CPU, continues to exceed supply. This is directly visible in our $553 billion RPO. I want to share a model for how that RPO turns into profitable recurring revenue as well as some operational metrics that are early indicators of our progress. AI infrastructure begins with data centers and power generation. Through our partners, we have secured more than 10 gigawatts of power and data capacity coming online over the next three years. Those infrastructure investments also need funding, and greater than 90% of that capacity is fully funded through our partners, with the remainder planned to finish this month. Once the data center is secured, several things must come together. The data center and on-site power generation have to be constructed. Compute, networking, and storage have to be designed, manufactured, delivered, and installed. All the capacity inside the data center also has to be funded. We continue to innovate across each of these steps. We optimize our data center construction through standardized design. Our supply chain has improved with more suppliers and deeper relationships. We have tripled our manufacturing sites and increased rack output by 4x all in the last year. We have scaled our installation processes to enable multiple phases of delivery in parallel. Time from rack delivery to revenue has reduced by percent in the past several months. We also continue to innovate on our business models. On our last earnings call, I shared multiple ideas for how we can incrementally grow our AI infrastructure without Oracle Corporation raising more debt or issuing equity. We have signed more than $29 billion of contracts since then, across multiple customers using that new model. A combination of bring-your-own-hardware and upfront customer payments enables us to continue expanding without any negative cash flow from Oracle Corporation. Of course, this $29 billion is in addition to other deals we signed this quarter. Ultimately, all of this results in capacity delivered to customers and revenue to Oracle Corporation. In Q3, we delivered more than 400 megawatts to customers. 90% of that committed capacity was delivered on or ahead of schedule, as we have consistently done over several quarters. This is why customers continue to choose Oracle Corporation for their infrastructure needs. Investing in AI infrastructure is capital intensive, but our operating model is optimized to ensure profitability. Flexible infrastructure design, high utilization, and handover combined with diversified customers creates an incredible business. Increased scale spreads our fixed cost over a larger base, increasing profitability. It is unprecedented to scale a capital-intensive business so quickly while also increasing profitability. Looking at the AI capacity we delivered in Q3, our gross margin for that remained above our 30% guidance at 32%. Now combine that with our other segments of OCI, which have much higher margins, like our database services, and you can see why Oracle Corporation is growing so quickly and profitably. Our numbers speak for themselves. We are overdelivering on FY26 revenue and earnings, and we are constantly raising our FY27 forecast. This is made possible by Oracle Corporation's transition from a predominantly seasonal license business into a highly predictable recurring revenue class. Demand for AI and advanced compute will continue to expand broadly across the economy. There will be many successful models, agentic platforms, and businesses that emerge. We support hundreds of the most advanced AI customers today, and more continually want to work with us. We build infrastructure that is flexible, fungible, and can support the smallest workloads up to the largest. We continually offer the latest in accelerators, from the most recent NVIDIA and AMD options to emerging designs from companies like Cerebras and PowerCharm. Altogether, we are confident that the investments we make now in data centers, compute capacity, and customer relationships will only grow more valuable with time. Back to Ken for questions. Ken Bond: Thank you, Clay. Regina, if you could please poll the audience for questions. Operator: We will now begin the question-and-answer session. To ask a question, press star then the number 1 on your telephone keypad. We ask that you please limit your questions to one. Our first question will come from the line of John DiFucci with Guggenheim. Please go ahead. John DiFucci: Thank you. Wow. A lot going on here. So, listen, I am going to let others ask about the AI infrastructure question, but we have heard Doug talk about a halo effect that the AI infrastructure business is having on the rest of your business. This quarter was strong, and you said that the RPO increase was from large-scale AI contracts. At the same time, we are hearing from the field now that that halo effect is actually turning into business. Outside of AI infrastructure, it sounds like the go-lives are steady, but the business activity and especially the pipeline are up materially from more traditional cloud workloads, including, you know, Dedicated Region, sovereign clouds, even Alloy deals we have heard you are starting to hear about, in addition to what Mike started talking about with the often-related apps deals. I realize these types of deals are not the scale of these AI deals. But can you talk about what seems to be an underlying momentum building in these businesses? Am I right to be thinking of this? And if I could, on a sort of related topic, can you give us any visibility into CapEx for fiscal 2027? Mike Cecilia: Okay, John. This is Mike. I will take the question. So, yes, we absolutely are seeing a halo effect. And let me add a little bit of color on that. As far as the apps business, the fact that we are training so many models on OCI and closely provisioned for applications allows us to embed very high-quality AI services right into our applications as features. So not only are we serving the model vendors for training, but we are also embedding a lot of the output right into our application cores. We are doing prompt engineering and things like that to make it relevant to the business. But the fact that we are the custodian in our applications business of so much of the world's mission-critical data, and we have very close provisioning—very close proximity—to these models, putting those two things together allows customers to get value from AI very, very quickly. And if you have heard any criticism of AI in the world, it is “well, cannot get value quickly enough.” Well, actually, when you bundle it up as a service and expose the private data to AI that we are the custodian of in the applications, we have seen terrific wins. I mentioned some of the verticals you heard about there, but I think that is true across the board. The other piece that is a very interesting halo effect is leveraging our infrastructure—just OCI infrastructure—as a budget creator for customers. You have heard us say it before: we are faster and cheaper than everybody else. And when customers are thinking about these large-scale application or large-scale infrastructure transformations, we can also help them get to a position of budget creation to be able to fund that transfer simply by moving their workloads to OCI, because we can run them more quickly and more efficiently and less expensively than our competitors. And then, finally, the other halo effect before I turn it over to Doug for your question on CapEx is around Sovereign AI. Our sovereign story is not new, and it is not a knee-jerk reaction to things that are happening in the world. Combined together with our Alloy story, we are really seeing increasing pipeline across the world. The fact that our form factor—we are so differentiated in our form factor—and we can deliver not just a smaller form factor, but complete OCI services on top of that form factor no matter how many racks are involved, whether it is three racks or 500 racks, we think that is a huge differentiator in the market. So you put apps together, you put OCI AI services together, you put sovereignty together, and yes, it is a pretty big halo effect. Doug Caring: Yeah, and, John, let me start by acknowledging the creativity in getting two questions in at the same time. That is always fascinating to watch. So on CapEx, I think we will get back to everyone after the end of the fiscal year and talk about next year’s CapEx at that point in time. But I will state a couple of things. Obviously, from what Clay has gone through, the most interesting thing that you should start thinking about is the uncoupling of CapEx with capital requirements from Oracle Corporation. Obviously, when we have these additional funding mechanisms, there may be additional CapEx, but it does not require out-of-pocket cash from Oracle Corporation, which is quite interesting. Underlying that is we remain committed to what we talked about last quarter, which is maintaining the investment-grade rating at Oracle Corporation as well as staying within the financing envelope that we talked about, of which we have announced that we are doing $50 billion this calendar year of that total. So more to come, John, on the CapEx after next quarter. John DiFucci: Very much appreciate the color on that, Doug. And, Mike, your prepared remarks on AI and how Oracle approaches it—everybody should use that because it is a logical approach. So thanks, and nice job. Operator: Our next question will come from the line of Mark Murphy with JPMorgan. Please go ahead. Mark Murphy: Thank you. Congrats on the acceleration. Clay, as Oracle Corporation transitions to higher levels of AI inferencing, what do you view as the right strategy for trying to optimize the location of your data centers? For instance, if you have these huge centralized data centers in Texas and Wyoming, they are very close to power, but they are pretty far from the population centers and the fiber routes that are out there on the seaboard. So it crosses our minds that the users and the devices are a long distance away. So as you make a move more into inferencing, are you seeing any reason to try to pivot those locations a little closer to where the users and the traffic are? Clay Magouyrk: Sure. Great question, Mark. So let me start by highlighting our perspective on inferencing and then how that impacts data center deployment. First thing I would say is for a while there was a lot of training going on. Inferencing is very rapidly growing everywhere and anywhere. I think it is because of higher and higher utilization of the models themselves and also new use cases—as anyone who has been using Claude or Codex recently in the software space knows. These are incredible tools. They are changing how we do everything. So inferencing is going to have a huge amount of demand. Now, you talk about data center location—you mentioned latency is the one. Realistically, there are several reasons you might care about the location. It might be for the cost. It might be overall availability. It might be for sovereignty. So there are different reasons to pick a location. But to hone in on your point about latency, the thing to understand is that latency is all proportional. Meaning, if what you are trying to do is a very low-latency trade on the stock market, waiting for the 100 millisecond round trip from coast to coast is a bad idea. If what you are doing is you are asking a question of your business that is going to take an AI model several seconds to think about, an extra 40 milliseconds of latency from New York to Wyoming is not going to hurt you. And so when you actually talk to customers about use cases where they need lower latency, the latency problem right now is not actually the location of the hardware, it is the type of hardware that is being deployed. And that is why you are seeing so much innovation going on around these AI accelerators. If you look at what GROQ does, or Cerebras, or Positron—all of these different types of companies are saying, well, not only how do we reduce the cost of inferencing, but also how can we significantly reduce the latency of it? And I think, if you look forward to GTC from NVIDIA next week, you will see an announcement from them. But across the board, I think the way that, as an industry, we are going to consolidate and reduce latency has to first start with a different architecture for that inferencing. And, thankfully, the data center location is actually a very tiny part of that. So it makes it much more flexible for us to go out and put data centers where power is abundant, land is plentiful, and we can actually optimize for what is available to meet this ever-increasing demand. Mark Murphy: Thank you very much. Operator: Our next question comes from the line of Siti Panigrahi with Mizuho. Please go ahead. Siti Panigrahi: Great. Thanks for taking my question. I want to ask about the opportunity with your AI Database and AI Data Platform. So with recent excitement on AI and around enterprises now adopting tools from frontier LLMs, what are you hearing from customers about training their private data and building their private LLMs? And how confident are you in seeing the inflection in your AI Database growth that you talked about at the Analyst Day in October? Clay Magouyrk: Yeah. Thanks. So, look, I think there are two parts to that question. One is how much adoption we are seeing of private LLMs, and then how much we are seeing of using AI with private data. I think in the early days, a lot of people thought that most customers would be doing very specific training of their own large language model. I think that has largely proven to not be the case. Instead, what I think is incredibly popular and growing in popularity is people taking the best models and wanting to combine that in a private way with their private data. And we are seeing a lot of demand for that. If you listen to Mike earlier talk about how we are embedding these AI models into our applications, that is one use case. But, obviously, not everything, unfortunately, runs inside of an Oracle Corporation application, and lots of custom applications are written. So we added a lot of functionality to our Oracle AI Database to make it easy to connect—whether