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The US and Taiwan agreed to a long-sought trade pact that would lower tariffs on goods from the self-governed island to 15% and see Taiwanese semiconductor companies increase financing for American operations by $500 billion. Under the terms, which the Trump administration announced Thursday, duties on Taiwanese shipments would fall from the previous 20% rate — putting them on par with Japan and South Korea, which reached their own deals last year.
Market Domination anchor Josh Lipton breaks down the latest market moves for January 15, 2026. The US and Taiwan have officially signed a trade deal, with US tariffs on Taiwan lowered to 15%.
Saira Malik, Nuveen CIO, joins 'Closing Bell' to discuss what will influence equity markets, the composition of earnings growth and much more.
A mix of soaring metals prices, geopolitical risks and threats to the Federal Reserve's independence is raising the possibility that inflation may push higher than expected in 2026, upsetting traders' expectations for stable to lower prices.
I am increasingly worried about a near-term double-digit correction in the broader markets. Charts aside, fundamentals are intact.
The rising costs of memory and storage components are putting pressure on the stocks of hardware makers. Ipek Ozkardeskaya, senior analyst at Swissquote, joins Caroline Hyde and Ed Ludlow on "Bloomberg Tech.
Operator: Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware Fourth Quarter Results Conference Call. [Operator Instructions] Note that this call is being recorded on January 15, 2026. [Foreign Language] Richard Lord: Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the fourth quarter and the year ended November 30, 2025. With me is Antoine Auclair, CFO and COO. As usual, note that some of today's issue include forward-looking information, which is provided with the usual disclaimer as reported in our financial filings. Overall, we delivered a strong fourth quarter with good progress in our main market segments. We also closed 3 new acquisitions during the year, building on the 6 acquisitions completed earlier in the fiscal, 2 in Canada and 4 in the U.S. For the quarter, sales increased by 7.3% to $511 million. EBITDA increased by 9.1%, diluted earnings per share increased by 4.5% and cash flow from operations reached $68.7 million, including a $30 million reduction in inventory. These results highlight the strength of our model and our operating discipline. The fourth quarter was active on the acquisition front. We closed Ideal Security in September, Finmac Lumber and Klassen Bronze in October. Ideal Security located in the Greater Montreal area, distribute specialized hardware products for doors and window market and serves hardware retailers and renovation superstores market as well as online retail platform. Finmac Lumber is a specialized wood product distributor based in Winnipeg serving Western Canada. Klassen Bronze based in Ontario, strengthens our offering with a wide range of letter, number, sign and mailboxes, key blanks and key cutting machines for the hardware retailers and renovation superstores market. We are very pleased with this acquisition, particularly with Ideal and Klassen, which expand our Richelieu portfolio of private brands for the retailers and renovation superstores market to 10. These acquisitions reinforce our position in this key market segment and support our one-stop shop strategy, supported by our distribution centers in Calgary for Western Canada customers, Kitchener for Eastern Canada and Chicago for the U.S. market. Private brands and exclusive products remain an important differentiator for Richelieu. A significant proportion of our sales is generated through these offerings. Which support customer satisfaction and loyalty, while reinforcing our competitive positioning and margin profile. The strong fourth quarter drove total sales for the year to $1.96 billion, up 7.2%. EBITDA for the year increased by 6.2% and cash flow from operations reached $202 million. We closed the year with a positive cash position almost no debt and a working capital of $622 million, which means a solid and healthy financial position and an outstanding balance sheet. I will now ask Antoine to review the financial highlights for the quarter and the year ended November 30, 2025. Antoine Auclair: Thanks, Richard. Our fourth quarter sales reached $511 million, up 7.3%. Sales to manufacturers stood at $459.9 million, up 9.1% with 5.9% from internal growth and 3.2% from acquisitions. In the hardware retailers and renovation superstores market, sales were down 6.4%. In Canada, sales amounted to $282 million, up $6.8 million or 2.5%. Sales to manufacturers reached $241 million, an increase of 4.6%. In the retailers market, total sales totaled $41 million, down 10.7% this quarter, mainly due to timing differences. On a year-to-date basis, sales are in line with last year. In the U.S. sales totaled USD 164 million, up 12.3%. Sales to manufacturers reached USD 157 million, up 12.9%, including 8.8% internal growth, mainly driven by price increases. In the retailers market, sales were up 1.4%. Total sales in the U.S. reached CAD 229 million, an increase of 13.9%, representing 45% of total sales. Total sales for 2025 reached $1.96 billion, an increase of 7.2%, of which 3.2% from acquisition and 4% from internal growth. Sales to manufacturers reached $1.7 billion, up 8%, of which 4.4% from internal growth and 3.6% from acquisitions. Sales to hardware retailers grew by 1.6%. In Canada, sales totaled $1.1 billion, up 2.2%, primarily driven by acquisitions. Sales to manufacturers amounted to $897 million, up 2.8%. Sales to hardware retailers and renovation superstores were $175 million, essentially flat compared with last year. In the U.S., sales amounted to USD 638 million up 10.9%, of which 5% from internal growth and 5.9% from acquisitions. They reached CAD 892 million, up 13.9%, accounting for 45% of total sales. Sales to manufacturers reached USD 604 million, an increase of 11.1% and sales to hardware retailers were up by 7.8%. Fourth quarter EBITDA amounted to $59.2 million compared to $54.3 million in the fourth quarter of 2024, up 9.1%. Our gross margin remained stable, and the EBITDA margin stood at 11.6% compared to 11.4% in the same period last year. Fourth quarter net earnings attributable to shareholders totaled $25.6 million compared with $24.4 million last year. Diluted net earnings per share were $0.46 compared with $0.44 last year, an increase of 4.5%. For the year, net earnings reached $86 million or $1.55 per diluted share compared with $1.53 last year, an increase of 1.3%. Fourth quarter adjusted cash flow from operating activities were $48.3 million or $0.87 per share. Net change in noncash working capital balances represented a cash inflow of $20.4 million driven by a $30.1 million reduction in inventories. Consequently, we generated $68.7 million in cash flow from operating activities compared with $27.2 million in the fourth quarter of 2024. For the year, operating activities generated a cash inflow of $202.4 million compared with $133.6 million last year. Over the year, we paid $34 million in dividend, representing a payout ratio of 37.5%. We also repurchased common share for $16 million, including $13 million in the fourth quarter. In total, we returned $50 million to shareholders this year. Investing activities used cash flow of $62 million, including $47.1 million for 9 business acquisition completed this fiscal year. And $15.2 million primarily for the purchase of equipment aimed at maintaining and improving operational efficiency. I now turn it over to Richard. Richard Lord: Thank you, Antoine. I am proud to note that over the past 13 months, we completed 10 acquisitions in Canada and in the U.S., representing approximately $100 million in additional sales. And our most recent acquisition completed after the year-end, would bring the total to 100 acquisitions so far that Richelieu has made in its complete history. Especially, this most recent acquisition includes 3 McKillican American distribution centers located in Portland, Oregon, Seattle and Spokane, Washington. These centers are already integrated into our IT system and the Seattle operations have already been moved to our current Seattle distribution center. This transaction reinforces our distribution network enhances local expertise and expands our product and service offering to better serve our customers. As a result, we now operate 5 locations across the Pacific Northwest region. In the current environment, our business model continues to demonstrate its resilience and flexibility enabling us to respond with agility to our customer needs and protect our margins. Looking ahead, our 2 primary growth drivers, innovation and acquisition position us well for continued profitable growth and further consolidate our leadership in North America. We are committed to ongoing investment in innovation to strengthen our offering and value-added services and we actively pursue acquisition opportunities. Thanks, everyone. We'll now be happy to answer your questions. Operator: [Operator Instructions] The first question will be from Hamir Patel at CIBC Capital Markets. Hamir Patel: Richard, could you comment on the sort of organic growth rates you've seen in Q1 so far? And any notable differences between Canada and the U.S.? Richard Lord: Yes. What we're seeing in Q1 so far is a flat sales for the hardware to -- sales of hardware to retailers market. And we -- in the mid, I would say, something around 5% regarding the growth for the manufacturers market. So basically, we're satisfied with the start of the year. We don't know what's going to happen in the months to come, but so far, so good. Edward Friedman: And then when you think about how the U.S. versus Canadian business is going, any differences there? I know last quarter, you were pointing to Ontario being softer? Richard Lord: We see a bit more growth in the U.S. a couple of percent growth, additional. Edward Friedman: Antoine, I wanted to ask about the EBITDA margins. It looks like they ticked up to 11.6% in Q4. How should we think about the margin trajectory for Q1 and full year '26? Antoine Auclair: Yes. The last 2 quarters were positive versus the previous year. So that trend should continue. But keep in mind that usually the first quarter of the year is the lowest of the fiscal year due to seasonality. So -- but we should continue to see improvement in the EBITDA margin. Of course, it all depends on the type of acquisition that we'll be able to land. But same-store sales, we should be able to generate more EBITDA. And having a bit more rigor in the market will definitely help as well. Hamir Patel: And then thinking on a full year basis, I mean, for the last 2 years, it looks like you've kind of averaged close to 11%. I know you've been quite acquisitive. So that's kind of a short-term drag. But do you think you can drive further margin growth in '26? Antoine Auclair: Yes, we should be slightly north of 11%. Operator: Next question will be from Zachary Evershed of National Bank. Zachary Evershed: Congrats on the quarter. Could you go into a little bit more detail on the pullback that we saw in sales to retailers during the quarter, please? Richard Lord: I think the flat sales for the retailer, I think it's -- what we see with -- if you read the Home Depot and Lowe's in the U.S., whatever they're forecasting, they're forecasting of flat sales. And in Canada, we see that the market is more to get -- we speak to our customers and the -- their sales are down for the first quarter. So Richelieu is doing well because we keep reducing -- introducing products into the stores. We have new products coming with RONA that are getting into their stores. So that's going to generate sales in the months to come. We have the same thing with the home hardware and Home Depot in Canada. And in the U.S., fortunately, we have regained the business that we had lost with Lowe's. So basically, that's going to -- the delivery will stop or in the end of the second quarter and third quarter. So -- but basically, that will bring another $10 million to $12 million sales in the U.S. So I think we have the only good news for the retailers. It's only a matter of the market being as we speak, flat. But eventually, I think the market is going to start to move again . Antoine Auclair: And Zach, the main -- the main reason for the Canadian retail sales down in the fourth quarter. And that's why we said that overall, the year is flat, but in the fourth quarter, it's because of one customer that didn't place orders for seasonal sales. So it's not a big deal, so it's only a timing issue. Richard Lord: So we remain positive for the retail market. Zachary Evershed: Got you. And do you think there's a catch-up in Q1 for those seasonal sales or that's just foregone? Antoine Auclair: No, I would say on a yearly basis, there's a catch-up, but just a question of timing. Zachary Evershed: Understood. And your inventory reduction this quarter was pretty far ahead of the schedule you'd outlined last quarter. What's driving the improvement in working capital there? Antoine Auclair: It's pretty much aligned with what we said at the beginning of the year, Zach. So, of course, it's difficult to be perfectly timed during the quarters, but that's what we were expecting. I think I mentioned a year ago that we would be expecting between $20 million and $30 million reduction in inventories, that's what we achieved. We achieved $33 million this year. So that was positive. . Hopefully, we will still -- we will be able to generate a bit more reduction in 2026, not as big as that, but we'll continue to be actively working and improving and optimizing our inventory situation. And also, I I'm glad to see the CapEx that is now down -- come down to a more maintenance level phase of CapEx. So we've had a few big years in terms of CapEx investment. So now we spent $15 million. It's 0.08% of our sales. So that's more in line with the historical data prior to COVID. So we're glad that it's back to normal. Richard Lord: And as a result, I think in 2026, the cash flow generation is going to be stronger. Zachary Evershed: Excellent color. What are your customers saying about the pause on the additional tariffs on furniture and cabinets? Richard Lord: They're very happy, but they already have to live with that first 25% that is already imposed. So basically, I think the -- our Canadian customers that are selling in the U.S. are losing sales as we speak. They're reducing the number of employees and everything else. They still continue to buy from Richelieu, but some buy less, but some buy more because they used to buy from overseas certain products now that they buy from Richelieu. So basically, we should see an clean of the sales to that type of customers. And the second phase, I think safe, I would say, I don't know how to say it, but you really saved the 2026 year, even though they're already negatively affected by the first 25%. But if that second 25% apply next year, I think it's -- it could be very, very basically disasters for the customers that export to the U.S., but we don't have that many customers that export in the U.S., but it's still a substantial business. But we -- as a result of that, we should really capture some business on the U.S. side because the customers that are capturing this market are also your customers in the U.S. Zachary Evershed: Got you. And then how are you feeling about the M&A pipeline for 2026. You just came off of a year of almost $100 million in 2025, starting off with an acquisition subsequent to the quarter, where do you think you'll end this year? Antoine Auclair: We'll continue with what we've told you guys 1.5 years ago. So we're still on a $100 million a year. So that's what we're working on. The pipeline is healthy. Both side of the border. So no change there. Operator: Thank you. And at this time, Mr. Lord, we have no other questions registered. Please proceed. Richard Lord: Thanks to everyone, for listening. And so if you have any more questions, do not hesitate to call myself or Antoine. We're here in the office. So thank you very much, and have a good afternoon. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.
Operator: Good evening, and welcome to the J.B. Hunt Transport Services, Inc. Fourth Quarter 2025 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Andrew Hall, Senior Director, Finance. Please go ahead. Andrew Hall: Good afternoon. Before I introduce the speakers, I would like to provide some disclosures regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. These statements are based on J.B. Hunt Transport Services, Inc.'s current plans and expectations and involve risks and uncertainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements. For more information regarding risk factors, please refer to J.B. Hunt Transport Services, Inc.'s annual report on Form 10-Ks and other reports and filings with the Securities and Exchange Commission. Now, I would like to introduce the speakers on today's call. This afternoon, I'm joined by our President and CEO, Shelley Simpson, our CFO, Brad Delco, Spencer Frazier, EVP of Sales and Marketing, our COO and President of Highway Services and Final Mile, Nick Hobbs, Brad Hicks, President of Dedicated Contract Services, and Darren Field, President of Intermodal. I'd now like to turn the call over to our CEO, Ms. Shelley Simpson, for some opening comments. Shelley? Shelley Simpson: Thank you, Andrew, and good afternoon. We began 2025 with clear expectations. When the external environment shifted, we responded by adapting our strategy. I am proud of the agility of our team as we navigated through dynamic economic conditions while maintaining high service levels for our customers and structurally removing costs from our business. Throughout 2025, we prioritized operational excellence. Not only did we meet this goal, but we set a new benchmark for success within our organization. Our service levels and safety performance remain exceptional, and they are key differentiators for us in the industry. In the fourth quarter, we proudly celebrated our fourth driver to reach 5,000,000 safe miles, Steve Kirschbaum, and it is a reflection of the strong culture of safety at J.B. Hunt Transport Services, Inc. Alongside this, two other key priorities for 2025 were scaling into our investments and continuing to repair our margins. While we made meaningful progress in both areas, I recognize there is still more work ahead. We are laying the foundation for J.B. Hunt Transport Services, Inc.'s future, a future defined by disciplined growth and even stronger financial performance. I'll briefly address rail consolidation now that the merger application has been filed. We remain rooted in our commitment to our customers and providing excellent intermodal service and also to our shareholders to create lasting long-term value. We continue to have conversations with all Class I railroads, and those conversations are progressing. In our view, there remains a significant amount of industry risks and opportunities, and we continue to work on multiple options to ensure our customers and shareholders are well placed. We have a strong brand and service product and offer tremendous value to our rail providers given our scale, technology capabilities, and how we go to market. Our ability to deliver seamless, differentiated service across the entire North American intermodal network is a competitive advantage. As we move into 2026, the freight market feels fragile. Capacity continues to exit the truckload market, and we are testing the elasticity of supply. Regardless of the market environment, we continue to manage our business to put us in the best position for long-term growth. Let me give you a little more color on our strategy in 2026. Overall, our service levels across the business remain exceptional. The business leaders will share more, but throughout peak season, customers trusted us with more of their freight because of our service. As we grow through operational excellence, we will remain disciplined with our cost management and continue to lower our cost to serve. This will further strengthen our business model, providing capital to deploy for future growth while providing strong returns for our shareholders. Let me close with our key priorities for 2026. First, we're focused on disciplined growth through operational excellence. On the back of our operational excellence, we are playing offense and creating our own success that is not dependent on the market. Second, we will leverage our investments in our people, technology, and capacities into clear and sustainable competitive advantages for our business. We prefunded our capacity growth at the bottom of the cycle, including the purchase of Walmart's intermodal assets, positioning us to grow without needing to deploy additional capital to do so. We have invested in our people and technology, focusing on ways to improve efficiency and productivity through automation. Investing in people, technology, and capacity is core to who we are. Third, we will continue to repair our margins to drive long-term value for our shareholders. We are a disciplined growth company, and we will continue to build on the momentum we have created. With that, I'd like to turn the call over to Brad. Brad Delco: Thanks, Shelley. Good afternoon. I'll hit on some highlights of the quarter and the year, review our capital allocation for 2025, give some views on the plan for 2026, and finish up with an update on our lowering our cost to serve initiative. Let me start with the quarter. As you've seen from our release, on a GAAP basis, revenue was down 2% year over year while operating income improved 19%. Diluted earnings per share improved 24% versus the prior year period. In the prior year quarter, we did incur pretax charges of $16 million in intangible asset impairments. After consideration of these charges, operating income increased 10% from the prior year period. Inflationary cost pressures continued to impact us in the quarter, but once again were more than offset by solid execution by our people on lowering our cost to serve and by driving efficiencies and productivity into our daily work. For fiscal year 2025, on a GAAP basis, revenue declined 1% while operating income increased 4%. Given the inflationary cost pressures in 2025 that were not fully covered with the pricing environment, these results again highlight operational excellence in managing our costs, safety, and service to our customers. On capital allocation, in 2025, we spent $575 million in capital reinvesting in our business. That is net of proceeds from the sale of our equipment. We put $923 million towards our share repurchase, the largest annual amount in our company's history, and retired almost 6.3 million shares of stock. Our balance sheet remains healthy, maintaining leverage just under our target of one time trailing twelve-month EBITDA. This aligns with our messaging around prefunding our long-term future growth and not just remaining cost disciplined, but also disciplined on how we allocate our capital. In 2026, we anticipate net CapEx to be in the range of $600 million to $800 million, largely for replacement, with expectations for success-based growth capital to support our dedicated segment. We will continue to manage our leverage to maintain an investment-grade balance sheet, support the growth of our dividend, and opportunistically repurchase shares. We do have $700 million of notes maturing on March 1 and have more than enough flexibility with our recently amended and extended credit agreement to satisfy that maturity. We committed to giving you updates on our execution of our lowering our cost to serve initiative, and I'll start by saying our execution remains solid. I'll reiterate our intent is to demonstrate our progress in our results rather than just speak to tracked savings. In the third quarter, we stated we executed over $20 million in cost savings in the quarter. In the fourth quarter, we executed over $25 million of tracked savings and are now on a run rate of over $100 million of annualized cost savings. Keep in mind, we continue to focus on productivity and efficiency gains that were not contemplated in our $100 million target as our achievement of that target was not dependent on volume growth. We continue to see benefits in the same areas of service efficiencies, balancing our networks, dynamically serving customers to meet their needs, and even more focus on discretionary spending and driving greater utilization of our assets. Let me close with a couple of things that I think are important takeaways from our results. First, despite no meaningful tailwinds from market pricing, we posted solid year-over-year earnings growth for both the quarter and the year. Second, our focus on operational excellence and discipline on cost and deployment of capital sets us up well for the future. Finally, we enter 2026 with solid momentum, both operationally and financially, and with ample capacity to deploy capital to meet our customers' needs with our scroll of services. That concludes my remarks. Now I'd like to turn it over to Spencer. Spencer Frazier: Thank you, Brad, and good afternoon. I'll provide an update on our view of the market and share feedback we are hearing from customers. Demand in the fourth quarter aligned with expectations, and we continue to see the truckload capacity bubble deflate. As customer forecast accuracy improved throughout the year, so did our confidence we would have a solid peak season. As noted in our last call, a significant amount of early imported freight still needed to move inland, which ultimately supported a solid peak. I'm proud of how our teams met customers' seasonal demand, helping them deliver their plans. Additionally, we saw market dynamics tighten around Thanksgiving and continue through year-end, creating opportunities to leverage our culture of operational excellence and gain share. Our unique model, comprehensive service offerings, and 360 platform continue to differentiate us and position us for long-term growth. Most customers view the recent market tightening as temporary or seasonal rather than a structural shift. After several years of mixed signals and forecasting challenges, customers will only acknowledge a structural change after they feel a tighter market for a longer period of time, likely driven by some degree of both reduced capacity and stronger demand. Customers are also evolving their supply chain strategies. Many are consolidating logistics providers to do more business with fewer high-performing providers. Last year, we had our highest customer retention since 2017. Customers are also looking for the most efficient capacity solutions that meet their needs, and more sophisticated customers are planning ahead of potential market shifts. They are working with us to optimize networks and capacity strategies to leverage the right service offering at the right time to execute their business. This aligns well with the strength of our business model and our solution-based sales approach and is helping drive our share gains. Our current customer conversations focus on their 2026 outlook and initiatives and how we can strategically support their supply chain strategies and growth. They are looking forward to a more stable trade policy, a more confident consumer, and potential benefits from higher tax refunds and policy changes. Customers want logistics providers that offer scale, visibility, and consistent long-term service to bring predictability to a complex part of their business. They view us as operating from a position of strength, reinforcing our confidence in the value we can deliver in 2026 and beyond. I would now like to turn the call over to Nick. Nick Hobbs: Thanks, Spencer, good afternoon. I'll provide an update on our safety performance across our operations, followed by an update on our final mile, truckload, and brokerage businesses. Safety remains a top priority and is a key differentiator of our value proposition in the market. I am proud to say that 2025 was our third consecutive year of record safety performance measured by DOT preventable accidents per million miles. To put some context around our performance, our DOT preventable frequency is equivalent to driving more than 5,000,000 miles between events. Our focus on safety is a key piece of driving out cost, and this record performance is a testament to our entire team and their commitment to remaining safe and secure every day. Our commitment to safety starts well before anyone begins driving a truck or executing a final mile delivery. In our final mile business, we continue to lead the industry in terms of background screening and identity verification, ensuring the person delivering the product into the home meets our rigorous standards. As final mile claims across the industry continue to rise, we are pleased to see a large customer recently announced enhanced identity verification standards, which we believe is a positive and needed step for the industry overall. Shifting to the business, overall, final mile end market demand remained soft across furniture, exercise equipment, and appliances. In our fulfillment business, we continue to see positive demand driven primarily by off-price retail channels. Going forward, we do not expect any meaningful positive change in market conditions, but remain focused on continuing to provide high levels of service to customers while being safe and secure and ensuring that our returns match the value we provide in the market. We mentioned last quarter that we anticipated losing some legacy appliance-related business in 2026. We expect this to be an approximately $90 million revenue headwind in 2026. That said, we continue to work diligently to onboard new business in this area to offset as much of this as we can. Moving to our highway businesses, overall, season demand was in line with normal seasonality led by e-commerce-related volume. On the capacity side, the truckload market became tighter beginning the week before Thanksgiving and didn't recover through the end of the year. We believe this was driven primarily by supply or tighter truckload capacity due to higher levels of regulatory enforcement. In JBT, our strong service and focus on operations led to another quarter of double-digit volume growth, our third consecutive quarter achieving that growth rate. As the truckload market tightened in the quarter, our focus on service created additional volume opportunities from customers as other carriers struggled to maintain commitments. Going forward, our focus in 2026 is disciplined growth to ensure our network remains balanced while also improving the utilization of our trailing assets through better box turns. While we will continue to execute on lowering our cost to serve, meaningful improvement in our profitability in this business will continue to be driven by our ability to price higher. I'll close with ICS. During the fourth quarter, truckload spot rates moved notably higher, which put pressure on our gross margins, especially in late November and December. This did lead to more spot opportunities, not until really late in the quarter. While lower gross profit year over year did pressure our profitability, we continue to make good progress on our controllable cost with operating costs of approximately $41 million in the quarter, our lowest since Q4 of '18. Going forward, we are encouraged by the work we have done to resize our cost structure in this business and the wins we achieved during mid-season. Our focus in 2026 is maintaining operational excellence, continuing to onboard additional volume on the platform, and remaining disciplined on our cost as we grow. With that, I'd now like to turn the call over to Brad. Brad Hicks: Thanks, Nick, and good afternoon, everybody. I'll provide an update on our dedicated business. Starting with the results, at a high level, our full-year results highlight the resiliency of our dedicated business, which remains a standout in the industry. A year ago on our 2024 fourth quarter earnings call, I commented that we expected very modest operating income growth in 2025 in Dedicated. We had visibility to fleet losses throughout the first half of the past year, and given the nature of our business, we knew that growing operating income while shrinking the fleet would be difficult. I'm extremely proud of our dedicated team at not only addressing the expected fleet losses but also navigating unexpected customer bankruptcies during the year. Our focus on customer value delivery, efforts to lower our cost to serve, and strong safety performance allowed us to deliver flat operating income compared to 2024 results despite a lower fleet count. Looking at the fourth quarter, we sold approximately 385 trucks of new deals, bringing our full-year new truck sales to approximately 1,205 trucks. As a reminder, our annual net sales target is for 800 to 1,000 new trucks per year. While the known fleet losses disclosed two years ago caused us to fall short of this target in 2025, we have good momentum coming out of the fourth quarter, which gives us greater confidence that we will get back to this level of annual net truck growth in 2026. We continue to see considerable opportunities for future growth in our dedicated business with an addressable market of roughly $90 billion. Our sales pipeline remains strong, and we have opportunities across a diverse set of customers and industries. Our sales cycle is elongated at around eighteen months given the complex nature of these contracts and the big decisions to outsource a private fleet. We have seen this sales process extend a few additional months given the broad macroeconomic uncertainty and continued challenging freight fundamentals. While we initially anticipated resuming net fleet growth in the latter half of last year, the extended timeline for finalizing new agreements has pushed the return to fleet growth into 2026. Let me close with some thoughts on 2026. About two years ago, we spoke about having visibility to fleet losses that would play out through 2025. About a year ago, we spoke about expectations for very modest operating income growth in 2025 given those known fleet losses. Both of these comments proved to be true as the contractual nature of our dedicated business provides us clear visibility to and predictability of our performance. We also know that to see a material increase in the profit performance of this business, we must first see a wave of truck growth for about six months. As we have discussed before, we incur start-up expenses as business is onboarded, and it historically takes about six months before a new location starts contributing as expected to operating income. Our strong new truck sales in the fourth quarter and visibility to our pipeline give us confidence that the wave of new business is coming, just the timing is a little later than we had initially expected. As a result, and looking forward, we sit here today expecting only modest operating income growth in our dedicated business in 2026, with more momentum likely to roll into 2027. The confidence in our dedicated business and our strategy hasn't changed. We'll continue to execute with operational excellence, drive value for our customers through our CBD process, and continue to invest in our people to help support and accelerate our growth. With that, I'd like to turn it over to Darren. Darren Field: Thank you, Brad, and thank you everyone for joining us this afternoon. I'd like to start by thanking the team for their hard work during peak season. We executed very well during peak season and were able to meet customer demand while at the same time remaining disciplined on our costs and continuing to execute on lowering our cost to serve. This marks our third consecutive peak season of strong execution on behalf of our customers. Similar to last quarter, I want to start with some comments regarding the potential for Class I rail consolidation. Even with the merger application now filed with the STB, similar to what we said last quarter, there are still a lot of unknowns. We continue to digest the application and had expected more intermodal-specific questions to be addressed in the merger application than there were. So we continue to plan for a wide variety of scenarios. We can speculate on hypotheticals, but let's talk about what we know. We continue to have active dialogue with all Class I railroads and believe given our position in the intermodal market that J.B. Hunt Transport Services, Inc. should be a primary participant in all discussions regarding the future of the intermodal industry. We continue to see a large opportunity to convert highway truckload shipments to intermodal and have been actively pursuing these shipments long before any merger discussion. We have offered seamless transcontinental intermodal service for decades, connecting BNSF to both Eastern railroads. Our focus remains on engaging in discussions and executing a strategy that is in the best interest of our customers and our shareholders. During the fourth quarter, demand for our intermodal service performed relatively as expected. Volumes in the quarter were down 2% year over year and by month were down 1% in October, down 3% in November, and flat in December. We faced difficult year-over-year comparisons in the fourth quarter with the freight shift in volume from the East Coast to West Coast. Given these factors, our transcontinental volumes were down 6% in the quarter while Eastern loads were up 5%. As we have communicated previously, we had a bid strategy during 2025 focused on getting better balance in our network, growing volumes, and repairing our margins with more price. And we were successful in the bid season, particularly around network balance and head haul pricing. The third quarter each year is always the first chance to see the impact of our bid strategy show up in our results. Consider it our scorecard. We believe the success of bid season combined with our efforts to lower our cost to serve were key drivers of our improved year-over-year and sequential financial performance in the quarter. As a reminder, given the cadence of our bid season, we will live with the impact of this past bid season through the first half of 2026. Going forward, our focus remains on being operationally excellent, which is being noticed by customers and driving additional opportunities in the market. I previously commented that in order for us to return to the low end of our 10% to 12% margin target range, we would need one point from cost, one point from volume, and one point from price. We have good visibility to the point in cost but have work left to do on volume and price. As we think about the 2026 bid season, our overall strategy won't change much. We will look to grow in the back hauls and continue to fill in our network, grow with customers in the right markets and lanes, and look to further repair margins by pricing to the value we create for customers. The bid season for 2026 is still in the early innings, and it would be premature to comment on rate expectations at this point. In closing, we remain confident in our industry-leading intermodal franchise and excited about the opportunities in front of us. With that, I'd like to turn it back over to the operator to open the call up for questions. Operator: We will now begin the question and answer session. And the first question will come from Brian Ossenbeck with JPMorgan. Please go ahead. Brian Ossenbeck: Hey, Brian. Hey, everybody. Good afternoon. Thanks for taking the questions. Maybe just start with Shelley and team, if you can just fill in some more comments on what you mean by the freight market's gradual. Of course, there's quite a lot going on right now. I don't know if that was more a comment on capacity and what we're seeing there. So you have a white paper out there that walks through the impact of what you think could come out of the market. Maybe a little bit more color around the supply side and demand side so we can understand the comments around being fragile to start here. Thank you. Shelley Simpson: Sure. Well, okay. Thank you, Brian. So I'll start and then I'll let the team jump in from there. You know, I think you heard in Nick's comments that really since Thanksgiving, we haven't seen the supply side change as it as we finish the rest of the year. And here entering into this first part of the year, we still see some signs of that supply side being down. Along with that, from a demand perspective, you know, I would say there's a mixed reaction from our customers. I think our customers always tend to be more optimistic. We tend to be a little more realist and a little more wait and see as well. But I would say the elasticity in the supply chain from a supply perspective feels very fragile to us. It doesn't feel like a lot there, and so we've seen that in pockets. And as we've seen, even small tightening is creating bigger ripples in the market than when it has historically. I think regulations have had an impact on that. And so that's what I mean when I say fragile. Just a little bit of an uptick in demand. I don't think there's a lot of elasticity left in supply. And so that uptick in demand could create an environment that's different than what we've seen in the last several years. Having said that, we're not gonna hold our breath. Why we've said we're gonna take care of what we do and really focus on what we're good at, take market share, and be a disciplined growth company. Maybe I'll turn it over to any of those guests that want to comment. Spencer Frazier: Yeah. Hey, Brian. Thanks for the question. You know, Shelley, you referenced some comments that Nick made. I will also do that. Really from a demand perspective. Nick, you talked about in the bid season, we're winning. We continue to win. We're winning and taking share. So are our customers. They're winning as well. And so as I think about kind of the momentum from Thanksgiving through the end of the year and also while the first two weeks don't make the year, demand is solid. Really across all of our services. And I think that's reflective of some of the work that we've done, some of the bid strategies and approach to the market we've had. Really for the prior six months. And so from that perspective, I think demand is okay, but I think it's somewhat unique to J.B. Hunt Transport Services, Inc. and our approach to the market. The other thing I want to make mention of is, you know, we talk about our customers. You know, they went through a lot last year. They've got a lot of pressure. I've used words like they're gonna believe a change when they see it. But I also want to talk about their supply chains. Their inventories are lean. Their supply chains are executing extremely well. And they've got agility to run their business to meet their sales plans. They're leaning in then to the carriers like us that can match operational plans to help them out. So I believe that's why we're taking share. It all connects back to operational excellence. And we're gonna keep running that play. And then, you know, Shelley, your point about it being fragile, I think the market is fragile. It's vulnerable to change. You know? The prediction of when that tipping point is going to occur, everybody's missed that forecast for the last several years. But our customers are aware that if a tipping point does occur, that the really the industry has been uninvestable and needs to have dramatic change when that happens. So we're going at the market, working with our customers, and just preparing for all scenarios. Operator: The next question will come from Chris Wetherbee with Wells Fargo. Please go ahead. Chris Wetherbee: Hey, Good afternoon, guys. Hey, Maybe we could start on the cost side, kind of obviously made some progress there, $25 million kind of at the annual run rate of around $100 million, which was the target when you laid it out previously. So I guess as we think about 2026, I know you don't want to kind of put the cart before the horse, but how do we think about the progress? What is the opportunity for you in 2026 on the cost side? Brad Delco: Yeah. Chris, I think there was a blinker on that I sort of anticipated it. I mean, listen, my comments can tell that we've been off to a good start on this lowering our cost to serve initiative. You know, we said we and we committed. We give you guys some updates. You know, I think if you really peel back the onion on each of the segments' performance in some segments with down revenue and some segments with down volume, with, of course, knowledge of the pricing environment not being very robust in 2025, you know, I think you could probably parse out that we've been very successful executing on a lot of different cost initiatives around efficiency and productivity. And those are things that we sort of called out that we thought were not part of our lowering the cost to serve. So I think the proof is in the results that we've probably been executing above sort of what we've been stating. But it's also eating away at some of the inflationary pressure we've been feeling. Certainly on the insurance side, that continues to be a topic of discussion. Obviously, we continue to invest in our people with wages and merit. And so, as we're facing these inflationary cost pressures, what I want to call a pricing environment that's not covering inflation in order to drive the earnings improvement that we did. I mean, we're hitting on a lot of the cylinders. Going forward, I mean, I think it's fair to assume that we're going to be executing above the $100 million target. I don't think we're prepared right now to give you a number. We had some headwinds on some cost items and things that we incurred in the fourth quarter that we know won't repeat going forward. And so that gives me some confidence that we'll continue to build. I think Shelley used the word momentum. And we'll update you guys going forward at the appropriate time when we want to raise that number. Operator: The next question will come from John Chappell with Evercore ISI. Please go ahead. John Chappell: Thank you. Good afternoon. Darren, there's a lot of commentary about Thanksgiving to the end of the year being robust. But, you know, on the other hand, Spencer said most of your customers are viewing things as kind of temporary or seasonal. So exit rate seems better. And as we think about the timing of peak season, when would we need to see kind of this continuation of the last six weeks holding into? Is it a February event that's better than seasonal and that gives you a little bit of tailwind behind your back? Or does it have to go through kind of March and April until kind of prove the sustainability and give you a bit more bit between your teeth as you go for price? Darren Field: Okay. Well, I think intermodal's to that question may be slightly different than parts of our highway other transactional businesses. I think intermodal's experience normal seasonality in the first quarter. Shift from the fourth quarter, a little bit of downturn from some retailers. I think that we are aligned with customers that are winning business, and we continue to be really encouraged by forecast feedback that we get from our customers and additional opportunities to grow our business and take share off the highway to Intermodal. But in terms of the seasonality of strength specifically, from peak season or kind of Christmas shopping season, you know, every year has been a little bit different over the last four or five years. As we get into February and March, I think we'd have a better opportunity to understand what's going on there. But we're encouraged by what we've seen so far in January. Nick Hobbs: I'll just take it from the other part of the transactional bit. Other partners, Nick, so I'll talk about the ICS and truck. I think we need to see what demand is going to do as Spencer said and Darren, I think we've been taking some market share. If you look at other indexes out there, it says the market's down compared to this time last year. And yet we're gaining volume. So feel good about that. But before we talk about rates and some of that, we gotta see some consistency in the overall market. And not just our volumes. So probably a few more weeks. Shelley Simpson: And I would say, I mean, you hear a cautious tone from us because we've had some false starts. And so there's been some things that are in our control, a lot has been outside of our control. And that's why you're hearing us be more cautionary. I think we do have encouragement the things that we're seeing, but we want to wait and see what happens. We want to finish up at least January and February and see what happens there. And, also, we want to wait and continue to get customer feedback. This is our season where we spend a lot of time with customers over the next month. We'll get a chance to hear what they're thinking. Are their forecasts changing? Does the demand set? We need demand to continue to move up. And with demand moving up, with that fragility in the supply side, I think, you know, that could be a good opportunity for us to think about things differently. Brad Delco: Hey, John. This is Brad. I feel like I got to add here, too. I mean, clearly, we're the first out of the gate to report, and it's still early relatively early in January. I remember sitting here a year ago, we were feeling at least or seeing some signs of tightness in the market. Now the difference was, I remember a year ago, the January, we had a whole bunch of weather. So what is different is we haven't had as much of a weather disruption thus far in January, and things still feel pretty good. I think you guys should be picking up on that. I think demand is, I think we're staying solid or okay. You know, we're not saying robust. And capacity feels still pretty tight, and we're it's January 15. So let's let this settle and bake a little bit longer before we get out ahead of our skis and give any expectations of what we think that might mean for market pricing and rate. Operator: The next question will come from Scott Group with Wolfe Research. Please go ahead. Scott Group: Hey, Thanks. Thanks. Afternoon. So Darren, I think you said on the path to margin restoration, you feel good about the cost side and less certain at this point about volume and price. I guess, is there one side of that equation you feel better about? And I think you also said, like, there's no change in your bid strategy this year versus last year. I guess, why not? Like, it doesn't feel like you got a lot of price last year. Like, why wouldn't this be a year where you think you could be a little bit more aggressive in getting some price? Darren Field: Well, all good. And I hope that as the year moves on, we're both talking about that pricing opportunity was in front of us. So far, we've got a number of questions as to whether or not what's gonna happen with the overall market. The early results are there, but the early part of the bid cycle is a lot of westbound business, lots of backhaul pricing going out the door. And it's competitive. I wouldn't say it's any more or less competitive than what is normal. It's just it's an environment out there that has created a world where we want to protect our backhaul business and we actually want to grow with it. So in that instance, we're utilizing our lower cost to serve as an opportunity to generate volume. And so when we talked about the idea of more of the same, more of the same just means not allowing an imbalance of our business to drive negative impacts to our margin. We have to sustain improvement in our margins. And by that, if we can utilize lower cost to serve to grow volume and continue to drive improvements from the volume, we're going to be doing that. And then meanwhile, we'll be talking to the head hauls about what a challenge it is to produce capacity in the head haul markets and look for ways that we can help solve their challenges as capacity begins to tighten. But certainly 2026, you're hearing it from us that we're a little bit hesitant to suggest that we think there's some big pricing opportunity, but we will be all quick to identify when we see the market shift in a manner that we think there is an opportunity to generate price. We're absolutely ready to try to work on that area. But we're cautious. So I'll leave it at that. Brad Hicks: Scott, I think you'll remember two years ago, we came out of peak season feeling confident. We did push price, came out of the gate really strong, and I feel like we were the only horse in the front. And so we had to change the second half for bid because the market didn't react. So we've done that. We're going to be prudent with what the market will give us. Our customers know that we have inflation, and they know that we're not happy with our margins. Now it's just down to timing, but we're not going to wait and sit back and just let all of this season go through without testing exactly what you're saying. So more of the same means that head haul markets, we're going to continue to push and walk our customers through the cost part of that. And then fill in that home line. So do you think we had a successful bid season from that perspective? We can repeat that and then start to fund those opportunities. We can challenge the price. I think we're gonna have a successful bid season. Operator: The next question will come from Brady Lares with Stephens. Please go ahead. Brady Lares: Hey, Hey, great. Hey, Brad. Thanks. Thanks for taking our questions. I wanted to ask about Dedicated. You mentioned truck sales were almost 400 during the quarter, which would put you near the high end of your annual target. So when you look ahead to '26, how does the recent tighter capacity freight market impact your expectations for dedicated sales? Are you seeing any improvement in the pipeline year to date, or is it just too early? Brad Hicks: Thanks, Brady. This is Brad Hicks. You know, great question, and I think it's probably a little too early to see the outward view. But what I would say is that, you know, the 385 in the quarter is real close to what our expectations are. We're never satisfied. It's never enough, but we're very proud of the year we had and then closing with the strongest quarter in the year should give us some momentum coming into '26. We have high expectations to grow regardless of the environment or the market conditions. It has been harder though. I mean, the last two or three years, it's been more difficult. There's been more competition. There's been a lot of inflationary costs that we've overcome. Super proud of where our margins were, industry-leading double digits. And that's not been easy. And so you think about what Darren was saying on cost to serve to over things, that's largely where our focus was throughout '25. To hang on to the great margins that we've had. I'm super excited about as we turn into 2026. The last thing I'll say is in my experience, dedicated is always kind of the last area of the supply chain still feels some of the squeeze or the pressure from our customers. You know, it works its way. First and foremost in truckload and then it finds its way in intermodal. And then there's pressure to defend and maintain and renew the business that we have. I kind of feel like maybe we're there. So that gives me optimism as we go deeper into '26. One more great data point that I didn't share in my prepared comments, we did have a record year in terms of new customer names. So new names in our portfolio. We sold 40 new brand new customers, that's not all of our sales. Some of our sales inside of twenty five were with customers we already had some business within Dedicated. The 40 new names also gives me a great promise for the work that we've done, the investments we've made, in prospecting. We certainly want suites to be larger on average than what we saw in '25. Some of that I think is representative of the macroeconomic environment that we faced. Again, 40 new names is a record for us and that even includes our pretty remarkable COVID years where we had 2,500 plus trucks of growth. Operator: The next question will come from Rich Harnain with Deutsche Bank. Please go ahead. Rich Harnain: Hey, Richa. Thanks, team. Hey. So, yes, I wanted to ask a little more about the cost savings and lowering your cost to serve, you've clearly done a great job on. Brad, you spoke to some big bucket items of what you're gonna attack in 2026. You know, whether it's your service efficiency, balancing your network, dynamically serving your customers, monitoring your discretionary spend. And I think you said, you know, driving utilization. But maybe you can give us some more thoughts on, like, what is what does all that mean? What are some initiatives you have in the hopper to really take that $100 million plus further? And then I'm gonna I'm gonna try on this one. You know, just, like, looking at all the efficiency and some of the tailwinds y'all spoke to that are kinda unique to you and how you've managed to do pretty well starting out in 2026 in terms of, I think, comment was in the first two weeks things feel pretty good. How should we be thinking about Q1? Typically, you see something like an 18% decline in EPS into 2026, but given some of those tailwinds, could we see something better than that? To start the year? Brad Delco: I'll certainly take the bait and answer the first part of that question. The second part certainly sounds very guidance heavy and I remember us making some comments like that a year ago which I'm not necessarily gonna repeat. But specific to the question on lowering our cost to serve, when you turn to from a New Year twelve thirty-one to one one, what are the incremental opportunities? It's all the things that I had in my prepared remarks and you took good notes because you read them back to me. But I would say the incremental things are still driving efficiency in terms of the work we can do with our overhead and our people. We talked about scaling into our investments. Certainly, there's renewals with all sorts of different products and services that we buy. And so challenging ourselves on what are the some of the things we can do. I think we continue to make really good progress on some of our maintenance initiatives that tended to have a little bit of a longer tail before we can fully realize the full benefits of some of those. And so I think those are still some of the big buckets. But I think this is a team that has not well, they've seen a lot of success from all the work. And I think there's still a lot of motivation to go out there and challenge ourselves on what more we can do to continue to drive our costs lower. To allow us to be more competitive in the market to accelerate our growth. And I think you've heard Darren talk about it and the rest of the team. You know, we want to be a disciplined growth company, and the only way to accelerate our growth is to make sure that we can be very cost competitive and provide an excellent service. And I think staying focused on all those things should be a nice tailwind to the momentum that we've already built and hopefully leads us in a good direction generally in 2026. To your comment about fourth quarter and first quarter, I'm not going to give you a specific range, but I mean, you've been around transportation more than five minutes, you generally know first quarter is usually the toughest quarter. It's what we disclose in our filings and you know, typically, see things improve from there. So to see market tightness in the first quarter is unique, and we'll just see how what we've seen plays out the rest of the quarter. Shelley Simpson: Let's begin. That if you look at the bigger, more strategic items that we're working on, they're not necessarily in our $100 million lowering our cost to serve. And so Nick and Stuart are really helping lead along with you, Brad, some of the work that we're reimagining. With our people and how can technology really empower our teams. And so we have one big initiative in intermodal and how we're thinking about that really from the way that order comes in all the way to completion. And we also have another big initiative in quote to cash. And I think that will give us a lot of different opportunities. You'll see some of that will even talk about that here as we progress through the year. That's just a couple of bigger ideas, but I would tell you technology. We have I think Stuart's done a nice job really rethinking what we should be doing, how we leverage our technology, how we deploy AI as part of that process. And I think that'll be something that we'll be able to talk about as the year progresses. Operator: The next question will come from Dan Moore with Baird. Please go ahead. Dan Moore: Good evening, everybody. Hey, guys. Appreciate the time and opportunity to ask a question here. I think maybe one of the worst kept secrets for 2026 is this general idea that we're gonna have some fairly healthy tailwinds related to tax rebate season. Estimates are kind of all over the map, anywhere from, you know, a hundred billion to as much as a hundred and sixty billion in tailwinds. Those should land between March and April and May. My question to you is, how are your customers thinking about that, preparing for that? Responding proactively to that, and then if you could remind us the percentage of the broader book of business, just kind of how it it renews from a contract standpoint as we move through the year as a percent of the total. That's it. Thank you. Spencer Frazier: Hey, Dan, this is Spencer. You know, our customers, we talk to them about their 2020 planning. Really leading into this year. And I think you're right on the money. With their optimism about really the potential continued strength of the consumer. Think if you look back at any data from November and December, macro data reporting as well as retail sales, they had a solid year-end finish. And so as the consumer might have a little bit of a tailwind from the refunds as well as other policy changes. I know our customers are gonna be there to serve them. And have the right products that they can sell through. I do think as well again, as I said earlier, their inventories are pretty lean right now. And they're wanting to make sure they've got the right products at the right time. For every customer and to serve them through every channel. So you know, we're going to work with them to make sure we understand their forecast. That's a big thing. I do think they got a lot better last year in forecasting and also their award compliance with us. And so we're talking to them right now about how the rest of Q1 is going to shake out. And any other changes that they have as we go through the winter season into the spring lawn and garden and then obviously through the summer. So you know, we're optimistic about what the American consumer can do. And also, just want to make it one other or two other comments. I mentioned how we're winning. I want to specifically call out our cross-border Mexico business. We've had solid double-digit growth there throughout 2025. And continued momentum with our customers going into 2026. And then one other area that we don't talk about, Nick, I think you might have said it, but you know, a truck line and JBT to have three consecutive quarters of double-digit volume growth. I think that's pretty solid too. So that just gives you an example, Dan, of how we're positioning ourselves to be able to serve our customers as they're serving their customers and growing their business. Then I'll let Darren talk about the other part of the question. Darren Field: Sure, Dan. I mean, we've said this before. This is we call it about 10% of the book implements new pricing in the fourth quarter of each year, and then the rest of the quarters are roughly even at about 30% each. Look, there's some error there. Call it plus or minus 5% in any one of those quarters, but that's a good rule of thumb and that's what we shared in the past and that's pretty close to what it lines up with year in and year out. Shelley Simpson: And maybe one more comment, Spencer, I've heard you say the customers that are winning are more optimistic. We see them really thinking about forecast, we're working more closely with them. And I think that's what has us make these comments is the customers that are winning do feel some of those tailwinds. I think they're planning on those and like we're planning with them as a result. Operator: The next question will come from Ken Hoexter with Bank of America. Please go ahead. Ken Hoexter: Hey, great. Good afternoon. Big data on the market. Hey, Brett. Picture on the market, Shelley, you mentioned capacity is coming out. ICS is now adding providers back in. Obviously, you went through some theft issues that you wanted to eliminate carriers. So maybe just talk about that balance. Are we seeing that sustainably? Are you seeing that in terms of the capacity come out? And stay out as we now move into the New Year? And then just on the fragile comment, is that a comment that fragile you're leaning toward the upside? I just want to understand your fragility view on that demand commentary. Thanks. Nick Hobbs: Yes, Ken, this is Nick. I'll talk about the carriers. We're seeing in ICS is, yeah, we did screen out a lot of carriers, did a lot of thorough put some new software and technology in. And pushed a lot out. We're starting to let some back in. After they go through further compliance. But we also changed kinda who we're going. We're going more midsize small to mid, not micro. ICS. So we've changed it. We're going after the carriers to get us more capacity. That's been the thing there. But we're clearly seeing between visa policies and immigration, capacity is definitely tighter. And, we see capacity going out particularly on the teams seeing it's really hard right now. I think that impacted the nondom impacted that more along with the reefers seem to be very tight right now. More so than others. We continue to see carriers go out. There are bankruptcies and just all kinds of things. So clearly, the carrier capacity from everything we're seeing is going out. Even though we're bringing some back in, we just did. But in both yes. In both ICS and JBT, we're seeing that across the board. Shelley Simpson: Again, and the whole word around fragile, really is a positive. So you know, we've done this business a long time. We've all been here. Management team has been here on average twenty-five years at J.B. Hunt Transport Services, Inc. We've seen a lot of cycles. And in this cycle, when you see rejection rates with customers still hovering close to 10%, which is elevated. So you see the demand side a little better, but you see supply really still tighter than it should be. That's a fragile market for our customers. So that's in the industry. And how we want to think about how we take advantage of that. If the market is fragile, if we're having customers call us to say, this pocket is tighter than what I expected or this area. That's really what we're starting to see. That does not mean that we think it's going to be tight this whole year. It's too early for us to call any of that. We've seen a lot of false starts. We just know that there's not a lot of elasticity. We saw that in the last six weeks of the year. Where the tightness and the pockets. Look at the margins that are happening in both ICS and JBT really struggled from a gross margin percentage, and that's because of what was happening on the supply side. Customers had a little more demand and boom, that really created a better environment. Now that didn't last it has to last longer than six weeks. It has to last longer. Really, to the earlier question, like, how long does it have to last? Well, certainly for us this time it's have to last a little bit longer than it would have had to in the past. Just to make sure that we think that we're going to call it right. But it's fragile and that's in a positive way. Operator: The next question will come from Bascome Majors with Susquehanna. Please go ahead. Bascome Majors: Hey, good afternoon. Thanks for taking my questions. You guys have been pretty candid on customers maybe having a more optimistic view about the capacity situation and your fragile view to use your word. You know, how has the rapid escalation in the spot rates in purchase transportation calls, you know, maybe changed the way around the edges that you're approaching this year and managing your business? I mean, are there moves you're making that you wouldn't have otherwise made to maybe capture some of that on the revenue side or mitigate some of the cost on the purchase transportation side? Nick Hobbs: Yep. Bascome, this is Nick. I'll take that. Yeah. We're absolutely we're trying to get in the spot market and play in this spot market as much as we can. So that's just a play in our playbook that we've had for many years. So we see that, we try to have the opportunity to jump in there. So we clearly all over the spot market trying to do that in our spot loads are going up. And so we're trying to take advantage of that. Particularly where we know we can cover the load and still operate it safely and on time. So, yep, we're doing that. Spencer Frazier: Yeah. And, Bascome. I'll just talk about the revenue part of your question. You know, we've got a say new culture around here. We honor our commitments to our customers. We did that throughout the fourth quarter. And we're doing it today. And with that reputation, and again, it goes back to operational excellence, we become the go-to when tender rejections go up. When routing guides begin to fail. And we saw some of those opportunities really take place at the tail end of Q4 and they're taking place today. So from a revenue perspective, we're going to be there for our customers when others aren't. And that's part of our ability to gain share. Nick Hobbs: And I'll just say the mini bids are active right now, and we like to participate in those and the we process a little bit better typically. And so those give us different opportunities to price differently and take advantage of the market as we see it today. Operator: The next question will come from Ravi Shanker with Morgan Stanley. Please go ahead. Ravi Shanker: Great. Thanks, afternoon everyone. Apologies if I missed this. But what are contract renewals running at in ICS? And also, as you look ahead to '26, hopefully, you guys are being conservative, and we do have an up cycle. How are your customers thinking about using JBT ICS to meet their incremental capacity? Needs, in an up cycle. Thank you. Nick Hobbs: Yep. Thanks, Ravi. This is Nick. I'll take that. And I would just say that our customers, we're seeing demand across the board. You can see our volumes are clearly up. In the truck line, so customers are clearly leaning in over there on the asset side. But think if you could see under the covers a little bit in ICS, there's a lot of demand coming in there. We've had some losses earlier, in '25. We'll be lapping here before long, so you'll see tremendous growth in ICS. So they're really leaning in on both sides of that. And your first question, he wanted to give guidance on pricing, which Ravi, appreciate it, but we're not gonna comment. I mean, clearly, we're gonna get as much as we can. This goes back to even Scott's earlier question. Like, I know Darren answered that question very eloquently, but at the end of the day, we need to focus on operational excellence. We want to grow. We want to be very disciplined with our growth. We're gonna get as much pricing as the market will allow us and try to be fair and balanced in light of all the inflationary costs that we're being hit with. So but not yet ready to necessarily signal to the world what we think price what pricing is gonna do this year. Operator: This concludes our question and answer session. I would like to turn the conference back over to Ms. Shelley Simpson for any closing remarks. Shelley Simpson: Thank you. As we wrap up today, I just want to highlight our progress and outlook because over the last year, our team has demonstrated agility and discipline. We have driven operational excellence, record-breaking safety, record-breaking service, and that is setting us apart. We've advanced our strategic priorities and that's positioned us for sustainable growth. And that also provides us with a competitive advantage that we think we'll get to capture here in 2026. Because our customers, they're choosing us because they trust us and they trust our reliability. Financially, we remain disciplined. We're maintaining a strong balance sheet and executing record share repurchases that's supporting shareholder value. So looking into 2026, you've heard us say our focus is on disciplined growth. When we do that, it's going to take care of us leveraging our investments and we're going to continue to repair our margins and drive shareholder value. So we're not standing by waiting for circumstances to improve. We're taking charge. We're making them better. Ourselves. Our growth isn't something that's dictated by the market. It's a direct result of our team's initiative and our drive. We're on the offense. We're creating new opportunities and defining what's possible. So I'm confident in our strategy, ability to deliver in the year ahead. Super, super, super proud of this team and the 32,000 people that are working hard every day on behalf of our customers and our shareholders, they have delivered in a really tough environment and looking forward to 2026. Thanks for joining us today. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Jeff Su: Good afternoon, everyone, and welcome to TSMC's Fourth Quarter 2025 Earnings Conference and Conference Call. My name is Jeff Su, TSMC's Director of Investor Relations and your host for today. Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials. If you are joining us through the conference call, your dial-in lines are in listen-only mode. The format for today's event will be as follows: First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the fourth quarter 2025, followed by our guidance for the first quarter 2026. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. Wei, will jointly provide the company's key messages. Then we will open both the floor and the line for the question-and-answer session. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our press release. And now I would like to turn the microphone over to TSMC's CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance. Jen-Chau Huang: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for the fourth quarter of 2025 and a recap of full year 2025. After that, I will provide the guidance for the first quarter of 2026. Fourth quarter revenue increased 5.7% sequentially in NT, supported by strong demand for our leading-edge process technologies. In U.S. dollar terms, revenue increased 1.9% sequentially to TWD 33.7 billion, slightly ahead of our fourth quarter guidance. Gross margin increased by 2.8 percentage points sequentially to 62.3%, primarily due to cost improvement efforts, favorable foreign exchange rate and high capacity utilization rate. The operating expenses accounted for 8.4% of net revenue compared to 8.9% in the third quarter of '25 due to operating leverage. Thus, operating margin increased sequentially by 3.4 percentage points to 54%. Overall, our fourth quarter EPS was TWD 19.5 and ROE was 38.8%. Now let's move on to revenue by technology. 3-nanometer process technology contributed of 28% of wafer revenue in the fourth quarter, while 5-nanometer and 7-nanometer accounted for 35% and 14%, respectively. Advanced technologies, defined as 7-nanometer and below, accounted for 77% of wafer revenue. On a full year basis, 3-nanometer revenue contribution came in at 24% of 2025 wafer revenue, 5-nanometer, 36% and 7-nanometer, 14%. Advanced technologies accounted for 74% of total wafer revenue, up from 69% in 2024. Moving on to revenue contribution by platform. HPC increased 4% quarter-over-quarter to account for 55% of our fourth quarter revenue. Smartphone increased 11% to account for 32%. IoT increased 3% to account for 5%. Automotive decreased 1% to account for 5%, while DCE decreased 22% to account for 1%. On a full year basis, HPC increased 48% year-over-year. Smartphone, IoT and automotive increased by 11%, 15% and 34%, respectively, in 2025, while DCE remains flat. Overall, HPC accounted for 58% of our 2025 revenue. Smartphone accounted for 29%. IoT accounted for 5%, automotive accounted for 5% and DCE accounted for 1%. Moving on to the balance sheet. We ended the fourth quarter with cash and marketable securities of TWD 3.1 trillion or USD 98 billion. On the liability side, current liabilities increased by TWD 182 billion quarter-over-quarter, mainly due to the increase of TWD 95 billion in accrued liabilities and others and the increase of TWD 61 billion from the reclassification of bonds payable to current portion. In terms of financial ratios, accounts receivable days increased by 1 day to 26 days. Inventory days remained steady at 74 days. Regarding cash flow and CapEx, during the fourth quarter, we generated about TWD 726 billion in cash from operations, spent TWD 357 billion in CapEx and distributed TWD 130 billion for first quarter '25 cash dividend. Overall, our cash balance increased TWD 297 billion to TWD 2.8 trillion at the end of the quarter. In U.S. dollar terms, our fourth quarter capital expenditures totaled TWD 11.5 billion. Now let's look at the recap of our performance in 2025. Thanks to the strong demand for our leading-edge process technologies, we continue to outperform the foundry industry in 2025. Our revenue increased 35.9% in U.S. dollar terms to TWD 122 billion or increased 31.6% in NT dollar terms to TWD 3.8 trillion. Gross margin increased 3.8 percentage points to 59.9%, mainly reflecting a higher capacity utilization rate and cost improvement efforts, partially offset by an unfavorable foreign exchange rate and margin dilution from our overseas fabs. With operating leverage, our operating margin increased 5.1 percentage points to 50.8%. Overall, full year EPS increased 46.4% to TWD 66.25 and ROE increased 5.1 percentage points to 35.4%. In 2025, we generated TWD 2.3 trillion in operating cash flow, spent TWD 1.3 trillion or USD 40.9 billion on capital expenditures. As a result, free cash flow amounted to TWD 1 trillion, up 15.2% from 2024. Meanwhile, we paid TWD 467 billion in cash dividends in 2025, up 28.6% year-over-year as we continue to increase our cash dividend per share. TSMC shareholders received a total of TWD 18 cash dividend per share in 2025, up from TWD 14 in 2024, and they will receive at least TWD 23 per share in 2026. I have finished my financial summary. Now let's turn to our current quarter guidance. We expect our business to be supported by continued strong demand for our leading-edge process technologies. Based on the current business outlook, we expect our first quarter revenue to be between USD 34.6 billion and USD 35.8 billion, which represents a 4% sequential increase or a 38% year-over-year increase at the midpoint. Based on the exchange rate assumption of USD 1 to TWD 31.6, gross margin is expected to be between 63% and 65%, operating margin between 54% and 56%. Lastly, our effective tax rate was 16% in 2025. For 2026, we expect our effective tax rate to be between 17% and 18%. This concludes my financial presentation. Now let me turn to our key messages. I will start by talking about our fourth quarter '25 and first quarter '26 profitability. Compared to third quarter, our fourth quarter gross margin increased by 280 basis points sequentially to 62.3%, primarily due to cost improvement efforts, a more favorable foreign exchange rate and a higher overall capacity utilization rate. Compared to our fourth quarter guidance, our actual gross margin exceeded the high end of the range provided 3 months ago by 130 basis points, mainly as we delivered better-than-expected cost improvement efforts. In addition, the actual fourth quarter exchange rate was USD 1 to TWD 31.01 as compared to our guidance of USD 1 to TWD 30.6. We have just guided our first quarter gross margin to increase by 170 basis points to 64% at the midpoint, primarily driven by continued cost improvement efforts, including productivity gains and a higher overall capacity utilization rate, partially offset by continued dilution from our overseas fab. Looking at full year 2026, given the 6 factors, there are a few puts and takes I would like to share. On the one hand, we expect our overall utilization rate to moderately increase in 2026. N3 gross margin is expected to cross over to the corporate average sometime in 2026, and we continue to work hard to earn our value. In addition, we are leveraging our manufacturing excellence to drive greater productivity in our fabs to generate more wafer output. We are also increasing a cross-node capacity optimization, which includes flexible capacity support among N7, N5 and N3 nodes to support our profitability. On the other hand, as the scale of our overseas expansion grows, we continue to forecast the gross margin dilution from the ramp-up of overseas fabs in the next several years to be between 2% to 3% in the early stages and widen to 3% to 4% in the latter stages. Furthermore, the initial ramp-up of our 2-nanometer technology will start to dilute our gross margin in the second half of the year, and we expect between 2 to 3 percentage -- percent dilution for the full year of 2026. Finally, we have no control over the foreign exchange rate, but that may be another factor in 2026. Next, let me talk about our 2026 capital budget and depreciation. At TSMC, a higher level of capital expenditures is always correlated to the high-growth opportunities in the following years. With our strong technology leadership and differentiation, we are well positioned to capture the multiyear structural demand from the industry megatrends of 5G, AI and HPC. In 2025, we spent USD 40.9 billion as compared to USD 29.8 billion in 2024 as we began to raise our level of capital spending in anticipation of the growth that will follow in the future years. In 2026, we expect our capital budget to be between USD 52 billion and USD 56 billion as we continue to invest to support our customers' growth. About 70% to 80% of the 2026 capital budget will be allocated to advanced process technologies. About 10% will be spent for specialty technologies and about 10% to 20% will be spent for advanced packaging, testing, mask making and others. Our depreciation expense is expected to increase by high teens percentage year-over-year in 2026, mainly as we ramp our 2-nanometer technologies. Even as we invest in the future growth with this level of CapEx spending in 2026, we remain committed to delivering profitable growth to our shareholders. Finally, let me talk about TSMC's long-term profitability outlook. As a foundry, our biggest responsibility is to support our customers' growth, and we always view them as partners. Having said that, we are in a very capital-intensive business. In the last 5 years alone, our CapEx totaled USD 167 billion. Our R&D investments totaled USD 30 billion. Therefore, it is important for TSMC to earn a sustainable and healthy return as we continue to invest in leading -edge specialty and advanced packaging technologies to support our customers' growth. Today, we face increasing manufacturing cost challenges due to the rising cost of leading nodes. For example, the cost of tools are becoming more expensive and process complexity is increasing. As a result, the CapEx dollar required to build 1,000 wafer per month capacity of N2 is substantially higher than 1,000 wafer per month capacity for N3. The CapEx per k cost for A14 will be even higher. We also faced additional cost challenges from expansion of our global manufacturing footprint, new investments in specialty technologies and inflationary costs. These all lead to a higher level of CapEx spending. As a result, in the last 3 years, our CapEx dollars amount totaled USD 101 billion, but is expected to be significantly higher in the next 3 years. Having said that, we continue to work closely with our customers to plan our capacity while sticking to our disciplines to ensure a healthy overall capacity utilization rate through the cycle. Our pricing will remain strategic, not opportunistic to earn our value. We will work diligently with our suppliers to drive greater cost improvements. We will also leverage our manufacturing excellence to generate more wafer output and drive greater a cross node capacity optimization in our fab operations to support our profitability. By taking such actions, we believe a long-term gross margins of 56% and higher through the cycle is achievable, and we can earn an ROE of high 20s percent through the cycle. By earning a sustainable and healthy return, even as we shoulder a greater burden of CapEx investment for our customers, we can continue to invest in technology and capacity to support their growth while delivering long-term profitable growth to our shareholders. We also remain committed to a sustainable and steadily increasing cash dividends per share on both an annual and quarterly basis. Now let me turn the microphone over to C.C. C.C. Wei: Thank you, Wendell. Good afternoon, everybody. First, let me start with our 2026 outlook. In 2025, we observed robust AI-related demand throughout the whole year, while non-AI end market segment bottomed out and saw a mild recovery. Concluding 2025, the Foundry 2.0 industry, which we define as all logic wafer manufacturing, packaging, testing, mask making and others increased 16% year-over-year. Supported by our strong technology differentiation and broad customer base, TSMC's revenue increased 35.9% year-over-year in U.S. dollar terms, outperforming the Foundry 2.0 industry growth. Entering 2026, we understand there are uncertainties and risk from the potential impact of tariff policies and rising component prices, especially in consumer-related and price-sensitive end market segment. As such, we will be prudent in our business planning while focusing on the fundamentals of our business to further strengthen our competition position. We forecast the Foundry 2.0 industry to grow 14% year-over-year in 2026, supported by robust AI-related demand. Underpinned by strong demand for our leading-edge specialty and advanced packaging technologies, we are confident we can continue to outperform the industry growth. We expect 2026 to be another strong growth year for TSMC and forecast our full year revenue to increase by close to 30% in U.S. dollar terms. Next, let me talk about the AI demand and TSMC's long-term growth outlook. Recent development in the AI market continue to be very positive. Revenue from AI accelerator accounted for high teens percent of our total revenue in 2025. Looking ahead, we observe increasing AI model adoption across consumer, enterprise and sovereign AI segment. This is driving need for more and more computation, which supports the robust demand for leading-edge silicon. Our customers continue to provide us with a positive outlook. In addition, our customers' customers who are mainly the cloud service providers are also providing strong signals and reaching out directly to request the capacity to support their business. Thus, our conviction in the multiyear AI megatrend remains strong, and we believe the demand for semiconductor will continue to be very fundamental. As a foundry, our first responsibility is to fully support our customers with the most advanced technology and necessary capacity to unleash their innovations. To address the structural increase in the long-term market demand profile, TSMC works closely with our customer and our customers' customer to plan our capacity. This process is continuous and ongoing. In addition as process technology complexity increases, the engagement lead time with customers is now at least 2 to 3 years in advance. Internally, as we have said before, TSMC employs a disciplined capacity planning system to assess the market demand from both top-down and bottom-up approaches. We focus on the overall addressable megatrend to determine the appropriate capacity to build. Based on our assessment, we are preparing to increase our capacity and stepping out our CapEx investment to support our customers' future growth. We are also putting forward the existing fab schedule to the extent possible, both in Taiwan and in Arizona. We will also leverage our manufacturing excellence to drive greater productivity in our fabs to generate more output, convert N5 capacity to support N3 wherever necessary and focus on capacity optimization across node to maximize the support to our customers. Based on our planning framework, we raised our forecast for the revenue growth from AI accelerator to approach a mid- to high 50s percent CAGR for the 5 years period from 2024 to 2029. Underpinned by our technology differentiation and broad customer base, we now expect our overall long-term revenue growth to approach 25% CAGR in U.S. dollar terms for the 5-years period starting from 2024. While we expect AI accelerators to be the largest contributor in terms of our incremental revenue growth, our overall revenue growth will be fueled by all 4 of our growth platform, which are smartphone, HPC, IoT and automotive in the next several years. As the world's most reliable and effective capacity provider, we will continue to work closely with our customers to invest in leading-edge specialty and advanced packaging technologies to support their growth. We will also remain disciplined in our capacity planning approach to ensure we deliver profitable growth for our shareholders. Now let me talk about TSMC's global manufacturing footprint update. All our overseas decisions are based on our customers' need as they value some geographic flexibility and a necessary level of government support. This is also to maximize the value for our shareholders. With a strong collaboration and support from our leading U.S. customers and the U.S. federal, state and city government, we are speeding up our capacity expansion in Arizona and executing well to our plan. Our first fab has already successfully entered high-volume production in 4Q '24. Construction of our second fab is already complete and tool moving and installation is planned in 2026. Due to the strong demand from our customers, we are also putting forward the production schedule and now expect to enter high-volume manufacturing in the second half of 2027. Construction of our third fab has already started, and we are in the process of applying for permits to begin the construction of our fourth fab and first advanced packaging fab. Furthermore, we have just completed the purchase of a second large piece of land nearby to support our current expansion plan and provide more flexibility in response to the very strong multiyear AI-related demand. Our plan will enable TSMC to scale up an independent giga-fab cluster in Arizona to support the need of our leading-edge customers in smartphone, AI and HPC applications. Next, in Japan, thanks to the strong support from the Japan Central prefecture and the local government, our first specialty fab in Kumamoto has already started volume production in late 2024 with very good yield. The construction of our second fab has started and the technologies and ramp schedule will be based on our customers' need and market conditions. In Europe, we have received strong commitment from the European Commission and the German federal state and city government, construction of our specialty fab in Dresden, Germany is progressing in our plan. The ramp schedule will be based on our customers' need and market conditions. In Taiwan, with support from Taiwan government, we are preparing multiple ways of 2-nanometers fabs in both Hsinchu and Kaohsiung Science Park. We will continue to invest in leading edge and advanced packaging facilities in Taiwan over the next few years. By expanding our global footprint while continually invested in Taiwan, TSMC can continue to be better to be the trusted technology and capacity provider of the global logic industry for years to come. Last, let me talk about N2 and A16 status. Our 2-nanometer and A16 technologies lead the industry in addressing the insatiable demand for energy-efficient computing and almost all the innovators are working with TSMC. N2 successfully entered high-volume manufacturing in 4Q 2025, at both our Hsinchu and Kaohsiung site with good yield. We are seeing strong demand from smartphone and HPC AI applications and expect a fast ramp in 2026. With our strategy of continuous enhancement, we also introduced a N2P as an extension of N2 family. N2P features further performance and power benefits on top of N2 and volume production is scheduled for the second half of this year. We also introduced A16 featuring our best-in-class superpower rail or SPR. A16 is best suitable for specific HPC products with complex signal route and dense power delivery network. Volume production is on track for the second half 2026. We believe N2, N2P, A16 and its derivatives will propel our N2 family to be another large and long-lasting node for TSMC, while further extending our technology leadership position well into the future. This concludes our key message, and thank you for your attention. Jeff Su: Thank you, Wendell. Thank you, C.C. This does conclude our prepared statements. Jeff Su: [Operator Instructions] So now let's begin the question-and-answer session. I think we'll take the first few questions from the floor here. So why don't we start over here with Gokul Hariharan from JPMorgan. Gokul Hariharan: So C.C., it definitely feels like you have heard what your customers have said to you over the last 3, 4 months. Could you give us a little bit more color on what you're hearing from your customers' customers on demand because this is a very big step-up in the capacity commitment. There is definitely a lot of concern in the financial market, especially about whether we are in a bit of a bubble. And obviously, you are the one who is putting up all the capital in this industry. So you've definitely considered this very careful as well. So give us a little bit more detail in terms of what you're hearing from the customers and your views on the cycle, given if you think about typical semiconductor cycle, we've already probably lasted a little longer than usual cycles, but this is definitely doesn't feel like a typical semiconductor cycle. Jeff Su: Okay. Gokul, let me summarize your question for the benefit of those online and those in-person. So again, Gokul's question is really, he would like to hear C.C.'s views about the overall AI-related demand and the semiconductor cycle. So again, Gokul notes that as Wendell and you said, we are substantially stepping up our CapEx to support the customers. But he does say there is concerns about an AI bubble and risk. So part of Gokul's question is how -- what is the feedback? Any color we can share about what type of discussions and feedback we're getting from both customers and the customers' customers that C.C. mentioned. And how long do we think this cycle can last? C.C. Wei: Okay. Gokul, you essentially try to ask us, say, whether the AI demand is real or not. I'm also very nervous about it. You bet because we have to invest about USD 52 billion to USD 56 billion for the CapEx, right? If we didn't do it carefully, and that would be big disaster to TSMC for sure. So of course, I spend a lot of time in the last 3, 4 months talking to my customer and end customers' customer. I want to make sure that my customers demand are real. So I talked to those cloud service providers, all of them. The answer is that I'm quite satisfied with the answer. Actually, they show me the evidence that the AI really help their business. So they grow their business successfully and healthy in their financial return. So I also double check their financial status. They are very rich. That sounds much better than TSMC. So no doubt, I also asked specifically that what's application, right? I mean that's -- for one of the hyperscalers, they told me that, that helped their social media software. And so the customer continue to increase. So I believe that. And with our own experience in the AI application, we also help to our own fab to improve the productivity. As I mentioned, 1 time say that 1% or 2% productivity improvement, that is free to the TSMC. And that's where also our gross margin is a little bit satisfied even if this very high post period of time. And so all in all, I believe in my point of view, the AI is real, not only real, it's starting to grow into our daily life. And we believe that is kind of -- we call it AI megatrend, we certainly would believe that. So you -- another question is can the semiconductor industry to be good for 3, 4, 5 years in a row, I'd tell you the truth, I don't know. But I look at the AI, it looks like it's going to be like an endless, I mean, that for many years to come. No matter what, TSMC stick on the fundamental technology leadership, manufacturing excellence, and we work with customers to get their trust. And I think that fundamental thing position TSMC to be very good future growth, let me say that, 25% CAGR as we projected, and we used to be conservative. You know that. Gokul Hariharan: My second question is on the U.S. expansion. You're pulling in some of the capacity in response to customers. You're already starting planned for the Phase 4. There's a lot of media reports about TSMC, you might have to build more fabs in the U.S. How should we think about U.S. expansion in principle over the next few years? I think previously, you had talked about reaching 20% or even 30% of 2-nanometer capacity in the U.S. eventually, the total capacity would be in the U.S. Could you give us a little bit more detail about how that is progressing? And when could we get there in terms of the 30% or even 20% capacity? Jeff Su: Okay. So Gokul's second question is about our overseas expansion, particularly in the U.S. He knows that C.C. said, we are pulling in the schedule for fab 2 earlier. We're starting the application for the fourth fab. And so his question is partly around recent reports that we intend to build more fabs in Arizona. So his question is how should we or how is TSMC thinking about the future expansion in Arizona. And we have said in the past that around 30% of our 2-nanometer and more advanced capacity would be based in Arizona once we complete scaling out to this independent giga-fab cluster, so what is the time frame, more timetable for that? How quickly can we get there? C.C. Wei: That's a long question. We built a fab in Arizona, and we work hard. So today, everything, even the yield or defect density is almost equal to Taiwan. And due to the strong demand, as I just answered from the AI stronger, that's a megatrend. All my customer and AI customers in the U.S., so they ask a lot of support from the U.S. fab. So because of that, we have to speed up our fab expansion in Arizona. In Taiwan also actually, we increased most of the capacity in Taiwan. No doubt about it because this is the most adjacent one we can progress very well. In the U.S., we try to speed it up and the progress is very good. We got the help from the government. But still, we have to meet all the requirement for the permits, for those kind of things. And so both in Taiwan and in Arizona, we speeded up our capacity expansion to meet the AI demand. I can always say one word. The capacity is very tight. We work very hard to narrow the gap so far. Probably this year, next year, we have to work extremely hard to narrow the gap, okay? We just bought a second land in Arizona. That gives you a hint. That's what we plan to do because we need it. We are going to expand many fabs over there and this giga-fab cluster can help us to improve the productivity, to lower down the cost and to serve our customers in the U.S. better. Jeff Su: Okay. Thank you, Gokul. Let's move over here next to Laura Chen from Citibank, please. Chia Yi Chen: Thank you, C.C. and Wendell for very comprehensive outlook briefing and also congratulate for the great results. Of course, we see that the AI semiconductor growth has seen very strong growth. And I believe all of your customers and customers' customers very desperate to add more capacity support from TSMC. But I'm just wondering how does TSMC evaluate the potential power electricity supply for data center. So other than that, the chips we can discuss with our customers, I think for the overall infrastructure buildup for data center, a lot of factors also very important. Just want to understand more how does TSMC evaluate those key factors for the AI infrastructure buildup? That's my first question. Jeff Su: Okay. So Laura's first question is around the AI demand. She notes, again, as we said, AI megatrend and the growth is very strong and customers, customers' customers and ourselves are strong believers. But when we do our planning, how do we balance this against the other considerations? Do we look at things, for example, I think Laura's question is powering electricity grid availability to basically assess is this part of our -- included as part of our planning process, do we factor such things in? C.C. Wei: Well, Laura, let me tell you first. I worry about the electricity in Taiwan first. I need to have a lot of enough electricity, so I can start to expand the capacity without any limitation. But talking about build a lot of AI data center all over the world, I use one of my customers' customers I answer because I ask the same question. They told me that they plan this one 5, 6 years ago already. So as I said, those cloud service providers are smart, very smart. If I knew that, I will -- anyway. So they say that they work on the power supply 5, 6 years ago. So today, their message to me is silicon from TSMC is a bottleneck and ask me not to pay attention to all others because they have to solve the silicon bottleneck first. But indeed, we look at the power supply all over the world, especially in the U.S. Not only that, we also look at the who support those kind of power supply like a turbine, like the nuclear power plant, the plant or those kind of things. We also look at the supplier of the rack. We also look at the supplier of the cooling system, everything. So far, so good. So we have to work hard to narrow the gap between the demand and supply from TSMC. Did that answer your question? Chia Yi Chen: That's great to know that it will not be the constraint for the further AI developments. Yes. And my second question is on the leading-edge advanced packaging. And Wendell, can you remind us that what would be the revenue contribution last year for the advanced packaging overall? First of all, we see that -- I recall that in the past that the CapEx for leading-edge advanced packaging is roughly about 10%. Yes. But now it could be up to like 20%. So I'm just wondering that for the expansion, can you give us more detail about what kind of the plans you are looking for. Will you focus more on like 3DIC, SoIC? Or you also start to work on more advanced like panel based in the longer term? I also think before we talk about that, we'll work more closely with OSATs partner on the leading-edge advanced packaging. So just wondering what kind of the process will be the key expansion plan in the space. Jeff Su: Okay. So Laura's second question is more related to advanced packaging. What was the revenue contribution of what we call the back end, which is advanced packaging testing as a whole in 2025. And then she notes the CapEx, actually, this year, I believe, Wendell, we guided 10% to 20% of CapEx, which is the same as last year. But anyways, she wants to know what is the focus of this CapEx? Is it on 3DIC? Is it on SoIC packaging solutions, is on panel level? Sort of what is the key areas we're focusing on relative to the CapEx? Jen-Chau Huang: Okay. Laura, the revenue contribution last year from advanced packaging is close to 10%. It's about 8%. For this year, we expect it to be slightly over 10%. Okay. We expect it to grow in the next 5 years, higher or faster than the corporate. And the CapEx, yes, you're right, in the past, it's about 10%, lower than 10%. Now we're saying advanced packaging together with mask making and others accounted for between 10% to 20%. So you can see that the investment amount is higher. And we're investing in areas in advanced packaging where our customers need. So the areas that you mentioned, basically, we continue to invest. Jeff Su: Thank you, Wendell. Okay, let's move on to Charlie Chan from Morgan Stanley here. Charlie Chan: So first of all, amazing results and guidance. Congratulations to the management team. So my first question is about outside of AI, what do you see for those end markets, right? You talked about the memory costs, et cetera. So can you give us some your underlying assumption for PC shipments, smartphone shipments, et cetera? And also in your HPC, there are some other business like networking and general servers. Can you comment about the growth potential for those segments? Jeff Su: Okay. Charlie's first question is very specific. Well, generally, he wants to know about how do we see the non-AI demand, especially in the context where the certain component costs such as memory costs are rising. So he wants to know what do we see the impact on the PC and smartphone markets in terms of shipments. He's also asking very specifically, what about networking, what about general server, each of these different segments. C.C. Wei: Charlie, those -- although we say it's call non-AI, but actually that's related to AI, you know that, right? Because the networking processor, you still need to have AI data to scale up or scale out. Those are the networking switches or those kind of things still grow very strong. As for PC or the smartphone, to tell the truth, we expect higher memory price. So we expect the unit growth will be very minimal. But for TSMC, we did not feel our customer change their behavior. And we look at it and then we found out that we supply most of the high-end smartphones. The high-end smartphone is less sensitive to the memory price. So the demand is still strong. Using one sentence, I'd like to say we still try very hard to narrow the gap. We have to supply a lot of wafers to them also. Charlie Chan: I think that's very consistent with your 5-year CAGR outlook for all the 4 segments. And my second question is about the Intel's foundry competition. I think U.S. President seems to be very happy with Intel's recent progress. And even mentioned 2 of your key customers, right, NVIDIA, Apple may have a sound partnership with Intel Foundry. Should we concern about this so-called competition? And what TSMC can really do to mitigate or avoid potential market share loss at those key U.S. customers, not limited to the 2 customers I just mentioned. Jeff Su: Okay. So Charlie's second question is on the foundry competition and competition from a U.S. IDM. He knows U.S. President is very happy with the progress. A couple -- 2 of our key customers. He also was mentioned. So his question is fundamentally, is there a concern or risk going forward of market share loss for TSMC to our foundry competition? C.C. Wei: Well, kind of a simple question, I should say, no. Let me explain a little bit because in these days, it's not a money to help you to compete, right? I also like whoever you just mentioned, to invest on Intel, I like them to invest on TSMC also. But the most fundamental thing is let me share with you. Today's technology is so complicated. So once you want to design a very complete or advanced technology, it takes 2 to 3 years to fully utilize that technology. That's today's situation. And so after 2 to 3 years of preparation, you can design your product. Once you get your product being approved, it takes another 1 to 2 years to ramp it up. So we have a competitor, no doubt about it. That's a formidable competitor. But first, it takes time; two, we don't underestimate their progress. But are we afraid of it? For 30-some years, we're always in a competition with our competitors. So no, we have confidence to keep our business grow as we estimate. Jeff Su: Thank you, C.C. All right. Let's take the next 2 questions online in the interest of time. Operator, can we take the first call from the line, please? Operator: First question on the line, Macquarie. Yu Jang Lai: First, congrats, very strong performance. My first question is about the global capacity plan. Recently Taiwan local news report that TSMC could exit the 8-inch business and mature node, 12-inch to convert into the advanced packaging. And the investors is keen to know if this is true. And the decision is based on what kind of key factor, i.e. C.C. just mentioned about the power tightness or it's ROI concern? Jeff Su: Okay. So Arthur's first question is about basically mature node. Our strategy on mature node. He knows a local news has been reporting that TSMC is exiting 8-inch and 12-inch businesses and converting the capacity to advanced packaging. So he wants to know if this is true. And if so, what are the reasons behind the power constraints, ROI, et cetera, et cetera? C.C. Wei: Good question. Indeed, we reduced our 8-inch wafers capacity and 6-inch. But let me assure you that we support all our customers. We discuss with our customers and to do this kind of resources more flexible and more -- what is the word we say optimize, which I should. Optimize the resources to support our customer. But let me assure you also to my customer, well, we continue to support them. We will not let them down. If they have a good business, we continue to support that even in the 8-inch wafer business. Jeff Su: Okay. Arthur, do you have a second question? Yu Jang Lai: Yes. My second question is regarding the consumer and demand outlook. So C.C. also mentioned that the memory price actually inflation and he also pushing up the cost of the consumer electronics. So investors actually are concerned about the further demand softness in this year and next year or particularly next year. So can management comment about what your client or your clients' client, how to resolve this memory tightness or we call memory urgency issue? Jeff Su: Okay. So Arthur's second question is on the impact from the memory price increase and the demand softness. I believe this question really because C.C. already shared the impact this year. He wants to know what is the impact for 2027? C.C. Wei: For TSMC, no impact. As I just mentioned, most of my customers now focus on high-end smartphone or PCs. So those kind of demand has less sensitive to the components price. So they continue to give us a very healthy forecast this year and next year. Jeff Su: Okay. Thank you, C.C. All right. Let's -- operator, let's move on to the next participant from the line, please. Operator: Next one, Brett Simpson, Arete. Brett Simpson: My question is really on AI. I mean, TSMC has been supply constrained for your AI customers, I think, since 2024, and it sounds like 2026 is another year where we're going to see challenges. Do you think the CapEx you've laid out for this year. TWD 52 billion to TWD 56 billion, could that mean that we start to see supply and demand more in balance in 2027? Any thoughts there just in terms of how you're thinking about that capacity plan? And does it alleviate the supply bottlenecks that we see today? And as part of this, from a supply perspective, we hear TSMC is finding it quite challenging to develop enough engineering talent quick enough, both in the U.S. and in Taiwan. Can you talk more about this trend? And what's the scale of the labor shortage of foundry engineers at the moment? Jeff Su: Okay. So Brett's first question is related around AI and our capacity. So he notes, the supply looks to continue to be tight in 2026. But with the significant step-up in our CapEx to support the customers, TWD 52 billion to TWD 56 billion, do we expect the supply/demand or the gap, so to speak, to be more balanced in 2027? And then is engineering resources, fab engineers a constraint or a bottleneck for us in making these expansions, whether in Taiwan or the U.S.? C.C. Wei: Okay. Let me answer this question first. If you build a new fab, it takes 2 and 3 years -- 2 to 3 years to build a new fab. So even we start to spend the TWD 52 billion to TWD 56 billion, the contribution to this year almost none and to 2027, a little bit. So we actually are looking for 2028, 2029 supply. And we hope at that time that the gap will be narrow. For 2026 and 2027, we are focused on the short-term more output. Actually, our productivity continue to increase. Our people has an incentive because of one of the TSMC's incentive is to satisfy customer. It's not because of our financial results are good, but we want to let customer feel that TSMC is trusted that whenever, they have a good opportunity to grow, we will support it. So in 2026, 2027, for the short term, we focus on the productivity improvement, which we've done quite a good result because of, Wendell just mentioned that we can have a good financial result because of that. But that's not our incentive -- that's our incentive, but that's not our purpose. Our purpose is to support our customers. So 2026, 2027 for the short term, we are looking to improve our productivity. 2028, 2029, yes, we start to increase our CapEx significantly, and it will continue this way if the AI demand megatrend as we expected. Jeff Su: Brett -- thank you, C.C. Brett, do you have a second question? Brett Simpson: Yes, I do. That was very clear. I guess my second question is about pricing. And if I look at 2025, this was the second consecutive year where TSMC's wafer ASPs were up around 20%. And as leading edge becomes a bigger portion of the mix and also you feed through price increases. When we factor in the ramp of more expensive overseas fabs, is 20% ASP -- wafer ASP increases the new normal for TSMC? Typically, you have an annual price negotiation about this time of the year. And so I'm trying to understand how you project ASPs in '26. And is your March quarter guidance factoring in price increases at leading edge? Jeff Su: Okay. So Brett's question is on pricing. He notes that our -- which he looking at the blended wafer price is increasing close to 20% according to his estimates. Of course, that's blended both on price and mix, but it's a leading edge and also we have mentioned earning our value. So he wants to know is the new normal going forward? C.C. Wei: This is a tough question. I'll get the CFO to answer. Jen-Chau Huang: Okay. Every new node that we have a price. The price will increase. The blended ASP will increase I think they continue this way in the past and will continue with the way going forward. But Brett, I think you're asking about the contribution from pricing to the profitability. Now as we mentioned before, the profitability, there are 6 factors affecting the profitability. And price is just one of them. And of course, we continue trying to earn our value. But in fact, in the last few years, the pricing benefits to the profitability was just enough to cover the inflation cost from tools, equipment, materials, labor, et cetera. There are other factors contributing to the higher profitability. The first one will be a high utilization rate. As the demand is so high and as our disciplined approach to capacity planning, the utilization rate supports our high profitability. The other 1 will be our manufacturing excellence. As C.C. said, we continue to drive increasing productivity to generate more wafer output. Also, we continue to drive optimization capacity among nodes, which includes converting part of the N5 to N3. It also involves cross support from different nodes from the mature nodes to the more advanced nodes. That is a very important advantage of TSMC. So with all these efforts, we're able to maintain a good, healthy, sustainable return profitability so that we can continue to invest to support our customers' growth. Jeff Su: Okay. In the interest of time, we'll take 2 more questions from the floor and 1 more from the line. So we'll go here, Sunny Lin, UBS and then... Sunny Lin: Very strong results. Congratulations. So number one, if we look at the company, very different versus in the past from many angles. But if we look at the ramp from new node, now you can generate actually higher revenue from new node in year 4 or even year 5 of mass production versus in the past, new node like peak revenue in the second or even third year of mass production. And so could you help us understand what this new trend, what's the financial implications? And then what does that imply for you to operate or even compete differently versus in the past? Jeff Su: So Sunny's first question, I think maybe is related, well, to our technology differentiation, but she knows that when we ramp a new -- in the past, when we have a new node after a few years, sort of the revenue comes down a bit, but she notes that nowadays, we can still enjoy very high revenue from a node even after in its fourth or fifth year. So her question is what are the financial implications from this and also from a, I believe, competitive dynamics? C.C. Wei: If I can answer, say we are lucky. Actually, if you -- if you look at the semiconductors product, right now, the trend is you need to have a lower power consumption always and then high-speed performance. And for TSMC, our technology depreciation becomes more and more clear, we have both benefit. We have a high speed, and we have a low power consumption. And so our leading edge customer, the first wave, the second wave, the third wave continue to come and so that sustain the demand for a long, long time. That's a difference. Of course, this one, you need to have technology leadership, and which the technology leadership much easier to say. But every year, you have to improve. As we said, we have N2, N2P and then you won't be surprised, and the third one will be N2 something and continuously. And so that one give us the benefit and to support our customers continuous innovation. And so they continue to stay with TSMC. And so their product can be very competitive in the market. So that answers the question say that once we got the peak revenue and did not decrease, it's continuous because second wave, third wave customers continue to join. Sunny Lin: Thank you very much, C.C. And then maybe a question on 2 nanometer, which you should see meaningful revenue coming through in 2026. And so in the past, you guide like how much a new node will contribute to sales for the year. And so any expectations on the revenue contribution from 2-nanometer in 2026? And then I recall in terms of process migration, a few years ago, there were a lot of concerns on increasing cost per transistor. And that obviously is not declining from 5-nanometer? But then now looking at 2-nanometer, I think process migration seems to be reaccelerating even for smartphone and PC and then with larger demand coming from high-bandwidth compute. And so maybe based on your feedback from clients, maybe for smartphone and PC clients, why are they reaccelerating process migration into 2-nanometer? Jeff Su: Okay. So Sunny's second question very quickly in 2 parts, 2 nanometers, as we said, is a fast ramp in 2026, very strong customer interest and demand. So what -- do we have any revenue percentage to guide for in 2026? Jen-Chau Huang: Yes. Sunny, the 2-nanometer will be a bigger node than 3-nanometer from the start, okay? But it's less meaningful nowadays to talk about the percentage of revenue contribution when the new node starts because the corporate, as a whole, the revenue has become much bigger than before. So yes, revenue dollar, it's a bigger node. But percentage-wise, less meaningful. Jeff Su: Okay. And then the second part of Sunny's question from a technology perspective, as she noted increasing cost per transistor, as we said, CapEx per k going higher. So the question very simply, what's the value? What's driving smartphone, HPC customers actually to see -- we're seeing a widening out of the adoption of N2. So what is the value that is providing that the customers are willing to adopt N2? C.C. Wei: I already answered the question, right? Because now the whole product is looking for lower power consumption and high-speed performance. And our technology can provide that value. I also say that every year, we improve. So every year, they adopt the same -- even the same name of the same node, their products continue to improve. So that provides the value. It's -- if you say that the cost per transistor is increasing, I saw the cost per transistor, the performance compared to call the CP value is increased, is much better. So that customer stick with the TSMC. Our headache right now, if I can call it a headache, is a demand and supply gap. We need to work hard to narrow the gap. Jeff Su: Operator, can we take the last call from the line, and we'll take one last one from the floor. Operator: Next one, Krish Sankar, TD Cowen. Jeff Su: Okay. Krish, are you there? I guess not. Then let's just take the last -- not call -- sorry, the last question from Bruce Lu from Goldman Sachs. Zheng Lu: Thank you for letting me to ask the last question. Hopefully, it's not that difficult. So I think one of the key -- I understand that TSMC is trying very hard to increase the capacity. AI revenue is growing like 15% a year, 15% plus a year. But token consumption for the last few quarters is 15% a quarter. So the gap is still there, right? I mean that's why [indiscernible] was talking about the chip war. So can you share with us that in your assumption when you provide 50% plus AI revenue growth, what kind of token consumption you can support? And how many gigawatts power in terms of the chips you can support in your assumption when you provide this kind of 5 years revenue guidance for AI? Jeff Su: Okay. So Bruce's first question is around our AI CAGR. Actually, to be correct, we have guided for the AI CAGR to grow mid- to high 50s CAGR in the 5-year period from 2024 to 2029. So that is the official guidance we have provided just today. Bruce's question is, in this guidance, what is our assumption basically assuming about the token growth behind this type of CAGR? What is our assumption in terms of translating to how much gigawatts of data center can we support and other specific assumptions behind our guidance? C.C. Wei: Bruce, you got me. I mean that's -- I also try to understand what is the tokens of growth. But my customers, their product improvement continue to increase. So from -- it's a well-known from Hopper to Blackwell to Rubin, that almost double, triple their performance. So the one they can support the tokens of growth or the one they can continue to support the compute power is enormous. And so I lose the track to be frank with you. And for gigawatt, I want to see that how much of TSMC can make the money from the gigawatt rather than say that how much we can support. Today, from my point of view, still the bottleneck is TSMC's wafer supply. Not the power consumption, not yet. So we also look at carefully. To answer your question, say that TSMC's wafer can support how much of the gigawatt, still not enough. They still have abundant of power supply in the U.S. Zheng Lu: Okay. My next question is for the CapEx, right? I want to double check with what I just heard that C.C. was talking about like 2027, the CapEx will be more for the productivity improvement and '28, '29 may be meaningfully higher. So I do recall that in 2021, TSMC provided at 3 years for $100 billion CapEx to support that structural growth. Now the demand is even stronger. Based of that, can we do 3 years $200 billion of CapEx for the next 3 years. The math sounds doable. Jeff Su: Okay. So well, first, a clarification because C.C. was talking about this year, we have substantially stepping up our CapEx investment, but C.C. also mentioned it takes 2 to 3 years to build capacity. So in terms of -- Bruce's question, do we say 2027 significant step up in CapEx, I think we're saying it takes time to -- for that capacity to come out. So that's the first part. Jen-Chau Huang: Yes. I think Bruce, what C.C. said was the productivity was our main focus in '26 and '27 because when we start to invest the fab, the volume production will not come out until '28 and '29. So the dollar amount invested today is for 2 years or even in the future. And CapEx dollar amount, as I said, in the last 3 years, $101 billion in the next 3 years, significantly higher. I'm not going to share with you the number, but significantly higher. Jeff Su: So I think Wendell has addressed at least both parts of Bruce's question. Okay? So again, thank you. So again, thank you, everyone. This does conclude our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now. The transcript will become available 24 hours from now, and both are available or will be available through our TSMC's website at www.tsmc.com. So again, thank you, everyone, for taking the time to join us today. We certainly would like to wish everyone a Happy New Year. We hope everyone continues to stay well, and you will join us again next quarter. Thank you. Goodbye, and have a good day.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Haivision Fourth Quarter 2025 Earnings Call. [Operator Instructions]. I would now like to turn the call over to Mirko Wicha, President and Chief Financial Officer. Sir, please go ahead. Miroslav Wicha: Thank you, Tiffany. Just to make a correction, I am the Chief Executive Officer, Dan is the CFO, but that's okay. I will steal all his thunder anyways. So thank you, everyone, on the call for joining us today to discuss the fourth quarter of our fiscal year 2025, which ended October 31. As mentioned on our previous calls, we are now well into our 2-year strategic plan as we continue to deliver the double-digit revenue growth we have been promising. Today, I'm very happy to report that we achieved a Haivision record quarterly revenue in Q4, eclipsing $40 million for the first time ever in any quarter. We also delivered a 17.6% EBITDA margin performance. We have always said that to achieve 20% plus EBITDA performance, we will need to be at scale around $150 million, $160 million range. I believe we are very close to delivering on this target of the EBITDA range and demonstrate the full earnings potential of Haivision. Our continued double-digit revenue growth as part of our long-term plan to bring us to our historical CAGR growth rate of approximately 20% per year since the founding of Haivision. The focus this year and the next year is all about cementing the foundation for our long-term consistent high revenue growth. I believe we're in a good place right now and on the right path to deliver this long-term growth. We have seen the bottom of the revenue curve back in January '25, which is now over a year ago. And our key fundamental business model for the control room market, which was to move away from being an integrated to manufacturer has been complete for several quarters now. We are seeing a continued increase in our long-term sales pipeline. Our business forecast is compelling, and we are seeing strong demand in this market, not just in the U.S. but worldwide. As I also mentioned before, we have been investing in many new product development initiatives and introductions throughout 2025 and some which are yet to be announced. Back in May, if you remember, we launched the exciting next-generation AI-based hardware tactical edge processor for the defense, military and ISR markets called the Kraken X1 or the KX1. It has been extremely well received as it delivers incredible computing performance for AI-enabled encoding in real time, utilizing the latest NVIDIA chip technology. It's already creating lots of excitement within the ISR Defense community. We have also successfully showcased our next-generation transmitter platform called the Falkon X2 at the NAB show back in April and are now shipping the product in volume. The early demand is already outstripping our initially planned production, and we are increasing inventory supply chain significantly to handle the strong demand. In fact, the Falkon has been the most successful product launch in the history of the company and the product is performing very well in the field. Customers are embracing our innovations on 5G networks and more efficient MIMO antennas, especially in our European markets. The compact Falkon transmitter is changing the ball game for a single camera contribution in the market and upping the standard for quality. Now speaking of ball games, while we have been introducing the transmitter product line into our traditional Makito customers, we are by no means taking the focus off the very important fixed contribution part of our business. I'm very pleased to announce here today that Haivision has been selected as the official video encoder of Minor League Baseball. As a technology partner of Minor League Baseball, Makito will be playing a key role in contribution from Minor League stadiums and the delivery of over 8,000 games for streaming and TV. This partnership represents a major vote of confidence in Haivision from a globally recognized brand expands our reach into the world of baseball across North America. Our reputation driven by leadership across globally recognized brands like the SRT protocol, and Makito platform now joined by Falkon continues to strengthen in the industry and open amazing doors for Haivision. Now strategically, the company is landing landmark defense contracts, installing large multinational operational control in deployments, demonstrating clear leadership in private 5G networking and gaining industry recognition for our technology leadership. All these efforts are already bearing fruit as seen from our Q3 and now Q4 results and will continue throughout our fiscal '26 and beyond. Now let me try to be more clear and direct on why we are so bullish on our business for the foreseeable future, meaning at least the next 3 to 5-plus years. All and I mean all of our mission-critical focus markets are performing well, and we don't see any slowing down for quite a long time. Let me be more specific. Our mission business, which represents 2/3 of our revenue, we only see increased spending and growth for the next 5, 10 years within every defense, military and government in the world. This is not stopping, and Haivision is an important and trusted vendor providing solutions for this industry. Border security is only getting more attention, and it's not going to stop given what we see in the world today. Our products are the gold standard deployed globally in defense, military ISR and security operations. This is a market that will continue to grow for a long time, one that Haivision is also very strong in. The lease forces and emergency response teams everywhere need more reliable and secure platforms more than ever. Global unrest is unfortunately not slowing down and public safety is a massive future growth market. This is another big focus for Haivision technology and one that we're very successful in. In the controller market; enterprises, banks, utilities, military, governments are all in desperate need to install and implement sophisticated, powerful and secure monitoring systems to protect their assets, their people, their facilities and the ever-increasing levels of global cybersecurity threats. The need for centralized real-time secure video operational rooms is simply going to keep increasing for many years to come. It's not slowing down. This is another area where Haivision is positioned to be a global leader. In our broadcast vertical, which represents about 1/3 of our revenue, Haivision focuses actually the most coolest and exciting part, the live sports events and live news. These are the most exciting but fastest-growing areas within the large broadcast vertical. These are the areas that are responsible for all the money, advertising and it's only increasing and not slowing down. So Haivision is well positioned as a leader in both, the wired and wireless 5G space, providing the lowest latency, highest quality, most reliable and most secure video technology on the planet. This is what Haivision stands for. And this is what customers need and are asking for. The strong reputation of success of the Makito and SRT combined with the new private 5G Falkon provides a significant competitive advantage for Haivision for the foreseeable future. Thus, all our markets are bullish with no signs of slowing down anytime soon. Now this is why we are confident on our long-term potential and see double-digit revenue growth for years to come. I couldn't be happier with our record Q4 revenue performance and I would like to reiterate our continued focus and attention on revenue growth and higher profitability. In closing, I would just like to strongly reconfirm our fiscal 2026 guidance, which Dan will be able to discuss later, of delivering $150 million plus in revenue in 2026. Our plan is to maintain pretty much a flat OpEx over 2025 while delivering double-digit revenue growth, meaning and resulting in a 50%-plus increase to our overall EBITDA over 25% as our cost structure and gross margins are well in control. So double-digit EBITDA and double-digit revenue growth is what we expect for 2026 and well beyond. This is what we have been working hard towards the past 18 to 24 months, and we see this year as a significant inflection point for Haivision. Dan, please continue with the detailed financials. Dan Rabinowitz: Thank you, Mirko. Good evening, everyone, and thank you for joining us today. On our last call, I suggested that we are beginning to see the sales momentum reflected in our financial results. This quarter, we have solidified that position with our second consecutive quarter of double-digit revenue growth and very sound adjusted EBITDA margins. By all measures, our fourth quarter performance was compelling. So let's begin with the top line. Fourth quarter fiscal 2025 revenues were $40.2 million. That's up 33.3% or $10 million over last year. For the full fiscal year, revenue was $137.6 million. That exceeded the prior year by 6.2% or $8.1 million. We made up a lot of ground from the weak first quarter and the relative flattish second quarter, both Q3 and Q4 significantly exceeded prior year revenue levels. Exchange rates, which helped us in the first and second quarter by about 4%, normalized in the third and the fourth quarter and were -- and their impact was half of that of the first half. Thus, we're talking about solid organic growth in the second half of the year. Our year-over-year growth is even more impressive as revenue from our control room solutions, excluding third-party components are soundly surpassing last year's levels, which included those components. Control room sales for the year increased by over 35% whereas sales of third-party components declined by another 20%. Remember, the Navy contract is a legacy systems integration model and will continue to include third-party components. And given the nature of the business overall, we will not be able to avoid third-party components entirely. Our recurring revenue from maintenance and support contracts and cloud services continues to grow year-over-year. In our fourth quarter, recurring revenues were $7.3 million, that's up 8.6% year-over-year. For the full fiscal year, recurring revenues were $28.9 million, an increase of 10.2%, a rate higher than our full fiscal year revenue. Recurring revenues now represent about 21% of full year revenue and an even more impressive outcome considering the tremendous growth in product revenue we saw in fourth quarter. We expect to continue to see sound year-over-year growth in recurring revenue as total revenues continue to build. Recurring revenue is not only sticky, but provides stability. And combining recurring revenue with programmatic revenue, which includes multiyear deliveries, gives us really good visibility to overall fiscal year revenue. Gross margins in our fourth quarter were 73%, consistent with the prior year. Now gross margins are impacted by the overall magnitude of sales which enable us to leverage the fixed component of cost of sales like production labor, fixed technology licenses and reserve costs. And on the side, we typically see higher gross margins in our fourth quarter, which is commensurate with the U.S. government year-end and typically is the largest quarter in any given fiscal year. Now gross margins are also impacted by the timing of deliveries under our U.S. Navy contract as that Navy contract is a legacy systems integration contract, including certain third-party components. We also are impacted by seasonality in the mix of products shipped and software-only or virtual machine deployments, which have higher-than-average gross margins. On a year-to-date basis, margins were 72.5%, in line with our long-term expected average and only slightly below last year's rate of 73.1%. Total expenses this quarter were $25.4 million. That is up $3.6 million from last year. As had been communicated on prior calls, we made incremental investments in sales and marketing and research and development to exploit the opportunities that are presented to us and to groom the company for double-digit revenue growth. Thus, the main drivers to the quarterly increase in expenses include about $1.2 million in sales compensation, including variable compensation related to higher-than-expected revenues, roughly $1.1 million in additional R&D investments, consistent with our plan to add engineering resources for new products and business opportunities. Approximately $0.5 million is related to differences in foreign exchange rates and then another $400,000 from noncash share-based payments, which can vary based on the nature and the timing of those grants. Looking forward, this August will be our 5-year anniversary of the Haivision MCS acquisition. Thus, technology purchased as part of the acquisition will be fully amortized, reducing total expenses by about $600,000 per quarter. The following April will be the 5-year anniversary of Haivision France. Thus, technology purchased as part of the acquisition will be fully amortized, reducing total expenses by another $350,000 per quarter. With the exception of amortization expenses, which will decline and the timing of trade shows, which can shift from quarter-to-quarter, the underlying expense base is becoming relatively fixed. For the full year, expenses totaled $101 million, up $11.8 million from last year. The increase reflects a couple of things. $2.1 million comes from currency impacts. We have launched hedging programs on euro-denominated assets and liabilities to reduce the Canadian dollar exposure to such fluctuations. This is in addition to the hedging program for U.S.