it be through MPT servers or natural language SQL—that you can use these models to use. But, also, we have our AI Data Platform product. This is really about solving this exact problem. You have a lot of data—it may be application data, it may be custom data in different data lakes and lake houses, it may be data in a structured database. All of that together gives you an agentic platform to quickly build applications on as well as access to all of the greatest models from multiple providers. So across the stack, we are seeing a lot of momentum across that. And that is why, in my prepared remarks, I talked about the growth that we are seeing with our multicloud database. What we see is that for customers to take advantage of the latest and greatest AI, they first have to be in the cloud. There is still a lot of data that is not in the cloud. And so we see acceleration of moving that most important private data to cloud environments so they can then take advantage of the latest and greatest AI with that data. Siti Panigrahi: Great. Thanks for the color. Operator: Our next question comes from the line of Mark Moerdler with Sanford Bernstein. Please go ahead. Mark Moerdler: Congratulations on what is a really good quarter. Really great work. I am going to change over a little bit and discuss the financial side a little bit. Now that you have completed your major debt raise, can you explain, given the blend of the cost of building out the AI data center and the cost of raising capital to fund the AI data center, how comfortable are you with the values you are creating from the AI data center business itself? And then as an adjacency, if you do not mind, can you talk a little bit more on the Sovereign Cloud? Can you discuss how you parlay the AI data center business into being the AI provider for sovereign clouds and how that should impact your value of work to Oracle Corporation? Thanks. Clay Magouyrk: Sure. I think we are going to split this one up. I will take the first half, and then I am going to throw it to Mike to talk about some of the Sovereign Cloud stuff. So, look, when you think about the overall profitability of these AI data centers, there are two pieces. One is how profitable it is purely on the accelerators themselves. We gave guidance in the past that we see gross margin in the 30% to 40% range on that. That continues to hold for us. And we continue to get better and better at running these data centers, delivering them more cheaply—the amount of cost in networking and hardware spend as well as power—we see that continuing to incrementally improve. So we are very pleased with that. The other thing to understand is that in these AI data centers, whether it be for inferencing or for training work, the only thing being procured is not AI accelerators. There is a lot of general-purpose compute. There is a lot of, whether it be high performance or large-scale blob storage. There is load balancing. There are identity and security products, etc. That is typically on the order of 10% to 20% of the total spend that ends up going to adjacent services. And when you factor that in, which has higher margins depending on the mix of services, overall profitability continues to improve. And that is without taking into account, as I mentioned earlier about our multicloud database business, that that is a much higher-margin business—more in the 60% to 80% range. It is growing very, very rapidly. So when you combine all of these pieces together, the overall margin profile of OCI continues to strengthen and grows rapidly. The thing I would say—the question that I think underlies this that maybe people do not understand—is the limitation on the profitability is not on the capacity we have delivered. So let us say that I am building a data center and it has four data halls, and I deliver the first data hall. That one is profitable. The reason we are not even more profitable right now, despite the fact that we are continuing to grow EPS, etc., is because we have so much under construction at one time, and we have some expenses for those things. Now we are really good at that. We are very, very good at minimizing the time under which that construction is happening. We are very, very good at reducing those costs during that time period. But they are not zero. And so as our business is going through this hypergrowth phase, that is the only drag on profitability. But, thankfully, we are very good and getting better at delivering that capacity. That capacity, when we deliver it, is all already contracted for at a very profitable rate. So when you combine those things together, we are extremely confident in both the capacity we delivered and the continuing increase in profitability of our AI business. Mike Cecilia: Mike, want to talk about sovereignty? Yeah. So sovereignty, as I mentioned earlier, I think we are very well positioned. A year ago, sovereignty was about data sovereignty, and there were some faux solutions in the market where there was sovereign data from a primary perspective, but the backup was maybe somewhere else, maybe in another country. Of course, that is no longer acceptable. Sovereignty is about sovereign data, sovereign operations, and even sovereign contracting. Our Alloy model is perfectly positioned to deliver on all three of those things. And by delivering full-stack solutions—again, the big difference between what we are doing with sovereignty and what some of our competitors are doing—we are not simply putting an edge sovereign zone in. We are putting full-stack OCI, which has all of our OCI services and, as you mentioned, margin mix also allows us to run all of our applications suite, our AI Data Platform, in that sovereign zone as well. Of course, the margins on some of those are different than our infrastructure margins. So I think we are in a very unique position to deliver all that we have at Oracle Corporation in a sovereign zone. That sovereign zone can be as small or as large as a customer wants it to be. The other piece is that we have full flexibility as to where we draw the line of sovereignty. We often think about sovereignty in terms of lines of countries, but we also have customers that we have been talking with—enterprise customers may operate across multiple countries, let us say, in Europe or in Africa—that actually want to have a sovereign zone, a sovereign zone that they control and they operate in their data center, and they are serving customers in a certain vertical industry like health care, for example, or retail, for example. Their sovereign zone is drawn in their Alloy across those countries. We can accommodate all of that. We have the most flexibility—we think we have the most flexibility in contract and the most flexibility in delivering—and, again, the most important thing is that we deliver all that Oracle Corporation has in these sovereign zones. It is not a subset. It is not a few edge devices. It is all of OCI. Mark Moerdler: Extremely helpful, both the answers. I much appreciate it, and congrats again. Operator: Our next question will come from the line of Raimo Lenschow with Barclays. Please go ahead. Raimo Lenschow: Perfect. Thank you. Congrats from me as well. I wanted to ask something that we are struggling a lot with when we talk to investors, and that is the theme of SaaS software, application software—“Is AI going to kill it?” I just wanted to hear what you guys are hearing when you talk with customers. Is that one of these investor things? Is that getting discussed on the customer side as well? And how do you explain it? I am just thinking about what you guys do is a lot of deterministic rather than probabilistic, so that might probably be the explanation here, but just wanted to hear your perspective again. Thank you. Mike Cecilia: This is Mike. I will take the question. As far as the customers that I spoke with, I have not yet met a customer who tells me they are ready to give away their retail merchandising system, their core banking system, demand deposit account systems, electronic health records systems, and some cobbling together of niche AI features are going to replace all of that overnight. In fact, you hear quite the opposite with customers. What they are asking is how can we consume as much AI out of the box as you are putting into your applications across the board, and how can we get that up and live as quickly as we can? Because we think that is the best way to actually realize value. These systems—what we are running at Oracle Corporation, as you know—are highly complex, mission-critical, with decades of industry experience, decades of regulatory compliance, and these are the systems that our customers use to run their business, run their government agency, run their health care organization, whatever the case is. I really like our position here. As I said, we are leaning very heavily into AI ourselves. We have a thousand AI agents already live in Fusion. Our banking suite alone has hundreds of AI agents just inside our banking solution. So, yes, we think AI is disruptive—we do—but we think we are the disruptor because we are actually embedding the AI right into our applications, full stop, again at no additional cost. These are features that come in the application suite as part of quarterly upgrades, as part of a regular cadence. So I am actually—rather than thinking that AI spells the death of SaaS, at least for Oracle Corporation—I think it actually helps our SaaS position and helps us get to market even more quickly. We are thrilled with the results that we have and expect to have a lot more color on this as we go forward. Raimo Lenschow: Okay. Thank you. Operator: Our final question will come from the line of Brad Zelnick with Deutsche Bank. Please go ahead. Brad Zelnick: Great. Thank you very much, and I will echo my congrats and also just say that the messaging is very, very clear and very helpful. My question is for Mike and perhaps Larry, and it extends on what Raimo asked. You have introduced AI Agent Studio inside of Fusion, and we all know that the crown jewels within an enterprise live inside of Oracle Database and Oracle apps. But I am curious, how do you see Oracle Corporation's role evolving in a world where many other players are vying to be the AI interaction layer across multiple different enterprise systems and workflows? Mike Cecilia: So, Brad, it is Mike. I will start. Look, I think data gravity matters here, and I think mission-critical data gravity matters even more. So, as we said, we have announced the AI Agent Studio inside of Fusion. Fusion is a system inside our customers that is the custodian of their operational data, their mission-critical data. If you are going to build a bunch of AI agents—or your system integrator is going to build a bunch of AI agents—the question I would have is where would you start? Well, you would start inside the system of record. You would start inside the system of gravity because that is the data, from an inferencing standpoint and from a retrieval-augmented generation standpoint, that is going to be highly relevant and highly specific and add a bunch of context to AI. Now, the AI Agent Studio that we have released in Fusion is not just specific to Fusion data. You can build AI agents across our industry applications, across third-party applications. Third parties can build AI agents in there. So the fact that we are delivering an all-in-one best-of solution—a full-scale SaaS application, AI-powered SaaS applications—and giving you the ability to create your own AI agents either on top of that or next to that in a standard, upgraded-quarterly platform release schedule, I think, is going to be quite attractive. Because this AI Agent Studio that we built in Fusion is part of our quarterly upgrades. It is part of our regular security patching. So you are getting the best, we think, of both worlds. You are getting packaged SaaS applications. You are getting an agent studio which is very, very close to the most mission-critical, germane data that the enterprise possesses, and you are getting the ability to create your own custom bespoke agents if you would like to as well. Lawrence Ellison: I will just end with: we provide a bunch of prebuilt agents for all of our applications. But in addition, we provide a development environment—the AI Data Platform development environment—that allows our customers to easily add their own agents to what we built. We do not think we can build all the application agents for a banking system or all the application agents for a health care system. A lot of our partners are going to do that. A lot of our customers are going to do that. What the AI Data Platform does is it provides a complete integrated development environment where you can build your own agents using any AI model that is in the Oracle Cloud. And that is basically all of the popular AI models. You can use it for coding the agent. You can use it to do multistep reasoning for queries. We plan, in our Fusion accounting system, for example, we will have a complex agent that does something called the close. So when you close your books with Fusion in the not-too-distant future, it will be an autonomous agent—no human beings involved. You will close your books by simply telling the AI agent to go ahead and close the books, and then you will get your results. We provide a lot of AI capability built into our applications, but they are open. They are open to allow our customers and our partners to add to that portfolio of agents, and we build an entire ecosystem that automates health care, automates financial services, automates retail. That is what AI is allowing us to do: to expand our horizons for the scope of the suites of the SaaS software we are building to automate entire ecosystems. Let me talk about health care. In health care, Epic automates hospitals—acute care hospitals—and, in some cases, clinics, but primarily acute care hospitals. We automate acute care hospitals. We automate clinics. We automate laboratories. We automate the payers—the people who actually pay the bills. We automate the insurance companies. We automate the HCM system that trains their nurses, that schedules their radiologists to get the right radiologist when an MRI is given, that automates the hospital's financials, that also automates the FDA and the regulators that approve the latest drugs, that deals with the pharmaceutical companies. That is the health care ecosystem. It is enormous. And thank God we have these coding tools now that allow us to build a comprehensive set of software—agent-based software—to automate an ecosystem like health care or financial services. That is what we are doing at Oracle Corporation. That is why we think we are a disruptor. That is why we think the SaaS apocalypse applies to others, but not to us. Brad Zelnick: Really great stuff. Thank you, Larry. Thanks, Mike, and congrats. Ken Bond: Thank you, Brad. A telephone replay of the conference call will be available for 24 hours on our investor relations website. Thank you for joining us today. And with that, I will turn the call back to Regina for closing. Operator: This will conclude today's call. Thank you all for joining. You may now disconnect.