-denominated assets and liabilities. $1.7 million of the increase is a nonrecurring litigation expense related to the Vitec case. The reward represents just a fraction of their original claim. Now Vitec has appealed the judge's ruling. Nevertheless, we've already recorded the full liability, including damages interest and trial costs. $1.2 million of the increase is from noncash share-based payments, which can vary based on the nature and the timing of those grants. In some respects, these expenses, which make up $5 million in the increase when compared to prior year are outside of our control. But the remaining increase represents investments we chose to make. Normalized for the foreign exchange implications, we spent an incremental $2.9 million in operations and support, $1 million of which is related to our cost of our internal technology staff. The rest of the increase is largely people costs to support the numerous product introductions and the U.S. Navy deal. We spent an incremental $2.4 million in sales and marketing, again, largely in people costs, to facilitate our double-digit revenue growth initiatives. But you should note that variable compensation in fiscal year 2024 was not as buoyant as it was in fiscal year 2025. Thus, the year-over-year comparisons may not be completely fair. Variable compensation to the sales organization represented in and of itself about $1 million of the increase. We also spent $1.9 million in research and development largely in people cost and cost of materials to assist in product realization. Now as you've heard in past calls, these investments have resulted in some new products in 2025 and will secure the timely availability of new products in fiscal 2026 as well. So higher revenue in our fourth quarter contributed to an incremental $7.3 million of gross profit. And with expenses up only by $3.7 million, our operating profit was $3.9 million, exceeding last year by $3.6 million. And for the full fiscal year, the $8.1 million in incremental revenue resulted in incremental gross profit of $5.1 million. Thus, for the reasons outlined earlier, our total expenses rose by $11.8 million and our operating profit of $5.5 million -- I'm sorry, our operating loss for the year was $1.2 million compared to an operating profit of $5.5 million, which is a swing of $6.7 million. But as most of you know, we really focus on adjusted EBITDA as it gives us a clearer view of our performance by stripping out the noncash, the nonrecurring items like depreciation, amortization, share-based payments and the cost of legal settlements. So for Q4, our adjusted EBITDA was $7.1 million compared to only $2.9 million last year. That's an increase of $4.1 million or an impressive 140%. The adjusted EBITDA margin was 17.6%. Let me emphasize this point. Our adjusted EBITDA margin of 17.6% is very close to our long-term expectation of 20%. For the full fiscal year, adjusted EBITDA was $12.8 million compared to $17.3 million last year. We did make incremental investments as we've disclosed in previous con calls to exploit the opportunities and to prepare the business for growth in 2026 and beyond. We ended Q4 with $17.2 million in cash. That's an increase of $6.3 million from the end of last quarter. In addition, the amount outstanding on the line of credit declined by $5.2 million. Thus, the net increase in cash in the quarter was an impressive $11.6 million. The financial statement as presented don't show much of the increase in cash because we also purchased $4.9 million in shares for cancellation. We have been paying cash-based taxes of $1.5 million, and we have repaid loans for another $300,000. On that matter, I just want to remind everyone, in fiscal 2025, we actually purchased about 1 million shares for cancellation for an investment of $4.4 million. Over the last 2 NCIB programs, we purchased about 1.8 million shares for cancellation at a total investment of $8.1 million. Our credit facility remains strong at $35 million, with only $2.7 million outstanding at year-end, with room to expand if strategic opportunities arise. Total assets at year-end were $145 million. That's an increase of $3.7 million from the end of fiscal year 2024. The increase in assets is largely related to the $5.6 million increase in receivables, which is based on revenues and a $3.1 million increase in deferred income taxes. Now these were offset by the decrease in the value of goodwill and intangibles, largely the result of ongoing amortization and a decrease in the value of inventories. Just to note about inventories for a second. Yes, inventories decreased $1.6 million this year. But I'm also happy to say that inventories declined by $8.1 million since peaking in the second quarter of 2023. Total liabilities at quarter end were $47.5 million. That's an increase of $2.9 million. Now that increase is largely the result of an increase in payables by $3.2 million. Now to avoid the typical questions that we really -- we usually receive regarding tariffs. I want to remind everyone. Our proprietary products are covered by the USMCA trade agreement, there are no tariffs on products manufactured in Canada when sold into the U.S. Our next-generation transmitter products will be manufactured in North America, mitigating the impact of those 15% tariffs. We believe that we are well positioned and they actually have a competitive advantage compared to all our competitors, many of our competitors who manufacture their products overseas. Now in terms of projections, as Mirko kind of alluded to, we are still buoyant about fiscal 2026, and we anticipate overall revenues to be higher than $150 million for the fiscal year. This is consistent with our double-digit revenue growth trajectory. More impactful is that we are going to leverage relatively flat operating expenses and we anticipate our adjusted EBITDA to grow by at least 50%, a much faster rate than top line growth, illustrating our ability to leverage our OpEx. So if I could summarize our overall performance. In Q3, we delivered solid double-digit revenue growth of over 14%. In Q4, we delivered solid double-digit revenue growth of 33%. Gross margins are stable. We achieved our long-term expectation of 72.5%. Our OpEx has largely stabilized at these levels, though we will see quarterly variations based on the timing of marketing spend. Our adjusted EBITDA margin in our fourth quarter was 17.6%, a bit shy of our long-term objective at 20%, but clearly demonstrates the earnings potential of the business and we purchased 1.1 million shares for a total investment of $4.9 million in the year. A pretty successful accomplishment for the year. With that, I'll turn it back to Mirko for Q&A, and thank you again for joining us on today's call. Miroslav Wicha: Thanks, Dan. I guess we can -- we'll open up for questions. And operator, Tiffany, you can start with the questions, please. Operator: [Operator Instructions]. Your first question comes from the line of Robert Young of Canaccord Genuity. Robert Young: First question, just on the guidance. I think Mirko at the beginning, you said that you could hit or you would need $150 million to $160 million in top line to break through 20% EBITDA margins. And then Dan, I think you said the 50% growth in EBITDA. If my math is right, that put around 13%. And so I was just curious about the path from 2026 to 20% EBITDA margins given if you're already over $150 million, just help me understand what needs to happen to bridge that? Dan Rabinowitz: Go ahead, Mirko. Go ahead. Miroslav Wicha: No, go ahead, if you want to take that one, well, I can add to it. Dan Rabinowitz: Well, so we've always sort of suggested that we think we could be at scale at $150 million to $160 million. I think when we threw out the $150 million, that was almost half a decade ago or even more than that, cost structures have changed a little bit, and I think it might be closer to $160 million, given all the things that we have to put in place. We just accomplished $40 million in revenue and we just had 17.6%. Now I don't think anyone believes we're going to be able to do $40 million each quarter next year. First -- our first quarter is going to be less than $40 million. Typically, our fourth quarter is our most robust quarter and typically -- and part of it is because it's commensurate with the U.S. government year-end. So we have to sort of average what we can expect to do in the first, second, third and fourth quarter to get to the $150 million mark. And we will have some quarters that will not be at $40 million, and we won't be able to get to that 20% number. So we're being cautiously optimistic. We do believe that a 50% increase in EBITDA is very, very doable. And you're right, the mathematics kind of puts it down a little bit below the 15% level for the full fiscal year but we're knocking on that door. Miroslav Wicha: And I would say, Robert, to Dan's point, I think it really -- on a full year basis, we'll be looking at 2027 as our target. Robert Young: Okay. That's all really helpful. And then you said that the mission-related component of your business is roughly 2/3. I know you said that previously. But I was wondering if it might be helpful to provide a little more information around what percentage of the business is related to defense. Is that something you'd be willing to share? I've asked this in the past. Miroslav Wicha: We don't really break it down. Dan, I mean, do you have a rough -- I mean, we could do a rough number, but we don't actually break it down specifically defense. Dan Rabinowitz: We really don't have that [indiscernible]. We certainly don't have it from a revenue standpoint. I mean we sort of track on the sales side of the equation. But it's a little bit of a complicated exercise because you've got -- where does the client reside and then what's the technology that's being sold into it. And so you have all sorts of anomalies that we have to curate before we can come up with a number that would be meaningful to the group. It's not something that we focus much of our attention on. Miroslav Wicha: Okay. Yes. I mean, Robert, to give you an example, I guess you could consider the Pentagon a defense, right? Ironically, we classify our project at the Pentagon as government because it's the video deployment throughout the entire Pentagon, right? So it could be defense but we kind of classify it as government like NASA, right, is enterprise, but yet it is government. So it gets complicated. Robert Young: Okay. Okay. I mean that's helpful. I mean if I think of the business, in the past, you said that media broadcast is a 1/3 and defense and government are 1/3 and enterprise are 1/3. Is that still roughly the same? And then is that enterprise piece, what does that comprise? Maybe give us a little sense of how far that leans toward defense or towards security or situational awareness, that would be helpful. Miroslav Wicha: Well, good question. I mean, I think if you use a 1/3, 1/3, 1/3, we're probably depending on what quarter we're plus or minus a couple of points. So it's probably a good generic comment to say like pure defense probably like which includes like ISR, but ISR could also be public safety, right? So -- but if you look real defense-oriented applications, maybe a third enterprise, which is government, which would be like a Pentagon, would be like, for example, NASA, but also is Citibank, JPMorgan, banking sectors, which would include control room, right, for that environment. That's about 1/3 and then the 1/3 for the broadcast. So if you look at the enterprise for us, it's government, enterprise, control room market, and I guess, for the sake of argument, it's a nondefense related. That's how you want to break it down. Dan Rabinowitz: And public safety. Miroslav Wicha: Yes, on public safety, right, like police stations. Like when a police department puts out the control room system. It involves a lot of our ISR assets as well, but it's video coming into for emergency response, collaboration, and that's our C360 environment, that's public safety, right? Robert Young: Okay. That's really helpful. Any way you want to look at it, I guess, a lot coming from defense spend. And you've said permission. In the past, you've said that and I think you updated it this quarter, I think you said you have large pipeline opportunities in both enterprise and defense. And would that split of the pipeline be similar to the revenue space? Is it 1/3, 1/3, 1/3? Or would you just say that more of the pipeline opportunity is driven by government and defense. I imagine those are longer duration contracts. Maybe if you could give me a little color around that, that would be helpful. Miroslav Wicha: Yes. No, you're right. I mean, they are different and they are also different timing and the length of them. But I would say, at the moment, I mean, just looking at today and looking at the long-term pipeline, there's a tremendous pipeline in amazingly enough in our banking sector where there's a lot of emphasis right now in cybersecurity and people putting in control room environments, which tend to be quite large and also multinational. You have a lot of customers that are deploying, they're first to deploy the central system and then they're deploying it all across the world. So those tend to be pretty large, but they tend to be multiyear and pretty long. So it's hard to put a finger on it which kind of mimics some of the defense contracts, right? I mean these things are also long. They look at the Navy program. We did the [indiscernible] program. We did the Predator program. We've got the state department program. These things are 5 to 15 years. So they tend to look kind of similar based on a programmatic type of business. So I haven't really looked at the actual split, but I don't see any weird anomalies that would lead me to think that 1/3, 1/3, 1/3 is still not a good number. Robert Young: Okay. And then you said that you see good momentum in those markets over the next 3 to 5 years. I'm not trying to put words in your mouth. But I think it was isolated around government and defense, if that's the case, it could be confirmed. But does that mean that you have very high confidence and visibility on the size of these contracts? Or are you just looking at the level of demand when you make that outlook? Miroslav Wicha: It's pretty much a combination of both. There's a tremendous amount of interest, activity, POCs, people getting very, very hot and interested and plus also some pretty significantly large contracts. So it's a combination of both. I mean, there's -- I've never seen such a level of activity in the market ever. And I think it's purely because of the chaos going around the world, instability in the world, the geopolitical tensions. I mean, everything that -- from border security to police enforcement, to government security, to defense, to NATO being forced to increase their budget significantly. We're just seeing it everywhere. So it's -- and I don't see it stopping. I mean I think this is just the beginning. I don't see an end to it. So I think I know 10 years is a long ways, but I think 3 to 5 years is easy to say, there's no stopping. Robert Young: Okay. A couple of more questions. Can I keep going? Miroslav Wicha: Yes, sure. Robert Young: You said that you had seen a higher level of demand from the 5G contribution, the Aviwest business. I can take that in one of a couple of ways, either maybe you were conservative on your builds or conservative on your expectation of demand or demand truly is just way beyond what you are expecting. Maybe if you could dig deeper into that on what the drivers are there, what's causing that? What -- why is it that your product is seeing such good uptake, et cetera? Miroslav Wicha: Great question. I mean we do build pretty -- usually pretty accurate forecasting. We've done a lot of product introductions over a lifetime. It was -- we did build up, which we thought was a pretty robust forecast for the launch. We were obviously pleasantly surprised that the product has received much more rigorous attention due to what I believe is really the bubble that's coming up, which is a private 5G networking. And I think as we demonstrated back in the Paris Olympics, we've been doing a lot of tests, and we've been testing this technology with some other advanced pieces with our Pro 420 and Pro Series before the launch of Falkon. So we made sure that we actually checked out the latest antenna technology. I mean, we are at the forefront of the private 5G networking. So we made sure that we built everything into the Falkon at the beginning usually when you have products, you know what you add functionality, you test the market, you add more. We came out very strong with absolutely slapping this market sideways. And with the MIMO antenna and technology with all of those features and functionalities that private 5G people are requiring and need, it just hit the sweet spot. And I'd tell you, it's been an amazing pleasant surprise. We have no problem scaling by the way. So it's like we can scale this thing to ever. But I think people appreciate the compactness, the robustness, the size, the powerful capability in the private 5G MIMO technology. And by the way, this is the beginning, and this is the beginning of the family, which we're about to launch the next member of the family later this year, and it's going to continue into the next 18 months. So we are replacing the entire fleet. So I think people are buying into the vision, the strategy, the product family, the software with the HUB 360 that is the control system. Our ecosystem is really taking off. People love that. And by the way, it fully connects seamlessly within the SRT, SST and Makito world. So when you look at the whole fixed contribution, wireless contribution, 5G networking, we're the only vendor right now. We're the only vendor that can do both at the bleeding edge. So I think it's a perfect storm, right? Very excited about the [indiscernible]. Robert Young: Okay. Last question. Just try to gauge your exposure to the space secular trend. I know you've noted NASA and SpaceX as customers. I think most of it was tracking from the ground with cameras at launch. And I'm just curious, just give us a sense if there's a broader opportunity in space and then I'll get off the line. Miroslav Wicha: Okay. No, absolutely. I mean we've been very, very focused on space. It's a huge opportunity for us. I mean you know that we have all of the top players. I mean, SpaceX is a major client, Blue Origin is a major client, [indiscernible] is the biggest -- one of our biggest clients and all of the security agencies. So we are a very, very large player in the space community. And by the way, there's a lot of money being flowed into space in the future. So yes, we're focused on it. We're very excited about it. In fact, we're even developing new technologies that we'll be announcing later this year which will be the video distribution, next-generation technology for people like NASA and others. So very excited about the space. Robert Young: Congrats on the top line. Dan Rabinowitz: Before we go on to the next question, I just want to sort of answer a couple of questions a little bit more specifically. Obviously, I've been tracking revenue sources forever from the origin in the company here. And I can tell you in the last 10 years, last decade, this 1/3, 1/3, 1/3, give or take 2 or 3 points, has been consistent for a very, very long period of time. We just -- I was actually surprised when I saw that when I went back to look at the numbers. It's been consistent for quite a bit of time. And I wanted to talk a little bit about our forecasting methodology because when we talk about pipelines, and we talk about visibility and what have you, and we talked a little bit about having a sophisticated forecasting methodology. It is true. We don't have forecasts that say things like we think that this customer is going to buy $100,000 worth of product. What we have is a pipeline where this person -- this customer is going to be buying $94,532 of product. And what that means is not only have we spec-ed out the components that they're going to be buying, but we've already had discussions about price, which means our pipelines are a lot more robust than what you would think in a typical forecast. We rely on those forecasts for our production schedules. We rely those things for our revenue recognition. And everyone is trained to treat those things well. There is no betting on the come and there's no pipeline opportunity that exists that hasn't had some discussion with the customer around it. Okay. Next question. Operator: Your next question comes from the line of Rukun Duggal with Chandern LP. Rukun Duggal: Dan and Mirko, when I look at your valuation relative to peers in the sector, there appears to be a meaningful discount despite the company's growth trajectory, leading gross margins and improving operating performance. Your commentary also suggests that cash generation in the coming year will increase. With our NCIB, we've certainly been buying back shares. But has the company and the company's Board considered significantly more aggressive share repurchases as a capital allocation priority given what appears to be an attractive entry point at current levels? And how aggressive can we be? Miroslav Wicha: Well, the answer to the question is that we do raise the issue with our Board periodically as recently as today, as a matter of fact, and they've asked us to put together a more specific program about it and discuss it at the next meeting. I think they are receptive to the idea of us being a little bit more aggressive. We do intend to renew our NCIB for 2026 and beyond. And we're hopeful that we can continue buying back shares as aggressively as possible. I think that there's more receptivity to it but we're still a relatively small company. And even though we have $17 million in the bank, and we have access to a line of credit, there is a bit of a conservative bent to our Board at this point. Operator: Your next question comes from the line of Donangelo Volpe with Beacon Securities LTD. Donangelo Volpe: Congratulations on the strong quarter. Just in your prepared remarks, you discussed the Falkon X2. It's now shipping in volume and demand starting to outstrip production. Just wondering if you guys can discuss how quickly you expect to ramp up to meet this high demand. Is that achievable in Q1? Or would this be a long-standing approach through 2026? Miroslav Wicha: Well, Q1 has got 2 weeks left. We're pretty much committed to what we're going to ship by the end of January. But yes, no, we're ramping up. We have no concerns for Q2, Q3, Q4. So production is already prepped. We're going to high volumes, we should be able to cover any excess starting as early as February. So not a concern. Donangelo Volpe: Okay. Great. And then just looking at for Q4, the 33% year-over-year revenue growth, just wondering if you can break down some of the dynamics you were seeing across both the broadcast versus -- the broadcast versus the mission segment. And I'm just curious if there was any pull-forward demand before the end of the year if we can kind of continue to anticipate momentum to continue. Miroslav Wicha: You say pull forward -- sorry, what you might pull forward from Q4 to Q1 or you're saying... Dan Rabinowitz: Did we steal from Q1 to make Q4 numbers? Miroslav Wicha: Okay. So no, definitely not. But okay, go ahead, Dan, do you want to handle that? Dan Rabinowitz: That was -- I think that was one of the reasons why Mirko and I both felt fairly compelled to suggest that $150 million plus for 2026 is still on the offering. I don't want anyone to get the impression that we've moved revenue from the first quarter into the fourth quarter. That didn't happen. In fact, we left the quarter with backlog, which is a great place for us to be. Operator: That concludes our question-and-answer session. I will now turn the call back over to Mirko Wicha for closing remarks. Miroslav Wicha: Thank you, Tiffany. Thanks, everybody. Look, in closing, I just want to say we're committed as always to maximizing long-term value for all our shareholders. We are confident in our ability to execute on our strategic revenue growth plan and deliver solid growth for the future as promised. I just want to thank all our shareholders and analysts on the line today for their continued support of Haivision and I look forward to speaking with you in mid-March when we will discuss our first quarter performance results, which will close in 2 weeks from now. Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect
Jeff Su: Good afternoon, everyone, and welcome to TSMC's Fourth Quarter 2025 Earnings Conference and Conference Call. My name is Jeff Su, TSMC's Director of Investor Relations and your host for today. Today's event is being webcast live through TSMC's website at www.tsmc.com, where you can also download the earnings release materials. If you are joining us through the conference call, your dial-in lines are in listen-only mode. The format for today's event will be as follows: First, TSMC's Senior Vice President and CFO, Mr. Wendell Huang, will summarize our operations in the fourth quarter 2025, followed by our guidance for the first quarter 2026. Afterwards, Mr. Huang and TSMC's Chairman and CEO, Dr. C.C. Wei, will jointly provide the company's key messages. Then we will open both the floor and the line for the question-and-answer session. As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears in our press release. And now I would like to turn the microphone over to TSMC's CFO, Mr. Wendell Huang, for the summary of operations and the current quarter guidance. Jen-Chau Huang: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today. My presentation will start with financial highlights for the fourth quarter of 2025 and a recap of full year 2025. After that, I will provide the guidance for the first quarter of 2026. Fourth quarter revenue increased 5.7% sequentially in NT, supported by strong demand for our leading-edge process technologies. In U.S. dollar terms, revenue increased 1.9% sequentially to TWD 33.7 billion, slightly ahead of our fourth quarter guidance. Gross margin increased by 2.8 percentage points sequentially to 62.3%, primarily due to cost improvement efforts, favorable foreign exchange rate and high capacity utilization rate. The operating expenses accounted for 8.4% of net revenue compared to 8.9% in the third quarter of '25 due to operating leverage. Thus, operating margin increased sequentially by 3.4 percentage points to 54%. Overall, our fourth quarter EPS was TWD 19.5 and ROE was 38.8%. Now let's move on to revenue by technology. 3-nanometer process technology contributed of 28% of wafer revenue in the fourth quarter, while 5-nanometer and 7-nanometer accounted for 35% and 14%, respectively. Advanced technologies, defined as 7-nanometer and below, accounted for 77% of wafer revenue. On a full year basis, 3-nanometer revenue contribution came in at 24% of 2025 wafer revenue, 5-nanometer, 36% and 7-nanometer, 14%. Advanced technologies accounted for 74% of total wafer revenue, up from 69% in 2024. Moving on to revenue contribution by platform. HPC increased 4% quarter-over-quarter to account for 55% of our fourth quarter revenue. Smartphone increased 11% to account for 32%. IoT increased 3% to account for 5%. Automotive decreased 1% to account for 5%, while DCE decreased 22% to account for 1%. On a full year basis, HPC increased 48% year-over-year. Smartphone, IoT and automotive increased by 11%, 15% and 34%, respectively, in 2025, while DCE remains flat. Overall, HPC accounted for 58% of our 2025 revenue. Smartphone accounted for 29%. IoT accounted for 5%, automotive accounted for 5% and DCE accounted for 1%. Moving on to the balance sheet. We ended the fourth quarter with cash and marketable securities of TWD 3.1 trillion or USD 98 billion. On the liability side, current liabilities increased by TWD 182 billion quarter-over-quarter, mainly due to the increase of TWD 95 billion in accrued liabilities and others and the increase of TWD 61 billion from the reclassification of bonds payable to current portion. In terms of financial ratios, accounts receivable days increased by 1 day to 26 days. Inventory days remained steady at 74 days. Regarding cash flow and CapEx, during the fourth quarter, we generated about TWD 726 billion in cash from operations, spent TWD 357 billion in CapEx and distributed TWD 130 billion for first quarter '25 cash dividend. Overall, our cash balance increased TWD 297 billion to TWD 2.8 trillion at the end of the quarter. In U.S. dollar terms, our fourth quarter capital expenditures totaled TWD 11.5 billion. Now let's look at the recap of our performance in 2025. Thanks to the strong demand for our leading-edge process technologies, we continue to outperform the foundry industry in 2025. Our revenue increased 35.9% in U.S. dollar terms to TWD 122 billion or increased 31.6% in NT dollar terms to TWD 3.8 trillion. Gross margin increased 3.8 percentage points to 59.9%, mainly reflecting a higher capacity utilization rate and cost improvement efforts, partially offset by an unfavorable foreign exchange rate and margin dilution from our overseas fabs. With operating leverage, our operating margin increased 5.1 percentage points to 50.8%. Overall, full year EPS increased 46.4% to TWD 66.25 and ROE increased 5.1 percentage points to 35.4%. In 2025, we generated TWD 2.3 trillion in operating cash flow, spent TWD 1.3 trillion or USD 40.9 billion on capital expenditures. As a result, free cash flow amounted to TWD 1 trillion, up 15.2% from 2024. Meanwhile, we paid TWD 467 billion in cash dividends in 2025, up 28.6% year-over-year as we continue to increase our cash dividend per share. TSMC shareholders received a total of TWD 18 cash dividend per share in 2025, up from TWD 14 in 2024, and they will receive at least TWD 23 per share in 2026. I have finished my financial summary. Now let's turn to our current quarter guidance. We expect our business to be supported by continued strong demand for our leading-edge process technologies. Based on the current business outlook, we expect our first quarter revenue to be between USD 34.6 billion and USD 35.8 billion, which represents a 4% sequential increase or a 38% year-over-year increase at the midpoint. Based on the exchange rate assumption of USD 1 to TWD 31.6, gross margin is expected to be between 63% and 65%, operating margin between 54% and 56%. Lastly, our effective tax rate was 16% in 2025. For 2026, we expect our effective tax rate to be between 17% and 18%. This concludes my financial presentation. Now let me turn to our key messages. I will start by talking about our fourth quarter '25 and first quarter '26 profitability. Compared to third quarter, our fourth quarter gross margin increased by 280 basis points sequentially to 62.3%, primarily due to cost improvement efforts, a more favorable foreign exchange rate and a higher overall capacity utilization rate. Compared to our fourth quarter guidance, our actual gross margin exceeded the high end of the range provided 3 months ago by 130 basis points, mainly as we delivered better-than-expected cost improvement efforts. In addition, the actual fourth quarter exchange rate was USD 1 to TWD 31.01 as compared to our guidance of USD 1 to TWD 30.6. We have just guided our first quarter gross margin to increase by 170 basis points to 64% at the midpoint, primarily driven by continued cost improvement efforts, including productivity gains and a higher overall capacity utilization rate, partially offset by continued dilution from our overseas fab. Looking at full year 2026, given the 6 factors, there are a few puts and takes I would like to share. On the one hand, we expect our overall utilization rate to moderately increase in 2026. N3 gross margin is expected to cross over to the corporate average sometime in 2026, and we continue to work hard to earn our value. In addition, we are leveraging our manufacturing excellence to drive greater productivity in our fabs to generate more wafer output. We are also increasing a cross-node capacity optimization, which includes flexible capacity support among N7, N5 and N3 nodes to support our profitability. On the other hand, as the scale of our overseas expansion grows, we continue to forecast the gross margin dilution from the ramp-up of overseas fabs in the next several years to be between 2% to 3% in the early stages and widen to 3% to 4% in the latter stages. Furthermore, the initial ramp-up of our 2-nanometer technology will start to dilute our gross margin in the second half of the year, and we expect between 2 to 3 percentage -- percent dilution for the full year of 2026. Finally, we have no control over the foreign exchange rate, but that may be another factor in 2026. Next, let me talk about our 2026 capital budget and depreciation. At TSMC, a higher level of capital expenditures is always correlated to the high-growth opportunities in the following years. With our strong technology leadership and differentiation, we are well positioned to capture the multiyear structural demand from the industry megatrends of 5G, AI and HPC. In 2025, we spent USD 40.9 billion as compared to USD 29.8 billion in 2024 as we began to raise our level of capital spending in anticipation of the growth that will follow in the future years. In 2026, we expect our capital budget to be between USD 52 billion and USD 56 billion as we continue to invest to support our customers' growth. About 70% to 80% of the 2026 capital budget will be allocated to advanced process technologies. About 10% will be spent for specialty technologies and about 10% to 20% will be spent for advanced packaging, testing, mask making and others. Our depreciation expense is expected to increase by high teens percentage year-over-year in 2026, mainly as we ramp our 2-nanometer technologies. Even as we invest in the future growth with this level of CapEx spending in 2026, we remain committed to delivering profitable growth to our shareholders. Finally, let me talk about TSMC's long-term profitability outlook. As a foundry, our biggest responsibility is to support our customers' growth, and we always view them as partners. Having said that, we are in a very capital-intensive business. In the last 5 years alone, our CapEx totaled USD 167 billion. Our R&D investments totaled USD 30 billion. Therefore, it is important for TSMC to earn a sustainable and healthy return as we continue to invest in leading -edge specialty and advanced packaging technologies to support our customers' growth. Today, we face increasing manufacturing cost challenges due to the rising cost of leading nodes. For example, the cost of tools are becoming more expensive and process complexity is increasing. As a result, the CapEx dollar required to build 1,000 wafer per month capacity of N2 is substantially higher than 1,000 wafer per month capacity for N3. The CapEx per k cost for A14 will be even higher. We also faced additional cost challenges from expansion of our global manufacturing footprint, new investments in specialty technologies and inflationary costs. These all lead to a higher level of CapEx spending. As a result, in the last 3 years, our CapEx dollars amount totaled USD 101 billion, but is expected to be significantly higher in the next 3 years. Having said that, we continue to work closely with our customers to plan our capacity while sticking to our disciplines to ensure a healthy overall capacity utilization rate through the cycle. Our pricing will remain strategic, not opportunistic to earn our value. We will work diligently with our suppliers to drive greater cost improvements. We will also leverage our manufacturing excellence to generate more wafer output and drive greater a cross node capacity optimization in our fab operations to support our profitability. By taking such actions, we believe a long-term gross margins of 56% and higher through the cycle is achievable, and we can earn an ROE of high 20s percent through the cycle. By earning a sustainable and healthy return, even as we shoulder a greater burden of CapEx investment for our customers, we can continue to invest in technology and capacity to support their growth while delivering long-term profitable growth to our shareholders. We also remain committed to a sustainable and steadily increasing cash dividends per share on both an annual and quarterly basis. Now let me turn the microphone over to C.C. C.C. Wei: Thank you, Wendell. Good afternoon, everybody. First, let me start with our 2026 outlook. In 2025, we observed robust AI-related demand throughout the whole year, while non-AI end market segment bottomed out and saw a mild recovery. Concluding 2025, the Foundry 2.0 industry, which we define as all logic wafer manufacturing, packaging, testing, mask making and others increased 16% year-over-year. Supported by our strong technology differentiation and broad customer base, TSMC's revenue increased 35.9% year-over-year in U.S. dollar terms, outperforming the Foundry 2.0 industry growth. Entering 2026, we understand there are uncertainties and risk from the potential impact of tariff policies and rising component prices, especially in consumer-related and price-sensitive end market segment. As such, we will be prudent in our business planning while focusing on the fundamentals of our business to further strengthen our competition position. We forecast the Foundry 2.0 industry to grow 14% year-over-year in 2026, supported by robust AI-related demand. Underpinned by strong demand for our leading-edge specialty and advanced packaging technologies, we are confident we can continue to outperform the industry growth. We expect 2026 to be another strong growth year for TSMC and forecast our full year revenue to increase by close to 30% in U.S. dollar terms. Next, let me talk about the AI demand and TSMC's long-term growth outlook. Recent development in the AI market continue to be very positive. Revenue from AI accelerator accounted for high teens percent of our total revenue in 2025. Looking ahead, we observe increasing AI model adoption across consumer, enterprise and sovereign AI segment. This is driving need for more and more computation, which supports the robust demand for leading-edge silicon. Our customers continue to provide us with a positive outlook. In addition, our customers' customers who are mainly the cloud service providers are also providing strong signals and reaching out directly to request the capacity to support their business. Thus, our conviction in the multiyear AI megatrend remains strong, and we believe the demand for semiconductor will continue to be very fundamental. As a foundry, our first responsibility is to fully support our customers with the most advanced technology and necessary capacity to unleash their innovations. To address the structural increase in the long-term market demand profile, TSMC works closely with our customer and our customers' customer to plan our capacity. This process is continuous and ongoing. In addition as process technology complexity increases, the engagement lead time with customers is now at least 2 to 3 years in advance. Internally, as we have said before, TSMC employs a disciplined capacity planning system to assess the market demand from both top-down and bottom-up approaches. We focus on the overall addressable megatrend to determine the appropriate capacity to build. Based on our assessment, we are preparing to increase our capacity and stepping out our CapEx investment to support our customers' future growth. We are also putting forward the existing fab schedule to the extent possible, both in Taiwan and in Arizona. We will also leverage our manufacturing excellence to drive greater productivity in our fabs to generate more output, convert N5 capacity to support N3 wherever necessary and focus on capacity optimization across node to maximize the support to our customers. Based on our planning framework, we raised our forecast for the revenue growth from AI accelerator to approach a mid- to high 50s percent CAGR for the 5 years period from 2024 to 2029. Underpinned by our technology differentiation and broad customer base, we now expect our overall long-term revenue growth to approach 25% CAGR in U.S. dollar terms for the 5-years period starting from 2024. While we expect AI accelerators to be the largest contributor in terms of our incremental revenue growth, our overall revenue growth will be fueled by all 4 of our growth platform, which are smartphone, HPC, IoT and automotive in the next several years. As the world's most reliable and effective capacity provider, we will continue to work closely with our customers to invest in leading-edge specialty and advanced packaging technologies to support their growth. We will also remain disciplined in our capacity planning approach to ensure we deliver profitable growth for our shareholders. Now let me talk about TSMC's global manufacturing footprint update. All our overseas decisions are based on our customers' need as they value some geographic flexibility and a necessary level of government support. This is also to maximize the value for our shareholders. With a strong collaboration and support from our leading U.S. customers and the U.S. federal, state and city government, we are speeding up our capacity expansion in Arizona and executing well to our plan. Our first fab has already successfully entered high-volume production in 4Q '24. Construction of our second fab is already complete and tool moving and installation is planned in 2026. Due to the strong demand from our customers, we are also putting forward the production schedule and now expect to enter high-volume manufacturing in the second half of 2027. Construction of our third fab has already started, and we are in the process of applying for permits to begin the construction of our fourth fab and first advanced packaging fab. Furthermore, we have just completed the purchase of a second large piece of land nearby to support our current expansion plan and provide more flexibility in response to the very strong multiyear AI-related demand. Our plan will enable TSMC to scale up an independent giga-fab cluster in Arizona to support the need of our leading-edge customers in smartphone, AI and HPC applications. Next, in Japan, thanks to the strong support from the Japan Central prefecture and the local government, our first specialty fab in Kumamoto has already started volume production in late 2024 with very good yield. The construction of our second fab has started and the technologies and ramp schedule will be based on our customers' need and market conditions. In Europe, we have received strong commitment from the European Commission and the German federal state and city government, construction of our specialty fab in Dresden, Germany is progressing in our plan. The ramp schedule will be based on our customers' need and market conditions. In Taiwan, with support from Taiwan government, we are preparing multiple ways of 2-nanometers fabs in both Hsinchu and Kaohsiung Science Park. We will continue to invest in leading edge and advanced packaging facilities in Taiwan over the next few years. By expanding our global footprint while continually invested in Taiwan, TSMC can continue to be better to be the trusted technology and capacity provider of the global logic industry for years to come. Last, let me talk about N2 and A16 status. Our 2-nanometer and A16 technologies lead the industry in addressing the insatiable demand for energy-efficient computing and almost all the innovators are working with TSMC. N2 successfully entered high-volume manufacturing in 4Q 2025, at both our Hsinchu and Kaohsiung site with good yield. We are seeing strong demand from smartphone and HPC AI applications and expect a fast ramp in 2026. With our strategy of continuous enhancement, we also introduced a N2P as an extension of N2 family. N2P features further performance and power benefits on top of N2 and volume production is scheduled for the second half of this year. We also introduced A16 featuring our best-in-class superpower rail or SPR. A16 is best suitable for specific HPC products with complex signal route and dense power delivery network. Volume production is on track for the second half 2026. We believe N2, N2P, A16 and its derivatives will propel our N2 family to be another large and long-lasting node for TSMC, while further extending our technology leadership position well into the future. This concludes our key message, and thank you for your attention. Jeff Su: Thank you, Wendell. Thank you, C.C. This does conclude our prepared statements. Jeff Su: [Operator Instructions] So now let's begin the question-and-answer session. I think we'll take the first few questions from the floor here. So why don't we start over here with Gokul Hariharan from JPMorgan. Gokul Hariharan: So C.C., it definitely feels like you have heard what your customers have said to you over the last 3, 4 months. Could you give us a little bit more color on what you're hearing from your customers' customers on demand because this is a very big step-up in the capacity commitment. There is definitely a lot of concern in the financial market, especially about whether we are in a bit of a bubble. And obviously, you are the one who is putting up all the capital in this industry. So you've definitely considered this very careful as well. So give us a little bit more detail in terms of what you're hearing from the customers and your views on the cycle, given if you think about typical semiconductor cycle, we've already probably lasted a little longer than usual cycles, but this is definitely doesn't feel like a typical semiconductor cycle. Jeff Su: Okay. Gokul, let me summarize your question for the benefit of those online and those in-person. So again, Gokul's question is really, he would like to hear C.C.'s views about the overall AI-related demand and the semiconductor cycle. So again, Gokul notes that as Wendell and you said, we are substantially stepping up our CapEx to support the customers. But he does say there is concerns about an AI bubble and risk. So part of Gokul's question is how -- what is the feedback? Any color we can share about what type of discussions and feedback we're getting from both customers and the customers' customers that C.C. mentioned. And how long do we think this cycle can last? C.C. Wei: Okay. Gokul, you essentially try to ask us, say, whether the AI demand is real or not. I'm also very nervous about it. You bet because we have to invest about USD 52 billion to USD 56 billion for the CapEx, right? If we didn't do it carefully, and that would be big disaster to TSMC for sure. So of course, I spend a lot of time in the last 3, 4 months talking to my customer and end customers' customer. I want to make sure that my customers demand are real. So I talked to those cloud service providers, all of them. The answer is that I'm quite satisfied with the answer. Actually, they show me the evidence that the AI really help their business. So they grow their business successfully and healthy in their financial return. So I also double check their financial status. They are very rich. That sounds much better than TSMC. So no doubt, I also asked specifically that what's application, right? I mean that's -- for one of the hyperscalers, they told me that, that helped their social media software. And so the customer continue to increase. So I believe that. And with our own experience in the AI application, we also help to our own fab to improve the productivity. As I mentioned, 1 time say that 1% or 2% productivity improvement, that is free to the TSMC. And that's where also our gross margin is a little bit satisfied even if this very high post period of time. And so all in all, I believe in my point of view, the AI is real, not only real, it's starting to grow into our daily life. And we believe that is kind of -- we call it AI megatrend, we certainly would believe that. So you -- another question is can the semiconductor industry to be good for 3, 4, 5 years in a row, I'd tell you the truth, I don't know. But I look at the AI, it looks like it's going to be like an endless, I mean, that for many years to come. No matter what, TSMC stick on the fundamental technology leadership, manufacturing excellence, and we work with customers to get their trust. And I think that fundamental thing position TSMC to be very good future growth, let me say that, 25% CAGR as we projected, and we used to be conservative. You know that. Gokul Hariharan: My second question is on the U.S. expansion. You're pulling in some of the capacity in response to customers. You're already starting planned for the Phase 4. There's a lot of media reports about TSMC, you might have to build more fabs in the U.S. How should we think about U.S. expansion in principle over the next few years? I think previously, you had talked about reaching 20% or even 30% of 2-nanometer capacity in the U.S. eventually, the total capacity would be in the U.S. Could you give us a little bit more detail about how that is progressing? And when could we get there in terms of the 30% or even 20% capacity? Jeff Su: Okay. So Gokul's second question is about our overseas expansion, particularly in the U.S. He knows that C.C. said, we are pulling in the schedule for fab 2 earlier. We're starting the application for the fourth fab. And so his question is partly around recent reports that we intend to build more fabs in Arizona. So his question is how should we or how is TSMC thinking about the future expansion in Arizona. And we have said in the past that around 30% of our 2-nanometer and more advanced capacity would be based in Arizona once we complete scaling out to this independent giga-fab cluster, so what is the time frame, more timetable for that? How quickly can we get there? C.C. Wei: That's a long question. We built a fab in Arizona, and we work hard. So today, everything, even the yield or defect density is almost equal to Taiwan. And due to the strong demand, as I just answered from the AI stronger, that's a megatrend. All my customer and AI customers in the U.S., so they ask a lot of support from the U.S. fab. So because of that, we have to speed up our fab expansion in Arizona. In Taiwan also actually, we increased most of the capacity in Taiwan. No doubt about it because this is the most adjacent one we can progress very well. In the U.S., we try to speed it up and the progress is very good. We got the help from the government. But still, we have to meet all the requirement for the permits, for those kind of things. And so both in Taiwan and in Arizona, we speeded up our capacity expansion to meet the AI demand. I can always say one word. The capacity is very tight. We work very hard to narrow the gap so far. Probably this year, next year, we have to work extremely hard to narrow the gap, okay? We just bought a second land in Arizona. That gives you a hint. That's what we plan to do because we need it. We are going to expand many fabs over there and this giga-fab cluster can help us to improve the productivity, to lower down the cost and to serve our customers in the U.S. better. Jeff Su: Okay. Thank you, Gokul. Let's move over here next to Laura Chen from Citibank, please. Chia Yi Chen: Thank you, C.C. and Wendell for very comprehensive outlook briefing and also congratulate for the great results. Of course, we see that the AI semiconductor growth has seen very strong growth. And I believe all of your customers and customers' customers very desperate to add more capacity support from TSMC. But I'm just wondering how does TSMC evaluate the potential power electricity supply for data center. So other than that, the chips we can discuss with our customers, I think for the overall infrastructure buildup for data center, a lot of factors also very important. Just want to understand more how does TSMC evaluate those key factors for the AI infrastructure buildup? That's my first question. Jeff Su: Okay. So Laura's first question is around the AI demand. She notes, again, as we said, AI megatrend and the growth is very strong and customers, customers' customers and ourselves are strong believers. But when we do our planning, how do we balance this against the other considerations? Do we look at things, for example, I think Laura's question is powering electricity grid availability to basically assess is this part of our -- included as part of our planning process, do we factor such things in? C.C. Wei: Well, Laura, let me tell you first. I worry about the electricity in Taiwan first. I need to have a lot of enough electricity, so I can start to expand the capacity without any limitation. But talking about build a lot of AI data center all over the world, I use one of my customers' customers I answer because I ask the same question. They told me that they plan this one 5, 6 years ago already. So as I said, those cloud service providers are smart, very smart. If I knew that, I will -- anyway. So they say that they work on the power supply 5, 6 years ago. So today, their message to me is silicon from TSMC is a bottleneck and ask me not to pay attention to all others because they have to solve the silicon bottleneck first. But indeed, we look at the power supply all over the world, especially in the U.S. Not only that, we also look at the who support those kind of power supply like a turbine, like the nuclear power plant, the plant or those kind of things. We also look at the supplier of the rack. We also look at the supplier of the cooling system, everything. So far, so good. So we have to work hard to narrow the gap between the demand and supply from TSMC. Did that answer your question? Chia Yi Chen: That's great to know that it will not be the constraint for the further AI developments. Yes. And my second question is on the leading-edge advanced packaging. And Wendell, can you remind us that what would be the revenue contribution last year for the advanced packaging overall? First of all, we see that -- I recall that in the past that the CapEx for leading-edge advanced packaging is roughly about 10%. Yes. But now it could be up to like 20%. So I'm just wondering that for the expansion, can you give us more detail about what kind of the plans you are looking for. Will you focus more on like 3DIC, SoIC? Or you also start to work on more advanced like panel based in the longer term? I also think before we talk about that, we'll work more closely with OSATs partner on the leading-edge advanced packaging. So just wondering what kind of the process will be the key expansion plan in the space. Jeff Su: Okay. So Laura's second question is more related to advanced packaging. What was the revenue contribution of what we call the back end, which is advanced packaging testing as a whole in 2025. And then she notes the CapEx, actually, this year, I believe, Wendell, we guided 10% to 20% of CapEx, which is the same as last year. But anyways, she wants to know what is the focus of this CapEx? Is it on 3DIC? Is it on SoIC packaging solutions, is on panel level? Sort of what is the key areas we're focusing on relative to the CapEx? Jen-Chau Huang: Okay. Laura, the revenue contribution last year from advanced packaging is close to 10%. It's about 8%. For this year, we expect it to be slightly over 10%. Okay. We expect it to grow in the next 5 years, higher or faster than the corporate. And the CapEx, yes, you're right, in the past, it's about 10%, lower than 10%. Now we're saying advanced packaging together with mask making and others accounted for between 10% to 20%. So you can see that the investment amount is higher. And we're investing in areas in advanced packaging where our customers need. So the areas that you mentioned, basically, we continue to invest. Jeff Su: Thank you, Wendell. Okay, let's move on to Charlie Chan from Morgan Stanley here. Charlie Chan: So first of all, amazing results and guidance. Congratulations to the management team. So my first question is about outside of AI, what do you see for those end markets, right? You talked about the memory costs, et cetera. So can you give us some your underlying assumption for PC shipments, smartphone shipments, et cetera? And also in your HPC, there are some other business like networking and general servers. Can you comment about the growth potential for those segments? Jeff Su: Okay. Charlie's first question is very specific. Well, generally, he wants to know about how do we see the non-AI demand, especially in the context where the certain component costs such as memory costs are rising. So he wants to know what do we see the impact on the PC and smartphone markets in terms of shipments. He's also asking very specifically, what about networking, what about general server, each of these different segments. C.C. Wei: Charlie, those -- although we say it's call non-AI, but actually that's related to AI, you know that, right? Because the networking processor, you still need to have AI data to scale up or scale out. Those are the networking switches or those kind of things still grow very strong. As for PC or the smartphone, to tell the truth, we expect higher memory price. So we expect the unit growth will be very minimal. But for TSMC, we did not feel our customer change their behavior. And we look at it and then we found out that we supply most of the high-end smartphones. The high-end smartphone is less sensitive to the memory price. So the demand is still strong. Using one sentence, I'd like to say we still try very hard to narrow the gap. We have to supply a lot of wafers to them also. Charlie Chan: I think that's very consistent with your 5-year CAGR outlook for all the 4 segments. And my second question is about the Intel's foundry competition. I think U.S. President seems to be very happy with Intel's recent progress. And even mentioned 2 of your key customers, right, NVIDIA, Apple may have a sound partnership with Intel Foundry. Should we concern about this so-called competition? And what TSMC can really do to mitigate or avoid potential market share loss at those key U.S. customers, not limited to the 2 customers I just mentioned. Jeff Su: Okay. So Charlie's second question is on the foundry competition and competition from a U.S. IDM. He knows U.S. President is very happy with the progress. A couple -- 2 of our key customers. He also was mentioned. So his question is fundamentally, is there a concern or risk going forward of market share loss for TSMC to our foundry competition? C.C. Wei: Well, kind of a simple question, I should say, no. Let me explain a little bit because in these days, it's not a money to help you to compete, right? I also like whoever you just mentioned, to invest on Intel, I like them to invest on TSMC also. But the most fundamental thing is let me share with you. Today's technology is so complicated. So once you want to design a very complete or advanced technology, it takes 2 to 3 years to fully utilize that technology. That's today's situation. And so after 2 to 3 years of preparation, you can design your product. Once you get your product being approved, it takes another 1 to 2 years to ramp it up. So we have a competitor, no doubt about it. That's a formidable competitor. But first, it takes time; two, we don't underestimate their progress. But are we afraid of it? For 30-some years, we're always in a competition with our competitors. So no, we have confidence to keep our business grow as we estimate. Jeff Su: Thank you, C.C. All right. Let's take the next 2 questions online in the interest of time. Operator, can we take the first call from the line, please? Operator: First question on the line, Macquarie. Yu Jang Lai: First, congrats, very strong performance. My first question is about the global capacity plan. Recently Taiwan local news report that TSMC could exit the 8-inch business and mature node, 12-inch to convert into the advanced packaging. And the investors is keen to know if this is true. And the decision is based on what kind of key factor, i.e. C.C. just mentioned about the power tightness or it's ROI concern? Jeff Su: Okay. So Arthur's first question is about basically mature node. Our strategy on mature node. He knows a local news has been reporting that TSMC is exiting 8-inch and 12-inch businesses and converting the capacity to advanced packaging. So he wants to know if this is true. And if so, what are the reasons behind the power constraints, ROI, et cetera, et cetera? C.C. Wei: Good question. Indeed, we reduced our 8-inch wafers capacity and 6-inch. But let me assure you that we support all our customers. We discuss with our customers and to do this kind of resources more flexible and more -- what is the word we say optimize, which I should. Optimize the resources to support our customer. But let me assure you also to my customer, well, we continue to support them. We will not let them down. If they have a good business, we continue to support that even in the 8-inch wafer business. Jeff Su: Okay. Arthur, do you have a second question? Yu Jang Lai: Yes. My second question is regarding the consumer and demand outlook. So C.C. also mentioned that the memory price actually inflation and he also pushing up the cost of the consumer electronics. So investors actually are concerned about the further demand softness in this year and next year or particularly next year. So can management comment about what your client or your clients' client, how to resolve this memory tightness or we call memory urgency issue? Jeff Su: Okay. So Arthur's second question is on the impact from the memory price increase and the demand softness. I believe this question really because C.C. already shared the impact this year. He wants to know what is the impact for 2027? C.C. Wei: For TSMC, no impact. As I just mentioned, most of my customers now focus on high-end smartphone or PCs. So those kind of demand has less sensitive to the components price. So they continue to give us a very healthy forecast this year and next year. Jeff Su: Okay. Thank you, C.C. All right. Let's -- operator, let's move on to the next participant from the line, please. Operator: Next one, Brett Simpson, Arete. Brett Simpson: My question is really on AI. I mean, TSMC has been supply constrained for your AI customers, I think, since 2024, and it sounds like 2026 is another year where we're going to see challenges. Do you think the CapEx you've laid out for this year. TWD 52 billion to TWD 56 billion, could that mean that we start to see supply and demand more in balance in 2027? Any thoughts there just in terms of how you're thinking about that capacity plan? And does it alleviate the supply bottlenecks that we see today? And as part of this, from a supply perspective, we hear TSMC is finding it quite challenging to develop enough engineering talent quick enough, both in the U.S. and in Taiwan. Can you talk more about this trend? And what's the scale of the labor shortage of foundry engineers at the moment? Jeff Su: Okay. So Brett's first question is related around AI and our capacity. So he notes, the supply looks to continue to be tight in 2026. But with the significant step-up in our CapEx to support the customers, TWD 52 billion to TWD 56 billion, do we expect the supply/demand or the gap, so to speak, to be more balanced in 2027? And then is engineering resources, fab engineers a constraint or a bottleneck for us in making these expansions, whether in Taiwan or the U.S.? C.C. Wei: Okay. Let me answer this question first. If you build a new fab, it takes 2 and 3 years -- 2 to 3 years to build a new fab. So even we start to spend the TWD 52 billion to TWD 56 billion, the contribution to this year almost none and to 2027, a little bit. So we actually are looking for 2028, 2029 supply. And we hope at that time that the gap will be narrow. For 2026 and 2027, we are focused on the short-term more output. Actually, our productivity continue to increase. Our people has an incentive because of one of the TSMC's incentive is to satisfy customer. It's not because of our financial results are good, but we want to let customer feel that TSMC is trusted that whenever, they have a good opportunity to grow, we will support it. So in 2026, 2027, for the short term, we focus on the productivity improvement, which we've done quite a good result because of, Wendell just mentioned that we can have a good financial result because of that. But that's not our incentive -- that's our incentive, but that's not our purpose. Our purpose is to support our customers. So 2026, 2027 for the short term, we are looking to improve our productivity. 2028, 2029, yes, we start to increase our CapEx significantly, and it will continue this way if the AI demand megatrend as we expected. Jeff Su: Brett -- thank you, C.C. Brett, do you have a second question? Brett Simpson: Yes, I do. That was very clear. I guess my second question is about pricing. And if I look at 2025, this was the second consecutive year where TSMC's wafer ASPs were up around 20%. And as leading edge becomes a bigger portion of the mix and also you feed through price increases. When we factor in the ramp of more expensive overseas fabs, is 20% ASP -- wafer ASP increases the new normal for TSMC? Typically, you have an annual price negotiation about this time of the year. And so I'm trying to understand how you project ASPs in '26. And is your March quarter guidance factoring in price increases at leading edge? Jeff Su: Okay. So Brett's question is on pricing. He notes that our -- which he looking at the blended wafer price is increasing close to 20% according to his estimates. Of course, that's blended both on price and mix, but it's a leading edge and also we have mentioned earning our value. So he wants to know is the new normal going forward? C.C. Wei: This is a tough question. I'll get the CFO to answer. Jen-Chau Huang: Okay. Every new node that we have a price. The price will increase. The blended ASP will increase I think they continue this way in the past and will continue with the way going forward. But Brett, I think you're asking about the contribution from pricing to the profitability. Now as we mentioned before, the profitability, there are 6 factors affecting the profitability. And price is just one of them. And of course, we continue trying to earn our value. But in fact, in the last few years, the pricing benefits to the profitability was just enough to cover the inflation cost from tools, equipment, materials, labor, et cetera. There are other factors contributing to the higher profitability. The first one will be a high utilization rate. As the demand is so high and as our disciplined approach to capacity planning, the utilization rate supports our high profitability. The other 1 will be our manufacturing excellence. As C.C. said, we continue to drive increasing productivity to generate more wafer output. Also, we continue to drive optimization capacity among nodes, which includes converting part of the N5 to N3. It also involves cross support from different nodes from the mature nodes to the more advanced nodes. That is a very important advantage of TSMC. So with all these efforts, we're able to maintain a good, healthy, sustainable return profitability so that we can continue to invest to support our customers' growth. Jeff Su: Okay. In the interest of time, we'll take 2 more questions from the floor and 1 more from the line. So we'll go here, Sunny Lin, UBS and then... Sunny Lin: Very strong results. Congratulations. So number one, if we look at the company, very different versus in the past from many angles. But if we look at the ramp from new node, now you can generate actually higher revenue from new node in year 4 or even year 5 of mass production versus in the past, new node like peak revenue in the second or even third year of mass production. And so could you help us understand what this new trend, what's the financial implications? And then what does that imply for you to operate or even compete differently versus in the past? Jeff Su: So Sunny's first question, I think maybe is related, well, to our technology differentiation, but she knows that when we ramp a new -- in the past, when we have a new node after a few years, sort of the revenue comes down a bit, but she notes that nowadays, we can still enjoy very high revenue from a node even after in its fourth or fifth year. So her question is what are the financial implications from this and also from a, I believe, competitive dynamics? C.C. Wei: If I can answer, say we are lucky. Actually, if you -- if you look at the semiconductors product, right now, the trend is you need to have a lower power consumption always and then high-speed performance. And for TSMC, our technology depreciation becomes more and more clear, we have both benefit. We have a high speed, and we have a low power consumption. And so our leading edge customer, the first wave, the second wave, the third wave continue to come and so that sustain the demand for a long, long time. That's a difference. Of course, this one, you need to have technology leadership, and which the technology leadership much easier to say. But every year, you have to improve. As we said, we have N2, N2P and then you won't be surprised, and the third one will be N2 something and continuously. And so that one give us the benefit and to support our customers continuous innovation. And so they continue to stay with TSMC. And so their product can be very competitive in the market. So that answers the question say that once we got the peak revenue and did not decrease, it's continuous because second wave, third wave customers continue to join. Sunny Lin: Thank you very much, C.C. And then maybe a question on 2 nanometer, which you should see meaningful revenue coming through in 2026. And so in the past, you guide like how much a new node will contribute to sales for the year. And so any expectations on the revenue contribution from 2-nanometer in 2026? And then I recall in terms of process migration, a few years ago, there were a lot of concerns on increasing cost per transistor. And that obviously is not declining from 5-nanometer? But then now looking at 2-nanometer, I think process migration seems to be reaccelerating even for smartphone and PC and then with larger demand coming from high-bandwidth compute. And so maybe based on your feedback from clients, maybe for smartphone and PC clients, why are they reaccelerating process migration into 2-nanometer? Jeff Su: Okay. So Sunny's second question very quickly in 2 parts, 2 nanometers, as we said, is a fast ramp in 2026, very strong customer interest and demand. So what -- do we have any revenue percentage to guide for in 2026? Jen-Chau Huang: Yes. Sunny, the 2-nanometer will be a bigger node than 3-nanometer from the start, okay? But it's less meaningful nowadays to talk about the percentage of revenue contribution when the new node starts because the corporate, as a whole, the revenue has become much bigger than before. So yes, revenue dollar, it's a bigger node. But percentage-wise, less meaningful. Jeff Su: Okay. And then the second part of Sunny's question from a technology perspective, as she noted increasing cost per transistor, as we said, CapEx per k going higher. So the question very simply, what's the value? What's driving smartphone, HPC customers actually to see -- we're seeing a widening out of the adoption of N2. So what is the value that is providing that the customers are willing to adopt N2? C.C. Wei: I already answered the question, right? Because now the whole product is looking for lower power consumption and high-speed performance. And our technology can provide that value. I also say that every year, we improve. So every year, they adopt the same -- even the same name of the same node, their products continue to improve. So that provides the value. It's -- if you say that the cost per transistor is increasing, I saw the cost per transistor, the performance compared to call the CP value is increased, is much better. So that customer stick with the TSMC. Our headache right now, if I can call it a headache, is a demand and supply gap. We need to work hard to narrow the gap. Jeff Su: Operator, can we take the last call from the line, and we'll take one last one from the floor. Operator: Next one, Krish Sankar, TD Cowen. Jeff Su: Okay. Krish, are you there? I guess not. Then let's just take the last -- not call -- sorry, the last question from Bruce Lu from Goldman Sachs. Zheng Lu: Thank you for letting me to ask the last question. Hopefully, it's not that difficult. So I think one of the key -- I understand that TSMC is trying very hard to increase the capacity. AI revenue is growing like 15% a year, 15% plus a year. But token consumption for the last few quarters is 15% a quarter. So the gap is still there, right? I mean that's why [indiscernible] was talking about the chip war. So can you share with us that in your assumption when you provide 50% plus AI revenue growth, what kind of token consumption you can support? And how many gigawatts power in terms of the chips you can support in your assumption when you provide this kind of 5 years revenue guidance for AI? Jeff Su: Okay. So Bruce's first question is around our AI CAGR. Actually, to be correct, we have guided for the AI CAGR to grow mid- to high 50s CAGR in the 5-year period from 2024 to 2029. So that is the official guidance we have provided just today. Bruce's question is, in this guidance, what is our assumption basically assuming about the token growth behind this type of CAGR? What is our assumption in terms of translating to how much gigawatts of data center can we support and other specific assumptions behind our guidance? C.C. Wei: Bruce, you got me. I mean that's -- I also try to understand what is the tokens of growth. But my customers, their product improvement continue to increase. So from -- it's a well-known from Hopper to Blackwell to Rubin, that almost double, triple their performance. So the one they can support the tokens of growth or the one they can continue to support the compute power is enormous. And so I lose the track to be frank with you. And for gigawatt, I want to see that how much of TSMC can make the money from the gigawatt rather than say that how much we can support. Today, from my point of view, still the bottleneck is TSMC's wafer supply. Not the power consumption, not yet. So we also look at carefully. To answer your question, say that TSMC's wafer can support how much of the gigawatt, still not enough. They still have abundant of power supply in the U.S. Zheng Lu: Okay. My next question is for the CapEx, right? I want to double check with what I just heard that C.C. was talking about like 2027, the CapEx will be more for the productivity improvement and '28, '29 may be meaningfully higher. So I do recall that in 2021, TSMC provided at 3 years for $100 billion CapEx to support that structural growth. Now the demand is even stronger. Based of that, can we do 3 years $200 billion of CapEx for the next 3 years. The math sounds doable. Jeff Su: Okay. So well, first, a clarification because C.C. was talking about this year, we have substantially stepping up our CapEx investment, but C.C. also mentioned it takes 2 to 3 years to build capacity. So in terms of -- Bruce's question, do we say 2027 significant step up in CapEx, I think we're saying it takes time to -- for that capacity to come out. So that's the first part. Jen-Chau Huang: Yes. I think Bruce, what C.C. said was the productivity was our main focus in '26 and '27 because when we start to invest the fab, the volume production will not come out until '28 and '29. So the dollar amount invested today is for 2 years or even in the future. And CapEx dollar amount, as I said, in the last 3 years, $101 billion in the next 3 years, significantly higher. I'm not going to share with you the number, but significantly higher. Jeff Su: So I think Wendell has addressed at least both parts of Bruce's question. Okay? So again, thank you. So again, thank you, everyone. This does conclude our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within 30 minutes from now. The transcript will become available 24 hours from now, and both are available or will be available through our TSMC's website at www.tsmc.com. So again, thank you, everyone, for taking the time to join us today. We certainly would like to wish everyone a Happy New Year. We hope everyone continues to stay well, and you will join us again next quarter. Thank you. Goodbye, and have a good day.
Operator: Good morning. Welcome to Morgan Stanley's fourth quarter and full year 2025 Earnings Call. On behalf of Morgan Stanley, I will begin the call with the following information and a disclaimer. This call is being recorded. During today's presentation, we will refer to our earnings release financial supplement, and strategic update, copies of which are available at morganstanley.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our notices regarding forward-looking statements and non-GAAP that appear in the earnings release and strategic update. Within the strategic update, certain reported information has been as noted. These adjustments were made to provide a transparent and comparative view of our operating performance. The reconciliations of these non-GAAP adjusted operating performance metrics are included in the notes to the presentation or the earnings release. This presentation may not be duplicated or without our consent. I will now turn the call over to chairman and chief executive officer, Ted Pick. Ted, you may proceed. Ted Pick: Good morning, and thank you for joining us. In 2025, the US economy proved resilient as ever. As predicted, the capital markets are kicking in with well-capitalized corporates and higher-end consumers driving the economy forward. 2026 starts with the tailwinds of constructive fiscal policy and easier monetary policy. As the arc of history resumes, geopolitics are front and center, with a broadening set of opportunities and challenges. While the higher plane of Morgan Stanley results tell a story of durable performance, we are mindful of the combination of geopolitical swirl and ambulant markets. The macro backdrop is complicated. On the one hand, the setup is ideal. We are monetizing the long-awaited conversion of capital markets green shoots across our investment banking and markets verticals and we are scaling asset inflows and transaction activity across our wealth businesses. At the same time, we are well served to watch for any overreaching against ongoing global uncertainties and higher asset prices. 2025 results and in fact, the results for every quarter over the last eight are a blueprint for Morgan Stanley's success. We expect this mix of tailwinds and headwinds to prevail in 2026 and are prepared to continue to execute. We will now walk through the 2026 strategy deck entitled The Integrated Firm: Executing on a Higher Plain which can be found on the Morgan Stanley website. We will then detail fourth quarter and full year results. Turning to Slide three. Morgan Stanley's 2025 results are summarized by $9.3 trillion in total client assets, $10.21 in earnings per share, and a 21.6% return on tangible. The firm's trusted adviser franchise delivered across all three metrics. Slide four shows that our average earnings per share and returns on tangible over the last decade reflect the transformation of Morgan Stanley's business model. The last five years are the result of share gains and operating leverage via consistent investment in technology, footprint, and the successful integration of key strategic acquisitions. Moving to Slide five. We're well on track toward our firm-wide goals. We've compounded wealth and investment management client assets towards $10 trillion plus. In institutional securities, we gained 100 basis points of wallet share with clients across investment banking and markets, reflecting the strength of our integrated investment bank and global franchise. Please turn to Slide six. We've moved up the firm-wide goals page for review in the context of the last two very strong years. 2025 results in the fourth quarter or on an annual basis broadly met or exceeded our firm-wide goals. Asset growth accelerated with last year's additional $1.4 trillion. Wells pretax margins are at their highest levels ever with the fourth quarter's 31% printed result. Institutional securities gained share across underwriting and equities trading. And we closed the year with a strong advisory result. In short, the firm is running at a higher run rate. We are executing from a position of strength. Multiyear investments in the core businesses, client momentum, management stability, and growing capital excess. But as I observed in the opening, there are both macroeconomic and geopolitical tailwinds and headwinds. And in our view, while we are happy to have reached many of these firm-wide goals, perhaps earlier than some expected, this is not the time to overreach. These last eight quarters memorialize consistent execution against different many macro uncertainties and our multiyear growth plan contemplates both secular growth and available wallet and continued durable share gains. Our expectation going forward is that if this environment is welcoming, we are meant to execute at or above these firm-wide goals as we did in 2025. And when the backdrop is more challenged, to endeavor to achieve higher lows. The longer-term cadence we seek is a higher plane of operating performance through the cycle, as we compound earnings in a capital-efficient way. Now to the Forward Growth Plan. Please turn to Slide seven, where we review our major businesses. As you know, wealth has three channels. Our financial advisers, workplace, and E*TRADE, each a category leader. Which taken together comprise our strategic client acquisition model. And institutional securities we have deep client relationships and a global footprint under the Integrated Investment Bank. We have diversification in investment management led by Parametric, alternatives, and fixed income. We continue to invest in each of our three business segments. Wealth, institutional securities, and investment management via human capital and technology. Our growth plans embed the increasing adoption of AI tools throughout the enterprise and inside our client base. With each passing quarter, our confidence continues to increase in the potential for both the efficiency and the effectiveness of AI-related technologies across the business units and infrastructure. Slide eight. Our wealth management business is built for scale, and performance. The financial adviser, workplace, and E*TRADE channels are each thriving. The business had net new assets of over $350 billion last year. Over the last five years, the firm attracted $1.6 trillion plus of net new assets with a doubling of fee-based flows. For 2025, Wealth achieved $32 billion of revenues, 29% margins. The funnel is working. Please turn to slide nine. With 20 million wealth relationships, future growth is embedded in the business. Our intense focus on the value of advice generates movement through the funnel, allowing us to capture opportunities for adviser-led assets. In 2025, we saw accelerating flows across channels with $100 billion migrating to financial advisers. We're using our scale to invest in broadening capabilities for FAs that are difficult for others to replicate. Alternatives and privates, tax-efficient investing, digitized assets, family office and OCIO, and tailored lending. Collaboration across the integrated firm is felt by clients, for both their corporate and personal wealth needs. Slide 10 dives deeper into institutional securities. We have an established global footprint and revenue base. Banking and markets gained wallet share delivering margins of 34%. Revenue growth supported by the recovery in investment banking is running roughly two times SLR and RWA growth since 2023. Reflecting our continued focus on capital efficiency, and operating leverage. Turning to slide 11. The institutional securities value proposition is reflected in the Integrated Investment Bank. We approach client coverage holistically, and provide comprehensive solutions with the support of integrated teams. The collegiality and Morgan Stanley tenure of the leadership teams across banking and markets on average, about twenty-five years at the firm, is critical in bringing the best of our intellectual capital to clients. The themes of the equitization of global markets and the full suite of expertise to advise on cross-border M&A are at our global core. ISG share gains position us well for the global investment banking and capital markets cycle in 2026 and beyond. Please turn to Slide 12. In Investment Management, we continue to benefit from secular growth in investing solutions and the democratization of alternatives. Parametric is the industry leader in tax-efficient investing at $685 billion in AUM, and stands to benefit as more clients and asset managers seek customized solutions. Our alternatives platform has more than doubled in five years, with investable assets now at $270 billion. These and other areas of strength are supported by ongoing investments in technology and global distribution. Slide 13 underscores Morgan Stanley's global presence. We have 30,000 people outside the US in every business unit and in large tracks of infrastructure. 25% of our revenues this year came from outside the US, with EMEA growing revenues by 40% and Asia by 50% over the last two years. We have leading businesses in Japan, to our almost twenty-year joint ventures, with our close partner MUFG, and a world-class business in Hong Kong. We've grown in the EU, and maintained leadership in the UK. In a world that is both deglobalizing and reglobalizing our presence and footprint matter. Slide 14 illustrates why Morgan Stanley wins as the integrated firm. We have scaled capabilities and a business mix that can support our clients throughout an entire life cycle. Our Morgan Stanley work business with its exclusive partnership with Carta positions us as an early trusted adviser to over 50,000 private companies. As workplace companies grow, we can provide traditional institutional servicing. Employees across our workplace companies benefit from our management of equity compensation plans liquidity opportunities, and our full-service advice. We are focused on both the public and the private ecosystems, augmented by our recent acquisition of EquityZen. The objective is to cover growth companies and their employees from founding their public maturity while broadening access for investors to the growing stack of private companies. Ted Pick: Again, our technology leadership and wealth enables us to deliver a holistic client experience. Please turn to slide 15. Our durable business model and strong earnings profile have kept capital levels high during a period where the regulatory capital framework has normalized. As we've grown fee-based revenue streams, our regulatory minimum CET one ratio has steadily come down. At a CT one ratio of 15%, have over 300 basis points of excess capital. With the passage of time, the continued durability of the business model may be enhanced by further regulatory relief. Prudent dividend growth comes first. And accordingly, we have raised our quarterly dividend by 7 and a half cents for four years in a row, to now a dollar per share. As we've discussed in previous years, excess capital will be directed to continued dividend growth and to ongoing investment in clients and technology across the integrated firm. We will also continue to opportunistically buy back stock. We are keeping full watch on potential M&A adjacency. But we will continue to be patient. Because we have worked diligently through the acquisitions of Smith Barney Solium, E*TRADE, and Eaton Vance over the last fifteen years we know what level of focus and energy is required across the entire firm to make a multiyear integration successful. In short, we are endeavoring to keep the bar for acquisitions high, bearing in mind that many asset classes private and public, trade at elevated levels, that there is no shortage of ongoing opportunities, and that the first call on capital must be to our clients and the continued growth of our core businesses. Concluding with Slide 16, we're supported by our four pillars of the integrated firm. Strategy, culture, financial strength, and growth. Morgan Stanley's strategy to raise, manage, and allocate capital is well understood by our clients, people, and our shareholders. Culture is about rigor, humility, and partnership. Financial strength is about capital, earnings power, and durability. And growth is about smart, strategic investment into wealth, institutional securities, and investment management and across the firm globally. The result is growing assets and compounding earnings in a capital-efficient way over the long term. Thank you. Now Sharon will review our fourth quarter and annual results. And then we will both take your questions. Thank you, and good morning. Sharon Yeshaya: 2025 was an exceptional year for the firm. Marked by deliberate execution of our strategy. Full year revenues reached a record of $70.6 billion and the fourth quarter revenues were $17.9 billion. Expanding markets, increasing client demand for advice, and improving client engagement supported results across businesses. Concurrently, multiyear investments in our talent, the integration of acquisitions, workplace, and the integrated firm have significantly contributed to growth and momentum. Our ROTCE was 21.6%, and we generated record EPS of $10.21 for the full year. Alongside fourth quarter ROTCE and EPS of 21.8 percent and $2.68, respectively. In 2025, we delivered operating leverage while continuing to invest for future growth and advancing productivity initiatives firm-wide. Our full-year efficiency ratio improved to 68.4%. Underscoring disciplined execution, and rigorous prioritization of investments. Now to the businesses. Institutional Securities delivered a record full-year revenues of $33.1 billion including $7.9 billion in the fourth quarter. We continue to invest in our global footprint and capabilities. Resulting in competitive advantages and industry leadership. A strong macro backdrop improving corporate confidence, open capital markets, position us well to continue to capture durable share. Investment banking revenues were $7.6 billion for the full year, reflecting year-over-year growth across products and regions. Fourth quarter revenues of $2.4 billion increased 47% from the prior year. Results were led by a record in debt underwriting, and advisory crossing $1 billion for the second strongest quarter ever. Corporates leaned into constructive financing conditions to fund strategic priorities. While sponsors were also active. Completing previously announced M&A transactions. Equity issuance led by convertibles and IPOs remained strong, driving consistent results in equity underwriting. Looking ahead to 2026, investment banking pipelines remain healthy global, and diversified across sectors. Strategic activity is accelerating, Companies and sponsors are looking to access capital for growth investments. And the reopening of the IPO market creates additional opportunities for clients. Turning to equity. The business delivered record full-year revenues of $15.6 billion. Our global share gains this year were driven by increased client engagement, and dynamic risk management. Revenues were $3.7 billion in the quarter. All businesses were up versus the prior year's fourth quarter on the back of higher client activity. Prime brokerage revenues drove the fourth quarter's results. Client balances continue to rise, supporting the outlook for financing revenues. Cash results increased versus last year's fourth quarter, reflecting higher volumes across regions. Derivative results were up versus last year's fourth quarter as well, benefiting from our consistent investments in our client franchise and product offering. Fixed income revenues were $8.7 billion for the full year. And importantly, investing in our lending businesses has contributed to increased consistency and stability of our franchise. Quarterly revenues were $1.8 billion. Micro and macro results declined versus the prior fourth quarter. Reflecting lower volatility in foreign exchange and weaker performance in credit corporate. Sharon Yeshaya: Commodities results declined primarily due to lower power and gas revenues. Which had benefited from several large structured transactions in last year's fourth quarter. Turning to wealth management. 2025 demonstrates the consistent execution of our strategy. We delivered full-year records across revenues and reported margins, reaching $31.8 billion and 29%, respectively. Both net new assets of $356 billion and fee-based flows of $160 billion for the full year demonstrate industry-leading growth. Workplace and E*TRADE relationships continue to seek out advice. Advisor-led assets originating from workplace and E*TRADE relationships accelerated growing to a record $99 billion for the full year. Compared to historical averages of around $60 billion per year. Moving to our business metrics for the fourth quarter. Record revenues reached $8.4 billion and the business delivered strong leverage with the reported margin expanding to 31.4% DCP negatively impacted the quarterly margin by 95 basis points. Asset management revenues were a record $5 billion, benefiting from expanding markets and consistently strong fee-based flows. This marked our third consecutive quarter of fee-based flows exceeding $40 billion. A first for this industry. Transactional revenues were $1.1 billion. Elevated activity across both adviser-led and self-directed clients drove the strength. Additionally, net new assets for the quarter were robust at $122 billion with contributions across all channels, Growth was supported by institutional relationships, related to the integrated firm. Bank lending balances grew $7 billion sequentially to $181 billion. Driven by securities-based lending and mortgages, Growth reflects our efforts to deepen client penetration with SBLs. Leveraging technology to improve automation and facilitate the client acquisition openings as well as increasing education with our advisers and our clients. Sequentially, total period deposits grew $10 billion to $408 billion, and net interest income increased to $2.1 billion. The growth in NII was driven by the increase in sweep deposits and loan balances. Looking ahead to the first quarter, we expect NII to remain roughly flat quarter over quarter as higher average sweeps and lending balances should help to offset the full impact of the two rate cuts in the fourth quarter. As we look ahead to the remainder of 2026, assuming the current forward curve, incremental loan growth, and our for the deposit mix, we expect NII to continue to trend higher. Before concluding, one update on DCP. Over the course of the first quarter, we will be transitioning all economic hedges for DCP obligations to derivative instruments. As previously announced, we will also increase the cash component of our adviser compensation. We are making these changes to reduce the accounting-driven volatility in revenues and earnings. While there will be some transitional costs, these changes support our overall investment into our financial advisers and will help simplify our compensation program. The full year, inclusive of momentum in the first quarter, fourth quarter, exemplified our strategy to reach new relationships grow assets, and deliver advice solutions to clients. Strategic initiatives, such as our recent acquisition of EquityZen, expanded partnership with Carta, and collaboration with Zero Hash, all reflect our commitment to innovation. Together, they lay the foundation for sustainable growth to widen our competitive moats. Our intentional strategy to introduce and educate retail clients to the value of advice coupled with consistent education over the past several years sets our franchise apart and positions us to continue to outperform. Turning to investment management. Our franchise delivered strong results this year with durable management fee revenues reaching all-time high. The margin continued to steadily improve. Total revenues were $6.5 billion and we scaled to a record $1.9 trillion in AUM. The business has now generated six consecutive quarters of positive long-term net flows. With ongoing demand for parametric and fixed income strategies supporting the full year long-term goal net inflows of $34 billion. Long-term net inflows were approximately $2 billion in the quarter. Importantly, our broadened portfolio helped offset equity outflows. Benefiting from the consistent strength in fixed income, parametric, and global distribution. Liquidity and overlay services saw $68 billion of inflows for the quarter. Driven by institutional demand. Some of which may be seasonal. Fourth quarter revenues were $1.7 billion, driven by higher asset management and related fees on higher average AUM. As a reminder, certain performance fees are recognized on an annual basis largely in the fourth quarter. Which drove the sequential increase. Performance-based income and other revenues were $71 million in the quarter. Gains in US private equity and private credit more than offset markdowns in our infrastructure fund. Turning to the balance sheet. Total spot assets were $1.4 trillion. Standardized RWAs increased sequentially to $553 billion. Our standardized CET1 ratio ended the year at 15%. For the full year, we bought back $4.6 billion of common stock, including $1.5 billion for the quarter. Our tax rate was 21.5% for the full year, and 23.2% for the quarter. We expect our 2026 tax rate to be between 22-23%. And consistent with prior years we do expect some quarterly volatility. As we look ahead into 2026, the firm enters the year from a position of strength. Our wealth and investment management businesses exited with $9.3 trillion in total client assets. Client engagement remains high, Our pipelines are healthy, and our global footprint positions us well to continue to deliver advice and solutions across markets. We remain focused on investing for the future and scaling our business to perform through various market environments. With that, we will now open the line up. To questions. We are now ready to take in questions. To get in the queue, you may press star and the number 1 on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press star and the number 2 on your touch tone telephone. We'll take one question at a time, and then we'll move to the next person in the queue. Please rejoin the queue for any additional questions. Please standby while we compile the Q and A roster. We'll take our first question from Glenn Schorr with Evercore. Glenn Schorr: Good morning, Glenn. Hi. Good morning. Okay. So the results are pretty great across the board, and I think I appreciate your, your comments about environment, risks, Ted Pick: you're a conservative guy, you're a risk manager. I do think people would love to hear a little bit more about why no change for the targets, Are there pieces of the business that you think are just at peak and over earning you? We don't wanna set ourselves up The market's up 80% for the last three years. And and then just like you know, cyclical caution basically versus anything underneath separately. So thanks so much. Ted Pick: Well, think that's the important question for the day. We a robust conversation about it, but in the end, the decision was really pretty easy. I think the view is that the shareholders ultimately wanna see an enterprise that can operate at high levels with the kind of ballast that you began to see over the lows in the last decade. And then on the forward, we can achieve effectively higher lows. And I think the tendency has been when when a target is hit, the view would be, well, we hit it. Let's take it up further. Sharon Yeshaya: And there is no view that the that the net wins are headwinds. They are, in our view, secular and cyclical tailwinds that work for us both in terms of wallet and in terms of market share. Across all of the major businesses. And we have even more operating efficiency that we think we can continue to nerve from the infrastructure by way of AI over time. But I think part of the premise of rigor and humility at our place is that we do this in a way where we compound earnings again and again right through the cycle. And of course, we will revisit these targets in the in the late year to come. And if then we've passed through them very clearly, and it's time to take them higher, we will certainly consider that. But I think the view is we're a couple years in. Each of the quarters has been by many measures, quite excellent. And the two years taken together each on their own, and then taken together also excellent. But I think know, mistakes that I'll make, Glenn, this won't be one of them, which is to kinda hit the new target slide at the beginning of, you know, year three because we're feeling our oats. I think we have a very positive view of where the firm is positioned. We like the spaces we're in. But we think that demonstrating our ability to compound earnings through the cycle is what the owners wanna see, what you wanna see. And that when things are bumpier, they're choppier, we'll have higher lows. Ted Pick: And if we can continue to compound earnings at 20% returns, Sharon Yeshaya: we're gonna have happy owners. Operator: We'll move to our next question from Dan Fannon with Jefferies. Good morning, Dan. Dan Fannon: Good morning. So I guess just to follow-up on that given Ted Pick: the success of the wealth management business. Can you talk about Sharon Yeshaya: the drivers of the margin from here? Is it just scaling and growth of the business, or are the things underneath from a cost or efficiency that we should think about or mix of business that can drive those margins higher. Ted Pick: Thank you so much for the question. I think it's both. We have consistently added fee-based flows. That is demonstration that the funnel is working. So from the revenue line items, right, the the drivers of continued expand expanded market are twofold. One is building out the fee-based revenues and the fee-based assets, and that is happening as we do introduce new clients to the power of the advice-based model. But there are also clients who just want self-directed activity, and we have been investing in that business in the E*TRADE franchise, in E*TRADE Pro, and you see that our transactional revenues are also increasing. So that's an investment story in technology. And the second piece that you mentioned is efficiency. We are also using technology to help us from an efficiency perspective both on the cost and the revenue side. I'd note to you that some of the AI that we've been doing is actually also on the revenue side. So LeadIQ, for example, which is helping us introduce our advisers to our clients who are interested in in advice That's happening using AI. So there's technology that can be used both on the revenue side and on the expense side. That should help us drive the margin on both the top and the bottom line. Sharon Yeshaya: Workplace is particularly exciting as a way to bring the entire enterprise together. To help drive both the corporate client base and personal wealth into a broader mortgage handling funnel. So that plank of the funnel has been particularly extraordinary. Operator: We'll take our next question from Brennan Hawken with BMO Capital Markets. Ted Pick: Morning, Brennan. Brennan Hawken: Good morning, Ted. How are you? Great. Ted Pick: Excellent. I I I I actually sorry to be a little repetitive, but but I I Brennan Hawken: I'd love to have have another question here on on the targets because we it does seem as though we've got maybe a shift in how you guys are thinking about them. And it and you you made some comments around I totally get it, and I wanted to chase the dragon. Right? And and continuing to raise the the targets and think about what what the peak could look like. You spoke to higher lows in addition to higher highs. So is the right way to think about how you're framing the targets and how you're thinking about managing the business as more like a central tendency through the cycle or is it even feasible as you continue to scale to think about how this might be you never wanna use terms like floors in businesses like you have because of the market sensitivity and and whatnot. But you know, potentially, what you could be looking to do even in more challenging markets as we continue to progress forward. Thanks for taking my question. Ted Pick: Sure. There is a chasing dragon element to this, of course. You hit you hit some of the targets once, and you feel you gotta sort of bump and raise. We want we want this to work organically over the very long term. This is part of the reason on slide four, Sharon Yeshaya: we put up a decade of results. Ted Pick: There is cyclicality in the business. There is no Sharon Yeshaya: philosophical Ted Pick: frame shift, though. I I think we just now have the kind of confidence where we can start talking about what it would be like if there was a more challenging environment and our ability to still generate 17 and a half percent returns on tangible with an environment where earnings could be below $8. We don't have that in the plan. But it is an important ballast when we think about the, earnings multiple that you put on the currency that there's a view that we can continue to generate real leverage, operating leverage through performance in tougher periods. That is a tough is a tough thing to tell the market you have confidence in unless you've done eight quarters as we have in these sort of mini macro uncertain periods where we've been able to see performance driven by the the two major segments separately and then together. It is the case, though, that with the compounding of earnings and the continued growth of these businesses, it is quite possible that we are going to be moving right through these firm-wide goals. By definition, the math should take us through the $10 trillion. It's, you know, it's compounding math. And, you've seen our performance on that score over the last several years. And we printed wealth margins that were in fact above 30% We continue to gain share inside the investment bank. As Sharon went through, we had margins for the enterprise, i.e., ratio that was below 70%, and our ROTCE was 21, 22. So we demonstrated it. It's just not in our prudent kinda long-term thinking that is the Morgan Stanley of today, that we should just move the targets higher because we've had a couple good years. I think the view is Ted Pick: we are going to continue Sharon Yeshaya: to compound earnings We are going to Ted Pick: not push on robust objectives. When, in fact, 20% returns Sharon Yeshaya: are pretty darn good if we're continuing to, gain wallet Ted Pick: and secure market share in the businesses that we care about, whether they are in core investment banking, in the mergers, Sharon Yeshaya: business. You see our advisory number was excellent this quarter in our equities business, which has become again the kind of competition that it was some years ago where the Ted Pick: leadership group is moving away from the pack. Sharon Yeshaya: In, fixed income secured lending where we have a great client touching business. And then Ted Pick: really across that wealth funnel, which is Sharon Yeshaya: really quite extraordinary. So there is an element of gonna keep our heads down and execute. Ted Pick: As opposed to kinda here are some targets just to get everybody Sharon Yeshaya: excited in the moment. And then let's see if we ever hit them. I think our view is let's hit them again and again. To the point where, you know, it kinda gets louder. Like, when are you guys gonna take this up? Because it's sort of a no-brainer for you now. And when we get to that point, that'll be a happy day. But in the meantime, let's compound earnings Let's do it the right way. Got a lot of long-term plans around the durability of the business model. And, you know, we're playing for the multiple too. It's, you know, it's the p as you know, it's the p and the e. And part of the way to get a premium multiple, earnings multiple in the marketplace is to demonstrate our ability to say what we're gonna do and just go out and do it again and again. Operator: We'll move to our next question from Devin Ryan with Citizens Bank. Devin Ryan: Thanks. Good morning, Ted. Good morning, Sharon. Morning. Question on institutional trading. Obviously, wrapping up another great year for the firm, up 16%, and that's coming off of 19% growth in 2024. And clearly, Morgan Stanley, you guys are executing on your wallet initiatives and gaining share. But as we look ahead into 2026, can you help us think about some of the puts and takes of just assessing kind of the trajectory of the wallet Just trying to think about kind of the baseline here after two really good years. Can the wallet continue to expand and kind of the secular dynamics versus the cyclical? Thanks a lot. Ted Pick: Yeah. We like we like the tailwinds. Sharon Sharon will improve my Brennan Hawken: here. Ted Pick: We really like this business. I think one of your colleagues likes to ask sometimes what inning we're in. I think in the capital markets business as a whole, I kinda put us in the third inning. Now there are sort of exogenous outs, of, as I said, the geopolitical swirl. But the reality is, the equitization of markets around the world is underway. Why we put in the slides on the global presence that we have. Not that we're trying to be all things to all people. Where we are good, though, we wish to be very good. So we are we are differentiated in Tokyo. We are differentiated in Hong Kong. Hong Kong was the busiest, issuer of equity. Sharon Yeshaya: The world over the last year. That will continue. Ted Pick: Of course, we have the sweet spot in The US. So there's a global theme to this. But as we talked about in prior calls too, there have been reasons why there has been some sort of stuck boardroom mentality, understandably, as we went into the pandemic, and then we came out with our rates having roof to try to combat inflation. But I think now there is really you know, no more time to waste. The the reality is that AI is now taking hold endogenously and you need to actually have some real scale to be able to seize the teething of putting that into your into your core business. And so we should see consolidation and the sponsors are just getting going. They are having bought some time and taking a look at what they wanna keep and what they wanna run through markets. They they are beginning to unglue their asset base And then, of course, we have very large private companies that are wildly successful. That are probably going to start bridging to getting public. So I'm starting there because that's all about investment banking. Sharon Yeshaya: And then in the equity space, Ted Pick: you know, rates that are above the zero floor Sharon Yeshaya: foreign exchange that starts to trade, and then importantly, the institutionalization of the private credit class all speak to vibrant capital markets. And as you know, we are at some level stock house. Ted Pick: M and a, wealth management, and then equities. And clearly getting our footing to be number one or number two in the equities business in a given quarter has been a priority of ours to do it the right way with clients importantly, within that, Sharon Yeshaya: the growth of the derivatives business, a relative weakness of Morgan Stanley relative to the top tier competitors, a lot of that has now been erased. So we actually are are coming across now as a derivatives house as well for clients. So I like Ted Pick: what, we like what Dan has done quite brilliantly with the Integrated Investment Bank, which is sort of take it up another notch, with clients right into the cycle where we have the global footprint and where we are ready Sharon Yeshaya: to put capital to work, as Sharon said, Ted Pick: in places like, m and a acquisition financing, prime brokerage, fixed income secured lending, and other durable businesses that accrete to the broader integrated firm. And then my last comment would be the beauty of this, and you heard it woven into my slides, and Sharon's commentary, is that a whole bunch of what we're talking about has application above both the across both the institutional and wealth client set. Stock administration side of workplace has appeal both for the CEO and then for the the their that firm for their wealth management business. So we're quite excited about it. The the old rule of thumb is two times GDP. I would think two times GDP. Not a bad way to go. Nominal GDP even. So you could see the wallet in this business, continue to grow by anywhere between five and maybe even 10% per annum. And then as you can see, we are continuing to gain share from Sharon Yeshaya: some of the lesser firms, that have incomplete offerings. Which should auger well for the largest established firms Ted Pick: frankly, ones that reported this week being the ones to thoughtfully gain share here over the next number of quarters. Operator: We'll move to our next question. Sorry. Go ahead. We'll take our next question from Mike Mayo with Wells Fargo Securities. Ted Pick: Hey, Mike. Well, it's going to ask. Mike Mayo: I was going to ask you what inning you're in, but I think you just I know. I know. Ted Pick: I know. I know. Sorry about that. Mike Mayo: Well, it's the it's the wrong season too, so maybe I can Devin Ryan: in football games. I don't know. But Why don't how about this? Ted Pick: Maybe just ask the question again, and then they're like, I gave pick a softball. Sharon Yeshaya: Look. As it relates to trading, I get investment banking Mike Mayo: and the equitization of markets globally, the institutionalization of private credit class, and Sharon Yeshaya: you know, I think that you know, kind of probably hits the mark. But the trading side is what I think you know, people wonder about it. You've always put a forecast in there, and it doesn't always turn out so correctly. And so how do you think about the trading business? You had unusual volatility last year, and you say third inning, maybe it's the the first or second inning for IB and eighth inning for for trading, or how would you characterize that? And then as an overlay, how do you think about the AI opportunities and risks as it relates to your business? Ted Pick: Oh, that's sort of interesting where you put it. So I'll do the first part Sharon Yeshaya: Sharon will do the second part. The the the yeah. I could argue that the trading businesses in some respect have to be viewed, if you just we were to look back on the Ted Pick: earnings prints, but, you know, years from now, Sharon Yeshaya: maybe they're in middle innings. Simply because we've had this huge move in asset prices. So by definition, you're off higher notionals and you know, the there's a gross leverage and you've seen, you know, real sort of capital accumulation in places where we can monetize, and maybe we're in that sweet spot right now as opposed to the pure investment banking business which is in the, earlier innings. So I guess you could probably argue that And is the case that we have lower asset prices because you know, we just we have a drawdown or we have kind of, like, a blip economy or the geopolitical thing kinda hits tails. Because there are tails, obviously. The base case as as we as we both know, the base case is positive. Just given the health of the corporate, the consumer, and the general kinda tailwind of deregulation. But if some of that Ted Pick: kind of creates periods where things are kinda risk off, Sharon Yeshaya: Yeah. I would agree if there are folks that are trading, and have some inventory and kind of the risk that we all know gets kinda linked to trading, could there be lower levels of performance? Absolutely. Which is which is, by the way, also part of the reason that we are emphasizing for the for the purposes of the investment bank kind of durable share gains and wallet Ted Pick: as opposed to trying to show a ton of volatility around returns. Now we can't control asset prices, but we can sort of control that which we feel like is sort of Sharon Yeshaya: mandate business with our institutional clients versus kinda just you know, moment to moment sentiment. And that, you know, that that that's part of the that's part of the art of, overseeing and risk managing these businesses, but that's something we're focused on. Sharon Yeshaya: On the second part of your question, Mike, you hit on a great point. The need for capital markets and structuring expertise in terms of what's going on within the AI ecosystem is clearly there. And I think that that's a part of what you're seeing both play out over the previous year, but also when you look ahead, with companies needing access to capital markets. So these are places where we see ourselves playing that intermediary role in terms of our strategy of helping clients you know, manage and allocate, and get access to capital. And that will happen both as you think about the equity underwriting business and also in different parts of the project finance and potentially even the m and a space. We'll move to our next question from Steven Chubak with Wolfe Research. Steven Chubak: Hey. Good morning, and thanks for taking my question. Devin Ryan: So I did want to drill down into, like, a broader question on firm-wide operating leverage. And just as we think about the earnings growth algorithm, you know, putting the decision not to change the targets aside, I can certainly appreciate the Steven Chubak: desire to be a bit conservative there. Now given the expectation, though, for meaningful Devin Ryan: growth in both cap markets and wealth revenues in the coming year, and consensus really contemplating little to no improvement in margins. Versus the 50% incremental margin you achieved this past year was just hoping you could speak to the philosophy around operating leverage and whether you can still deliver those higher incremental margins if the revenue momentum is sustained and the operating backdrop remains constructive? Ted Pick: That was very clever. You're effectively did read your report. You are you are you are you are trying to get at moving the Sharon Yeshaya: moving the goals without moving the goals. Yeah. I I I mean, Sean put some meat on the bone. But, of course, we we expect there to be ongoing operating leverage if we are running these businesses as we have. And, you know, the market backdrop is constructive. You know, there's largely a fixed cost base. And, sure, there's some variable costs as you go, but that is why we are we we we we believe we're not overreaching and saying, that even with the ongoing investments we're making, back to Mike's question on AI, in core technology or in ongoing AI efficiency and effectiveness tools, we would expect that if the markets are conducive and we execute, so those are two ifs, Markets, you know, market is constructive, and we execute, across wealth and the investment bank and and I am as well. That we should continue to realize operating leverage. I don't think, our view is that it's a linear model. But our view would be that that is why we thought that the efficiency ratio at 70 was a good number. And in periods of performance in the past, and certainly again this year. You saw it in the fourth quarter at sixty-eight. And you saw it for the year at I believe, also, 68 and change, that we should be able to continue to press that further in a thoughtful way as we compound earnings. Sharon Yeshaya: Absolutely. I mean, I I highlighted a little bit, touched on AI, talked a little bit about the revenue side, but they're on the expense side. There are definitely places where we see both investment that we will be making. We were a first user, first adopter of AI technology and we're already seeing some of those productivity points play out. Ted mentioned it in his prepared remarks. But think about the operation space. Think about you you used to have two, you know, teams necessarily checking each other on different documentation to make things sure things are right. We now have one human team and one AI team. And so when you're actually looking at those those docs, you have ways to to see productivity gains, and teams can do more work on a different type of cost base than you've had before, and we need the the flex to also be investing in that technology as we move forward. Ted Pick: I really like the point of the the example Sharon gave because that one is sort of a very sort of a simply put example where there should be realized efficiency. From that, presumably, there is effectiveness, i.e., productivity, gains that come realized from insight that can then be applied to other infrastructure and then inside the business unit. The one thing I would say which we all know, but it's worth just putting on the table, is there's gonna be teething pain on this stuff. I mean, we don't know what combination of languages will be the sort of the ultimate best recipe for one institution or another, what the cost sort of put that through the system, will be, how we work the regulator, then importantly, you know, how advanced our client base is with respect to some of this toolkit. So there will be some teething around that. You know, again, like the introduction of the Internet. It will take several years. But I did mention in the deck and Shroom called out again, this is the kind of thing where we are seeing quarter by quarter as we all are in our personal lives that the, the substance underlying the progress the the technological advancement is real. Operator: We'll move to our next question from Erika Najarian with UBS. Erika Najarian: Good morning, Erika. Good Operator: morning. No no good deed goes unpunished. Right? To be fair, JPMorgan has been sticking to 17% Roxy through the cycle despite outperforming it. So maybe just approach it a different way, Ted, and Sharon. You know, you mentioned 320 basis points of excess capital. You know, clearly, the regulators are keen to redefine that. As you think about the forward and achieving higher highs and higher lows, you know, where are you investing back in the business in terms of trying to build moats? And, also, you know, given Sharon's response earlier on the wealth management pretax margin, You know, markets aside, there seems to continue to be structural to improve that underneath the surface. And I just wanted to make sure that we were taking away the right conclusion from that response. Sharon Yeshaya: Absolutely. Operator: You are taking away the right conclusion. We continue to see opportunities to expand our margins over time, really in all of the businesses. We get a lot of questions around, to your point, Erica, are there still opportunities to invest that are ROE accretive inside the building? And the answer is absolutely yes. You can see that in the results, particularly in the investment banking franchise. We have been adding talent and with additional talent resources capital resources, to help service a broadening and a widening out of a corporate portfolio and different corporate clients that we cover. That has helped us gain share and gain durable share in the investment banking, the advisory side, the ECM side, and the DCM side. So that's a a very clear place where we've been putting capital work. You can it in the loans and lending commitments in terms of the growth and balances. And then the the outcome is evident in the results this quarter. Other places where we've been investing capital have been secured lending. So, again, a a a durable business line that has helped, as I mentioned, to stabilize the performance that we've seen in fixed income over the last number of years. And as well capital within our equities business to help service our clients. That's That's on the ISG side, and there are plenty of places in wealth I talked a lot about SBL and mortgages. We're increasing our education to the clients and to our advisers of being able to have products that we can offer those clients and where we can deepen relationships So it's across the enterprise, so to speak, and it has been and will we think continue to be ROE accretive. Ted Pick: Yeah. I that that that's alright. And I and I Sharon Yeshaya: would also just to tag on there, Ted Pick: I would also call out just you know, the early days of the digital asset transformation side of wealth. Know, we announced partnership with Zero Hash last year. We're looking to expand our capabilities. We're well positioned now in the crypto and tokenized asset space. So of course, that's probably a first or second inning type of phenomenon, and there is a lot for us to do there. There is continued work that we're doing in E Trade to take a world-class platform and continue to make that interesting. For our active, self-directed community. And then in investor management, just to call that out, I mean, the success of Parametric classic case of scaling an asset from within an acquisition quite quite brilliant What what the team did there to inside of Eaton Vance to find this real gem and to scale it across wealth management and clients outside the building. I think there is a ton of work to do in alternatives. We continue to invest in that. So some of those are sort of in ongoing capital investments in businesses like equity derivatives, where they should just improve an existing product set. But I'd argue too that there are adjacencies that we are really, like, embryonically building inside of the institution in alts, in digital assets, inside of new customized solutions in the investment bank that are exactly kinda dovetail with the intellectual capital we're supposed to we're supposed to bring, but are gonna take time and investment. Operator: We'll move to our next question from Gerard Cassidy with RBC Capital Markets. Gerard Cassidy: Hi, Gerard. Hello. Hi, Kent. Thank you for thank you for taking the question. Sticking with capital, obviously, you guys are very well capitalized relative to your required levels. And we know you know, led by secretary Bessent that the this administration is really pushing deregulation within the banking industry, and we're seeing it We're all expecting, of course, the Basel III endgame proposal, hopefully, in the first quarter. G SIB recalibration, stress capital buffer recalibrations If your requirement comes down even further from where you are today, at what point do you really have to look at giving back maybe even more capital since you're you got an abundance of it already? Ted Pick: This this is, thank you for your question. Sharon Yeshaya: This is part of the kind of the Morgan Stanley's today where we are comfortable being in a position, where we sort of sit at high ground Yes. We have a capital surplus, and indeed, that surplus is growing with a buyback that's been you know, restrained and a dividend that's been growing prudently. But you know, we continue to grow the buffer. And, you know, we're above 300 basis points. So everything you said is correct. But I think we are in no rush. There are a ton of ideas that are coming at us. The bar for acquisition is super high, as I said. We know what you know, what it takes to kinda integrate an asset. Having done that, four times, we have humility around that. We also know that it is it's kinda incrementally helpful to the institution and even to valuation that folks see that we are real stewards of our capital. Now you're saying at a certain point, it gets to be where we may wish to do something incremental to the capital. Beyond putting into the business, as Sharon and I outlined. Let's see when we get there, and we'll we'll we'll we'll be we'll be we'll be talking about that. But we continue to find great places to put capital in the business. A whole bunch of business lines across the integrated firm. But, yes, it is a nice place to be. That we are above 300 basis points. And it is also the case that we believe the business model speaks to real substance around the argument for our c t one ratio to actually go further down. So you could argue that 300 could get bigger. And then if it does, we'll we'll be talking more about how we wanna prosecute against the alternatives. Operator: We'll take our last question from Chris McGratty with KBW. Chris McGratty: Good morning, Thanks for hey. Good morning, Tim. Thanks for fitting me in. I think in your prepared remarks, you talked about 25% of asset gathering being international. Sharon Yeshaya: I guess I'm interested in your in your views for the business and the growth, international, domestic over the medium term. Chris McGratty: Certain markets, businesses, you know, higher growth or higher ROE potential. Thank you. Operator: Yeah. We continue to see assets coming from wealth channels that are obviously based on The US. But I would note that I think that you might be discussing also there is international distribution that we're seeing in investment management. So when we bought Eaton Vance, one of the premises was they had a franchise that was basically very US driven from a distribution perspective. We are in a position where we are seeing, for example, our fixed income flows over the course of this quarter, 50% of that distribution was coming from international accounts. So there's plenty there. Now in terms of the rest of the institution obviously, the the global franchise has certainly helped from a capital markets perspective when you think about the nine boxes we used to talk about in equities. We're seeing contributions from all of the businesses or all of the regions across institutional securities. And in the equities business. Now we did think it was important to call out the non US business Sharon Yeshaya: because the revenue growth and the margins attached to them have been quite impressive. And, of course, our client base is global. And so you're speaking to the the revenue contribution to the firm overall. And that is that is one that may not necessarily grow relative to the total as a geographic matter. But should compound nicely as we continue to grow, not just in The Americas, but in EMEA and Asia. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you everyone for participating. You may now disconnect. And have a great day.
Operator: Welcome to Blackline Safety's Fourth Quarter Results Conference Call. The conference is being recorded. I would now like to turn the conference over to Jason Zandberg, Director, Investor Relations. Please go ahead. Jason Zandberg: Welcome, and thank you for joining us. On the call today, we'll be discussing our fiscal results for the fourth quarter ending October 31, 2025, which were released earlier this morning. With me today is Cody Slater, CEO and Chair of Blackline Safety Corp.; Blackline's CFO, Robin Kooyman; and Sean Stinson, President and Chief Growth Officer. I will turn the call over to Cody for an overview of our fourth quarter and year-end 2025 results. Robin will then discuss the financial highlights before turning the call back to Cody for closing remarks. I'd like to remind everyone that an archive of this webcast will be made available on the Investors section of our website. I would like to note that some of the information discussed in this call is based on information as of today and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in these statements. For a discussion of these risks and uncertainties, please review the forward-looking statement disclosure in the earnings news release as well as the company's SEDAR+ filings. During this call, there will be a discussion of IFRS results, non-GAAP financial measures, non-GAAP ratios and supplementary financial measures. A reconciliation between IFRS results and non-GAAP financial measures is available in the company's earnings news release and MD&A, both of which can be found on our website, blacklinesafety.com and on SEDAR+. All dollar amounts are reported in Canadian dollars, unless otherwise noted. With that, I will now hand the call over to Mr. Slater. Cody Slater: Thank you, Jason. Good morning, everyone, and welcome to Blackline Safety's Fourth Quarter and Fiscal 2025 Conference Call. I'm very pleased to report that Blackline delivered another strong quarter and capped off a record fiscal year, highlighted by record annual recurring revenue, strong net dollar retention and our sixth consecutive quarter of positive adjusted EBITDA. For the fourth quarter, revenue reached a record $39.3 million, marking our 35th consecutive quarter of year-over-year top line growth. For the full fiscal year, revenue reached $150.5 million, an all-time high. Adjusted EBITDA for the fourth quarter was $2.2 million. Adjusted EBITDA for the full year reached $6.1 million compared to a loss of $2.4 million in fiscal 2024, clearly demonstrating our ability to generate full year positive adjusted EBITDA. Annual recurring revenue reached a record $84.5 million at year-end, up almost 30% from last year, providing strong visibility and a solid foundation for future growth. This performance continues to validate the demand for our hardware-enabled SaaS business model. Net dollar retention remained extremely strong at 128% in the fourth quarter, reflecting ongoing expansion within our existing customer base as customers continue to see value in our hardware and services, adding devices, services and functionality to their deployments. Our NDR figure has been above 125% for 10 consecutive quarters now. Our connected safety product portfolio continues to resonate across a broad range of industries. Demand for our EXO 8 area monitor remains strong as did demand for our G7 and G6 products, particularly in the Middle East as our long-term purchase agreement with ADNOC starts to scale. We not only delivered the initial 1,000 devices stated in our press release in August, but deployed almost 2,500 devices in the fourth quarter, an excellent start on our path to fulfill our multiyear purchase agreement with ADNOC, which could see up to 28,000 devices deployed with associated services. As a flagship customer in this region, we have already seen expanded interest from other leading companies in the Middle East. The growth in the Middle East region will be supported by the previously announced new international office in the UAE, providing localized training, rentals and service. We did face some near-term headwinds in the fourth quarter in product revenue due to global trade uncertainty and overall economic conditions impacting our energy and industrial sector customers. U.S. government shutdown also impacted our business with the funding disruption slowing purchase activity among fire and hazmat customers. As the U.S. government shutdown ended in November, we believe funding will begin flowing again in the near term, supporting our strong pipeline in that industry vertical. On Tuesday, we announced the G8, our next-generation connected safety wearables and the most advanced product we built to date. G8 brings together gas detection, lone worker protection and real-time communication in a single rugged intrinsically safe device, all connected to the cloud through Blackline Live. It builds on the strong foundation of our G7, but with meaningful enhancements, including a larger full color display, expanded connectivity and integrated communications, so workers can stay connected without needing multiple devices. Importantly, we see the G8 as an inflection point for Blackline safety. With over 4 years in development, the G8 represents a technological leap over the G7, which defined the category since 2017. The G8 is designed as a true platform that will become a hub for workforce productivity, hosting applications to enable teams to streamline workflows, reduce downtime and maintain compliance in the field, all of which we believe will increase the service revenues associated with each device. We're currently taking orders with our first commercial shipments expected to begin in February 2026. I will now turn the call over to Robin to review our financials in more detail. Robin Kooyman: Thank you, Cody, and good morning, everyone. I'll start with a review of our fourth quarter results and then provide a summary of full year fiscal 2025 performance. Total revenue in the fourth quarter was $39.3 million, up 10% year-over-year. This growth was driven by a 30% increase in service revenue, which reached $25.5 million. Within services, software services revenue grew 26% to $21.5 million, while rental revenue increased 55% to $4 million, reflecting strong demand in industrial turnarounds, maintenance and project-based environment. Product revenue in the quarter was $13.8 million, down 14% year-over-year as customers continue to exercise caution on capital purchases amid global trade and macroeconomic uncertainty, the U.S. government shutdown and a delay in certain customer hardware refreshment activities. Gross profit in the fourth quarter increased 21% to $26.3 million, and gross margin improved to 67% compared to 61% in the prior year quarter. Service margins remained strong, reaching a record 82%, benefiting from scale efficiencies, optimized connectivity and infrastructure costs, while product margins rebounded to 40% from 35% in Q3. Total quarterly operating expenses represented 68% of revenue, excluding onetime charge reported in general and administrative expenses and foreign exchange. Within this, G&A expenses accounted for 20%, sales and marketing for 32%, and product research and development costs represented 16%. The onetime charge relates to a U.S. sales tax assessment for prior periods. EBITDA for the quarter was $1.4 million and adjusted EBITDA was $2.2 million, reinforcing the scalability of our operating model. Turning to full year. Total revenue for fiscal 2025 was $150.5 million, up 18% year-over-year. Service revenue increased 30% to $90.5 million, while product revenue increased 4% to $60 million. Gross margin improved to 63%, up from 58% in fiscal 2024, driven by favorable revenue mix, pricing discipline and operating leverage. Total operating expense for the year represents 67% of revenue, consistent with the prior period and reflected continued cost discipline as the business scales. Adjusted EBITDA improved significantly to positive $6.1 million compared to a loss of $2.4 million in fiscal 2024. We ended the year with $46.6 million in cash and short-term investments. We have available capacity on our senior secured operating facility, including its accordion feature of $29.8 million as of October 31, 2025, for total available liquidity of $76.4 million. This compares to $60.4 million at the end of fiscal 2024. Our fiscal 2025 results reflect the strength of our recurring service revenue base, expanding margins and disciplined execution in a dynamic global environment. On a personal note, I'll be temporarily stepping away from Blackline Safety for maternity leave effective February 2. I'm proud to do so at a time when the company has achieved record revenue, ARR and has a very strong balance sheet. I have full confidence in Chris Curry, our VP, Finance and Accounting, to work as interim CFO with a strong team at Blackline to continue delivering ever greater results while I spend time with my growing family. With that, I'll turn the call back to Cody for closing remarks. Cody Slater: Thank you, Rob. We wish you and your family all the best. As we close out fiscal 2025, I'm extremely proud of what the Blackline team has accomplished. We delivered record total revenue, record annual recurring revenue and sustained positive adjusted EBITDA, all while continuing our track record of innovation and global expansion, redefining the connected worker category. Today, Blackline protects workers across more than 75 countries, supporting customers in energy, utilities, industrial, infrastructure and emergency response. Our growing recurring revenue base, strong customer retention and expanding global footprint position us well as we enter fiscal 2026. To close, we're particularly excited about the opportunities ahead as we launch the G8. We believe G8 represents a meaningful step forward for connected workers, both in terms of the value it delivers to customers and the long-term growth potential it creates for Blackline. The G7 created the connected industrial safety market and has taken Blackline from a company of $12 million in revenue to over $150 million today. The G8 will redefine the connected industrial worker market and be the key driver to accelerate our trajectory as we continue on our path to connect the global industrial workforce, creating a modern, more efficient workplace while ensuring more workers have the tools to get their job done and return home safe at the end of the day. I am deeply grateful to our customers for their trust, to our employees for their dedication and to our shareholders for their continued confidence. Thank you all for your ongoing support. I'll now turn the call back to the operator for questions. Operator: [Operator Instructions]. The first question comes from Martin Toner with ATB Capital Markets. Martin Toner: Congrats on a great start to the year, and congrats to Robin, too. My first question, maybe you can help us get our head around the timing of G8 revenues. Like how long does it take to ramp sales efforts? How easily are you able to move customers in the pipeline for the G7 over to the G8? And then what kind of near- and long-term impact do you think the G8 can have on service revenue and service revenue growth? Sean Stinson: Martin, this is Sean here. I will address those in sequence. So first off, how quickly can we start to realize G8 revenue? We anticipate the G8 shipping in late February. What we've modeled is a roughly 2 quarter -- 2 to 3 quarter transition between G7 to G8. So what I expect is that if customers have very tightly budgeted and [ inspected ] G7 in, they may be more likely to stay with the G7. We'll start to introduce G8 to everybody. But I don't believe that the entire pipeline will flip over to G8 right away. And part of that will be because of budgetary requirements. We are -- the price of the G8 will be a little bit higher on hardware, but we do anticipate a full switchover within about 2 quarters. So that -- I think that's kind of related to your second question about how do we move people over the G8 is a significant improvement in the G7. It's clearly the same concept. It's one of the only instruments in the world that can actually save a life. It's a voice-powered extremely sophisticated device that helps people save lives in the case of an accident and helps them deliver proactive safety. Behind that, it's a platform that will deliver years of continued expansion. We will see initially, I think the biggest impact on services will come from the PTT growth. The G8 has a very significantly improved push-to-talk experience, and that's a crucial tool for people who work in the industries that we serve, both in terms of collaboration to get a job done, which is, I would say, more productivity than safety, but also safety and productivity are very much linked. So if there is any communication that needs to happen in order to properly assess the situation for safety, that can happen much more easily. So we expect that to be a significant pickup. And if you followed Blackline for a while, you know that the G7 has roughly an 11% attach rate on PTT, we see that going significantly higher. I think I got them all, Martin. Did I miss anything there, you dropped 3 questions. Cody Slater: Maybe Martin, I'll just throw in and add, it's Cody here that the other difference with the G8 is that the 7, what we've seen is that customers acquire a certain stack of service, refresh, we might move them up a service tier or so, but usually, they're pretty good at picking those safety elements. [ G8 ] is a platform for more productivity, more workforce efficiency, more other elements of different -- think about them like apps that we'll be starting to add through '26 and beyond, and that will give us a base of -- if the unit goes in the field, that gives us really a base of customers to service, new opportunities, new value to and drive that service revenue growth through the life cycle of the product rather than at the refresh points. So a really significant difference in the business model for the company. And a difference for our customers, too, because everything we're talking about here is something that will make their jobs easier and safer. Martin Toner: That's great. So you have 2 interesting forces colliding here, macro-driven caution and an exciting new product. How do you see that playing out in numbers in 2026? Cody Slater: Yes. I think we've surfaced the G8 to a number of core customers. So in the -- over the last period of time, I will say the response has been excellent across the board. So that's going to push some near-term work into renewals or refresh units into the second quarter as we start shipping G8 in the second quarter. So maybe a bit of a headwind in Q1, but starting to really see that flow through from Q2 forward. The nice thing is, as Sean mentioned, this is -- the G8 is a phenomenal technological leap above the G7, but it's not -- the idea of connected safety is no longer new. When we launched the G7, it was entirely new. No one had done anything like this before. Lot of caution in customers adopting the tech. This is just something that they're going to see as a significant improvement and can see that visibility of what they could do with it in the future. So we're not going to see that kind of a challenge. We will see some customers wanting to do trials or tests to get it in their hands before they deploy. It's always a bit of a -- there's always a bit of noise on the launch of a new product of this scale. But the trajectory will be exceptionally strong, we feel throughout the year, particularly throughout the second half of the year. Operator: The next question comes from Doug Taylor with Canaccord Genuity. Doug Taylor: I'll ask a couple more questions on the G8 and it's an exciting milestone. Now that it's official, can you speak a little bit more on how we should think about the manufacturing cutover from the G7 as the current plan stands? What we should think about in terms of the overlap? I mean, is the G7 going to continue to be produced for some of those more cost-conscious customers for a period of time? Can you talk about the mechanics of that a little bit and inventory and working capital mechanics as it relates to that? Cody Slater: Sure, Cody here. I mean we anticipate a full shift over, as Sean has mentioned, from the G7 to the 8 by the end of the fiscal year here. So scaling down the G7 manufacturing while we're scaling up the G8 manufacturing. We've -- already you've seen from some of our inventory numbers, et cetera, and investment in the G8 inventories. You will continue to support the G7 customers. So there'll be nominal manufacturing G7 for a number of years as we go forward. But what you're going to see is a shift over, over the next 3 quarters to be fully G8. During that time, I will say there's usually introduction of a new product could put some downward pressure on hardware margins for a short -- for those first introductory periods, and your output, your throughputs are going to just scale up as we've seen that over the time with the G7. It's designed to be exceptionally manufacturable. But again, we'll have some caution as we're entering into the new manufacturing of the new line. And we will be, as we expand down the line, expanding our manufacturing capacity as well, too. We'll be adding a second surface [ mount ] line to the production timing on that is probably late this fiscal year. There is some capital investment there, but not significant in the overall, particularly given the strength of the balance sheet here. So yes, ramp up over the next 3 quarters, shift over a bit of time. The other thing I think you'll see with the G8 is when you talk about from the hardware