Operator: Greetings. Welcome to Domo's Fourth Quarter Fiscal 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Cory Edwards, Vice President of Corporate Communications. Thank you. You may begin. Cory Edwards: Good afternoon. On the call today, we are joined by Josh James, our Founder and CEO; and Tod Crane, our Chief Financial Officer. I'll begin with our safe harbor statement. Our press release was issued after the market close and is available on the Investor Relations section of our website. Please note that today's call contains forward-looking statements about our business as defined under federal securities laws. These statements involve risks, uncertainties and assumptions, including, but not limited to, statements and projections about our future financial performance, growth prospects, cash position, sales efforts, technology developments, new business opportunities, transactions and initiatives, the potential impact of artificial intelligence and macroeconomic factors on our business. For a detailed discussion of these risks and uncertainties, please refer to our public filings, including today's press release, our most recent annual report on Form 10-K and our quarterly report on Form 10-Q, all available on the SEC website. These documents outline important risk factors that may cause actual results to differ materially from our forward-looking statements. We will also discuss non-GAAP financial measures during the call, which we use as supplemental indicators of Domo's performance. Unless otherwise stated, all results discussed today other than revenue are on a non-GAAP basis. These measures should be viewed as complements to, not substitutes for our GAAP results. A reconciliation of our non-GAAP results to the most directly comparable GAAP measures can be found in today's earnings release and on our Investor Relations website at domoinvestors.com. With that, I'll turn it over to Josh. Josh? Joshua James: Thank you, Cory. Hello, everyone, and thank you for joining us on the call today. As we close out the year, I want to begin by highlighting some important achievements for the fourth quarter. We achieved record quarterly billings, delivered the strongest gross retention in 3 years, posted the highest operating margin and best EPS in company history and recorded our best ever full year free cash flow result. Now let me get into the details behind these accomplishments. We achieved our highest quarterly billings ever, totaling $111.2 million, which represents 8% year-over-year growth, the strongest we've seen in 3 years and also exceeding our billing guidance for the quarter. This performance was driven by higher retention, accelerating adoption of our consumption model and expanding partner ecosystem activity. Increasingly, customers are using Domo not just for analytics, but as the operational layer that powers data products and AI-driven workflows across their organizations, which naturally expands consumption over time. We also achieved our highest gross retention rate in over 3 years, coming in at over 88%, underscoring the durability of our customer relationships, particularly as multiyear consumption contracts continue to deepen. Net retention also improved by over 4 percentage points year-over-year and is now over 96%, making the sixth straight quarter of sequential improvement in this metric. Notably, the cohort of customers who started on consumption contracts, representing over $24 million in ARR, achieved an impressive net revenue retention of 111% in Q4, highlighting the value our customers are getting from our consumption model. Our operating margin for the quarter was over 10%, reflecting disciplined execution and efficiency improvements that lay the groundwork for durable profitability. Importantly, this translated into an all-time high for quarterly earnings per share. At the heart of Domo's opportunity is an innovative cloud-native platform, which is already driving nearly $300 million in recurring revenue. Our platform is well positioned to benefit from the rapid adoption of AI in the market. While Domo is often viewed as just a dashboarding or reporting tool, to be frank, that is laughable. In reality, Domo is a modern AI-first data platform designed for today's enterprise challenges. Domo's platform was built with AI in mind from day 1. Our very first product X 15 years ago highlighted machine learning and predictive modeling capabilities and AI-informed apps, the early predecessors to today's AI. This long-term vision has guided our architecture and investment decisions, ensuring we're not just reacting to AI trends, but enabling our customers to harness these powerful technologies at scale. The next wave of enterprise AI will be less about models and more about coordinating data decisions and workflows. What makes Domo different is that our platform doesn't stop at insight. It unifies data, provides AI-driven intelligence via our AI service layer and with Agent Catalyst enables agentic workflows in a single system, allowing organizations to move from analysis to automated action without stitching together disconnected tools. One innovation I'm particularly excited about is App Catalyst, our AI-powered app builder that allows customers to quickly create production-ready governed applications simply by describing what they need in natural language. Unlike early AI tools focused just on rapid code generation, App Catalyst provides a secure, scalable foundation that connects directly to customers' existing data platforms without duplication. It gives teams true optionality to build, iterate and extend applications for real-world enterprise use, and it's poised to be a significant driver of increased consumption and deeper adoption. Put simply, Domo is far more than just a BI tool. It's a strategic data and AI platform built for the demands of modern business. The growing need for AI is clear. The topic is coming up on nearly 70% of our calls with current and prospective customers. As companies across industries push to embed AI at the core of their operations, they need a platform that scales, is governed and stays secure and can grow as their AI ambitions do. We believe Domo is the platform that can deliver on these ambitions, turning complex data into clear, actionable intelligence and making it easy for customers to apply AI across immense amounts of data to quickly generate summaries, sentiment analysis and many other use cases. That's why we see significant opportunity ahead and why we firmly believe the market has yet to recognize the full value of our platform and ecosystem are delivering. Our customers aren't just experimenting with AI. They're driving real large-scale production deployments, and the impact is already visible. Here are 15 examples of AI agents that are actively being deployed in Domo's customer base. This is a small sampling. One, a national restaurant brand worked with Domo to deploy an AI-powered vendor onboarding workflow that automatically scans W9 documents, extracts key information from unstructured files, validates vendor records against internal data and routes approvals via a governed audit trail. This end-to-end automation replaced a fully manual process, drastically reducing administrative hours while enhancing compliance and control. Two, a leading global home improvement retailer is deploying an AI-powered product sign-off workflow to replace a traditionally manual approval process that took weeks or months. Using Domo, an AI agent analyzes product specifications, customer sentiment, imagery and testing data to evaluate market readiness. This scalable solution expands product reviews from dozens to thousands annually, accelerating innovation while reducing risks of recalls, rework and legal exposure. It integrates governed data, external sentiment and custom apps with a unified platform to operationalize AI at an enterprise scale. Three, a global financial services organization deployed an AI-driven invoice processing workflow to replace a manual e-mail-based system. Using Domo, coordinated AI agents automatically ingest invoices, determine extraction methods, translate content when needed and extract key financial data. The system routes information into accounting and management review processes, reducing delays, errors and providing scalable global operational visibility through governed AI orchestration. Four, a global customer experience provider deployed a Domo-hosted AI knowledge assistant that gives employees a single interface to answer operational and platform questions without navigating multiple systems or submitting tickets. The solution searches internal documents and secondary knowledge bases using confidence scoring to ensure accurate responses. By combining documents -- by combining document retrieval, text generation and text to SQL within governed workflows, it delivers faster answers and reduces manual support efforts. Continuous feedback logging ensures ongoing improvement at scale. Five, a global private aviation company is developing an AI-powered executive flight deck that provides leadership with real-time visibility into sales, lead generation, operational margins and client experience, eliminating the need for analysts to interpret data. This custom Domo application combines live KPI dashboards with AI-generated insights that explain trends and context dynamically, helping executives quickly understand performance and make informed decisions. Six, a national compliance technology provider is developing an AI-driven reporting system for state emissions inspection programs to automate the creation of 17 regulatory appendix reports. Previously, manually compiled into massive static files, the new Domo-powered pro-code solution uses specialized AI agents to generate interactive report tables in smaller, more easily distributed PDFs. This deployment demonstrates how governed orchestrated AI agents accelerate production-grade application development while enhancing transparency and efficiency in regulated public sector programs. Seven, a global pharmaceutical company deployed an AI-powered analytics agent that automatically generates monthly insights across marketing spend, brands and channels. Previously relying on manual agency reports, the AI agent scans governed marketing data to identify campaign trends and spend allocation, enabling faster data-driven decisions and reducing costs. Eight, a large industrial manufacturer deployed a Domo-powered operations app that automates welding job assignments across its production floor. The system analyzes job requirements, worker certifications and capacity constraints to dynamically schedule tasks, ensuring qualified welders are matched to the right jobs at the right time. This improves production flow and provides supervisors with real-time visibility into workforce capacity and scheduling. Nine, a luxury home goods brand deployed an AI-powered returns categorization engine that automatically classifies 100 to 200 daily product returns, analyzing unstructured customer feedback and mapping issues like size, quality and comfort into a standardized taxonomy. The AI agent assigns confidence scores and routes uncertain cases for human review, continuously improving accuracy. Operating at over 95% validated accuracy, the system delivers scalable insights into product quality and customer sentiment, enabling faster quality alerts and smarter product decisions. Ten, a K-12 education technology provider is developing an AI-driven reporting engine that enables educators to generate up to 100 professional student reports at once. Previously constrained by manual one-at-a-time downloads with inconsistent formatting, this Domo-powered solution integrates student data from Snowflake and delivers well-formatted consistent reports asynchronously. This scalable workflow improves educator efficiency and strengthens the customer's long-term investment in the platform. Eleven, a global workforce management platform serving enterprise retailers partnered with Domo to build an automated multi-environment deployment pipeline powered by Domo APIs and Agentic AI. What once required multiple engineering sprints was delivered in days through human AI collaboration, enabling automated promotion of code and assets across development, QA and production with built-in version control and rollback safeguards. The solution accelerates development cycles and maintains enterprise-grade governance, providing a scalable foundation for faster innovation and reduced operational overhead. Twelve. A national funeral services operator partnered with Domo to replace a manual spreadsheet-based bonus process with a governed enterprise application largely built through Agentic AI code generation. The solution provides multilevel approvals, real-time budget controls, payroll exports and immutable audit trails within a single workflow. By leveraging human AI collaboration, development time was reduced by an estimated 60% to 70%, resulting in a scalable compliance-ready application that accelerates time to value. Thirteen. A national behavioral health organization deployed an AI-powered contract intelligence system to replace a manual process for reviewing and tracking hundreds