standpoint is we're going to see more accessory sales with the G8. Sean has mentioned the pickup we anticipate in PTT, one of the really cool features with the 8 is it has a custom what's called remote speaker mic or RSM, the kind of thing you see a fireman or police officer having on their lapel, that really makes the PTT experience even greater. And so things like that will actually probably accelerate a little bit of the accessory revenues as well, too. Robin Kooyman: Yes. And Doug, I'll just jump in with one more point. On that investment in our manufacturing facility, you can think about that as single-digit million later this year. Doug Taylor: That's fantastic color. And so when you're launching the product here, the G8 next month, I mean, are all variants, all the different gas configurations and the PTT and the related service, speaker mic, all that, are they all going to be available? Or is that kind of staggered over the course of the year? Cody Slater: No, 100% of everything that is available day 1. That's -- one of the real advantages of our product system is in our design, is that cartridge base that you're familiar with, I think, with the G7. So the gas cartridges are really where a lot of the flexibility in the device comes from, whether it be multi 5 gas, 4 gas, pumped instruments, unpumped instruments, everyone works with the G8, everyone is approved in all the regions that we're functioning and working in around the globe, the speaker mics in production, the multiple charger docks, the rest of the stuff, everything is ready to go. What you are going to see with G8 though, is those new service apps that I'm talking about, those will start to roll out later this year, those will be something that we'll be able to talk a bit more about later in the year. But that's the real -- one of the real keys with the G8 is it is this new platform with this big full color screen and the additional interface access to it through the different side buttons that will allow customers to do a lot more on the device. And those are things that we're going to be able to just keep adding and adding as customer demand and as we focus in different areas from the software side. So -- but to your point, from the hardware end, everything is available day 1 on the G8. Doug Taylor: Okay. One further question for me and maybe just to back into the quarter that you just reported and talk about that a little bit because the services revenue certainly stood out and how resilient the growth had that been in all market conditions, but also the margins. So I just want to touch on that a little bit. Is that the margin expansion there, I mean, a function of the rental growth, currency? I mean, can you just help us as we think about modeling that into the start of this year and as the G8 rolls out and becomes a bigger part of the mix? Robin Kooyman: Thanks, Doug. It's a great question. So one of the biggest drivers of the service gross margin this quarter is really the scalability initiatives that we've been focused on achieving in the business, and we're really pleased with the results this year. And over 80% as we think forward from here, I just keep in mind that gains while still very much available are probably generally smaller. So we're going to continue to focus on optimizing things like connectivity services and data expenses. But as always, when you launch a new product, I think it's important just to keep in mind that there can be a little bit of variability. Cody Slater: The other thing I'd just add on the services growth is one of the core drivers of the lower hardware numbers is a slower refresh rate. A lot of our customers are just taking longer to replace their fleets. The devices are working. Capital is a bit constrained. Why would I replace them at this point in time. So even though that hardware number has been lighter, what you're seeing is still a lot of new customer adoption, and that's what's driving that growth there as well. And from our standpoint, frankly, there's some real positive in that because as those customers who've delayed their refresh, we'll be refreshing on a platform that we can over the next 5 years, continually add new services to. So that's been part of the driver of the growth of the services, that new customer adoption, really. Doug Taylor: Okay. Before I pass the line, I'll echo the congratulations, Robin, on the upcoming addition to your own family product line, so to speak. Operator: Our next question comes from Sean Jack with Raymond James. Sean Jack: Just wanted to hop on and ask again about the G8. Wondering if you guys can give a bit of color on how we should expect service gross margin to change now with the G8, just keeping in mind some of the more kind of like technical and data analytics-based things that are probably going to be enabled by this device. Are we -- should we expect to see prices move meaningfully upwards? Any sort of color would be great. Cody Slater: Sure. First, I'd say for 2026, I think you're going to see a pretty similar model as we start adding, but it is a good point as we start adding some of these new services, think about them again, like apps on the devices. In fact, those will carry a good strong margin because we already have the data channel, we already have the connectivity. We already have a lot of the back end. So it's not adding as much load as additional features might -- as the base does, if that makes sense in that context. So long term, I think there'll be some upward pressure on the margins, upward movement on the margins. But again, to Robin's point, in the shorter term, I think I'd be looking at something pretty similar to where we're at. The other point is that these -- when you talk about costs, the base costs are all staying the same, like the different service features we have now are all the same price. What we're really going to be able to do is add new features like, say, permitting on site or different apps that we can add. And those will be individually priced and priced based on the value proposition to the customer. But again, they're not ones that are going to really add a lot of additional costs from our standpoint. So it should be high-margin elements. Robin Kooyman: Yes. And then, Sean, just to jump in, it's Robin here. The other thing I'd keep in mind is I wouldn't be necessarily just analyzing the service gross margin in a vacuum, right? One of the key messages today is that we see the G8 as a product that's going to unlock more service revenue over time. And so that overall gross margin is an important one to think about there, too. Sean Jack: Okay. Perfect. And I know that we've never really talked about specific guidance with you guys or anything, but just kind of headed back to margin questions. There is these kind of 2 conflicting forces here. Like can you give us kind of any sort of sense of how we should expect product sales headed into the first half of the year here? Are you guys very confident with the pipeline that you set up in front of the G8? Any sort of extra detail would be great. Cody Slater: I think that we're very confident in where we see the year, particularly. Again, as I mentioned, we're -- customers -- we announced the G8, 2 days ago, customers have been seeing it now for a few weeks. That's definitely going to shift some of the business we'd expect in Q1 into Q2, I would say. And then strength going from Q2 throughout the rest of the year. Operator: Our next question comes from Amr Ezzat with Ventum Capital. Amr Ezzat: Robin, first and foremost, congrats and all the very best to you and your family. If we could zoom in on product revenues. I think last quarter, you guys had flagged that Q4 would be sort of weakish, but I still expected a small increase, nonetheless, Q-on-Q. And I think you spoke to a couple of factors. First, on the U.S. government shutdown impacting fire and hazmat. Are these orders simply delayed? Is that the way to think about it? Then can you size it for us? Are we talking about $1 million, $2 million, $3 million, maybe more, maybe less? Cody Slater: Sure. I would -- yes, these orders are just delayed. There's -- when you're looking at that marketplace, that's a market that 3 years ago for us didn't really exist. Today, it's one of our fastest-growing markets. And you are talking single-digit millions here in the low end as far as the fire and hazmat pipeline for what we would have expected to be in Q4, and I'd expect to see that sort of coming through Q2, Q3. I think the bigger -- for us, we've talked a little bit about some of the different headwinds. But as I mentioned before, the other thing really is we have some of the lowest refresh rates that we've ever seen in the last really 2 quarters, where customers would normally refresh their hardware every 4 years, and they're just extending that out. And is some of that because they know the G8 is coming? Probably. But some of it's also because the unit is functioning, working and it's the services that give that real value. And you can see by the net dollar retention, it's not that we're losing customers. It's that they're just taking longer to refresh their hardware. And that's probably been the biggest headwind for us. The teams are still acquiring new customers. And again, as I mentioned earlier, that's what's driving that ARR growth and the services growth. Amr Ezzat: And I suspect as you like launch the G8 as a sort of platform technology where you could add like apps and so on into it, you'll have that refresh headwinds like more and more going forward. Do you feel the same way? Cody Slater: Well, I actually look at the -- for the midterm number, I'd actually say I think the G8 will be a tailwind to the refresh. I always use the analogy of the iPhone, like right now for our customers, we're selling with the G7, we're selling an iPhone 11. They bought it 4 years ago. We're still selling an iPhone 11. Why would I refresh the device. Now we're moving from an 11 to 17. So the G8 is going to give our current installed base reason to look to accelerate that refresh rate. So for the next couple of years, I think it's actually a tailwind for us on the G8. Amr Ezzat: Moving -- I thought -- I was talking about moving out of the G8 eventually. Cody Slater: The G9, we'll leave that discussion for a little while. Our tech teams have spent 4 years on what is the biggest technological leap in this industry. I'd say I'm not going to -- I'm going to leave them a couple of months before we start talking about the G9. Amr Ezzat: I'm sure, it will begin. Now, did I hear you correctly, Cody? So are we currently at 3,500 devices in total sold to ADNOC in the fiscal year? Cody Slater: It would be 2,500. The first order was shipped in Q4 as well, too. So there was a total of 2,500 shipped as of Q4. We continue to see orders coming from ADNOC. So that number just keeps growing and growing. And we'll keep some visibility on that, partially just because of the scale. But I do think it really -- ADNOC really exemplifies the kind of customer we see coming -- becoming more and more part of our standard business where it's a company who's just simply said, we're converting entirely to this platform. And they're doing it not only for safety, but for efficiency and operations. And that's what's really exciting about ADNOC. And that's -- as we start adding more logos in that same context, that will be a big driver for us going forward. Amr Ezzat: And then can you give us the split of these 2,500 between like G6 and location beacons -- just all G6? Cody Slater: Sorry, the numbers there, the 2,500 are all body-worn devices. So it's a mix of G7s and G6s. It's not the beacons. Those are only revenue generating. Those are only service revenue-generating devices. Amr Ezzat: Okay. Then one last one on the ADNOC. The number that of devices you potentially spoke to was 28,000, correct? Cody Slater: That's correct, yes. Amr Ezzat: And is that like a number that's an internal estimate? Or is it validated with Al Masaood Group or ADNOC? Cody Slater: That's validated directly with ADNOC, Amr. Amr Ezzat: Fantastic. Any sort of color you could give us on the pace of follow-on orders? Is that over 4 years, 5 years, 2 years, best guess? Sean Stinson: Yes. My best guess is that it will roll out over about the next 2 years. We're seeing continued velocity. ADNOC is such a large organization. And so we're looking at it operating unit by operating unit, by plant by plant and working very closely with them to make sure that the units are properly deployed and that everybody is happy as we move along. And there's some integrations behind the scenes there as well. We're integrating with the software package that they have. So it will be a really best-in-class solution when it's all fully deployed. Amr Ezzat: Fantastic. Then maybe one last one on the product gross margin. I was very surprised to see it grow up at 40% despite lower hardware volumes this quarter. Anything in particular happening there that's a one-off? Robin Kooyman: I wouldn't say anything in particular as a one-off. Product gross margin has a number of factors in it, including how busy the factory is. And obviously, you would have seen inventories grown a little bit this quarter as well as we prepare for the launch of the G8. So you'll see different factors just contributing to the strength. Operator: [Operator Instructions]. Next question comes from David Kwan with TD Cowen. David Kwan: Maybe just on that last question as it relates to the product gross margins. You talked about -- it sounds like there might be some weakness here just as you kind of ramp up the G8 similar to kind of a weakness in product gross margins when you've launched other products. So I guess, where do you think the product gross margins could go to in the coming quarters as you ramp up the G8? Cody Slater: I mean we're not talking massive differences, but a few points drop is a good potential to look at. Again, so many things, as Robin mentioned, impact that product mix, all kinds of other aspects. But we're not -- I would expect to see if you're modeling it, David, I'd say model a little bit of a drop for a couple of quarters and then getting back to the 40% -- and then long term, we still believe there's opportunity to see the hardware margins move north of that. But I think that's more going to be late '26, maybe more like a '27 story. David Kwan: That's helpful. And then on the services gross margins, it sounds like you've done almost as much as you can do in terms of kind of cost optimization. So maybe a lot more measured or steady hopeful increases. But I was wondering on the PTT side, I guess my understanding was, I think, as the G8 launch and hopefully, you see some significant pickup in that uptake and adoption rate of PTT that there could be some notable incremental upside on the services gross margin. So I was wondering if you could talk about that. Cody Slater: No, I wouldn't look at PTT as carrying a higher gross margin than the other core services really. It's -- there's so many factors that impact that, whether it be data, whether it the back-end storage because we store all the data for the customers in the PTT base. So there's -- the cost base on the PTT, I think it's going to -- isn't -- anyway, I don't believe the expansion of PTT is going to be a real upward pressure on the margins. What will be long term, I would say, is more of the kinds of app-like services we're talking about adding because a lot of those are ones where we don't really do -- some of them are even realistically SDKs tying into another company's systems. So those will be ones that I think we can talk more about towards the end of the year about upward -- about their higher gross -- higher margins themselves. But the PTT, I think, will be -- is in a similar context to where we're at with our other margins. I think the other thing to think about the PTT though is how much stickier you become with this customer. If this is now their core safety device, but it's now also their core communication device to what Sean mentioned on that, how they work on their sites, how they communicate their operations, we just become an even stickier product at the end of the day. Robin Kooyman: Yes. David, just to jump in, the other thing I want to reiterate is while maybe push-to-talk doesn't necessarily come at a higher gross margin, the more services we can sell for every dollar of product that we sell is really impactful to the overall gross margin of the business, and that's part of the reason we're so excited about G8. David Kwan: Yes. So just more of a revenue mix benefit, it sounds like. And I guess last question. The MD&A referenced some weakness in the U.S. due to the lower energy prices. I assume that was just customers extending the life of their devices that Cody mentioned earlier and/or renewing, but for fewer devices similar to what I think we saw in the last downturn. So I just wanted to confirm that number one. And then number two, are you seeing any signs of similar behavior amongst your Canadian customers? Sean Stinson: Yes. We were seeing similar patterns in both Canada and the U.S. So -- and really, it was the upstream clients that were heavily affected. That's a lot of our core energy customer profile in Canada. The years ago, the satellite product that we came out with, which was the first really industrial-grade satellite lone worker device on the market that established a lot of our early Canadian energy companies in the upstream market. So what we're seeing is it's a bit of a double whammy in that case, David. It's like renewals are sliding out a little bit, and then it's harder to acquire clients in the upstream market right now. So good conversations in the pipeline. Just it stretches it out a little bit more. Like in a lot of cases, we've got companies saying they're going to buy, but they're just stretching out their buy time line. So you might see the pipeline extending from a 6-month sales cycle up to an 8- or 9-month sales cycle, ultimately closed them in the end, but that stretch out is something that you -- ultimately, you have to backfill that by more leads in the pipeline. So that's something that we focused on a lot going forward. It's just really working on the pipeline strength. That's kind of the only way you can counteract a slower market. So that's what we're really focused on for '26. Obviously, G8 and so on and so forth. David Kwan: No, that's helpful, Sean. And are you seeing a similar dynamic in the Middle East? Obviously, you've got the ADNOC win that seems like it's going quite well and it looks like there's some good future potential there. But just curious to see the dynamic in the Middle East that's also maybe pushing out sales cycles. Sean Stinson: No, it's very strong in the Middle East, and I do believe that a lot of that has to do with the lower incremental cost of production in the Middle East. I believe Aramco has published numbers like this is a few years ago. So look this up before you quote me on it. But at some point, I think they quoted that their cost of production per barrel of oil is $19, and that's significantly higher in North America. So like I view the Middle Eastern energy market as a hedge to the North American market, just as I view the downstream refining market as a hedge to upstream. We're making significant inroads in refining. So typically, when the price of energy is low refining, will still buy. Upstream might suffer a little bit. But -- so we look at ways to naturally hedge the business by getting into different vertical markets. And just like I said, even a geographical split can help us even when you're in the same vertical. Operator: We have a follow-up question from Martin Toner with ATB Capital Markets. Martin Toner: At what point would G8 shipments run into capacity issues, if at all? Cody Slater: Our ops teams are so strong. We just don't see that as a challenge. We're planning for growth, and we're planning for capabilities there. We're planning for growth and we have the capabilities there to meet whatever demand we see. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Cody Slater for any closing remarks. Please go ahead. Cody Slater: Thank you, operator, and thank you, everyone, for your attention and your time today. I look forward to talking again throughout 2026 as we launch the G8 and take the next steps on connecting the industrial workforce. Thanks again, everyone. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the H.B. Fuller Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Scott Jensen, Head of Investor Relations. Sir, please go ahead. Scott Jensen: Thank you, operator. Welcome to H.B. Fuller's Fourth Quarter 2025 Investor Conference Call. Presenting today are Celeste Mastin, President and Chief Executive Officer; and John Corkrean, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will have a question-and-answer session. Before we begin, let me remind everyone that our comments today will include references to certain non-GAAP financial measures. These measures are supplemental to the results determined in accordance with GAAP. We believe that these measures are useful to investors in understanding our operating performance and to compare our performance with other companies. Reconciliations of non-GAAP measures to the nearest GAAP measure are included in our earnings release. Unless otherwise noted, comments about revenue refer to organic revenue and comments about EPS, EBITDA and profit margins refer to adjusted non-GAAP measures. We will also be making forward-looking statements during this call. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations due to factors covered in our earnings release, comments made during this call and the risk factors detailed in our filings with the SEC, all of which are available on our website at investors.hbfuller.com. I will now turn the call over to Celeste Mastin. Celeste? Celeste Mastin: Thank you, Scott, and welcome, everyone. Our execution and agility in the quarter and throughout the year generated double-digit EPS growth and EBITDA at the top end of our full year guidance range amidst an unpredictable economic backdrop and challenging demand landscape. During this time, we helped our customers navigate this environment successfully, providing them with material optionality and flexibility while ensuring consistent quality and reliable availability wherever in the world they chose to make their products. These efforts, which strengthened our partnerships and enhanced H.B. Fuller's competitive positioning are reflected in our improved profitability and sustained margin expansion. As a result, we are exiting the fourth quarter with strong momentum heading into 2026 and are firmly on track to achieve our target of greater than 20% EBITDA margin. I am very proud of our team's resolve, resourcefulness and the meaningful progress we made in 2025 as we continue transforming H.B. Fuller into a higher growth, higher-margin company. Looking at our consolidated results in the fourth quarter, net revenue was down 3.1%, reflecting a continued weak economic backdrop and our strategic actions to reposition the portfolio. Net revenue was up about 1%, adjusting for the impact of the Flooring divestiture, which was a key step in that repositioning. Organic growth was down 1.3% year-on-year, volume down 2.5% and pricing was up 1.2% with positive pricing in all 3 GBUs. EBITDA for the fourth quarter was $170 million, up 15% year-on-year, and EBITDA margin was 19%, up 290 basis points year-on-year, driven by favorable pricing, raw material cost savings and restructuring actions, which more than offset lower volume. Now let me move on to review the performance in each of our segments in the fourth quarter. In HHC, organic revenue was down 1.8% year-on-year, driven by lower volume. Strong growth in hygiene was more than offset by continued softness in packaging-related end markets. Despite the weak market and lower volumes, EBITDA was up almost 30% year-on-year for HHC in the fourth quarter and EBITDA margin improved 380 basis points to 17.5%, driven by favorable pricing, raw material savings and the impact of acquisitions, which more than offset lower volume. In Engineering Adhesives, organic revenue increased 2.2% in the fourth quarter, driven by both favorable pricing and volumes. Automotive, electronics and aerospace showed continued strength. Excluding solar, which we continued to deemphasize, EA delivered organic revenue growth of approximately 7%. As we progress through the year, EA continued to build momentum, reflecting our successful efforts to reposition the portfolio toward higher-growth markets. Adjusted EBITDA for EA increased 17% year-on-year in the fourth quarter, driven by favorable pricing and raw materials as well as restructuring savings. EBITDA margin increased by 260 basis points year-on-year to 23.5%. In BAS, organic sales decreased 4.8% on broadly lower volume across the portfolio. Although the team is executing well, construction conditions remain muted. Additionally, BAS had a tough comparison in the fourth quarter of 2024 when the business delivered strong organic growth on new customer expansion. EBITDA for BAS decreased 7% versus the fourth quarter of last year as pricing gains and restructuring savings were more than offset by lower volume. Geographically, Americas organic revenue was flat year-on-year in the fourth quarter. Solid growth in EA, particularly aerospace and general industries was offset by weaker results in packaging and construction-related end markets. In EIMEA, organic revenue was down 6% year-on-year, driven by lower volume in packaging and construction, which more than offset positive results in hygiene. Asia Pacific showed solid organic revenue growth in the quarter, up 3% year-on-year, driven by higher volume. Positive growth in EA and HHC, particularly in automotive, electronics and packaging more than offset lower year-on-year revenue in solar. Excluding solar, Asia Pacific organic revenue was up 10% year-on-year. Reflecting on fiscal 2025, the economic backdrop for the manufacturing sector was weaker than expected and end-user demand remained sluggish; however, we took proactive steps to overcome these headwinds in order to deliver on our profit commitments. Specifically, we executed well on pricing and identified meaningful opportunities to reduce raw material costs and offset tariff impacts. We continue to reshape our portfolio by investing in higher-margin, faster-growing market segments while selecting out of businesses that didn't meet our growth or profit criteria. We also launched our manufacturing footprint and warehouse consolidation initiative, now known as Quantum Leap, which significantly improves our cost structure. As a result, we are exiting the year with strong momentum, driven by the determination and outstanding execution of our team. Looking ahead to 2026, we expect the economic environment to remain challenging, similar to 2025, marked by ongoing geopolitical tensions, tariff uncertainty, elevated inflation and interest rates and continued labor constraints, all of which are likely to weigh on manufacturing investment. Despite these challenges, we anticipate delivering another year of profit growth and margin expansion in 2026 by building on the meaningful progress we made this year while staying firmly on track to achieve our target of greater than 20% EBITDA margin. Now let me turn the call over to John Corkrean to review our fourth quarter results in more detail and our outlook for 2026. John Corkrean: Thank you, Celeste. I'll begin with some additional financial details on the fourth quarter. For the quarter, revenue was down 3.1% versus the same period last year. Currency, acquisitions and the divestiture of the flooring business collectively had a negative impact of 1.8%. Adjusting for those items, organic revenue was down 1.3%, driven by lower volumes. Pricing was up 1.2%, reflecting positive pricing in all 3 GBUs. Adjusted gross profit margin of 32.5% increased 290 basis points year-on-year. The impact of pricing, raw material cost actions, acquisitions and divestitures and targeted cost reduction efforts drove the year-on-year increase in adjusted gross profit margin. Adjusted selling, general and administrative expenses were down modestly year-on-year, driven by continued cost-saving efforts and lower variable compensation. Adjusted EBITDA in the fourth quarter of fiscal 2025 was $170 million, up 14.6% year-on-year, driven principally by the impact of pricing and raw material cost actions as well as restructuring savings. Adjusted EBITDA margin increased 290 basis points year-on-year to 19%. Adjusted earnings per share of $1.28 was up 39% versus the fourth quarter of 2024, driven by higher operating income and lower shares outstanding as a result of our repurchase of approximately one million shares in fiscal 2025. Fourth quarter cash flow from operations of $107 million was up 25% year-on-year, driven by higher net income. Net working capital as a percentage of annualized net revenue increased 130 basis points year-on-year to 15.8%. Net debt to adjusted EBITDA of 3.1x was down sequentially from 3.3x at the end of the third quarter and down from 3.5x at the end of the first quarter, consistent with our plan to reduce leverage during the year. With that, let me now turn to our guidance for the 2026 fiscal year. Despite a challenging economic backdrop, which we anticipate will be similar to 2025, we expect to deliver another year of profit growth and margin improvement. We anticipate full year net revenue to be flat to up 2% versus 2025, with organic revenue expected to be approximately flat. We also expect foreign currency translation to positively impact revenue by about 1%. We expect adjusted EBITDA to be between $630 million and $660 million as pricing and raw material cost actions and Quantum Leap savings more than offset wage and other inflation. We expect our 2026 core tax rate to be between 26% and 27% compared to our 2025 core tax rate of 25.9%. We expect full year net interest expense to be approximately $120 million, depreciation and amortization to be approximately $185 million and the average diluted share count to be between 55 million and 56 million shares with share repurchases offsetting shares issued through compensation plans. These assumptions result in full year adjusted earnings per share in the range of $4.35 to $4.70. Finally, we expect full year operating cash flow to be between $275 million and $300 million, weighted to the back half of the year before approximately $160 million of capital expenditures, which includes approximately $50 million of capital related to Project Quantum Leap. Taking into account the typical seasonality of our business and the later timing of Chinese New Year, we expect first quarter revenue to be down low single digits and adjusted EBITDA to be between $110 million and $120 million. Now let me turn the call back over to Celeste. Celeste Mastin: Thank you, John. During 2025, the execution and determination of our team allowed us to deliver on our profit commitments for the year while continuing to make meaningful positive long-term changes to the portfolio as we build for the future, including manufacturing footprint consolidation, price and raw material management and portfolio mix shift. M&A continues to be an important part of our value creation strategy as we shared during our October Investor Day. In 2023 and 2024, we acquired 8 companies with a combined EBITDA of $41 million. Those acquisitions delivered $73 million of EBITDA in 2025, representing a post-synergy purchase price multiple of 6.7x EBITDA. During 2025, we executed on several acquisitions in medical adhesives and fastener coating systems. Early in the year, we completed the acquisition of GEM and Medifill, formulators, manufacturers and marketers of state-of-the-art medical-grade adhesives for internal indications. These businesses have performed exceptionally well with revenue up approximately 15% versus pre-acquisition 2024 and EBITDA up almost 30%, consistent with our deal model. Recall, we acquired ND Industries in 2024 for its unique encapsulated adhesive technology, knowledgeable employees and the coating service to apply these unique adhesives to mechanical fasteners. ND Industries expanded our product range for customers in high-growth markets like automotive and aerospace and puts us in a position to provide a service, further linking us to those customers. We saw ND as a platform from which we could expand this technology and service offering globally. And in 2025, we did just that. We acquired 3 small fastener coating companies to aid our global expansion. Early in 2025, we acquired businesses in Taiwan and Shanghai, giving us access to the fastener coating markets in Asia. And in late 2025, we acquired a fastener coating business in Turkey, giving us access to the broader European and Middle Eastern markets. Collectively, we paid $17 million for these 3 acquisitions, which are expected to generate $3 million of EBITDA in 2026. While the collective value sounds small, these 3 outposts give us access to a fast-growing $0.5 billion market in Asia and Europe. This expanded platform features a differentiated technology offering, long-tenured customer relationships and a strong competitive position in the fastener coating market. As we shared at our Investor Day, our M&A strategy is an EBITDA compounder. This is an excellent example of a platform business with a good organic growth profile that we expect to significantly expand through revenue and cost synergies as we rapidly build share in this technology-driven, fast-growing and expandable market. Finally, I would like to take this time to acknowledge and thank all our employees for their dedication and hard work throughout the year. Your commitment and the strength of our culture have enabled us to make meaningful progress on all of our strategic initiatives. That same culture has been recognized externally as well with Newsweek naming us one of America's most Admired Workplaces for 2026 and Forbes naming us one of America's Best Employers for engineers. As we look ahead to 2026, we remain committed to advancing the long-term strategic plan we have set in place. While global conditions remain unpredictable, we're taking the necessary steps to manage costs responsibly, execute our global initiatives with discipline and navigate through this period with focus and resilience. That concludes our prepared remarks for today. Operator, please open the line for questions. Operator: [Operator Instructions] your first question comes from the line of Mike Harrison with Seaport Research Partners. Michael Harrison: Congrats on a nice finish to the year. I was hoping we could start with the Q1 guidance. You mentioned a couple of times that you feel good about the momentum that you finished the year with. But for Q1, you're kind of pointing to a low single-digit top line decline. I think FX is a pretty good tailwind. So maybe we're thinking more like mid-single-digit organic sales decline. Maybe just give us a little bit more color on what you think would be driving that weakness. And I'm curious if you can comment at all on what December looked like and if that's informing some of the weaker outlook. Celeste Mastin: Yes. So what we'll see going into Q1 will be continued performance much like we saw in the fourth quarter of this year. I mean if you look at volume progression throughout Q4, what you would see is that EA was strengthening throughout the quarter. BAS was improving, but it's still weak. And in Q4, we had a pretty tough comp there of plus 7%. And it's going to be a continually challenging environment for HHC. What we saw at the end of the year was just a step down the last couple of months, particularly by the CPG customers in their order patterns. So we'll probably get a little more of an uplift there. That said, the biggest impact in Q1, Mike, is going to be Chinese New Year. So the timing of Chinese New Year in Q1 will result in some of that revenue being pushed into Q2. I don't know if you want to comment further, John. John Corkrean: Sure. Yes. Sure, Mike. That's the big -- that's the primary reason Q1 looks a little weaker is the timing of Chinese New Year. In 2025, it was late January, early February. And in 2026, it's late February stretching into March. And revenue declines to almost nothing during Chinese New Year and then bounces back very strong after the holiday. So last year, we saw that bounce back in Q1. This year, it will happen in Q2. Because of this, we'll see 1 to 2 weeks of revenue move from Q1 to Q2, probably has a revenue impact of $15 million to $20 million, and EBITDA impact of $6 million to $8 million. So it's really just a shift between Q1 and Q2. You had asked about December or how we're seeing revenue so far and whether that's a reason we have had a little softer guidance. No. I mean, it's really Chinese New Year. I'd say the year started out basically as expected. Things are a little weird in December with the timing of the holidays. But if we look at the first 6 weeks or so, it's tracking with what we'd expect and what we -- and so the impact of Chinese New Year is to come, but we believe that, that will push some revenue into Q2. Michael Harrison: Understood. And then, just wanted to ask another one on raw 1materials. In fiscal '25, you started the year with a little bit of raw material versus pricing headwind, and I think that got better as the year progressed. How are you thinking about raw materials and pricing in fiscal '26? And I'm just curious kind of what that means for the year-over-year comparison on margins. Is the assumption that pricing versus raws is kind of slightly positive all year? Or is it maybe more of a tailwind in the first half and turning into more of a headwind or more neutral in the second half? Any kind of thoughts on that cadence would be helpful. Celeste Mastin: Yes. So in 2025, we delivered around $30 million of combined price and raw material benefit. As we mentioned in the last quarter, we anticipate seeing a carryover benefit of around $25 million into 2026, plus our continued efforts to reallocate sourcing to drive pricing to drive our business towards the highest margin, most differentiated spaces has led us to increase that benefit of price and raws in 2026 to about $35 million. So that will be the year-over-year comparison you're going to see, Mike. John Corkrean: Yes. And I think in terms of timing, maybe slightly weighted to the first half of the year, but we will see, I'd say, a favorable spread for the entire year because we will get additional new pricing in 2026. Celeste Mastin: Yes, you'll see expanded margins in all GBUs in the second -- in 2026, much like we delivered this year. Operator: Your next question comes from the line of Ghansham Panjabi with Baird. Ghansham Panjabi: Maybe we can focus on the BAS segment and some of the drivers that impacted your 4Q and there was a lot going on in the quarter with, obviously, the government shutdown, et cetera. Just curious as to whether it had any impact on you? And specific to that, if it did, was there any change in trajectory December onwards? Celeste Mastin: Yes. We had a tough comp in the fourth quarter for BAS. Ghansham was plus 7% in Q4 of '24 for the overall BAS business. So there's a few things going on there. One is we're wrapping around some -- a big customer win from 2024. So that's one thing you saw as an impact in Q4. We continue to be successful serving data centers, also LNG. But overall, the construction environment continues to weaken. That said, there's some pretty exciting things going on in BAS. I'm really thrilled to be taking a bigger position in LNG. We just won a big project on [ CP2 ] with our Foster's product. which is used for cryogenic insulation systems. So we're going to continue to see as that capacity expansion happens around the globe, and it's growing at about 7% in LNG, we're going to continue to see wins there. Also, we just started shipping a data center, a big data center ultimately, that will be 4 million square feet at conclusion in Texas in fourth quarter. So more exciting stuff there. And also, I mean, our glass business continues to succeed. Our 4SG product grew 18% in 2025 despite a reduction of housing starts of 6%. So none of those businesses are really affected by the government shutdown. So I would take that off the table for us. I would just say tough comp wrap around on new customer business and a generally tough construction environment. Ghansham Panjabi: Got it. And then for packaging, as it relates to HHC, you called that out as weaker. Anything going on there relative to the recent trend line apart from customers just managing inventory aggressively into year-end, et cetera? And then also on fiscal year '26 guidance, I'm sorry if I missed this, but can you give us a sense as to core sales by segment? I know you're guiding towards roughly flat for the year. Celeste Mastin: Sure. So on packaging drivers, we're seeing really just in North America, in particular, weakness from our packaging and related CPG customers. So again, we saw a very similar trend to what we saw last year with just kind of ongoing slightly negative volume in that space that really took a step down in P11 and P12. And I think that's a space that's just going to continue to be challenging for us throughout HHC in general throughout the course of the next year. It's a -- given the issues with affordability and the lack of mobility, people aren't really moving. There's not a lot of household formation. That is weighing on that business. But we continue to introduce some exciting innovations there. The HHC business grew very well in not Europe, but in EIMEA. So in our EIMEA sector -- we took a lot of share in places like Algeria and Turkey because we're being able to -- we're more able to produce successfully out of our new Cairo facility. So that's been exciting. We're growing in India in that business. So HHC is migrating to growth in higher growth developing nations. And again, our plant strategy revolves around making sure we can produce cost effectively in places like that to take advantage of the trend. Also in Asia Pacific, we had growth in our packaging business. This is related to just this recurrence and the bounce back in China that we're seeing, and we've introduced some new innovations in packaging related to anti-slip coatings in Asia that helped support and grow our business there. The business in HHC was pretty strong in packaging in Asia. And so it's a balanced story if you look around the globe, and we're migrating the business to really focus on the places where we know we can be successful and building the supporting infrastructure within the company to do that. Now your second question was -- I think it was core sales by segment? John Corkrean: Yes. And I can take that, Ghansham, just we'll try to unpack our revenue guidance here just a little bit. So we said that we expect revenue to be flat to up 2%, that organic revenue will be flattish. So the difference there really being FX. So we do expect about one point of favorability for the full year from FX if rates stay where they are. Acquisitions really won't have a meaningful impact, at least not the ones we've done so far because the carryover is very small. So what it implies is organic revenue might be up slightly, down slightly. We expect pricing to be positive in all 3 GBUs, probably 0.5% to 1% positive. And then if you look at the GBUs in terms of kind of volume, we'd expect EA to deliver positive volume growth despite the headwind from solar. We'd expect HHC and BAS probably to be down slightly year-on-year. So does that help? Ghansham Panjabi: Yes, it does. It does. Very comprehensive. Operator: Your next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: John, I was wondering if you could speak to your free cash flow outlook for 2026. Your capital expenditure budget looked to be on par with what we would have expected, but the cash flow from operations may be a little bit lighter than we would have thought. So is there anything in particular you would call out that might be weighing on the free cash flow conversion in terms of working capital or any other extraordinary cash needs? John Corkrean: Yes. So I'd say if you look at cash flow from operations, Kevin, we guided to $275 million to $300 million versus $263 million this year. So it's the midpoint, roughly $25 million increase, which is driven almost entirely by higher income. Working capital, we would expect to be similar. So I would say if you look at kind of the last couple of years, operating cash flow has been weighed down a little bit by working capital. And we mentioned at the Investor Day that we are going to carry higher inventory as we get through Quantum Leap. So I would say that's the primary picture. If you think about free cash flow, it's CapEx sort of in line with what we have been talking to and operating cash flow driven by income and working capital remaining a little higher in the near term. Kevin McCarthy: Very good. And then on your EBITDA outlook, I heard the comments on the Chinese New Year timing, which was very helpful. But I was wondering if you could just expand on the key assumptions that you're baking into the annual guide and just trying to get a feel for what sort of macro help, if any, you might need to achieve the earnings targets. Celeste Mastin: So on the -- I'll take the first question about the macro help. Kevin, we're expecting no macro help. We've built in a strong self-help approach to the year, much like we had to do last year. So while we think we'll be positive pricing in all of our GBUs, and there's clearly a focus on that as we continue to refine and select which parts of the business we want to operate in. But also on the volume side, we're not expecting any positive macro to be supportive there. We're going to have to get there a different way or we're prepared to get there a different way. Maybe there'll be positive surprises around volume that will help. John Corkrean: And just to maybe give you the key building blocks of kind of the guidance for EBITDA for 2026 relative to 2025. Celeste mentioned the impact of -- net impact of pricing and raws, we expect to get about a $35 million improvement year-on-year. FX, again, based on where exchange rates are today, would be a $5 million to $10 million benefit. Quantum Leap, as we talked about, will continue to ramp up. We expect about $10 million of incremental savings in 2026 versus 2025. And then going the other way, we have about $10 million of variable comp rebuild based on where we finished 2025. So we'll have about $10 million of incremental variable comp expense in 2026 and about $20 million of wage and other inflation. So I think those are the key building blocks. And as Celeste said, volume, we've expected to be relatively neutral, but that could be the swing item one way or the other. Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: When I look at your other income adjusted in the fourth quarter, it looked like it's a little bit more than $10 million. And you spoke of an insurance payment. How much was that? Or what's going on in other income? And other income for the year adjusted was a little bit more than $30 million. And last year, it was $17 million. Can you talk about those numbers? John Corkrean: Yes, Jeff. So there's 2 items that are kind of driving that. The primary ones are higher pension income year-on-year. So that's probably half of that difference. So the pension assets earning higher returns generate more pension income. The second part of it is FX hedging gains or losses. I think we've done a really good job this year in managing that and reduce that impact significantly through, I'd say, both part of its cooperation in the market, cost of hedging come down a little bit, but I think we've managed it well and reduced any potential leakage from a hedging standpoint. So those are the 2 main items driving that year-on-year improvement. Jeffrey Zekauskas: Your deferred taxes were a use of $50 million versus $36 million last year. Can you talk about what's going on there? And your accounts payable was down about $20 million year-over-year. What's going on there? John Corkrean: Yes. So on deferred taxes, the biggest impact there is we did pull a pretty big dividend from China in 2024 that comes with a withholding tax. So we were able to bring a little over $100 million of cash back from China, has about a 15% withholding tax. So that -- although we declared the dividend in 2024 the withholding tax was paid in 2025. So that was the impact on the deferred tax line. On the trade payables line, it is -- it does have a big year-on-year swing. I think this is kind of a reflection also of timing on inventory. But it's -- I would say, overall, our level of payables, our payables as a percentage of revenue are very similar year-on-year. I think what we saw in 2024 is a big improvement and then it leveled off and maybe DPO came down a little bit in 2025. Jeffrey Zekauskas: And then lastly, is there an incremental penalty because of weakness in the solar market in 2026? And do you expect 2026 to be a meaningful acquisition year? Celeste Mastin: Yes. I'll take that one. So as far as solar goes, Jeff, in 2025, we had about $80 million of revenue in the solar business. What we're going to see is that's going to ramp down to around $50 million by the conclusion of this year. So over the course of the year, you're going to see predominantly in the first 3 quarters, a reduction of about $30 million of revenue related to that exit of that one particular product in solar that we're deemphasizing. As far as 2026 being a meaningful acquisition year, we definitely have a very full pipeline as we curtailed acquisitions for the last 3 quarters of 2025 in order to bring our leverage down. We ended the year at 3.1x. As you saw, we're still not quite in our $2.5 million to $3 million -- or 2.5 to 3x levered range. So we're still being cautious. But again, the pipeline is full, and we are very selectively working through it at this point in time. So you should expect the acquisition cadence in 2026 to be more like a normal year for us. So back up to that roughly $200 million to $250 million of purchase price spend. Operator: Your next question comes from the line of Patrick Cunningham with Citigroup. Patrick Cunningham: I was hoping you could just dig into sort of the level of confidence in the volume growth in EA 2026, maybe ex solar. I guess, do you expect any normalization of what has been pretty consistently strong outperformance in autos and electronics in '25? Or do you feel like you have a good line of sight in terms of both market growth and new business? Celeste Mastin: I do feel like we have a good line of sight there. And this EA team has just been unleashed. So as you saw, excluding solar, about 7% organic growth in the fourth quarter, 5% volume growth. And I anticipate we're going to be able to continue to drive that, excluding solar over time. I mean, look at our ND acquisition -- ND Industries acquisition, for example. We brought that business in, in 2024. If you look at 2025, we had it operating at 8% organic growth. So that is a team that understands how to grow the business. We do have this overhang of the solar business that we're deemphasizing that they're going to have to contend with a $30 million hit over the course of 2026. But aside from that, the electronics, the aerospace and especially the automotive market are growing very successfully. I mean just looking at the automotive business that we have in Asia -- we continue to grow our position in interior trim significantly, but also we grew our position in exterior trim well over 100% last year. Our lighting business grew about 50%. Our EV powertrain business grew over 40% in that region in 2025. And they're really in a position where they have taken a strong share position in the market, and we are strong partners generating innovation along with our customers and an important part of their new product development pipeline. So yes, we're very confident about EA. Patrick Cunningham: Got it. That's very helpful. And I wanted to come back to free cash flow. Obviously, conversions, another year below historic averages. I guess, how should we think about long-term free cash flow conversion? And then maybe what should we expect in terms of peak working capital drag and peak CapEx drag associated with Quantum Leap? John Corkrean: Sure. So Patrick, I would say if we think about kind of what we talked about at Investor Day, we would expect that operating cash flow will remain a little muted here in the next couple of years, primarily due to higher working capital associated with Quantum Leap. I think we finished this year at working capital of 15.8% as a percentage of revenue. Our goal is to be below 15%. I would expect that we'll be above 15% this year and possibly in 2027. But our ultimate goal is to get below that. The other benefits we'll see from a working capital standpoint as we complete Quantum Leap by reducing the number of facilities we have, we should be able to take out CapEx related to maintenance capital. So we expected, as we said at Investor Day, maintenance capital, which is roughly $50 million annually, we expect we could eliminate as much as 1/3 of that. We'll also be completing our SAP implementation at the end of this year. And so that's roughly $20 million of capital that we spend every year that should be reduced dramatically. From a working capital standpoint, as it relates to these initiatives, we talked about the Quantum Leap initiative and how we see that improving inventory management and days on hand by roughly 5 days, which I think is about $15 million. So I do think we'll probably be a little bit lighter from a free cash flow standpoint the next couple of years as we have slightly elevated CapEx and slightly higher working capital related to Quantum Leap. We get through Quantum Leap and the SAP implementation. I think we should see a nice step up. Operator: Your next question comes from the line of Lucas Beaumont with UBS. Lucas Beaumont: I just wanted to go back to the organic growth outlook, if we could. So I mean it looks like first quarter is going to kind of be down low single digits. I assume maybe second quarter is potentially flattish with the benefit of the shift there on Chinese New Year. So I mean, to get to kind of flat for the year, you probably need the second half to kind of be up low single digits there. So I was just wondering if you could kind of walk us through kind of where you see the acceleration coming from across the portfolio to drive that. Celeste Mastin: Yes. When -- if you look at -- maybe I'll start, and John, you might want to jump in here, too. But if you look at it from the perspective of 2026 overall, Lucas -- and by the way, welcome. If you look at it from the perspective of 2026 overall, what you should expect will be EA performing organically kind of mid-single digits, excluding solar, low single digits, up low single digits, including the solar business. Meanwhile, the BAS and the HHC business are going to be slightly down. Now all of our businesses, all our GBUs will be positive price 2026. So that means correspondingly, that's going to be largely a volume impact. John Corkrean: And I think your question, Lucas, around second half versus first half, I think the biggest driver is probably the fact we'll have mostly annualized against the solar decline by the second half, right? So we're kind of up against that the first half, particularly the first quarter becomes less of a headwind, almost no headwind by the second half, fourth quarter. So that's the primary difference. Lucas Beaumont: Great. And then I guess just on the pricing side. So I mean, you mentioned that's going to kind of be in the 50 to 100 basis point range. I mean you're exiting 4Q at a bit over 1%. And I mean it's continued to increase. We're going to kind of have some tougher comps there as we sort of get through the year. And I know there's the continued sort of backdrop of raw materials deflation. So I guess just kind of walk us through how you sort of see that slowing. I mean you mentioned that you're going to kind of potentially go out with some more price too. So I guess, as we move through the year, I guess, how much do you think you can kind of hold that in there with the new initiatives that you've been undertaking? Celeste Mastin: Yes. So the pricing cadence, it is influenced by our pricing actions that we'll be taking throughout the course of the year. And those vary depending on the business unit, the market segment and actually ultimately what's happening in a region or a segment at any given point in time. But you do see more of those happen historically earlier in the year. The biggest impact on just our ability to retain pricing and drive pricing throughout the year is just a couple -- it's twofold. One is portfolio mix. So we do continue to optimize the business to be operating in the more differentiated, more solution-oriented spaces in our markets. And the companies we're acquiring are just that. So there's a portfolio mix impact that you also see that does filter down to pricing and also just a cultural shift as we at H.B. Fuller recognize more frequently now how much -- how enabling our technologies are for our customers and how much of a very small part of the end product cost we are so much so that we can enable them to achieve total system cost or total end product cost reductions by bringing them better, higher-performing, higher-priced products of our own. John Corkrean: And Lucas, just to tie that back to the comment you made around potential for raw material weakness and how does that impact pricing. That's really the primary reason we look at the two together, right? So we believe that we're better forecasters of the two combined than each one individually. Because if the economy were to weaken further and pricing were harder to come by, I think that would create a raw material upside or if raw materials were, let's say, we saw some economic pickup and raw material prices started to move up, I think we could be more aggressive on pricing. So I think we feel good about the pricing and raws together. We feel good about our pricing strategy, but feel particularly good about our ability to predict pricing and raws. Operator: Your next question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Just in construction, you mentioned the environment is weakening. Is that more a U.S. comment or a European comment? Celeste Mastin: David, it is both. The construction market has been particularly weak in Europe. And I'm not saying that's not the case here in the U.S., but with the construction of data centers here in the U.S. and our success penetrating that market, we're able to offset some of that commercial construction weakness here that I think others may be feeling. David Begleiter: Understood. And just on the packaging weakness, can you discuss the competitive intensity in that market as volumes decline? And do you think you've maintained your share, i.e., not lost any share in this downward trend? Celeste Mastin: Sure. So it is a competitive market. It always has been a competitive market. I do think that is becoming more and more intense. And it actually coincides with our portfolio review and our interest in making sure that we are working with the best customers where we can bring the most value, where we can bring innovation and they're seeking solutions, whereas there are parts of that market where we have deemphasized them kind of organically selected out of some of those spaces. And so yes, it's competitive, but I still feel like we're bringing a lot to the table for those customers. And our service delivery is what makes a difference, that in innovation. Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: I guess just two final questions. When you look at your overall geographic markets, if you exclude the places where you're gaining market share, do you see an acceleration in demand growth in any of your 3 major regions? Are there green shoots? Celeste Mastin: Excluding places where we're gaining share, and I'd like to say that we're creating our own green shoots, Jeff, right? But the greatest acceleration that I saw in Q4 was China. China was really exciting because we finally saw a bounce back there that took it to a level that it had historically operated at 2024, Q1 of 2025, et cetera, double-digit organic growth. And what we had seen in Q2 and Q3 was really a pause there, right? While with all of the tariff chaos that occurred, we saw the Chinese manufacturers pull back a little bit. But I don't know if you saw this, China just reported $1 trillion trade surplus for 2025, which is a record. So they're back on track and shipping to other parts of the world. I think that's why our packaging business did well in China in Q4. And if I had to point to any green shoots, I would say that would be the one. Jeffrey Zekauskas: Okay. And then finally, why do you expect as a base case for your HHC volumes to be down a little bit in 2026? Celeste Mastin: I expect really continued constraint in the packaging space, Jeff. Our CPG customers, the packaging customers are struggling with affordability in our bigger economies, which are Europe and the U.S. for that business. So I think that in Asia and Latin America, we may see something different. But in the bigger economies, we continue to see that constraint. Operator: Your next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: I just had a housekeeping question for you. In your Reg G reconciliation, I think there's a $37.4 million special item related to, as I understood it, two issues, litigation and product claims and also an insurance gain partially offsetting that. Can you unpack that a little bit and help us understand what's going on as well as comment on whether it's a cash item or noncash? John Corkrean: Sure. So it's predominantly the legal claim that's driving that number. And it's not -- it's a noncash item in the quarter. But it's associated with a product liability legal claim related to the divested flooring business, amount was about $35 million pretax, about $25 million after tax. So we recorded a reserve in the fourth quarter. Reserve doesn't consider any insurance recovery and we have coverage that we believe will cover a substantial portion, but it's predominantly a product liability claim related to the divested flooring business. Operator: Your next question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Just in BAS/BAS in Q1, what do you expect volumes to be down? John Corkrean: So I'd say we probably won't get into that level of detail, but I would say it's probably not dissimilar to Q4. I think we see some of the macro headwinds. We have some of the impact of having the customer gains last year that we've sort of annualized against. So I'd say similar to Q4, David. Operator: That concludes our question-and-answer session. I will now turn the call back over to Celeste Mastin for closing remarks. Celeste Mastin: Thanks to everyone for joining us today. We look forward to speaking with you again next quarter. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning. My name is Jennifer and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the BlackRock, Inc. Fourth Quarter 2025 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Martin S. Small; President, Robert S. Capito; and General Counsel, Christopher J. Meade. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference. Christopher Meade: Good morning, everyone. I'm Chris Meade, the General Counsel of BlackRock. Before we begin, I'd like to remind you that during the course of this call, we may make a number of forward-looking statements. We call your attention to the fact that BlackRock's actual results may, of course, differ from these statements. As you know, BlackRock has filed reports with the SEC, which list some of the factors that may cause the results of BlackRock to differ materially from what we say today. BlackRock assumes no duty and does not undertake to update any forward-looking statements. So with that, I'll turn it over to Martin. Martin Small: Thanks, Chris. Good morning and happy New Year to everyone. It's my pleasure to present results for the fourth quarter and full year 2025. Before I turn it over to Larry, I'll review our financial performance and business results. Our earnings release discloses both GAAP and as-adjusted financial results. A reconciliation between GAAP and our as-adjusted results is included in today's press release. I'll be focusing primarily on our as-adjusted results. We're closing out one of the strongest years in our history. Clients awarded us nearly $700 billion in net new assets, 9% organic base fee growth and 16% technology ACV expansion. Our whole portfolio strategy is winning both mind and wallet share with clients. It's bringing even more momentum to the breadth of our organic growth. We had nearly 150 products across our ETF and mutual fund ranges with over $1 billion in flows. We had over $24 billion in revenue alongside nearly $10 billion in operating income, both up 50% since 2020 and earnings per share was a new record. Our platform demonstrated resilience and growth even when markets were in turmoil back in April and captured steep upside when they rallied. 2025 was another proof point that BlackRock is a share gainer when there's money in motion. Our 10% increase to our 2026 dividend per share and increase in planned share repurchases to $1.8 billion are driven by our accelerating growth trajectory and platform success in 2025. That's our highest dividend increase since 2021 and comes after a record $5 billion payout to shareholders in 2025. Supported by both 9% organic base fee growth and favorable markets, we entered 2026 with a base fees run rate that's approximately 35% higher than our base fees in 2024 and approximately 50% higher than 2023. This stronger entry point enhances our ability to deliver future earnings, return capital to shareholders and execute on our 2030 ambitions. We delivered 6% or higher organic base fee growth in each quarter of 2025. We finished the year with 2 consecutive quarters of double-digit organic base fee growth, including 12% in the fourth quarter. That growth is broad-based across our systematic franchise, private markets, ETFs, digital assets, cash and outsourcing. And it's across capabilities that we've had for decades and others that we've built or acquired in the last 2 years. That gives us confidence we're on the right track with clients and we have a lot of optimism for the years ahead. You've heard us say it's not that the big are getting bigger, it's that the best are getting bigger. Size and scale are outputs of performance. We've wrapped a successful 2025 and now we're moving with speed and scale to go upward from here. We're building leading franchises in newer high-growth markets across the industry, private markets to insurance, private markets to wealth, digital assets and active ETFs. We think these can all be $500 million revenue generators in the next 5 years. We already have industry-leading margins and we see real opportunity to drive margin expansion through the FRE growth trajectory of our private markets and our highly scaled foundational businesses. We entered 2026 with strong momentum and our first year as a fully integrated firm with GIP, Preqin and HPS. We're pioneering what we believe is the asset management model of the future. It's one that seamlessly brings together public and private markets, it interoperates between traditional and decentralized financial ecosystems and it's powered by technology and data with Aladdin, eFront and Preqin. BlackRock houses the world's #1 ETF franchise, a top 5 alternatives platform with more than $675 billion in client assets, $0.5 trillion in target date AUM, leading advisory services and a tech and data SaaS franchise with nearly $2 billion in revenue. Moving to financial results. Full year revenue of $24 billion was up 19% year-over-year. Operating income of $9.6 billion was up 18% and earnings per share of $48.09 increased 10%. Fourth quarter revenue of $7 billion was 23% higher year-over-year, driven by the acquisitions of HPS and Preqin, organic base fee growth over the trailing 12-month period and the positive impact of market movements on average AUM. Quarterly operating income of $2.8 billion was up 22%, while earnings per share of $13.16 increased 10% versus a year ago. EPS also reflected a lower tax rate, lower nonoperating income and a higher share count in the current quarter linked to the close of the HPS transaction on July 1. Nonoperating results for the quarter included $106 million of net investment losses, primarily due to a noncash mark-to-market loss linked to our minority investment in Circle. In mid-December, we contributed a portion of our stake in Circle to our existing donor-advised funds. Following this transaction, we maintain approximately 1.1 million shares of Circle common stock, which will continue to be marked through investment income. Our as-adjusted tax rate for the fourth quarter was approximately 20% and benefited from discrete items. We currently estimate that 25% is a reasonable projected tax run rate for 2026. The actual effective tax rate may differ because of nonrecurring or discrete items or potential changes in tax legislation. Fourth quarter base fees and securities lending revenue of $5.3 billion was up 19% year-over-year, driven by the positive impact of market beta on average AUM, organic base fee growth and approximately $230 million in base fees from HPS. On an equivalent day count basis, our annualized effective fee rate was approximately 0.1 basis point lower compared to the third quarter. This decrease was primarily due to higher securities lending revenue in the third quarter, which benefited from specials. We're seeing client demand from our structural growers like private markets, systematic, models, OCIO, ETFs and SMAs. And these capabilities provide positive leverage to average fee rates. The fee yields on new asset flows this year are 6 to 7x higher than they were in 2023 and are at a premium to our overall fee rate. Fourth quarter performance fees of $754 million increased from a year ago, reflecting higher revenue from alternatives and included $158 million from HPS. Full quarter and full year technology services and subscription revenue, each increased 24% year-over-year, reflecting the successful onboarding of a number of new clients, expanding relationships with existing clients and the closing of the Preqin transaction. Preqin added approximately $65 million and $213 million of revenue in the fourth quarter and full year, respectively. Annual contract value, or ACV, increased 31% year-over-year, including the impact of Preqin. ACV increased 16% organically. Total expense increased 19% in 2025, primarily driven by higher compensation, sales, asset and account expense and G&A expense. Full year employee compensation and benefit expense was up 20%, primarily reflecting higher incentive compensation associated with performance fees as well as higher operating income. The year-over-year increase also reflects the impact of onboarding GIP, Preqin and HPS employees. Full year G&A expense was up 15%, primarily due to M&A transactions and higher technology investment spend. Our fourth quarter as-adjusted operating margin of 45% was down 50 basis points year-over-year. Our full year as-adjusted operating margin of 44.1% decreased 40 basis points from a year ago. Both periods reflect the impact of performance fees and related compensation. We continue to deliver margin expansion on recurring fee-related earnings. Excluding the impact of all performance fees and related compensation, our adjusted operating margin for the fourth quarter would have been 45.5%, up 30 basis points year-over-year. Our full year margin would have been 44.9%, 60 basis points higher relative to 2024. As we execute on our organic base fee growth and operating margin ambitions, we'll continue to be disciplined in both our hiring and our investments. After annualizing for the impact of HPS and Preqin, we would expect a mid-single-digit percentage increase in G&A. Additionally, we would expect BlackRock's headcount to be broadly flat in 2026. After investing for growth, we returned a record $5 billion to our shareholders through a combination of dividends and share repurchases in 2025. This includes $500 million and $1.6 billion of share repurchases for fourth quarter and full year, respectively. BlackRock's Board of Directors recently approved a 10% increase to our first quarter 2026 dividend per share, building on our track record of strong dividend growth and demonstrating confidence in our cash flow generation and durable earnings expansion. That represents a 13% increase in the dollar amount of dividends expected to be paid. The Board also authorized the repurchase of an additional 7 million shares under our share repurchase program. At present, based on capital spending plans for the year and subject to market and other conditions, we are targeting a purchase of $1.8 billion worth of shares during 2026. Full year total net inflows of $698 billion reflected positive flows and organic base fee growth across all asset classes and active and index. iShares led the industry and set a new flows record with $527 billion in 2025, representing 12% organic asset and 13% organic base fee growth. Net inflows were diversified across core equity and premium categories like fixed income, active and digital asset ETPs. iShares net inflows of $181 billion in the fourth quarter once again demonstrated strong momentum into year-end, supported by seasonal portfolio reallocations. Full year retail net inflows of $107 billion were led by the onboarding of the $80 billion SMA assignment from Citi Wealth during the fourth quarter. Separate from this assignment, Aperio had its fifth consecutive record year of net inflows with $15 billion, active fixed income added $3 billion and alternatives generated $12 billion in 2025. BlackRock's institutional active franchise generated net inflows of $54 billion in 2025, reflecting the onboarding of multiple outsourcing mandates, the above-target close of GIP V and deployment in private credit. Institutional index net outflows of $119 billion were mainly driven by redemptions from low-fee index equity strategies. Our scaled private markets platform delivered $40 billion of full year net inflows led by private credit and infrastructure. We're targeting $400 billion in gross private markets fundraising through 2030, powered by origination, strong investment performance and the depth of our client relationships. Our valuable position as a trusted long-term partner to corporates and sovereigns provides us with unique visibility and insight into capital markets and client activity, enabling differentiated deal flows, tailored solutions and long-term value creation for our clients and shareholders. Finally, BlackRock Cash Management saw $74 billion of net inflows in the fourth quarter and $131 billion in 2025, driven by U.S. government, international, Prime and Circle Reserve Funds. BlackRock's platform is anchored by growth engines tied to the long-term expansion of global capital markets and fast-growing client product channels. The opportunity ahead is inspiring to reshape portfolios for more complex markets, to deepen partnerships with clients and to deliver durable, profitable growth for our shareholders. We entered 2026 with the combined strength of BlackRock, GIP, HPS and Preqin, now all One BlackRock and we're excited to share our growth with clients, employees and shareholders. I'll turn it over to Larry. Laurence Fink: Thank you, Martin. Good morning, everyone and Happy New Year. Thank you for joining. We entered 2026 with accelerating momentum across our entire platform. It will be the first full year with the combined strength of BlackRock, GIP, HPS and Preqin. We're coming off the strongest year and quarter of net inflows in our history. BlackRock awarded -- clients awarded BlackRock with nearly $700 billion in new assets in 2025, including $342 billion in the fourth quarter. And the consistency of our results stands out even more over the long term with nearly $2.5 trillion of net inflows over the last 5 years. Our pipeline of business has broadened across products and regions, spanning public and private markets, technology and data and client channels. We're seeing excellent fundraising activity. We have an ambitious 2026 fundraising plan diversified across infrastructure, equity and debt, private financing solutions and multi-alternatives. Our client relationships have never been stronger and deeper. We're a scale operator in public and private markets, investments in technology, that's significantly enhancing our position with clients worldwide. We're building off accelerating growth over the course of 2025. We delivered 6% or higher organic base fee growth each quarter and we ended the year with 12% organic base fee growth and 16% technology ACV growth in the fourth quarter. These growth rates are both 4 points higher than last year and 9% full year organic base fee growth represents $1.5 billion of net new base fees. That means we enter 2026 with base fees approaching $21 billion, 13% higher than 2025. And we delivered a premium 45% operating margin. Our scale and Aladdin technology fuels growth and helps push down our marginal cost. We're in an upward trajectory in our margins on fee occurring -- recurring earnings as we continue to drive growth in private markets and scale businesses like ETFs and systematic equities. Our belief in our future growth, increasing profitability and durability of cash flow led us to increase the dividend per share by 10% and step up planned share repurchases. Over the last 10 years, we delivered a 10% compounded annual growth rate in our dividend and over a 15% annual return on our repurchases. And we're confident than ever that our -- in our model and the outsized opportunity we see across multiple growth engines. Our foundational businesses like iShares are unlocking new markets like in active ETFs and digital assets. At the same time, we're a leader in emerging trends like private markets to wealth, 401(k)s, tokenization and private market data. In private markets, our investments in infrastructure and private credit and alts to wealth underpin our ambitions to raise $400 billion in private markets by 2030. BlackRock is already managing $3 trillion on behalf of insurance, wealth and OCIO clients. We have a significant opportunity to deliver better outcomes and experiences for clients in private market allocations. And for our shareholders, that shift represents new private markets AUM and potentially over $1 billion in new base fees. For example, BlackRock is the largest general account manager for insurers with $700 billion in AUM. With HPS, we're now also one of the largest asset-based finance and high-grade managers. We're in about 20 late-stage conversations to help insurers build more dynamic and diversified portfolios across public and private markets. Similarly, in wealth, we're focused on expanding access to private markets. We're bringing together strong investment performance track records with BlackRock's scaled global distribution model. We have the largest wholesaling team in the industry covering every corner of the United States marketplace. We have very strong relationships in private banks in Europe. Our more than $1 trillion of wealth platform spans end clients' whole portfolios from models and SMAs to ETFs and private markets. We're also a technology provider through Aladdin Wealth, which brings institutional quality portfolio construction right to the desktops of our financial advisers. We continue to expand and diversify distribution of HPS nontraded BDC to U.S. wirehouses and RIAs, and we believe model portfolios will be another unlock. We're also planning to widen our product range through an H Series family of funds that would be led by the flagship HLEND alongside junior capital, real assets, triple net lease, multi-strat credit and secondaries and co-investment strategies. We plan to bring all the building blocks to serve wealth investors through coordinated multi-alts portfolios. Then in retirement, we're seeing important progress towards a framework to include private assets and target date funds. We expect to launch our first LifePath Target Date fund with private markets later this year. Most Americans' only experience with capital markets is through their 401(k) plan. I said many times that helping workers build and spend their retirement savings is one of the greatest challenges of our generation. We've long associated for better retirement solutions and easier access to investment options. BlackRock has also championed early childhood savings accounts and the policies that make them possible and we're encouraged by and supportive of the launch of these accounts in the United States. For retirement savers, there's a real opportunity to bring additional returns and diversification to investors through private markets. BlackRock will be at the forefront with our leading DCIO business, our $600 billion LifePath franchise, top 5 alternative platforms and definitely Preqin. We expect plan sponsors will need standardized benchmarking and performance data to validate their plan choices and Preqin can be the central provider. Our leadership in all of these areas distinguishes BlackRock with plan sponsors and policymakers. We've always been a leader in retirement and a first mover in developing new solutions in retirement. We started innovating LifePath Paycheck in 2018 and it's been the fastest-growing lifetime income target date strategy in the defined contribution market. We believe it will be the default retirement investment strategy. Guaranteed income and private markets are not 2 separate conversations. BlackRock can bring it all together. Our vision is not just for incremental addition of private markets. It's the design of an optimal target date solution, one that combines public markets, private markets and guaranteed income like LifePath Paycheck. BlackRock has long-standing relationships and decades of experience in working with plan sponsors and building client-first retirement solutions for their members. We're a bit over a year into closing our GIP transaction and we're already seeing synergies through our combined expertise and relationships. GIP V closed above its $25 billion target in July and our AI partnership, which was not part of the deal model, continues to attract significant capital. AIP has raised over $12.5 billion from partnership founders and clients. Our initial target is to mobilize and deploy $30 billion of equity capital with the potential of reaching $100 billion, including debt. More broadly, we're seeing excellent progress across the range of infrastructure strategies, including mid-cap and emerging markets' infra equity and investment-grade, high-yield and credit-sensitive infra debt. The current cash flow and inflation-protected return profile of infrastructure makes it an attractive sector for our clients, especially those saving for retirement. More broadly, income-oriented strategies are a critical component of our clients' portfolios. BlackRock manages over $4.5 trillion in assets across both public fixed income, cash and private credit. This means we can provide an integrated fixed income solution for clients, that delivers scale benefits. In 2025, we generated over $45 billion of net inflows across our high-performing active fixed income franchise, led by Rick Rieder. We believe 2026 is shaping up to be another year where returns may be driven primarily by income rather than price appreciation. We're well positioned to capture flows with strong performance and differentiated strategies across municipals, high yield, total return and unconstrained fixed income strategies. And we're leveraging active ETFs to provide access to our portfolio managers inside along with the benefits of the ETF wrapper. Our active ETFs drove more than $50 billion in net inflows in 2025, nearly tripling their assets in the last year. Rick's flexible active income ETF, BINC, B-I-N-C, and our systematic U.S. equity factor rotation ETF, DYNF, led our active ETF flows for the year. DYNF was the highest inflowing active ETF in the industry with $14 billion of net inflows. It is our flagship of our systematic equity platform. Overall, our systematic equity franchise raised over $50 billion in 2025, even as the active equity industry saw another year of outflows. Our systematic investments have been using data and AI for 20 years. We've invested in this business. And today, its IP delivers alpha to clients and helps portfolio managers across BlackRock to invest better. As more investors are looking at how to use AI for investments, we already have one of the best platforms utilizing AI and big data to drive thousands of alpha signals. We're optimistic about our systematic platform, continued double-digit organic base fee growth potential and its position as a bright spot in the active equity industry. iShares continues to be an innovation engine for BlackRock. iShares remains the market leader in ETFs in terms of organic assets and base fee growth, countries served and in product lineup. 2025 was another record year for iShares with $527 billion of net inflows. In 2000, with just 40 ETFs, BlackRock's iShares set out to revolutionize investing. And over those 25 years, iShares has led the way in democratization of access to the growth of capital markets. BlackRock shaped the industry and we continue to expand the choice and access for investors around the world. We brought U.S. investors access to international markets and we introduced ETFs to Europe. We launched the world's first bond ETF. We provide over 1,700 ETFs today, more than 6x the next largest issuer. And we're focused on providing investors value for their money while driving growth and margin expansion for our shareholders. iShares AUM was about $300 billion when we announced our acquisition in 2009. Today, it's $5.5 trillion and iShares revenues have more than quadrupled to over $8 billion. iShares is delivering growth both through core channels and newer premium initiatives like active ETFs, digital assets and in international markets. In Europe, ETF net inflows of $136 billion was approximately 50% higher than 2024. And we're seeing more individuals coming to iShares through digitally enabled offerings and monthly savings plans. We're seeing similar trends in India, where our JioBlackRock joint venture operates through a digital-first direct-to-consumer model. JioBlackRock raised $2 billion upon launch, 6x the previous industry record and now manages 12 funds spanning cash, index, systematic equities on behalf of nearly 400 institutions and already more than 1 million Indian retail investors. More broadly, we're seeing great momentum in connectivity with clients in international markets. Both in Asia and in Lat Am, we saw double-digit organic base fee growth in 2025. Growth in Asia was led by our active wealth strategies and $30 billion of ETF net inflows across our locally listed and global ETF range. In Latin America, our local presence is similarly resonating through our onshore ETFs and wealth offerings. And in the Middle East, we have a strong history as a trusted adviser to countries looking to allocate capital or to build out their own local markets. It is one of our fastest-growing regions. Our Aladdin technology powers and unites all of our platform and all our work. The fact that BlackRock is the largest user of Aladdin allows us to stay attuned to changes in the marketplace and adapt Aladdin for our clients. Today, we're enabling our clients to more easily manage their exposures through end-to-end integration across public and private markets. 16% technology ACV growth reflected several innovative multiproduct wins, which will drive future revenues. Through Preqin, we're expanding access to actionable private market data, giving investors the analytics they need to build strong and reliable portfolios. The BlackRock platform is comprehensive. It's global. We're a leader in public markets. We're a leader in private markets, and we are a leader in technology and data. We're a foundational provider in the traditional financial markets and the evolving decentralized financial ecosystem. Most importantly, we bring it all together to deliver BlackRock to our clients in a comprehensive, consistent, determined way. We're entering 2026 with elevated momentum and we're positioned ahead of big future opportunities. We ended the year with 12% organic base fee growth, record flows and a new AUM high at $14 trillion. This already lifts our base fee entry level rate by 13%. We are confident in our organic base fee growth ambitions. We plan to raise a cumulative $400 billion in private markets by 2030. We're focused on our margins and driving profitable growth. This all should translate to shareholder value through higher earnings and then multiple expansion. I'd like to thank our employees for the work they do every day on behalf of our clients, each and every client that we stand by as a fiduciary. When we do well for our clients, we also do well for our employees and then we do well for our shareholders. I believe they're all -- they'll all be beneficiaries of our future growth. Operator, let's open it up for questions. Operator: [Operator Instructions] Your first question comes from Craig Siegenthaler of Bank of America. Craig Siegenthaler: And I have to congratulate you on the record base fee organic growth because 12% is pretty impressive for a $14 trillion manager. Laurence Fink: Well, I hope it's going to be impressive when we're a much larger manager than $14 trillion. Craig Siegenthaler: As we look ahead to 2026, can you flush out what you're all seeing and thinking on the net flow pipeline? And a sort of follow-up would be your money market business, which is not a new modern business, has done really, really well over the last 5 years. Higher rates has been a factor there. But with the Fed cutting, do you see flows reversing in this business? And if it does, where do you think that liquidity goes? Martin Small: Thanks, Craig. It's Martin. Happy New Year. Let me just start by saying that organic base fee growth continues to outperform our 5-plus percent baseline target, 10% in Q3, 12% print in Q4, 9% for the year. And it's the momentum, I think, that really gives us a lot of energy. The growth has ticked higher each quarter. We were 1% to start 2024, 6-plus percent each quarter this year and then ending with 2 back-to-back quarters that are at double digits. That means clients want to do more business and are giving more business to BlackRock. I think the success we've had with this structural growth strategy, it's driving strength and it's doing it across market environments in an all-weather way. And with more growth coming from our pipeline of private markets, systematic strategies, models, SMAs, digital assets, we think we can power organic base fee growth that's more consistently 6%, 7% or higher. And in supportive market environments, I think like Q4, where there's some risk-on sentiment for higher fee, international, precision exposures, private markets, that can tilt even higher. But we've always talked about our strategy being grounded in the whole portfolio. It's always been about breadth and serving every corner of a client's portfolio. This year we had really excellent breadth in organic base fee growth and we're seeing that same breadth in our pipeline. Our fundraising plan is diversified across infrastructure, private financing solutions, multi-alternatives. And I think 2026, to your point on money funds, it's shaping up to be the year of a steeper yield curve. And we think that era of easy 2a-7 fund income looks to be fading. We think that bond returns are going to be driven more by income rather than rate moves or spread compression. And I think even though cash is always going to be an allocation in a well-balanced portfolio, we'd expect that rate cuts are going to cause money market yields to fall and that some of the best opportunities for investors to be locking in bond yields are going to be in intermediate-term bonds. I think if the bond team was here, they'd say there's a generational opportunity to earn high-quality, steady income in the front and middle of the yield curve using that full toolkit in fixed income, credit, securitized, government bonds, munis, active and index. And we're seeing that energy on our platform. We saw more than $80 billion of fixed income flows in Q4 and more than $40 billion outside the new Citi mandate. iShares bonds had $52 billion in Q4, $175 billion. That's 18% organic growth for the year. We manage over $3 trillion in fixed income. So we think we can meet clients with fixed income offerings across sectors and durations wherever they need it and to do it in a vehicle that works best for them. That's an ETF, it's a separate account, a mutual fund or even yield-oriented exposures being a top CLO issuer and manager and by blending public and private fixed income through direct lending BDCs like HLEND. Our fee yield on new assets to the firm in this pipeline is running 6 or 7x higher than the fee yield on new assets in '23. And we think clients want to do more with BlackRock across the platform. We saw it in the 2025 activity and in the early momentum in '26. So it gives us confidence that we're on the right track and gives us a lot of energy about what 2026 can look like on the organic growth front. Laurence Fink: Let me just add one more point. As global capital markets grow, cash is going to grow alongside of it. So the base holdings of cash will be elevated as long as the global capital markets continues to grow. And if you overlay -- if tokenization becomes more real and the opportunity to have a tokenized money market fund alongside tokenizing other assets, I actually believe you're going to see probably above-trend holdings in cash. That being said, I agree with everything what Martin said, we're going to see much more -- you're going to see more and more investors going up the curve, especially if the yield curve becomes steeper and steeper, which probably is going to be the outcome. But I think we have to look at the overall scale of the capital markets and its growth globally and that is one of the foundational reasons why cash holdings will -- they look larger than ever, which they certainly are. But I think as the capital markets grows, so does holdings in capital markets cash. And I think that is important -- there's an important connection between that. And it's not -- it's -- cash is just not an outcome of people are nervous and holding and they're not looking to do it. As the capital markets grows and as more people's wallets are in the capital markets, the role of the money market fund just grows. And I think that is one of the foundational reasons why we continue to believe that money market holdings will continue to be quite large. Operator: Your next question comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: Wanted to ask one about Asia. I was hoping you could speak to your priorities across your footprint in Asia, from your local partnership in India to initiatives you have in Japan, among other countries. How are you looking to accelerate growth and expand contribution from Asia over the next couple of years? And what aspects might be most meaningful to the overall firm? Laurence Fink: Well, I would say, first and foremost, Asia capital markets grew faster than the U.S. capital markets. More IPOs in Asia, especially in Hong Kong. So let's just start with that foundational base. The capital markets are growing faster there. You're seeing historical changes in Japan because the NISA accounts and retirement accounts, you're just seeing more of wealth entering the capital markets out of the banking system. And that just represents more and more opportunities. So Japan has been an exceptional platform for growth, the insurance industry in Japan, the pension fund industry as the NISA accounts grow. So that's just one really good foundational example. As I said, the IPOs in Hong Kong and the scale of wealth management in Hong Kong and Singapore, the wealth that is being generated in Southeast Asia, all leads to bigger opportunities, not just bigger opportunities to manage the money but bigger opportunities to invest like GIP invested in the airports of Malaysia. In India, I believe we have the best single platform to grow in India with the JioBlackRock partnership. I talked about the growth in 2025 but we have -- we believe that the transmission of the growth of the capital markets in India is just at the very beginning. Historically, Indians kept most of their money either in gold or in cash. And I think the opportunity to develop a self-directed retirement platform in India is real. And as the platform grows in terms of retirement, the opportunities for us are very large. But even in places like in the -- in Saudi Arabia, there's conversations going on now to really build a Pillar Two retirement system there and then obviously, a Pillar Three and we're engaged in those conversations and opportunities. So historically, we looked at a lot of these markets who were exporters of capital. But now in many cases, they are importers of capital but more importantly, they're developing their own capital markets. This is a trend that I've been talking about for years. And I think it's just that we're at the early stages of the growth of the capital markets in every place in the world. If you look at our growth rates, the double-digit growth rates in base fees in Lat Am, it is another example of the growth of wealth and the opportunities we have. And so the key is, BlackRock is going to grow as long as the world and the global capital markets grow. But I would -- what I would clearly say what '25 indicates and what '26 offers is the growth of these capital markets are very beneficial for platforms like BlackRock and we are involved in these conversations. We're building our platform in each and every country. And I believe this is one of the real foundational opportunities for us in the future. Operator: Your next question comes from Mike Brown with UBS. Michael Brown: So Larry, you touched on the insurance channel in your prepared remarks and BlackRock is a major player in the space and it's about 5% of your AUM today. But certainly, competition seems to be rising in the space. Can you just talk a little bit about how your differentiated offering like a full spectrum cash to private credit differentiates here and maybe unpack your comments about how the demand for the channel is shaping up here in 2026? Martin Small: Thanks. Maybe I'll start, Martin. And then I know Larry will add some color. So I'd start with, yes, the balance sheets of the world's largest insurance companies were traditionally invested in public fixed income. BlackRock has been very successful at capturing those allocations. And today, we're the largest insurance company general account manager in the industry with $700 billion in assets, more than 450 insurance relationships. HPS also manages over $60 billion of credit assets for over 125 insurance companies. And I think with our combined platform, we're better positioned than ever to be a high-grade solutions provider. We also have service to the largest insurance companies on our Aladdin platform as well as an array of middle office services and accounting services. We think that private credit and building great public private portfolios is a very important growth vector within private markets and there's an opportunity for growth with asset-based finance and private high-grade with insurance companies. Just the penetration in this market is much smaller when compared to the corporate credit market. We have over 20 conversations right now where we're working on high-grade SMAs with leading insurers and building private high-grade portfolios. A number are in later stages. We'd hope to start seeing deployments pull through, through the second half of 2026. And we're really focused on 3 things with them. The first is delivering better outcomes for our insurance clients by working with them to migrate something on order of 10% of their existing public fixed income assets into private high grade. So think of a $700 billion base migrating to $70 billion on order of that in private high grade. The second is expanding high-grade mandates, meaning new assets and winning new assets with clients away from our existing book. And the third is also pursuing strategic partnerships, minority investments to increase the pool of insurance assets managed here at BlackRock, similar to the minority investment and strategic alliance that we announced with Viridium last year. I think on our competitive advantages, I'd note that insurance company asset management, it's a highly customized effort working with clients every day. It's not one of these mandates that's give me a benchmark and I'll beat it and give you a monthly report. Teams are basically in-sourced by the insurance company to be looking at cash flows, to be thinking about credit, to be thinking about the intersection of accounting and capital and managing those portfolios. It is a highly interactive day-to-day thing. So being able effectively to blend turnkey full-service capabilities for insurance companies, that's a key competitive advantage for BlackRock. Integrating public fixed income, private credit, Aladdin, accounting, middle office services makes working with BlackRock a performance enhancer, a scale enabler. So there's no doubt that this space has become more competitive, especially in private high grade. But I think our experience is that insurance companies want a full-service partner and that we're well positioned to play that role given our track record in public fixed income technology and world-class capabilities in private credit. Operator: Your next question comes from Alex Blostein with Goldman Sachs. Alexander Blostein: So a question to you guys about margins. Larry, you mentioned it a couple of times and Martin did as well. Obviously, the business has grown really well. You outlined a number of really compelling initiatives, how this growth could continue for '26, '27. So when I think about the 45% operating margin, excluding performance fees that you sort of highlighted for 2025, how should we think about that progressing over the course of '26, assuming kind of normal markets? And then, Martin, just a follow-up for you, the specifics around G&A, I heard mid-single digits but maybe you guys could just remind us what the right base is. Martin Small: Sure. Thanks, Alex. Happy New Year. So BlackRock, as I mentioned, we continue to deliver industry-leading margins. As we talked about at our Investor Day, we continue to target 45% or greater adjusted operating margin profile with our margin on recurring fee-related earnings running higher. Our operating margin in the quarter was 45%. And as I mentioned in my remarks, we continue to deliver margin expansion on recurring fee-related earnings. So excluding the impact of performance fees and related comp, our margin would have been 45.5%, up 30 basis points. Think of that as more akin to an FRE margin burdened for stock-based compensation. This growth here at BlackRock is fueled by strong FRE growth in our private markets franchises, along with high-value, higher fee rate and scaled strategies in active ETFs, digital assets, systematic equities and other areas. So we think that over time, we'll see the margin on fee recurring earnings driving upwards toward the trajectories of the best-in-class private market names, so think north of 50%. A couple of things. I'd remind you that we defer a portion of compensation linked to performance fees for talent retention. So in years where we see higher performance fees, we also see higher deferrals, which impact comp in future years. We continue to drive operating leverage and growth through technology and automation using the benefits of size and scale to reduce costs, strategically footprinting our business. And as we set out in the Investor Day, we're targeting that 45% or higher greater adjusted operating margin. We're delivering steady operating margin expansion before the GIP, Preqin and HPS transactions. As we talked about during the announcement of those transactions, GIP and HPS both have 50% or higher FRE margins. So that's accretive to our margin on fee-related earnings. So we think the growth in these franchises alongside the highly scaled platforms like iShares, cash, model portfolios, they can fuel higher margins on fee-related earnings and over time, our overall adjusted operating margin. And just in terms of your question, Alex, on G&A, we've talked about our financial rubric and how we aim to align organic revenue growth and controllable expenses across base salaries as well as G&A. Ultimately, I think with the long growth of markets is our structural tailwind, that's going to deliver more beta to the bottom line in op income growth and the benefits of scale to our clients and shareholders. As I mentioned on my prepared remarks, after annualizing for the impact of HPS and Preqin, we'd expect a mid-single-digit percentage increase in G&A. In 2025, we didn't see the full year impact of acquired HPS and Preqin G&A, so it will impact the year-over-year comparison in 2026. If you annualize our second half 2025 G&A results, which fully captures HPS and Preqin G&A, our 2026 expected G&A growth is in the mid-single digits. Once we've lapped the 2026 results with a full year of integrated expense in our results, we expect you'll continue to see controllable expenses within organic base fee growth as we drive our 2030 strategy forward. That implies future years are in the mid-single-digit percentage growth. Operator: Your next question comes from Ken Worthington of JPMorgan. Kenneth Worthington: I wanted to dig a little bit further into Preqin. The alternative data business is evolving. Several alternative managers and index companies have launched private market partnerships over the last few quarters with plans to launch various private market indices. How should we view the evolution of Preqin and BlackRock's initiatives around private market data? And what sort of outlook do you see for Preqin and BlackRock to participate in investable alternative indices? Martin Small: Thanks. I'd start with, we're basically 9 months plus past the close of Preqin. The integration has really been terrific. We're very excited about the plans going forward. The 4 big things to do as part of bringing Preqin into BlackRock is, first, expanding the distribution, obviously, of world-class Preqin data across our client base. The second is the build-out of data and models for private markets using the Preqin data, creating that great ecosystem where you have data and models being able to power how asset allocators think about investing in the private markets, how they think about benchmarking and comparing returns, effectively creating the language of private markets, both in risk models and in data. The third is enriching the data and building scale in the data factory. And then the fourth is the opportunity you're touching on, which we think is the larger long-term opportunity of leveraging our engines in Aladdin and iShares to build the machine for the indexing of the private markets. And when I think about what the creation of public markets did to drive stock markets, which especially we see through iShares, we think BlackRock and Preqin to do that for the private markets. We see that opportunity as being particularly compelling. We're working on building investable indices that we hope to bring to market here in the next few years. And I think the real opportunity is to try to standardize index rules, to try to standardize pricing frameworks and ultimately publication so that you can create markets and transparency that ultimately can power futures contracts, can ultimately power iShares. And that's a big part of our strategy in the overall growth of Preqin. Laurence Fink: Let me add one other point. Because more and more insurance companies, more and more pension funds and sovereign funds are deploying more and more private market strategies and more wealth managers are anticipating more private market strategies, the need to have a comprehensive risk management platform is even more imperative. So having a separate risk management system only for private markets is not going to be workable. And I think what Aladdin is bringing across the world or the spectrum of public and private markets, we're in a position of very large growth. And you saw that in our ACV growth in 2025. And we expect that to continue over the coming years. The need to have a comprehensive risk platform. And especially if the Department of Labor approves the utilization of private markets in the 401(k), in the defined contribution business, each and every firm is going to have to validate and authenticate the risk that is being implied when they add private markets. We are still going to have to live under some prudent ruling, maybe still a fiduciary ruling of some sort, we don't know. But I can say with absolute certainty, the need to have a comprehensive risk tools to understand the risk associated with adding private markets to a -- what is -- all public market portfolio is imperative. And so the need for a platform like Aladdin has never been greater, especially with the addition of private markets in the defined contribution space. Operator: Your next question comes from Dan Fannon with Jefferies. Daniel Fannon: So just a question on private credit. I was hoping you could first disclose what the HPS flows were in the quarter. And then more broadly, how you're thinking about the outlook for growth given the headlines and news flow around this asset class. Has that changed at all as we think about 2026 and beyond? Martin Small: Thanks a lot. So we deployed $25 billion in 2025 across private markets, led by private credit and infrastructure. The deployment trends have been strong. We had $7 billion of private credit net inflows in the quarter, primarily due to deployment activity. We're seeing good and building momentum for private markets investing and private credit, I think, particularly. So that number, I think, is in the tables. We're generally seeing stable credit conditions across the main HPS strategies that today form the core of our private credit platform. We think some of the headlines that we've read often highlight isolated stress points rather than painting the full picture. But we generally see stable credit conditions across the portfolios that we're managing. But I think the context is critical, like defaults and losses in the non-IG direct lending to corporates have been abnormally low for years following low rates. Default rates in the broader leveraged loan market are averaging slightly below the long-term average of 3%. And in economic slowdowns, like default rates rose to 4% to 5%, the all-time peak in the GFC hit 15% on an issuer weighted basis. And so direct lending defaults are rising but they remain in historical ranges. So I think we see this period, as do many of the other firms, as a period of expected catch-up following a long period of very low defaults. So returning to normal defaults is something I think we expect. When we look through the universe of BDC loans, the $400 billion across 20,000 loans sitting in the valuation databases, we see nonaccruals that are inside the historical average. We see PIK as a percentage of total interest income in line with historical norms, recovery rates that are in line with historical norms. The data does show some stratification between smaller companies and larger companies. So a $0 to $50 million EBITDA company looks very different than a $100 million to $200 million EBITDA company in terms of the ability to generate earnings. So I think going forward, it's not that there's nothing to see here. It's just that we'd expect smaller borrowers, particularly those that were financed at very high or peak valuations and capital structures that didn't contemplate a 3% to 4% neutral rate, those are the credits that we'd expect to be more challenged. The HPS teams have focused very consistently over the years on larger companies. The weighted average EBITDA on the HLEND portfolio is about $250 million. But these are lending businesses. There will be normalized default rates through cycles. And I think the team is very fond of saying the promise of private credit is not that there will be no defaults, it's that detailed credit work is going to be rewarded and that lenders will be in a better position to maximize recoveries. We continue to see good flows. We had strong gross subscriptions of $1.1 billion in the fourth quarter in HLEND. Redemptions were 4.1%, which was higher than recent quarters but in line with the broader industry. I think a mix of factors affected the Q4 flows. There's generally elevated seasonal redemptions. There was media attention, some profit taking. And then I think forward expectations on lower base rates also plays in. But still, most BDCs posted positive flows. In our Preqin survey data, we see the structural pipeline for private credit fundraising and deployment as intact. In the Preqin data, over 80% of investors plan to maintain or increase their allocations to private credit in the next 12 months. It's just becoming a more standard part of overall fixed income allocations to provide income and diversification. Operator: Your next question comes from Ben Budish with Barclays. Benjamin Budish: Maybe just following up on Dan's question. Just curious if you could provide a little bit more color on your expectations for the wealth channel more generally in 2026. HLEND, obviously, some good, if not better than average trends in Q4. What's the latest you're hearing from advisers? For GIP, I know there was some press indicating that there were maybe some challenges getting a product off the ground. So just curious if there's anything you can share there. And then I think in the prepared remarks, you talked about model portfolios using private markets. So anything you can share in terms of what those products might look like, what we should expect in terms of timing would be helpful. Martin Small: Sure. I'll give that one a go. I'd start with the framing that, again, at our Investor Day, we discussed how our platform was going to target $400 billion in gross fundraising from 2025 through 2030. We raised over $40 billion in private markets in 2025. And we're entering '26, I think, with strong momentum, very excited about the integrated public private capabilities that now include GIP, HPS and Preqin. In private wealth and retail channels, we currently have the flagship private credit BDC HLEND, as you mentioned, been raising about $1 billion a quarter. And we have semi-liquid strategies in senior secured loans, junior capital and broadly syndicated loans. In '40 Act interval and tender offer funds, we have multi-strategy credit and private equity solutions that combine for about $1 billion in AUM under the tickers CREDX and BPIF. And in Europe, we recently launched multi-alternative solutions products using the LTIP vehicles, which stand at sort of $600 million plus in AUM, generally offered through private banks and retirement plans. Looking ahead, as Larry mentioned, we're bringing an H Series of vehicles to the market for private wealth and retail channels over the course of '26. The H Series is going to give investors access to key private markets building blocks, direct lending, junior capital, real assets, triple net lease, private equity solutions. And at our Investor Day, we set out a goal to grow the private markets to wealth series of products to at least $60 billion of AUM by 2030. So I think you'll see here in the near term, a real asset strategy coming to market in the U.S., European direct lending to European private wealth clients and following with triple net lease and other strategies in the U.S. later this year. Operator: Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks? Laurence Fink: Thank you, operator. I want to thank all of you for joining us this morning and for the continued interest in BlackRock. Our results in 2025 validate the power of our integrated platform and the strength of our positioning with clients. We enter 2026 with differentiated momentum and opportunities ahead for us. I think we're well positioned to deliver for our clients and in turn, create longer-term value for our shareholders. Everyone, have a very good first quarter and enjoy the winter. Operator: This concludes today's teleconference. You may now disconnect.
Operator: Good day, everyone, and welcome to today's Greystone Q2 results conference call. [Operator Instructions] Please note this call is being recorded, and I will be standing by. Now it's my pleasure to turn the call over to Brendan Hopkins. Brendan, please go ahead. Brendan Hopkins: Thank you, and thank you, everyone, for joining us today. We have a brief safe harbor and then we'll get started. So except for historical information contained herein, the statements in this conference call are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from forecasted results. With that said, I would like to turn the call over to Warren Kruger, CEO of Greystone. Warren Kruger: Thank you, Brendan, and welcome, everyone. I'd like to just kind of dive right in. I want to talk about the Q. As you can see, we've had a significant exogenous event occur with our customer of 11 years, iGPS. They called me one day and said, we're done today. Our 11-year relationship came to an end, which -- and the revenue came to an end that day as well. We may have gotten a few dribs and grabs after that, but not much. So it was a shock to our senses a little bit at the Greystone. I will say that we've had a wonderful 11-year run, and we -- the great news is with iGPS, they allowed us to build a wonderful infrastructure that allows us the next phase of our growth. And so that's a beautiful thing. So we laid off about 140 people right away. That was towards the end of November. So it will take some time for those numbers to be reflected. So you can see that, that -- some of those costs will be in the first half of our corporate year. We can talk about -- we want to about what happened, but we're going to move on with what we're doing and what we are going to do. I want to make sure everyone knows that I -- this is -- Greystone is my life. And I will tell you that I have 8,884,354 shares of Greystone stock. So no one is more affected than me personally. So this is something that I don't think take line down. This is -- we are very aggressive in what we're doing, and we're very excited about where we're going. So I will take some questions about what happened when we get to the Q&A. But I just want to talk about what we're doing now to add revenue and get back into a profitable mode and get back to where Greystone where we all want it to be. And first of all, I'll say that we have an 8-month contract to do some grinding granulating processing of about 18 million pounds of plastic. So that starts next week. So that revenue will start to be reflected after next week. So that will provide -- we have a tremendous recycling infrastructure that we were recycling about 300,000-plus pallets a year for iGPS. So a lot of resin. So for us, this is just -- it's something we've done a lot of in the past. If you've been a long time shareholder. We used to do a lot of grinding, granulating and [ weaving ] plastic for resale. We haven't done that because we've used most of it for product sales. Then I'm going to talk about where we're headed in terms of our leasing. We have our -- we were prohibited really from doing some leasing because of the iGPS contract. And so we've -- since we don't have that in place, we'll -- starting in the middle of February, we can really do some -- we are unencumbered. I'll tell you that we've been testing with Walmart a cellular track pallet. We are having good luck there. We're having success. We also designed a pallet for Walmart. There was a warehouse pallet that has been utilized in the Chicago import facility. And we used it out in California and one in the Ontario, California area. And we had to change that design. So that pallet was remanufacturing in Taiwan for us, and it has been delivered in December, and we have made product, and I'll be out in the Mira Loma import facility next week with Ron Schelhaas our -- who I've worked with for 20 years. We'll be at the Walmart import facility. And it's -- we've got about 5 million square feet out there. So it's a big import facility. And we've probably done about $30 million in revenue over the last 5 or 6 years with Walmart. And I really look forward to what we're doing there. We're trying to do a track and trace. So we always know where they are. The pallet is on a daily basis. We know how long the pallet dwell time is. We know what the temperature is. So we see that being helpful in their food side later on. So we're really excited about that. So we're going to move rapidly in that arena. We also have a great firm working with us company called Adaptive Pallet Solutions who they are -- they'll be working with us on some of these returnable programs where there's going to be a lot of management involved. So that's good news there. So we feel good about the pallets as a service and more -- will continue to take care of our customers on all our other product lines that continue to purchase products for export for the beer side or for the automobile side. But we do think that our big growth is going to come in the -- in putting in our pallets in closed loops rather than the open loop. And if you -- to distinguish between the open loop and the closed loop and open loop is more like if you go to Costco, and you see blue wooden pallets or red wooden pallets or the iGPS pallets, those pallets are ubiquitous and they're all over the United States. And they have to have an infrastructure across the United States to take care of that. And what we're -- our focus is on rivers and streams and lakes and ponds. In other words, where the pallets don't really leave the -- they're not sent across the country, so their 1s or 2x have to be recovered somewhere else. It's more in between a product manufacturer sending every week to someone on a consistent basis. And they're all tired of the wooden pallets that they have. Plastic pallets continue to be strong, [ drawn ] strong in demand. And so we feel good about that. So coupled with the processing of the resin and with our opportunity on the cellular tracking and tracing, we feel quite good about where we are. I think it will take a couple of quarters for us to add good revenue -- but I anticipate by -- in the next 6 months that we'll be back on track and we won't be -- we won't have this punch in the nose, which it was. It will just take us a little time. I've been doing this now for 23 years. It's not the first time we've been punched in the nose, and I'm sure it's not the last time we'll be punched in the nose. So anyway, I look forward to answering questions and I'm going to keep these -- this kind of brief because I know there's a lot of questions that need to be asked. So at this time, if there's -- I'd just like to open up to questions and answers. Operator: [Operator Instructions] And our first question today comes from Anthony Perala. Anthony Perala: I guess, looking, like you said, having got the first or last time you've been punched in the nose, just kind of looking for -- looking back historically, kind of the early 2010 period was another time that you operated with revenues that were in this area, kind of like $6 million to $8 million quarterly. I see anywhere from $23 million to $26 million of annual revenue in 2013 to 2016. And you were able to deliver 20% gross margins in those years, generate some cash. Is there any fundamental changes in the business that prohibit you from being able to put up those types of numbers with that level of revenue today? Warren Kruger: No, I think you're dead on. We are a lean -- we are very lean organization. We try to run it that way. We have fantastic -- our general manager is just fabulous. Or guy that's in charge of facilities and equipment and molds. He's been there longer than. He is unbelievable. And everyone knows -- everyone has a stake in this. It's their life. And so we take this -- every day, we take very serious. And we were preparing for the next level. We put in a lot of new equipment. I put in $10 million of new equipment, really haven't leveraged that equipment at all. So almost all of our debt is from new equipment that we have that we really haven't put into work. I have some outsourcing that I'm going to do over the next year. I've got people who have contacted me and asked me if I have extra capacity to produce some things. So we'll be doing some outsourcing some other products. We have been asked to do a couple of other non-pallet type programs like for showers, plastic bases for these outdoor showers. So we've been asked to do that. So we'll be doing a lot more of that type of thing. And to answer your question specifically, yes, I think that we'll have our numbers in order. I'll make sure that we have cash on hand to run the business. As we've always done that. If necessary, we'll get the money that we need. And our banks, we've gone to an interest only for the calendar year 2026 with our bank IBC. And so our payments were about $250,000 a month, and they'll now just go interest only. So it will be a significant help on our cash flow, and they've been great to work with and have no issues whatsoever. Anthony Perala: Do you have any MFPs that you mentioned in the Q, just kind of continue to negotiate an extension of the revolver. Any update on those negotiations? Warren Kruger: Yes, it's no problem. It's just they're waiting for the end of it, and we'll -- I just talked to -- a matter of fact, I had -- I met with them last Friday and the guy that I worked with, and that will be renewed. Anthony Perala: Okay. Okay. And then one just kind of more philosophical, like you pointed out, you own 8 million-plus shares here. Some of your partners, you get close to 50%. A check to purchase the entire other part of the business that you don't own is fairly reasonable, all things told, looking -- so I'm just curious if that's something you're evaluating or a management buyout or something like that. Just curious what you think of that. I guess more of an open-ended question. Warren Kruger: That is an interesting question. And I will tell you the last 90 days have been more of really spinning the place of firefighting and getting things prepared. We didn't have -- our last Board minute was prior -- Board meeting was prior to the iGPS call. And so we have a Board meeting coming up. And we will be addressing that because, I mean, at this price, being today, we've had big sell-off, 300 -- last I looked, there was like 335,000 shares that were traded today and the share price has fallen. At this price, it's -- we've got $60 million of equipment that we've put in over the years. We've got $10 million of brand-new equipment. So I feel very, very comfortable about those discussions. And you know what, it's something we've discussed in the past, and we'll discuss again. Operator: Next up, we have [ Adam Posner ]. Unknown Analyst: Thank you for your time and frankly, swift action during this potentially turbulent time. My question really is around morale. So given the recent layoffs and the news around iGPS, how's the team morale the facility and sort of beyond? Warren Kruger: Thank you for asking that question because I'm concerned about that. I'm really -- I care about those who I work with, and I care about those who worked with me a long time. And I will say that our general manager, just -- I'm going to give us a short little story here. Our general manager is Marilyn Carter. Marilyn came to us when she was about 25 years old and a single mother. We sent her over the years -- we sent her to school. She got her undergraduate degree. She got her master's degree at Drake. She has grown, and she's been with us 20 years almost. She's unbelievable. She knows how -- I think she knows how we want to do things. [ Joe Carter ] has been there for 25 years. He is fabulous. Ron Schelhaas, who is our former plant manager, Ron's working with me on the sales arena. He is so good with people and with Walmart, it's incredible. Their attitudes are great. They're said about what's happened. They don't understand sometimes as do I, the logic in at all. So -- and then I've got another -- so the staff that we have are loyal and hard-working and great people. And I had a conversation with one of our sales -- other salesmen this morning, Gary Morris. He has some -- I mean, in his pipeline, it's really, really good. So the Toyota thing on our extruded pallet, we finally -- there -- we've got some purchase orders, and we're sending some of those out. He's got some great things with Berry Plastics working. He's got some things with Southwire. He's got really, really, really, really good opportunities out there as does Ron. Ron Schelhaas, I'll meet him at the Walmart import facility in California. And so their attitude is great because they know we have a great product line. They know we have the best designed in for pallets in the United States. We feel that way. And we believe that things will be -- we will -- we'll make things happen. How about that? Unknown Analyst: Awesome. It sounds like you're doing a great job maintaining the crew there during this time. So thank you. Operator: Next, we'll hear from Robert Littlehale. Robert Littlehale: Warren, could you maybe talk a little bit more about iGPS situation. What prompted this phone call, this midnight phone call that you received? What happened there at that company? Warren Kruger: Robert -- and for those who don't know, I've -- Robert has probably been as long an investor as anyone besides myself. So I appreciate that. He was down, he probably bought some things at the nickel. I will tell you that it's -- we had a relationship. I worked with Robert and Jeffrey Levisman years ago. They were the original -- they bought the company with a fund about 11 years ago out of bankruptcy. And then we provided the first pallet what we call the MVP for them that worked for iGPS. So we grew with them quite rapidly and had a great relationship. Robert and Jeffrey were removed about 5 years ago. And I really enjoyed them. I enjoyed working with them. The new crew, I just didn't know the new crew. And I will tell you, I had a good relationship with their national sales manager there and their operations guys. But they never shared any information that we never shared much information. They put in a -- they told us they needed a secondary manufacturing facility just in case something happens. So they put one in for themselves down in Dallas, Texas, and they actually produce another product down there in Dallas. It's a similar -- it's not a similar. It's another pallet. It's not similar. And of course, we recycled probably 300,000 to 400,000 pallets a year for them, broken pallets. So it's not easy. It's not for the faint of heart to do this. I mean, it's -- it's a lot of resin. It's moving metal out, taking metal out. It's -- and I think what happened there is the fund that was in originally 11 years ago, I believe that they meant to be in for about 5 years, and here they are 11 years in. I don't know if they had to do a secondary fund to take that position. I'm not sure because I'm not privy to that. But I just believe that they tried to sell this last year and couldn't sell. And I think they finally said, okay, we're not going to be in a growth mode anymore. We're going to be in just a -- let's reap what we've sewn and let's just flatten out, and we'll just do maintenance -- we'll just do maintenance on our pallets and we just won't grow. So -- because when you take 800,000 pallets out of the system on an annual basis, that's going to slow your growth. And so I believe that, that's the case, Robert. I just think that they -- whoever the money people are said, okay, time to just stop going to maintenance only, let's generate cash, let's pay down debt if we have it, and let's return something to the shareholders. So that's my guess. And that's truly just a guess on my part. Robert Littlehale: The closed-loop pallets from a manufacturing standpoint, is it different? And do you have to retool in order to produce those? Or maybe you could talk about that? Warren Kruger: Well, we are -- we have multiple different pallets that we can put cellular devices in. The whole technology with cellular devices has changed just because the battery life is long, like 7 years. I mean you -- now you can put 1 out and appreciate your product over 7 years and you know where it is every single day. That's pretty interesting. It's also you can put -- you're putting a fire alarm in every single pallet you put out there because you can set the temperature and have it notify you at a certain level. So it's -- the technology is just unbelievable. And so we believe that we can tie in with existing RFID systems and tie the RFID that they're currently -- that customers are currently using with the cellular device so that we can know where the product is. And then if you have to go down to an individual level and find a specific palette with maybe a product on there, you can do it with existing RFID hand scanners and so forth. So we're -- just the interest in this is really high, and there's a lot of discussions within this industry about -- because it is an asset. At the end of the day, you buy these pallets or an asset, and they -- it's easy to float away. This is a big country. And now it's funny because we can monitor these things, and we know where they are every single day within meters. So it's pretty great. Robert Littlehale: So the customer achieves economies of scale and productivity enhancement by using these closed-loop pallets, I presume? Warren Kruger: Yes. Every those that -- and I'll give you an example. We're talking to a Midwestern company that they just have used CHEP or so long and they're just done with wood. They just said to us finally, hey, we are just so done with wood. We got a big bill for your -- the lost pallets that we don't think that we lost them, but it's hard to find out who's -- it's really -- it's -- you start pointing fingers at one another. And with us, we'll be able to say, hey, here it is. It's off the reservation. You either recover it or you're going to have to pay for it. And so we don't -- it's not ambiguity. It's going to be real life. It's going to be data. It will be data driven. And we also know people say, "Oh, my pallets turn really rapidly. And then you can now you can say, well, they've been sitting for 40 days." So you can also help with some of the things that people believe happening within their systems, but not happening. So data and information is powerful. And we're -- we believe that we can help the customers deliver information. Robert Littlehale: Final question. Just -- so your headcount is what currently? Warren Kruger: Oh, gosh, it's probably in the 80s. Yes. It's low. We were -- we've been as high as 250, and we -- I think we had -- we lost 140. I think we're in the 80 range, something like that. Operator: [Operator Instructions] Warren, we have no questions at time, I'll turn it back over to you for any additional or closing comments. Warren Kruger: Well, I want everybody to know that's on this call that our -- we care about our shareholders, and we work every day for our shareholders. And so I want you to know that. I am -- I was saddened about the big loss, but I will tell you I was emboldened as well. And it has now given me the -- we look forward opportunistically. And we have multiple products we can put our cellular devices in. And we're working -- our stocking and nonstocking distributors out there have been very good with us. They've said, "Hey, we'll support you and help you as well." So we're going to continue to work hard for our shareholders. So if -- and anyone is welcome to reach out to me at any time. If I don't call you -- answer it right then, I will follow up. So -- but I appreciate everyone being a shareholder, and thank you very much. Operator: That concludes our meeting today. You may now disconnect.