of complex agreements. The AI agent automatically ingests contracts, extracts key data and monitors critical milestones like renewals and expirations. A conversational interface enables natural language queries, providing faster access to important information, reducing administrative burden and enhancing compliance visibility across the organization. Fourteen, a global accounts receivable firm deployed an AI-powered skip tracing agent to automate the research process that prepares collection agents before contacting debtors. Previously relying on manual searches across business ratings, websites and regulatory filings, the AI agent now compiles and structures enriched business intelligence from multiple sources based on company identifiers. This solution dramatically reduces research time per account and improves agent preparedness and call effectiveness, transforming a manual bottleneck into a scalable intelligence-driven workflow. Fifteen, a national wealth management platform is developing a self-learning AI system to automate user provisioning and eliminate manual onboarding delays. The AI agent analyzes job titles from identify -- identity management data, classifies users into appropriate access rules with confidence scoring and continuously refines its logic as data evolves. Low confidence cases and sensitive financial access requests are routed through human approval to ensure compliance. This solution aims to reduce manual provisioning by up to 75%, improving operational efficiency and platform adoption across thousands upon thousands of employees. Clearly, the vision for Domo is coming to fruition, and we're just getting started. Domo has also garnered significant recognition from industry analysts and the media, further validating our leadership position in the data and AI space. Most notably, Domo was recognized by Dresner Advisory Services as a winner in 6 categories of the 2025 Technology Innovation Awards, including several categories related to Agentic AI. In addition, Domo was recognized as an overall leader in ISG's AI Analytics Buyers Guide 2025 Market Report. Domo announced that it was ranked as a top vendor in Dresner's Wisdom of the Crowds Analytical Data Report. This recognition reinforces what we consistently hear from customers that Domo is delivering a modern unified platform that bridges data, analytics, AI and action in a way that drives measurable business impact. Before we move on, I would like to invite all of our customers and strategic partners, current and prospective to join us at the upcoming Domopalooza user conference. It's an excellent chance to connect and explore the latest innovations across the Domo platform. Finally, thank you to our employees whose dedication and passion fuel everything we do. I'm proud of what we're achieving together. And with that, I'll hand the call over to our Chief Financial Officer, Tod Crane. Tod Crane: Thanks, Josh, and thanks, everyone, for joining us today. We delivered strong financial results in Q4, exceeding our billings guidance with our highest ever result of $111.2 million, representing year-over-year growth of 8%, the highest we've seen in 3 years. For the full fiscal year, we achieved billings of $318.7 million, representing a 3% increase over the prior year, marking our first full year billings growth since fiscal '23. Our gross retention rate improved to over 88%, marking the highest level in 12 quarters and reflects the strength of our customer relationships as well as the progress we've made on moving to a consumption pricing model, expanding our ecosystem partnerships and landing more multiyear contracts. ARR net retention was over 96%, up sequentially for the sixth straight quarter and a year-over-year improvement of over 4 percentage points. One of the key factors contributing to this improvement is the retention profile of customers on the consumption model, which continues to be well above that of our seat-based customers. ARR net retention for the customer cohort that began on consumption continues to be well above 100%, coming in at 111% in Q4. One of our most significant achievements in the past few years has been the monumental effort of moving from a traditional seat-based model to a consumption-based model. We ended fiscal '26 with 84% of our annual recurring revenue on consumption pricing, a major accomplishment. Now that we have the vast majority of our ARR on consumption, we will no longer be providing regular updates on this metric. Our operating margin for the quarter was a record high 10%, which contributed to the highest full year operating margin in company history at over 6%. We also achieved our best ever EPS result, which was the third consecutive quarter of positive EPS and led to our strongest full year EPS to date. Adjusted free cash flow for the full year was near breakeven, an improvement of over $12 million from the prior year, representing our best ever full year cash flow result. These results reinforce our ongoing commitment to operational efficiency. Turning to our recurring revenue metrics. Current subscription RPO grew 1% year-over-year to $227 million and our total subscription RPO grew 8% to $437.9 million. This growth underscores the strength of our customer relationships, highlighted by the prevalence of multiyear contracts and the longest average contract duration we've ever seen. Total revenue was above the high end of our guidance range at $79.6 million. Gross margin was 78.2%, an improvement of over 2 percentage points year-over-year. Over the near term, our gross margins may fluctuate from period to period but as we drive more consumption revenue, we expect gross margin to improve over the long term. Our non-GAAP net income was $1.2 million and non-GAAP diluted net income per share was $0.03 based on 44.4 million diluted weighted average shares outstanding. We've made great progress on delivering profitable growth and we continue to carefully evaluate opportunities to improve efficiencies within our go-to-market operations. Our goal is to optimize spend thoughtfully while continuing to invest in key growth areas such as AI innovation and ecosystem partnerships. Internally, AI is playing a significant role in boosting our engineering productivity. During the month of February, nearly 30% of our entire code base was edited using AI, and many of our engineers report that they are increasingly interacting with AI-driven interfaces at times going weeks without opening traditional code editing tools. We plan to continue leaning in on internal AI use cases across all areas of the business to optimize productivity. Given the ongoing evaluation of strategic alternatives, we will not be providing specific forward-looking guidance at this time. That said, to provide some high-level color on the upcoming fiscal year, we expect GAAP revenue to remain relatively flat, modest improvement in non-GAAP EPS and positive adjusted free cash flow. In closing, we finished Q4 with the highest quarterly billings ever, the strongest gross retention in 3 years, the highest operating margin and EPS ever and record full year free cash flow. Our focus remains on executing our strategy, supporting our customers and partners and positioning Domo for sustained success. With that, we will open the call for questions. Operator? Operator: [Operator Instructions] Our first question is from Derrick Wood with TD Cowen. Cole Erskine: This is Cole Erskine on for Derrick. Josh, I'll start with you. Can you just talk about what you're seeing out there in the competitive environment and if there's been any changes in win rates versus competitors? Joshua James: Yes. I think the biggest thing that we're seeing is just how much our customers are talking to us about AI and agentic opportunities. I think it's gone from vibe coding is cool to how do we implement actual solutions inside the organization that are governed, that have the security that we need and that can be distributed in a responsible manner. And that highlights the platform that we have. So that's probably the biggest thing that we've seen. In addition to that, definitely, we continue to be embraced by the ecosystem. So I would say all of our ecosystem partners, we have a better relationship, substantially better relationship with them than we did 6 months ago even. Their field sales are getting to know us. We've got a better brand with those sales organizations and we're getting more introductions to their customers. Just recently with a big Snowflake customer, they were trying to figure out how to roll out an agentic solution and they were struggling to get it done in the speed that they wanted to, and they came to us and actually, Snowflake came to us, and we went in jointly, and now we're developing a solution for them on the Domo platform in a very rapid pace. So it's just exciting to be embraced by the ecosystem, and we think that we're set up to finally start to see some of these investments that we've made into the ecosystem start to pay off this year. Cole Erskine: Super helpful. And then, Tod, just a follow-up. I know you guys aren't guiding for next year, but would love a little bit of color on where gross retention and NRR could go by the end of the year, some solid progress this year, but just wondering how that shapes out next year? Tod Crane: Yes. Thanks for the question, Cole. Yes, as we look ahead, really encouraged by the net retention rate we saw with our consumption customers this quarter. And as that -- we continue to get further and further into that customer base, and we have more time for them to be part of our adoption motion and get more technical people in front of them. We expect that things are going to gravitate upward towards that level. So it's that -- it's consumption, it's adoption. It's also as we go in more hand-in-hand with the CDW partners going in the front door with the CIO and being part of the global data strategy for the company, that continues to really help and bolster our efforts with our customers and being -- having much stickier implementations with those customers. And then the multiyear contracts as well, right? We've continued to make a lot of progress there. And as we continue to work on extending those contracts out, that's going to all contribute towards things being up and to the right with retention. Operator: Our next question is from Brett Huff with Stephens. Brett Huff: I'm sorry about that. Can you guys hear me now? Operator: Yes. Brett Huff: Congrats on a nice quarter. Two quick questions for me. Josh, you talked a lot about some of the things that differentiate what you all are doing versus competitors. And it sounded like one of those -- a big one was time to value and another big one was your ability maybe leaning on your ETL routes to sort of be already a central data hub. In the data right and difficulty sort of getting these tools to produce an actual real result has been a big kind of stoppage in AI. Are you seeing and hearing that? Is that why you're winning? What is the dialogue around that? Joshua James: Yes, that is why we're winning. The fact that it is a platform. People are -- they are vibe coding or they're coming up with these ideas that they think may be achievable now. But the implementation of those ideas is where the rubber hits the road, and that's where Domo really excels. So whether it's hydrating somebody's cloud data warehouse for our partners or stitching together data that they already have, being able to do that in an environment where they also can pull in any LLM model that they want and then having all the workflow capabilities that we had before AI became a thing. Just having all that functionality in one platform is something that does help us stand apart because the time to value, as you pointed out, is dramatically different than elsewhere. And so we're seeing that with our CDW partners, their customers were being brought into those deals and their customers see us as a way to be able to implement and create these agentic solutions that deliver the value that they've always been trying to get out of all the investments they've made into storing their data and organizing their data, putting it in an environment where it could actually be utilized. And this is the win that you get out of all that work. And we're seeing that with even a top 5 customer of ours for a long time had been resistant to looking at some of our pro-code apps and literally, over the weekend, one of our representatives that was working with them finally convinced them to let him go and create something over the weekend that they would take a look at. And literally, over the weekend, he created something that for several million dollar account for us. They looked at it on Monday. We're so ecstatic about it that they started rolling out many pro-code apps and agentic solutions that have made it all the way up to the CEO in that organization, dramatically changing our relationship in a place where we already had a good relationship, but it's just dramatically heightened at this point. So it's really fun to see the time to value. It's fun to create all these solutions. These solutions, we don't go and charge for the creation of the app. We go and it's a consumption business. So as these customers become familiar with the agentic solutions they can build and that we can build for them and that our partners can build for them and that they can build themselves, as they go and make one, they end up making 10, 20. And each one of those drives consumption of our products. So we're excited to see the lift that comes over the next 24 months as our customers roll these things out and become more and more familiar with what our platform can do for them. Brett Huff: That's super helpful. And then, Tod, maybe one for you. Last quarter, you mentioned that the sales cycles were getting longer, and I don't think we were surprised by that just given there's more hoops to jump through now that you're talking to more C-suite folks in a much larger sort of use case. Can you talk about that dynamic? Maybe it's still occurring, but are you getting some value maybe quicker as well? Or tell us the pros and cons of the puts and takes on that trend. Tod Crane: Yes. As we discussed last quarter, we had some deals sort of elongate a little bit and had some timing where we fell a little bit short of our billings guidance last quarter. But as we talked about, those closed early in this quarter, which gave us a nice leg up, and we were glad to see that momentum continue throughout the quarter and be able to deliver a nice billings beat. But in terms of the overall trend with these partner deals, it's a mix, right? There's some that are taking longer because we're part of that global data conversation, and it's a good thing in the end, but there's also deals that are coming through really quickly. And we've got -- actually got RJ here, our CRO, and he's got some other thoughts that he can add here. RJ Tracy: Yes. And we're making good progress on just figuring out these deals with the different ecosystem partners. And early on, we were focused more on new logo deals. They were a lot more willing to bring us into some of the new logo opportunities. And we were figuring out our motion there, and they still have to buy the warehouse partner and they've got to buy Domo. And so those deals do take a little bit longer. And now we're starting to see more introductions into their current customer base as well, and those deals seem to happen quite a bit faster. So I think we'll see, hopefully, that mix overall come down. And overall, making really good progress, and we're excited about what we're seeing with the different ecosystem partners that we're selling with them. Operator: Our next question is from Patrick Walravens with Citizens Bank. Aaron Kimson: This is Kimson on for Patrick. So it's my understanding that if a customer has committed spend with one of your partners, they can spend those credits on Domo through that partner's marketplace. Josh, you mentioned a few customers that you guys won this quarter. I'd love for a little color on if any of those use that sort of mechanism or what you're seeing broadly across your customer wins in relation to that metric? Joshua James: Yes, I'm going to let RJ take this one. RJ Tracy: Yes. So we saw in Q4, probably one of our largest quarters of customers using those MCD funds to purchase Domo. And it's a really good spot to be in. We've had customers even in the last couple of months where in talking with them, they're like, "Hey, we may only renew 1 year with you guys. And we get into the discussion further and it's because, oh, we're a Google shop or we're an Amazon shop or we're a Snowflake shop. And now being able to come to the table with those partnerships, we had 2 in particular that were pretty large opportunities for us. And instead of doing a 1-year renewal and potentially leaving us after a year, it turned into -- both of them turned into 3-year renewals with upsells, and we're now growing those accounts because we're part of the overall data strategy. It's budget that's already been spent. These customers don't have to go get the new budget. They don't have to go find more funds. They can just pay for the Domo contract, we upload it to the marketplace and then we get paid from the vendor. And so it's been an awesome motion for us. And I know there's a lot of deals out there in the past that we've lost strictly because they couldn't use those MCD funds to purchase, and it was a much easier effort to just use those funds with other vendors. And now we're part of those purchasing decisions. So... Operator: Our next question is from Lucky Schreiner with D.A. Davidson. Lucky Schreiner: Great. Congrats on the quarter. I wanted to ask on the improvement in consumption customer net retention that was quite significant in the quarter. Can you maybe provide a little more detail into what drove that rise in usage? And should we expect this metric to remain pretty volatile moving forward? Joshua James: Yes. I mean we continue to expand our adoption efforts with these customers. And every quarter that goes by, we get more time under our belt, kind of refining the model and refining the interface that we have with those accounts. So I'd say just generally across the Board, we're working to get technical resources in front of these customers, help them solve problems, help them stand up new use cases. We're working on getting more of our Agentic AI capabilities front and center with customers as well and getting some of those stood up. So it's really a combination of factors. And then just the ability for customers on the consumption model to be able to go and explore different components of the platform. They don't have to commit to a big upfront spend to go try some of our premium functionality. They can go and stand up a couple of workflows or stand up a couple of AI models and try some of our sentiment analysis, summarization that's really easy for nontechnical users to do inside the platform. And if they like it, they can lean in and do even more. So yes, no, as we continue to expand these motions, we expect that there's upside to those numbers that we've been reporting for that cohort. Lucky Schreiner: Got it. Makes a lot of sense. Last question for me then. It sounds like the business is trending really well. You had strong billings growth and retention is improving. But you still expect GAAP revenue to remain flat. So maybe can you help us understand some of the assumptions going into that outlook for the year? Joshua James: Yes. The way that our consumption contracts are structured, we still recognize revenue evenly over the contract period. So that makes revenue more of a lagging indicator. So it's kind of -- it roughly follows the trend in the previous year billings. It just takes a little bit longer for that revenue number to move. Operator: Our next question is from Max Michaelis with Lake Street Capital Markets. Maxwell Michaelis: Just one for me. I want to go back to the consumption model and some of the customers on that. I'm not sure when the renewal cycle for the first customer contract is up, but I was wondering if you can give us an idea on some of the volume that these customers are using and maybe they're increasing their usage with Domo and maybe percentages around customers that have increased the consumption that they began on and now where they're at now, that they've increased that [indiscernible]? Joshua James: Yes. I think the net revenue retention numbers we reported the last few quarters for that cohort that started on consumption is a really good indication of that level of expansion, right? We were well over 110% this quarter. Yes. So I mean, as we continue to -- again, as we continue to work on our motion there, I think there's upside to that. The other metrics that we talked about last quarter, we gave some usage metrics. We continue to see monthly active users up pretty significantly over the last couple of years. We look at that trend with across our data set, our ingestion capabilities, our ETL capabilities, our AI capabilities and across the Board, it's up and to the right in terms of the number of users that are using our functionality. So it's just great to see that our thesis with the consumption model and enabling our customers to more easily go explore the platform is playing out like we expected it to. Operator: With no further questions, we would like to just give final chance to re-prompt [Operator Instructions] We will just pause for a brief moment to see if there's any final questions.
Operator: Good afternoon, everyone, and welcome to loanDepot's Year-end and Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Gerhard Erdelji, Senior Vice President, Investor Relations. Please go ahead. Gerhard Erdelji: Good afternoon, everyone, and thank you for joining our year-end and fourth quarter 2025 earnings call. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements regarding the company's operating and financial performance in future periods. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings release that we issued earlier today, which is available on our website at investors.loandepot.com. Our presentation today contains certain non-GAAP financial measures that we believe provide additional insight into analyzing and benchmarking the performance and value of our business and facilitating company-to-company operating performance comparisons. For more details on these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP measures, please refer to today's earnings release. A webcast and a transcript of this call will be posted on our website after the conclusion of this call. On today's call, we have loanDepot's Founder and Chief Executive Officer, Anthony Hsieh; and Chief Financial Officer, David Hayes They will provide an overview of our quarter as well as our financial and operational results and outlook. We are also joined by Chief Investment Officer, Jeff DerGurahian; and Chief Digital Officer, Dominick Marchetti, to help answer your questions after our prepared remarks. With that, I'll turn things over to Anthony to get us started. Anthony? Anthony Hsieh: Thank you, Gerhard. Hello, everybody. I appreciate everyone joining us on the call today. I am pleased with the early results of our work to increase our scale and market penetration. While the fourth quarter is typically a seasonally slow quarter, we originated the most volume since 2022, gained share in an expanding market and achieved a 71% recapture rate from our in-house servicing platform. These results reflect progress in our return to the core competencies that enable the scaling to become the second largest retailer lender nationally during our first decade. Not only did we fund the largest volume of loan originations since 2022, but we also increased our market share. We expect to continue this trend as the market consolidates and large-scale diversified customer-facing originators like loanDepot benefit. While the third-party origination and MSR markets have consolidated around scale and operating efficiency, the consumer-facing marketplace remains highly fragmented and inefficient. Post financial crisis and Dodd-Frank, no retail lender currently controls more than 5% market share, which presents a significant opportunity for a customer-facing scaled originator. Furthermore, I believe the digital migration of the customer will continue to accelerate, particularly the purchase customer as more digital advancements make the entire home buying process more automated. We believe our assets and strategy provide us with unique competitive advantages to meet the customer as they migrate to a more digital experience as well as consolidating the market fragmentation, leveraging the most differentiated customer acquisition and retention business model in today's marketplace. First, our distribution model consisting of digitally enabled direct-to-consumer nationwide end-market retail and partnership with homebuilders bring new customers into our ecosystem across a diversity of transactions and geographies. Combining these best-in-class origination capabilities, we provide our customers access to purchase, refinance and home equity lending opportunities across market cycles. Second, vertical integration means we control the consumer experience from end to end, turning the flywheel from application to closing to servicing and back again through our industry-leading recapture capabilities, which are enhanced by our technology assets, relentless pursuit of customer service and our nationally recognized brand. Said simply, our primary strategy focuses on being one of the only scaled originators primarily creating and servicing our own customers as opposed to acquiring customers from third parties. As we look ahead with expectation of a larger refinance market, our top-of-the-funnel customer acquisition advantage uniquely positions us to outperform our competition in a rapidly evolving and consolidating marketplace. Behind the scenes, we remain focused on reducing unit costs through operating leverage and automation while investing in our marketing engine to drive more opportunities to the top of the funnel. In terms of innovation, our digital team led by Dom and Sean have made positive impacts by introducing AI capabilities to some of our most repeatable and scalable functions that improve the performance of lead acquisition and conversion, loan officer, CRA management and new underwriting processes. Each of these initiatives are having positive impact on the business with wide user acceptance, including by our customers and should drive positive operating efficiencies as volume increase. I am proud of the work that has been accomplished since my return to a full-time operating role. We are just scratching the surface of what this team can do. As digital migration continues to gain momentum, the company is capable of deploying AI applications directly to consumers will define the productivity and efficiency standards for our industry. We plan to continue investing and growing our top of the funnel customer acquisition and origination capabilities, leveraging our brand and marketing muscle, along with introducing contemporary technologies, including AI, which should lower our costs and increase our operating efficiency. Ultimately, our goals are to deliver profitable market share growth, improve the customer experience, drive customer retention and deliver long-term shareholder value. This is our opportunity and what we are working towards every day. With that, I will now turn the call over to Dave, who will take us through our financial results in more detail. David? David Hayes: Thanks, Anthony, and good afternoon, everyone. For the sake of time, I'll limit my commentary primarily to our fourth quarter results. The fourth quarter reflected the emerging benefits of our investment in technology and operating efficiency during a period of higher volumes. We reported an adjusted net loss of $21 million in the fourth quarter compared to an adjusted net loss of $3 million in the third quarter of 2025 due primarily to lower pull-through weighted gain on sale margin, higher amortization on our MSR portfolio and higher expenses, offset somewhat by higher pull-through weighted lock volume. During the fourth quarter, pull-through weighted lock volume was $7.3 billion, which represented a 4% increase from the prior quarter's volume of $7 billion. Pull-through weighted rate lock volume came in within the guidance we issued last quarter of $6 billion to $8 billion and contributed to adjusted total revenue of $316 million, which compared to $325 million in the third quarter of 2025. Our pull-through weighted gain on sale margin for the fourth quarter came in at 324 basis points at the high end of our guidance range of 300 to 325 basis points, but down compared to 339 basis points in the prior quarter. Our lower gain on sale margin primarily reflected product and loan purpose mix shift. During the fourth quarter, we originated relatively fewer higher-margin second trust deeds and FHA VA loans compared to the third quarter as part of our strategy to capture increased share of refinance volume. This resulted in larger average loan balances, resulting in decreasing our margin percentage. Our loan origination volume was $8.0 billion for the quarter, the highest level of origination since 2022, an increase of 23% from the prior quarter's volume of $6.5 billion. This was also within the guidance we issued last quarter of between $6.5 billion and $8.5 billion. Servicing fee income increased from $112 million in the third quarter of 2025 to $113 million in the fourth quarter of 2025 and primarily reflects an increase in collections due to the growth of the unpaid principal balance of our servicing portfolio. We hedge our servicing portfolio, so we do not record the full impact of the changes in fair value in the results of our operations. We believe this strategy helps protect against volatility in our earnings and liquidity. Our strategy for hedging the servicing portfolio is dynamic, and we adjust our hedge positions in reflection to the changing interest rate environment. Our total expenses for the fourth quarter of 2025 increased by $8 million or 3% from the prior quarter. The primary driver of this increase was due to higher personnel costs. Commissions increased as a result of the higher funded volume and salaries increased primarily due to loan officer hiring and the related operations staff. However, the remaining volume-related marketing and direct origination expenses were lower quarter-over-quarter despite higher volume, reflecting some of the benefits of our investments in process improvements and technology initiatives, including some of the early benefits from the initiatives that Anthony mentioned earlier. Looking ahead to the first quarter, we expect pull-through weighted lock volume of between $7.75 billion and $8.75 billion and origination volume of between $6.75 billion and $7.75 billion. We expect our first quarter pull-through weighted gain on sale margin to be between 270 and 300 basis points. Our guidance reflects market volatility, seasonality in the purchase volume, the affordability and availability of new and resale homes and the level of mortgage interest rates and our strategy of targeting larger average refinance loan balances. Our total expenses are expected to increase in the first quarter, primarily driven by personnel and G&A expenses, somewhat offset by lower volume-related expenses. The increase in personnel and G&A expenses are primarily associated with our investments in growth and the automation and innovation initiatives that Anthony mentioned. We remain focused on our commitment to profitability and continue to work with a discipline to grow revenue and manage costs while maintaining ample cash and a strong balance sheet. We ended the quarter with $337 million in cash, decreasing by $122 million from the third quarter, reflecting the investment in our loan inventory and the full repayment of our outstanding 2025 unsecured notes. During the full year 2025, we made significant year-over-year progress in investing in operating efficiencies that translated to positive financial results for the year. We were able to increase our adjusted revenue by 10% year-over-year while limiting expense growth by less than 1%, which has resulted in shrinking our adjusted net loss by 31%. Thanks to our progress, we are entering 2026 fundamentally a stronger company versus 2025. With that, we're ready to turn it back over to the operator for Q&A. Operator: [Operator Instructions] Your first question is from Madison Suhr with Raymond James. Taylor DeBey: This is Taylor on for Madison. Maybe just to start on your comments around profitable share gains. It was good to see the uptick in market share this quarter. Could you maybe expand on this and share where you're seeing success, whether that's in certain regions or retail direct versus partner channel? And then on the flip side, where you're hoping to see improvement in 2026? Anthony Hsieh: I didn't get the last statement there, Taylor, if you can repeat that. Taylor DeBey: Yes. Just to -- sorry, I don't know if my audio may be bad here, but just to expand on your profitable share gain comments and where you're seeing success, if there's any difference in certain regions or your different channels and then on the flip side, where you're hoping to see improvement in 2026? Anthony Hsieh: Yes, I'll try to tackle that, Taylor. You faded again towards the end there. loanDepot has a diversified retail customer touch model. So just to remind everyone, we have our digital-first direct lending business. We have our in-market retail business, and we have our builder business. So the builder business is predictable and stable, and we are experiencing steady growth. The retail business, in-market business is when we grow by hiring in-market loan officers in each of the local markets that we serve. That business is primarily resale and purchase business. Our direct lending business is where lots of opportunities are available today. We did retrace in the last few years in our market share on the direct lending side. And there are tremendous opportunities for us to rebuild our marketing funnel, our lead management systems, our CRM, our leads scoring system and all of the functionalities that make direct lending functional. Dom and Sean, as they started over the last 6 months or so, have been asked to completely rebuild our lead funnel engine utilizing AI. So there's lots of opportunities for us to continue to push down marketing cost, which is cost per customer acquisition. And we're seeing early wins as our volume and market share on our direct lending channel is starting to improve. There's still lots of work to do, but we're very, very bullish about our ability to penetrate additional market share through our direct lending channel. Taylor DeBey: Got it. All that color is very helpful. And then if I could just squeeze in one more here just on your -- just to get a sense of your 2026 non-volume-related OpEx and profitability expectations. I know you haven't guided for the year, but can you just give us a sense on how you're thinking about the non-volume expense growth in 2026 and how we should think about operating leverage for the business in the next year? David Hayes: Yes. Sure, Taylor, it's David. Yes, I think, generally speaking, as volume grows, you will see the scalable nature of our business given we do have a fixed cost that we get to amortize that incremental revenue over. I think from a year-over-year basis on sort of that non-volume-related growth, you'll see some modest investment into some technology initiatives and innovation initiatives that will help drive the growth for the overall profile of the company. So that's predominantly where you'll see that in. The rest of the expense growth will be volume related in the context of loan officer additions and related operations staff to support that volume. Anthony Hsieh: And I just want to add, Taylor, by saying that as we scale and penetrate profitable market share, which is something that is not foreign to this organization since our inception in 2010, I want to remind everyone that we did grow 38% year-over-year for the first 11 years through profitable market share gains. As we scale up, most of the cost, there will be variable cost as we add on additional personnel for funding of loans at the same time as we achieve AI efficiencies. But most of the fixed cost is pretty much already baked into the year. Operator: Your next question is from Eric Hagen with BTIG. John Davis: Some housekeeping here. The pickup in amortization expense to $52 million in the quarter, is that a good run rate to reflect the expense going forward? Or could we actually see it maybe come back down because rates have moved back the other way even just this quarter? David Hayes: I would say, Eric, there was a pickup in the quarter related to the higher refinance volumes that came in. That was obviously offset by our kind of best-in-class leading recapture rate, but I think they could moderate a little bit into the first quarter, but it really depends on rates on a go-forward basis and where that will go. Eric Hagen: Okay. All right. That's helpful. We're actually pretty intrigued by the level of cash-out refis in the period. Is there some overlap in the borrowers that you originated there where you also own the first lien in your MSR portfolio? And is that just the pickup in cash out refi volume in the period, would you say that's a function of your lead generation or something else? And how does the margin for cash out refis compared to the other products you guys are originating? Anthony Hsieh: Eric, it's Anthony. So we see customers shift over to cash out refinances rather than taking out a HELOC or a closed-end second anytime the 10-year yield or mortgage rates drop. So the good news there is we have the optionality to offer to that customer. And the volume on both sides are actually fairly similar because the CES margin has higher basis points, but lower loan amount. So we are seeing both products shift as mortgage rates do drop or climb back up. Operator: Your next question is from Mikhail Goberman with Citizens JMP. Mikhail Goberman: Just curious if you could maybe delve into a little bit of the thought process of the announcement the other day of getting back into the wholesale lending channel and what kind of volumes if you're targeting in that space over what kind of time frame? And what kind of margins do you expect to see in that space? Anthony Hsieh: So I can talk about the strategies there. So getting back into wholesale, which is a business that we were in previously, is going to allow us to achieve greater scale. It's a third-party origination, as you know. So we do not control the customer experience, but we are and we will be able to utilize the volume to help us create additional operating efficiency. And as we anticipate a volume growth and most likely a refinance volume return, we expect margins to expand, which will make wholesale model much, much more attractive. So we think this is the ideal timing for us to get back into the wholesale model. Mikhail Goberman: All right. Great. And if I could just squeeze in one more. Is there a level of recapture that you guys are targeting? I appreciate the 71% figure for this last quarter. Is there a level you guys targeting going forward? Anthony Hsieh: I think we're always going to be around that level. I think with technology changing and with AI being a better predictor of any customer that potentially could be in the market for an additional refinance, I think that number could go up. But I believe that we are pretty much at the top of the house as far as our recapture percentages. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call back to Anthony Hsieh for closing remarks. Please go ahead. Anthony Hsieh: Well, thank you, everybody. On behalf of Dave, Jeff, Dom and the rest of our team, I want to thank you for joining us today. The pieces are in place. We are executing a bold strategy to compete at the highest levels by returning to our core strength. Our strategy rests on 4 objectives: one, investing in the business through growth, operational efficiency and infrastructure; two, becoming a best-in-class mortgage banker or in other words, find another loan, close it faster, produce it cheaper and maintain superior loan quality. Three, growing profitable market share by hiring and training sales professionals in each of our channels, we plan to grow our origination capacity to capture profitable market share growth across refinance, resale and new home loans. And finally, four, returning to profitability by investing in our origination and new customer acquisition capabilities, growing our servicing portfolio, improving our recapture rates, growing our brand and marketing and increasing our operating leverage. We believe we can return to consistent profitability. This is how we will win. Executing these objectives positions us to create sustainable value for our shareholders while accelerating growth in a competitive landscape. So thanks again, everyone, and I appreciate your support. Bye for now. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Nature's Sunshine's financial results for the fourth quarter and full year ended December 31, 2025. Joining us today are Nature's Sunshine's CEO, Ken Romanzi; CFO, Shane Jones; and General Counsel, Nate Brower. Following their remarks, we'll open the call for analyst questions. Before we go further, I would like to turn the call over to Mr. Brower as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Nate, please go ahead. Nathan Brower: Thank you. Good afternoon, and thanks for joining our conference call to discuss our fourth quarter and full year 2025 financial results. I'd like to remind everyone that this call is available for replay by telephonic dial-in through March 24 and by a live webcast that will be posted on the Investor Relations portion of our website at ir.naturesunshine.com. The information on this call contains forward-looking statements. These statements are often characterized by terminologies such as believe, hope, may, anticipate, expect, will and other similar expressions. Forward-looking statements are not guarantees of future performance, and the actual results may be materially different from the results implied by forward-looking statements. Factors that could cause results to differ materially from those implied herein include, but are not limited to, those factors disclosed in the company's annual report on Form 10-K under the risk -- under the caption Risk Factors and other reports filed with the Securities and Exchange Commission. The information on this call speaks only as of today's date, and the company disclaims any duty to update the information provided herein. Now I would like to turn the call over to the CEO of Nature's Sunshine, Ken Romanzi. Ken? Kenneth Romanzi: Thank you, Nate, and good afternoon, everyone. Thank you for joining our fourth quarter and full year 2025 earnings call. I've now been at Nature's Sunshine for 131 days, and I am even more delighted to be here than when I last spoke to you on our third quarter earnings call on November 6 of last year. Nature's Sunshine delivered another terrific quarter, growing sales 5% and EBITDA 10% by continuing to execute against its key drivers of success, leading to its highest annual sales level ever. But I'm most pleased by what I have found in this great company over the past 3 months. Simply put, I love what I see. 2 very strong brands steeped in heritage and quality, Nature's Sunshine and Synergy, operating in the large global and rapidly growing category of natural health supplements. A globally diverse business operating in over 40 countries around the world. Exceptional product development capabilities. Sourcing and blending hundreds of Nature's best ingredients from around the world and scientifically verifying their effectiveness. An army of independent consultants passionately representing our products every day to consumers all over the world. A rapidly growing digital business penetrating new channels driven by a subscription strategy that enables consistent recurring revenue streams. A rock-solid solid balance sheet with nearly $100 million in cash and no debt. And last but not least, a passionate, mission-driven organization dedicated to elevating people's lives globally through improving their health and economic well-being while delivering industry-leading results for our shareholders. Suffice to say, I see so much to build upon at Nature's Sunshine, and I believe we can drive even more accelerated growth going forward. I will share an outline for the future of Nature's Sunshine after our CFO, Shane Jones, provides the details of our strong fourth quarter performance. Shane? Shane Jones: Thank you, Ken. We are pleased to report another outstanding quarter with strong growth across North America and Europe. This growth continues to be bolstered by our expansion into new digital channels, strong adoption of our subscription auto-ship programs, exceptional new customer acquisitions and strong partnerships with our independent consultants across the globe. Our efforts to modernize the business expand digital capabilities and strengthen customer and consultant engagement continue to pay big dividends. Now diving into specific financial performance. Net sales in the fourth quarter were $123.8 million, representing our second largest quarter in company history and our strongest fourth quarter ever. This represents a 5% increase versus $118.2 million in the year ago quarter or a 4% increase excluding the impact of foreign exchange rates. Growth was driven by continued acceleration in both North America and Europe. Net sales for the full year 2025 finished at $480.1 million, our best year ever and slightly higher than the high end of our most recent guidance range. This compares to $454.4 million of net sales in 2024 and represents 6% year-over-year growth or 5% excluding the impact of foreign exchange. These results reinforce the traction we're seeing from our digital and other transformation initiatives, the strength of our product portfolio manufactured in-house with the very highest quality ingredients and the power of our passionate and knowledgeable independent consultants. Looking at our results in more detail, let's start with regional performance. In North America, we continue to see building momentum as digital accelerates while maintaining our core business of specialty retailers, practitioners, affiliates and independent consultants. Q4 sales grew 6% year-over-year to $37.4 million. We're particularly excited about the strength in our digital business, which continued to show exceptional growth in Q4, increasing 47% versus prior year. Our work to move to an improved platform, leverage digital tools, optimize our digital marketing, enhance the customer experience and increase lifetime value continues to pay off, evidenced by our -- by very robust growth in new customers coupled with better retention and frequency from returning customers. Similar to what we reported in Q3, during Q4, we saw new digital customers nearly double compared to the prior year. We're also pleased to see very strong adoption of our subscription auto program. This program provides the strongest value proposition for the consumer while improving consistent use to ensure the very best results for improved health. It also promotes increased frequency and retention and provides the company with a predictable recurring revenue stream. In Q4, digital subscriptions coming through our website increased 260 basis points versus prior year to 47% of revenue. And subscription auto-ship on TikTok, which only started this past summer, reached 25% of TikTok revenue. Finally, we also continue to make progress with the efficiency of our digital marketing spend, which is resulting in meaningful improvements in customer acquisition cost and enhanced return on ad spend. We are excited to see these fundamentals continue to move in the right direction, validating the strategic investments we are making and strengthening our confidence that we will meet and exceed the goals we have set. As we've said many times, digital momentum is a key component of our broader transformation and represents an important long-term growth lever for our business. As digital continues to see robust growth, we expect continued mid-single-digit revenue growth in North America during 2026. Sales in Asia Pacific declined 1% year-over-year to $55.7 million or a 1% decline on a constant-currency basis. As we highlighted in our discussion last quarter, Q4 was a very difficult compare for APAC as sales increased 21% in constant currency terms during Q4 2024. This performance over that difficult compare was driven by outstanding execution in China and Japan, where sales increased 35% and 21%, respectively, excluding the impact of foreign exchange. We are pleased with the commitment and strong execution from our independent consultants in both markets, which has allowed Japan to sustain 20%-plus growth for 6 consecutive quarters now and has helped to drive the meaningful turnaround in China. In addition to great execution, strong adoption of our subscription auto-ship program also continues to drive meaningful growth along with predictable recurring revenue. We are seeing rapid adoption of this program across all of our markets in APAC. In Japan, subscription auto-ship accounts for nearly half of all sales in that market. We only recently launched the subscription auto-ship program in China during the first half of 2025. Last quarter, we announced that the program already accounted for 12% of sales in Q3. We are pleased to report that subscription auto-ship in China continued to surge in Q4, increasing to 18% of revenue. We are very pleased with the progress being made in APAC and expect continued mid-single-digit growth from this region in the coming year but acknowledge the inherent lumpiness of quarter-to-quarter sales due to the nature of our field activation efforts. We're also pleased with the continued strength in our European business, where Q4 sales increased 18% versus the prior year to $25.2 million or 14% on a constant currency basis. These outstanding results were driven by 23% growth in Eastern Europe in local currency terms. The strength in Eastern Europe has been fueled by improved product availability as we have worked to ensure appropriate in-stock levels of our key products where we see high demand. This improvement was combined with outstanding execution from our independent consultants and some economic stabilization in the region. This remarkable growth is a testament to the perseverance and commitment of our staff in that area, given the continued war in the region. For 2026, we continue -- we expect continued mid-single-digit growth in Europe as well. Now turning to gross margin. We continue to build on the progress we've made over the past several quarters as gross margin increased 55 basis points to 72.5% compared to 72.0% a year ago. This improvement represents the benefit of our ongoing gross margin initiatives and favorable market mix. We've been talking about these margin improvement efforts for some time. These initiatives include renegotiating logistics contracts, better conversion costs through improved manufacturing efficiency, improved sourcing, more disciplined pricing and other cost-saving measures. We're proud of our team's continued efforts to streamline our supply chain and pleased to see the benefit reflected in our results. As we look forward, we anticipate continued modest improvement in gross margin during 2026 but note that some uncertainty remains around the impact of tariffs and inflation. Therefore, gross margins are likely to settle into the upper 72% range during 2026, which represents a significant step up from where we've been historically. Volume incentives as a percentage of net sales were 29.1% compared to 31.1% in the year ago quarter. The decrease was primarily due to the strong growth in our digital business as well as changes in market mix. Selling, general and administrative expenses during the fourth quarter were $48.4 million compared to $43.7 million in the year ago quarter. As a percentage of net sales, SG&A expenses were 39.1% for the fourth quarter compared to 35.7% a year ago. The $4.7 million increase versus prior year was primarily related to digital ad spend, variable costs associated with the sales increase and nonrecurring expenses. The decision to increase digital ad spend during Q4 was based upon the opportunity for very strong customer acquisition at a favorable customer acquisition cost. Looking forward to 2026, we expect quarterly SG&A of $46 million to $48 million. Operating income increased to $5.3 million or 4.3% of net sales compared to $4.6 million or 3.8% of net sales in the year ago quarter. GAAP net income attributable to common shareholders for the fourth quarter was $4.1 million or $0.23 per diluted common share compared to a loss of $0.3 million or $0.02 per diluted common share in the year ago quarter. Adjusted EBITDA, as defined in our earnings release, increased 16% to $11.9 million compared to $10.3 million in the year ago quarter. The increase was primarily driven by the growth in net sales and improvement in gross margin. Adjusted EBITDA for the full year 2025 was $49.4 million, above the high end of our most recent guidance range and representing 22% growth versus 2024. The increase for both the quarter and the full year was driven by the increase in net sales, improved gross margin and cost leverage. Our balance sheet remains clean with cash and cash equivalents of $93.9 million and 0 debt. Inventory increased to $68.3 million at the fourth -- end of the fourth quarter, a $1 million increase versus Q3 as we work to replenish inventory after the robust growth seen in Q3 and Q4. We expect to see a moderate increase in inventory during 2026 to ensure appropriate in-stock levels and fulfill continued strong demand. Net cash provided by operating activities was $35.3 million compared to $25.3 million in the prior year. We repurchased 1.3 million shares for approximately $16.3 million or $12.95 per share during the year ended December 31, 2025, with $17.4 million remaining on our share repurchase program. Looking beyond share repurchases, our healthy capital allocation structure positions us well to continue our digital transformation and other strategic initiatives. Now turning to our 2026 outlook. We expect full year 2026 net sales to range between $500 million and $515 million compared to $480 million for 2025. This equates to year-over-year growth of 4% to 7%. For adjusted EBITDA, we are guiding to a range of $50 million to $54 million, representing year-over-year growth between 1% and 9%. This guidance includes measured investments to improve our technology infrastructure, drive further customer acquisition, advance geographic expansion, expand penetration in existing markets and accelerate product innovation. While these investments will temper our 2026 EBITDA from our consistent double-digit growth rate, we see strong momentum in the business and believe that now is the time to make these key investments in order to position the company for more rapid, sustained growth in 2027 and beyond. Overall, we continue to believe the business is well positioned to capitalize on current opportunities in a growing market and remain very optimistic about our ability to continue to unlock the substantial growth prospects that we see. The strategic initiatives we've been implementing are working, and we're confident in our ability to continue to accelerate growth in sales, profitability and free cash flow. Now I'll turn the time back to Ken for some further commentary. Kenneth Romanzi: Thank you, Shane. Very well done. As I mentioned earlier, I see many opportunities for Nature's Sunshine. To take advantage of those opportunities, we're doubling down in 2026 to make the investments Shane shared with you to accelerate our growth. We're setting a goal of growing Nature's Sunshine to $1 billion in sales with improved profitability along the way. As our plan is still in its early stages, we will present more details of when and how we'll get there in future presentations. But simply put, we expect to accelerate our top line growth ahead of the 4% to 5% we've been growing over the past few years and then leverage that higher growth to improve our bottom line profitability. We're calling our accelerated growth plan Nature's Sunshine vision for growth. The core drivers of our vision for growth include the following 7 elements. One, continued rapid expansion of our digital business into new channels. Two, deeper penetration in our core direct selling markets. Three, expansion -- geographic expansion in new high-value markets. Four, exploring opportunities in retail channels. Five, deepening our consumer relationship with differentiated brand positioning, marketing and product innovation for both Nature's Sunshine and Synergy. Six, leveraging our supply chain for scale efficiencies. And seven searching for complementary accretive M&A opportunities. By executing our vision for growth, we see $1 billion in sales clearly in our grasp. The future has never been brighter for Nature's Sunshine, and I look forward to sharing more about our vision for growth in the near future. Thank you for your time today and your continued support of Nature's Sunshine. I would now like to turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] And your first question comes from the line of Brian Holland from D.A. Davidson. Brian Holland: Congratulations on the strong 2025 results. Maybe just starting, Shane, with the outlook for 2026. You've obviously provided a wider range of outcomes on the EBITDA line than the net sales line. I assume that's fairly straightforward, i.e., obviously you talked about more investment behind advertising, marketing, et cetera, as well as innovation, bringing new products to market, et cetera. So is it as simple as kind of the bottom end of the EBITDA range assumes that those investments don't kind of perform at the level that maybe some of the incremental investment that you put into the business in the second half of 2025 showed? And maybe -- and similarly, maybe just help me understand also the midpoint and the high end of the range, does the midpoint assume that 2026 looks similar to the second half '25? And maybe the high end is better? Just trying to understand what's all in there. Sorry, that was kind of a jumbled one, but... Shane Jones: Yes. No, that's okay, Brian. Yes. No, so absolutely. There's a lot of things that are going into -- obviously into those EBITDA projections that we have out there. One of it, as we talked about, there's still some uncertainty about things like tariffs and inflation. And so at the bottom end, obviously, we've got some bigger impacts from potential inflation increases as well as tariffs this year. We also have the impact then most of our investment -- the investments we're talking about, we're making considerable investments in many different ways as you saw there. Some of those benefit us this year. Many of those -- the real benefit comes in the out years, in '27 and beyond. So that is incorporated into that as well. And then there's also just some macro uncertainty currently in the world with what's happening with current war that's out there and all the implications that, that could have for the consumer, for oil prices, for all of that. We've tried to encompass all of those factors into our guidance. And so that's why you have a little bit bigger range from that $50 million to $54 million. Does that answer your question? Brian Holland: Yes. No, that's extremely helpful. I appreciate it. And then maybe just a good segue into 2026, your comment about some of the uncertainties here. We're 2/3 of the way through 1Q '26. A number of factors both within the past week and maybe even earlier in the quarter to consider. Just any sense about how the consumer -- your core consumer is holding up in some of your strategic initiatives here as we're early in 2026. Any commentary about that relative to how '25 finished off for you? Shane Jones: Yes. We're still seeing very strong consumer demand in our markets. We've talked about some of the demand, like what you saw in Q4 across the digital, places like digital, and China continues to be very, very strong. Japan, and we are seeing no letup in the current quarter from those trends. Brian Holland: And then maybe just to... Kenneth Romanzi: And keep in mind because of the recent issues in the world, that I don't even think they showed up at the gas pump yet. So we haven't seen anything... Shane Jones: Yes. To summarize, we're not seeing anything yet. We're still seeing very strong demand, but who knows? Brian Holland: I appreciate it changes by the day. And then maybe just to finish off on kind of some of the long-term stuff that you teased there, Ken. Maybe first of all, obviously when you -- you guys have really kind of stepped into something here, the digital side with North America, the auto subscribe in China. And I imagine those are things you're going to double down on, obviously, sort of embedded within the outlook for 2026. You're going to continue to lean into some of this. What have you learned about the addressable market for Nature's Sunshine over the past year? Is there any way to quantify the extent to which that's expanded that might inform kind of $1 billion business at some point in the future? I know you haven't pinned down to a time on that. And then maybe just a second one on that. Would that be -- are you assuming the path to $1 billion would be all organic? Or is -- or could M&A be part of that path to $1 billion? And I'll leave it there. Kenneth Romanzi: Yes. Great. Thank you. Well, first of all, what we've seen in the market, this is a big and growing market. And depending on what sources you use, you can look at health and wellness trends, you can look at total supplement trends, you can look at natural supplement trends. There's a lot of different sources and we're honing in on what source we really want to use to kind of measure our market share. But basically, the market's been growing mid-single digits, 5%, 6%. And it's projected to like step up to grow a little bit higher than that, maybe 6% to 7% in what we're measuring in terms of health supplements going forward. Because if you look at health and wellness trends, some of the data includes exercise equipment, weight loss, GLP-1. We're really looking at the supplement market. So it's large. The TAM is huge. And we've looked at market share in some places. And right now, we're looking at per capita consumption, and there's just opportunity everywhere. In some of our strongest markets, we only have like a 2% to 3% share of health supplements. So we just think there's tremendous opportunity to both grow with the market as well as increase market share. In terms of growth going forward, to double the business in 10 years, you got to grow 7% a year. To double a business in 7 years, you got to grow about 10% or 11% a year. So we think that there's strong organic growth, but we also think that new channels and M&A have to play a part in that. So I listed a menu of things. We're not leaving anything unturned. But as we've discussed it with the Board, it depends on how fast we want to get there. We believe there's opportunities in the M&A area because we have capacity in our manufacturing facility. So we can do bolt-on acquisitions and get a lot of variable margin by leveraging our fixed costs in our manufacturing facility as well as perhaps brands that might be able to help us get into other channels. So we have amazing product development. We have 2 brands and we're going to open up our aperture and not be limited by whatever channel we've done in the past. We have so much product development capabilities. We could probably have different products in different channels underneath the brands we already have even before we consider buying anything new. Operator: And your next question comes from the line of Susan Anderson from Canaccord Genuity. Susan Anderson: I guess maybe I kind of wanted to drill down a little bit on the strong digital growth in North America. I guess I'm kind of curious if you're seeing customers come to the site, maybe they were buying your products in another channel or elsewhere, or I guess how are you guys acquiring these customers? And then also when they do go to the site, I guess, are they purchasing any different products you're seeing in other channels? Are they looking for anything different? Or it's kind of basically their interest is very similar to consumers purchasing in another channel. Shane Jones: Great question, Susan. So one of the things that we're starting to really appreciate is this is an ecosystem. As we're opening different channels in digital, all of those digital channels actually are synergistic and feed one another. Let me give you an example. We've been utilizing TikTok lately and have seen tremendous results in customer acquisition there. And we're able to drive new customer acquisition at a CAC that's way lower than anything we've seen in other channels. Those customers come into TikTok, purchase first time on TikTok, but then many times they'll go and then buy something -- and sometimes they don't even buy on TikTok. They'll go to Amazon and they'll buy the product on Amazon, or they might go to our website, or they might even go to one of our independent consultants and actually buy something there. So it is -- and it feeds that way across all of those channels. So I think we're getting to an inflection point where we're starting to see those benefits and starting frankly to understand them well enough to feed them in the right way so that we're utilizing our digital media in the right way to get a very strong return on that. We understand when we acquire a customer how much it costs to acquire that customer and then what we're going to get in the lifetime value of that customer and then just maximizing that, improving retention as we go along the way. So we're excited about what we're seeing because the real fuel here is new customer acquisition, which is coming largely through TikTok, but also through the other channels. But then that overflows into virtually everything else we're doing. Kenneth Romanzi: Yes. And the thing I'd add is that if you think about your own -- you or your own family's purchase behavior, or I just look at our family, we don't shop in just one place. Sometimes we shop in a retail store. Sometimes we get the same item at Amazon. Sometimes we get it directly through a website. Some people come to our website, learn about it, but then they can't avoid free shipping being a Prime member on Amazon, so they go there. We have a great example of this ecosystem that Shane just mentioned. We worked with an influencer on TikTok. And that influencer got really excited about one of the items that I think was #83 in our lineup in North America. It's called lymphatic drainage and lymphatic drainage is a hot health issue right now. We work with this influencer and not only did they sell an amazing amount on TikTok Shop, we sold a lot more on Amazon, a lot more in our nsp.com and then a lot more amongst our independent consultants. So an influencer on TikTok created this unbelievable demand across all of the whole ecosystem. And everybody, every channel benefited from that. So they're not as distinct as we sometimes talk about them because consumers are shopping everywhere every day and they're mixing it up. And it's just the power of if we are where the consumer is, we can benefit from that. And that item drove to be our #1 item last year across the board after being like #83 for years. Susan Anderson: Okay. Great. So it sounds like you guys are definitely acquiring new customers. So I guess as you think about kind of like this plan to accelerate growth to $1 billion and maybe go into some additional channels such as retail, I guess, the thought is that you'll continue to drive new customer acquisition through those new channels. I guess, is there any point where there is risk of kind of cannibalizing the older channels such as some of the partners that you work with and everything? Kenneth Romanzi: Well, one of the ways we can do this is we can do it through product differentiation. So we still want to treat our independent consultants very special. Right now, there's a lot of times where they bring consumers in and then people jump off to Amazon. So that is a little bit of channel conflict, but we believe we have enough products to feed the channel. So if you think about our independent consultant business and direct-to-consumer alone, we've got enough to feed those independently to drive growth because our independent consultants can't sell everything and we can't sell everything DTC. We can't concentrate on the amount of new product activity that we have coming down the pipeline because at some point, you can have too much. So we're fortunate enough to have such a robust pipeline. We're going to be able to start to differentiate and pick our way through to drive growth because I'm not very patient. And when my product development team has a great idea, I'm not going to wait for a channel to be ready. We're going to go find where the consumers are and we'll open up the channels necessary to make sure that we have an outlet for the strong product pipeline we have coming down the road. Susan Anderson: Congrats again on another great quarter. Operator: And at this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Romanzi for closing remarks. Kenneth Romanzi: Well, thank you for your questions. Thank you for your attention. We're really excited, as you can tell, about Nature's Sunshine. I just -- I see these 2 -- both brands, Nature's Sunshine and Synergy, powered by an amazing organization with great product development capabilities. If we just open up our aperture just a little bit to think about being where the consumers are, that lymphatic drainage example is a great one to share with you that if we start to untap that type of potential and not be limited by our channel scope, we really believe we can accelerate the growth. It's not doing the same thing the same way. We're going to take all of the great levers that the team's been working on and replicate that and add a few new levers to accelerate our growth. So we're looking forward to sharing more details of that plan going forward. So thanks so much for your time and attention and your continued support in Nature's Sunshine. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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