Operator: Welcome to the Bank7 Corp. Fourth Quarter Year 2025 Earnings Call. Before we get started, I'd like to highlight the legal information and disclaimer on Page 27 of the investor presentation. For those who do not have access to the presentation, management is going to discuss certain topics that contain forward-looking information which is based on management's beliefs as well as assumptions made by and information currently available to management. Although management believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties, and assumptions including, among other things, the direct and indirect effect of economic conditions on interest rates, credit quality, loan demand, liquidity, and monetary and supervisory policies of banking regulators. Should one or more of these risks materialize, should underlying assumptions prove incorrect, actual results may vary materially from those expected. Also, please note that this conference call contains references to non-GAAP financial measures. You can find reconciliations of these non-GAAP financial measures to GAAP financial measures in an 8-K that was filed this morning by the company. Representing the company on today's call, we have Brad Haynes, Chairman; Thomas L. Travis, President and CEO; J.P. Phillips, Chief Operating Officer; Jason E. Estes, Chief Credit Officer; Kelly J. Harris, Chief Financial Officer; and Paul Timmons, Director of Accounting. Please also note today's conference is being recorded. With that, I'd like to turn the call over to Thomas L. Travis. Please go ahead. Thomas L. Travis: Thank you. Good morning to everyone. We are delighted with our 2025 results. It seems like a broken record every quarter, but we have to acknowledge the great work done by our bankers and especially this year. The outstanding loan growth, the strong loan fee income, and very solid organic deposit growth is not easy to do. And we are very fortunate to have such a dynamic and professional group of bankers, people that have worked together for a very, very long time. And so always, always appreciate what they do and especially this year. And at the same time, while they were producing that tremendous growth in the loan fee income, they did it without sacrificing underwriting, and that enables us to really enjoy asset quality that is probably better than it's ever been. And it's also why we felt comfortable not increasing the provision more than we did this year or last year even though we made such tremendous strides in the growth. So just, a real congratulations and shout out to our great team. And at the same time, our operations, IT, finance functions, continue to evolve, and they make our lives easy. It's something we don't take for granted, so we want to thank and acknowledge the leadership in those functions as well. So we're well positioned to continue performing at a very high level and we're here to answer any questions anyone might have. Thank you. Operator: Thank you. We will now begin the question and answer session. To withdraw your question, please press star then 2. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. Once again, ladies and gentlemen, that's star then 1 if you have a question. Today's first question comes from Wood Neblett Lay at KBW. Wood Neblett Lay: Hey, good morning, guys. Morning, Thomas. Thomas L. Travis: Wanted to start on loan growth, another really strong quarter of growth. I know in the past, you kind of talked about, you know, sometimes growth is lumpy quarter over quarter. But we never really saw the downside in 2025. You know, has payoff activity been lighter than you expected, and how should we think about forward expectations for growth? Thomas L. Travis: Woody, this is Tom. Before Jason jumps in, I just want to tell you, I love the way you start your piece when you send it out. You know, I opened yours early this morning, and you start out with rock. And I like that. So thank you. Jason will take the question. Jason E. Estes: Hey, Woody. You know, it's interesting you bring up the payoffs because we study this every quarter. You know, we try and look at originations and payoff volumes. And, you know, not to sound like a broken record, but we're doing a lot of business in Oklahoma and Texas. And those economies, we're just thriving in this part of the country. Okay? And so we had, I would call it, accelerated payoffs throughout the year. There was just so much demand and loan opportunities. And, look, part of it's geography, and part of it is our team. You know? And so we're over here now with some more scale, and I'll just liken it to the snowball rolling down the hill. Right? And so now, you know, each year when we start, you know, January, and you just know your payoff pace is going to be a lot. Okay? Like, I think we'll have $25 million a month of payoffs this year. So to grow, you know, we need $3.545 billion a month of new funding. And so last year was no exception. I will say that the fourth quarter payoffs were lighter than they'd been in the first, second, and third. You're gonna see some of that come in in the first quarter. Wood Neblett Lay: Yeah. That's helpful color. And then, I mean, I guess, just a follow-up there. Knock on wood, but it feels like the momentum in your local market is continuing to be strong in 2026. I mean, can growth, you know, look like 2025 again in the year ahead? Or would that be a little bit of a stretch? Jason E. Estes: That sounds like a stretch to me. Where we're seeing the most pressure is pricing-wise, and we are not going to lose our discipline, Woody. So we are, you know, weekly meeting with clients, talking to banks, and we're trying to make sure, you know, we're within market and we are doing our best job of maximizing these loan dollars because we do think that we could grow loans at a similar pace, but you have to fund that, and you have to maintain those margins. And so we're balancing those items. Wood Neblett Lay: Yeah. And then last year, I just wanted to shift over to the net interest margin. And, you know, got some compression this quarter, which I don't think was a huge surprise given some of the commentary you gave last earnings call. But can you talk about how you expect the margin to trend if we get a couple additional cuts from here and remind us sort of of the historical ranges you would expect on the NIM? Thomas L. Travis: Before Kelly jumps into that, Woody, I would just a quick reminder that the slight compression that we experienced was we were coming off of almost an all-time high. And we tried to signal that last year. We knew we were running at a higher margin still within our historicals, but really way up there in the range. And so we need to be mindful of that. But go ahead, Kelly. Kelly J. Harris: And, Woody, we had a couple of rate cuts during the quarter, and you can tell in the slides on the deck that we've kind of reached an inflection point where we had a number of loans reach their floors. And so I think if you, on a forward-looking basis, using that with the loan growth, I mean, we feel really good about our current NIM. You know, could it go down slightly? Potentially? We do have some time deposits that are repricing during the quarter that would help offset some of that. And so I think, you know, going within that tight band, $4.45 is a great starting point for us. Thomas L. Travis: What was our historical low? Was it around $4.15 or $4.20, Kelly? Kelly J. Harris: $4.35. Thomas L. Travis: Yeah. Well, listen. If we get 75 basis points of cuts, and we put a lot of material in this deck. I mean, specifically on page 10 is a good illustration. But, you know, we've always said the more the deeper the cuts are, the more challenging it becomes. And our loan floors really help us, but then the depositors at the same time are insisting on higher rates. And so I think we've said in the past, in the recent past, that, you know, it wouldn't surprise us to dip down and touch our historical lows, which is below the number that Kelly said. But, you know, it wouldn't surprise us if it bled down a little further. Wood Neblett Lay: Got it. Alright. Well, that's all for me. I appreciate all the color. Operator: Thank you. And our next question today comes from Nathan James Race at Piper Sandler. Nathan James Race: Hey, Dave. Good morning. Just thinking about the direction of deposit cost going forward. I appreciate the comments earlier around having some opportunities to reduce CD pricing going forward. But wondering if you could speak to the non-maturity side of the deposit equation in terms of, you know, how much additional leverage you have to reduce those deposit costs and what that implies for deposit competition these days. Kelly J. Harris: Hey, Dave. This is Kelly. Our current cost of funds dipped from Q4. I think the current run rate is $2.40. I think that's going to be really driven off of balance sheet growth. Incoming new deposits. We did pick up a couple of nice deposits, you know, post year-end. Helped reduce that cost of funds. And so I think it's, you know, it ebbs and flows. I don't know if there's really a straight answer to give you. Nathan James Race: Okay. That's helpful. And maybe for Jason, if you could maybe just speak to some of the deposit competition you're seeing out there. Obviously, you had really strong loan growth in the quarter, so you had to fund that with deposits. But, you know, just curious what you're seeing across the ground. Jason E. Estes: Yeah. I think it's fair to say the last couple of cuts didn't really flow into deposit betas as strongly as maybe the first couple. And that's not, I don't think, unique to Bank7 Corp. I think that's just kind of across the industry. If you go out to the Internet and just look at what's available, you know, money market, CDs, it's just, you know, clearly you're hitting a point where the depositors are keenly aware now. Right? Interest rates are top of mind. And it was a little bit easier, you know, twelve months ago, eighteen months ago. But as these cuts have taken place, people are just paying attention to it. You know? And so are we, and we're trying to make sure we're getting our share of market share. So I think, you know, to your point or to your question of what do we see in real time? And it's, I think it's tough, you know, on the deposit side. Those last two cuts didn't really translate into typical betas. Nathan James Race: Understood. That's really helpful. And then maybe one last question for Tom. Maybe just zooming out a bit. I think 2025 was a tough year. If you just look at the performance of the stock relative to peers. So just curious, you know, you guys are still building capital at nice clips despite even the strong growth you had in the fourth quarter and throughout last year. So just curious if you're thinking more about buybacks to support the stock these days or just more broadly how you're thinking about excess capital? Thomas L. Travis: Regarding the stock price, we've always, everybody knows on this call and around the world, markets are gonna do what the markets are gonna do, and we really can't control that. Obviously, we can control it a little bit if we wanted to go and repurchase shares, which is not our objective. And we understand it's one of the levers in addition to others, but, you know, we're just focused on producing top-tier results and over time, the market will understand that and the stock price will respond. And I think the proof is in the pudding. I don't know what page it's on the deck, but if you look at our total shareholder return compared to the major exchange-traded banks or if you want to compare it to the KBW index, we are just top, top, top tier. So there's gonna be quarters and times where we don't look favorable compared to other banks, but that's okay because over time, we're gonna outperform them and the market will understand that. Nathan James Race: Got it. I appreciate all the color. Thanks, guys. Operator: Thank you. And as a reminder, if you'd like to ask a question, please press star then 1. Today's next question comes from Jordan Gendt with Stephens. Jordan Gendt: I just had a question kind of following up on that capital. And regarding M&A. In the past, you guys have mentioned sellers having high pricing valuation expectations. Along with, you know, an AOCI overhang. Are those still some of the biggest headwinds you guys are seeing in getting a deal done, or are you guys seeing more sellers come to the table and willing to negotiate? Thomas L. Travis: I think the AOCI has slightly come down. Many of the people that were burdened with that, I think they were using hope as a strategy, and they believed, you know, some of the wishful thinking that the rates were gonna come down and reality is really here. And then as it relates to other factors, there is still, if you run across a quality deposit franchise, it's going to be very difficult to buy that kind of operation. I don't want to use the word bargain, but it's just increasingly difficult. And the market is a mature market. It's an efficient market, and it recognizes that value. So I think all of those things are gonna always be in play. And, you know, we're scouring the countryside. We had a couple of opportunities over the last year in Oklahoma. You know, one, it didn't quite make it at the end. One, we were ready to go, but we didn't, we pulled away after doing our diligence. We had an out-of-market good opportunity that we also pulled away from. And so, you know, there's, it's never the same. But to your question about being able to make things work, we're going to stay very, very disciplined. And, obviously, we're not even gonna, when it comes to asset quality, that's nonnegotiable. Right? And so, but as it relates to price, the higher quality, the deposit franchise, the long-term deposit relationships that some banks have, that's gonna force you into a higher multiple and there's just nothing you can do about it. So while we're out, you know, talking to people, it's a high-class problem, but the capital is just gonna continue to pile up. And, you know, the good news about that is that it gives you more optionality when you finally do find something. And so I think for us, it's going to be stay disciplined, resist the urge to, you know, do any meaningful share buybacks so that we can pile up capital and just be prepared for a nice opportunity. And we've mentioned that, you know, we're not opposed to an MOE. And so it's a really good position to be in, but we also understand that we have to fade the heat because the capital's piling up so rapidly that the return on equity has come down. But the last thing I would say is that that return on equity may be coming down, but I don't know what the percentage of banks is, but I bet it's greater than 90% would love to have their capital ratio returns go down to 18% or whatever it is. So why I call it a high-class problem. Jordan Gendt: Perfect. Thank you for that. And then, kind of one follow-up question on the deposits, particularly the non-interest bearing. It looks like it kind of went down a little bit this quarter, and could you kind of maybe give a little color on that? And then maybe remind us of any seasonality that we should be expecting with the deposit side in 1Q? Jason E. Estes: Yeah. I think what you're seeing, you know, as those non-interest bearing accounts, that percentage bleeds down. Go back to my comments a minute ago about top-of-mind awareness. You know, when rates were zero, nobody cared if it was a money market account, a savings account, or a checking account because it just didn't matter. And that's changed, you know, with the last rate cycle, and it's just a thing that people are aware of. And we accept that. And we're responding, you know, to what the customer wants in that regard. Thomas L. Travis: I don't think that we're not heavy in public funds. Those are seasonal with regard to seasonality. Those balances do fluctuate. But other than that, I don't think we have much seasonality in the portfolio. Jordan Gendt: Okay. Perfect. And then just one more question on kind of the expense and fee guide. If you guys could give any additional commentary on that, on kind of what you're seeing. And then maybe just remind us of how many more quarters we can expect to see impact from the oil and gas revenues? Thomas L. Travis: As it relates to expense, it's nice and comforting that, you know, two of our three primary coverage people, I read their pieces this morning, and it's nice to see you recognize how good we are at controlling expenses. That's not gonna change. As it relates to the oil and gas, yeah, with all due respect, we think it's a nothing burger. It's a, I don't know if I want to call it a rounding error, but, you know, for the next, unless we were to sell the asset, for the next three or four years, it's just gonna be a gradual decline of any meaningful dollars to be harvested revenue. And so, you know, and as a reminder, we didn't really agree with our accountants a year and a half ago when they were using, you know, their formulas to recognize the revenue of the oil and gas. And we warned people that from a GAAP perspective that it, we felt like they were front-end loading it too much, and I still think that exists. And so, you know, from a strategic perspective, we've accomplished our goal. We continue to harvest, and we're happy with it. But from a GAAP accounting perspective, it's gonna continue to be a very insignificant portion of the bank. But we do recognize that we might have some fluctuations. And so from a GAAP perspective, it could negatively impact net income in a small, immaterial way. Kelly J. Harris: And from a dollar perspective, using Q4 as a fully solid guide, I think it was $9.1 million in core expense, a million in oil and gas, and then similar on the fee income side, a million split a million on the oil and gas, and a million core fee income, $2 million total. Jordan Gendt: Okay. Very, very similar to Q4. Perfect. Thank you for that answer. And that's it for me. Operator: Thank you. That concludes the question and answer session. I'd like to turn the conference back over to the company for any closing remarks. Thomas L. Travis: Thank you, everyone, for your coverage. And any shareholders that are on the line. We're excited about 2026 and our company, and we appreciate the partnership. Thank you. Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Lucy: Hello, everyone, and thank you for joining the First Horizon Fourth Quarter 2025 Earnings Conference Call. My name is Lucy, and I will be coordinating your call today. It is now my pleasure to hand over to your host, Tyler Craft, Head of Investor Relations, to begin. Please go ahead. Tyler Craft: Thank you, Lucy. Good morning. Welcome to our fourth quarter 2025 results conference call. Thank you for joining us. Today, our Chairman, President, and CEO, D. Bryan Jordan, and Chief Financial Officer, Hope Dmuchowski, will provide prepared remarks, after which we will be happy to take your questions. We are also pleased to have our Chief Credit Officer, Thomas Hung, here to assist us with questions as well. Our remarks today will reference our earnings presentation, which is available on our website at ir.firsthorizon.com. As always, I need to remind you that we will make forward-looking statements that are subject to risks and uncertainties. Therefore, we ask you to review the factors that may cause our results to differ from our expectations on page two of our presentation and in our SEC filings. Additionally, be aware that our comments will refer to adjusted results, which exclude the impact of notable items and other non-GAAP measures. Therefore, it is important for you to review the GAAP information in our earnings release, page three of our presentation, and the non-GAAP reconciliations at the end of our presentation. And last but not least, our comments reflect our current views, and you should understand that we are not obligated to update them. And with that, I will hand it over to Bryan. D. Bryan Jordan: Thank you, Tyler. Good morning, everyone. Thank you for joining us. In 2025, we showed significant progress in delivering value for our clients, associates, and shareholders. We delivered increased pre-provision net revenue and return on tangible common equity, hitting 15% in 2025. Loan and deposit trends were solid, and we improved balance sheet profitability through a better loan mix, price-disciplined control of deposit costs, and tighter integration of deposits within our client relationships. One example driving improved profitability is the year-over-year improvement of yields on market-based commercial real estate lending for new 2025 originations, 534 basis points. In 2025, we also returned just under $900 million of capital in stock repurchases and just over $300 million in dividends. With more clarity around economic conditions and regulatory trends, we believe we can continue to return additional capital to our shareholders while continuing to invest in growth opportunities. As you will see in our slide presentation, we are optimistic about our ability to improve profitability and continue to grow earnings in 2026. I will now hand the call over to Hope to walk through the results of the fourth quarter in more detail and provide some closing comments at the end of the call. Hope Dmuchowski: Thank you, Bryan. Good morning, everyone, and thank you for joining us today. We ended the year with a strong fourth quarter that includes earnings per share of $0.52, net interest margin of 3.512%, and loan growth. Starting on slide eight, we walk through some of the drivers of our approximately $2 million of net interest income growth as well as our net interest margin performance. Our margin compressed by four basis points, but excluding the impact of the Main Street Lending Program accretion discussed last quarter, NIM expanded by two basis points. Even with our slightly asset-sensitive balance sheet, the largest benefit to both NII and margin was deposit pricing, as our average interest-bearing cost declined by 25 basis points. Additionally, strong growth in loans to mortgage companies added to NII. On slide nine, we cover details around our deposit performance in the quarter. Period-end balances increased by $2 billion compared to the prior quarter. The average rate paid on interest-bearing deposits decreased to 2.53%, coming down from the third quarter average of 2.78%. We have maintained a cumulative deposit beta of 64% since rates started to fall in September 2024. Our interest-bearing spot rate ended the quarter at 2.34%. On slide 10, we cover our quarterly loan growth. Period-end loans increased $1.1 billion or 2% from the prior quarter. Our largest increase came from our loans to mortgage companies, which increased $767 million quarter over quarter. While the fourth quarter is not traditionally a high watermark for this business, we saw a pickup in the refinance market, which resulted in approximately one-third of activity from refinances, up from approximately 25% in recent quarters. We also saw excellent growth across our footprint in the rest of our C&I portfolio, with period-end balances increasing by $727 million from the prior quarter as origination volume increased quarter over quarter. Within the CRE portfolio, the pace of paydown slowed as the decline of period-end balances improved versus the prior quarters, with a $111 million reduction. Additionally, we saw a slight increase in commitments in our CRE portfolio during the quarter, providing momentum entering 2026. Commercial loan spreads remain consistent, generally mid-100s to upper 200 basis points. Turning to slide 11, we detail our fee income performance for the quarter, which increased $3 million from the prior quarter, excluding deferred compensation. The largest increase for fee income comes from our service charges and fee lines, which is largely driven by $4.4 million in income related to elevated activity in our equipment finance lease businesses. On slide 12, we cover adjusted expenses, which, excluding deferred compensation, increased $4 million from the prior quarter. Personnel expenses, excluding deferred compensation, increased by $12 million from last quarter, driven by $8 million in incentives and commissions, which primarily consisted of annual adjustments to bonuses impacted by hitting the high end of our revenue targets for the year. Outside services increased by $16 million, which includes project costs for some technology and product initiatives and increased advertising expenses in the quarter. Our non-interest expense declined primarily related to the foundation contribution discussed last quarter, as well as normal fluctuations in customer promotion costs and marketing campaigns earlier in the year. Turning to credit on slide 13, net charge-offs increased by $4 million to $30 million. Our net charge-off ratio of 19 basis points is in line with our expectation and recent performance. We recorded no provision for credit losses in the fourth quarter, and our ACL to loan ratio declined to 1.31% on broad improvement across our commercial portfolio and payoffs of non-pass credits. On slide 14, we ended the quarter with CET1 of 10.64% as buyback activity and strong loan growth, which included high loan to mortgage company growth, lowered our period-end CET1 levels. During the quarter, we bought back just under $335 million of common shares, bringing our full-year total to $894 million. We also announced a new repurchase program of $1.2 billion in October, and we currently have just under $1 billion of authorization remaining. On slide 15, we walk through the objectives and metrics within our current 2026 outlook. We once again expect year-over-year PPNR growth with mid-single-digit balance sheet growth and positive operating leverage. Our total revenue expectations range from 3% to 7% growth year over year, which accounts for a variety of interest rate and business mix scenarios. As we have mentioned previously, our expense outlook remains flattish, with the exception of incremental incentive expenses associated with higher countercyclical revenue. Continued improvements to market conditions for our fixed income, consumer mortgage, and loans to mortgage company lines of businesses could drive higher revenues and associated personnel expenses. We expect to achieve this while still making key investments in our businesses, including technology, personnel additions, and new branches. Our net charge-off expectation of 15 to 25 basis points reflects our continued confidence in our underwriting standards and credit processes. We expect taxes to be between 21% to 23%, similar to 2025. Lastly, our near-term CET1 target remains at 10.75%, with the level fluctuating approximately between 10.5% and 10.75% with loan growth throughout the year. We will continue to have conversations with our board about potential timing for lowering that target further in line with our intermediate-term expectations of 10% to 10.5%. I'll wrap up as we turn to slide 16. I am extremely pleased with the execution of our teams in the fourth quarter and throughout all of 2025. We once again operate at 15% adjusted ROSD this quarter, and our goal continues to be sustaining and exceeding this level. We are continually managing capital and credit to assure that we maximize returns for shareholders, as displayed this quarter with capital deployed into both loan growth and share buybacks. Our teams are focused on execution and delivering on our profitability objectives, including the more than $100 million revenue-driven incremental PPNR that we have discussed in the past. We made early progress on this in 2025 and expect the impact to continue to grow in 2026 and 2027. With that, I will give it back to Bryan. D. Bryan Jordan: Thank you, Hope. I'm proud of the progress we made in 2025 across many fronts. During the year, we distilled our strategic plan into a five-page framework to provide clarity for all of our associates about how we differentiate in the marketplace and create broad, deep, long-lasting client relationships. I believe this alignment will continue to help drive consistent execution across our organization, resulting in exceptional experiences and outcomes for our clients and our shareholders. As we look into 2026, our priorities are clear: serve our clients well, grow profitable relationships, and deliver on our financial objectives. We will capitalize on growing client confidence about the economy with continued loan growth. We see positive signs for growth in our current pipelines, especially in our commercial lending areas. I'm confident that our diverse business model and robust footprint position us to meet our revenue growth targets through a variety of economic scenarios. As we stated in our 2026 outlook, we also remain focused on expense discipline and efficiency while continuing to invest in technology and tools that make our associates more effective and deliver greater value for our customers. We talked in 2025 about our $100 million-plus PPNR improvement opportunity. We made initial progress in 2025 by improving the profitability of the balance sheet. We still see $100 million in additional opportunity and expect to make significant progress on that in 2026 and 2027. This profitability will be driven by deepening client relationships and products like treasury management and wealth management, leveraging our banker expertise to ensure clients have the right products for their needs, ensuring our pricing reflects the value we could deliver to clients, and ensuring we maximize the value of our footprint with our talent and distribution models. First Horizon has a lot of momentum going into 2026, and I'm excited to see our associates capitalize on those opportunities ahead. Our team put forth a great deal of effort in 2025. Thank you to our associates for their work this past year and to our clients and our shareholders for their continued confidence in our company. Lucy, with that, we can now open it up for questions. Lucy: Thank you. The first question comes from Casey Haire of Autonomous. Your line is now open. Please go ahead. Casey Haire: Great. Thanks. Good morning, everyone. I wanted to start on the revenue outlook, the 3% to 7%. That's about $135 million of revenues. I know it's tricky, but if you could just take us through your base case and what are some of the big wildcards to think about so we can, you know, make our own assumptions on that revenue outlook. Hope Dmuchowski: Happy New Year, Casey. Thank you for that question. You know, our base case, kind of middle of the range, is the current forward curve. So as you think about looking, you know, at the low and high end range, you know, we've got to think about where rates go, how quickly we might see rate drops versus the current forward curve, and then also loan growth. And so as we said, we have mid-single-digit loan growth in here. And so if we were able to exceed that, you'd be at the higher range. And of course, countercyclical. The Wall Street Journal reported this morning that December home buying was strong. I made a comment in my prepared remarks that we saw refinance pick up for the first time in multiple quarters. So as we start to see some of those countercyclical pick up and we hit our loan growth targets or higher, we end up on the higher end of that range. Casey Haire: Very good. And then on the expense front, I know you guys are, you know, kind of reiterating your flat outlook for this year. But I guess trying to understand what the obviously, I don't think that would be sustainable going forward. I guess what would the expense growth be had you not had these past years of heavy, you know, tech investment and digital infrastructure investment? Like, I'm just trying to get a sense of what would be, you know, where does the expense growth normalize to going forward after this flat year in '26? Hope Dmuchowski: When Bryan and I sit down and talk with our board about where we want to go in coming years, we always start with we want positive PPNR. And we really start with a base case of expenses being in line with inflation. You know, you have wage inflation, you have contract inflation. So we start with that, and then to your point, we did have some things that were kind of multiyear investments that are running down. But think about our normal growth in that inflationary area, which would be, you know, 2.5% to 3% currently. Casey Haire: Great. Thank you. Lucy: Thank you. The next question comes from Ryan Nash of Goldman Sachs. Your line is now open. Please go ahead. Ryan Nash: Good morning, everyone. Hope Dmuchowski: Morning. Ryan Nash: So, you know, Hope, you mentioned embedded in your revenue growth expectations is mid-single-digit loan growth. Maybe just unpack that and talk about some of the key drivers across the products. How are you thinking about the inflection of commercial real estate? What's baked in for a loan to mortgage companies, and, obviously, any other areas of growth in the broader C&I area. Thank you. Hope Dmuchowski: I'll take those one at a time, Ryan, and happy New Year. First, if we look to mortgage warehouse, we are expecting it to pick up. We had, you know, if you look at our trend page, you see it's the highest quarter we've had in five quarters. Seasonally, Q4 pays down, and we didn't see that. And with the pickup in refi, we think that we will, you know, our base case assumes that picks up in similar consecutive fashion. When we get to the higher side of our guidance, obviously, you know, looking at a double-digit mortgage warehouse growth in the lower end of our guidance would be, you know, flat or lower than this year. C&I, we have great momentum coming into the year. We talked on our last earnings call about being one of our highest quarters for new originations. Q4 had additional strong originations. So we think C&I has hit that inflection point. We're going to continue to see growth in 2026. CRE started to stabilize this quarter. We've seen good new production, but we do a lot of large construction increase. So it takes time for that to fund up. We've always had that spring-loaded balance sheet, Ryan. So I do think it'll, you know, stay stabilized with how quickly we can grow with how quickly our customers can get their projects running, get the supplies they need, and really start to hit that stride in the CRE market that's been slowed down the last couple of years. Ryan Nash: Got it. You know, maybe as a follow-up, given the expectation for mid-single-digit loan growth, I'm assuming you're expecting some decent deposit growth. Can you maybe just talk a little bit about deposit growth expectations, what you see as the key drivers? And in a better loan growth environment, do you think you could sustain this 64% beta for the remainder of the raising cycle? Thank you. Hope Dmuchowski: Yeah. Loan growth is always higher in our targets than our loan growth is always lower than our deposit growth. So the target that we give to our businesses is, you know, for that not to be offset and create a higher loan-to-deposit ratio. With that, we have a lot of initiatives that we've done in the past twelve to eighteen months, primarily our new treasury management system, that an additional product that we have delivered in the second half of the year that allows us to deepen relationships with existing clients and also go to market with clients that we maybe didn't have everything they needed for their business previously. We've seen great momentum in treasury management in the back half of the year. Also, we've mentioned before, we've hired a new Head of Consumer. We had, you see our advertising costs were slightly up, and our cash payments and other non-interest expense were up, have been up in the second half of the year. We're seeing great momentum with our new-to-bank offers, sustaining and deepening relationships in that space. We're opening new branches this year, and I think there's a lot of upside opportunity in our consumer franchise. Your comments about deposit costs, you know, I would say the number one thing that concerns me there outside of competition, as we always talk about, is what happens with the Fed's balance sheet. Now there's some congressional testimony about shrinking the Fed's balance sheet further. And so I really think it's a macroeconomic question as to what is the liquidity in the system in the coming year that will drive deposit prices much more than competition right now where I'm sitting. I don't know what you'd add to that, but there's a lot of uncertainty right now. D. Bryan Jordan: Well, I think you hit the key point. We do have opportunity in treasury management penetration. We have a very strong stable base there in our system. It is extraordinarily competitive, and we're making very good progress in terms of working with customers to increase that penetration. I think the opportunities across our footprint to continue to expand our retail consumer banking model, as Hope pointed out, are very positive. And deposit betas, you know, we're going to manage within the context of the market. We're going to be competitive. We think that, you know, the Fed's going to either contract or expand its balance sheet. Competitors are going to do this, that, or the other thing. We're going to pay attention at a very granular level and be competitive in the marketplace and grow the business and do it in a way that is thoughtful and built around long-term relationships and partnerships. I think we're well-positioned for that. Ryan Nash: Thanks for all the color. D. Bryan Jordan: Thank you. Lucy: The next question comes from John Pancari of Evercore. Your line is now open. Please go ahead. John Pancari: Morning. I wanted to see if, you know, within your revenue guide, if you could possibly help us unpack it across how you're thinking about net interest income trajectory and the fee side. I mean, on the net interest income side, I, you know, it looks like you grew net interest income about 4% in 2025. Looks like it may be a somewhat slower pace in '26, just maybe given less margin upside. But I want to see if you could maybe help us frame it. Is it low single digit? That's reasonable or mid-single for NII? And then as you look at fees, just give us a little bit more color on the ADR trends that you're seeing here and how that could play out in the cap market side? And how that influences your fee growth expectation. Hope Dmuchowski: John, thanks for the question. On fee income, obviously, the largest variable is, as I mentioned earlier, mortgage refinance, where we don't put something on our balance sheet. We do originations that we sell so that we can get that gain on sale back up to what it was two, three years ago when we saw more normalized resale activity. FHN Financial had a very strong second half of the year. If you look at the deck and you look at the fourth quarter ADR, we had mentioned that we thought 3Q may be an inflection point in the beginning of Q4, we were starting to see that come back down, and it's pretty flat quarter over quarter. So I think as you think about fee income, think about the core line items growing consistently with this year, but the upside being both gain on sale for mortgage and a refinance opportunity as well as FHN Financial upside. On the NII, as Bryan mentioned earlier and I did as well, the deposits are hard to predict exactly where we're going to land on deposit betas this year. I think that could have a big swing on that. And then loan growth, we had really low loan growth in our industry for two or three years now, and there is a pent-up demand out there. So I believe we can get certainty on rates. We can get certainty on the economic environment. We're going to see that pick up for our industry. I can't handicap right now, John, is that earlier in the first half of the year or the second half of the year in those, you know, average balance matters for NII more than that quarter over quarter. But I feel really strongly that, you know, we are well within that range. You can run a set of scenarios, and we will be within that revenue guide regardless of what happens in the macroeconomic environment this year. D. Bryan Jordan: Hey, John. This is Bryan. I'll add the coach comment. We're very intentional in not breaking apart the revenue projection into net kind of fee income. Simply because we have a very well-balanced business model. And that we have the countercyclical businesses. So we have businesses that will pick up if rates move down significantly. We have businesses that will do very well if rates move up, and the two balance each other out. And so when we build out a model looking at 2026 or 2027 and beyond, you know, we start with the premise that all models are wrong, some are useful. And so we look at it in the context of we feel good about the balance in our business, and that if you push down here, this will pop up. But at the end of the day, we feel confident in our ability to deliver revenue growth within the range that Hope has highlighted for you. John Pancari: Got it. Alright. Thanks, Bryan. Thanks, Hope. I appreciate that. And then separately, Bryan, I guess, we could just go M&A, just want to see if you can get some of your updated thoughts around potential whole bank M&A, a lot of attention obviously to your shift in your comments last quarter. You know, how are you thinking about the decision to potentially step in here and consider an acquisition, given the potential that the regulatory window could ultimately close and does that influence you? And then the backdrop of deals accelerating, but most importantly, what it means for you in terms of if something compelling financially or strategically comes up. Thanks. D. Bryan Jordan: Yeah. Thanks, John. One, I don't worry about the regulatory window first and foremost. I think that during the duration of the Trump administration, you're likely to see the regulatory window open. Your regulatory infrastructure is in place now, and they have multiyear appointments. So I don't worry about that. When it comes to thinking about our business and preparedness, I think as I highlighted in the third quarter call, we have the ability to integrate now, but our priorities are focused on the things that we've described in our prepared comments, which is penetrating our customer base, delivering on this strategic document that we have laid out for our organization, driving the $100 million of potential PPNR growth. And in that context, if we have the opportunity to fill in our branch franchise or deposit base by doing something small, we would consider it. I would tell you, like I did ninety days ago roughly, that's not a priority for us. Our priority is delivering higher returns, increased profitability, and leveraging the franchise and the footprint that we have. John Pancari: Got it. Thanks, Bryan. Lucy: The next question comes from Bernard Von Gazzicchi from Deutsche Bank. Your line is now open. Please go ahead. Bernard Von Gazzicchi: Hi, guys. Good morning. So you have a 15% plus sustainable ROTCE target over the near term. You hit the 15% mark the past two quarters. Are we at that sustainable 15% now and moving to the plus part of that? Or is there a time frame, like the end of the year, you feel that you can declare you hit the 15% in a sustainable manner? Hope Dmuchowski: Bernard, good morning. Welcome. I think we've hit that sustained number on a go-forward basis. It doesn't mean a single quarter could have dipped under that. I talked in my prepared remarks about how a could come down lower quarter to quarter as we look at loan growth. But on average, I do think we've hit that inflection point where we can deliver in the 15 plus percent, Rossi, target ongoing. But that's not an every quarter number. I would say it's an average in the near term. Longer term, that will be the minimum, but we've had a lot of uncertainty in the macroeconomic and a lot of things at play right now that could slightly dip us underneath that in 2026. D. Bryan Jordan: Yeah. I would add that, you know, the accounting around AOCI and things like that can move it in into a quarter and a quarter or two. But we feel very good about the sustainable nature of the progress that we've made over 2024 and 2025 in terms of proving profitability. So I think we are at a sustainable level. It may fluctuate up a little bit or down a little bit, but at the end of the day, I think what we've delivered and improved profitability is sustainable. And as we have in the past several quarters, the opportunity to return capital and manage our capital levels in line with peers is an opportunity that would further enhance that. So we've made good progress, and I think we're in a good place to increase that profitability as we go forward. Bernard Von Gazzicchi: Thank you for that. Maybe just on credit, so I know in the release, you noted the 11% sequential in criticized and classified during the quarter. You know, the resulting zero provision and the $30 million reserve release. You know, how are you thinking about your reserve build from here? Just given expectations on the path of criticized and classified, the expected 15 to 25 basis points of net charge-offs, as well as just expectations for mid-single-digit loan growth for the year. Thomas Hung: Yeah. Hey. Good morning, Bernard. This is Tom. I'm happy to address that question for you. You know, overall, we've had very strong momentum throughout all of 2025 in terms of working through our non-pass book. And, you know, as you noted in the fourth quarter alone, we had over $700 million of our non-pass resolutions. And there's a good mix of both payoffs and upgrades. On the whole year, that number added up to $2.2 billion. And so with the strong momentum we've had in those non-pass resolutions, that's why we have been able to have the other reserve releases we've had in the last couple of quarters. In terms of looking ahead, you know, a lot of other factors will impact what ultimately our reserves are, including broader economic outlook, the amount of loan growth we have, and also the mix of the businesses. You know, what I'm happy about is the momentum that we have in terms of how we've continued to be able to work down our non-pass book while maintaining very strong net charge-off performance in terms of forward outlook on reserves. But like I said, there's a number of factors that could change that, so it's harder to say. D. Bryan Jordan: Bernard, this is Bryan. I'll add to Tom. You know, the CECL model implies an awful lot of science, but there's a tremendous amount more art involved in it and the assumptions that are made about the economic scenarios. And if you step back from it and you look at our reserve levels today, we have something in the nature of six to seven years of reserves set aside at the current run rate. So we believe that we're conservatively positioned. We try to take a balanced view of the economy, and we don't look at it as all up or all down. But I think given the improvement that we've seen in CNC and the trends in the balance sheet, we think we're in a very good position for the reserve levels that we have. And then our credit trends, as highlighted in our outlook for 2026, are likely to be in the same area that we've seen over the last year or so. Bernard Von Gazzicchi: Thanks for the color, thanks for taking my questions. D. Bryan Jordan: Sure. Thank you. Lucy: The next question is from Jared Shaw of Barclays Capital. Your line is now open. Please go ahead. Jared Shaw: Maybe circling back on the capital discussion, when we look at that $1 billion or so of additional buyback authorization, what's the appetite for utilizing that over the course of '26 with the backdrop of growth? Should we expect that you stay active sort of at similar levels and see the capital ratios just continue to move lower? D. Bryan Jordan: Yes, Jared. This is a topic we work with our board on. So I don't want to get in front of that. But they have given us a substantial authorization, and we have a fair amount remaining under it. And as we've said in the past and as Hope has highlighted here, we will continue to talk about where the economy is, where our balance sheet is, how do we look at capital levels in the context of the peer universe and what's going on in the regulatory environment. Then having said all of that, you know, I would say I'm comfortable reaffirming what we've said in the past, which is we believe long term that we can operate our balance sheet in that 10% to 10.5%. And while you might get a spike one quarter in mortgage warehouse or you might get it for a year, year and a half, we're comfortable bringing those capital levels down over the longer term. So that's a long way of saying, one, we want to deploy our capital in organic profitable growth with our customer base. And if we don't have those opportunities, we will be disciplined. And as we've highlighted a couple of different ways, we returned $1.2 billion of capital in 2025, and we'll look for opportunities to be opportunistic, but we will participate in buybacks when appropriate. Jared Shaw: Okay. Thanks. And then maybe just shifting over to the loan growth side. C&I loans, as you pointed out, had a really good quarter. But utilization rates have been pretty much flat over the last year. How are you from your conversations with customers, what's sort of the appetite for bringing that utilization rate up over time? And is there any expectation in your guidance that utilization rates move higher? Or could that just be potential upside if you see increased optimism from existing lines? D. Bryan Jordan: Yeah. I'll start, and then Tom can help me. I think customers are generally still pretty optimistic. We see it in our pipelines, and the momentum in the economy appears to be very, very good today. I think, you know, as uncertainty emerges, whether it be, you know, Venezuela or Iran or oil prices or whatever the uncertainty could possibly be, then people will take stock. But I think people are generally biased for growth. And so I expect generally speaking, that C&I utilization will improve. I think the other dynamic I've talked a little bit earlier about loan growth and loan growth opportunities. In '24 and '25, we did a fair amount of work rebalancing. I mentioned improving the mix and profitability of the balance sheet. We also rebalanced where we were participating, and we got out of a number of what we viewed as unprofitable long-term participations and things of that nature. I think our balance sheet mix is set to be more profitable and to grow in a more sustainable and consistent level. Tom, anything you want to add? Thomas Hung: Yeah. I'll I would just add, starting with your question on utilization rate. We certainly watch that closely, but I think the drivers behind changes in that utilization rate are really kind of more telling because there can be positive and negative reasons for us. There that, you know, utilization rate going up and down. You know, if people are optimistic and looking to develop, we see that go up. It can also go up in periods of uncertainty, and so that's why I'm really more focused on the drivers underneath that number and what's driving it. I would also add, though, just overall, you know, what we're seeing across the board is increased momentum in our pipeline. Hope and Bryan have both mentioned C&I as an example. You know, what I would point to there is what I'm encouraged by is the increase in pipeline is coming from a pretty diverse set of businesses. We've seen it across our regional bank. We've also seen it to varying degrees in our specialty business units as well, and so this isn't concentrated in any one area, but it's more of a broad increase in pipeline that we've seen. Jared Shaw: Great. Thank you. D. Bryan Jordan: Thank you. Lucy: The next question comes from David Chiaverini of Jefferies. Your line is now open. Please go ahead. David Chiaverini: Hi, thanks for taking the question. I wanted to ask about the net interest margin outlook. Last quarter, you had guided to the high 330s, low 340s. Clearly, you outperformed that. It sounds like pricing trends are good on both sides of the balance sheet. How would you frame the outlook from here? Hope Dmuchowski: Yeah. I would say our outlook is still similar in that 340 range. There's a lot of timing and art on, you know, getting it exactly right in a quarter and an outlook. Specifically, this quarter, we had in my prepared remarks, I just discussed the uptick of growth in mortgage warehouse and the increase of NII there really helped our margin sustain quarter over quarter. Deposit costs, we're really proud of how we were able to work those down. I think we exceeded our expectations when we were on this call last quarter. So I don't see 350 as the go-forward. I really think we're in the mid-340s, kind of going, you know, some variation quarter to quarter. David Chiaverini: Great. Thanks for that. And then on the $100 million of incremental PPNR, you've been talking about that for a few quarters now. Curious as to how much of that has been achieved thus far and then perhaps the split between 2026 and 2027 of achieving that 100 million? D. Bryan Jordan: Yeah. We have been talking about it since roughly the middle of the year, and we talked about it in the context of 100 million plus. And we said the last couple of quarters that we continue to make progress. And we look at the opportunities across the business. It is clear to us that there are opportunities for greater penetration of treasury and wealth that I mentioned earlier in the call, greater opportunities for ensuring that we introduce broader relationships. So there are a huge number of opportunities. It will build over '26 and '27. So if you look at it mathematically, there's going to be more in '27 than there will be in '26. But we think we made significant progress in '25. I mentioned the improvement in market investor CRE lending and spreads there. By connecting our professional CRE business with the structure and pricing that we're doing in market investor CRE. And things like that build over time. So I'd expect you'll see some in 2026. You'll also see some in 2027. I would tell you as it relates to 2026, we have it built into the outlook that Hope has laid out to you. So it is embedded in that outlook. Hope Dmuchowski: I'll add to what Bryan said. And, you know, repeat. You know, our goal is sustainable momentum, and you're going to see that build quarter after quarter. You're not all going to suddenly see a spike. And so as you continue to see our earnings momentum, you continue to see our revenue growth really in line or outpacing our loan growth, you can attribute that to continuing to deepen these relationships. But it will build quarter after quarter, and as Bryan said, build '27 or build on '26. David Chiaverini: Very helpful. Thank you. Lucy: The next question comes from Peter Winter of D.A. Davidson. Your line is now open. Please go ahead. Peter Winter: The outlook for expenses flattish for '26, and it does imply expenses will be down quite a bit from the fourth quarter level. Just what are some of the levers for lower expenses versus 4Q? And do you think is a good starting point for the first quarter expense? Hope Dmuchowski: We have elevated expenses in Q4 due to the higher revenue. If you look on the increased commissions quarter over quarter, that is another strong quarter, but also at year-end, there's a series of true-ups that every company does. And so I would look at that run rate and say, what is it consistently going to be in Q1? Marketing and advertising is seasonal. And so it does tend to be slightly down in Q1 and then higher in Q3 and Q4 at times. So I'm not going to give you an exact, but I think when you look at the range and look at a glide path, take out the one-time items that we've commented on in our presentation. We also had a lot of technology projects that completed in the back half of this year, and that is part of what we're using now that run rate starting to come back in line to reinvest in branches and hiring. Peter Winter: Got it. Then if I can ask, I realize it's still early, but are you starting to see any disruption in your markets from the recent M&A deals? Any opportunities to hire bankers or bring in new customers or those conversations starting? D. Bryan Jordan: It is still early, and best I can tell, there's no real work going on right now in terms of systems conversions and things of that nature. But we have seen opportunities to recruit. We're recruiting as we always do across all of our footprint. And so we do believe that over time, we will have an opportunity to continue to bring talented bankers and support folks all across the organization onto the platform. And whether the disruption drives that or otherwise, I think our business model, our focus, our culture has been an advantage and will continue to be so. Peter Winter: Got it. Thank you. Lucy: The next question comes from Michael Rose of Raymond James. Your line is now open. Please go ahead. Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Just two quick ones for you. Just talk to me about the commercial real estate expectations, obviously, down Q on Q, down year over year. You got to have, in theory, a couple more rate cuts. You know, paydown activity, you know, probably still pretty healthy. Do you expect that business to inflect this year? And is that an area of potential growth as we move later into the year? Or do the headwinds from payoffs, paydowns from lower rates just kind of persist through the year? Thomas Hung: Yes. This is Tom Hung here. I think we can reasonably expect to see an inflection in our CRE this year. As Hope alluded to, what we do in CRE does skew a lot towards construction, and hence, we have more of a spring-loaded balance sheet there. Given the lower amount of construction in the last couple of years, that's why we have seen a decline in balances in that business. However, that has started to pick up. You know, I mentioned that pipeline momentum in the C&I business. I should also mention there's good pipeline activity in our CRE business as well. If I look at our CRE pipeline compared to even last quarter, it's up pretty meaningfully. And you mentioned especially with the rate decreases that have been happening, and there's expectations for further rate cuts, that really affects construction starts. And with more construction starts, that's why we're starting to see a very healthy build in our CRE pipeline. The final step I'll point to here is in our prepared opening remarks, one of the things we did mention as well is this quarter, for the first time in about two years, we had a net increase in our total CRE commitments. So I think that's a good early indicator of where we expect CRE balances to go. Michael Rose: Very helpful. Appreciate the color. And then maybe just last one for me. I know you guys have a small credit card book. There's obviously been some interest rate cap discussion out there. Just wanted to see if that might have any impact for you guys. Again, I know it's small. D. Bryan Jordan: Yeah. It is a small book, and if you apply the cap across our outstanding today, it'd be, you know, roughly a million dollars a quarter. So it's insignificant. Michael Rose: Great. I'll step back. Thanks for taking my questions. D. Bryan Jordan: Alright. Thank you. Lucy: The next question comes from Jon Arfstrom of RBC. Your line is now open. Jon Arfstrom: Morning. Good morning. Most of my questions have been asked and answered, but just hope a follow-up on Peter's question on the first quarter. Anything else you would flag in the first quarter in terms of the balance sheet and P&L, just so we can set up the year properly, the slope of the year. Hope Dmuchowski: Tom, that's a really general large question. I think we've hit the highlights. I'm really proud of where Q4 ended up, and it gives us tremendous momentum and excitement with our bankers and our clients going into Q1. I think when you look at mortgage warehouse especially, this tends to be a quarter where we always see our loans decline, and then we kind of dig out of it in January, February, and then March starts to stabilize in that business. We've continued to see strong momentum there in January. I do think that will be an upside for us. We won't have the normal quarter over quarter significant volatility we have. Fee income, it's really too hard on ADR to say where the quarter's going to come in as well as refinance. As you know, rates may be heading down, and that could pick up. John, I think we expect another strong quarter to look similar to this one across the board. On the expense side, we are adding bankers. So see in the deck, we've added over 100 employees, you know, 100 FTEs since midyear. Most of that is in client-facing, client-supporting technology positions that enhance the franchise and our ability to deliver revenue growth. I think, as I've said before, marketing and advertising really fluctuates quarter to quarter. Q1 comes down and then builds back up. If you look at our last two years of Q1 Q4 and Q1 expenses, John, pulling out that one-time commission, I think you're going to see it look very similar to normal seasonality. D. Bryan Jordan: Okay. That's very helpful. Mortgage company was another follow-up I had. So thank you on that. And then, you know, Thomas, Bryan, I don't know. Just one of the other questions is on the provision, and I guess we kind of danced around it before. But you've had two really good quarters. You're talking about positive trends in credit and mid-single-digit growth. But how do you want us to think about the provision from here given the strong numbers over the last couple of quarters? Thomas Hung: Yeah. I would start with, I think, the most important measure of our overall credit performance is really in our net charge-off numbers, and then I'm proud of how consistently strong we've been in that. Provision has a little more noise than it just because of the number of factors that go into it. Most notably, as we're calculating our reserves, obviously, our economic outlook as far as and loan growth can go into that number as well. So if provision is higher in quarters than we've had in the last two quarters, you know, that can certainly actually very much be a positive if it can be driven by the amount of loan growth that we're expecting and the momentum that we're seeing. And so just given kind of the number of factors that go into the provision number, I think, overall, I'm personally more focused on net charge-off as the best reflection of our credit quality. Hope Dmuchowski: John, I made this comment last quarter, I'll reiterate all the time. I do believe with all the facts we know today, we're done in that building phase. We spent two-plus years constantly increasing our provision, increasing our coverage. Not knowing what was, you know, what was going to happen, whether it was the pre-wave. There were just so many uncertainties. There's just as many uncertainties today, but I don't think we'll have to build. I think we're at the right reserve level. So you can really think about it, you know, more normalized as to would we have a release quarter, but it should trend with loan growth, which it has not been the last two years. Jon Arfstrom: Yep. That's what I'm looking for. Thank you very much. I appreciate it. Lucy: Thank you. The next question comes from Chris McGratty from KBW. Your line is now open. Please go ahead. Andrew Leishner: Hey. How's it going? This is Andrew Leishner on for Chris McGratty. Hope Dmuchowski: Hey. Good morning. Andrew Leishner: I know near term, you said you want to stay closer to 10.75% CET1. And you mentioned earlier on Jared's, I believe, longer term you can operate your balance sheet in the 10% to 10.5% CET1 range. But I guess what do you and the board need to see maybe from a market or regulatory perspective to get comfortable dropping down to that range? D. Bryan Jordan: Yeah. So it's really two levers, and the first is most important, and that is just sort of the economic data payout. If you were sitting here in 2025, everybody had concerns about how tariffs were going to impact in the short run. We've now seen nine months of evidence, and through a number of different means, it's had very little or minimal negative impact at this point. And so as those kind of economic factors play out, the outlook for the economy in '26 and '27 factor into our thinking. So as we look at the economy, we get more and more comfortable with the ability to bring those levels down. The second is there is a regulatory backdrop around capital and excess capital. And clearly, we pay attention to where we stack up in terms of peer comparisons. And you've heard some discussion and calls earlier this week that people are generally migrating capital levels down. So the combination of those things, I think, over time, gives us as a board more and more confidence that we can manage our capital levels down. Our approach has been to take it in fairly small steps, take it from a to ten seven five, and then we talk about 10 and a half. Then we talk about 10 and a quarter, and just do it in a way that we can manage through the distributing the excess capital or deploying it in the business. And so I think it's an evolving conversation. We'll do it in a measured and thoughtful way, but it's principally the economic drivers we're looking at. Andrew Leishner: Great. Thank you. And then just another follow-up on the C&I loan growth, and sorry if I missed this earlier. So outside the mortgage warehouse growth, and I know there was another $700 million of seeing, like, C&I growth excluding the mortgage warehouse. Can you just talk about where that source of growth came from? And going forward, how we should think about C&I growth and where it's coming from outside of Words Warehouse? Thanks. Thomas Hung: Yeah. Happy to address that one. C&I was obviously the largest number. But outside of that, across our C&I platform, I think what I'm very encouraged by is it came from actually a very diverse mix across all of our businesses. You know, our regional footprint had very strong productions across all of our regions. In our specialty lines, I guess I'll single out equipment finance as one business that had outside growth relative to some of the other businesses. But I think the most important takeaway here is it was pretty broad-based. And we saw it across most of our businesses and regions. Andrew Leishner: Okay. Great. Thank you. D. Bryan Jordan: Thank you. Lucy: The next question comes from Christopher Marinac of Janney Montgomery Scott. Christopher Marinac: Hey, thanks. Good morning. I wanted to follow-up on the regulatory disclosures last quarter on the NDFI loans. Think about 60% was related to mortgage warehouse. And, obviously, 40% is the rest. And I'm curious if the mortgage warehouse hope grows and gets to the upper end of the growth range this year, does that mean that the lower percentage on other NDFI loans would occur? Or would you still be seeing growth in some of this other business and other lines outside of mortgage? Thomas Hung: Sure. I'm happy to address that. I'll break that up into a few parts. I'll first off with the growth that we've had in mortgage warehouse that actually accounts for a larger percentage. It's more closer to two-thirds of our NDFI exposure is in mortgage warehouse. And from a safety and soundness perspective, I remain very, very confident in the way we have expertly managed that business for a lot of years now, most notably in that business, we take physical possession of the notes. So you can imagine the amount of paper coming in and out of our mortgage warehouse group each and every day. In terms of other NDFI, given the noise that's been in the market, you know, we certainly continue to look at that very closely, but I would point to, once again, the years of experience we have in that sector. Consistently strong performance. And I think there's some differentiation for us as well in terms of, you know, we have a full-time team of field examiners. That's seven full-time staff with nearly twenty years of average experience. And through that team who are on the road probably fifty weeks a year, we do our own field examinations out generally one to three per customer every year. We do supplement that with some third parties as well. And in addition to that, you know, once again, given kind of the recent noise, we have also completed a, recently, a comprehensive review of our non-mortgage warehouse NDFI book. We've segmented all of that into seven different segments, which have very different risk profiles, and we've done deep dive analysis into each of those segments with unique scorecards we developed based on the unique risk of each sector. So we continue to look at it very closely. You know, we and we originate, we continue to originate in those segments as well. You know, we do it in a prudent manner as we always have. And I think the results have been pretty good. Hope Dmuchowski: Following on Tom's comments about mortgage warehouse, I really do want to reiterate what I said. I said it's at November with Tammy Locascio, the head of that business at a conference. We do mortgage warehouse, and it looks exactly like a mortgage loan. We pick the closing attorney. We take physical ownership of the actual loan docket. It sits in the same vault as the mortgages that are on our balance sheet. So for us, when we do NDFI, we have that underlying collateral with us. And we get to sit at the table with the lawyer that we choose at the closing. So there always can be fraud, but we do do it some of our other peers. I want to point to that when you think about NDFI exposure. For us, if we had an issue with a borrower, we can we have the notes. We can sell them into the secondary market and get our money back, which is not traditionally how the NDFI is thought about. D. Bryan Jordan: To your mechanical part of your question, if the NDFI number goes up in the first quarter or quarter beyond, it's likely to be driven by fast growth in the mortgage warehouse lending business than any of the other NDFI lending business. Christopher Marinac: Great. Bryan, Tom, and Hope, thank you for that. That's all color. And, you know, I know the data is now a quarter stale, but it seemed that you had no losses in that business and that the problems in terms of just non-accruals were very small. So I suspect that's still the case today. Thomas Hung: Yeah. That's absolutely the case in our mortgage warehouse book. I mean, I think to be expected in our non-mortgage warehouse NBFI book, you know, there are slightly higher levels of classified assets and NPLs, and there's some charge-off in that business that I wouldn't call any of it a big outlier relative to the overall book. Christopher Marinac: Great. Thank you again for the detail here. D. Bryan Jordan: Thanks, Chris. Lucy: Thank you. The next question comes from Janet Leigh of TD Cowen. Your line is now open. Please go ahead. Janet Leigh: Good morning. Just to clarify on your expense guidance, so the flattish expense guidance, does that still hold if you achieve the higher end of your revenue guide of 3% to 7%? If you achieve 7%, is it still flat? Hope Dmuchowski: Janet, yes. It does. What I'll say is if we achieve the higher end of the range with more countercyclical commission businesses than we had this year, that's what brings it up above the 0%. Janet Leigh: Got it. Thank you. And just a quick follow-up. If I look at your fourth quarter loan growth results, period at 7% annualized, looks like a lot of the narrative around C&I potential mortgage warehouse, and CRE inflection, those all sound positive. And it feels like there's a level of conservatism baked into your mid-single-digit loan growth. Is this a fair assessment, or am I missing anything? Thanks. Hope Dmuchowski: Janet, we are traditionally a very disciplined lender. So if you look back at how First Horizon has lent for the last five or ten years, we tend to be pure average-ish. And so when we think about what we think the outlook is for the market, we're not trying to overperform. We want to make sure that we get great clients that we can work with, that they have the right underwriting standards. They're going, you know, the way we keep our net charge-offs so low through a cycle is through disciplined lending. And so absolutely, we could do more. Bryan's great quote that he always uses is, it's easy to lend money, it's harder to get it back. And so I think, you know, as I sit here today, I don't see an economy that's going to be above mid-single-digit loan growth unless there's some stimulus put in the system. D. Bryan Jordan: There's some mixed things going on in the loan growth percentages. We're not likely to grow our consumer mortgage portfolio at a very rapid rate this year. Just expect that most of what we will originate goes into the secondary market. But to your point, we feel very, very good about the business that you enumerated, and we think we have great opportunities to grow there. Janet Leigh: Thank you. D. Bryan Jordan: Thank you. Lucy: The next question from Anthony Elion of JPMorgan. Your line is now open. Please go ahead. Anthony Elion: Hi, everyone. Hope, on fixed income, I'm curious why ADR and fixed income revenue didn't grow in 4Q. It seems like the tailwinds were all there, including a lower rate outlook, volatility was moderate, and the yield curve remained steep. Hope Dmuchowski: Tiffany, we saw a significant slowdown in that business as it related to the government shutdown. And so we mentioned on our call last quarter that early October was starting out really slow. So it was really kind of a tale of two quarters where the first half of the quarter was pretty low ADRs and the back half came up. So it averaged to a good number, but there was a lot of volatility and really low ADR during the government shutdown. D. Bryan Jordan: Then the last half of December tends to be very slow as well. Anthony Elion: Thank you. And then one more on expenses. So could you put a finer point on the degree to which any incremental commissions from the fixed income business could impact the expense outlook? I only ask because I remember last year, your expense outlook quarter after quarter included increases in commissions. Helped give us more visibility into where total expense could come in for the year. Thank you. Hope Dmuchowski: As we think about the countercyclical, the rule of thumb is to assume 60% commission as revenue increases year over year. D. Bryan Jordan: I'll look at the commission-based nature of expense growth in 2026. If we get commission-based expense growth in 2026, it will be a high-class problem. That is profitable business for us. It is broadening and deepening relationships. And so while we don't anticipate that that's going to drive the expense number, if we get that and we end up with higher than flattish or flat expenses, that will be a high-class problem in my view. Anthony Elion: Thank you. D. Bryan Jordan: Thank you. Lucy: Our final question today comes from Timur Braziler from Wells Fargo. Your line is now open. Please go ahead. Timur Braziler: Good morning. Bryan, I just want to make sure I heard your last statement correctly. So is it implying the flattish expenses imply flattish countercyclical revenues in '26? To the extent that you get growth there, then you'll get growth in the expense base? D. Bryan Jordan: Well, back to my earlier point about all models are wrong. Some are useful. We have to make assumptions about what our countercyclical business is and our commission-oriented business is. So that includes our wealth management business. That includes our fixed income business. That includes incentives we play around, mortgage warehouse lending. So we've got a series of assumptions in there. I wouldn't overread that we don't expect that that balance will change, but we have incentive programs in our straight C&I lending and our commercial real estate lending. And as we look at the course of the year, we think all of it balances out given our expectations of where revenue is likely to come from. It'll largely be in a flattish area. Timur Braziler: Got it. And then just following up on the loans to mortgage companies, just wondering what portion of the growth is coming from new client acquisition, if any? Or has that ramp that you've been focused on over the course of the past year or so, has that largely concluded, and that business is now more or less stable, or is there still some level of benefit coming from new client acquisition there? Thomas Hung: Yeah. I'm happy to address that one. I don't have the exact split with me, but I can say that we continue to pick up new customers at a pretty good clip. As you may recall, there was some disruption to that industry earlier this year and also last year in terms of a few major players either exiting the space by decision or being acquired. And as a result, they became a good number of strong customers that were potentially looking for new homes. And so our team has done a great job through the execution and expertise we have in the space of picking up new clients, but we certainly also upsized with existing clients as mortgage volumes are picked up. And so the increase you're seeing is really a combination of a mix of the two. D. Bryan Jordan: And we get a larger share of originations as a result of all of that as well. Timur Braziler: Great. Thank you. Thomas Hung: Thank you. Lucy: We have no further questions at this time. So I'd like to hand back to Bryan for closing remarks. D. Bryan Jordan: Thank you, Lucy. Thank you all for joining us this morning. We appreciate your time and your interest. Please feel free to reach out if you have further questions or if there's anything that we can do to help fill in the blanks. Hope you all have a great day. Lucy: This concludes today's call. Thank you all for joining. You may now disconnect your line.
Operator: Hello, and welcome, everyone, to the Insteel Industries First Quarter 2026 Earnings Call. My name is Breeka, and I will be your operator today. All lines will be muted throughout the presentation portion of the call with a chance for Q&A at the end. I will now hand over to your host, H.O. Woltz III, CEO, to begin. Please go ahead. H.O. Woltz III: Good morning. Thank you for your interest in Insteel Industries, Inc. Welcome to our first quarter 2026 conference call, which will be conducted by Scot R. Jafroodi, our Vice President, CFO, and Treasurer, and me. Before we begin, let me remind you that some of the comments made in our presentation are considered to be forward-looking statements that are subject to various risks and uncertainties which could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. The upturn in business activity we reported previously continued during our first quarter, and our fiscal 2025 acquisitions continue to perform well. While our ability to forecast future activity is limited, we are encouraged by the level of optimism in our markets as well as brisk order entry up to this point in January, which causes us to believe that 2026 will be a strong year for the company. While the relative strength of our markets is real, we are aware of uncertainties created by the administration's trade policies, the nation's fiscal conditions, and by the economic cycle. I am going to turn the call over to Scot R. Jafroodi to comment on our financial results. Following Scot's comments, I will pick the call back up to discuss our business outlook. Scot R. Jafroodi: Thank you, H.O. Woltz III, and good morning to everyone joining us today. As highlighted in this morning's press release, we delivered a strong start to the year. First quarter results benefited from improved demand for our concrete reinforcing products, which supported wider spreads between selling prices and raw material costs. Net earnings for the quarter rose to $7.276 million or 39¢ per share compared with $1.1 million or 6¢ per share in the same period last year. It is also worth noting that last year's first quarter results included $1 million of restructuring charges and acquisition-related costs, which collectively reduced earnings per share by 4¢. First quarter shipments, which are typically our softest period due to winter weather conditions and holiday schedules, increased 3.8% year-over-year. On a sequential basis, shipments declined 9.7% from the fourth quarter, which is consistent with normal seasonal patterns. The year-over-year growth in shipments reflects improved demand across our commercial and infrastructure markets along with incremental volume from the acquisitions we completed early last year. As we move forward, our year-over-year volume comparisons will normalize now that these acquisitions are fully integrated into our run rate. Turning to pricing, average selling prices increased 18.8% year-over-year, reflecting the pricing actions we took throughout fiscal 2025 to offset higher steel wire rod costs driven by tight domestic supply conditions and increased Section 232 steel tariffs, as well as to address rising raw operating costs. Sequentially, average selling prices were essentially unchanged from the fourth quarter as we did not take additional pricing actions during the current period. However, with scrap and wire rod prices now moving higher again, we implemented our old price increases across most product lines, which took effect earlier this month. Gross profit for the quarter improved to $18.1 million from $9.5 million a year ago, with gross margin expanding 400 basis points to 11.3% from 7.3%. This improvement was driven by widening spreads, higher shipment volumes, and lower unit manufacturing costs. On a sequential basis, gross profit declined by $10.5 million from the fourth quarter, and gross margin narrowed by 480 basis points, driven primarily by the consumption of higher-cost inventory. As I just mentioned, the price increases implemented in January are expected to benefit second-quarter spreads and margins as higher selling prices begin to align with the consumption of lower-cost inventories under the first-in, first-out accounting methodology. SG&A expenses for the quarter rose by approximately $900,000 to $8.8 million or 5.5% of net sales compared with $7.9 million or 6.1% of net sales in the prior year. The year-over-year increase was driven primarily by an $800,000 rise in compensation expense under our return on capital-based incentive plan, reflecting stronger financial performance in the current year. As you may recall, we did not incur any incentive compensation expense in the first quarter of last year. Our effective tax rate decreased to 21% compared to 26.1% in the prior year period. The decline was primarily driven by a reduction in the valuation allowance on deferred tax assets along with a discrete tax item related to the calculation of state deferred taxes. Looking ahead, we expect our effective tax rate for the remainder of the year to be approximately 23%, subject to the level of pretax earnings, post-tax book-to-tax differences, and the other assumptions and estimates underlying our tax provision calculation. Moving to the cash flow statement and the balance sheet, cash flow from operations used $700,000 in the quarter, compared to providing $19 million last year. Net working capital used $16.6 million of cash in the first quarter, driven primarily by a $34.5 million increase in inventories, partially offset by a $14.1 million reduction in accounts receivable. The inventory increase reflects higher raw material purchases, including a meaningful amount of offshore material, along with an increase in the average carrying value of inventory. On the receivable side, the decline was largely tied to lower shipments, which is consistent with the normal seasonal slowdown in sales we see this time of year. Reported on the inventory position represented approximately 3.9 months of shipments on a forward-looking basis, calculated off of our forecasted second-quarter volumes, compared with 3.5 months at the end of the fourth quarter. As we discussed on our prior call, we expected a temporary inventory build in the first quarter as we supplemented domestic wire rod supply with offshore purchases. Looking ahead, we expect inventory levels to moderate over the course of the second quarter as purchasing activity normalizes and shipment volumes increase. It is also worth noting that our first-quarter inventories are carried at an average unit cost that is generally in line with our first-quarter cost of sales and remain below current replacement levels. We incurred $1.5 million of capital expenditures in the first quarter and remain committed to a full-year target of $20 million. H.O. Woltz III will provide more detail on this topic in his remarks. In December, we returned $19.4 million of capital to our shareholders through the payment of a $1 per share special cash dividend in addition to our regular quarterly dividend. This marks the ninth time in the last ten years that we have issued a special dividend. Also, during the first quarter, we continued our share buyback, repurchasing $745,000 of common equity equal to approximately 24,000 shares. From a liquidity perspective, we ended the quarter with $15.6 million in cash on hand and no borrowings outstanding on our $100 million revolving credit facility. Turning to the macro indicators for our construction end markets, the latest readings from two key leading measures, the Architectural Billing Index (ABI) and Dodge Momentum Index (DMI), continue to signal a mixed and somewhat cautious outlook for nonresidential commercial construction activity. In November, the ABI registered 45.3, remaining firmly in negative territory as any reading below 50 can indicate a contraction in activity. This marks the thirteenth consecutive month of declining billings. Inquiries for new projects showed only modest improvement, and the value of newly signed design contracts continued to soften. In contrast, the Dodge Momentum Index signaled strengthening activity, rising 7% in December and supported by more than 3.5% growth in commercial planning, driven in large part by data center construction. Year-over-year, the DMI was up over 50% overall, including a 45% increase in the commercial segment. Turning to the broader market backdrop, the most recent construction spending data from the US Department of Commerce shows that through August, total construction spending on a seasonally adjusted basis was down about 1.6% year-over-year. Nonresidential spending declined 1.5%, and public highway and street construction, one of our key end markets, was down about 1% compared to the same period last year. Finally, US cement shipments, another key measure that we monitor, fell 4.3% in August and were down 3.4% year-to-date. That said, as we close out 2026, we are encouraged by the steady demand we are seeing across our core markets. While we recognize the broader economic backdrop remains uncertain, the demand trends we are seeing and the conversations we are having with customers give us confidence as we look ahead to the balance of the year. This concludes my prepared remarks. I will now turn the call back over to H.O. Woltz III. H.O. Woltz III: As I noted in my opening comments, we are pleased with the acceleration of business activity that continued through our first quarter. Our first quarter performance will never be strong due to the limited number of working days in the quarter after giving effect to Thanksgiving and Christmas shutdowns through much of the industry and to seasonal weather patterns. So our first quarter results are never indicative of the level of demand for our products. Nevertheless, we are pleased with the performance for the quarter and see no indication that the level of activity in our markets is poised to subside. As we consider the drivers of demand for our products, the facts are no clearer to us today than they have been in the past. We believe, however, that funding from the Infrastructure Investment and Jobs Act (IIJA) is responsible for much of the uptick in demand we have experienced, although we cannot definitively state that any single project was funded by IIJA. I suspect the same is true for our customers. They have enjoyed better volume levels without knowing the precise source of funding that drives demand for their products. While IIJA funding expires in 2026, funded projects will proceed into 2027 and beyond. The consensus today is that there is bipartisan support for a replacement infrastructure funding mechanism. Of course, that remains to be seen. The other notable source of demand that we expect to remain robust into 2027 is from the data center construction boom that has been well publicized. While community pushback seems to be growing as the scale of data center resource intensity is more fully appreciated, we have commitments from customers for projects that have been approved and funded and that should run through calendar 2026. The timing of the data center activity is fortuitous since other sectors of the private nonresidential construction market are weak. We believe the data center work will serve as a timely bridge while we wait for the recovery of more traditional private nonresidential projects. Turning to another subject, the steel industry may have been more affected by the administration's tariff policy than any other industry. The Section 232 tariff of 50% on imports of steel has caused market prices in the US for hot rolled wire rod, our primary raw material, to rise to a level that is 50% to 100% higher than the global market price. While we are fortunate that imports of PC strand are now subject to the Section 232 tariff under the derivative products provision, domestic wire rod prices have risen to an extent that dilutes the benefit of the Section 232 tariff on PC strand. Probably of more importance is the uncertainty that continues to surround the administration's tariff policy. Recently, I read that the Secretary of Commerce had speculated that the Section 232 tariff might be modified or removed with respect to the Europeans if the right trade deal were struck between the US and European Union. It is reasonable to assume that this could be true with respect to other countries as well. Notably, negotiations surrounding USMCA come to mind. Such speculation by the administration increases uncertainty and instability in US markets. It is important for investors to understand that Insteel Industries, Inc. operates in a small segment of the domestic hot rolled carbon steel market. Domestic production of wire rod, our primary raw material, is approximately 3.5 million tons per year, while US production of all hot rolled carbon steel is roughly 100 million tons per year. Difficult economic conditions in recent years for producers of wire rod resulted in the permanent closure of two producing mills and financial struggles together with significantly diminished output for a third producer. Altogether, these curtailments reduced actual domestic production of wire rod by more than 800,000 tons per year and reduced domestic capacity to produce wire rod by nearly 1.2 million tons per year relative to apparent domestic consumption of approximately 5 million tons per year. So by our calculation, capacity equal to nearly 25% of apparent domestic consumption is offline, most of it permanently. These capacity curtailments together with the imposition of the Section 232 tariff caused the US wire rod market to tighten significantly and created serious questions about the adequacy of domestic supply. Insteel Industries, Inc. therefore turned to the offshore market for a portion of its supply. The economics of offshore transactions, which include substantial freight costs, require the purchase of large quantities with a resulting impact on inventories and networking capital requirements as reflected on our balance sheet. Net working capital has risen over $50 million in the last twelve months. We expect to continue importing a portion of our raw material requirement until such time as domestic availability improves. We believe, however, that the net working capital impact of importing will be more muted going forward and that we will see significant working capital release as market conditions normalize. But it is not possible to quantify this at the present time. Finally, turning to CapEx, as mentioned in the release and by Scot R. Jafroodi, we expect to invest approximately $20 million in our plants and information systems infrastructure here in 2026. We expect our investments to support the growth of our engineered structural mesh business, to reduce our cash production costs, and to enhance the robust nature of our information system. Consistent with past practice, we will provide quarterly updates of our investment activities and expectations as the year progresses. We believe our estimate is conservative in keeping with prior forecasts for CapEx levels. Looking ahead, we are aware of substantial risks related to the state of the economy and the administration's tariff policies. Regardless of developments in these areas, we are well-positioned to pursue growth-related activities, both organic and through acquisitions, to optimize our costs. This concludes our prepared remarks, and we will now take your questions. Breeka, would you please explain the procedure for asking questions? Operator: Of course. If you wish to ask a question, please press star followed by one on your telephone keypad now. Please press star followed by two. And when preparing to ask your question, ensure your device is unmuted locally. We have our first question from Julio Alberto Romero from Sidoti and Company. Your line is now open. Please go ahead. Julio Alberto Romero: Thanks. Hey, good morning, H.O. Woltz III and Scot R. Jafroodi. To begin, you sounded pretty constructive on the overall demand outlook, particularly with the data center and IIJA-related projects. You mentioned the commitments you have from customers on the data center side that have been approved and funded and run through calendar 2026. Can you give us a little bit more color on these commitments? Are these new commitments in your pipeline? Have they been accelerating? And what is your sense of how far out these commitments are beyond calendar 2026? H.O. Woltz III: Well, I mean, the data center business is new to Insteel Industries, Inc. It is new to much of the economy. I think 2025 was the first year we had done any significant data center business, but certainly, now that we are in that market and connected with some of the companies that regularly do that business, we are seeing repeat opportunities and robust demand, which comes as no surprise based on what has been publicized about that industry and that build-out. Julio Alberto Romero: Got it. That is helpful. And, talking about the volumes in the quarter, you experienced growth of roughly 4%. Can you talk about how that was affected, if at all, by constraints of wire rod? Both in this quarter and on a go-forward basis? H.O. Woltz III: Do you mean just the domestic situation? Julio Alberto Romero: Yeah. I think the last couple of quarters you called out that raw material constraints have kind of constrained your volume output. But it sounds like that was less of an effect this quarter. H.O. Woltz III: So the reason that I went through the mill closures and sort of the macro with respect to wire rod supply and demand is to give readers of our release and participants on this call a sense for why our inventories have grown. Our inventories have grown because we are unable to acquire sufficient quantities of wire rod domestically, and we are forced to go offshore. I will point out that the situation in the wire rod market is very different than the situation that confronts purchasers of other hot rolled steel products because wire rod capacity has contracted significantly, and capacity has expanded significantly in other hot rolled products. So when we concluded that it was unlikely we could support our business objectives by buying solely domestically, we went to the offshore market to fill the gaps. We will continue doing so until such time as we see that availability improves in the US and that suppliers are willing to work for an order. Julio Alberto Romero: Very helpful context there. Last one, if I may, and I will pass it on, is on the SG&A front. You were able to grow sales 23% while SG&A grew by 11%. My question is, are you beginning to realize SG&A leverage from your acquisitions of EWP and OWP at this point in time? Or is that leverage still coming in your view? H.O. Woltz III: Well, I mean, we certainly realize the synergies we expected to come from the acquisition. I would say that together with the added shipments and sales volume is really what that acquisition was all about. We are pleased with its performance, and we are moving along well. Julio Alberto Romero: Excellent. I will pass it on. Thanks very much. Scot R. Jafroodi: Thank you. Operator: Our next question is from Tyson Lee Bauer from KC Capital. Your line is now open. Please go ahead. Tyson Lee Bauer: Good morning, gentlemen. Insteel Industries, Inc. has consistently been able to run counter to the industry stats as far as your ability to grow shipments and your ability to grow as a company. Versus, I think you mentioned, thirteen straight months of ABI billings below 50 and some of the other general industry stats. What has allowed you to run counter to those? Are we seeing an underlying acceleration away from just standard rebar to more of your ESM products and other products that would account for your ability to grow facing those kinds of industry headwinds? H.O. Woltz III: Well, if I remember correctly, Tyson, the first time that business conditions for Insteel Industries, Inc. seemed to diverge significantly from what the major macro indices would indicate was 2025. Several things have happened internally that have helped us with that. Our work in the cash-in-place market has helped. Our acquisitions have helped. I think there are things going on internally that are different than what you may see in macro indicators for construction activity in the US market. We will continue pursuing the paths that we are pursuing now. Tyson Lee Bauer: In the past, you benefited from when we were going into 2021 with the distribution centers. Now we are looking at data centers, both DC, ironically. You are working with those contractors that specialize there. Are you being spec'd into those designs as you were with some of the online retail customers before in the DCs? As we see that develop and that industry grow, are you kind of in lockstep with that? H.O. Woltz III: Yeah. I think every project is different. But as a general goal, I would say no. We are not spec'd in. Rebar is spec'd in. We make a conversion of rebar applications to engineered structural mesh applications and rely on the value proposition of our product. Particularly with respect to data centers, one of the significant value propositions that we offer is speed. These owners and lessors of these centers are really focused on constructing them and getting them up and operating quickly. Our product helps with that whole charge. Tyson Lee Bauer: So you do have an inherent advantage based on what your product is to grow along with that growing segment, that niche. H.O. Woltz III: Yeah. I think the value proposition of our product relative to rebar is solid. There is no question about that. Tyson Lee Bauer: Okay. Inventory levels, it sounds like that may have peaked this past quarter. Will we see a gradual downtick? Will that downtick accelerate as we get into fiscal three and fiscal four? H.O. Woltz III: Well, I think it depends on the level of shipments that we see. If the scenario that we believe will unfold actually unfolds, and that is one of strong business conditions in 2026, then I think that is correct. But keep in mind that we will go back to the offshore market for Q3 and Q4 if we do not see significant improvements in the balance of supply and demand domestically. Tyson Lee Bauer: Okay. The CapEx of $20 million, is that roughly split fifty-fifty maintenance, $10 million, $10 million for whether it be cost reductions or product line expansions, more of the growth side or improvement in margin? Is that kind of the split you are looking at? H.O. Woltz III: I would say that is close to correct. We are still identifying some of the capacity expansion opportunities that exist out there. Of course, we are always interested in incorporating new technology into our manufacturing operations that will help us reduce cash costs of operation. We still have the underlying labor availability issue. As you might suspect, the more new technology we bring into the plants, the less labor-intensive our operation is. We are very much oriented toward looking at that. Tyson Lee Bauer: Okay. And last one for me. As the administration goes to Davos, it is supposed to lay a plan to increase and incentivize greater activity in the residential side, which is about 15% of your overall business. Betting against the administration has proved futile. So you kind of go with what they are pushing, especially in an election year. How quickly can that residential market for you turn where it becomes a benefit as opposed to just kind of being stuck in the mud the last couple of years? H.O. Woltz III: My view would be probably not fast enough to have any meaningful impact on 2026 for Insteel Industries, Inc. More importantly, our participation in residential markets would be related to slab-on-grade construction of housing units where the slabs are post-tensioned, and we are using PC strand. That is the segment of business where we knock heads with the imports most closely. Tyson Lee Bauer: Okay. I am going to sneak one in. The labor cost outlook, we have heard other companies talk about general wage increases, health costs on that side of it. Have you indexed or looked at labor costs in increases for this year and what kind of offsets you have there? H.O. Woltz III: Yeah. We have 11 or 12 different considerations because we look at prevailing labor markets in each of the areas where we operate. They are each different. But the upward pressure on labor costs still exists. We are incurring significant reciprocal and Section 232 tariff expenses in purchases of non-raw material items like spare parts, seeing energy increase. The inflationary environment is alive and well within our operations, and it really, like I say, every one's an independent event. Tyson Lee Bauer: Okay. Thank you, gentlemen. Operator: Thank you. We currently have no further questions, so I will hand back over to the management team for closing remarks. H.O. Woltz III: Okay. We appreciate your interest in Insteel Industries, Inc. and its operating results, and we look forward to talking to you next quarter. In the meantime, if you have questions, do not hesitate to follow up with us. Thank you. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Katie: Good morning. My name is Katie, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Fourth Quarter 2025 Earnings Conference Call. On behalf of The Goldman Sachs Group, Inc., I will begin the call with the following disclaimer. The earnings presentation can be found on the Investor Relations page of The Goldman Sachs Group, Inc. website and contains information on forward-looking statements and non-GAAP measures. This audiocast is copyrighted material of The Goldman Sachs Group, Inc. and may not be duplicated, reproduced, or rebroadcast without consent. This call is being recorded today, 01/15/2026. I will now turn the call over to Chairman and Chief Executive Officer, David Solomon, and Chief Financial Officer, Dennis Coleman. Thank you. Mr. Solomon, you may begin your conference. David Solomon: Thank you, operator. Good morning, everyone. Thank you all for joining us. I am very pleased with our strong performance in the fourth quarter. We generated earnings per share of $14.1, an ROE of 16%, and an RoTE of 17.1%. For the full year, we delivered earnings per share of $51.32, a 27% increase versus last year, and ROE of 15% and ROTE of 16%. Before we review our financials in detail, I want to discuss our longer-term performance and provide an update to you on our strategy. Beginning on Page one, in 2020, we held the firm's first investor day and laid out a clear and comprehensive strategy to grow and strengthen the firm. We also set a number of targets so we would be held accountable for our progress. Since then, guided by our purpose to be the most exceptional financial institution in the world, supported by our four values of client service, integrity, partnership, and excellence, we continue to successfully execute on this strategy. We increased firm-wide revenues by roughly 60%. We grew EPS by 144%. We improved our returns by 500 basis points. And we delivered a total shareholder return of over 340%, the most of our peer group over this time frame. As you can see on page two, we achieved this while also materially improving the risk profile of the firm and enhancing the resilience of our earnings. We have doubled our more durable revenues. We have reduced historical principal investments by over 90% from roughly $64 billion down to $6 billion. The results of these multiyear efforts to scale capital-light businesses and reduce our capital intensity were reflected in our most recent CCAR stress test, where we've driven a 320 basis point improvement in our stress capital buffer. Overall, we have strengthened and grown the firm through relentless focus on delivering excellence to our clients. Turning to page three, I want to highlight our strong execution in 2025. Our success is fueled by our world-class interconnected franchises that deliver one Goldman Sachs to our clients around the globe. In global banking and markets, we maintained our position as the number one M&A adviser in investment banking and number one equities franchise alongside our leading position in FICC. We improved our standing with the top 150 clients in these businesses, which has contributed to 350 basis points of wallet share gain in GBM since 2019. We significantly increased our more durable FICC and equity financing revenues, which grew to a new record of $11.4 billion for the year and generated returns in excess of 16% in the segment. In asset wealth management, we are a top-five active asset manager, a leading alternatives franchise, and a premier ultra-high-net-worth wealth manager. We've consistently grown more durable management, other fees, and private banking and lending revenues, which were both records in 2025. And also raised a record $115 billion in alternatives. Our strong execution has led to improvement in both the margins and the returns in this segment. Importantly, we're taking the final steps needed to narrow our strategic focus. In addition to completing the transition of the General Motors credit card program last August, last week, we announced an agreement to transition the Apple Card portfolio. Let's turn to Page four for a deeper dive on our franchises, starting with investment banking, where we have been the number one M&A adviser for twenty-three consecutive years. Very few, if any, service businesses of our size can claim long-standing leadership to this degree. This is a reflection of the strength of our client relationships as well as the quality of our people and the advice and execution capabilities they bring to our clients. Since 2020, we've generated an incremental $5 billion in advisory revenues versus the number two competitor. And in 2025 alone, we've advised on more than $1.6 trillion of announced M&A transaction volumes, over $250 billion ahead of the next closest peer. Over the last year, we've seen high levels of client engagement across our investment banking franchise. And we expect activity to accelerate in 2026. Our outlook is supported by a number of catalysts: corporate focus on strategically positioning scale and innovation, the tremendous public and private capital fueling growth in AI, as well as a strong pickup in sponsor activity. Given our best-in-class sponsor franchise, we're especially well-positioned to help sponsors deploy the $1 trillion of dry powder they hold and monetize the roughly $4 trillion of value across their portfolio companies. Increased levels of engagement are reflected in our backlog, which stands at its highest level in four years. M&A transactions often kick off a flywheel of activity across our entire franchise. Whether it's acquisition financing, hedging activity, secondary market making, or investing opportunities for our AWM clients, it is unquestionable that there is a significant multiplier effect. And as the number one advisor for over two decades, we are uniquely positioned to capture the significant forward opportunity. Moving to Page five, another growth engine for GBM has been our leading origination and financing businesses. Last year, we announced the creation of the Capital Solutions Group, formalizing a hub to provide our clients a comprehensive suite of financing origination, structuring, and risk management offerings across both public and private markets. On the public side, we are optimistic about the outlook for equity and debt underwriting, particularly amid the resurgence in the IPO market and higher acquisition finance-related activity. We have a long-standing track record and leading market positions. On the private side, our ability to structure holistic solutions has led to a number of asset-backed financings across infrastructure, transportation, and data centers. Supported by strong origination and structuring that feed opportunities across our client franchise and our asset management platform. These capabilities have supported our deliberate strategy to grow our more durable financing revenues, providing a ballast to our results and comprising 37% of total FICC and equity revenues in 2025. Since 2021, these have increased at a 17% CAGR. And with risk management always top of mind, we still expect to prudently drive growth from here. On page six, we illustrate the strength and resilience of the FICC and equities intermediation businesses. We have a demonstrated ability to deliver strong results in a broad array of market environments. While client activity levels in different asset classes ebb and flow in any given quarter, our overall results have been remarkably consistent over time. This reflects the breadth and diversification of these businesses, which have been bolstered by our share gains. We see even more opportunities to further strengthen our client franchise. This includes investing to improve our market-making capabilities and broaden offerings for active and passive ETF issuers. In addition, we are working to close share gaps with key client segments, including insurers, wealth managers, and RIAs, as well as in certain product areas like corporate derivatives. Geographically, we are looking to close the share gap in Asia, in part by focusing on these areas. Turning to page seven, our scaled asset and wealth management business has $3.6 trillion in assets under supervision, with global breadth and depth across products and solutions. We've grown more durable revenues across management and other fees in private banking and lending at a 12% CAGR, ahead of our target, and we continue to see significant opportunities across wealth management, alternatives, and solutions. We have also improved our AWM margins and returns. And given our growth outlook across these businesses, we are setting new targets. We are increasing our pretax margin target to 30%, which will help drive high-teen returns in AWM over the medium term. Let's dive deeper into our key growth opportunities, starting with wealth management on page eight. Over the last fifty years, we have built a premier franchise with $1.9 trillion in client assets that is centered around meeting the distinct investing, planning, and borrowing needs of ultra-high-net-worth individuals, family offices, endowments, and foundations. Over the last five years, we drove long-term fee-based inflows at an annual pace of 6% and grew wealth management revenues at a CAGR of 11%. And we expect further growth from here. Specifically, we are broadening our client base by increasing the number of advisers and content specialists globally. We're expanding our loan product offerings in line with client demand. We are enhancing alternatives investment offerings to facilitate clients moving closer to their optimal target allocation. And we are continuing to elevate the overall client experience, including via enhanced digital offerings and more expansive thought leadership engagements that leverage the convening power of Goldman Sachs. To sharpen our focus on future growth in wealth management, we are introducing a new target of 5% long-term fee-based net inflows annually from the platform. On Page nine, we highlight our other key growth opportunities in asset wealth management, alternatives, and solutions. We have a leading alternatives platform where we've raised $438 billion since our 2020 investor day. And we have grown alternatives management and other fees to a record $2.4 billion. We continue to scale our flagship fund programs while concurrently developing new strategies. Given our success in strengthening and growing our alternative platforms, we believe we can raise between $75 billion and $100 billion annually on a sustainable basis. As these funds continue to be deployed, we expect double-digit growth in alternative management and other fees. We expect fee-paying alternative assets under supervision to reach $750 billion by 2030. This further supports our existing target of generating $1 billion in incentive fees annually. We're also pleased with the progress across our solutions business, where we see secular growth in demand for our products and services. We are the number one outsourced CIO manager in the US, providing clients a one-stop shop for their investment needs: advice, portfolio construction, risk management, and hedging. And we've won significant global mandates this year from firms, including Eli Lilly and Shell. We are also the number one separately managed account and the second-largest insurance solutions provider. Looking forward, we see continued opportunities for growth, including in third-party wealth, in the context of alternatives offering, ETFs, and customized solutions like direct indexing. In addition, we are expanding our capabilities in the retirement channel via partnerships, further deepening our strong relationships with insurers, and enhancing our offerings for institutional clients, including sovereign wealth funds. Turning to page 10, building on our strong organic growth, we are accelerating our growth trajectory in asset wealth management through our recent strategic partnerships and acquisitions. Our collaboration with T. Rowe Price delivers a range of public and private market solutions for retirement and wealth investors. Last month, we announced the launch of co-branded model portfolios, the first of four planned product offerings. We recently closed the acquisition of Industry Ventures, a venture capital platform that adds an attractive technology investment capability to our market-leading secondaries investing franchise, XIG, where we now have over $500 billion in assets under supervision. Most recently, we announced the acquisition of Innovator, which significantly scales our businesses to be in the top 10 of active ETF providers globally, particularly in the fast-growing outcome-based ETF segment. While the bar for transformational M&A remains very high, we will continue to look for ways to accelerate growth in asset wealth management. Turning to Page 11, we have a long history of prudent and dynamic capital management, and our philosophy remains unchanged. We prioritize investing across our client franchises at attractive returns, sustainably growing our dividend, and returning excess capital to shareholders in the form of buybacks. We see meaningful opportunities to deploy capital across our franchise. This includes leaning into acquisition financing as M&A activity accelerates, supporting growth in equities and fixed financing, and increasing lending to our ultra-high-net-worth clients. That said, given our strong earnings generation capability and excess capital positions, we also have the capacity to return more capital to shareholders. Today, we are announcing a $0.50 increase in our quarterly dividend to $4.5, representing a 50% increase from a year ago. In addition, we have $32 billion of remaining buyback capacity under our current share repurchase authorization. And while we are mindful of our current stock price, we will remain dynamic in executing repurchases. Turning to Page 12, as we continue to grow the firm and strategically deploy our balance sheet to support client activity, our unwavering focus remains on maintaining a disciplined risk management framework and robust standards. We've been on a multiyear journey to diversify our funding footprint, including building strategic deposit-raising channels such as private banking, markets, and transaction banking. This has significantly improved our funding structure. Our deposits have grown to $501 billion and now represent roughly 40% of our total funding. We continue to optimize activity in our bank, which held 35% of firm-wide assets at year-end, versus 25% at the time of our first Investor Day. Overall, this progress underscores our commitment to the diversification and resiliency of our funding profile, which has improved our funding costs and our financial flexibility. All in, our robust capital position, diversified funding mix, dynamic liquidity management, and strong risk discipline are foundational to the strength and stability of our balance sheet, allowing us to meet the evolving demands of our clients. Moving to Page 13, last quarter, we announced the launch of One Goldman Sachs 3.0, our new operating model propelled by Ella AI. We are excited to embark on this effort, starting with six work streams we identified as ripe for disruption. Our people have begun thorough assessments of opportunities for efficiency, and we will then invest to reengineer these processes from the ground up. We will be measuring and driving accountability, and we will update you over the coming year with additional details regarding these metrics. Let's turn to page 14. The exceptional service we provide our clients is a direct result of our people, who are our most important asset. Our client franchise is powered by our best-in-class talent and culture. And it is critical that we continue to invest in Goldman Sachs as an aspirational brand around the globe, which allows us to attract quality talent at all levels. As an example, in 2025, we had over 1.1 million experienced hire applications, a 33% increase from last year. And in our summer internship program, we maintained a selection rate of less than 1%. Many of these individuals will have long careers at the firm, exemplified by the fact that roughly 45% of our partners started as campus hires. And while some leave for opportunities elsewhere, these firms often become important clients to Goldman Sachs. Today, more than 650 of our alumni are in C-suite roles at companies with either a market cap greater than $1 billion or assets under management greater than $5 billion. On page 15, we outline our firm-wide through-the-cycle targets. Given the successful execution against our strategic priorities, we are confident that we will continue to deliver on these. And in the near term, we believe that our catalysts position us to exceed our return target. We have the number one M&A advisor within our leading global banking and markets franchise that is poised to capitalize on a cyclical upswing in investment banking activity. A scaled asset wealth management business with higher margin and return targets and clear opportunities for future growth. And tailwinds from a more balanced regulatory regime. In closing, I am incredibly proud of what we have delivered, and I am confident that we will continue to serve our clients with excellence and drive strong returns for our shareholders. Let me now turn it over to Dennis to cover our financial results in more detail. Dennis Coleman: Thank you, David. And good morning. Let's start with our results on page 16 of the presentation. In the fourth quarter, we generated revenues of $13.5 billion, earnings per share of $14.01, an ROE of 16%, and an RoTE of 17.1%. For the full year, we delivered earnings per share of $51.32, a 27% increase versus last year. An ROE of 15% and an RoTE of 16%, improving 230 and 250 basis points, respectively, compared to 2024. As David mentioned, we announced an agreement to transition the Apple Card portfolio. For the quarter, the transition had a net positive impact of $0.46 to EPS and 50 basis points to ROE, as a $2.3 billion revenue reduction was more than offset by a $2.5 billion reserve release upon moving the portfolio to held for sale. Given that we are taking our final steps to narrow our strategic focus, you will have seen we implemented minor organizational changes and made corresponding updates to our segments, which are incorporated in our earnings presentation today. Turning to results by segment, starting on Page 18, Global Banking and Markets produced record revenues of $41.5 billion for the year, up 18% amid broad-based strength versus last year. In the fourth quarter, investment banking fees of $2.6 billion rose 25% year over year, driven by increases in each of advisory, debt underwriting, and equity. For 2025, we maintained our number one in the league tables for announced and completed M&A, and also ranked first in leveraged lending. We ranked third in equity underwriting and second in common stock offerings, convertibles, and high-yield offerings. Even with very strong accruals in the fourth quarter, our investment banking backlog rose for a seventh consecutive quarter to a four-year high, primarily driven by advisory. As David mentioned, we are optimistic about the investment banking outlook for 2026 and the multiplier effect this activity has across our franchise. FICC net revenues were $3.1 billion for the quarter, up 12% year over year. In intermediation, the 15% year-over-year increase was driven by rates and commodities, and in financing, revenues rose 7% to a new record on better results within mortgages and structured lending. Equities net revenues were $4.3 billion in the quarter. Equities intermediation revenues were $2.2 billion, up 11% year over year on better performance in derivatives. Equities financing results hit a quarterly record of $2.1 billion, up 42% versus the prior year amid record average balances in prime. For the full year, total equities net revenues were a record $16.5 billion, surpassing last year's record by over $3 billion, helped by the multiyear investments we've made in this business. Moving to asset wealth management on page 20, for 2025, revenues were $16.7 billion, and our pretax margin was 25%. Segment ROE for the year was 12.5%, and in the mid-teens when adjusted for the 230 basis point impact from HPI and its related equity as well as the FDIC special assessment fee. In the quarter, management and other fees were a record $3.1 billion, up 5% sequentially and 10% year over year. Private banking and lending revenues rose 5% year over year to $776 million, as higher results from lending and deposits related to wealth management clients were partially offset by NIM compression in the Marcus deposit portfolio. Incentive fees for the quarter were $181 million, bringing our full-year incentive fees to $489 million, up 24% versus the prior year. We expect to make further progress in 2026 towards our annual target of $1 billion. Now moving to page 21, total assets under supervision ended the quarter at a record $3.6 trillion, driven by $66 billion of long-term fee-based net inflows across asset classes and $50 billion of liquidity inflows. In conjunction with our new long-term fee-based inflow target in wealth management, we are providing enhanced disclosures outlining inflows and long-term AUS by channel. Turning to page 22 on alternatives, alternative AUS totaled $420 billion at the end of the fourth quarter, driving $645 million in management and other fees. Gross third-party fundraising was $45 billion in the fourth quarter and $115 billion for the year. Moving to Page 24, our total loan portfolio at quarter-end was $238 billion, up sequentially reflecting higher collateralized lending balances. Provision for credit losses reflected a net benefit of $2.1 billion, including the previously mentioned reserve release associated with the Apple Card portfolio. Let's turn to expenses on page 25. Total operating expenses for the year were $37.5 billion. Compensation expenses were $18.9 billion and included $250 million of severance costs, driving a full-year compensation ratio net of provisions of 31.8%. Full-year non-compensation costs of $18.6 billion were up 9% year over year, driven primarily by higher transaction-based activity. While the operating environment for our businesses continues to improve, we remain committed to our key strategic priority of operating more efficiently and are maintaining a rigorous focus on advancing our productivity and efficiency initiatives as part of One Goldman Sachs 3.0. Our effective tax rate for 2025 was 21.4%. For 2026, we expect a tax rate of approximately 20%. Next, capital on Slide 26. Our common equity Tier one ratio was 14.4% at the end of the fourth quarter under the standardized approach. In the fourth quarter, we returned approximately $4.2 billion to common shareholders, including common stock repurchases of $3 billion and dividends of $1.2 billion. In conclusion, our strong performance this year reflects the strength of our client franchise and our multiyear execution on our strategic priorities. We see a highly constructive setup for 2026 as the improving investment banking environment and our deep client connectivity position us to capture significant opportunities across the entire firm. At the same time, we remain mindful that the operating environment can shift quickly. Economic growth, policy uncertainty, geopolitical developments, and market volatility are factors we continue to monitor closely. And as always, disciplined risk management will remain central to how we serve clients and allocate resources. Even so, with solid momentum and growth opportunities across our businesses, we are optimistic about the forward outlook for Goldman Sachs and remain confident in our ability to deliver for clients and drive strong returns for shareholders. With that, we will now open up the line for questions. Katie: Thank you. Ladies and gentlemen, we will now take a moment to compile the Q&A roster. Press star then one on your telephone keypad if you would like to ask a question. If you would like to withdraw your question, press star then 2 on your telephone keypad. If you're asking a question and you are in a hands-free unit or a speakerphone, we'd like to ask you to use your handset when asking your question. Please limit yourself to one question and one follow-up question. We will take our first question from Glenn Schorr with Evercore. Glenn Schorr: Hi. Thanks very much. Great thoughts and detail in there. One narrow one first. I guess I'll ask it simply. How do you plan to scale wealth from here? And I want to include that if you could. Your aspirations. Meaning, we had a little experiment with United Capital, but, like, you're amazing in ultra-high-net-worth. And I'm curious about the rest of wealth. You've done a couple of things in RIA land, so maybe we could talk about that and then zoom out after that. Thanks. David Solomon: Sure. And appreciate the question, Glenn. I think our ultra-high-net-worth franchise is extraordinary. I think we have a leading position here in the United States. Strong position, but obviously with room for more share and footprint in Europe and in Asia. But I think it's a highly differentiated offering for wealthy individuals and people that have very, very complex needs from a wealth perspective. That business scales with people. You heard in and technology. But you heard in our remarks that we're continuing to invest in broadening the footprint and the coverage available and the resources to expand that ultra-high-net-worth footprint. As you point out, we did do an experiment with United Capital, but we've reached the conclusion that the right way for us, given our manufacturing capability, and asset management, is to really explore broader access to wealth through third-party wealth channels. And so I think you know we're making very significant investments in our third-party wealth capability. That includes partnerships with RIAs and footprint with RIAs. And we have great product manufacturing capability. We can use others' distribution very, very effectively given our brand and our very, very complete diverse product offering. And that will help us continue to scale. But in direct full-service product wealth, we're going to stick with ultra-high-net-worth wealth. And what's interesting is obviously, you've got a bunch of secular things going on that are growing the available people that need these services. You have a huge generational wealth transfer that's going on that's bringing a whole new generation into these services. And it's a very fragmented business, and we think we have a very differentiated offering with lots of upside. And look, you heard what we said about our capabilities and wealth and our target to continue to grow those long-term fee-based wealth assets by 5% as we go forward. Glenn Schorr: I appreciate all that, David. Bigger picture, obviously, really strong results, good backdrop. Middle of the range despite all these strong results because I think there's mixed operating leverage or people always want more operating leverage during big market peaks. So I'm gonna flip the comment around and just ask, what's your level of confidence you've raised the floor with everything that you've laid out and everything you've executed on? Because in the past, when markets pull back off highs, returns for you and others would drift back to the, like, low double digits and sometimes a little bit lower. But, like, I guess I'm curious about how much you think all that progress you've built, how much have you raised the floor? David Solomon: I think we've raised the floor meaningfully. You know, based on the work we've done, the growth that we've done. You know, in particular, the growth of durable revenues, which will be less affected, less affected, not not affected, but less affected if we get into some sort of a downturn or a more challenging environment. If you step back to our Investor Day, the firm's returns in the ten years before our Investor Day averaged nine and change percent. And so I think we now are operating with a global banking and markets franchise that should run mid-teens through the cycle. That doesn't mean you couldn't get a very tough environment where it runs lower, but you can also get environments, and this is part of what we've said about 2026, where it has the potential to run higher. I think we've uplifted the floor very significantly. Now, of course, in very severe downturns, it slows down activity. It impedes confidence. But I just think the firm is bigger, more diversified, much more durable, and better positioned when we have that kind of environment than we've been before. Now I'm not gonna predict the future, and I know it's never a straight line. But I think we've uplifted it very materially. Katie: We'll take our next question from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: Good morning. I guess maybe just sticking with the true cycle ROE, David, maybe the other end of the spectrum when I talk to investors, given that the stock trading, given the performance you've had, and two structural things seem to be happening at Goldman Sachs. One is obviously, the regulatory backdrop changing is creating more capital flex. And the productivity focus that you had double down with the Goldman Sachs 3.0, is it fair for a shareholder to assume that absent, like, big peaks in falls, that the business is rebasing to maybe something better than mid-teens returns towards closer to high teens? Or is that sort of misplaced and misunderstanding kind of the business dynamics? David Solomon: Well, I appreciate the question, and, look, our goal is gonna continue to be to work very, very hard to do everything we can to continue to take the returns higher. We were very pointed in our comments on the last slide in that presentation that we're reaffirming our mid-teens targets. You know, I certainly remember it. It's not that many quarters ago where many people on this call would ask questions about how we were going to get to the teens. So we've arrived. I think we were pointed in saying, this is an environment where the potential to be positioned to exceed targets in the near term is there, but as the previous set of questions just pointed out, there'll be other environments where there could be headwinds. So I think we're very comfortable that we are operating as a mid-teens firm. We think that we can do things that over time will drive upside to that, but we're not going to set targets until we're very comfortable that we further elevated the firm. I think one of the most important things coming out of the presentation is the next step in our asset wealth management journey to tell you that given the work we've done and the progress we've made, we now have more confidence that we can operate that business at a higher margin, 30%, which drives a higher return. And so we're comfortable putting that target out. And that, of course, elevates the overall performance of the firm. The other thing I just want to highlight that comes out of your comment is people think about the regulatory environment as changing the capital rules and giving us more capital flexibility. But I'd also highlight the regulatory environment in the last five years put costs and burdens on the firm that we now won't have going forward that actually gives us flexibility to invest over time in other things that drive growth. So it's not just the capital stuff, that's important. It's also the fact that we and others in the industry were burdened by additional costs that now can be directed to what I call more productive growth and return for our clients and for our shareholders. Ebrahim Poonawala: That's great. And I guess maybe a second one just on capital deployment. So it's very clear the bar for M&A is high. But when you think about just the stock valuation today, regulatory backdrop, there is a cycle or an environment where there is room to do something transformational. Just give us a sense in terms of do you see this as the right time or if the right opportunity presents itself to do something that would shift the mix, boost the mix of AWM business a lot more, or do you think that's kind of anti-Goldman's DNA to do something that would be too large or transformational? David Solomon: I appreciate the question, Ebrahim, but I'm gonna be very consistent with what I've said multiple times with this question. We feel very good about what we did in 2025, the T. Rowe partnership and the two small acquisitions. They fill in gaps. They accelerate our journey in asset wealth management. But the bar for doing something significant and transformational is very, very high. And it has to be high, one, because there are very few really, really great large businesses. Most of them are not for sale and available. And I think the cultural aspects of Goldman Sachs and what makes Goldman Sachs unique and different, there has to be a tremendous sensitivity to integrating business into it to make sure that Goldman Sachs can continue to be Goldman Sachs. And so I won't say that we don't look at those things and think about those things. But I really my key message is the bar is very high. I do think that we will see other things like the things that we've done that can accelerate our journey and therefore increase the growth trajectory of the asset wealth management business. Katie: We'll take our next question from Erika Najarian with UBS. Erika Najarian: Hi, good morning. I hate framing this question this way, but I can't think of a better way to frame it. In terms of the capital market cycle ahead, what quote inning are we in? And as investors think about the scale of potential upside to Goldman? Maybe compare and contrast the preconditions that you see for the capital markets backdrop in 2026 with 2021. And I'm only asking this question as investors try to think about the EPS potential of your company. And I think 2021 was is sort of seen as a ceiling in terms of what you could produce in this business. David Solomon: I'll give you a couple of things, Erika, to think about, and I appreciate the question. You know, the first thing I'd just say is as a student of these businesses for decades and decades and decades, I would bet you that 2021 is not the ceiling. That doesn't mean that in this cycle, we surpass 2021 because things can change and things can go wrong. But this business, when you go back and you step out and you look over twenty-five, thirty years, there's not a ceiling that hasn't been exceeded at some point down the road as you run through cycles. And I'm sure given the growth in market capital world and activity, the 2021 activity levels will be exceeded again. They might be exceeded in 2026. You know, there was a slide that my team was showing me that shows a range of outcomes, including a conservative outcome for M&A, a base outcome for M&A, and a bull outcome for M&A. And the base outcome is pretty close to 2021, and the bull outcome is ahead of 2021. I think the world is set up at the moment to be incredibly constructive in 2026 for M&A and capital markets activity. And I think the likely scenario is it is a very, very good year for M&A and capital markets activity. What could change that? Something could go on in the world, some sort of an exogenous event or a macro event that changes the sentiment. If you look at 2025, we saw that in April. For a period of time, and things got slowed down. Don't think that's the likely outcome. But it's certainly in the distribution as a possibility. But I do think that we are, you know, not yet in the middle of the potential for a full-on M&A and sponsor cycle. And I think over the next few years, barring some sort of an exogenous event that slows it down, we're gonna have a pretty constructive environment for those activities given the combination of fiscal, monetary, capital investment, deregulatory stimulus. You've got this combination of stimulus activity that I think is pretty constructive for these businesses. Erika, a couple things I'd add on that just to supplement everything David said. If you look at sort of industry-wide volumes of the various categories of investment banking activities compared to, say, the last five years, a number of them have started to trend above the average level. One that's decidedly below the averages remains the IPO business for equity. That's a lucrative business that, you know, we have a very long-standing leadership position in. And it's also the case that while, you know, some of the debt activities have been trending up in terms of overall volumes, we still haven't seen enormous volumes of sponsor capital committed deals or, you know, large-cap capital committed investment-grade activity. So there still remains, you know, other types of transaction activity as we progress through the cycle that is, you know, very strategic to clients, things that Goldman Sachs is very good at executing, you know, that could further propel upside across the capital markets line items. Erika Najarian: Great. And just the follow-up question is, I really appreciate how you laid out your internal opportunities to deploy the capital, excess capital, which is so much. Right? If you take into account the excess, your buffer, and potentially the redefinition of that capital, you know, as we think about, you know, a year where, you know, you talked about the cap markets, your ability to organically generate capital is also, you know, best in class. How do we think about how that buyback fits in? Appreciate your prepared remarks that if you're going to be opportunistic, you did $12 billion in '26, but it seems like you have plenty of room to meet or exceed that and, you know, and check off your wish list. Is that the right way to think about it? David Solomon: Sure, Erika. So, you know, I'll quickly give you our standard on the prioritization of the deployment of capital. And that remains unchanged, as David said. And that's what we'll focus on first. But to get to your buyback question, given the degree of excess capital that we sit with today, and our expectation that we'll continue to generate capital over the course of the next year, you know, buybacks remain an important tool in our toolkit. Over the long term, you will notice that Goldman Sachs has, you know, reduced its share count, you know, quite significantly and quite sustainably. And it gives us leverage to continue to generate EPS growth. So like anyone, we are mindful of the price at which our equity is trading. But we're also trying to take, you know, a strategic long-term approach. The first and foremost fuel the franchise to support client activity, but also, you know, drive returns for shareholders over multiple years. So buybacks continue to feature as an important part of our capital deployment strategy. Katie: Thank you. We'll take our question from Betsy Graseck with Morgan Stanley. Betsy Graseck: Hi, good morning. Just continuing on this theme, I wanted to understand a little bit about how the equities markets, revenues, and the fixed income revenues are aligned with the issuance calendar. Just wondering how much of the issuance that's going on is those two line items as well, or is issuance all within banking? David Solomon: So, thank you for the question, Betsy. I'm not sure I understood the very tail end of your question, but maybe I'll start off answering it, and then you can redirect me. I think across our FIC and equity businesses, we obviously have a very diversified portfolio of activities, both intermediation and financing. Even with intermediation, diversified by asset class, by cash, derivatives, and equities. And I think there are contributions that the primary market activity makes to enhance the overall liquidity provision secondary market making opportunity set. But my own view is that we'll continue to see an increase in the overall level of capital markets activity. And if that pulls through as well as we hope and expect, that should catalyze incremental levels of activity across intermediation activities as investors even more dynamically work to assess their existing secondary market portfolio versus quote unquote making room for primary, etcetera. So I think there remains opportunity on in that front as we move into 2026. Betsy Graseck: And then you mentioned that your backlog today is the highest in four years. Maybe we could just ask you to unpack a little bit. There's a lot of different backlogs, so, would you mind going through what you're anticipating, getting on unreleased into production, so to speak, as we go through '26? David Solomon: Sure. So the way we report our backlog consistently each and every quarter. So there's no change to the way we're reporting that. It's comprised of our advisory activities, our debt underwriting, our equity underwriting. We're very, very deliberate in our disclosures each and every quarter to highlight if the delta is in the backlog, have particular drivers. In this particular case, we say a couple things. We say it's the seventh consecutive quarter. It's the highest in four years. It's one of the highest levels ever. It is a large level of backlog, and we make that point because, obviously, the results that we just delivered in Q4 and for full year 2025 were very strong. But the indication is that not only we delivered those results, but more than replenished those results. And so that is what's giving us the confidence. And then all of David's comments that he made with respect to the flywheel and the catalyzing of activity, because the growth in the backlog is driven by advisory, we're also trying to give our investors the sense that that could in turn drive other pieces of activity across the firm, other types of activity that doesn't get registered in backlog and doesn't lend itself to that type of reporting metric. So that's sort of our orientation, and that's what I would offer up to help you get, you know, the insight on why we're putting that out there and highlighting it. Katie: Thank you. We'll take our next question from Brennan Hawken with BMO. Brennan Hawken: Good morning. Thanks for taking my question. First of all, sort of great timing on the Apple Card deal. Like, having that announced the week before we get the tweet on the limits. I mean, I couldn't help but juggle about that. I'd love to hear about obviously, you've got a long pathway to close, twenty-four months and then it closes. But could you help us maybe understand the right way we should be thinking about, like, platform's run rate after it closes and then whether or not there's any operating expenses given this is your last card exit. That might be running off? And what are the plans for the deposits, the Apple deposits that may not have been reflected in the announcement? David Solomon: Sure. Brennan, thank you for the question. Thank you for the observation. The same thing occurred to us. So thinking about platform solutions on the forward, it's really comprised, you know, the vast majority of it is the Apple Card business and the savings program. The loans are now obviously in a fair value, standpoint from an accounting perspective. So they're marked to market. The performance contributors will obviously be, you know, NII, charge-offs, operating expenses, etcetera. I think we'd observe from a seasonality perspective and across the balance of the year perspective, the same dynamics we've observed over the last couple of years of the portfolio where the first quarter is typically stronger in terms of reflecting, you know, pay down of balances and things like that, which then, you know, generally speaking, grow over the balance of the year. When you put that all together, our expectation is we'll have a small, you know, pretax loss for the year in the segment, but nothing that's material for Goldman Sachs. You asked, you asked also, Brennan, about savings. Like, you know, I just wanted to comment on this. Yeah. So there currently is no agreement to transition the savings program. We're gonna continue to service and maintain, you know, our existing Apple savings customers, and we're gonna continue to offer them high-yield savings accounts, you know, as Apple Card users. And users should expect that this service will be seamless. It'll be uninterrupted. And they'll continue to earn the same competitive rate they've been getting on their savings. And it's attractive to us. Obviously, we are very focused on the transition of the card, and there's a lot of work to do over the next twenty-four months. The transition of the card. But at some point in the future, we will expect to have additional conversations about the future of Apple savings. As we've mentioned, our deposits are diversified in tenor and channel, and that remains true even if we excluded Apple savings deposits. They're just a small fraction of the deposits. But at this point, there have been no discussions about the savings plan. Brennan Hawken: Got it. Thanks for that, David. And Dennis. I for my so know, one of the sort of debate points this morning with investors was on the efficiency ratio. And how things looked year over year. Now, of course, you have to adjust for the revenue impact of the Apple Card announcement. But and I might be doing the math wrong, but so correct me if that's the case. But when I do make that adjustment, it looks like there's, you know, a negative year-over-year impact on the efficiency ratio, like, it was a the efficiency ratio was stronger last fourth quarter versus this fourth quarter. Is my math right? And if so, could you speak to maybe what some of the factors were that prevented greater operating leverage and how we should think about operating leverage going forward? David Solomon: Sure, Brennan. I'll start with that. So first, thank you for observing correctly that the efficiency ratio is one of those places where based on the accounting for the Apple Card transition, it goes in the opposite direction versus our intention and the trajectory that we've been on. So that does explain why it's going in that direction based on the reduction to revenues. But you need to look at the efficiency ratio on a full-year basis. There have been some other things I've seen where people are looking at quarter, you know, year-over-year, fourth-quarter operating expenses or efficiency, given the way that we manage compensation and non-compensation expenses over the course of the full year, you need to look at that sort of in totality. And in this particular, when you do that, for the year-over-year fourth-quarter look in this particular year, it looks like you have, you know, a significant increase in operating expenses. But when you step back and look at the full-year performance, it's very clear that the firm delivered significant operating leverage. Obviously, we have reported revs at plus 9%. We have pretax at plus 19, and we have EPS at 27%. And so you have to sort of step back, take account of the provision release, and look at the full-year results. The fourth-quarter year-over-year, the only thing I'd add, the fourth-quarter year-over-year was affected by the way we accrued comp last year. And the way we accrued comp this year and the revenues in the quarter. And so it's you can't look at the fourth-quarter year-over-year. To Dennis' point, you have to look at the year. Katie: Thank you. We'll take our next question from Mike Mayo with Wells Fargo Securities. Mike Mayo: Hi. I guess it's an exciting time. This is a new era for Goldman Sachs. Goldman Sachs 3.0. And you're redesigning the whole firm around AI, so that could be very exciting. I'm looking for the output that you're looking for from this. I know it's early days, but whenever I ask about AI, it's always answers at the 10,000-foot level. Like, it's transformational. It's a game changer. It's a superpower. You know, we all get that. But what are you hoping to achieve? So, like, this decade, your revenues are up two-thirds. Your headcount's up one-fourth. So that's one way maybe you could frame the output that you like to achieve. But how much more in revenues? How much more in efficiency? Just you put some meat on the bones? Thank you. David Solomon: I appreciate the question, Mike, and I appreciate the way you frame it. And I understand why there's a strong desire to get more from us. What I promise you is you're going to get more over time as we're in a position to give you metrics, to give you targets, and to really explain it. Wanna step back at a high level. Just the one thing that I'd say, and I'd frame it slightly differently than you'd frame it, this is not a new era for Goldman Sachs. One GS 3.0 is not gonna transform the whole firm with AI. We are focused on our two core businesses, driving growth in our two core businesses, and both, I think, we're incredibly well-positioned and positioned to win. AI and this technology is an opportunity for us to drive productivity and efficiency in the organization. And we are very, very focused on it. Because it will add to our capacity to invest in growth in the business. At a high level, and I think I've talked about this a little bit before, there are two things that I would focus on. One, we have very smart, very productive people. And you can give them these models, these tools, these applications. You can put them in their hands. They're very good at playing with them and figuring out on a day-to-day basis they can use these tools to make themselves more productive, to do more, to affect our clients more. And we're pretty good at that. We put technology in our hands for decades. They're pretty good at taking that technology and figuring out how to use it. And that is going on, and there is progress in that. The thing you're talking about is our ability to, really, in the enterprise, deploy the technology to reimagine operating processes and create real efficiency. And we think there is an ability to do that on a basis that would be meaningful and significant for Goldman Sachs. It's not just to take cost out, but it's also to free up capacity to invest in other areas where we see growth opportunities we've been a little bit constrained. I talked about wealth management because somebody asked a question. And our desire to put more feet on the ground to broaden our footprint and our platform. We would like to do more of that this year than we're doing. But we're constrained because we're also trying to balance and deliver returns. If we can remake processes and create more operating efficiency and flexibility, that will free up more capacity from an efficiency perspective to invest in these growth areas. To change operating processes in the firm, and we've identified six specific processes that we're attacking. Takes an enormous amount of work to bring people along. We started doing this in the fall. We're making good progress. To be honest, I had hoped to give a little bit more transparency at this earnings call, but we don't have the full confidence to put information out publicly. But we are committed to giving you more over the course of the next quarters so you can track with us the efficiency progress and how we're deploying that progress into the business. And so we'll continue to keep you posted as we do it. But I think it's meaningful, but for the moment, it's focused on six distinct processes. Mike Mayo: And just as one follow-up, if we were to look at one metric for progress five years from now, would that be, like, revenues per employee? Would that be efficiency? Would it be headcount or how do you think about that? David Solomon: Well, if you look out five years from now, I think this technology and I think this has to be put in the lens of a journey that a firm like ours has been on for decades. I mean, I joined Goldman Sachs in 1999. On a revenue per employee basis. I mean, you pointed out a revenue per employee metric over the last five years. You go back and you look twenty-five years, you know the same thing. We continue our people continue to get more productive. I think this technology and the work we can do in One GS 3.0 creates an ability for us in the next five years to accelerate the pace of that one to get. And so that is a metric, but I don't think the only metric. Katie: Thank you. We'll take our next question from Steven Chubak with Wolfe Research. Steven Chubak: So David, there have been a number of significant developments in the area of market structure, whether it's tokenization, the recent expansion of prediction markets. You guys are always quite front-footed when it comes to innovation, and I was hoping you could speak to how you're evaluating some of these emerging opportunities within the market structure or tokenization landscape. Where do you see the most compelling opportunities for Goldman? And how are you positioning the firm to participate in a more meaningful way? David Solomon: Yeah. So I appreciate the question, Steven. First, I'll start I mean, you mentioned two things in the both things that we have an enormous number of people on the firm extremely focused on. You know, tokenization, stablecoins, obviously, there's a lot going on in Washington right now. With the Clarity app that was actually in Washington on Tuesday. You know, speaking to people about things that we think are important, you know, to us in the context and framing to that. Obviously, that bill based on the news over the last twenty-four hours, has a long way to go before that bill is gonna progress. But I do think these innovations are important. I don't think we have to be the leader, but it would not surprise you that we have a big team of people spending a lot of time with senior leadership and doing a lot of work so that we can clearly decide where we're investing in playing and how those technologies can expand or accelerate a variety of our existing businesses. And where there are new business opportunities candidly around those technologies. I think the prediction markets are also super interesting. I personally met with two big prediction companies in their leadership in the last two weeks and spent a couple of hours with each, you know, to learn more about that. We have a team of people here that are spending time with them and are looking at it. When you think about some of these activities, particularly when you look at some of the ones that are CFTC regulated, they look like derivative contract activities. And so I can certainly see opportunities where these cross into our business, and we're very focused on understanding that, understanding the regulatory structure, that's going to develop around that, seeing where there are opportunities for us to have capabilities or to partner to serve our clients around these. I think it's early on both. I think sometimes the, you know, the I think there's a lot of reason to be excited and interested in these things, but the pace of change might not be as quick as quick and as immediate as some of the pundits are talking about in both these. But I think they're important, real, and we're spending a lot of time. Steven Chubak: No. Thanks for all that color, David. And just a quick follow-up on the financing opportunity. If I think back five plus years ago ahead of the 2020 Investor Day, when you first started talking about the financing opportunity, you noted it was less than 20% of Goldman's trading revenue. It was 40% at some of your larger money center peers. And that you were planning to narrow that gap. And if I fast forward to today, you're now approaching that 40% threshold. And I was hoping to get your thoughts on how large you think that financing piece can grow over time. And your approach also managing risk against any potential drawdown or deleveraging events within that business. David Solomon: Yeah. No. It's a very good question, Steve. And you're focused on the right thing and so are we. I mean, I think what I would say is over the last five years, we've gone for being underweighted given our market footprint and our market shares and our wallet shares. To be more closely weighted. I think we've got a little bit of room. But it wouldn't surprise you in the formation of the capital solutions group and thinking about the connectivity between our asset management business and our origination capabilities, we see the potential to basically put a lot of this activity over time into our asset management business and allow our clients to have access, you know, to these origination flows. And so we're very conscious from a risk management perspective. We see opportunities to continue to serve our clients. But because of our asset management business, we have the ability to grow this, and not all of it has to be on balance sheet the same way. And so we're keenly focused on the evolution of that in the coming years, and that's something you'll hear us talk more about. Katie: Thank you. We'll take our next question from Dan Fannon with Jefferies. Dan Fannon: Thanks. Good morning. Another one just on expenses and really noncomp and one all you've been doing with the GS 3.0. Was curious as you start 2026, how does the growth for noncomp look versus maybe 2025 in the budgeting process? And maybe what's the difference in terms of some of those metrics? David Solomon: So appreciate the question. You've heard us say, you know, over many, many, many years, we maintain a rigorous focus on managing these expenses as tightly as we possibly can. There are a lot of them, certainly by dollar quantum, that are very linked with the overall level of activity inside of the firm. Notably, transaction-based expenses, and also, to an extent, some of the market development expenses. We're at a point in the cycle where, as an example, it's more important to feed some T and E into the firm to get people front-footed and meeting face-to-face with clients than it is to overly constrain that expenditure. Transaction-based, similarly, as we continue to grow, these activities there are necessarily transaction-based expenses that go alongside those. On the other side of the equation are those types of expenses over which we have more control, and we have a very concerted effort to constrain the growth of fees, which may be inflation-linked, or may be, you know, substitutes for other types of work. And we're focused on sort of grinding those down as much as we possibly can. Dan Fannon: Thanks. And as a follow-up for the private banking and lending, I was hoping to get an updated outlook as you think about 2026 and a backdrop where rates are coming down, how you're thinking about the offsets of revenue from both demand and deposits? David Solomon: Sure. So, you know, there, we've obviously been quite deliberate trying to, you know, make sure you have all the pieces of the puzzle. You know, as we head into 2026, we've dealt with some of the sequential comparisons in that line item based on the one particular loan that had been previously impaired, and then we had, you know, exceptional levels of revenue. We want to understand that as a comparison. That, frankly, still be relevant as we head into 2026. Our focus is continuing to grow lending activities and the lending penetration. We made good progress there. That's a piece of unlocking incremental growth in the wealth channel, remains very important to clients. So we'll expect to grow lending. We'll focus on growing our overall level of deposit activity across the segment. Yeah. But we do expect there could be some NIM compression given our expectations on the rate cycle. And so we just want to flag that as an expectation as we head into 2026. Katie: We'll take our next question from Matt O'Connor with Deutsche Bank. Matt O'Connor: I was hoping to follow-up on the 5% long-term asset flow target within wealth. You were slightly above this in 4Q and just wanted to get more color in terms of how you arrived at that and maybe framing how much is doing more with existing advisers and customers versus the efforts that you have to hire more advisers? And presumably attract new customers? David Solomon: So look, we think, you know, wealth is a big opportunity for the firm. We have a very strong business at the moment. We think there's a good opportunity to grow it. And we are making extra efforts to drive accountability and focus on our execution against that opportunity set. And so this is an external target that we expect you all to hold us to account. And we also think it's an important signal to send to all of our people in terms of how laser-focused we are on this opportunity set. As you said, we have a track record of delivering this type of annual growth. So we want to maintain the focus. That is one component of the overall sort of revenue equation and opportunity set in wealth management. But it's an effort for us to just apply incremental amounts of granular focus. This is one of the key underpinnings to the overall revenue trajectory in the wealth business. Matt O'Connor: And any color you want to provide in terms of talked about billing advisers. You've got some planned this year. You said you'd like to do more, but you're mindful of kind of managing the profitability. Just any way of framing whether it's your plan this year or just kind of longer term where you're at now and where you'd like to be? David Solomon: I think the best way, Matt, to frame it is this is a very, very fragmented business. My guess is an ultra-high-net-worth. Our share in the United States, for example, is somewhere mid-single digits. And that's probably leading share. So you think about there are hundreds and hundreds of firms and people that do this in a variety of ways. So with our franchise and our platform, I said before early in the call, it scales with people. There is lots of ability to still grow market share in this business if you've got a leading franchise. By adding advisors, adding footprint, broadening the clients that we touch, so we think we've got good trajectory to do that. And there's real focus on that. And I'd add too, Alts is a component of it. We put out specific targets around sort of Alts opportunity set. And while we obviously have penetration of alts within our clients, given that, you know, the average wealth of a client on our platform is north of $75 million. It's not only appropriate, but you could advise a distribution of exposure to alternatives and there's still probably opportunity to grow that with our clients. In addition to the footprint, the advisers, the mix of their activities, lending remains an opportunity there. And we do as we've mentioned, we see more opportunities to enhance our technology investment, the digital experience for those clients, and ensure that we're, you know, very well positioned with existing clients, and their successors. Katie: We'll take our next question from Gerard Cassidy with RBC Capital. Gerard Cassidy: Good morning, Dennis. Good morning, David. Can you guys share with us, in the past, David, you talked about the IPO market and the sponsors maybe not getting the valuation that they would like as being one of the areas that had to loosen up, and it appears like it is. But when you look at this year, and I think, Dennis, you touched on it in your remarks, that we're still below where's IPO business is still below the long-term averages. Is it market conditions do you think will be a greater influence on the market this year? Or is it still the valuation challenge that you've referenced in the past? David Solomon: I don't think you've got the valuation challenge we've referenced. I think you're gonna see a bunch of the sponsor stuff unlock, and you're gonna see more activity, you know, from sponsors. I also think one of the dynamics that we have, and it's just the reality of market structure and the way the world's evolved, companies are staying private longer, and we've got a lot of big, big companies in the pipe that I think just for a variety of reasons are reaching a moment in time where they're saying, you know what? It's time to go. And I think you're also this year gonna see a bunch of IPOs this year and next year of very, very large companies, which is something we really haven't seen a lot of. So combination of sponsor momentum and more of the big companies that have stayed private longer are now turning toward the public markets. And I think the confluence of that's gonna be constructive. Provided we have the kind of market environment we have now. Gerard Cassidy: Right. Right. Okay. That's helpful. Thank you. And second, and not to really get political on this question, but it seems like the M&A activity as you guys do so well and as your peers in 2025. It seems like this administration is more supportive of consolidation than maybe the prior administration. When you talk to executives about transactions, are they more focused on just, you know, the economic outlook and the opportunities there? Or does the, you know, regulation also factor into their thinking, thinking that the window is open now and they really need to move possibly before the change in administration in 2029? David Solomon: Yeah. Sure. Sure, Gerard. I think a way to frame it, you framed it. We had a very, very different environment from a regulatory perspective for M&A for the last four years. And that doesn't mean that it's just a blank check, you know, no regulatory oversight of large-scale consolidation. But CEOs definitely believe that the art of the deal and scaled consolidation is possible now. And when CEOs see that opportunity, because scale matters so much in business, business is so competitive. CEOs get very front-footed. And so I think CEOs and boards are looking and saying, okay. We've got a window here. Of a handful of years where the opportunity to consider big strategic transformative things is certainly possible. And therefore, you've got a much, much more front-foot forward, you know, across industry group of CEOs really thinking about is there something we should do? Is there something we should dream about? That really advances our competitive position? And that's leading to you see that filtering into our backlog, but I think that's leading to a significant upswing in activity provided we don't have some sort of an exogenous event that changes the current sentiment that we now have. Katie: We'll take our next question from Chris McGratty with KBW. Chris McGratty: Oh, great. Good morning. Lot of discussion on the capital impact from dereg. I think in your earlier remarks, you talked about expenses. I'm wondering if you could quantify that potential pool of money that could be freed and redeployed? I guess, how much of a drag has it been? David Solomon: Appreciate the question. I'll follow on, you know, David's comments. I mean, I don't think we're gonna give you an exact number, but you can imagine that there are a variety of, call it, different human capital consulting professional fee type surge experiences that have been observable across the industry over the last couple of years. And while there will always be work to be done, and each and every institution has a responsibility to still govern and run itself in line with regulatory expectations, the current levels of engagement and focus are on the safety and soundness of the banking system. And there's just a different formulation and mix of expenses required to ensure that most important goal of safety and soundness, and it therefore frees up capacity from some of the secondary or tertiary activities, which can then be redeployed to, you know, driving growth across the franchise and actually, frankly, strengthening the safety of the soundness of the firm in another respect. So I think I wouldn't look at it as much of a bottom-line unlock as much as an opportunity to redeploy towards helping to grow the firm and actually improve its resiliency. David Solomon: The only thing I'd add, Chris, to what Dennis said just to get a little bit more we're not gonna be able to quantify for you. But the things that you should look at, you know, obviously, if you go back over the last ten years, capital in the large banks has grown meaningfully. Over the last ten years. And now it's actually the growth has certainly stopped. And because one of the big things that drove the capital growth was the stress capital buffers for all the firm and the CCAR process, which was very, very opaque, there's now going to be more transparency around the models in the CCAR process. I think you're getting a different result there. So one piece of the quantification comes from doing the analysis to look at how SCBs change from kind of 20, you know, the late part of last decade up to 2025 and where they are now and how they've evolved. That's a quantification. The second one was there was an expectation that Basel III was going to put more capital on top of the stack. That's another way that people thought capital was growing. Now the perception is as a Basel III, is going to be more of a neutral event when it's ultimately closed out. And then the third thing is G SIB was supposed to be calibrated to growth in the world and market cap growth that was put in the statute, but it never followed through. So G SIB, as the world grew, G SIB wasn't supposed to grow as fast as it was growing, but it grew faster. That's now going to be recalibrated. That's another one. So if you wanna kinda calculate those differences, those are three important things I would point you to can look at the different banks and calculate that impact. Chris McGratty: That's very helpful. Thank you for that, David. Second question would be more of a business mix desire rate. If you look at the fourth-quarter revenue mix, trading 50%, IB 20, you know, AWM 25, dominant share, great growth. If you were to fast forward over the next few years, like, what do you think this mix looks like? Maybe do you wanna be viewed by the market? Because there are, I think, implications for the multiple that we all wanna put on your stock. Thank you. David Solomon: Yeah. We're gonna continue to invest in the growth of asset wealth management, and we would like the mix to continue to evolve. I think it can evolve very slowly with the organic growth differential. Because, you know, this is not an unfortunately, but it's a reality. We've been able to grow global banking markets faster than we might have expected. And even though we've grown asset wealth management very nicely, just given the scale of global banking markets, that's made the shift in mix slower than we might have all imagined if we go back five, six years and kind of think about the trajectory that we're on. We will try to find things that accelerate that. In addition to the organic, you know, inorganically. Again, with a real discipline around that, as I've stated over and over again. I do think if you look forward, the mix of the firm will continue because the growth in asset wealth management is faster. It will continue to shift. And we're focused on that. Katie: Thank you. We'll take our next question from Saul Martinez with HSBC. Saul Martinez: Hi, thanks for taking my questions, squeezing me in. I just have one question. And it is a clarification more than anything to Erika's question about where we are in the investment banking cycle. And I think, David, in your response, you said that your people are suggesting that in a base case view, 2026 investment banking fees could be closer to approach where they were in 2021, which was, you know, over $14 billion and, you know, we're running, you know, I think '25 was a bit over 9. The delta really is ECM, obviously, and, you know, advisory and DCM are kind of tracking to those the '21 levels already. But just wanted to clarify that. Were you talking about IV fees as a whole, or were you talking about the individual segments, advisory, DCM? You know, I apologize if it was clear to everybody else but me. But, you know, obviously, an environment where you do $14 billion of investment banking fees would seem like an environment where your ROEs for GBM and the firm as a whole would be, you know, materially above the mid-teen level. But just if you can just clarify that, that would be helpful. David Solomon: Sure. I'm sorry, Saul, if I confused you. What I was referring to was advisory fees only. I was, okay. I'm sorry. What I was referring to was advisory volume. Excuse me. Advisory volumes. Now advisory volumes are very correlated to fees. Okay? But the chart that I was referring to is one that looked at three different cases for advisory volume. Okay? So it wasn't equity capital markets, etcetera. I will tell you that what went on in 2021 with equity capital raising, particularly on the stock phenomenon, that's not going to occur in 2026. So my guess would be that equity capital markets level will still be meaningfully below the 2021 peak in 2026, but they will be higher than they were this year. That would be my estimate based on what we see today. But I was talking specifically about advisory volumes when I made that quote. And look. The advisory, as we've said over and over again, when advisory activity grows, the flywheel creates lots of activity. And we were talking industry-wide, not just GS. Looking just at industry-wide volume. Saul Martinez: Yep. Okay. Got it. No. That's helpful. Thank you for clarifying that. David Solomon: Yep. Katie: Thank you. At this time, there are no additional questions. Ladies and gentlemen, this concludes The Goldman Sachs Group, Inc. Fourth Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect.