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Operator: Good afternoon, and welcome to Phoenix Education Partners First Quarter Fiscal 2026 Earnings Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following prepared remarks, we will open the call for questions. I would now like to turn the call over to Elizabeth Coronelli, Vice President of Investor Relations. Please go ahead. Elizabeth Coronelli: Welcome to the Phoenix Education Partners first quarter 2026 earnings conference call. Speaking on today's call are Christopher Lynne, our Chief Executive Officer, and Blair Westblom, our Chief Financial Officer. Before we begin, I would like to remind everyone that certain statements and projections of future results made in this presentation constitute forward-looking statements. These are based on current market, competitive, and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. Listeners should not place undue reliance on such statements. We undertake no obligation to update publicly any forward-looking statement after this presentation, whether as a result of new information, future events, changes in assumptions, or otherwise. The risks related to these forward-looking statements are described in our filings with the SEC, including our most recent Form 10-K, Form 10-Q, and other public filings. We will also discuss certain non-GAAP financial measures. You should consider our non-GAAP results as supplements to, and not in lieu of, our GAAP results. Reconciliations to the most directly comparable GAAP measures can be found in our earnings release and SEC filings. Unless otherwise noted, comments in the call will focus on the comparison to the prior year period. We also direct you to the supplemental earnings slides provided on the Phoenix Education Partners website. With that, I turn the call over to Christopher Lynne. Christopher Lynne: Thank you, Elizabeth, and good afternoon, everyone. We appreciate you joining us as we report our results for 2026. This quarter's results demonstrated disciplined execution of our strategy, marked by steady growth, strong retention, and continued investment in student success and long-term value creation. At the University of Phoenix, our mission remains clear: to expand access to higher education that delivers relevant, career-aligned skills for working adults. The students we serve reflect that mission. As our students balance work, family, and education, we remain focused on meeting their needs through flexible programs, strong academic outcomes, and a personalized student experience. Turning to the first quarter, we delivered a solid start to the year with financial performance consistent with our expectations and results that reinforce the full-year outlook we provided on our November earnings call. First quarter revenue grew 2.9% year-over-year, with a 4.1% increase in average total degree enrollment to 85,600 students. Employer-affiliated enrollment continues to be an important contributor to overall enrollment growth and now accounts for approximately 34% of total enrollment, which is up from approximately 31% in the first quarter of 2025. Adjusted EBITDA increased 7.2%, reflecting continued revenue growth, enhanced productivity, and operational efficiency while sustaining strong student outcomes. Our focus on student outcomes, as well as execution and efficiency, carries directly into how we approach AI technology across the university. As we've discussed previously, we view AI as an important enabler of our existing strategies, and we apply it in a disciplined, deliberate manner, empowering our team to explore and evolve how we work in service of our students. Our approach centers on two priorities: First, we are preparing students to be AI fluent. As the workforce landscape continues to change rapidly, we are embedding AI into programs, course content, and the learning experience so students build practical, career-relevant skills. We are equipping learners to use AI ethically and appropriately, understanding when AI adds value and when human judgment is essential. Second, we are leveraging AI as an institution to drive operational excellence. We are starting to use AI to remove friction, increase personalization, automate complexity, and unlock capacity, enabling us to focus on what truly matters. We are encouraged with our progress leveraging AI to improve outcomes across the student journey, with examples that include the use of AI assistant appointment setting and outreach in certain situations to improve enrollment conversion and retention, as well as several pilots we have in production leveraging large language models with our proprietary data to enhance our AI chat assistance and servicing our students 24/7 both inside and outside the classroom. Let's move on to regulatory updates. Last week, the negotiated rulemaking committee reached consensus on accountability measures related to changes enacted under the One Big Beautiful Bill Act. The proceedings were consistent with our expectations. No new material areas of risk were introduced during the process, and we are pleased we will now have an accountability framework that applies equally to all programs at all institutions. As part of negotiated rulemaking, the Department of Education released preliminary program performance accountability metrics. While this information is preliminary, we were encouraged that based on these informational program performance metrics, all University of Phoenix programs for which metrics were provided are passing. I'd also like to briefly address the cyber incident involving our Oracle E-Business Suite software platform, which was disclosed in our early December 8-K. The university was one of numerous organizations, including other academic institutions, from which an unauthorized third party exploited a zero-day software vulnerability in Oracle EBS to obtain certain personal information without authorization. The software vulnerability has since been remediated. The incident did not impact our student and academic programming and was addressed promptly. We recorded $4.5 million of expense associated with this incident, principally representing costs to notify the affected parties, fees from third-party cybersecurity firms, legal fees, and other expenses related to the incident response. While we expect to incur additional related expenses in future periods, we maintain a comprehensive cybersecurity insurance policy, subject to customary deductibles, exclusions, and limits. Reflecting confidence in the durability of our cash generation, we announced the declaration of our inaugural regular quarterly cash dividend of approximately 21¢ per share of common stock, which was approved by our board of directors and is consistent with the dividend amount we outlined during the IPO process. This decision underscores our disciplined approach to capital allocation and long-term value creation while continuing to invest in our students, programs, and growth initiatives. As we move into 2026, our focus remains on disciplined execution and investing resources intentionally as we balance growth, student success, and financial performance. We started the year on solid footing and are well-positioned to continue executing against our strategic priorities and are guided by our mission to enhance the learner experience and strengthen engagement and retention to support adult learners achieving meaningful educational and long-term career outcomes. I'll now turn the call over to Blair to walk through our financial results in more detail. Blair Westblom: Thank you, Christopher, and good afternoon. For 2026, our results were in line with our expectations. Net revenue increased 2.9% to $262 million, driven by a 4.1% increase in average total degree enrollment to 85,600 students, supported by new student growth and retention gains from fiscal year 2025 continuing into the first quarter of 2026. Net income attributable to the company was $15.5 million or 40¢ diluted earnings per share, compared to $46.4 million a year ago or $1.23 diluted earnings per share. The decrease in net income attributable to the company and diluted earnings per share was primarily due to noncash share-based compensation and other expenses that resulted from the initial public offering. Adjusted net income attributable to the company increased 5.3% to $53.6 million, up from $50.9 million in the prior year period. Adjusted EBITDA for the quarter rose 7.2% to $75.2 million, and adjusted diluted earnings per share increased 3¢ to $1.38. As a reminder, our earnings per share for all periods have been retrospectively recast to reflect our IPO and related transactions. Please refer to our annual report on Form 10-K and quarterly report on Form 10-Q for additional information regarding our dilutive securities. Adjusted EBITDA in the first quarter excludes $29.5 million of noncash share-based compensation expense, $4.5 million of expense related to the cybersecurity incident, and other items as detailed in our earnings release and quarterly report on Form 10-Q. The share-based compensation expense in the first quarter is not indicative of our expected long-term annual run rate for share-based compensation and was principally the result of expense for modifying pre-IPO stock options. Adjusted EBITDA margin was 28.7%, up from 27.5% in the prior period, reflecting the increase in net revenue, improved student-facing team productivity, as well as lower financial aid processing costs and bad debt expense, in part due to our transition to dispersing financial aid by course. Regarding expenses, instructional and increased $7.1 million to $115.2 million, and general and administrative was up $24.6 million to $106.6 million. Both increases are principally attributable to the share-based compensation expense increase discussed in my earlier comments. From a cash and liquidity perspective, we continue to maintain a strong balance sheet with no outstanding debt. We ended the quarter with substantial cash and marketable securities and no borrowings under our revolving credit facility, providing flexibility to invest in the business while maintaining a disciplined capital allocation strategy. As of November 30, 2025, total cash and cash equivalents, restricted cash and cash equivalents, and marketable securities were $218.1 million compared to $194.8 million as of August 31, 2025. The increase was primarily attributable to $31.1 million of cash generated by operating activities, which was partially offset by $4.7 million of capital expenditures. As Christopher mentioned, we announced a regular quarterly common stock dividend today, payable on February 18, 2026, to shareholders of record as of January 28, 2026. We expect to pay quarterly dividends of approximately 21¢ per share or approximately 84¢ per share annually, in each case subject to board approval. Our capital allocation priorities remain unchanged, guided by a commitment to financial discipline and flexibility. We allocate capital to reinvest in the business, supporting strong student outcomes, driving sustainable enrollment growth, advancing our technology platform, and enhancing operational efficiency while maintaining strong liquidity and returning capital to shareholders. With respect to our fiscal 2026 outlook, we are reiterating the net revenue guidance of $1.025 billion to $1.035 billion and adjusted EBITDA guidance of $244 million to $249 million, both of which we provided on our November earnings call. Our first quarter performance represents a strong start to the year and reinforces our confidence in our full-year outlook. We continue to operate from a position of financial strength with strong cash generation to support our strategic priorities. We remain focused on disciplined execution while investing in the success of our students and long-term value creation. I'll now turn the call back to the operator to open the line for questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star then the number one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. One moment while we compile the Q&A roster. Your first question comes from Gregory Parrish with Morgan Stanley. Your line is open. Gregory Parrish: Congrats on the result. Nice to see solid enrollment growth despite the identity verification changes last year. There'll be a lot going on at the Department of Education last week as well. Sounds like a positive for you, the gainful employment changes, but maybe you could talk a little bit more about that. If you just zoom out, there continues to be a real impetus on cracking down on fraud, and it seems like a lot of the risk here is behind you. Right? Your past verification, this earnings threshold is now out there. But just kinda level set where we are, what you're watching, and then any potential impacts here for this year. Christopher Lynne: Yeah. Thanks, Gregory. This is Christopher. Yeah. So NEG regs have been there's a lot that's been covered. The most relevant session was last week for us. They discussed, as I'm sure you know, the program performance metrics for higher education. And the punch line on what we saw is, I mean, they did reach consensus, which we thought was a positive thing. They're moving in a direction of this earnings metric both for gainful employment and the One Big Beautiful Bill Act earnings threshold across all programs treating all universities and colleges the same. And so that's consistent with our early expectations, and they've moved further in that direction, which we see as a positive. We don't anticipate, and we've said this in the past, any adverse impact from this regulation. What we learned last week was supportive of that. In fact, they actually the department released preliminary information on program performance metrics for earnings for institutions and for the programs that they released for us where they had earnings data. All of our programs passed. So, obviously, that is encouraging. So we feel pretty good about things there, and I would say that, you know, everything is preliminary until it's final, but it's moving in the direction that we had anticipated, which we see as a positive thing. In terms of the focus, I think you were alluding to the federal government's focus on fraud. There's nothing really new to report there from my perspective as it relates to negotiated rulemaking. The department is, as we discussed a little bit on the last earnings call, aware of the unusual enrollment activity in the market environment, and nothing's changed there in that they're focused on increasing their controls around the FAFSA process to prevent those types of issues. And there's nothing new to report. We didn't have any new or material activity with the department over the last quarter. As it relates to our efforts with unusual enrollment activity, we continue to see the outcome of our control structure that we put in place with detection and verification in fiscal 2025. We saw the productivity enhancements that we talked about in Q4. As a result, continue into Q1, and we feel like we have that under control at the moment. Gregory Parrish: Great. That's very helpful. Thank you. Congrats. Christopher Lynne: You're welcome. Thank you. Operator: Your next question comes from Alex Parrish with Barrington Research. Your line is open. Alex Parrish: Hi, guys. Thanks for taking my questions. And congrats on a better than expected quarter. I'll just switch up the order here a little bit to follow-up on that last question. You said, Christopher, regarding the preliminary data that was provided by the Department of Education where earnings data was available. How comprehensive was that? In terms of the programs addressed? Were there a lot of programs given? Did it cover the majority of your programs, or are there some that were still waiting? Important programs that we're still waiting for data? Christopher Lynne: I don't have the exact data because the team is working through it. What I can say is it was a majority greater than 50% of our programs that we did have earnings information for. And it covered a pretty material amount of our programs in terms of size and importance of the programs. One reason why I think earnings may not be available for programs is it just gonna have large enough cohorts. So, there would be a probably a larger proportion of those that they didn't have earnings information for that would correlate with smaller programs. But don't have the exact data I have it at a high level, and our team is working through it. But I think it's net positive from the perspective that it was a greater than 50% of our programs that were reported on. Alex Parrish: Great. That's good news. Intuitively, are there any programs among the University of Phoenix offering that you would think that it is gonna have any challenge, and what percentage of enrollment does that account for? You know, like, in the old days, gainful employment, concerning programs would have been culinary or criminal justice and things like that. Any programs that you think might have a challenge when that data is available just from what you know from previous? Christopher Lynne: Yeah. Thanks, Alex. Yeah. We talked a little bit about this in the process of going public. I can't recall if we've talked about it on the last earnings call, but and I hesitate to speculate too much about this based on where we're at because I don't want to leave an impression one way or the other. But what we had done earlier in the process is we looked at all of our programs, and this is something that historically we've been good at in terms of taking all available data. Some of this data was similar to the data that you would track for gainful employment regulations that we've been looking at since the Obama administration. And within that assessment, what we would have on our radar are programs that are in disciplines that structurally have lower earnings. So the one area that we talked about was some of the behavioral sciences where just by the nature of those programs, the graduates don't make a lot of money comparatively. And so, you know, we thought that that may be an area of risk. And when this was going through Congress, that was an area that there was a lot of discussion in while the bill was in sort of preliminary form. With that said, you know, if we were to look at preliminary info, it was positive. Reflecting on what we speculated. But again, it's preliminary info. So you know, we didn't anticipate and continue not to this having any kind of material adverse impact on our programs. Alex Parrish: Good. Well, thank you. That's helpful. And then last one on that regulatory front. It seems that the controls, the algorithms that you put in place that you've moved to the top of the funnel in the fourth quarter is doing what you wanted it to do. I was just curious. Has there been any let up in the number of fraudulent attempts? Or are the criminals still running around the industry? Christopher Lynne: Yeah. I mean, the activity is definitely still in the marketplace. I would say that as we put the controls further up in the funnel, we've seen those volumes deter and trend downward since Q4, pretty significantly since Q4 when we put the detection and verification processes at the application process. But the volume that we're deterring that we can see is still, I would consider, pretty significant. So I would say that the activity is definitely in the marketplace. And we're just doing an effective job of stopping it from getting into our enrollment funnel. Alex Parrish: That's great. And then my last question is regarding new student enrollment. I know you don't report it specifically new student enrollment, but, you know, based on the IPO roadshow and our conversation since, it did have an impact on enrollment in, you know, maybe the 2024 and early into 2025, yet I if I understand it correctly, your new student enrollment has been up year over year for the last couple of quarters. When do the comps get easier in terms of new student enrollment? Is it in the third quarter of this year or the fourth quarter of this year? Christopher Lynne: Yeah. For new student, we had pretty significant productivity impact in the enrollment funnel that was seen through Q3 of last year. It did improve quite a bit in Q4, as you just mentioned, of fiscal 2025, and that was associated with moving these detection and verification controls to the top of the funnel. And what that meant is we were doing a better job of preventing that noise in the funnel, which means our enrollment representatives were seeing a lot more productivity and moving closer to historical levels that we've predictably and sustainably met over many years. So we continue to see that productivity carry into Q1. And to your point, that is helping with continued new student growth. And we expect that trend to continue in Q2 and Q3. And then in Q4, you know, the comp as it relates specifically to those productivity enhancements will be a little bit tougher because that's when we saw the trend reverse historically. Alex Parrish: Gotcha. Okay. Well, thank you for the additional color. I appreciate it. I'll get back in the queue. Christopher Lynne: Thanks, Alex. Operator: Your next question comes from Jeffrey Bibb with Truist Securities. Line is open. Jeffrey Bibb: Hey. Good afternoon, everyone. I think, on the last call, you messaged 2026 was gonna be a little bit of second half weighted year from enrollment growth perspective. Has that changed? I mean, it seems like fairly strong start to the year here in the first quarter. Christopher Lynne: Yeah. Jasper, I'll take that question. The primary conversation from my perspective in the last quarter talking about trajectory this year was really around the relationship between our enrollment growth and our revenue growth. And so we are anticipating that our revenue growth is going to be, I don't know, from a lack of a better word, unknack lower than our enrollment growth through Q3 driven by the fact that last year, we had a higher volume of students that we were attracting into our risk-free period that ended up not persisting beyond the initial courses. So that created shorter-term revenue last year that we're not anticipating based on who we're attracting into those into that risk-free cohort this year. So, you know, said differently from a pure financial perspective, the quality of the incoming revenue is higher but you're gonna see a little bit of a lag related to the average total degree enrollment growth. And that's gonna be more prominent in Q2 and Q3. So that's what we intended to communicate last quarter, and it will be consistent with what we still believe in we'll expect that to normalize much more in Q4. In terms of average total degree to enrollment growth, you know, we had a solid first quarter. You know, we think we set a solid foundation for the year. We're not, you know, we're reiterating our outlook for the year. We're still early in the year, so we continue to stand behind the outlook that we provided last quarter and this quarter. Jeffrey Bibb: Thanks for that. Maybe just following up on the headwind from higher, I guess, students going through the risk-free period last year, should we expect that to show up, you know, in revenue per student or enrollment? I just you could provide a bit more detail there from a modeling perspective. Yeah. I mean, revenue student guess my question is yeah. Was that recognized in enrollment or in the prior year? And should it just flow out of revenue per student this year? Christopher Lynne: Yeah. So, you know, revenue per student for us is not a key metric. But if you were to calculate the revenue per average total degree of enrollment, we would expect that to come down in Q2 and Q3 as a result of this because we had enrollment associated with those students that didn't persist among the past the first few courses last year, but we had, sort of a shorter-term impact on revenue. And so we're not seeing that revenue carry into this year. So based on that calculation of revenue per student, you should anticipate this would be something that would drive down revenue per student. Blair, I think you wanted to add something to that. Blair Westblom: Absolutely. Thanks, Christopher. Great question. Thanks, Jasper. I just wanted to comment you know, you will see variability in growth of revenue versus average total degree enrollment by quarter, and that's driven by a number of different factors, including the timing of course starts, composition of enrollment, in addition to the factors that Christopher mentioned. And in Q1, '26, as I'm sure you noted, revenue growth of 2.9% driven by growth in average total degree enrollment of 4.1%. The difference was primarily the expansion of B2B. As Christopher noted in his remarks, it was up three points year over year, and B2B students typically receive a higher discount rate than that of non-B2B students. So those are other factors that could impact it by quarter. Jeffrey Bibb: Super helpful. Thanks so much. Christopher Lynne: You're welcome. Operator: Your next question comes from Griffin Boss with B. Riley Securities. Your line is open. Griffin Boss: Hi. Good evening. Thanks for taking my questions. Just starting off on the enrollment growth aspect there. Is there any color you can provide about where primarily you're seeing that new student growth? Is it broad-based, or are there specific disciplines that you're seeing stronger demand for? Christopher Lynne: Yeah. Griffin, thanks for the question. You know, as we've described, our program offerings, you know, we have done a lot of work and continue to focus on ensuring that they're aligned to fields that are in demand and growing. Over 90% are aligned to the market in that way. And as a result, we're seeing broad-based growth across our programs. And I think that's reflected also in what we're seeing with the B2B growth because that's aligning to what we're seeing employers they're hiring and where they currently have employees. So I think the simple answer is that it's broad-based. Griffin Boss: Got it. Okay. Thanks, Christopher. And then just have a couple quick ones on the OpEx side. First, just curious if there will be some level of higher operating expenses going forward given that cybersecurity event you saw last fall and the $4.5 million paid in the quarter, is there gonna be any, you know, marginal increase in cybersecurity or maybe legal fees that you're gonna be paying that wouldn't have happened had that cybersecurity event not occurred? Christopher Lynne: I'll take that question. So, yeah, we do anticipate additional expenses associated with the incident itself. We don't expect those to be material. As Blair mentioned in opening remarks, we do have a comprehensive cybersecurity policy that covers the majority of the cost we would anticipate, including the majority of the costs associated with the $4.5 million in expenses to date. And in terms of sort of the and we've treated that as you can see, as a sort of one-time in nature. It's an add-back to our adjusted in our adjusted EBITDA calculation. In terms of recurring costs associated with cyber, you know, we've always aspired to have a cyber control environment that represents best practices. This cyber event, not getting too into it, but I think it was pretty clear that this was a zero-day vulnerability. I mean, what that means is this is something that could not have been prevented. It was not known to anyone except the threat actor, and it happened to our software provider Oracle. But there are things that, you know, we can continue to do to reduce impact for the risk of those things. But from what we can see, we expect to be able to absorb that into our outlook and don't anticipate any kind of incremental operating expenses on our recurring expenses as a result of this. Griffin Boss: Okay. Great. Understood. Thanks, Christopher. And then just last quick for me on the stock-based comp side. Blair, obviously, you mentioned $30 million, of course, is not gonna be recurring going forward per quarter. But is there any sense that you can give now as a public company of kind of how that stock-based comp going forward? Maybe a range of percentage of revenue or something like that or how you're thinking about it? Would be helpful. Blair Westblom: Yeah. Sure. Appreciate the question. So the large noncash expense of $29.5 million in Q1 2026 is not indicative of our expected long-term annual run rate for stock-based compensation, and it was principally the result of expense from modifying pre-IPO stock options that were granted years ago. They were structured in a way that didn't contemplate an IPO. And the modification of such stock options, which were mark to market, represented $23 million of the $29.5 million of the total noncash SBC expense in the quarter. So once we've, you know, anniversaried the IPO date, we wouldn't expect that to be an ongoing expense. There were also some share grants as of the IPO associated with the IPO that vest over a three-year period. So once we've recognized the expense associated with that, we would expect our stock-based compensation to normalize. And I'd suggest that you refer to Form 10-Q for more detail in terms of our stock-based compensation. Christopher Lynne: Yeah. One thing, probably worth mentioning is the grant you'll see if you look at the proxy, that was subsequent to the IPO. Based on the outside compensation consultant, that grant was at a level that would be a little higher on a per participant basis given the IPO than future awards. So, you know, it's difficult to predict where that'll land given that process that'll be evaluated in the future by our board, but those would be higher than what I would anticipate on a per participant basis in the future. Griffin Boss: Got it. Okay, Christopher. Blair, thanks for taking my questions. Appreciate it. Christopher Lynne: Yeah. You're welcome. Operator: Your next question comes from George Tang with Goldman Sachs. Your line is open. George Tang: You provided some additional color on the earnings threshold test of gainful employment. Can you talk a bit more about how programs performed with the debt to earnings test? Christopher Lynne: Yeah. Thanks, George. I'll take that question. We've been looking at the debt to earnings ratios as associated with the gainful employment regulations. As they were constructed under President Obama. And as you know, those were never actually implemented. And then as they were contemplated under the Biden administration. And so, you know, that's all proxy analysis internally over the years. But what I can say is that our average borrowing trended in the right direction across all programs, our average earnings trended in the right direction across all programs. The last official analysis, which is a little dated right now, suggested very little risk if the gainful employment regulations were to be implemented. So we feel good in light of gainful employment regulations, and you know, based on our understanding of actually where the regulations are going, we are seeing that the regulations are going to converge with the legislation in the One Big Beautiful Bill Act. So in terms of any accountability that would affect our ability to offer Title IV, it will be only in earnings threshold metric as we understand it currently. And there'll be some reporting requirements potentially on debt to earnings, but nothing that would affect our eligibility for Title IV. George Tang: Got it. That's helpful. And then with respect to detection and verification measures put into place to fight fraud and suspicious activity. Can you quantify or ballpark what impact that had in the quarter in terms of growth and what you're expecting and what you're contemplating in the guide? Christopher Lynne: We're not really in a position to do that. You know, what I can say is we saw nothing in Q1 that puts any concern in the outlook that we provided in Q1, which is why we're reiterating our guidance. We feel good about the controls that we put in place. They've been effective and continued to be effective since we implemented them. So we've seen consistency earlier in Q4, and we've seen consistent improvements in productivity on a per enrollment rep basis. So, you know, we see it as a net positive, and it's been reflected in our outlook. I will give you a little bit of color that because the activity continues to exist in the marketplace, this is not something that can just put on cruise control. We have very effective controls, and we have very effective metrics. So it's something we're constantly calibrating and making sure we're managing, but it's been well managed and sort of become part of our normal operation since we put it into place. So hopefully, that's helpful. But in terms of giving you more specific quantification, we're not in a position to do that. George Tang: Got it. That's helpful. Thank you. Christopher Lynne: You're welcome. Operator: Your next question comes from Jeffrey Silber with BMO Capital Markets. Your line is open. Jeffrey Silber: Thanks so much. Sorry to go back to some of the regulatory items. Beyond the earnings premium test, I guess there's some loan caps that are gonna start, beginning next July. I know they affect graduate and professional programs. You don't have as much exposure there. But if you can give us a little bit of color what you think the exposure might be. Thanks. Christopher Lynne: Yeah. Thanks, Jeffrey. From any internal analysis we've done, nothing's changed. And we don't see any material impact expected from loan caps, removal of loans, changes in Pell, offerings, workforce Pell. None of those other items that were contemplated in the One Big Beautiful Bill are anticipated to have any kind of material impact on us. Jeffrey Silber: Alright. That's great to hear. And then as a follow-up, I know it's only the first quarter of the year but and you didn't provide specific guidance for the quarter, but I think you handily beat most expectations. Are you just being somewhat more conservative in terms of not changing your guidance for the rest of the year because of that? Christopher Lynne: Good question. The way I look at it, coming into this call is we had a solid first quarter. That includes our fall enrollment, which is great. We set a strong foundation for the year. We feel really good about that. We're in the second quarter. Still early in the year. And based on the seasonality of how our quarters work, we're coming right out of the holidays. Which is a very seasonal period for us. So, you know, our students are off for a couple weeks in December, for example. So it's just early in the year. And so at this point, we think it's prudent to have reiterated our outlook for the year based on Q1. Jeffrey Silber: Alright. That makes sense. Thanks so much. Christopher Lynne: You're welcome. Operator: Your next question comes from Stephanie Moore with Jefferies. Your line is open. Stephanie, your line is open. Stephanie Moore: My apologies. Can you hear me better now? Operator: Yes. Stephanie Moore: Oh, my apologies. You know, I wanted to follow-up on some of the commentary from a B2B standpoint, if you could give us an update on how some of those employer engagement employer engagement is going this year in the opportunities we can see for, you know, continued growth in that vertical would be helpful. And I'll stop there. Christopher Lynne: Okay. Thanks, Stephanie. Yeah. So you know, it's consistent with what we've shared in the recent past. Our account management structure has been effective at helping us build deeper penetration with our current employer affiliates. We came into the year with an expectation to continue to grow that, and we've seen that happen effectively into Q1. We did seed some investments in some newer incremental growth. So we have an account management team focused on actually adding new employers. We have 2,500 employer alliances, but we're seeing some opportunities in adding new clients and approaching the conversation differently than we've in the past since we have some newer products that help employers with needs beyond the degree program offerings. And so we're seeing some success there that's helping drive some of the growth. So that account management focus, we expect to continue to answer your other question, to drive the growth that we're expecting going forward. Stephanie Moore: And maybe just as a follow-up you know, you spoke in the actually, last answer to the last about kind of the seasonality of the business. As you continue to see strength in the B2B side, does that change the traditional seasonality of the business that we should think about? Maybe not necessarily this year, but in future years. We'd love to future years. We'd love to hear your thoughts. Thanks. Christopher Lynne: Yeah. We're not anticipating any and I jumped right in here. So, yeah, Blair looks at our seasonality much closer than I do. But from what we can see, we have seasonal patterns that have been pretty consistent. Whether or not B2B or B2C. So there's no there are season patterns associated with B2B that are driven by the timing of reimbursement and things like that. That they may have an impact over time. But I don't think that's something that I would having a meaningful impact going into, like, next fiscal year. The seasonal patterns for the most part for our students, given most of them are working adults, are pretty consistent across both B2B and B2C. Stephanie Moore: Understood. Thanks so much. Operator: Your next question comes from Robert Sanderson with Loop Capital. Your line is open. Robert Sanderson: Thank you. Good afternoon, everybody. Thanks for taking my questions. I have two, please. First, just on it's been you've held enrollment pricing consistent for I can't remember how many years, but a long time now. And obviously, the cost of education has been moving higher in the market. So you've suggest you've got this sort of large and growing umbrella versus broader industry trends. Could you just sort of I mean, price guarantee, I think, is important to your marketing message, but sort of under what conditions might you consider using price as a growth lever? And then I've got a follow-up on AI. Christopher Lynne: Thanks, Robert. Yeah. The way we think about prices, you know, we believe based on our assessment of the markets that we operate in that the pricing could be a lever, but we also believe long term that affordability is gonna matter more and more to our students. You know, we've been very effective at driving operating leverage into our model for quite some time. I think our hasn't changed since 2018, and we've seen consistent improvements in our ability to improve student outcomes. And reduce the cost to deliver those outcomes, and that's from a lot of things that we've been doing but heavily from the investments in our tech and data foundation. And we believe that we can continue that. And we've talked a lot about AI being it's almost serendipitous this moment we're in because these investments really position us well to continue to do this leveraging, AI technologies. And so, you know, when we contemplate the future, we believe that we can continue to build that operating leverage in ways that offset inflation and other drivers of cost. Know, if we were to see that dynamic changing, you know, price is a lever that we could choose to pursue. And we have a lot of forward visibility in the business, so I think that is a lever we could be proactive with if necessary. And then, you know, over time, I think as we deepen these relationships with employers and that value proposition gets stronger and stronger and grows. And that's the area that I think over time, we'd like to drive pricing is really based on value that we're delivering in the marketplace. But for now, we continue to believe that know, we can hold pricing constant and drive up our margins. The way that we have put out in our outlooks. Robert Sanderson: Great. Now we wanna talk a little bit about AI. You know, you mentioned just on the call or on your prepared remarks how you've been implementing AI into the curriculum and your health helping learners sort of prepare to responsibly to use this new technology. But can you offer any thoughts on just future job displacement and the need for reskilling because of AI? And is this, you know, a trend that your enterprise affiliates are talking about or perhaps, you know, thinking about preparing for? Christopher Lynne: Yeah. I think that absolutely. You know, our belief based on everything we can see across our leadership and our organization and working with employers is that there is gonna be displacement and there is gonna be change in the workforce and that the jobs of the future are gonna be held by those that are fluent and using AI to drive value in organizations. Now you can get deep into that, and, you know, there are studies that come out almost weekly now about what the future looks like and five to ten years. But we're confident that that's the direction things are going. And I think this is a nice moment in that every organization has to look inward to figure this out with their workforce and think about the future. So we are hearing this feedback from employers. But frankly, as an organization ourselves, we're contemplating the same things. And we can see the power of AI, but we also see the power of our team members and our people and augmenting the capabilities we have across our teams with the capabilities of AI is very much the focus on now into the distant future. And we're seeing a lot of that with employers. So I think there's gonna be segments of the economy where there may be displacement fully. And so we're very cognizant that those that are affected by that, we wanna be able to provide them programs and offerings that move them into the jobs that exist, and those jobs are going to require AI skills. And then for most other jobs, it's ones that are gonna keep the jobs and advance the workforce are the ones that are gonna be fluent in AI, which is why it's a big focus of our curriculum. Robert Sanderson: Thank you, Christopher. Christopher Lynne: You're welcome. Operator: That concludes our Q&A session. I will now turn the conference back over to Christopher Lynne for closing remarks. Christopher Lynne: Thank you, everyone. The 2026 reflects a strong start to the year and continued progress against our strategic priorities. We're encouraged by the momentum we're building and excited about the opportunities ahead as we remain focused on expanding access to personalized career-relevant education and supporting student success. I want to close by thanking our faculty and our entire team for their dedication to our mission, and for keeping students at the center of everything we do and thank you all for joining us today. Operator: This concludes today's call. Thank you for attending. You may now disconnect, and have a wonderful rest of your day.
Bruce Young: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Concrete Pumping Holdings financial results for the fourth quarter and full year ended October 31, 2025. Joining us today are Concrete Pumping Holdings CEO, Bruce Young, CFO, Iain Humphries, and the company's external director of investor relations, Cody Slach. Before we go further, I would like to turn the call over to Mr. Slach to read the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead. Thank you. Cody Slach: I'd like to remind everyone that during this call, to give you a better understanding of our operations, we will be making certain forward-looking statements regarding our business and outlook. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Concrete Pumping Holdings annual report on Form 10-Ks, quarterly report on Form 10-Q, and other publicly available filings with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether because of new information, future events, or otherwise. On today's call, we will also reference certain non-GAAP financial measures, including adjusted EBITDA, net debt, and free cash flow, which we believe provide useful information for investors. Provide further information about these non-GAAP financial measures and reconciliations of the comparable GAAP measures in our press release issued today or in the investor presentation posted on the company's website. I'd like to remind everyone that this call will be available for replay later this evening. A webcast replay will also be available via the link provided in today's press release as well as on the company's website. Additionally, we have posted an updated investor presentation to the company's website. Bruce Young: Now I'd like to turn the call over to the CEO of Concrete Pumping Holdings, Bruce Young. Bruce? Thank you, Cody, and good afternoon, everyone. In the fourth quarter, our results continued to demonstrate the durability of our operating model and the benefit of our diversified platform. Despite a challenging macroeconomic backdrop, US concrete pumping volumes in the fourth quarter remained stable in the commercial market. The continued improvement in infrastructure was offset by lower homebuilding volume and softer residential construction markets. Our Eco Pan Waste Management Services segment again delivered steady year-over-year growth, underscoring the benefits of our diversified platform. In addition, our disciplined approach to cost management, fleet efficiency, and strategic pricing played an important role in top-line pressure and supporting profitability. Turning to specific comments by segment within our U.S. Pumping business, we continue to experience year-over-year improvement in publicly funded infrastructure work, including road, bridge, and education projects. Infrastructure projects are 25% of our US concrete pumping revenue during fiscal 2025, and our national footprint remains an advantage as previously allocated federal and state funding moves into proactive project starts. In the commercial end market, which was 47% of our US concrete pumping revenue, the demand environment in heavy commercial construction improved through the year in our key geographies, and this is underpinned by expansion in data center, chip plant, and large warehouse activity. Light commercial activity was softer year-over-year as construction volumes remained more sensitive to interest rate pressure and tariff-related uncertainty. Moving on to the residential end market, affordability constraints from higher interest rates continue to cause downward pressure on homebuilding demand volumes, and year-over-year revenue was lower in this end despite pricing being relatively stable. Our residential end market mix was at 29% of total revenue on a trailing twelve-month basis. We expect that moderating mortgage rates will encourage a steady path towards normalization to address this structural supply-demand imbalance in housing. We expect this will support medium to long-term home building activity, and we believe the Federal Reserve's path to interest rate reduction should provide incremental support to this end market's growth over time. Moving to our UK operations, commercial construction activity remains subdued as elevated interest rates and economic uncertainty continue to weigh on volumes. However, infrastructure remains resilient in the UK, particularly in energy projects and continued growth in HS2 rail construction, which still has a long construction runway remaining to project completion. In our US concrete waste management business, we continue to increase revenue due to both organic volume and pricing growth, even as the broader US construction markets remain challenged. I would like to pivot to 2026 in our capital investment plans, particularly surrounding an upcoming change with tighter emission standards that we believe will impact the broader construction industry. As a company focused on sustainable growth and long-term shareholder value, we are proactively accelerating a $22 million investment from fiscal 2027 into fiscal 2026 in our US concrete pumping and Eco Pan fleet in advance of the upcoming 2027 stricter NOx emission standards. For those of you who are unaware of what this means, NOx refers to nitrogen oxides, which are emissions produced by diesel engines and regulated due to their impact on air quality. The upcoming 2027 standards that are expected to go into effect January 1, 2027, will significantly tighten allowable NOx emission levels for new heavy-duty equipment. For fleet operators like Concrete Pumping Holdings, these standards affect the cost, design, reliability, and availability of new OEM equipment and will increasingly influence customer preferences on job site requirements. The decision to accelerate equipment purchases is based on a couple of key considerations, navigating the expected disruptions from first-generation truck technologies and anticipated truck price increases in 2027 driven by incremental OEM production costs. From an operational standpoint, we have experienced this change in emission regulations before, in transitioning heavy construction equipment to meet modern NOx emission standards is far more complex than simply replacing an engine or adding emissions hardware. These changes fundamentally alter how the equipment behaves in real-world conditions. In the last engine emissions change, it took several years to achieve an acceptable standard. This pull forward of a significant portion of fiscal year 2027 investment will reduce replacement CapEx expenditures in fiscal year 2027 and aligns with our capital allocation roadmap to allow for a smooth transition under new regulations to improve the company's competitive positioning. I will now let Iain address our financial results in more detail before I return to provide some concluding remarks. Iain? Iain Humphries: Thanks, Bruce, and good afternoon, everyone. Moving right into our fourth quarter results. Revenue was $108.8 million compared to $111.5 million in the prior year quarter. The slight year-over-year decline reflects continued timing delays in commercial construction activity and softness in residential demand driven primarily by the prolonged high-interest rate environment. Revenue in our US Concrete Pumping segment, mostly operating under the Brundage-Bone brand, was $72.2 million compared to $74.5 million in the prior year quarter. Looking at our end markets, infrastructure projects remain the bright spot, with demand supported by sustained federal and state investments. Commercial project volume was largely consistent with the prior year fourth quarter. Strength in heavy and complex commercial projects helped to offset softness in light commercial work that continues to feel the pressure from high-interest rates. Residential demand softened late in the fiscal year, consistent with the broader affordability challenges and the prolonged high-interest rate environment. Revenue in our US concrete waste management services segment operating under the Eco Pan brand increased 8% to $21.3 million compared to $19.8 million in the prior year quarter. This organic growth was driven by higher pan pickup volumes and continued pricing momentum, underscoring the durability of this business through the cycle. For our UK operations, operating under the Camfaud brand, revenue was $15.3 million compared to $17.1 million in the same year-ago quarter. The decline was primarily volume-driven, reflecting ongoing weakness in commercial activity amid elevated interest rates and economic uncertainty. Foreign exchange translation was a 220 basis point benefit to revenue in the quarter. Returning to our consolidated results, fourth-quarter gross margin declined 170 basis points to 39.8% from 41.5% a year ago. As we continue to focus on the elements of business that we can control, a strong emphasis on cost control initiatives and pricing discipline helped mitigate margin pressure from lower demand volumes. However, these benefits were slightly outweighed by lower volumes and reduced fleet utilization. General and administrative expenses in the fourth quarter were $26.5 million compared to $27 million in the prior year quarter. As a percentage of revenue, G&A was 24.4% in the fourth quarter, compared to 24.2% in the prior year quarter, reflecting some operating deleverage on lower revenue rather than an increase in absolute spending. Net income available to common shareholders in the fourth quarter was $4.9 million or $0.09 per diluted share compared to $9 million or $0.66 per diluted share in the prior year quarter. Consolidated adjusted EBITDA in the fourth quarter was $30.7 million compared to $33.7 million in the same year-ago quarter. Adjusted EBITDA margin was 28.2% compared to 30.2% in the prior year quarter. The decline was primarily driven by lower revenue volumes partially offset by ongoing cost initiatives across the organization. Our US Concrete Pumping business, adjusted EBITDA declined to $17.5 million compared to $19.7 million in the same year-ago quarter. In our UK business, adjusted EBITDA was $4.1 million compared to $5.2 million in the same year-ago quarter. For our US Concrete Waste Management Services business, adjusted EBITDA increased 3.8% to $9.1 million reflecting robust operating leverage on higher volumes and pricing. Turning now to liquidity. At October 31, 2025, we had total debt outstanding of $425 million and net debt of $380.6 million, representing a net debt to adjusted EBITDA leverage ratio of approximately 3. We ended the quarter with approximately $3 million of available liquidity, including cash on hand and availability under our ABL facility, providing substantial financial flexibility. Now moving on to our share buyback plan. During the fourth quarter, we repurchased approximately 274,000 shares for $1.8 million or an average price of $6.73 per share. Since initiating this program in 2022, we have repurchased approximately 4.9 million shares roughly $31.5 million with $18.5 million remaining in the current authorization through December 2026. We continue to view repurchases as a flexible and opportunistic component of our capital allocation strategy that demonstrates our ongoing commitment to delivering enhanced shareholder value. Turning to our outlook for fiscal 2026. We expect revenue to range between $390 million and $410 million and adjusted EBITDA to range between $90 million and $100 million. Our guidance assumes no meaningful recovery in the construction markets during fiscal year 2026. While overall manufacturing and commercial activity remains muted, due to interest rate and tariff uncertainty, we continue to see healthy bidding activity in project starts in large-scale commercial projects such as data centers, semiconductor facilities, and distribution centers where pricing remains constructive. Our infrastructure and residential end markets, we expect 2026 revenue to be roughly flat year-over-year. We expect free cash flow, which we define as adjusted EBITDA, less net replacement CapEx, less net cash paid for interest, to be at least $40 million. The 2026 outlook assumes approximately $23 million of net replacement CapEx and $32 million of net cash paid for interest. This excludes the exceptional accelerated CapEx brought forward from 2027. As Bruce mentioned, we are incorporating accelerated fleet investment into our fiscal 2026 planning and long-term capital allocation framework. Fiscal 2026, we expect to invest approximately $22 million has been accelerated from our planned 2027 capital allocation investments. This represents a timing shift rather than a structural change to our long-term capital framework. With our fleet net replacement expected to be a low single-digit percentage of revenue in fiscal 2027. Our balance sheet and liquidity position is comfortable to support this fleet investment, we remain committed to disciplined capital deployment maintaining leverage within our target range and prioritizing returns on invested capital. We believe we are well-positioned to strengthen our service offering in anticipation of a market recovery. With that, I'll now turn the call back to Bruce. Bruce Young: Thanks, Ian. While end markets have yet to show signs of a sustained recovery, we believe the company is well-positioned to benefit as construction activity ultimately improves. Over the last several quarters, we have preserved financial flexibility and generated strong cash flow, reinforcing the stability of our platform. Our focus remains in the areas within our control, executing against our disciplined growth strategy, maintaining our commercial leadership, driving efficiency through operational excellence, and strategically investing in our fleet as a source of significant competitive advantage. With our solid financial position, we have the flexibility to pursue acquisitions when opportunities arise, invest in organic growth initiatives, and deliver superior shareholder value. We continue to take a disciplined and opportunistic approach to M&A with a focus on value-added acquisitions that strengthen our core platform. In November 2025, we completed an acquisition in the Republic of Ireland that aligns us well with our strategy. While modest in size, the transaction has complementary capabilities and a new international region with healthy long-term demand drivers. The durability of our business model combined with a track record of successfully navigating cycles gives us confidence in our ability to deliver healthy financial and operating results through a variety of environments. We believe this positions the company to create long-term shareholder value over time. With that, I'd now like to turn the call back over to the operator for Q&A. Vaughn? Operator: Thank you, sir. We will now be conducting a question and answer session. If you would like to ask a question, please press star and the number one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question comes from Tim Mulrooney with William Blair. Please proceed with your question. Ian, Bruce, good afternoon. Tim Mulrooney: Hey. Good afternoon, Tim. So a couple of questions on the guide here. I know you're expecting construction end markets to remain challenged this year, but it looks like you're actually expecting revenue to be up modestly at the midpoint. So can you just talk about the drivers of that? Is the year-over-year growth primarily from the acquisition? Or are you expecting some organic growth as well? Iain Humphries: Yes. Tim, this is Iain. I'll take that. It's more so we're expecting volume to be largely consistent year-over-year, but we do expect to see some pricing improvement. Some of that will come from the larger projects that we mentioned. But year-over-year, we expect the volume to be relatively flat. Year-over-year. So that's where the incremental growth at the midpoint would come from. Tim Mulrooney: Okay. That's helpful. Thanks, Iain. And then sticking on the guide for a minute. It looks like you expect revenue to be up a little bit, but margins to contract. Correct me if I'm wrong on that math, but if I'm right, you know, how should we think about the primary drivers of that margin pressure in 2026 in the context of that low single-digit top-line growth implied by the midpoint of your outlook? Is it just fleet utilization? Is there more that I should take into consideration there? Iain Humphries: Yeah. No. I think you're right. It's mostly fleet utilization. I mean, obviously, we scale volume. We get a nice incremental margin, but with the volume being flat, there's a marginal decline in that margin percentage at midpoint. From that lower than expected or optimal utilization. Tim Mulrooney: Okay. Got it. Very clear. And if I could just sneak one more in, if you permit me. I wanted to ask about your outlook for residential construction. I know it continues to be a challenge right now, but was a source of strength not all that long ago. So would you characterize this market right now for you, for new home construction, as getting progressively softer in recent months or stabilizing or on a slow path to recovery? I ask because we're getting all sorts of different signals and opinions from macro data points out there. Bruce Young: Yeah. Thanks, Tim. I'll take that. And then I think I would look at that from the different regions. The regions where we do most of our residential, it was a little softer last year, but starting to improve slightly, and we do expect that it should improve some during this year. We're actually somewhat optimistic on residential. Tim Mulrooney: Okay. Understood. Thanks for taking my questions and good luck in '26. Iain Humphries: Alright. Thanks, Tim. Operator: Our next question comes from Brent Thielman with D.A. Davidson. Hi, thanks. Good evening, guys. Yeah. I just wanted to maybe just follow-up on the overall kind of growth outlook for 2026. As you sit here today? And maybe just ask in a different way, your high-level views and expectations for each of the business groups. I guess I'm thinking a little more towards the UK group and the Eco Pan. What's sort of a good framework for us to think about for those two businesses with what you see in front of them? Bruce Young: Yeah. Thanks, Brent. So taking them one at a time. So in the UK, we have a really strong presence in the publicly funded work, especially HS2 and some of the energy projects that are going on. There's some work around London that we are very well positioned for. So we expect public spend to be really good and our revenue in the UK to be quite strong with that. Our opportunity that we have in Ireland being run out of a UK operation. We see that as you know, the commercial market in Ireland is good. The infrastructure market in Ireland is good. So we expect that small business that we bought there to improve throughout the year. And the real question mark for us in the UK is really the rebound of the commercial market. It appears that there may be months behind even the US market on commercial work. And so that's kind of our outlook there. Eco Pan, as you know, we always expect double-digit growth, and we think the construction market went backwards significantly last year, but Eco Pan still had reasonable growth. We think with kind of the flatness in the market going forward this year that Eco Pan should be back to high single digits, maybe double-digit growth. We feel pretty good about the outlook for them. And with our US concrete pumping business, you know, we just mentioned residential. We expect it to be somewhat resilient this year. Infrastructure has been a little bit better for us. The real question for us is in the commercial market, as you know, we do a lot of work on data centers and chip plants and those sorts of things, which are really nice jobs for us that require, you know, large technical equipment, high volumes of being placed often in remote areas. That's a really nice fit for our business. That's the upside, but the downside is, you know, still no office buildings, no manufacturing because of tariff concerns. Really hasn't come about like we would expect it to. Hopefully, you know, the tariff discussions get settled out sometime this year and manufacturing starts coming back. But the commercial market is kind of questioning us as well. There'll be chip plants and data centers keep us going strong while we're waiting for something, you know, like commercial in some of these other markets and segments to come back. Brent Thielman: That's really helpful, Bruce. Appreciate all that. Maybe just on Eco Pan and getting to that high single, potentially low double-digit kind of growth. Is that contingent on your ability to get into new markets, or can you get there in the existing sort of geographies that you're operating in? Bruce Young: Good question. So we're always moving into every year, we move into a couple of new markets, but it takes a little while for them to develop. But again, the markets that we have moved into previously haven't matured yet. And so there's an awful lot of opportunity to create greater density in some of the current markets that we're already in. Brent Thielman: Got it. Maybe just the last question. The CapEx pull forward, does this address all of your requirements associated with the upcoming regulations? Or should we think there's another big slug in CapEx the next year too? Bruce Young: No. This pull forward will address almost all of that issue. You know, I don't know if you remember back in 2008, the last time there was a major change in the emissions, it for the concrete pumping industry, it literally took from 2008 to 2013 before they could come out with a reliable truck that they could put underneath a concrete pump and operate it. And now I realized, you know, during that time, we had the GFC, and so there maybe was a lot of effort to put into that, but we are concerned about the disruption. To giving us a truck that is reliable to service our customers the way we need. And that's the reason we're pulling that forward so we don't get caught up in that as they're trying to sort through getting us a reliable solution. Brent Thielman: Okay. Thanks very much. I'll pass it on. Bruce Young: Thanks, Brent. Operator: Before we take our next question, as a reminder, please press star 1 on your telephone keypad. You will hear a confirmation tone to indicate your line is in the question queue. Our next question comes from Andy Wittmann with Baird. Please proceed with your question. Andy Wittmann: It's nice to have a CEO that has been around long enough to learn from the 2008 truck crisis. To avoid it in the past. So that's a good thing. I guess just Eco Pan margins, you know, good revenue growth. EBITDA didn't come through quite as much, Iain. Was that a comp issue, or you had to mention that I think you said that the pickups and the deliveries were big drivers. I guess that's probably a little lower margin. Is that what it is? Is that the bridge? Normally, I'd expect positive leverage out of the business here, but I think you could address. Iain Humphries: Yeah. So, look, I mean, as Bruce mentioned just in the last of his closing remarks, we did move into some new regions. So as you know, there is a little bit of overhead investment to stand up some of those newer regions. So I mean, change in the EBITDA margin percentage, but, you know, the payback and the ROI still really healthy. So yeah, we're still very happy with the margin. But, you know, as you know, there's a bit of an investment lag as we stand up some of those newer markets that we entered into, so late in '25. Andy Wittmann: Yeah. Okay. And then just I just thought I'd ask about fuel, actually. Crude prices are way down, but it doesn't look like diesel's followed suit quite as much. And I was hoping you could just address what the net impact was in fuel to the quarter. What you're looking for what's kind of underwritten in your guidance? I know, obviously, there's a range, so there's a range in your fuel outcomes as well. But so are you thinking is that a headwind year over year in '26, tailwind? I know that diesel prices in November were super low actually, but they've kind of popped up a little bit more since then. So just maybe if you could address the topic as a whole would be helpful for us. Iain Humphries: Yeah. Sure. So, I mean, obviously, we track that as well. And so year over year in the quarter, were largely flat. The have come down. I mean, since back from, like, 2022-2023, but it's sort of been a bit uneven. Would say over the last year or two. Our assumption is going forward that that will largely remain. So we don't see it normally like a headwind or a benefit going into next year as we sit here currently yeah, that's a quick look back and where we see things going forward. Andy Wittmann: Got it. And then just yeah. Now, Bruce, just I know the Ireland investment's not that significant, but it feels kind of like a bit of a change. You're I guess you're not in Dublin. There's I know the whole country is kind of growing, but is this a one-off, or do you feel like now that you got at least some kind of a flag planted here that you need to build out, the rest of the republic. And maybe if you could just talk about any things that we should think about for modeling that one, Iain, that'd be helpful. Either cash outlay or how much revenue we should expect from it. Just so we can understand what it could might contribute. Bruce Young: Yeah. Well, for the question, Andy. But, certainly, we wouldn't have gone into court just as a one-off. We see opportunity for several other opportunities for acquisitions in Ireland. Okay. And certainly not anything to talk about currently, but, you know, our plan is to do to take that and grow it. Iain Humphries: Yeah. Any comments anything you can say in the economics, or should we just wait for the filing? Yeah. I mean, on the economics, I mean, in US dollars, it's largely a couple of million dollars of revenue and about half a million of EBITDA contribution. And as Bruce says, I mean, obviously, they're scaling there. I mean, one thing that we can do is there's a common they call it a common travel area. Between the UK and Ireland. So there is an ability to move labor back and forth as we sort of build out that landscape. I mean, you move between like, Galway, Dublin, Lubbock, and down to Cork, it is there's a really strong economy that's back in some of that construction activity we're seeing there. Andy Wittmann: Okay. Last one for me. Sorry to keep going here, but with round them all up. Bruce, just kind of on the environment, I guess, for lack of a better term, you know, at first, when interest rates are going up and things were kind of slowing down, it was there's talk there was talk about projects delayed timing, not cancellation. You still kind of had them on the roster for doing the job someday. Just want to check-in on that. Has there been, in fact, now cancellations that you're gonna have to kind of re-win the jobs, or what is kind of the status of some of the stuff that was a one-time plan, but it's been kind of slow-moving now for a while? I'm just kind of curious if so. What you kind of see there and where your backlog stands today as a result of that. Bruce Young: Yeah. So the only two areas that I would say that we have that concern, any office buildings were planned over the last few years, they've been shelved, there's no telling when they might they may come back. Manufacturing, there's a lot of that that is on hold, may start up depending on how the tariff conversations land. Many of those projects, we already have. And if they go, we will we'll be in line to do those projects. So we feel pretty good about that. But like we mentioned earlier, the offset is the chip plants and the data centers where we're doing quite well on that. And as long as they can keep providing energy and water to those sites, you know, we think that could be really good for us this year. Andy Wittmann: Alright. That's all I had. Thanks a lot. Iain Humphries: Alright. Thanks, Andy. Operator: At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Young for closing remarks. Bruce Young: Thank you, Vaughn. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you when we report our first quarter results in March. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Hello, everyone. Thank you for joining us and welcome to the Concentrix Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. I will now hand the conference over to Sara Buda, Vice President of Investor Relations. Please go ahead. Sara Buda: Great. Thank you, operator, and good morning, everyone. Welcome to the Concentrix Fourth Quarter and Fiscal 2025 Earnings Call. This call is the property of Concentrix Corporation and may not be recorded or rebroadcast without the written permission of Concentrix Corporation. This call contains forward-looking statements that address our future and expected performance and that, by their nature, address matters that are uncertain. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements as a result of new information or future expectations, events, or developments. Please refer to today's earnings release and our most recent filings with the SEC for additional information regarding uncertainties that could affect our future financial results. This includes the risk factors provided in our annual report on Form 10-K and our other public filings with the SEC. Also during the call, we will discuss non-GAAP financial measures, including adjusted free cash flow, non-GAAP operating income, non-GAAP operating margin, adjusted EBITDA, adjusted EBITDA non-GAAP net income, non-GAAP EPS, and constant currency revenue growth. Reconciliation of these non-GAAP measures is available in the news release and on the company's Investor Relations website under Financials. With me on the call today are Christopher A. Caldwell, our President and CEO, and Andre S. Valentine, our Chief Financial Officer. Christopher A. Caldwell will provide a summary of our operating performance and growth strategy, and Andre S. Valentine will cover our financial results and business outlook. And then we will open up the call for your questions. Now I'll turn the call over to Christopher A. Caldwell. Christopher A. Caldwell: Thank you, Sara. Hello, everyone, and thank you for joining us today for our fourth quarter and fiscal year 2025 earnings call. Going to start off with an overview of 2025 and provide some thoughts on the year ahead before I hand it over to Andre S. Valentine who will discuss details of our financial results and outlook for 2026. For the past few years, we have been clear about evolving our business to deliver more solutions that involve technology. Have made investments in building out capabilities while strengthening our deep domain in line with this. This early start embracing technology solutions has helped us capitalize on the introduction of AI by helping clients navigate the path to success with these new advances. We see a vast opportunity in front of us today redefine our industry and add incremental value to clients. At the start of 2025, we started to execute on an internal plan to capture more of this opportunity and accelerate our evolution to a high-value intelligent transformation partner. To execute, we aligned our team around four key sets of actions. First, focus on complex work and high-value services to become our clients' preferred number one partner while deepening our relationship with them. Second, grow share of wallet by utilizing our extended offerings as clients consolidate the use of CX, BPO, and IPS vendors into fewer partners. Third, leverage our own IP investments and platforms to differentiate ourselves from competitors Fourth, and finally, drive incremental efficiencies so we can save to invest in these new areas of growth and opportunity. Reflecting on 2025, I am pleased with the progress have made along these four areas. First, high complexity work. This year, we were successful in reducing our non-complex work from 7% to 5% of our revenue. What we are most happy about is we did the majority of this by putting in our own technology to automate work. We also worked with clients to optimize their cost structure by re-solutioning existing work to take advantage of technology and our global footprint. In fact, in 2025, we invested $95 million in new capabilities capacity, facilities, security, footprint. This helped move 4% of our onshore business to offshore centers. This migration does result in some margin compression as we incur additional and duplicate costs for a period of time, However, by doing so, we captured share drove new solution sales, attracted new talent, and strengthened our position with our client base while providing a foundation for further growth into 2026. Second, wallet share. Striving to be number one in execution with our clients, has allowed us to grow our share of wallet by selling them additional solutions. Capitalize on these opportunities, we invested in retooling our go-to-market capabilities significantly through the year. We have retrained our entire sales and account management team upgraded 25% of this team with enterprise sellers, invested in SME supporting technology solutions, and developed a clear vertical offering while building out our partner organization for a little over $25 million of incremental spend. These results are now showing strong promise. A few data points. A 6% increase in the annual contract value of deals in the pipeline as we exited this year. And 9% increase in new wins year on year. A 14% increase in transformational deal values this year, a 23% increase in cross-sell/upsell deals this year, and a 37% increase in values for our new service areas this year. These data points help illustrate the business mix evolving more to technology-enabled specialist and adjacent services. We are now being recognized in enterprise circles as being a trusted end-to-end solutions partner. This has also helped drive our consolidation wins to record highs this year. Within our existing base, 98% of our top 50 clients now rely on Concentrix Corporation for more than one solution. Going into 2026, believe we have foundation to gain market and wallet share with the right clients doing the right business. Third, leveraging our own IP. 2025 was also a pivotal year as we launched IXSuite, our AI platform. This was an incremental investment of over $25 million in the fiscal year to develop, productize and commercialize our products. While the AI market is crowded and competitive, we have been very happy with our progress in differentiating and gaining adoption of our tech. Particularly with our IX Hero solution that augments and supercharges human advisers. We exited 2025 with over $60 million in annualized AI revenue of just our AI platform, reaching breakeven as we committed to at the start of the year. This is in addition to us selling third-party AI solutions and helping clients deploy their own AI investments. Now more than 40% of our new business includes some form of our own technology as part of the solution. This attach rate is well ahead of our expectations. Most importantly, our clients are realizing tangible results and impressive feat amidst a market backdrop of AI noise and failed promises. Fourth and finally, to drive efficiencies in our business. As I have laid out, we have been busy accelerating our evolution that has brought forward some costs. To offset as much of these costs as possible, we've been very disciplined in driving efficiencies in our own business so we can invest in the areas we have just talked about. We deployed significant technology internally and retooled many areas of our business to focus on our future state. This has allowed us to reduce our expenditures on non-billable resources and infrastructure by close to $100 million by run rate as we exit Q1 2026 and invest those savings in the areas that drive further future growth. Looking back at the successful operations of 2025, I am pleased with our results Through the year, we supported clients through significant tariff uncertainties, natural disasters, and geopolitical headwinds staying a valuable part of their ecosystem. Doing what is right for clients has allowed us to continually accelerate our revenue growth increase our CSAT, and develop a defensible model that blends technology and services. This year, we exceeded revenue expectations with steadily improving year on year growth every quarter throughout the year. For the fiscal year, we delivered 2% total growth in cost currency and exited Q4 with constant currency revenue growth above 3%. This growth was achieved even as we reduced the amount of low work in our business by 2% year on year, moved 4% of our onshore business to offshore and acted selectively in the business we took on. Our newer adjacent offerings have a growth rate reaching high single digits in aggregate and now represent a meaningful part of our business. The quality of revenue has never been stronger. Before I hand over to Andre S. Valentine, would like to highlight a few key wins in 2025 to bring life for investors how we have seen our offerings evolve. We were chosen by one of the largest banks in the world to design, build, and operate build, operate transfer model for the bank's highly complex investment banking asset security trading back office processes. We now have opportunities in multiple geographies with multiple lines of business to grow that relationship. Were selected by one of the largest car companies to manage their digital footprint providing insights, content, and warnings back to their head office, all being supported by our technology solutions. We have been recognized for helping scale their global presence and driving operational efficiencies. We took over a captive of one of our clients with the introduction of our own system and processes and have been able to achieve significant cost savings within the first year for the client while improving their customers' experience. This is resulting in further opportunity with the client to take over other shared service centers around the world. For one of our largest European banks, we proactively automated the entire intake of claims resulted in a larger award of business. To us that grows our revenue and our margins. We have launched a revenue generation program with one of the largest AI model makers helping them find sources of revenue and developing a community of integrators to use their technology, demonstrating even the leaders in AI rely on Concentrix Corporation for services. These are just a few of the magnitude of wins we have had our business in 2025 that demonstrate the value we bring to our clients. No matter if a client has their own operations or uses ours, uses our AI solutions, or is a true AI company, an emerging contender or a mature enterprise, are able to win, service, and grow these clients. Turning our thoughts to 2026. The demand environment continues to evolve and Concentrix Corporation wants to lead the way. For our clients, we believe scale matters in many ways. Cost optimized global footprint, breadth of offering, domain expertise across vertical, horizontal regions and technologies. We believe we're competing and winning in this market because we bring both the agility of an entrepreneur entrepreneurial organization the maturity and scale of an established market leader to deliver the innovation and excellence clients expect. Regardless of the fluctuation of our stock price in 2025, we're committed to evolving our business. Despite three years of speculation, we are proving that AI is a tailwind for our business. We are growing our revenue consistently quarter over quarter. We are entering new areas of TAM growth. We are generating strong cash flow. We are returning value to shareholders and we are paying down debt. In short, a valuation today is a stark disconnect from the underlying strength of our business and the upside opportunity of our long-term strategy. In summary, this is the right market and the right moment for Concentrix Corporation. We see a tremendous opportunity in front of us to refine our industry and deliver the solutions our clients need at the speed, scale and caliber they expect. We're making the right investments in the business to capitalize on these opportunities that continue to increase our quality of revenue, revenue that is longer term, margin accretive after implementation, higher complexity with multi-service consumption that drives tangible value for our clients. I am positive about our vision, our model, and our prospects for long-term profitable growth. And I'm excited about the road ahead. And now I will turn the call over to Andre S. Valentine. Andre S. Valentine: Thank you, Christopher A. Caldwell, and hello, everyone. 2025 was a year of significant achievement for Concentrix Corporation. We accelerated revenue growth in each sequential quarter. We achieved breakeven profitability with our IX suite. We generated record adjusted free cash flow, growing our adjusted free cash flow by over $150 million from the prior year. We returned a record $258 million shareholders through a combination of our dividend and share repurchases, We reduced our net debt, We help clients manage through a dynamic geopolitical environment. We weather natural disasters, and we continue to diversify and broaden our value to clients through a diversified set of service offerings. With a successful 2025 behind us, I'm confident that we are positioned to grow revenue and cash flow in 2026. As Christopher A. Caldwell mentioned, we're on an exciting journey as a company. We're successfully evolving to become one of the world's most trusted partners for intelligent transformation solutions. Now let me review our financial results for the fourth quarter and fiscal 2025 and then discuss our outlook for 2026. In the fourth quarter, we delivered revenue of approximately $2.55 billion. On a constant currency basis, this represented growth of 3.1%, which is above the high end of the guidance we provided in September. On a constant currency basis, our revenue growth by vertical in the fourth quarter was as follows: Revenue from banking, financial services, and insurance clients grew 11%. Revenue from communications and media clients increased 7%. Revenue from travel clients grew 12.7%, and revenue from other clients also grew 7%, primarily reflecting growth with automotive clients. Revenue from technology and consumer electronics and healthcare clients both decreased by approximately 2%, reflecting shore movement, and underlying volumes. Turning to profitability. Our non-GAAP operating income was $323 million within the guidance range we provided on our last call. Non-GAAP operating income margin was 12.7%, a sequential quarter increase of 40 basis points compared with the third quarter as we work through the overcapacity related issues we discussed earlier in the year. On a year-over-year basis, non-GAAP operating income margins decreased from the 2024. Adjusted EBITDA in the quarter was $379 million a margin of 14.8%. Non-GAAP net income was $192 million in the quarter, and non-GAAP diluted earnings per share was $2.95 per share. In the quarter, we generated over $287 million of adjusted free cash flow, a quarterly record for Concentrix Corporation. In the quarter, we returned nearly $80 million to shareholders through a combination of our quarterly dividend and $56 million in share repurchases. Our GAAP net loss reflected a $1.52 billion noncash goodwill impairment charge recorded in the quarter. This impairment charge reflects the trading range of our stock during the quarter. A full reconciliation of our GAAP and non-GAAP measures is provided in today's earnings release. Looking at our results for the full year fiscal 2025, we delivered 2.1% growth on a constant currency basis, 60 basis points above the high end of the guidance range we provided a year ago, and above many peers. Non-GAAP operating income of $1.254 billion non-GAAP operating margin of 12.8%, adjusted free cash flow of $626 million an increase of 32% and more than $100 million over the prior year, We returned $258 million to shareholders Specifically, we repurchased $169 million of our common shares representing nearly 3.6 million common shares at an average price of approximately $47 per share. And we paid approximately $89 million in dividends during the year. Reduced our net debt by approximately $184 million during the year and we further reduced our off-balance sheet obligation related to accounts receivable factoring by $43 million during the year, to approximately $119 million at year end. At the end of the fourth quarter, cash and cash equivalents were $327 million and total debt was $4.639 billion bringing our net debt to $4.311 billion at year end. Our liquidity remains strong at nearly $1.6 billion including our $1.1 billion line of credit, which is undrawn. With this, let me now turn my attention to discuss our outlook for 2026. And the first quarter. We are confident in the growth of the business and believe we are making taking a conservative position on guidance for 2026. As Christopher A. Caldwell mentioned, we continue to strategically invest in the business for long-term growth, while continuing to drive strong cash flow. For 2026, our expectations include full year reported revenue, of $10.035 billion to $10.18 billion. Our guidance implies constant currency revenue growth for the full year in a range of 1.5% to 3%. Based on current exchange rates, our expectation assumes a 60 basis point positive impact of foreign exchange rates compared with 2025. Our revenue expectation is based on the following. Progress in evolving our business with our successful track record of growing market share and wallet share in our high growth verticals. Growth in new service offerings and a strong pipeline of the business entering 2026. At the same time, we also expect the proactive reduction of our non-complex work which will impact our revenue by approximately 1% in fiscal 2026 and resolutioning of our work to optimize our clients' cost structure which we think will impact our revenue by 2% in fiscal 2026. Moving to profitability. We expect full year non-GAAP operating income to be in a range of $1.24 billion to $1.29 billion. And full year non-GAAP EPS is expected to be $11.48 to $12.07 per share. This assumes interest expense of approximately $257 million approximately 60.6 million diluted common shares outstanding approximately 4.9% of net income attributable to participating securities. The effective tax rate is expected to be approximately 25%. Our view of profitability is based on our expectation that we will drive ongoing efficiencies in our cost structure through automation, and simplification of our business balanced by our investments in the business to support long-term growth. Including optimizing our footprint to meet client demand, incurring duplicate costs for a period of time as we resolution client programs and making intentional investments in our go-to-market spending. Including investment in technology, SMEs, and vertical offerings to take advantage of the current market opportunity and support the growth of our own AI platform. Our expectation is that we will drive sequential quarterly increases in non-GAAP operating income in the 2026 by removing duplicate costs while simplifying the business continuing the acceleration of our growth rate and progressing the delivery of the transformational deals we have won in fiscal 2025. Turning to cash flow. For full year 2026, we expect adjusted free cash flow to increase to a range of $630 million to $650 million through a combination of higher income, and lower interest expense. Our capital allocation priorities remain balanced. Expect spending on fiscal year 2026 share repurchases to be similar to that of fiscal year 2025. Taking advantage of what we believe has a significant disconnect between the fundamentals of our business and our current valuation. We are committed to maintaining investment grade principles repaying our debt to move closer to our target leverage ratio, and supporting our dividend. Turning to the first quarter, we expect first quarter reported revenue of $2.475 billion to $2.5 billion implying constant currency revenue growth of 1.5% to 2.5%. Based on current exchange rates, our expectations assumes a 290 basis point positive impact of foreign exchange rates compared with the 2025. Non-GAAP operating income is expected to be in a range of $290 million to $300 million. We expect non-GAAP EPS of $2.57 per share to $2.69 per share, assuming interest expense of $66 million, approximately 61.5 million diluted common shares outstanding and approximately 5% of net income attributable to participating securities. Effective tax rate in the first quarter is expected to be approximately 25%. As in prior years, we expect adjusted free cash flow in the first quarter to be slightly negative, although improved as compared to last year's first quarter. Followed by consistent strong cash flow generation over the remaining quarters of the year. Our business outlook and cash flow expectations do not include any potential future acquisitions or impacts from future foreign currency fluctuations. We're pleased with our market position. We have intentionally and strategically expanded our value by broadening our portfolio of offerings across the spectrum of business and technology solutions. Our success in doing this supports our confidence that our business is on the path to mid-single-digit growth. As Christopher A. Caldwell said, we're excited about the road ahead. With that, operator, please now open the line for questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please stand by while we compile the Q&A roster. Operator: Your first question comes from the line of Ruplu Bhattacharya with B of A. Please go ahead. Ruplu Bhattacharya: Hi. Thank you for taking my questions. Christopher A. Caldwell, can you remind us on the metrics you focus on in terms of judging how much to invest in AI-related software and chatbot? And can you give us more details of your areas of spend in 2026, both in terms of OpEx and CapEx and how you will judge their success. Christopher A. Caldwell: Hi, Ruplu. Thanks for the question. So first of all, when we look at our metrics on our AI, our pure own AI platform, we are very committed to making sure that we could be accretive this year and hit a certain revenue goal. And obviously, we achieved that kind of exiting the year with $60 million of run rate on sort of that total spend of around a little over $50 million give or take with $25 million incremental within the fiscal year 2025. Right now, we see the ability to continue to invest, but we want to continue to make sure that it's accretive to our business and we're doing the right things to not only control the market share but also make sure that clients in the right circumstances, are using our technology. A very crowded and competitive space right now, Ruplu, so we're being very entrepreneurial and running that business very much like a start-up in that space to drive the returns that we expect. We look at our capital allocation in terms of OpEx and CapEx for fiscal '26, our CapEx really historically has been anywhere from 2% to 3% of our revenue. And we don't see that very different in 2026. In fact, probably, Andre, two, two and a half percent is where we're going to come in at. From an OpEx perspective, what we're very focused and committed to, Ruplu, right at the moment, is driving OpEx spend that is variable and driving net new opportunities for our business. And so our go-to-market spend, we spent an incremental $25 million in '25. We're spending probably another incremental number reasonably in that level for '26. And we're seeing the benefits of it. You saw the stats where our cross-sell upsell, our deeper domain expertise, our technology solutions are all growing. Much more rapidly than we entered the year in '25 at our expectation is that we'll continue to drive that into '26. And we're looking at on a quarterly by quarterly basis to making sure that we're making the right investments and being very nimble in that space. In terms of the other large investments that we're making, we look at it aligned to our clients and the type of revenue we're driving. And so I go back to the quality of revenue comment We invested sort of $95 million in '25, that went into capabilities and facilities and footprint and security. All of those are really kind of tied to the new revenue that we're driving, the new transformational contracts that we're driving. And we can see by our models that as we finish the implementation, we start to finish some of those. Implementations. We're seeing accretive margins to our business. We're seeing longer-term relationships We're seeing more opportunities within that client base. And that's the return that we're looking for. And as we think of 2026, spending sort of similar amounts, expecting similar, if not better returns as we get more leverage off of our cost base. Ruplu Bhattacharya: Okay. Thanks for the details there, Christopher A. Caldwell. Can I ask how do you determine whether it's worth supporting a customer as they may themselves face a slowdown and have lower call volumes? So in terms of the deals that may require more upfront investment, whether it's facilities or training, how is that determination made And what the levers do you have if you feel that the volumes are not materializing? How do you plan to deal with that situation? Christopher A. Caldwell: Yeah. Ruplu, good question. I at first, make a sort of a clarification comment that call volumes have nothing to do with any of our thesis around investment. It's around the type of services that client needs. And if you look at the examples I gave, actually, none of those relate to call volumes. They all relate to other areas of work that we're servicing them. And when we look at a client of making investments, we look at how historically they buy. Are they a price shopper? Are they a long-term value-focused client? We look at do they want to be best in class within their market? And so we can help them enable that. We look at are they a client who consumes multiple levels of business and services, or do we have that opportunity? And we're very focused on sort of this long-term client relationship. So if you look at our top 25 clients, we're now close to almost eighteen years of service. We look for those types of clients with that type of longevity who, equally, we help support as they go through challenges, and they help and support us as we kind of evolve our business by consuming more goods and services. So it's a bit of both a qualitative and quantitative discussion around that. But so far, we've been extremely happy with what we've seen. And moving into some of these higher-end areas, we're seeing the same benefits that we've seen before. Ruplu Bhattacharya: Okay. If I can sneak just one more in. At what rate do you think the market is growing at? Looks like you're guiding for low single-digit revenue growth in fiscal 2026 on a constant currency basis. Did WebHelp meet your expectations for synergies and growth And now going forward, how are you thinking about acquisitions? Thank you. Christopher A. Caldwell: Yeah. So WebHelp absolutely met our expectations, if not a little better. I mean, a lot of the consolidation work that we're winning is because of our global footprint. And where we're able to service people from the technology that we were able to bring to the solution to WebHelp clients and some of the technology that WebHelp had that brought to the existing client base. We met our synergy goals, in fact, just slightly exceeded them from a cost take-up perspective. And we're seeing that ability drive that new growth in the business. And in fact, a fairly reasonable size of that 4% movement from onshore/offshore came out of Europe into other markets, which was traditionally the WebHelp business. And so we've been very, very happy with that because it's driving the right type of business that we want. From a market perspective, look, the traditional CX market is flat. Overall. When you look at some of the other services that we're talking about, it's mid-single digits. And as we talked about in the prepared remarks or in my prepared remarks, have a lot of these services that are now a meaningful part of our business. Growing at high single digits. And so we're winning in the right markets doing faster than what people would, I think, expect. And in the sort of the business that from a CX perspective, I think we're taking share and doing well in that market as well. Ruplu Bhattacharya: And acquisitions? Christopher A. Caldwell: Sorry. From an acquisition perspective, look, We are going to be opportunistic. We're going to do things that support our client base. We're going to do things that have the right financial profile for us. And drive the right long-term business. And so as Andre S. Valentine talked about, we're very focused on kind of reducing our debt to our target leverage ratio. And so we don't have anything kind of on the works, but, definitely, we will participate in the consolidation in the marketplace. Ruplu Bhattacharya: Thank you for all the details. Appreciate it. Christopher A. Caldwell: Thank you, Ruplu. Operator: Your next question comes from the line of David Koning with Baird. Please go ahead. David Koning: My biggest question is really on margins. You know, when we look back a couple of years, 14%. This year, you're guiding to about 12.5%. Seems like there was a lot of discrete kind of investment and some one-off capacity, excess capacity around the tariff in the mid-mid kinda mid last year time frame. Are we just dealing with kind of an April, Q2 of this year, meaning it's down year margin's down year over year, but by the back half, is there reason to believe they will be up year over year and sustainably up after that? Andre S. Valentine: Yes. So in answering that question, you're right. And in my prepared remarks, I mentioned that we expect to see sequential improvement in the back half of this year. In margins. As we complete working through some of the overcapacity issues around the tariffs, we made good progress on that in the fourth quarter. As we move through some of the process of implementing some of the transformational deals that we've won in 2025 and get closer to kind of the run rate profitability of those deals. And as we move forward with automation efforts and the simplification of our business, to take out some of the duplicate costs that we currently have that are created by some of the resolution that we've talked about and some of the costs that come with some of these transformational deals as well. So all those things give us confidence that we can see the margin improve in the back half of the year, which mathematically will get you to a situation where we're looking at year-over-year margin increases as we close out the year. Yes. Okay. And then just momentum. Revenue growth accelerated each quarter of the year. So momentum actually seems very very good. You're guiding a little less than the 3% constant currency growth in Q4, you did 3%, but you're guiding a little less than that in '26. Is there really anything behind that other than just pay it the full year? You don't wanna get ahead of yourself? Andre S. Valentine: That's really it, David. Oh, you know, we talked about all throughout the fiscal 2025 about the fact that we're being conservative for the revenue guide, very focused in each quarter and for the full year and coming in in 2025. At or above the high end of the guidance range. Our principles, we think about our guidance for 2026 with regard to that, haven't changed. And so there is nothing that's going on underneath the covers that would imply any sort of slowdown in things. In fact, we're quite confident that we can continue the trajectory of sequential quarterly revenue increases. As sequential acceleration as we go through fiscal 2026. David Koning: Great. Thanks, guys. Andre S. Valentine: Alright. Thank you. Operator: Your next question comes from the line of Luke Moore Morrison with Canaccord Genuity. Please go ahead. Luke Moore Morrison: Hey, guys. Thanks for taking the question here. So last year's results you know, you mentioned laid out several deliberate growth drag run off of low complexity work, those onshore to offshore transition, we it looks like you expect some of those to persist in '26. I think, resulting in aggregate 3% headwind to growth. Can you just help us think about sort of the lingering or continuing effects of those headwinds over the long term, you know, this year, next year, on fourth? Christopher A. Caldwell: Yeah. For sure, Luke. So from a low complexity work perspective, we did 2% in '25. We expect 1% in '26. Always expect there'll be some portion of low complexity work as part of our portfolio. So that kind of wanes to weed off to less headwinds in '27, frankly. We just don't see a big push past that. From an offshore work perspective, we have about 15% give or take, of our revenue that could possibly go offshore. But the reality is that some clients have brand promises to do things onshore. Some things from a compliance perspective can't go offshore. Some markets and some things that we service are highly sensitive from a sovereignty perspective. And so when you think about that 4% move this year and what we're kind of leading to next year, you're weeding through that pretty quickly. And as we've talked about for the last gosh, Andre S. Valentine probably a year and a half, really the vast majority of work that we are winning right now, vast, vast, vast majority of work is being put where it should stay and not move from. And so you're not rekindling this top of the funnel. You're really kind of optimizing what we've already got in place. Luke Moore Morrison: Excellent. And maybe just a follow-up I think you mentioned high single-digit growth in some of your adjacent services. Could you just double click there and unpack that? Like, what are you seeing Where are you seeing the most momentum, etcetera? Christopher A. Caldwell: Yeah. So if you look at a lot of the specialized services, whether it be data annotation, analytics, FC and C, so financial crimes and compliance, any money laundering, are some of our IT services within that space, some of our revenue generation capabilities and digital assets in that space. In fact, you're probably getting close to 20% of our revenue. That is growing at high single digits. Luke Moore Morrison: Okay. Great. Thank you. Operator: Your next question comes from the line of Vincent Alexander Colicchio with Barrington Research. Please go ahead. Vincent Alexander Colicchio: Yeah, Christopher A. Caldwell. I didn't hear too much about consolidation I know that some a theme that's been strong for you. So how does that look in the quarter? Are there still legs to that? Christopher A. Caldwell: Yeah. We expect there's gonna be a lot of consolidation. There was in this quarter. There's a lot more going into 2026. And I think is what we kind of commented about driving the share of wallet in our clients. Clients are consolidating with us because not only can we do their CX and BPO, but we can also do their IT services and vice versa, by the way. In the quarter, we actually picked up some IT client or sorry. Had some IT clients that we picked up some of their CX and BPO services from which most people might not realize that we're actually doing. Clients are looking for stronger partners, more mature operations, global scale security, a lot of things that we've been investing in to consolidate with. And we're doing very, very well in that space. Vincent Alexander Colicchio: And what is the how does the pricing look in the traditional CX business? Is pressure increasing? Christopher A. Caldwell: So in commodity work, it's very, very, very competitive, Vince. Very competitive. I think people are chasing a lot of volume for volume versus quality, and so we're seeing that as being very competitive. I think in the rest of the business, look, it's always competitive, but it's reasonably competitive if that makes sense. And people do the right business. And we've been very selective on the types of work we get, What we're most focused on, as we talked about, is driving the quality of revenue which is margin accretive when we get past implementation. Complex work that is sticky and hard to do that's really driving a lot of value for the client so that they see us as being a valued partner to their business. Vincent Alexander Colicchio: And are you finding it are you experiencing any challenges accessing talent as you move into higher-end solutions? Christopher A. Caldwell: Yeah. So, look, we spent more this year than I think some people were expecting to get that talent. We haven't necessarily found problems but we also have a global footprint that we can pull from, and that's been very, very helpful to us because we are in so many markets We are able to access a very, very robust talent pool for it and we are making sure that we harness that and utilize that strategically. Vincent Alexander Colicchio: Thanks, Christopher A. Caldwell. Christopher A. Caldwell: Thank you. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Matthew: Good morning, everyone, and welcome to the Delta Air Lines Fourth Quarter Fiscal Year 2025 Earnings Conference Call. My name is Matthew, and I will be your coordinator. At this time, all participants are on a listen-only mode until we conduct a question and answer session following the presentation. As a reminder, today's call is being recorded. If you have any questions or comments during the presentation, you may press 1 on your phone to enter the question queue at any time. I would now like to turn the conference over to Julie Stewart, Vice President of Investor Relations and Corporate Development. Please go ahead. Julie Stewart: Thank you, Matthew. Good morning, everyone, and thanks for joining us for our December and full year 2025 earnings call. Joining us from Atlanta today are our CEO, Ed Bastian, our President, Glen Hauenstein, our CFO, Dan Janki, and our Chief Commercial Officer, Joe Esposito. Ed will open the call with an overview of Delta's performance and strategy. Glen will provide an update on the revenue environment, and Dan will discuss costs and our balance sheet. After the prepared remarks, we'll take analyst questions. We ask that you please limit yourself to one question and a brief and related follow-up so we can get to as many of you as possible. After the analyst Q&A, we'll move to our media questions. As a reminder, today's discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from forward-looking statements. The factors that may cause such differences are described in Delta's SEC filings. We'll also discuss non-GAAP financial measures, and all results exclude special items unless otherwise noted. You can find a reconciliation of our non-GAAP measures on the Investor Relations page at ir.delta.com. And with that, I'll turn the call over to Ed. Ed Bastian: Thank you, Julie, and good morning, everyone. The Delta team delivered a strong close to our centennial year, with results that are a clear proof point of the differentiation and the durability that we felt. Incredibly proud of our performance. We delivered for our customers and our employees, while also creating value for our owners. All through a challenging environment. Operationally, Delta continues to set the standard for reliability and customer experience. We have the number one net promoter score among major airlines, and Cirium recently recognized our employees for the fifth consecutive year, naming Delta as the US industry's most on-time airline. Financially, we continue to extend our industry leadership and delivered on key elements of our long-term framework. In December, we achieved record revenue, maintained a double-digit operating margin, and delivered earnings that were consistent with our expectations outside of the impact of the government shutdown. For the full year, we recorded record revenue of $58.3 billion, an operating margin of 10%, pretax income of $5 billion, and earnings of $5.82 per share. A key highlight is free cash flow. We delivered $4.6 billion at the top end of our long-term financial framework, and the highest in Delta's history. Over the past three years, we've generated $10 billion in free cash flow, allowing us to strengthen our investment-grade balance sheet and reduce leverage by more than 50%. Our return on invested capital of 12% is well above our cost of capital, placing us in the upper half of the S&P 500 and leading the industry. These results underscore the strength of our brand and the resilience of our competitive advantages. It would not be possible without the dedication of our people. To all 100,000 members of the Delta team, we thank you for your unwavering commitment. Your care and professionalism, especially through a busy holiday season, are the reason customers choose Delta. And why our results lead the industry. At Delta, sharing success is at the heart of our culture. That's why in 2025, we awarded a 4% pay increase and I'm pleased to announce that we will celebrate with our team $1.3 billion in well-earned profit sharing this February. This is one of the largest profit-sharing payouts in Delta's history, a testament to the extraordinary efforts of our people, who set us apart from the rest of the industry. Turning to our outlook. The year is off to a strong start. Last week, we set a new record for bookings with cash sales up double digits on top of the strength that we saw last year. Top-line growth is accelerating on consumer and corporate demand, supporting an outlook for revenue growth of 5% to 7% in March. The US economy remains on firm footing. Consumers continue to prioritize experiences with travel among the top spending categories. Business travel is showing signs of improvement as corporate confidence grows, with the most recent survey of corporate customers indicating that they expect to grow their travel spend this year. Structural changes are taking hold across the industry. As unprofitable flying is rationalized, supporting a healthy balance between supply and demand. Against this backdrop, and with continued benefits from Delta's strategic initiatives, we expect to deliver earnings per share growth of 20% year over year in 2026, ahead of our long-term target. Cash generation remains a key differentiator for Delta, and in 2026, we expect to generate free cash of $3 billion to $4 billion, supporting further debt reduction and growth in shareholder returns. Our teams are executing our bold vision of reshaping the end-to-end travel experience and cementing Delta as the world's most loved airline. We're elevating every phase of the customer journey, making travel simpler, faster, and even more enjoyable. This includes expanding our premium lounge network, delivering a connected experience for SkyMiles members, more than 1,100 aircraft already equipped with faster free Wi-Fi, and introducing innovative digital tools like Delta Concierge. Our exclusive partnerships with leading brands such as American Express, Uber, and YouTube further enhance the experience. We're leveraging technology and personalization at scale, with over 115 million annual logins to our industry-leading DELTAsync platform, creating new opportunities for personalized engagement and partnerships. At the same time, we're streamlining the travel experience with initiatives like Uber Airport Express drop-off at LaGuardia and Atlanta, offering customers curbside hospitality and a direct path to security. Saving time, reducing congestion. Response to our Delta Uber partnership has been tremendous, with over 1.5 million SkyMiles members linking their accounts since launch. Demonstrating the power of our loyalty strategy to engage members beyond the flight and drive high-margin diverse revenue streams. Our Delta Amex co-brand card portfolio continues to deliver double-digit spend growth, outpacing the broader consumer credit card industry. Co-brand cardholders are among our most valuable and satisfied customers, traveling more often and spending more on Delta. Building on our strong domestic foundation and loyalty success, we're expanding Delta's international footprint in 2026 and beyond while continuing to grow our margins. To support profitable growth, we're leveraging best-in-class joint ventures and investing in the renewal and expansion of our wide-body fleet. This morning, we announced an order for 30 Boeing 787-10s with options for 30 more, set for delivery starting in 2031. These aircraft will enhance our international network, deliver superior economics, and extend our long-haul capabilities. As we look ahead to our next century of flight, my optimism for Delta's future has never been brighter. Much of our strong positioning today is thanks to the leadership and vision of Glen Hauenstein. Glen has not only transformed our commercial strategy, but he has also been an incredible copilot throughout our journey to make Delta the world's best and most profitable airline. His unwavering customer focus and strategic discipline have built a world-class global network, firmly establishing Delta as the airline of choice for premium travelers. Glen's legacy is woven into the fabric of our company, and his vision will continue to guide us. With Glen's leadership and the talented team that he has built, we have a deep bench to support a seamless transition. With Glen's retirement next month, Joe Esposito has been elevated to Chief Commercial Officer. With thirty-five years at Delta, much of it spent working very closely with Glen, Joe has led the teams behind our global network planning and revenue management. This continuity ensures our commercial organization remains in excellent hands. Glen, it's been an honor and a privilege to work with you over these past two decades. On behalf of the Delta family, thank you for your incredible leadership and your friendship. You'll always be part of Delta, your impact on our company, and our industry cannot be overstated. Now I'm pleased to hand it over to Glen for one last earnings call update. Glen Hauenstein: Thank you, Ed, and thank you so much for those kind words. I am really truly grateful to have worked by your side for these last twenty years. And I'm deeply proud of what we've accomplished together. Our strategy is proven, our culture is strong, and our team is truly the best in the business. Looking to the future, I'm confident that Delta's commercial team will continue to extend our leadership. As you mentioned, Joe and I have worked closely together for the past twenty years, and he'll be supported by an exceptional team of senior executives that our investors know well. Paul Baldoni in network planning, Roberto Ioriyati in revenue management, Dwight James in loyalty, and Steve Sear in global sales and distribution. They have combined more than one hundred years of experience at Delta. Together, we've reengineered Delta's global network and built a customer-focused airline while diversifying revenue into higher-margin sources. We've expanded our premium products and services, aligned customer value to price paid, and made generational investments in our airport facilities and lounge networks. At the same time, we created an incredibly powerful loyalty program that extends beyond the flight and provides a more durable financial foundation. This consistent and integrated strategy positions Delta with a sustained unit revenue premium nearly 115% relative to the industry. Last year's performance truly showcased Delta's differentiation and industry leadership. In 2025, we delivered record revenue of $58.3 billion, up 2.3% year over year, with diversified revenue streams now representing 60% of total revenue. Premium revenue grew 7%, reflecting robust demand for our most popular products, while cargo revenue increased 9% and maintenance, repair, and overhaul revenue grew 25%. Total loyalty revenue improved 6%, and travel products continued to grow at double-digit rates. Our loyalty ecosystem remains a powerful engine of enterprise value, anchored by the strength of the SkyMiles program, a highly engaged member base, and our exclusive co-brand partnership with American Express. For the year, American Express remuneration grew 11% to $8.2 billion, driven by a fourth consecutive year of more than 1 million new card acquisitions and double-digit year-over-year co-brand spend growth in every quarter. This impressive performance underscores the power of the Delta brand and the success of our integrated commercial and customer strategy. Roughly one-third of active SkyMiles members carry a co-brand card, and we see significant runway ahead as member engagement and penetration continue to rise. In 2026, we expect high single-digit growth in co-brand remuneration, keeping us on track to achieve our $10 billion goal within the next few years. For December, Delta delivered record revenue of $600 million, 1.2% higher than in 2024, including about two points of impact from the government shutdown on capacity growth of 1%. Consistent with the full year, diverse revenue streams led with high single-digit growth year over year. Demand trends were healthy outside of the temporary impact from the FAA-mandated flight reductions, with premium showing continued strength and consumers demonstrating resilience with the holiday season. Corporate sales grew by 8%, with growth across all sectors led by banking, consumer services, and media. International performance improved significantly from September, with unit revenue growth improving five points driven by Transatlantic and Pacific. Turning to our outlook. Delta is well-positioned to deliver positive unit revenue growth throughout 2026. Building on the strength of our premium brand, deep loyalty engagement, and continued progress on commercial initiatives. We are heading into 2026 with robust demand and a balanced industry supply-demand environment. With March revenue expected to increase 5% to 7% year over year, several points ahead of capacity growth. As Ed mentioned, the year has started off with great momentum. Last week, cash sales were the highest in our one hundred-year history, with strength across the booking curve and in all geographies. Historically, March has been the strongest period for bookings, so it is very encouraging to be setting new records here in early January. We are aligned with U.S. GDP expectations, and we plan to grow capacity by 3% for the full year, with all new seat growth concentrated in premium cabins. Driven by interior upgrades and new aircraft deliveries. Domestically, we have balanced growth across our core and coastal hubs and are leveraging our integrated strategy to strengthen our industry-leading position. Internationally, we will build on our leading domestic foundation to expand into high-growth Asia and Middle East markets while continuing to renew our wide-body fleet with larger, more capable, and more efficient aircraft. Beyond network and fleet initiatives, we are focused on better aligning products and price to the value delivered. This expands our ability to sell and service segmented products across every channel and leverages digital platforms to unlock incremental revenues from travel products and partnerships. With this plan, our diverse revenue streams—premium, loyalty, cargo, MRO, and travel products—are expected to continue to lead the growth, further differentiating Delta and positioning us for long-term success. In closing, I am proud of what we have built together and excited to watch this very experienced leadership team carry our momentum forward. I have never been more confident in Delta's future. To the Delta people, thank you for your passion and commitment to our customers and to one another. It's been the honor of my life to work alongside you. And to our analysts and investment community, thank you so much for your engagement and support throughout the years. I appreciate the confidence you have placed in Delta. And with that, thank you all again, and I'll turn it over to Dan. Dan Janki: Thank you, Glen. And good morning, all. I want to start by recognizing the Delta team for their outstanding work through a demanding holiday season. In the fourth quarter, we delivered a pretax profit of $1.3 billion, an operating margin of 10%, and earnings of $1.55 per share. As previously disclosed, the government shutdown reduced pretax profit by $200 million, or 25¢ per share. The FAA-mandated flight reduction and weather disruption impacted nonfuel unit cost growth by about one point. For the quarter, nonfuel CASM increased 4% year over year on 1% higher capacity. For the full year, disciplined execution kept nonfuel unit cost growth at 2%, in line with our long-term target of low single-digit. Combined with revenue performance, we delivered a full-year operating margin of 10%, EPS of $5.82, and a return on invested capital of 12%. Strong cash generation is a key highlight of our performance. We reinvested $4.3 billion in the business, including 38 new aircraft deliveries, and continued enhancement to the customer experience and technology. Free cash flow of $4.6 billion supported debt reduction of $2.6 billion, and we ended the year with gross leverage of 2.4 times. We closed the year with adjusted net debt of approximately $14 billion and unencumbered assets of $35 billion, positioning Delta with the strongest balance sheet and the highest credit quality in our history. I'm proud of how the team navigated 2025, staying focused on what we control and extending Delta's leadership even in a year of unexpected challenges. Looking ahead, we are entering 2026 with momentum. For March, as Glen shared, we expect revenue growth of 5% to 7% year over year with positive unit revenue growth. With that, we expect first-quarter earnings of $0.50 to $0.90 per share and an operating margin of 4.5% to 6%, both improving year over year. For the full year, we expect EPS of $6.50 to $7.50, representing 20% year-over-year growth at the midpoint. Free cash flow of $3 billion to $4 billion and leverage of 2x by year-end. This outlook reflects margin expansion from growing high-margin diverse revenue streams while maintaining disciplined cost management. On nonfuel cost, we expect another year within our long-term framework of low single-digit. And as we prepare the fleet for peak summer, the first-quarter nonfuel CASM growth is expected to be modestly above the full-year average. We are driving efficiencies across the operation, improving aircraft availability, scaling into our resources, and deploying new technology. Which enables continued investment in our people and in the customer experience while delivering on a competitive cost performance. Strong earnings growth will drive higher operating cash flow, supporting reinvestment and higher return opportunities. In 2026, we plan CapEx of $5.5 billion, including around 50 aircraft deliveries, and ongoing investment in customer experience and technology. Our free cash flow outlook of $3 billion to $4 billion remains within our long-term target, though lower than 2025 due to increased capital investment and our transition to becoming a partial taxpayer. Debt reduction remains our top capital allocation priority, with the opportunity to grow shareholder returns as we continue to reduce leverage. With today's aircraft order, I'd like to highlight how our fleet strategy is positioning Delta for the future. Enhancing the customer experience, driving operational improvement, and supporting high-margin expansion. Domestically, prioritizing flying on high-margin large narrow-body aircraft, retiring older fleets, and building scale across our fleet types. This unlocks maintenance and crew efficiencies, elevates customer experience, and improves fuel burn. For our international franchise, our growing next-generation wide-body fleet, strong domestic foundation, and leading joint ventures will enable further global expansion. New wide-body aircraft deliver up to 10 points margin advantage over aircraft they replace, offering more premium seating, 25% better fuel efficiency, and expanded cargo capability. Today's Boeing 787 order enhances the diversity of our wide-body order book while creating cost-efficient scale across all wide-body fleets. Before we move to Q&A, I want to highlight our ongoing commitment to financial reporting as the business evolves. We're providing additional detail on third-party maintenance, repair, and overhaul business, including revenue and cost. MRO is a unique Delta capability with strong growth potential, furthering the differentiation and durability. Given its profile, we'll separate MRO from our nonfuel unit cost metrics for preserving visibility into the core airline cost trends while also realigning loyalty-related revenue components to better match our reporting of how we operate. Finally, I want to recognize Glen. Over the past five years, he's been an invaluable mentor, offering guidance, wisdom, and partnership, for which I am deeply grateful. Glen's impact and vision have redefined success in our industry. And the world-class team we built will continue to extend Delta's leadership well into the future. Thank you, Glen. And with that, I hand it back to Julie for Q&A. Julie Stewart: Matthew, we're now ready to open it up to analysts' questions. Matthew: Certainly. At this time, we'll be conducting a question and answer session for analysts. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. We do ask that all Q&A participants please limit to one question. Once again, if you have any questions or comments, please press 1 on your phone. Your first question is coming from Jamie Baker from JPMorgan. Your line is live. Jamie Baker: Oh, hey. Good morning. And, look. Nothing but accolades from the JPMorgan team. Glen, you've always been so gracious and patient with us. We're really gonna miss these interactions. Thank you so much. First question for Ed. You know, I know it's early innings, but if this 10% rate cap is, you know, codified and becomes reality and withstands legal scrutiny and all that kind of stuff, where does that leave Delta relative to your competitors? I mean, you have higher card fees. You lean into premium. If industry loyalty does take a hit, is the natural conclusion that higher-end loyalty outperforms lower-end, or should we be thinking about it differently? Ed Bastian: Well, thanks, Jamie, and I could not agree with you more about your comments about Glen. You know, as you said in preface, it's late early innings. And so it's really, really hard to speculate. And candidly, the challenges to having that comment of whatever the president is looking to do here brought into actual delivery I'm informed with likely require legislation. And I believe your company was out this morning with some pretty strong comments in terms of their disagreement and willingness to fight that potential order. That all said, we at Delta have the premium card in the industry. No question, the value of what we've been created to distinction differentiation, if it did come to pass, would be greater. I think one of the big issues and challenges with the potential order is the fact that it would actually restrict the lower-end consumer from having access to any credit. Not just what the interest rate they're paying, which would upend the whole credit card industry. So from our standpoint, we'll be working closely with American Express, but I don't see any way we could even begin to contemplate how that would be implemented. Jamie Baker: Okay. And then a follow-up for Glen. This is actually a retirement-related question. And, look, maybe you don't think in these terms, but is there anything about the industry's evolution or Delta's evolution that maybe you regret that you won't be at the table for? I mean, you obviously have a strong view on what Delta can accomplish going forward. But is there anything in particular that you're just personally disappointed to be missing? Thanks in advance. Glen Hauenstein: No. I think there's a couple of things I'll mention here. One is the continued evolution of our partnerships. And I think these are the strongest partnerships in the world with the strongest airlines in the world. So whether it's LATAM or whether it's Korean, these are very, very deep relationships, which I think are still in their infancy. And I think one of the things that's underappreciated is also, you know, we have equity stakes in all of them. And so we are at the table with them, and I do think that, you know, one of my counsels to Julie is to continue to highlight that because those are winning carriers and their stocks are appreciating well as well. I think that's undervalued in our valuation. So I think that the international continued expansion of international, the new fleets. Like, if you're an airline nerd like I am, who doesn't like to see how the new fleets perform once they get here? You know, the continue another thing I think is under Delta is the fact that we've made these generational builds that can really sustain growth for Delta over the next fifteen to twenty years without incremental CapEx. Into facilities. So, you know, seeing those, seeing the Salt Lake City facility that we've just built get used over the next ten to fifteen years, there's so much I'm gonna miss. There's so much I'm not gonna miss too. You know, controlling your own calendar is key at this age once you realize you don't have infinity left in the world. So there's so many exciting things at Delta and the team is really an extraordinary team. And the people of Delta have just been amazing to get to know over the past twenty years. So there's tons I'll miss. Thanks for that interesting question. Thank you so much. Matthew: Thank you. Your next question is coming from Mike Linenberg from Deutsche Bank. Your line is live. Mike Linenberg: Oh, yeah. Hey. Good morning, everyone, and kinda echo Jamie's words. I mean, Glen, you know, you're an industry thought leader and innovator. I mean, always willing to push the envelope. I mean, I just I feel privileged to have had the opportunity to have learned from you for all these years. So thank you. Thank you. Thank you for the kind words. And I guess with that, you'll get you'll get my last question. I have really only one question here and just sort of drilling down. I mean, this acceleration that we are seeing on demand from the fourth quarter into March, I mean, you talk about all groups and all geographies. But as I recall, you know, in the past, you did talk about that the leverage was maybe going to be in the main cabin in 2026. And I wonder whether or not you are seeing that the lower end of the fare structure is truly moving up, and that's helping to drive that acceleration. And combined with that, just the booking curve, I mean, is there any have we seen the booking curve really shift to normality, or are there any sort of idiosyncrasies about that curve that are maybe helping that acceleration? So, you know, just the revenue down. Thanks for taking my question. Glen Hauenstein: Sure. The revenue has definitely accelerated here. And we're very excited about it. And it's across all entities. It's across all geographies. The booking curve really hasn't moved out that far. It's just kind of returned to a more normal level. I think what happened in the fourth quarter, it was all over the place, right, is that the time we got to the shutdown in November and we had, you know, the Secretary of Transportation questioning the safety of air traffic control. There was a lot of noise in the fourth quarter. And so I do think if we took out that noise and saw where we were in October and see where we are sitting today. We are a step above where we were in October, which was a fantastic month for the company. And what's really exciting about the return of business as we head into '26 is 'twenty five grew I think it's 8% it grew. But it was mostly unfair. And right now, we're seeing both fair and traffic. And so seeing that traffic come back is, I think, a really good start to 2026. Mike Linenberg: Great. Thank you. Thank you. Matthew: Your next question is coming from John Gordon from Citi Research. Your line is live. John Gordon: Hey, guys. Thank you for taking my question here. I wanted to kind of follow-up on the concept of accelerating trends as well, but specifically on corporate demand and what you're seeing there. It sounds like the numbers to start the year are quite good. And I was curious, is that the broader environment? Is that market share gains? Anything you can say to help us unpack that would be fantastic. Glen Hauenstein: Well, I think it is the broader market. I do think that Delta's market share has never been higher. But that's a gradual, you know, that's year after year knocking away half a point, a half a point, a half a point. I think our market share is in a fantastic position. But and it's at all-time highs, but I do think it's much broader than just Delta at this point. Joe, you have any comments? Joe Esposito: I think we're setting up for a really good economy. And everybody can feel that. And the corporate environment is optimistic about their travel plans for the future. So I think those are things that are lining up for a positive 2026. John Gordon: Got it. And if I could just ask a follow-up on that. Just broadening up and linking it to the guidance a little bit. Obviously, an accelerating environment is fantastic. Are we in a situation where things need to accelerate even further and step even higher to get us to the high end of the annual guidance or even exceed it? Or if we just saw these trends continue that you're observing right out of the gate, that's enough to get us there. I'm just trying to sensitize the guidance. Ed Bastian: John, I appreciate that question. And you know, it's the second week in January. It's really hard to take a few weeks of bookings and reach any kind of early conclusion. I'm encouraged by what we saw, and absolutely, if the momentum that we currently see continues, we'll be fine. We'll do well on our guidance range. That said, we also learned of the volatility. We're reminded of the volatility of the industry this past year. We want to make certain that we have a bit of caution as we project how we'll do. Glen Hauenstein: Could I add one thing? Because I didn't really answer Mike Linenberg's question about the main cabin. And we have not really seen the main cabin move yet. So I think when you think about the higher end of our guide, that would definitely be the main cabin starting to move. And I do think that it will move in '26. We just have not seen it yet. John Gordon: Appreciate all the color. Thank you. Matthew: Thank you. Your next question is coming from Conor Cunningham from Melius Research. Your line is live. Conor Cunningham: Everyone, thank you. Echoing everyone else, Glen, congrats on the retirement. We've learned a ton from you over the years, so thanks again. Maybe I could kick it over to Joe, actually. So, I mean, hoping you could just talk about your priorities as you take on the new role. You've obviously helped mold the Delta network for a long time, but just curious how you approach things with the commercial hat on if the strategy changes at all. Just any thoughts there would be helpful. Thank you. Joe Esposito: Yeah. Thanks, Conor, and good morning. Overall, I feel very fortunate and grateful for working with Glen for twenty-plus years now. And, you know, we've learned so much, and we've been there from the beginning of transforming Delta. I think that theme, though, carries over into consistency and continuity. Our strategies aren't changing. In fact, we're going to be digging even deeper into those strategies for further integration. You know, I think the integration is still in the early innings of how we go to market from a complete commercial perspective. You know, it used to be network and price. Now it's so much more with the consumer and Amex and what we do for the customer and club. So, I mean, there's lots of runway ahead for us in product deployment. We've been doing this for over fifteen years, and I think there's still a lot more runway to go in where we're going on the product side. We're in the early stages of merchandising. There's more to do with Amex premium products and the fleet that we're getting for the future is really exciting. So I think there's a lot to look forward to. There's a lot to build off of what we've already done. And, you know, I'm honored to lead the commercial team and proud to work with a really talented group of people that support us both not only within the commercial organization but operationally. So, again, I want to thank Glen for all we've done together. And I think there's a lot more to do. Conor Cunningham: Great. And maybe I can, Glen, maybe you want to jump into it. It's up to you. But, like, just on the geographies in general as you look about, you talked a little bit about the main cabin on the U.S. side. And I think the overall assumption from a lot of us is that there's a lot of opportunity in the U.S. domestic market, but international has been wildly resilient. And it obviously picked up again in the fourth quarter. So if you could just talk about your expectations for Transatlantic and Asia and so on, that would be super helpful. Thank you. Joe Esposito: I'll take it. You know, the Transatlantic and Pacific resiliency, you know, I come from, I think, years of building the domestic network to have that strong foundation to launch from. You take the loyalty of cities, you think about New York, Los Angeles, Boston, and new gateways, we're able to expand with. You layer on top of that new airplanes, being able to monetize that premium cabin. So I think there, you know, a lot of it's coming together and the order of the 787 is just another future marker out there. For innovation, and especially when you think about, you know, in the wide-body space, fleet efficiency is really what wins the day. You think about taking a 777 and replacing it with a 350 or a 787 drives that incremental margin. Drives better product, and drives incremental margin. Conor Cunningham: Great. Thank you. Matthew: Thank you. Your next question is coming from Ravi Shanker from Morgan Stanley. Your line is live. Ravi Shanker: Great. Thanks. Good morning, everyone. Glen, obviously, congratulations on an incredible career. You will be tremendously missed, but I'm also very envious of your travel plans. So please keep us in there. Maybe a couple of maybe start with my follow-up here. Obviously, a lot of questions in a strong January. Glen, do you have any indication that there's been maybe some pent-up demand from 3Q or 4Q? That's now coming on maybe in corporate or international which may, you know, which may kind of maybe question the sustainability of the strength or do you not think so? Glen Hauenstein: Well, you know, as Ed mentioned in his opening remarks, '25 had some very choppy points in it. And I think there was a lot of reason for people to hesitate to travel at different points in the year for different reasons. And so as we look at '26, assuming that the core demand stabilizes, there's huge upside for us. Across all entities, I think. So, you know, especially as you get to the latter part of the first quarter and into the second quarter where the tariff uncertainty and the economic uncertainty was kind of hitting the crescendo. I think, you know, that's what gives us confidence that '26 is gonna be a great year. Ravi Shanker: Understood. That's helpful. And maybe also if you guys could unpack the previous response on the 787s. Again, what was the rationale for that aircraft versus the 350 or maybe some others? And, also, it almost sounds like you're planning to deploy them differently than your existing wide bodies or on very specific routes. So any clarity there would be helpful even though I know that's something. Joe Esposito: Yeah. Thanks, Ravi. I think it's a natural evolution in our fleet. When you think about I think our priorities up to this point was to get critical mass into the 350. And the 339, and we're well on our way to do that. And that drives great efficiency, and that efficiency is needed in the wide-body category. When we look out to the future, the 787 is a great airplane. Financially, a great airplane. We're able to do a lot with the 10 version of this on the premium seating. It's a great cargo airplane. And it also drives diversification within our fleet, both not only on the airframe but on the engine side. So it's a natural fit, especially when it starts to replace the 767-400, which it's slated to. It's designed for growth and replacement. And we think about swapping a 764 or 763 with a 787-10. It's a very powerful change in a step function improvement in margin. Glen Hauenstein: I could be a little flippant here since it's my last call. I can be a little flippant and say, this one's too hard. This one's too soft. This one's just right. If you remember, I think that was Goldilocks. It is. We have three fleets. And one has long range. One has a lot of capabilities. One is a category killer on CASM. One is kind of our Milk Ron airplane that's gonna do most of the spoke services out of our core hub. So think, you know, we've got a really good array just like we do domestically. We can go all the way from the 76 seater up to and so I think this gives us a lot of versatility moving forward and best in class for economics. Ravi Shanker: Very good. Thanks, Amil. Matthew: Thank you. Your next question is coming from Savi Syth from Raymond James. Your line is live. Savi Syth: Hey. Good morning, everybody. And I'd like to echo all the kind of glowing commentary on Glen, and congratulations to both Glen and here. And what I would like to actually maybe ask a two-part question that's very similar. And on the operation side, Delta's really differentiated itself in terms of kind of reliability and recoverability historically. It was kind of once described to me, but I know your time is swash was dismantled during COVID and had to keep it back together. So first, I was wondering if you could provide an assessment on how operational reliability and recoverability stacks up today compared to where it was during COVID. And second, with kind of many of your competitors looking to kind of meet this standard that you have set, you know, what's your assessment on how your relative performance has evolved? And if you know, is that still a strong differentiator, especially as you have your corporate contract discussion? Ed Bastian: Savi, this is Ed. Let me take a stab at that. There's no question that we have work to do. With respect to the resiliency of our recovery. From irregular operations. Working off of a great foundation, which has renamed last week by Cirium as the most on-time airline in North America. So it's not as if we've got a big hole to fill. But that said, with a lot of the change post-COVID, including some pretty significant changes in our pilot contract, in terms of how we route and reroute and schedule pilots, particularly. At times of change. Have caused some difficulties in providing the level of reliability that we like in the recovery aspect. So we're all hands on deck. In that regard. We know what the factors are. That's been driving. It's just gonna take us a little bit of time. Get after, but we're working very, very closely with our flight ops team. Our maintenance team, our technology team, our ops control team. As well as with the pilots union to ensure because our pilots don't like some of the recovery challenges with that either, to make certain that we to the top, not just in on-time, but also in overall recovery. Savi Syth: And can I just follow-up on that? You know, as you think about your comparison and your competitors really trying to meet that standard that you've set, like, is there something in how Delta approaches this that it maintains your leadership, or how should we think about that? And how is that in terms of all the corporate discussions that you're having? Ed Bastian: Well, I think we're number one across the board in almost every metric in this that you can look at. So I don't believe we've lost our leadership in total. But, yeah, I think that this we said all along I've said all along we want there to be a healthier industry. A higher quality form of experience for customers that forget Delta, everyone can see the industry in a much better more reliable light. And I think one of the great things that Delta has done for the industry is raise the bar the spotlight on what can be done collectively on many levels. And this will be the next opportunity for us. Joe Esposito: I just wanna echo I appreciate what Ed said is that a better industry makes for selling more tickets. At an industry level, not just at a Delta level. Definitely. And so raising the bar is a great thing for the industry that. Savi Syth: Fair point. Alright. Thank you. Matthew: Thank you. Your next question is coming from Duane Pfennigwerth from Evercore ISI. Your line is live. Duane Pfennigwerth: Hey, good morning. Thank you. Glen, I was struggling with what to get you. I thought I'd ask you one last question. As a parting gift, but congratulations. If we go back into the archives of your early career, maybe back to the days trying to restructure Alitalia. What are the biggest surprises in how the industry and how Delta evolved relative to what you might have thought at that point in your career? Glen Hauenstein: You know, I think Ed and I share this journey together, and when you think about where we entered Delta, I think a lot of people would look and say, well, why do you go there? Because it was in such trouble at the time we joined. And so, you know, I remember to this day that I wrote Jerry Grinsteyn a note saying that I wanted to help restore Delta back to its rightful place at the top of the US aviation industry. And I think, you know, not just not to sound old or arrogant, but I think I could say mission accomplished on that. And I think it's underappreciated how much hard work it was. And how many bold things we had to do to get here. And I think that's what I would impart on you and our team is in order to stay here now, you have to continue to be bold. You have to continue to look beyond what the next quarter is or what the next year is and look at what the next decade looks like. And where do you want this company to be ten years from now. And I think this team does that every day. And I'm really proud to be a part of that, and I know the future is gonna be super exciting. Duane Pfennigwerth: Congratulations again. And then just to switch gears on MRO, maybe Dan, you're providing increased transparency. Can you speak a little bit about the outlook for that segment? Revenue growth, margin expansion, and if there are any capital commitments embedded in the CapEx outlook for this year? Thank you for taking the questions. Dan Janki: Sure, Duane. Thank you. Quite optimistic about the MRO business. I think they had a really good 2025. Great commercial wins. Building the backlog. I think this is a business that we're excited to see across the billion-dollar mark. And one that we continue to hold out and see it as a two, then getting to two, then getting to $3 billion of top line. That it can continue to grow. This is a business that, you know, where it's positioned, it's high single-digit margins today. It should be mid-teens. And one that we've we have fed at Capital, but it's one of those things that you just have to consistently stay after as it relates to both shop capacity, but also repair capability. And how you think about it, it's something that Delta team is building off a really strong maintenance capability. And that we can extend to third-party. So we're quite excited about it. We do think it is one of those elements that truly is unique to Delta and related to our differentiation and durability and why we wanna make sure that we provide you that our investors, that transparency to know we're over time. Duane Pfennigwerth: Thank you. Matthew: Your next question is coming from Chris Wetherbee from Wells Fargo. Your line is live. Chris Wetherbee: Hey, thanks. Good morning, and congrats, Glen. Obviously, we haven't got to spend a lot of time together, but your reputation certainly. So congrats and enjoy the next leg of the journey here. I guess I wanted to ask a question about premium versus main cabin. Obviously, the revenue growth spread has been very wide here in the back half of 'twenty five. So as we think about sort of a normalization and maybe improvement as we go through 'twenty six, what can that sort of spread look like? Obviously, capacities could be weighted towards premium, but what do you think normal looks like at that relationship? Glen Hauenstein: Well, the margin spreads, as you indicated, have never been greater. And as you know, the bottom end of the industry and the commodity side of the business has been struggling greatly. And so I do think there's, you know, we saw consolidation earlier in the week. We're, you know, waiting to see what happens with the spirit here as it continues to try and restructure. But that sector has been unable to grow here for the last several years. And when that sector is not growing, it can't contain its CASM. Its CASM goes up significantly every quarter. More than ours. And so that's become a real challenge for that sector in the industry. I don't, Scott Kirby would say it's only math, but you know, I think that challenge continues to haunt that side of the industry, and it has to rebalance at some point. And the only way it can do that is to get their revenue bases up because their costs aren't going down. And so it's taken longer than I would have thought, to be quite honest. But I believe it's still to come. And that is pure upside to us. Chris Wetherbee: Okay. That's super helpful. And then I guess a quick follow-up. Just as you think about the guidance ranges that you guys have given, it seems like there's a path towards the upside of that. I guess what are the things that we should be thinking about as risk to the downside outside of obvious macro challenges that may arise? I guess in terms of the trends that you're seeing so far, they're relatively robust. Anything we should be thinking about, it would be one or as we think out a little bit further into 2026? Ed Bastian: Hey. This is Ed. So in the risks you don't have to go too far to think about what the risk could be. Look at last year. And where we were a year ago, we thought we were gonna have a banner year. And gave guidance, you know, kinda similar to what we're giving today. And it got derailed a little bit. So I think the New Year offers optimism. For a different outlook than we were a year ago. I think relative to the administration and their priorities, I think we're all a one year smarter and more conditioned. To expect maybe the unexpected. In some of the policy approach. And I think we're, you know, if you look at the economy, if you look at the strength of the market and you look at how just airlines are looking at it, you're looking at how high-end consumers are feeling. About their opportunities, they're quite bullish. And so that's how I'd frame it. Chris Wetherbee: Appreciate the time. Thank you. Matthew: Thank you. Your next question is coming from Andrew Didora from Bank of America. Your line is live. Andrew Didora: Hey. Good morning, everyone. Actually, just wanted to touch upon the free cash flow generation here. I think it's, you know, it's obviously very unique to Delta. But, like, Ed, Dan, you know, today, you know, giving us all a closer look at, you know, MRO, loyalty, and the like. When you look at the drivers of this free cash flow generation year in, year out, much of this comes from these ancillary businesses versus the core airline? Does it over-index? Is it a bigger percentage of free cash flow than as a percentage of your revenues? Dan Janki: When you think about it, free cash flow is ultimately driven by your margins. And drive your operating cash flow. So I would say the loyalty premium certainly given its margin profile, has an outsized impact on it. Things like MRO that are smaller, things like cargo have less impact. Than the core. But premium would be outsized related to it. Andrew Didora: That makes sense. And when we think about, you know, kind of this free cash flow going forward, we think about the CapEx side of the equation. Any step up in CapEx coming over the next few years, maybe particularly because of the new Boeing order from this morning? Anything there to think about? Thanks. Ed Bastian: Andrew, this is Ed. No. You know, we've been very consistent over the last decade of CapEx in that $5 billion, some years a little lower, some years a little higher. Range. And while, clearly, there could be a one-off, maybe a year with a little bit more, broadly speaking, though, we're very disciplined about that. And I think one of the real exciting opportunities for Delta when you look at where our leverage ratio is, where it's going, the continued free cash flow generation, and I said on CNBC this morning, I think the most tangible return we can generate for our shareholders is that free cash flow opportunity. And as the balance sheet continues to be delevered, there's gonna be even more return possibilities for our shareholders. It's not going to go into starting to try to get on a big growth spurt. That's not an answer that, you know, we've seen people try that in the past. That never ends up well. Andrew Didora: That's great. Thank you. Matthew: Thank you. Your next question is coming from David Vernon from Bernstein. Your line is live. David Vernon: Hey, good morning, and Glen, all the best for the future. Just kinda looking at the bigger picture, the commentary that you guys have provided today, it sounds like Delta revenue is accelerating, but the main cabin isn't. And I'm just wondering if that more plainly just means that this is about, you know, Delta and the strategies you guys put in place kinda working for Delta. And maybe the industry outlook is a bit more mixed. And if that's right, you know, what does that mean for, like, kinda competitive capacity as you're looking out at the market for 2026? Particularly in relation to your hubs and where capacity is shifting in the marketplace? Is it right to think that maybe you guys have, you know, started to carve out a path? It's a little bit easier to glide to a more mixed sort of industry outlook. Glen Hauenstein: Well, I think that's what '25 was a proof point on. Is that the industry, if you look at it, was very challenged in '25 and Delta was at the very top of the industry. And I believe when everybody reports, this is my hypothesis, that we will never have been in our past a higher percentage of the industry's total profits. Than we were in '25. And so as you think about what's working here at Delta, the diversification of the revenue streams, the continued focus on premium products and services, I think, we have charted a different path. And you know, we don't control what decisions are made at other airlines, but I do think that those who cater to more commoditized you've seen them trying to change, right? You've seen Southwest going in a very different direction, talking about clubs, talking about international. So I do think we have charted our own path, and I do think there's a lot of tremendous upside for us the industry finally does reckon with the fact that the commodities are not making any money, and they either have to be removed or they have to be upgraded. David Vernon: And as far as kinda competitive capacity, is you like, what last year, we're talking about how, you know, competitive capacity is a little more subdued in your core hubs. Obviously, the industry entered in a very different position in terms of what it thought its growth aspirations were going to be last year. But I was wondering if they're also a little bit of a parting in the Red Sea for you guys around some of the core hubs. Joe Esposito: Well, I think this is Joe. At competitive capacity, it's in a really good place for us as we start the year. I think the, you know, to your earlier comments, the bottom side of the industry has been and will continue to rationalize that capacity. You've seen a lot of the unprofitable part coming out but is there only, you know, when you look at how they are going to come out of this, it's either gonna be an internal, external restructuring. So the competitive capacity, like I said, is good today. We offer our customers great products in our own hubs. And we're very competitive in all of our hubs. David Vernon: Alright. Thank you. And, Glen, again, I'll let you drop the mic here, but thanks, and good luck in your retirement. Glen Hauenstein: Thank you so much. Matthew: Thank you. Your next question is coming from Michael Goldie from BMO Capital Markets. Your line is live. Michael Goldie: Good morning, and thanks for the question. Revenue diversification continues with non-main cabin CapEx kind of getting to that 61%, 61.5% this quarter. Seat growth is really concentrated in premium going forward. Where do you see this non-main cabin revenue mix over the longer term? Is 65, 70% the coming years? Thank you. Glen Hauenstein: You know, I don't think we're seeking out a number here. We're reacting to how customers behave. And how the industry constructs it. So again, as we talked about the margins being in the premium products right now, at some point, this is going to shift. And it'll shift to have hopefully, the premiums not go down, but the main cabin go up because that's just how the math has to work. And so I think as you look forward to that, that's clearly upside for Delta, but some place the industry has to go. And I think we thought that it would happen before now, but it's taken a long time. And but it's happening. It's happening with capacity reductions. It's happening with consolidation. It will continue to happen around us until the main cabin returns. Michael Goldie: Accelerate. Glen Hauenstein: And as a follow-up, on the industry consolidation, you know, we saw this week you've had a Hawaiian a year or two ago, Spirit. When you step back, you think the landscape will see further consolidation in the coming years or eventually find a plateau? Glen Hauenstein: I think it's very clear that you're gonna see further rationalization. It can come in lots of forms. It could be in consolidation. It could be liquidation, could be internal. Can be external drivers as we've seen in the industry with activists involved. I think you're gonna see rationalization in any carrier that's not earning its cost of capital. Is already experiencing significant duress and distress amongst their ownership base and they need to continue to work to enhance their business models. Michael Goldie: Thank you. Matthew: Thank you. Your next question is coming from Catherine O'Brien from Goldman Sachs. Your line is live. Catherine O'Brien: Hey. Good morning, everyone. And, Glen, another congratulations on such an amazing career. It's really been a pleasure getting to work with you, and I hope you're looking forward to a lot of time in Italy in 2026. And maybe just, you know, speaking of international destinations, maybe a shorter-term one, but could you walk us through how you're thinking through sequential trends across each of your geographies in one Q, you know, on a RASM basis? It all sounded positive in the prepared remarks. So just, I guess, any bright spots that stand out in particular? Glen Hauenstein: No. I'll let Joe take that question because, you know, I'm easing out of this, reading these reports every morning. So, he's probably more up to date than I am. Joe Esposito: Yeah. Hi, Katie. I think, you know, our sequential trends in international and domestic are both really positive as we go into 2026. We've seen the most sequential trends from the third quarter to the fourth quarter. We had identified more of a blip for the summer of twenty twenty-five, and that played out the way we wanted to as improving those trends as we went along. I think that's gonna continue. Especially as we go into 2026. If you look at the Transatlantic embedded capacity, it looks really good as we go forward in the summer. And looking forward, our partners are well-positioned. I think we're expanding conservatively, but from a position of strength. And the traveling public is very excited about new destinations. When you look at where we've added this year into and we put that out to our loyalty program. For a vote. So we're doing some kind of unique things, some exciting things. On the Pacific Side, our cornerstone with the Pacific is Korean Air. And they're a great partner. And we've built our foundation around the Incheon hub and also now expanding a little bit beyond into the biggest economies. We've seen really good progression as Korea and Asiana work through their merger. The Incheon Hub has been a fantastic hub to connect through. So there's only greater upside into pushing our traffic through Incheon. And, also, making sure we have access to some of the biggest economies out there like Taipei, Hong Kong, and there'll be a few others later. Later in the next couple of years. And finally, Latin America is kind of two different entities. You got the short haul which acts very much like domestic, short haul in The Caribbean, Central America. And that moves with domestic and is much more of a leisure operation for us. And we've had a very good Christmas. We've got really good strength in the Christmas bookings. Good strength in spring break. And so some of what you're seeing in close-end bookings and cash sales really goes to the leisure side of spring break. You've got March, April, and Easter, and that also includes the short haul Latin America. And then with our partner, LATAM, in South America, further integration into their hubs. They just opened up, you know, the Lima Airport is fairly new in how we move traffic. Efficiently through South America, and they've got fantastic hubs that they continue to develop which is only a positive for us for the future. Catherine O'Brien: Okay. Got it. Thanks, Joe. And just, like, very I just wanna make sure that international, you're expecting a bigger sequential improvement versus domestic into the first quarter. Is that what you said? Joe Esposito: Yeah. They're both moving at the same rate. I would say as we go into the first quarter, I think with international, we have good margin upside. We've closed a lot of those gaps over the years. From international to domestic. There's more, especially when you think about using the fleet and premium products for international. Catherine O'Brien: Okay. And if you guys will allow it, maybe just a bit of a follow-up to your answer to Andrew Dan. As you work towards your two turns leverage this year on your way to one turn, can you remind us how increasing shareholder returns fits into your capital allocation priorities? I think back at Investor Day, Ed might have noted that, you necessarily need to be at one dot zero turns of gross leverage to consider share repurchases. What factors go to that calculus? Thanks for the time. Ed Bastian: Thanks, Katie. You're right. We don't have to be exactly at one-time gross leverage in order to expand the range of shareholder return capabilities and opportunities to create. And every step that we take getting closer to that, you know, time is time continues to afford us those opportunities. First, starting with as we've done the growth of the dividend rate, which we hope we will continue. Last year, we put a shelf on the table. For repurchase it was a three-year, and I certainly expect we'll be utilizing that over the course of that time frame. And, obviously, looking at the multiple and where it's headed, our priority is very clear for this year. It's continued to pay down debt. But as the year and the next couple of years go, you're gonna see more opportunities explored. I'll leave it at that. Catherine O'Brien: Great. Thanks for all the time. Congrats again, Glen. And Joe. Julie Stewart: Matthew, we'll now go to our final analyst question, Tom Fitzgerald at Cowen. Matthew: Certainly. Tom Fitzgerald, your line is live. Tom Fitzgerald: Hey, everyone. Thanks very much for the time. Congrats, Glen. Just curious on, at Investor Day, you talked a lot about the revenue segmentation and further aligning value with price. So I'd love to hear what's next for that this year. And then on the technology side, just curious with the advances we're seeing every day, do you guys see some low-hanging fruit as we move through 2026? Thanks again for the time. Glen Hauenstein: Alright. I think we've talked about really having three categories for every product, which is basic, main, and extra. And that continues to evolve. I think we put those products in place for comfort plus earlier in the year. And that implementation is producing results that are actually slightly above our internal projections. So as you see us continue to bring that and move that up the ladder to give customers choice not only of the seat but the actual product that they wanna buy with that seat. And I'm really disaggregating that out. And that should be rolled out pretty much throughout '26 and as part of our initiatives in our Delta initiatives in our plan. And hopefully, those exceed our own expectations of how people select because I think if you were offered a $500 ticket, there was no reason for you to ever wanna pay more than $500 because it was fully loaded. Now we have that seat. It's $500, but you could buy it for $450. If you're willing to get the seat assignment at forty-eight hours. If you're willing to have it nonrefundable, and then all the way up to extra where it's fully refundable you get the best seats unlocked at that time. So I think it's the seat and then it's the product attributes, and we'll be bringing that into 26. That's one of our 26 initiatives. Joe, you wanna add anything? Joe Esposito: No. And no. That's exactly right. And we've been incredibly thoughtful about not going too fast, making sure that we're measured in that approach. We're still testing comfort basic right now. We're gonna expand that. The rest of this year. The great thing is you think about merchandising is the products you're able to put in there. And we've got a lot of products. We're innovating with more products. And there's just more we can offer the customer based on what they're willing to pay. And I think that's the key to merchandising in the future. This is, you know, if you look further out, this continues to be multibillion dollars. Opportunities in period of add high value lower cost, lower margin higher margin products we don't have on the shelf today. And that's really what our retailing tools are going to enable over the next several years. Julie Stewart: Okay. That'll wrap up the analyst portion of our call. I'll now turn it over to Trevor Bansner to open the media portion. Ed Bastian: Thank you, Julie. Matthew, if you could read the instructions to the media for queuing up for questions, and then we'll get into the final part of the call. Matthew: Certainly. At this time, we'll be conducting a Q&A session for media questions. Please hold while we poll for questions. Thank you. And once again, everyone, if you have any questions or comments, please press star then 1 on your phone. Please hold while we hold for questions. There are no media questions in the queue at this time. Julie Stewart: Alright. Well, thank you everyone for joining us today, and we look forward to talking with you again in April. Matthew: Thank you. That concludes today's conference. Thank you for your participation today.
Operator: Good morning, and welcome to the 2025 Fourth Quarter Earnings Conference Call hosted by BNY. [Operator Instructions] Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY's consent. I will now turn the call over to Marius Merz, BNY Head of Investor Relations. Please go ahead. Marius Merz: Thank you, operator. Good morning, everyone, and welcome to our fourth quarter earnings call. I'm here with Robin Vince, our CEO; and Dermot McDonogh, our CFO. As always, we will reference our quarterly update presentation, which can be found on the Investor Relations page of our website at bny.com. And I'll note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures is available in the earnings press release, financial supplement and quarterly update presentation, all of which can be found on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, January 13, 2026 and will not be updated. With that, I will turn it over to Robin. Robin Vince: Thanks, Marius. Good morning, everyone, and thank you for joining us. I'll begin with a strategic update, and then Dermot will take you through our financial performance in the fourth quarter, our outlook for 2026 and our increased targets for the medium term as we look ahead toward the next phase on our journey to unlock BNY's full potential over the long term. Starting on Page 3 of our quarterly update presentation. 2025 was another successful year for BNY. In short, we delivered record net income of $5.3 billion on record revenue of $20.1 billion and generated a return on tangible common equity of 26%. Total revenue grew by 8% year-over-year. In combination with expense growth of 3%, we drove 507 basis points of positive operating leverage on a reported basis and 411 basis points, excluding notable items, resulting in an improved pretax margin of 35%. Consistent execution delivered 4 consecutive quarters of positive operating leverage in 2025, bringing us to 8 consecutive quarters overall. Taken together, we grew earnings per share by 28% year-over-year to $7.40 and returned $5 billion of capital to our shareholders through common dividends and share repurchases. This strong financial performance was the output of our work to reimagine BNY and was enabled by tangible progress across strategic priorities over the past year, which we highlight in the 4 boxes on Slide 4. First, our commercial model is working. Operating as One BNY, we are starting to bring the full breadth of the company together to deliver more products and services to meet our clients' needs. This includes embedding sales practices and behaviors that enable our teams to deliver more and better for clients with greater consistency to drive deeper relationships with existing clients and open the door to new ones. We achieved record sales performance for the year, and we announced several noteworthy wins in the fourth quarter. Further deepening our relationship, WisdomTree selected BNY as their banking as a service provider for the WisdomTree Prime platform. This solution brings together banking, payments, custody and digital assets to support the growth of WisdomTree's new retail distribution model and its strategy on being a leading digital asset forward investment manager. [ Jupiter ], an active asset manager, selected BNY for a suite of capabilities from front to back from investment operations and data management all the way through to custody, streamlining their operating platform and positioning them for the future. And Japan's Government Pension Investment Fund selected BNY to deliver integrated data and analytics for private markets. This solution aims to help them manage complexity, enhance transparency and improve decision-making across their growing alternative investment portfolio. Second, we continued to make progress in unlocking the scale and growth potential of our platforms by transitioning approximately half of our people into the platform's operating model over the course of 2025, which brings us to more than 70% of our people working in the model today. This initiative has been a core component of rewiring BNY to make us more agile and intentional in how we deliver to clients. [indiscernible] performs part of a larger collection of initiatives that are at the heart of running our company in a fundamentally different way. Third, in 2025, we made significant advances in the adoption of AI, underscoring our industry leadership in this burgeoning space. Built upon very deliberate investments over the past several years, our enterprise AI platform, Eliza, is unlocking capacity for our people, allowing them to focus on higher value work for our clients. We recently announced a collaboration with Google Cloud to integrate Gemini Enterprise capabilities into our Eliza platform, enhancing our ability to support deep research, analysis and data-intensive workflows across the company, building on existing collaborations with OpenAI and others. These collaborations underscore our commitment to deploying AI responsibly and scale. We expect that over time, AI will allow us to remake many of our processes and systems in new and exciting ways. And that, together with embedding AI in our products and services, represents a significant opportunity for our company in the years ahead. Fourth, BNY has a rich 241-year history of innovation, from issuing the first loan to the U.S. government to becoming the first U.S. [ G-SIB ] to offer digital asset custody. Our focus on innovating new products and solutions is centered on building trusted market infrastructure for the long term and serving our clients in new and evolving ways including increasing delivery of new capabilities connecting the traditional and digital asset worlds. This past quarter, for example, we launched the Dreyfus Stablecoin Reserves Fund, a government money market fund designed to support stablecoin issuers and institutional participants to manage eligible reserve assets providing BNY's cash and liquidity solutions expertise to the growing digital payments ecosystem. Our recently announced tokenized AAA CLO strategy in partnership with [ Securitize ] brings high rated structured credit product onto the blockchain with BNY serving a sub-adviser and custodian of the underlying assets. And just last week, we announced that we have taken the first step in our strategy to tokenize deposits by enabling the on-chain mirrored representation of client deposit balances on our digital assets platform. As we reflect on the scope of our market-leading businesses, our central position as a provider of financial market infrastructure and the depth and breadth of our client relationships, traditional and digitally native. We believe that we are particularly well positioned to advance the future of financial markets. From the very beginning of our work 3 years ago, we have taken a long-term view toward unlocking BNY's full opportunity as a financial services platforms company with a commitment to disciplined execution and sustained value creation for our clients and shareholders over time. I'm going to touch briefly on some of the work that has brought us here described on Page 5 of our presentation. Two years ago, we communicated our strategic road map and a set of medium-term financial targets for what we viewed as the first foundation setting phase in a multiyear transformation of BNY. While there are elements of that work that will continue well into the future, we consider that this is the right moment to begin to turn the page towards our next phase. But before we get to that, I'll take the opportunity to reflect on our efforts, the impact that we've seen across our businesses and operations and how this has started to translate into improved financial performance. As we embarked on the journey, we recognized early on that we had to work across several fronts at the same time. Simplifying how we operate, improving execution and delivering for our clients and that how we did it as a team was essential to creating deep and enduring change. Thorough strategic and financial business reviews demonstrated to us the powerful combination of capabilities within BNY. We are the #1 custodian in the world and the #1 collateral manager, the leading provider of issuer services and the primary settlement agent for U.S. government securities. We operate a top-tier payments and liquidity franchise and offer our clients leading investments and wealth capabilities. Individually, these are market-leading businesses together they represent a set of highly adjacent financial services platforms operating at the center of global financial markets, difficult to replicate at scale and increasingly valuable to our clients. To organize the company around execution, we deliberately framed our work across 3 simple elements of strategy, which we continue to focus on. The first was clients. To be more for them, to deliver more of our existing products to our existing clients to add new clients, to add new products and to meet clients where they are with solutions tailored to their needs and responsive to market trends and opportunities. The second was on how we run our company. We knew we could do that better simplifying, improving financial discipline, breaking down barriers, challenging the status quo and reimagining our operating model as a platform company. The third was culture. Simple to say, hard to do, but magical when it works, a collective sense of ownership, teamwork and accountability, all coming together to bring the other 2 key strategic pillars to life. This spirit of ownership and accountability is at the heart of our delivery. So it was important to us to build credibility and momentum through consistent execution toward better business and operational performance, some examples of which you can see on Slide 6. What has been and continues to be the single most compelling growth opportunity for BNY is doing more business with our existing clients. In 2024, we launched our new commercial model designed to encourage our sales and service teams to raise their ambition equip them with new tools and to enable our people to deliver solutions from across BNY, leveraging the full breadth of our platforms. Over the last 2 years, the number of clients buying 3 or more of our services increased by more than 60%, and organic fee growth has climbed to 3%, reflecting good progress with even greater opportunity ahead. In combination with stronger organic growth, we took steady, deliberate actions to reduce sensitivity to interest rates, driving more resilient top line revenue growth in a range of macroeconomic environments. At the same time, our ongoing transition and increasing maturity in the platform's operating model is reducing friction and driving further productivity improvements. For example, investments in digitization and automation have meaningfully lowered the unit cost for processes like striking a NAV and settling a trade and our people are building innovative AI solutions that we expect over time will have a meaningful impact across the company. We're proud that in 2025 alone, we deployed over 130 digital employees, industry-leading multi-agentic AI capabilities. Our digital employees work alongside our people, supporting them with tasks like validating payment details and remediating code vulnerabilities, allowing teams to focus on higher value work and client outcomes. Taken together, these metrics give glimpses into the how of our execution, milestones and examples, not end points, but helpful indicators that our strategy is working and that there continues to be meaningful opportunity ahead. Turning to Slide 7. By centering the company on positive operating leverage as our North Star, we created a clear intuitive framework for our teams to execute on. The cumulative impact of our steady improvement year after year while capitalizing on a relatively supportive market backdrop has resulted in a meaningful improvement in BNY's financial performance over the last few years. More consistent revenue growth and deliberate expense management have resulted in positive operating leverage, margin expansion and improved profitability, together, driving double-digit annual earnings per share growth. Turning to Slide 8. When compared to BNY's financial performance over the prior decade, we can see the difference that consistent discipline, clear intent and sustained execution make over time. More resilient top line revenue growth has started to build and better control of our expense base has allowed us to continue to self-fund important investments in future growth. While we're encouraged by this progress, we are not satisfied. Our work is far from complete. We remain humble and intensely focused on the opportunity ahead. To that point, I'll wrap up on Slide 9 with where we are headed next. With the foundations largely in place and more of the people in their seats to help us execute. The next phase of our journey to unlock BNY's potential is about realizing scale and growth opportunities across our company. As we mature in our new commercial and platform models unlock capacity using AI and in so doing, serve our clients in new and better ways, enabling the global financial markets and infrastructure of the future. Taken together, our focus for 2026 and over the medium term represents an exciting shift: Built on the work done over the past 3 years to enable higher growth and deliver on the competitive advantages embedded in BNY as we remain steadfast in our commitment to create value for you, our investors. I want to thank our teams around the world for their dedication to our clients and their commitment to reimagining our company. We are entering 2026 with positive momentum and we are excited for the work ahead of us. With that, I'll turn it over to Dermot to take you through the financials for the quarter in greater detail before reviewing our outlook for 2026 and our next set of milestones. Dermot? Dermot McDonogh: Thank you, Robin, and good morning, everyone. I'm picking up on Page 12 of the presentation with our results for the fourth quarter. Total revenue of $5.2 billion was up 7% year-over-year. Fee revenue was up 5%. This included 8% growth in investment services fees primarily driven by net new business, higher market values and higher client activity. Investment Management and performance fees were flat as growth primarily resulting from higher market values was offset by the impact of the mix of AUM flows and the adjustment for certain rebates we discussed in prior quarters. Firm-wide AUC/A of $59.3 trillion increased by 14% year-over-year, reflecting client inflows, higher market values and the favorable impact of a weaker U.S. dollar. Assets under management of $2.2 trillion were up 7%, reflecting higher market values and the weaker dollar, partially offset by cumulative net outflows. Investment and other revenue was $135 million in the quarter, including $43 million of other investment losses and $15 million of net securities losses. Net interest income increased by 13% year-over-year, primarily reflecting the continued reinvestment of maturing investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Expenses of $3.4 billion were flat year-over-year on a reported basis and up 4% excluding notable items. This reflects higher investments and revenue-related expenses, employee merit increases and the unfavorable impact of the weaker dollar, partially offset by efficiency savings. Provision for credit losses was a benefit of $26 million in the quarter, primarily driven by improvements in commercial real estate exposure and changes in the macroeconomic forecast. Pretax margin was 36% on a reported basis and 37% excluding notable items. And return on tangible common equity was 27%. Taken together, we reported earnings per share of $2.02, up 31% year-over-year. And excluding notable items, earnings per share were $2.08, up 21%. Robin touched on our results for the full year earlier, but turning to Page 13, I'd like to expand on some of the most important items. We grew total revenue by 8% year-over-year to a record $20.1 billion for the full year of 2025. Fee revenue was up 6%. We grew investment services fees by 8%, primarily driven by net new business, higher market values and client activity. Investment Management and performance fees were down 2%, reflecting the mix of AUM flows and lower performance fees, partially offset by higher market values and the weaker dollar. Net interest income was up 15%, primarily driven by the reinvestment of maturing investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Expenses of $13.1 billion were up 3%, both on a reported and on an operating basis. Excluding the impact of notable items, the increase reflects higher investments, employee merit increases, higher revenue-related expenses and the unfavorable impact of the weaker dollar, partially offset by efficiency savings. Pretax margin was 35% on a reported basis and 36% excluding notable items. And return on tangible common equity was 26% for the year. As Robin noted earlier, we reported earnings per share of $7.40. Excluding notable items, earnings per share were $7.50, up 24% year-over-year. On to Capital and Liquidity on Page 14. Our Tier 1 leverage ratio for the quarter was 6%, down 9 basis points sequentially. Average assets increased by 3% on the back of deposit growth, and Tier 1 capital increased by $439 million, driven by capital generated through earnings and a net increase in accumulated other comprehensive income partially offset by capital returns through common stock repurchases and dividends. Our CET1 ratio at the end of the quarter was 11.9%, up 17 basis points sequentially. Over the course of the fourth quarter, we returned $1.4 billion of capital to our shareholders, representing a total payout ratio of 100%. Our consolidated liquidity coverage ratio as well as the consolidated net stable funding ratio remained unchanged at 112% and 130%, respectively. Next, net interest income and balance sheet trends on Page 15. We Net interest income of $1.3 billion was up 13% year-over-year and up 9% quarter-over-quarter. Like the year-over-year increase discussed earlier, the sequential increase was primarily driven by the continued reinvestment of maturing investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Average deposit balances increased by 4% sequentially, reflecting 4% growth in interest-bearing and 1% growth in noninterest-bearing deposits. Average interest earning assets were up 3% quarter-over-quarter. Cash and reverse repo balances increased by 4%, loans increased by 5% and investment securities portfolio balances increased by 2%. Turning to our business segments, starting on Page 16. Security Services reported total revenue of $2.5 billion, up 7% year-over-year. Total investment services fees were up 11%. In Asset Servicing, investment services fees grew by 11%, primarily reflecting higher client activity and higher market values. Asset Servicing continues to show strong momentum as clients increasingly access the breadth of capabilities across our platforms to help them evolve their operating models. Sales wins over the course of the year showed broad-based growth across products and segments with particular strength in custody and with alternative asset managers, banks and broker-dealers, a testament to our targeted investments in the fastest-growing segments of the market. ETF AUC/A of $3.8 trillion ended the year up 34% year-over-year, reflecting growth from the more than 2,500 funds serviced on our platform, which was up 22% year-over-year. Alternatives AUC/A were up 10% year-over-year, including double-digit growth in private markets. We continue to invest in capabilities to support our clients' growth, including in retail alternatives with solutions spanning custody, fund services corporate trust, FX and hedging. Broadly speaking, approximately half of all asset servicing wins this past year represented multiline of business solutions reflecting the growing effectiveness of our new commercial model and client demand for consolidating with trusted partners. In Issuer Services, Investment Services fees were up 12% primarily driven by higher client activity in depository receipts. And in our Corporate Trust business, we're pleased with the momentum across our franchise and see significant multiline of business opportunities ahead especially with corporate and municipal clients. We maintained our #1 position in conventional debt servicing and in CLOs and munis where we hold #2 positions we increased our market shares by 4 and 3 percentage points year-over-year, respectively. In Security Services, overall, foreign exchange revenue was down 3% year-over-year reflecting lower spreads on the back of lower volatility, partially offset by higher client volumes. Net interest income for the segment was up 8% year-over-year. Segment expenses of $1.7 billion were flat year-over-year, reflecting higher investments and revenue-related expenses, employee merit increases and the unfavorable impact of the weaker dollar, offset by efficiency savings and lower litigation reserves. Security Services reported pretax income of $838 million, a 30% increase year-over-year and a pretax margin of 34%. It is worth highlighting that for the full year of 2025, Security Services reported a pretax margin of 33%. That was an improvement of 4 percentage points year-over-year and exceeded the medium-term target of equal to or greater than 30% that we established for this segment in December of 2021. Next, Markets and Wealth Services on Page 17. Markets and Wealth Services reported total revenue of $1.8 billion, up 8% year-over-year. Total Investment Services fees were up 4%. In Pershing, investment services fees were down 2%, reflecting client activity in the prior year quarter related to the de-conversion of lost business, partially offset by higher market values. Net new assets were $51 billion in the fourth quarter, representing healthy growth from both new and existing clients. Over the course of 2025, we earned numerous wins from new $1 billion-plus wealth firms and the business accomplished several multiyear contract renewals with key clients. Our commitment to serving multibillion-dollar growth-minded wealth firms across a full suite of custody, clearing, lending, investment products and wealth services is met with interest from existing and new clients and we remain focused on capitalizing on the important opportunity to enable growth for breakaway advisers as their platform of choice. For example, this past quarter, 71 West Capital Partners and West [indiscernible] Wealth Partners selected BNY Pershing to provide custody and clearing for their new independent full-service RIA firms. In Clearance and Collateral Management, Investment Services fees increased by 15%, reflecting broad-based growth in collateral balances and clearance volumes. Average collateral balances of $7.5 trillion increased 15% year-over-year, and average settlements exceeded 1 million per day in the fourth quarter, reflecting higher market activity and new clients on our platform. Against a supportive backdrop from continued issuance and demand for U.S. treasuries, we're focused on innovating solutions that help our clients optimize capital meet evolving regulatory requirements, scale, operational efficiency and access market infrastructure and liquidity. In our Payments & Trade business previously called Treasury Services, Investment Services fees were up 3%, primarily reflecting net new business. Over the course of the year, this business has shown strong performance on the back of broad-based growth across products and regions. Solid growth in sales wins over the course of the year, enabled by our strategic investments in capabilities and talent, give us good momentum into 2026. Net interest income for the segment overall was up 20% year-over-year. Segment expense of $930 million were up 9% year-over-year reflecting higher investments and revenue-related expenses, employee merit increases and higher severance expense, partially offset by efficiency savings. Taken together, our Market and Wealth Services segment reported pretax income of $882 million, up 9% year-over-year and achieved a pretax margin of 49%. Turning to Investment and Wealth Management on Page 18. Investment and Wealth Management reported total revenue of $854 million, down 2% year-over-year. Investment Management fees were up 1% driven by higher market values and the favorable impact of the weaker dollar, partially offset by the impact of the mix of AUM flows and the adjustment for certain rebates, which I mentioned before. Segment expenses of $703 million were flat year-over-year as the impact of higher investments and the weaker dollar was offset by efficiency savings. Investment and Wealth Management reported pretax income of $148 million, down 14% year-over-year and a pretax margin of 17%. As I mentioned earlier, assets under management of $2.2 trillion increased by 7% year-over-year. In the fourth quarter, we saw net outflows of $3 billion including $23 billion of net outflows from long-term strategies and $20 billion of net inflows into cash. Wealth Management client assets of $350 billion increased by 7% year-over-year, reflecting higher market values. Over the past year, we've worked hard to bring our investment in wealth management business closer to our other BNY platforms, streamlined operations and build towards stronger top line growth, including by making several key strategic hires. We expect that 2026 will be the year in which this work will start to translate into improved financial performance. I'll close with our financial outlook. Page 21 shows the current expectations for 2026. Notwithstanding a very dynamic operating environment, positive operating leverage continues to be our North Star and so we have set ourselves up for another year of more than 100 basis points of positive operating leverage in 2026. This reflects our current expectation for total revenue excluding notable items, to grow by approximately 5% year-over-year in 2026 market-dependent. And accordingly, a plan for approximately 3% to 4% growth in expenses, excluding notable items. Specific to the first quarter, I would like to remind you that staff expenses are typically elevated due to long-term incentive compensation expense for retirement-eligible employees. And on taxes, I'd like to note that over the course of 2026, we expect a quarterly tax rate of approximately 23%, with the exception of the first quarter, in which we currently expect to see a tax benefit from the annual vesting of stock awards. Finally, turning to Page 22 for our outlook for the medium term. 2 years ago, we communicated our first set of medium-term financial targets, which were to improve BNY's pretax margin to equal to or greater than 33% and our return on tangible common equity to equal to or greater than 23% while maintaining a strong balance sheet. Today, we are raising the bar. We are increasing our pretax margin target by 500 basis points to 38% and we are increasing our return on tangible common equity target also by 500 basis points to 28%. These new medium-term financial targets represent the next milestones on our path to unlocking BNY's full potential over the long term. What remains unchanged is our commitment to prudent balance sheet management and with it, our philosophy for capital deployment and distributions. Our Tier 1 leverage ratio management target remains unchanged at 5.5% to 6%, and we will continue to manage ourselves conservatively to the upper end of that range for the foreseeable future. Robin talked about our strategic priorities for this next phase on our multiyear transformation of BNY earlier. These new medium-term financial targets are a reflection of our confidence in the solid foundation we've built over the past few years and they demonstrate our determination to continue driving positive operating leverage as we realize greater scale and growth opportunities across our platforms. And with that, operator, can you please open the line for Q&A. Operator: [Operator Instructions] We'll take our first question from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess maybe first question for you, Dermot, on the guidance, especially when we look at the revenue growth, just annualizing our fourth quarter NII gets you to about 9% growth on the NII side. So if you don't mind unpacking that a little bit around what are the assumptions underpinning that revenue growth outlook and on fees as we think about '26? Dermot McDonogh: Okay. Ebrahim, hope you're well. So let me start with saying this year, we're doing it slightly differently. We finished the year with $20.1 billion of revenue, and the performance over the last 3 years has given us confidence to guide top line growth. And as I said in my prepared remarks, the guides that we're giving to you for 2026 is up 5%, plus or minus year-on-year on the top line revenue. Now underneath that, you have both fees and net interest income. And I've said previously that Q4 is a good jumping off point but December was a particularly strong month for us in NII. So the way I would think -- the way you should think about NII for us this year is a little bit ahead of 5%, fees may be a little bit lower than 5%. So all in top line growth, up 5%. Ebrahim Poonawala: Understood. That's helpful. And I guess maybe one bigger picture question, just around as we think about the strategic targets and maybe, Robin, your thoughts, I guess the one missing piece here is how would you want the seat to think about -- I guess, the medium-term earnings growth potential for BNY. And within that construct, for whatever reason, if the revenue growth environment worsens, your level of confidence in defending the margins and the ROTCE targets that you've upgraded today? Robin Vince: Sure. So look, I'll take it, it's kind of got 2 parts. I'll take it both parts of that. But first of all, on the growth targets. Look, we've said all along, the positive operating leverages are North Star. And we've also said that there will be different components to achieving that in any year. And I think it is important to note that, and that's one of the reasons why as Dermot just said, we sort of moved to the total revenue guide because we recognize it's sort of a compositional question. But you should be able to hear from us, certainly, in our prepared remarks, is a bit of an increased conviction inside the company about our ability to win and grow. And we've certainly been setting internal aggressive sales and revenue targets to be able to do that. But to your question, we're certainly humble about the fact that we've got to be careful around any particular assumptions on market environment. And this is where I come back to the fact that we're all risk managers at heart. We're sort of projecting out a lot of different potential scenarios. And we take very seriously the fact that we've got to have levers to the extent that the markets might end up disappointing. And so we created agility in our expense base. And that's been part of our work over the course of the past 3 years. The platform's operating model work, the work that we originally did around some of the efficiency savings, making choices. And the fact that we've now got the rhythm of saying, "hey, we could actually make different choices on business development expenses, compensation if needed, the investment book of work." And so this agility is extremely important. But I'll just also recap with a reminder of the fact that we've also deliberately positioned the platforms inside the company and the whole company to trying to reduce the macro sensitivity to the world. And so you've seen that in NII. We actually specifically called it out in the presentation. But if you look at the different cylinders of the revenue engine of BNY equity market values, fixed income market values, equity market transaction volumes, fixed income market volumes, government issuance, private sector issuance, capital markets activity, GDP growth, payments, software, services, execution and clearing, generally, fixed income and equities. That is all very deliberately positioning ourselves to be able to be more resilient. But then, of course, to your question, to the extent that things happen, we can still react to them. That's how I think about it together. Operator: We'll take our next question from Michael Mayo with Wells Fargo Securities. Michael Mayo: As part of your new hire targets, how much does your thought about tech and AI play into that and specifically, as it relates to AI, you certainly got our attention. You have over 100 digital employees. How many of those AI digital employees do you expect to have over 3 to 5 years? And what's the savings from them? And again, how does that play into your new hire targets? Robin Vince: Yes. Thanks, Mike. Look, AI, we think, is super important. We think it's just going to be able to be a catalyst for transformational change. We think that's true for the world. One of the most important evolutions in a technology, frankly, in hundreds of years is the way that we think about it. And so given that, it's very hard to project very clearly exactly where we'll be 1, 2, 3, 4, 5 years from now. And so there's always the risk that we haven't properly and fully incorporated it into our medium-term targets because while we thought about it, it's hard to look into the future that clearly. But the way that we think about AI and maybe this will be helpful, therefore, is we think that the technology has already gotten to a level where it can have a very significant impact, frankly, on all of us individually and companies and certainly here at BNY. And if that follows then we think it follows that adoption and integration risk becoming the limiting factors. So what we focused on is the real cultural side of it. Making AI for everyone, everywhere and for everything at BNY is our mantra. We launched our AI hub in 2023. That was just after the ChatGPT moment. We now have an enterprise AI platform, Eliza, that's general intelligence model-agnostic, and it supports this multi-agent functionality that underpins the digital employees that you referenced. And then we've put in place the resources to support that to really enable the scaling of it. That's all of the GPU compute. We've got our own NVIDIA hardware and tech, but we've also got the collaborations with Google that I mentioned in my prepared remarks and OpenAI and others. And then the culture point again, and you'll see this, it sort of resonates through the whole set of transformation and rewiring concepts that we're talking about for the company. It's as true for AI because if AI is this great capability, it's a superpower, it can, therefore, be a capacity multiplier for our people and so that's what is causing our people to be able to pull AI towards them, hence, the digital employees working side by side with our people. Now it is early days. We will continue to give you mark-to-market in terms of how we're making progress on this. But we are short-term enthusiastic, medium-term excited and long term, believing that it will have a significant positive impact. Michael Mayo: That was helpful. So I get the enterprise with Eliza scaling culture, you're excited about it, but could you put a little bit more meat on the bones if you could, like you might have 134 digital employees today and does that equate to in savings? And where do you think that number goes to? Or that's a little bit more detail, if you could? Dermot McDonogh: Mike, it's Dermot here. If you review the materials on Page 6 of our financial presentation, you'll see over the last couple of years that our headcount has trended down a little bit, but that's not really anything to do with [ AIES ]. We talk about internally, AI is unlocking capacity we don't think about it as in the narrow definition of efficiency. It's all about growing with clients, increasing revenues and optimizing the potential for our employees. So you have to think that over time, AI as a superpower as Robin just said, is going to increase revenues, create capacity and will allow us to do more with existing resources. And over the last couple of years, we've been doing this right since the get-go in terms of enterprise-wide strategy. We've been quite constrained in our spending, and we've been very disciplined, we continue to spend more on cyber resiliency than we do on AI. So the return for our money is very, very high from probably getting from the enterprise today. And so we only see upside from here. Operator: We'll move to our next question from Ken Houston with Autonomous Research. Unknown Analyst: I wonder if you can detail a little bit the pretax margin improvement to 5 points. What -- can you go through kind of each of the businesses and talk as to how your individual business line pretax margin thoughts are evolving within that too? Like where do we get the most juice? Dermot McDonogh: Okay. Thanks for the question. So if you kind of go back to 2023, we delivered an actual performance pretax margin of 30% and ROTCE of 22%. And back then, when we initially established the medium-term targets, we went for 33% and 23%. And now we're going with new medium-term targets today of 38% and 28%. So you see real progression there over the last 3 years. And also today, as I mentioned on the first question from Ebrahim, you see us guiding for the first time, top line revenue growth. Previously, we guided by business. You will have seen us guide 4 years ago on security services and we've kind of surpassed that guide. And so that really speaks to the power of the One BNY transformation that we've been doing over the last 3 years. We have 3 segments: Security Services; we see upside in Corporate Trust; we see upside in Depository Receipts. We feel that asset servicing over the last 3 years has really transformed in terms of growing revenues, taking advantage of efficiencies and driving pretax margin. So that kind of disciplined focus on expenses is allowing us to better price for business to win in Asset Servicing. Market and Wealth Services is the most akin to platforms at scale that we have at the moment as the rest of the firm matures in the platform operating model. The pretax margin there is roughly, give or take, around 50%. We would expect to grow that pie at that margin. And so the upside from there on that segment was probably a little bit muted. But in Investment and Wealth Management, where we've guided 25% and we finished last year at roughly 17%. That's where we see the most opportunity in '26 and beyond as we kind of begin to see the green shoots of recovery in that segment come back. So One BNY overall delivering for clients, as Robin said in his prepared remarks, 64% increase in clients buying from 3 or more lines of business in the last 3 years. 10% of new logos coming to the firm last year as a percentage of sales. So the clients are noticing what we're doing and want to do more with us. Robin Vince: And remember, there's a compositional thing here as well, Ken, because if you think about the combination of corporate trust, depository receipts, payments, trade CCM and Pershing, which are kind of the platform [ e-businesses ]that Dermot was talking about, that now represents about 2/3s of the PTI of the company, 3 years ago, that was just 55%. So there's a bit of an averaging here given the fact that that's -- those are the -- that's the segment, MWS and the businesses that are actually growing the fastest inside the company. So actually as a percentage of the whole, they're growing. And that's a factor here, too. Unknown Analyst: Yes. Got it. And just a follow-up, Dermot, on your point about how December was a strong month for NII. You guys have done a very good job kind of consistently being conservative about your NII outlook. What would you say about the fourth quarter? Was it deposit balances? Was it pricing? Like what are the elements that may not run rate forward relative to your exit? Dermot McDonogh: So Q4 really was balances held in quite nicely, and we had -- we always say that we don't lead with deposits and really NII is an output as a result of franchise activity. And in Q4, we had very strong activity in our asset servicing business, which caused balances to outperform in the last few weeks of December, and that caused the outperformance. Unknown Analyst: Okay. I would just think that just as you're continuing to push, as you mentioned just before, like why wouldn't that just be a better organic hold on just activity and overall balances? Dermot McDonogh: So if you kind of take balances overall, for 2026, we expect balances throughout the course to be roughly flat, Q4 is normally our strongest quarter on balances. Q3 is usually the seasonally slowest and you would expect over the next couple of quarters to moderate down slightly. When we give you the -- when we think about the 5% plus, it's really around the asset side of the balance sheet where we have securities kind of rolling off, and we're reinvesting as a kind of [ 100 to 150 ] basis point pickup. So we kind of -- we've narrowed the range of the cone of outcomes as it relates to interest rate volatility, balances we expect remain roughly in line or flat, and the pickup will come from assets rolling off into higher-yielding securities. Operator: We'll take our next question from Steven Chubak with Wolfe Research. Steven Chubak: So Robin, I wanted to start with a question on your newly launched tokenized deposit capabilities and I was really hoping you could speak to institutional demand for the offering what has been some of the early feedback? And as the effort scales over time, how might your monetization approach differ versus some more traditional deposit gathering activities. Robin Vince: Sure. So look, I just sort of step back from the whole thing because this really is part of the overall digital asset opportunity. We see global financial markets as transforming, moving towards more of an always-on operating model. And we're in the business of moving, storing and managing money. And so we think we're particularly well positioned to connect the traditional and the digital rails to really be able to enable clients. And so our road map has really been, right from the beginning, focus on the innovation, be able to bring the capabilities online with that first with digital asset custody, stablecoin enablement. You just mentioned the tokenized deposits. And so that allows us to be able to serve both the new digital native clients who, by the way, want the new digital services, but they also want some of the traditional services from us. So we're enabling both with them, and it also allows us with our existing clients to be able to help them to be able to move into this world. So for instance, as a client might want to open up a new share class in parallel to their traditional share classes, maybe they want to open up a tokenized share class, we can do that as well. So it really is these 2 things working in concert that we think unlocks new possibilities. And we see the value of the improved efficiency, reducing friction that is real value here. And so then when you click in, stablecoins and tokenized deposits are just to become 2 examples of all of that, stablecoins providing the on-chain settlement currency, which is very necessary and it's frankly because it's their stable value, probably better some of the other alternatives. And there, of course, there are choices there in the stablecoins. And then tokenized deposits really improving the internal utilization of cash. And so for a client making a deposit with us, we can actually improve the usability of that deposit, it becomes sort of programmable, if you will. And it allows that money to be able to work harder and faster for them to be able to facilitate other activities and ultimately might, in fact, create the opportunity for clients to be able to do more things with us anchored around some of those types of activities. Steven Chubak: Robin. And for my follow-up, maybe for Dermot, just on the clearance and collateral management business. You've delivered 4 consecutive years of double-digit fee growth in that area, exited this year growing 15%. Just given expectations for a meaningful uptick in treasury issuance, how does that inform the outlook for the business? Is this double-digit growth rate sustainable? And what are some of the factors that could potentially derail some of the recent momentum? Robin Vince: Great question. So the way I would think about this is, as you rightly pointed out, the growth rate over the last couple of years has been quite nice to see. And so we would say the growth rate from here, probably a little bit more modest compared to previous years. We have the treasury clearing mandate coming in, which we expect to kind of influence some of the things that go on there. So in the U.S., I would say, more treasury issuance a little bit more stable than we've seen in the prior couple of years because we've kind of volumes, et cetera, et cetera, are beginning to moderate and where we see some of the growth opportunities outside the U.S., and we've said that on prior calls, where we're continuing to invest in new products and services around the world. So we expect to continue to grow internationally and moderate in the U.S. Operator: We'll take our next question from Alexander Blostein with Goldman Sachs. Alexander Blostein: I was hoping to jot a little bit and talk about the fee revenue outlook as a whole. You guys updated the organic revenue growth for 2025, which looks like came in at 3%. Some businesses are doing better, some are doing a little worse. And the ones where you're seeing strength, particularly things like Security Services, it sounds like that momentum is continuing and then in things that are slower when I think about like Pershing or maybe your asset management, there are some idiosyncratic things that you pointed to that should improve. So as you think about organic fee growth into '26 and beyond, any way to frame what that could look like? Dermot McDonogh: So thanks for the question, Alex. I really would look at and study Page 6 of our presentation. There are 2 graphs that I particularly like on that page. One is the deeper client relationships where you can see that over the last 3 years, we've grown clients who are buying for more than -- 3 or more lines of business has increased by 64% and then when you pivot over to the middle page, you can see that 2022 flat organic, '23 flat organic 24%, 2% and 2025, 3%, then that gives us the confidence to be able to guide 5% to the top line of $20.1 billion. And as I said in an answer to an earlier question, 10% of our sales last year was with new logos. And when you listen to Robin and his answer to the previous question on digital assets, more clients are coming to us because they want thought leadership. And as a consequence of leadership in new spaces, frontier products, we're doing stuff in traditional services. So the short answer to your question is it's the portfolio effect of delivering One BNY to a broad range of clients. Robin said 3 years ago, we have a client list that's the envy of The Street. We pretty much service most of the S&P 500. And so clients are seeing the change that's happening at the company, and they want to do more with us. So I would say no one business is doing better than the other. Everything has upside, everything is opportunity. As it relates to Pershing specifically, I'm pleased to say that the last couple of years, I would have said on most calls, [ were ] deconversion due to M&A activity, that's largely behind us, which reinforces why we feel confident that we continue to grow now at mid-single digits for net new assets. So we feel good about Pershing and the opportunity that's in front of us there. And also, as I said in the answer to a previous question, we feel we've turned the corner in IWM and '26 is the year that we're going to begin to see the transformation as we brought that business closer together with BNY. Robin Vince: And Alex, I'll just add one thing, which is -- and I understand because we've talked about this a bunch over the course of the past couple of years in terms of, okay, where is the growth going to come from? How are you really thinking about it? We talked before about the alpha and beta that we see in the overall business model. And so I just want to remind you of the beta point. Dermot touched on it related to digital assets. But just remember, there are quite a few megatrends that that we think can be quite interesting tailwinds for the company. And so the question is, have we positioned the company in the right way and all of our business platforms to really be able to serve clients as it relates to those various different trends. So just very briefly to tick through them, capital markets, the growth in capital markets issuance, trading, movement of assets. Think about it, corporate trust, our payments and trade business depository receipts, they line up very well with that particular trend, alternatives and our ability to support clients -- alternative clients end-to-end, private market assets, again, Corporate Trust, Asset Servicing, very much playing in that space, wealth very important segment, Pershing, wealth investments are all significant players in participating in the growth of that megatrend. Digital assets, which we talked a bunch about already. And that, again, many of our businesses aligned to enabling that. The growth of fixed income, which Dermot touched on, that's relevant, not only in the obvious ways, but also in the financing private markets, data centers, U.S. treasury borrowing. And then the big one, outsourcing, clients wanting to focus on what they're really good at and asking us to step in because of the breadth of what we can do to do some of the one-stop shopping being a trusted provider and really giving us that opportunity to serve them more comprehensively. So when you think about that backdrop we have not only the alpha of all of the individual work that we're doing internally, but we're also positioning to be able to take advantage of that. We think the combination of the two things is pretty interesting. Alexander Blostein: Yes. No, I agree that. And definitely like the direction where things going on that Chart 6 -- or Slide 6. For my follow-up, guys, real quick on the buyback. I don't think I heard you guys talk about the capital return plans for 2026 specifically? And then just broadly, when you think about the growth algorithm of the firm, your medium-term targets. Obviously, you gave us margins and the return of capital. But as you think about the share repurchases and the total return of capital, how does that play out over the next couple of years? Dermot McDonogh: So big picture, Alex, the capital -- our capital philosophy remains unchanged as you both know, Robin and myself, we like to run to the upper end of our Tier 1 leverage ratio, lot of uncertainty in the markets the last couple of years. The outlook is going to be a little bit uncertain. So we like to kind of be in that kind of 6% ZIP code of Tier 1 leverage ratio. And when you step back from what is BNY, it's a capital-light balance sheet with a very clean balance sheet, very liquid balance sheet capital generator. And over time, we've consistently returned earnings to our shareholders. And so we expect that to continue and when you kind of solve for the model of what we've guided for 2026, it's going to be consistent. So the buyback number as a percentage is really an output to all the things that we've talked about earlier. So it's going to be in that kind of [ 95, 105 ] range. And so don't really feel that it's necessary to guide on the buyback anymore given the overall algorithm and the model that we have for the future. Operator: Our next question comes from Brennan Hawken with BMO Capital Markets. Brennan Hawken: I actually have a question on organic growth as well. And thanks for all the color you've given. So you generated 3% organic growth last year. Your assumptions in your outlook are that organic growth would accelerate, markets are flat, but yet the fee revenue outlook is sub-5%. So this is kind of 2 possible outputs, conservative outlook? Or was there some over-earning or onetime items that might have elevated the baseline that you're growing off of when we think about 2025 into 2026. Dermot McDonogh: So look, organic growth in '26 versus '25. I think if you look -- go back to Page 6 and you see the impact that the commercial model is having, right, on the 2 graphs of organic fee growth and deepening client relationships. The story is quite compelling. And so we continue to hire new talent. The commercial model is not even 2 years old. So we continue to bring in new talent around the world and we continue to raise the ambition of what we want to do with clients across a wide range of services. So I would expect higher organic growth this year, which reflects the flywheel of the new commercial model and also new product development and the culture that we've kind of changing over the last couple of years at the firm. We haven't really mentioned this, but we have hired a new Chief Product and Innovation Officer who's been with us a little bit over a year, and we would expect a similar impact on the product side of the house that we've had on the commercial side of the house. So we feel quite good about the outlook for organic growth to 2026. Brennan Hawken: No, no. I totally appreciate that. My question is if the organic growth is going to accelerate, markets are flat. How do we end up with sub-5% fee revenue growth? And correspondingly, if you've got organic growth -- I might as well also just throw my follow-up now. Why would balances be flat? Don't balances tend to move with organic growth as well. So shouldn't that move with organic growth? Or was there something in the baseline that might cause that -- those 2 metrics to diverge? Robin Vince: You framed the question at the beginning as we are we over-earning. We don't think we're over-earning. We think we are being thoughtful in the way that we're positioning the outlook for 2026. We see, of course, variability on each of the inputs to the total revenue actually overall line. But we recognize that it could come a little bit more or less with NII. It could come a little bit more or less with the organic fee growth. Of course, no one quite knows what going to happen with markets, which is why we're sort of making what we think is a reasonable baseline assumption there. So you're doing the math and we're kind of agreeing with you. We're not quite exactly sure how the composition is going to come, but we feel pretty good about the guide. Brennan Hawken: Excellent. Okay. Well, I look forward to seeing that organic growth continue to grind higher. So it's a great outcome. Operator: Our next question comes from Betsy Graseck with Morgan Stanley. Betsy Graseck: All set. All my questions have been asked and answered. Thanks so much for the time today. Operator: We'll take our next question from Glenn Schorr with Evercore. Glenn Schorr: Thanks. I'll just do one small one. We're getting long in the tooth here. So I heard your comments about the deconsolidation in Pershing running its course, and I agree. I just -- taking a step back, there's been a ton of consolidation in the space, except there's also a lot of PE ownership. There's a lot of more consolidation to come. And so I'm curious if you've looked underneath the covers to see your book of business and how high up in the table, it is, meaning do you service a lot of the consolidators or the consolidates in the future because there's going to be more. And then I worry a little bit about -- not that I agree with it, but in the past, sometimes when they get big enough, they think they can in-source and do it themselves. I'm just curious if you could talk a little bit about any part of that. Dermot McDonogh: Okay. Thanks for the question, Glenn. I see us playing a very significant role in what is a very big market. We are a $3 trillion player in this space. And we believe we have the products, we have the talent, and we have a right to play in this space. And we've seen that over the last 12 months, where we -- and I've said it in our prepared remarks, we've had contract renewals with big players. We've had a couple of breakaway clients in the fourth quarter that we've onboarded, which I said in my script. And so we feel like we're going to do as well as anybody else in this space, and we have the tools and the solutions and clients are happy with Wove. They like Wove. We've invested -- we have more than 50 clients on that platform now. We continue to grow revenue, and we continue to bring in talent to be able to drive the business forward. And so we kind of think maybe for the next couple of quarters, you won't see necessarily the M&A that's been seen in the last few quarters as people are digesting those transactions. And so there has to be a kind of a a pause for digesting and our pipeline is robust and healthy. Operator: We'll move to our next question from David Smith with Truist Securities. David Smith: Your new medium -- your new medium-term targets aren't too far ahead of the adjusted performance of the past quarter. Can you just go into some more details about why you feel like these are sufficiently ambitious given the opportunity set in front of BNY over the next 3 to 5 years? You pretty much hit your targets that you set in January 2024, for your full year 2024 adjusted results. So now I hear you about conservatism and the importance for unity across a range of market backdrops. But what -- can you share to show us why the bar has been set high enough for the next few years? Dermot McDonogh: Okay. So I was expecting this question. So as you -- who gets to ask it. The way I would answer it, if you go to Page 22 of our highlights presentation. When we were at [ finish '23 ], pretax margin was at 30% and we went with medium-term targets of 33% and 22% on ROTCE, 23% was the medium-term target. I think you appreciated that ambition and liked the targets, and it was doing it for the first time and said, okay, BNY is kind of raising the bar in itself. So now we closed the year quite strong and we're going with 38% and 28% for 3 to 5 years out. So again, we're going to stay -- we're going to do that over time through the cycle. And so a lot of things can go in a different direction. It's going to be nonlinear and we're raising the bar. Every day, we're trying to outperform that, but we're setting -- maybe think of that as a floor to our ambition and we'd look to outperform it. So we feel like it is stretchy for the firm given where it is in its transformation, and we're always going to look to outperform those targets. David Smith: Just as a follow-up, it's great to see the improvement in client relationship depth with clients who work with 3-plus businesses up 64% versus 2 years ago. Can you give us any sense of the number in absolute figures? Is it a single-digit percent of use 3 or more businesses at BNY right now? Is it the majority? Is it somewhere in between? Where do you want us to get to over the medium term? Dermot McDonogh: So one of the things that I haven't said is last year, we had 2 individual record sales quarters. So I would say it's all across the firm. And we've had 3 consecutive years of year-on-year growth in core fee sales. And so when you look about that in the context of a commercial model that's not even 2 years old, then you have to feel optimistic about the future. 60% of new clients buying from 3 or more lines of business and 10% of sales in 2025 were clients that are new to BNY. And that is some of the points that Robin made about the new products where clients are coming to us for thought leadership. And while they're with us and talking to us, they're doing traditional services. And we've seen an increase -- a 20% increase in annual sales productivity. So I think the hustle and energy within our commercial organization is possible and clients really want to talk to us about doing more with us. And also, the last point I'd make on this is -- over the last 3 years, we've roughly spent $0.5 billion each year investing in the firm and providing improved client service, improve solutions, improved product. And you can see that particularly showing up if I was to pick one business or one segment. You see it showing up in security services, which is really where we've really outperformed on the margin. And so we see a real flywheel of momentum there and we expect that to continue on the forward. Operator: Our next question comes from Gerard Cassidy with RBC. Gerard Cassidy: Robin, can you give us bigger picture, you guys have obviously put up very strong organic growth numbers, and that's the focus. But when you think about opportunities to grow through acquisitions or inorganic growth, is there any areas that have an interest to you? I know you've done a small deal a couple of years ago. And all the focus, again, has been on organic, which has been fabulous. But what about inorganic or acquisitions? How do you think about that? Robin Vince: Sure, Gerard. So look, let me just start with just bringing you back to our remarks because I do think this is a very important context for M&A because there are a lot of different reasons why folks can do M&A and one of them is obviously when they absolutely need to go do something because they've run out of runway themselves in some respect. And I think our headline is that our organic transformation is working and it started to show tangible results, and we think we've got strong momentum and the runway to create more value here for clients, and therefore, for shareholders over the near, medium and long term. We're certainly open-minded about inorganic opportunities if they can accelerate, derisk or enhance our value proposition. But we do feel -- so we have a lot of optionality here because we've got the momentum from what we're already doing. We feel good about that organic path. And so we don't have any pressure to do M&A. And that's very important because we think that when you look out and see the reasons why various different folks do M&A is not always for the best reasons. So that optionality, we think, is a very a very real thing. Now in terms of the philosophy, there's no change to it. So M&A, if done well, can be a powerful tool in the toolkit. We're certainly open to things. We look -- Dermot said this before, ever since last summer when there were all these rumors in the market, we've had a lot of bankers calling us with inorganic opportunities. So we see the flow and we're in touch with it, which is good. But for us, it's going to be about good discipline, alignment with strategic priorities, strong cultural fit, attractive financial returns and the bar is definitely high. It would have to make a lot of sense because as I said, we don't feel like we need to do it, but that's sort of collectively how we think about it. Gerard Cassidy: Very good. And just to tie into that, in the markets you operate what are the markets that are the most robust? Is it domestic U.S.? Or is it Europe? Asia? Because obviously, you're global, you've got a good feel for that. Where are you guys seeing the best growth and the best opportunities for growth? Robin Vince: It's interesting. It's going to sound like I'm not going to give you a satisfactory answer to the question because it really is all of the above. The U.S. is the biggest market that we operate in. If you want the split, it's approximately 40% outside of the U.S. So we feel like we've got a good global balance, but the U.S. obviously has got a lot of opportunity for us and a lot of our platform have seen the growth. But actually, last year, the fastest growing in percentage terms region was actually Asia. So clearly, there's opportunity there as well. And I would say historically in Europe, we might have been a little bit under-penetrated so that there's real opportunity there as well. So I wouldn't really break the opportunity down on geographic lines. And as Dermot said, we don't really break it down on business lines either because we see opportunity and pathway in each one of the businesses, albeit for very different reasons, and that really ties back to this point about the different things going on in the market, these mega trends, whether it's capital markets, private markets, et cetera, that I talked about before. So this is a critical part of how we're thinking about the company. We are deeply invested in making the company work more effectively, the agility, the platform's operating model in terms of how we run the place. We've deeply invested in the commercial model so that we can actually get more and more out of the businesses that we have, this great breadth of businesses to deliver to clients, including in more combinations and more solutions, which is exciting. Dermot mentioned product and innovation, that's exciting because that's about new products in the same way as he mentioned, new logos earlier on. And so all of those things come together for us think, to be able to drive opportunity, which is one of the reasons why when we sit and look at what we have, going back to the beginning of the answer to your question on M&A, we feel like we've just got a lot of opportunity with what we've got to make more of it. Gerard Cassidy: Very good. And then Dermot, a quick question on Slide 6, as you referred to one of your favorite graphs, the deeper client relationship graph. I don't think you mentioned this, but if you did that, I apologize. What percentage of the customers are now taking more than 3 products or 3 businesses? Or are you is there still enormous room for this to continue to grow at this rate because you just haven't deeply penetrated all of the customer base at this level? Dermot McDonogh: So I would say a lot more room for improvement. It's a momentum. It's a cultural transformation. It's a de-siloing of the firm in some ways, we're kind of turning a page here today on Phase I to Phase II but the work is never done. And so we think there is more upside, more training, deeper integration of the businesses. We kind of like -- if I just give you one specific example, asset management can do a lot more with Pershing than what it does today. Asset Management can do a lot more with asset servicing kind of it does today. And the leadership of those 3 businesses are beginning to see that opportunity. We have great manufacturing capability and asset management. We need to deliver that to the rest of the firm and their BNY clients. Operator: We'll take our next question from Emily Ericksen with Citigroup. Emily Ericksen: I wanted to ask first on -- on the expense side of things, you're guiding to 3% to 4% for '26, so take the midpoint of that comes in somewhere near where you guys printed for '25. But we're talking about flat markets, right, from year-end. Is the way I kind of square, I guess, that difference is some of the market-related [ uplifted to expenses ] expected to kind of recede the balance between what you're able to harvest in efficiency savings relative to the incremental investments, the $500 million from '25, how should I think about that particular balance on the expense side of things in the '26? Dermot McDonogh: So I'm looking at Page 21 of the financial presentation, Emily. And look, for the first time this year. Previously, we've guided some operating leverage and positive operating leverage. Today, we're coming out and saying it's going to be greater than or equal to 100 basis points. And over the last few years, I think we've managed to establish some credibility that we are very good stewards of our expense base, very good financial discipline. And we've harvested roughly $500 million a year for each of the last 3 years, and we've reinvested that in the business to grow. And so it's really about the 3% to 4% guide for 2026 is that continued investment in the business in a very agile and dynamic way, which gives us then the confidence to be able to guide to the top line growth of 5%. So it all starts with top-down where we kind of say we want to solve and deliver positive operating leverage to you. And then as a consequence of that, in the budget season, then we're going to go through the bottoms-up planning analysis, and we arrive at this model that gives us this flex on the expense side. Emily Ericksen: Got it. Okay. And then just on the NII side of things, you've talked about breaking out that 5% on total revenue a little better if we look just at the NII piece. How much of that -- can you sort of walk through the drivers of where NIM goes from here? I know you have the reinvestment impact on the security side of things, but you also pointed to some deposit margin compression in 4Q. Is there room for significant NIM expansion to support that 5% plus on the NII side? Dermot McDonogh: So I'm not too sure what your definition of significance is, but I would expect over the course of 2026 for NIM to grind higher from where it is today. Operator: Our final question comes from the line of David Konrad with KBW. David Konrad: My question on capital was asked and answered, so we can end it here. Operator: And with that, that does conclude our question-and-answer session for today. I would now like to hand the call back over to Robin for any additional or closing remarks. Robin Vince: Thank you, operator, and thanks, everyone, for your interest in BNY. If you have any follow-up questions, please reach out to Marius and the IR team. Be well. Operator: Thank you. This does conclude today's conference and webcast. A replay of this conference call and webcast will be available on the BNY Investor Relations website at 03:00 p.m. Eastern Time today. Have a great day.
Jamie Dimon: Welcome to JPMorgan Chase's Fourth Quarter 2025 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. The presentation is available on JPMorgan Chase's website. Please refer to the disclaimer in the back concerning forward-looking statements. Please stand by. At this time, I would now like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon, and Chief Financial Officer, Jeremy Barnum. Mister Barnum, please go ahead. Jeremy Barnum: Thank you, and good morning, everyone. This quarter, the firm reported net income of $13 billion and EPS of $4.63 with an ROTCE of 18%. These results included the previously announced reserve build of $2.2 billion NCCV related to the forward purchase commitment of the Apple Card portfolio. Revenue of $46.8 billion was up 7% year on year on higher markets revenue as well as higher asset management fees and auto lease income. The increase in NII ex markets was primarily driven by higher firm-wide deposit and revolving balances in card, largely offset by the impact of lower rates. Expenses of $24 billion were up 5% year on year, predominantly driven by higher volume and revenue-related expenses and compensation growth, including from office hiring, partially offset by the release of an FDIC special assessment accrual. Turning to the full year results, I'll remind you that there were a few significant items in 2025 which are listed in the footnote. Excluding those items, the firm reported full-year net income of $57.5 billion, EPS of $20.18, revenue of $185 billion with an ROTCE of 20%. And in terms of the balance sheet, we ended the quarter with a standardized CET1 ratio of 14.5%, down 30 basis points versus the prior quarter as net income was more than offset by capital distributions and higher RWA. This quarter's higher standardized RWA is driven by increases in lending across both wholesale and retail including the Apple Card purchase commitment, which contributed about $23 billion of standardized RWA partially offset by lower market risk RWA. You'll see that sequentially, the advanced RWA is up more significantly than standardized. And as you know, our SCB is now at the two and a half percent floor which makes advanced RWA more relevant, so we have added it to the page. The Apple Card transaction's advanced RWA contribution about $110 billion based on the sum of expected drawn balances and undrawn lines on closing. The elevated level of Advanced RWA is temporary and is expected to reduce to approximately $30 billion in the near term. Moving to our businesses. DCP reported net income of $3.6 billion or $5.3 billion excluding the reserve build for the Apple Card portfolio. Revenue of $19.4 billion was up 6% year on year, predominantly driven by higher NII on higher revolving balances in card, and a higher deposit margin in banking and wealth management. A few points to highlight. Consumers and small businesses remain resilient. We continue to monitor leading indicators for any signs of stress. And despite weak consumer sentiment, trends in our data are largely consistent with historical norms and we are not currently seeing deterioration. Cross income groups, debit and credit sales volume continued to perform well, up 7% year on year. For the full year, we had strong growth in our franchise with 1.7 million net new checking accounts, 10.4 million new card accounts, and record households in wealth management across digital and advised channels. Next, the CIB reported net income of $7.3 billion. Revenue of $19.4 billion was up 10% year on year driven by higher revenues in markets, payments, and security services. To give a bit more color, IB fees were down 5% year on year, reflecting a strong prior year compare and the timing of some deals that were pushed to 2026. In terms of the outlook, we expect strong client engagement and deal activity in 2026, supported by constructive market dynamics which is reflected in our pipeline. Markets, fixed income was up 7% year on year, with strong performance in securitized products, rates, and currencies in emerging markets. Largely offset by lower revenue and credit trading. Equities was up 40% with robust performance across the franchise, particularly in prime. Turning to asset and wealth management. AWM reported net income of $1.8 billion with a pretax margin of 38%. Revenue of $6.5 billion was up 13% year on year, predominantly driven by growth in management fees on higher average market levels and strong net inflows as well as higher performance fees. Long-term net inflows were $52 billion for the quarter, $29 billion for the full year, positive across all channels, regions, and asset classes. In liquidity, we saw net inflows of $105 billion for the quarter and $183 billion for the year. And we saw record client asset net inflows of $553 billion for the year. To finish up the fourth quarter results, Corporate reported net income of $3.7 billion and revenue of $1.5 billion. Before I go over the outlook, I want to make a few points on nonbank financial institution lending given the attention it received last quarter. When we look at NVFI lending internally, we use a narrower definition than what the call report uses. Our definition focuses on exposure to nonbank financial institutions that is collateralized by the loans the NVFIs are making to end borrowers. At the top of the page, we've provided a reconciliation of the regulatory definition to our definition. And as you can see, that results in excluding, for example, subscription lending to private equity funds resulting in about $160 billion of exposure as of the fourth quarter. We've also given you categories of the exposure that we believe are a bit more intuitive and map to recognizable industry categories and business models of the MBF. Now looking at the bottom left, you can see that even though our narrower definition produces a smaller absolute number, the growth over the last seven years has been quite significant no matter how you look at it. And the drivers of that growth are well understood in terms of market dynamics, and regulatory pressures. In terms of risk, on the bottom right of the page, we've given you some detail on the structural features associated with different versions of this lending and the different asset classes. Even the significant amount of credit enhancement involved in this activity as well as the absence of a traditional credit cycle during the period it's not surprising that when we look at the loss history since 2018, we've only seen one charge-off. One related to apparent fraud. Stepping back, in light of the growth and the novel elements of some components of this activity, we are quite mindful of the risks. But given the structural protections, you would generally expect losses in this NVFI category to appear either as a result of additional instances of fraud-like problems or as a result of a particularly deep recession erodes all the credit enhancement. In that scenario, losses associated with traditional lending to end borrowers would likely be the greater concern for the industry. Now turning to the outlook for 2026. We continue to expect NII in its markets to be about $95 billion. The drivers we explained last quarter remain largely the same, so I'll cover them quickly. Usual, the outlook follows the forward curve, which currently assumes two rate cuts. Offsetting that is the expectation for continued loan growth in card, was slightly less than last year as the REVOLVE normalization tailwind is behind us as well as modest firm-wide deposit growth. For completeness, we expect total NII to be about $103 billion for the year as a function of markets NII increasing to about $8 billion due to lower funding costs from the rate cuts, which you should think of as being primarily offset in NIR. On expense, as we told you at an industry conference in December, we expect 2026 adjusted expense to be about $105 billion. Broadly, the expense growth continues to align with where we see the greatest opportunities across our businesses. The details of the thematic drivers are listed on the page and are broadly consistent with what we told you before. On the slide, we've shown you 2024 and 2025 as well as 2026 and called out the foundation contribution and the FDIC's funding assessment. And adjusting for those, the 2026 growth looks a bit more in line. So 2026 in isolation clearly represents meaningful expense growth in both dollar and percentage terms. And that growth reflects our structural optimism about the opportunity set for the company. When we look through the cycle, as well as some optimism about the near-term revenue outlook. More generally, the environment is only getting more competitive, and so it remains critical that we are making the necessary investments to secure our position against both traditional and nontraditional competitors. To wrap up, on credit, we expect the 2026 card net charge-off rate to be approximately 3.4% unfavorable delinquency trend driven by the continued resilience of the consumer. We're now happy to take your questions. Let's open the line for Q and A. Operator: Thank you. Please standby. Our first question comes from the line of Glenn Schorr with Evercore. Your line is open. Glenn Schorr: Hi, thanks very much. I wanna ask on the stablecoin issue. This week, we're gonna have some markings up and talk in congress. I saw the ABA letter this week talking about the immediacy of the issue and whether or not they can close the loophole on interest on Stablecoin. And I think they've estimated that or treasury estimated that it's, like, $6.6 trillion of bank deposits could be at risk if they don't close that loophole. So my question is, it was written from the ABA standpoint, the Computing Bank standpoint. Is there any reason why it wouldn't be all banks, you specifically? And then how big of a deal the banking system if they're not successful closing that hold? Because it does put people at risk of not having insurance and all that stuff. So I'll let you all pine. Thanks. Right. Okay. Thanks, Glenn. Jeremy Barnum: I'll start by saying you probably know more about this than I do. And I think Mary Anne is really the expert at this point, and she did give some comments about this at a recent industry conference. But I'll give you my brief take broken into a couple of pieces. So one, you know, it's worth saying, although it's not directly responsive to your question, that as a company, we've been quite involved in the whole blockchain technology space for some time. And through our Connexus offering, are doing a bunch of kind of really cool stuff across both wholesale. As you know, we launched the first our first tokenized money market fund. And so a capability that we've developed over a long period of time. We have really cutting edge inversion there, and we're kind of using that kind of across the whole company as we engage more in that ecosystem. On a related point, also, I think in CCB, know, we're plugging in a little bit more to the crypto ecosystem and you know, we have an agreement with Coinbase, and it's gonna know, be possible to buy crypto up in the in the CCB ecosystem too. So I say that all my way of saying that, like, we see the interesting developments in the space, the technological innovation, we're engaged. We're watching. We care. Glenn Schorr: On How would you how would you do it? Jeremy Barnum: Add one quick thing. That letter was signed by the ABA, the FSF, the ICBA. It was all banks. It wasn't a handful of banks. Glenn Schorr: Okay. Jeremy Barnum: Didn't actually know that, so helpful. And I think that what I was gonna say narrowly about that point is there I think it's a two-part answer to your question. One, I think it's very clear, and it's in the spirit of the Genius Act legislation and everything that we're advocating for, that, you know, the creation of a parallel banking system that is sort of you know, has all the features of banking, including something that looks a lot like a deposit that pays interest without sort of the associated credentials safeguards, that have been developed over hundreds of years of bank regulation is an obviously, like, dangerous and undesirable thing. And so that is the core of our advocacy. Your narrow question of, like, if this doesn't turn out the way we're arguing it should, what is the risk in banking system deposits? I actually think that's a pretty complicated question, and it involves a lot of nuances about does the money come from, where does it go, what securities are purchased from whom, what is the impact on system-wide deposits, And how does that sort of move between consumer and wholesale? But, clearly, there is some risk for some firms, maybe for many firms, and some version of a threat to the business model I think, you know, we always embrace competition. So this is not about saying that don't wanna compete, but it's about avoiding the creation of a parallel ecosystem that has all the same economic properties and risks without appropriate regulation. And so you know? And the final point to say, I guess, is that in the end, all of our thinking around this from a customer perspective and from an investment and from a franchise perspective, is organized around the question of what actual benefit does the consumer get. So as much as like, the technology is cool and there's interesting stuff there, in the end, you have to ask yourself, how does this actually make the consumer experience better? And in the cases where it does, you know, we either need to get involved or improve our own service offering. In the case where it doesn't, you sort of sometimes it's a little bit of a solution in search of a problem. So I think the question of the quote, unquote, risks to existing business models and banking system deposits needs to be looked at through that lens. But it's always an important question, and our CCB folks are spending a lot of time on that. Glenn Schorr: I appreciate that. I have a very short, narrow follow-up. You noted the 1.7 million net new checking accounts opened for the year, and deposit growth is small, but I also noted the 17% growth in client investment assets. Is that all of it? Or are there other things at play that's limiting deposit growth despite all this great checking account growth? Jeremy Barnum: Oh, interesting. So I think what you're saying implicitly is, like, is the reason that growth in checking account balance is relatively muted. That sort of investment flows are competing that away in some sense. Good question. I would say partially, but not really. I guess the broader narrative is about sort of attention between the very robust franchise growth, which you've alluded to, with the 1.7 million net new accounts, offset against the systems, albeit at a much lower level of yield flows. So to the extent that you consider flows into investments, yield-seeking flows, I think there is a relationship between the two. But I would probably put more traditional yield-seeking flows you know, higher up the list relative to investments, but it's clearly both. And so, yeah, as we talked about over the prior few quarters, like, the level of yield-seeking flows dropped off a lot. But it's not zero. And so as we talked about last quarter, when you combine that with a slightly lower savings rate and a couple of other dynamics, that sort of moment where we were expecting the balance per account number in CCB to start growing again, has just been pushed out a little bit. And so that's the reason, you know, that we talked about previously, I think, last quarter, that our expectations for consumer deposit growth in 2026 are lower than they had been in our scenario analysis. At investor day, and that remains the case. Glenn Schorr: Alright. That was awesome. Thank you. Thanks, Glenn. Operator: Thank you. Our next question comes from Ken Usdin with Autonomous. Your line is open. Ken Usdin: Thanks. Hi. Good morning. Jeremy, you mentioned when you were talking about the expense outlook that there's obviously part of the investment cycle there. You mentioned that the revenue growth outlook in there also looks pretty good. I was just wondering and we can see that in the volume-based parts of the growth. But I'm just wondering, have your NII outlook, we have your expenses. Just what parts of the fees are you expecting to be strong? You mentioned some deals pushed out in IB. If you can kinda just help us flavor you know, kinda understand, like, just where the biggest drivers of fee revenue growth are gonna be as you look across the businesses to help us kind of, know, fill in a little bit? Thank you. Jeremy Barnum: Yes, good question. So and I sort of chose my words carefully there because I think there are two versions of this in terms of expenses and investments in terms of, like, short term versus long term. So narrowly, when you look at 2026, we do show you there volume and revenue-related expense which what we traditionally describe as good expense. And, certainly, that is a driver of the overall growth in expenses. We do also note in there there's a significant chunk of that as auto lease depreciation, which is, you know, essentially, it should be thought of as primarily a counter revenue item or whatever. So, you know, there's some optimism about the fee environment embedded there. So to answer your question directly, breaking down 2026, I obviously don't wanna kind of break our tradition of not guiding on fees slash an IR given how market dependent they are and volatile they are. But, you know, you won't be surprised to hear that we're obviously optimistic on investment banking fees generally. I would say on markets, we're very optimistic about the franchise, and the environment is quite supportive, but it was an exceptionally strong year this year. So as we always say in markets, the number will be whatever it'll be, and we'll fight to make it as big as possible. And on the rest of the kind of fee items, the sort of broad wealth management, asset management across both CCB and AWM, again, you know, we're very optimistic about know, the position of the franchise there and the associated implications for fees. But we're a little bit cautious about sort of market appreciation drivers given kinda where we're launching from and given the type of year that it's been this year. So it's a little bit of a balanced scenario, I would say, in terms of fee outlook for 2026, not for any particular negative reason, but just because, you know, 2025 was so exceptionally strong. And then just to briefly pivot to the larger point, the distinction I'm drawing too is the relationship between 2026, you know, projected expense growth and the associated 2026 revenues versus the broader category of investments in long-term growth of the franchise, kind of the top bar of the page, across, you know, bankers, branches, product capabilities, etcetera, which is also a reflection of optimism about long-term optimism that, you know, this is a franchise that rewards investment across all of its parts. Ken Usdin: Excellent. Thank you for that, Jeremy. And, you know, the follow-up, that balancing act also is I think you guys have been more than fine not counting on positive operating leverage every year. How do you balance where your efficiency ratio versus your ROE outputs are given that you're still on this really strong upper teens zone that is obviously still generating tons of capital and allowing you to do a lot with the company. Jeremy Barnum: Yeah. I mean, I guess I would sort of anchor my answer on that one on the word output that you used. So on a couple of dimensions. So if you remember, my Day presentation, we talked a little bit about, you know, the way that we think about capital deployment sort of across the descending stack of marginal return opportunities. And the fact that we will very much deploy large amounts of capital below 17% because the alternative is to buy back stock at implied returns that are much, much, much lower than that. And that's a good thing, and we don't apologize for that, and we think it's shareholder accretive. So for that reason, we really are starting to pivot much more to really discuss the through the cycle ROTCE target as simply an output of, like, our overall business strategy and the intelligent deployment of our financial resources and our investments, across the entire opportunity set. And in some respects, that's also true about the efficiency ratio. You know? In the end, we do what we need to do to compete. We're gonna invest what we need to invest to secure the future of the company and to drive the revenue growth that we need to drive. And, you know, as long as what we're doing is still expected to be long-term profitable, in some sense, you know, the efficiency ratio is a bit of an output, Jamie always says that, you know, perennially expanding know, the notion of you know, constant operating leverage mathematically implies perennially expanding margins, which is an obvious impossibility a highly competitive business that we operate in. So it is a good sanity check, you know, when that number drifts high, maybe you have to look a little harder at your expenses and make sure that everything that you're doing is you know, what you want it to be with the maximum possible efficiency, but we sort of do that all the time anyway. So that that's what I would say in response to that. I would just say the capital is invested to get a good return through the cycle. You know, which means sometimes you have a better efficiency ratio, sometimes you have a worse efficiency ratio. It's kind of more of an outcome of the decisions you make. Operator: Thank you. Our next question comes from John McDonald with Truist Securities. Your line is open. John McDonald: Thanks. Good morning. I wanted to ask a little bit about credit card business. I mean, guess, first, in terms of the Apple Card acquisition, maybe you could talk about the attraction of that business to you guys, both the actual book and also what you're hoping to get out of the co-brand partnership. And the platform more broadly? Jeremy Barnum: Yes, absolutely. So let me start by pointing out what I think is obvious but is worth saying. In light of you know, how much attention this deal has gotten, which is that as you say, like, from a narrow perspective, just in terms of the portfolio and the transaction, this is, you know, an economically compelling transaction for us. As a co-brand deal. I think someone described it, you know, as a win-win-win for all three parties, and I think that's very much how we feel about it. So that's a good starting point. And then in addition to that, you know, obviously, you're talking here about a partnership with Affirm, Apple, that is, you know, a leader in, you know, payments innovation, and user experience and then obviously, like, a very compelling distribution channel for card. And so what's gonna be challenging for us you know, the integration is gonna take two years for a reason. We feel confident that we'll get it done successfully, and I think the process of getting it done in a narrow sense is gonna make us better. Just generally accelerate and challenge our modernization agenda and the user-friendliness of everything we do in the card business. And beyond that, you know, we'll see. We'll see what comes out of the partnership. But, obviously, you know, anyone should be thrilled to be in a partnership with Apple. John McDonald: Okay. Thanks, Jeremy. And then maybe you, or Jamie could provide some thoughts on the idea of regulators putting caps on credit card APRs, just potential impacts on the industry and how you would think through strategic reactions as a big issuer? Jeremy Barnum: Yeah, thanks John. And I appreciate the way you framed the question because the thing that I'm sort of trying to avoid doing is spend a lot of energy or time speculating on the probability that this does or doesn't happen in whatever form it does or doesn't happen. So I think for the purposes of this call, and, obviously, you can assume that institutionally, we'll be doing all the well-relevant contingency planning. But for the purposes of this call, given how little we know at this point, the way I would prefer to talk about it is just assume for the sake of argument that something in the general mode of price controls on credit card interest rates goes through. What would be the consequences of that? And I think the first thing to say, you obviously know very well, is that the card ecosystem is an exceptionally competitive ecosystem. It's among the most competitive businesses that we operate in, and that's true for all levels of borrower credit score from a high FICO to low FICO. And so in that context, when you just basic economics, when you start with that as your starting point, you know, the right assumption about what the response of the system is going to be to the imposition of police controls is not that you will simply compress the profit margins, which are already at their sort of competitively optimal level, and thereby pass on benefits to consumers. What's actually simply going to happen is that the provision of the service will change dramatically. Specifically, you know, people will lose access to credit. Like, on a very, very extensive and broad basis. Especially the people who need it the most, chronically. And so that's a pretty severely negative consequence for consumers. And, frankly, probably also a negative consequence for the economy as a whole right now. I don't wanna let this without saying that I think it should be obvious that that would also be bad for us. I'm not gonna get into quantifying, but in a narrow sense, this is a big business for us. It's a very competitive business, but we wouldn't be in it if it weren't a good business for us. And in a world where price controls make it no longer a good business, that would present a significant challenge, clearly. Beyond that, you know, the way we actually respond would have a lot to do with the details, and I just don't think we have enough information at this point. John McDonald: Okay. Thanks, Jeremy. Thanks, John. Operator: Thank you. Our next question comes from Betsy Graseck with Morgan Stanley. Your line is open. Okay. So I just one follow-up to the last question is does it impact how you're thinking about the co-brand cards you have, the rewards card, is because I think one of the media narratives here is that it would impact only revolvers. And I'm wondering if that's a view that you share, or is this an impact on the entirety of the card book? Jeremy Barnum: Right. Can I just look at this? There obviously, it would impact prime less than subprime. It would be traumatic on subprime. And some of those co-brands are a lot of subprime, etcetera. So you really have to go co-brand by co-brand. But you would have to adjust your model for the added risk by this and ongoing price controls and things like that. So you know, if it happened the way it was described, it would be dramatic. You know, if it happens in a way which modified quite a bit, it would be less. Betsy Graseck: And we don't know the number yet, but it would be very dramatic if it was just a cap. And then on the Apple Card, two years to bring on. Jeremy, you mentioned for good reason. Is this primarily a function of the technology that Apple Card was built on. Right? Like, so as far as I can I'm aware, the current offering had a built-for-purpose technology stack. And I understand you know, I guess my question is for you. Are you building out a whole new technology to enable that same interface with the users of Apple Card or are you able to take are you able to enhance your current system to enable the users to come on to your current system, or is it under a whole new tech stack? And or are there other reasons why it's a two-year process? Jeremy Barnum: There are no other reasons. It is if it was a traditional credit card thing, we can fold it in rather quickly and just put it in our systems. But it's not. They actually built a completely different integrated into iOS tech stack, and they did a good job. So it's good stuff. But to but we have to integrate that inside our system. System. And to do that, it's gonna take two years and cost a bit of money to meet the terms and standards. Those terms and standards are actually quite good. We looked at them and said, no. That's good. They Apple wants to take very good care of those customers. And a lot of those things will be built directly into our system we could obviously apply some of that customer service stuff in other places. And we wanna do it right. And that's all it is. We have to rebuild what their tech stack is, embedded into our system. Betsy Graseck: Excellent. Thank you. Jeremy Barnum: Thanks, Betsy. Operator: Our next question comes from Erika Najarian with UBS. Your line is open. Erika Najarian: Hi, good morning. My first question is for Jamie. Jamie, investors were feeling quite optimistic about the fundamental macro opportunities for the banks in 2026, paired with deregulation, of course. And I think this weekend sort of shook their confidence given the, you know, social media post, by about credit card rate caps and, of course, additionally, the DOJ subpoenas to chair Powell. And, you know, investors kept saying over the weekend, we can't wait till hear what Jamie has to say about the 2026 outlook. So if you could start there in terms of how you're seeing the macro backdrop unveil in 2026 for the banking industry. And how you're considering, the risks, whether it's executive overreach or the geopolitical, situation at the moment. Jamie Dimon: Yeah. So I mean, I'll answer the question, but I think when you're guessing of what the macro environment is gonna be, if you ask me, in the short run, call it six months and nine months and even a year, you know, that's pretty positive. You know? Consumers have money. There's still jobs even though it's weakened a little bit. There's a huge there is a lot of stimulus coming from one big beautiful bill. Deregulation is a plus in general, not just for banks, you know, but they banks will be able to redeploy capital. But the backdrop is also important, but the time tables are different. Geopolitical is an enormous amount of risk. I don't have to go through each part of it. It's just a big matter of risk that may or may not be determined the state of the economy. You know, the deficits in The United States and around the world are quite large. We don't know that's gonna bite. It will bite eventually because you can't just keep on borrowing money endlessly. And so you know, early on fine, you know, who knows? And so and, you know, of course, we have to deal with the world we got. Not the world we want. And, you know, I've never you know, we don't guess about the outcome. We serve clients. Serve them left and right, and we'll deal and navigate you know, with the politics and the issues that we have to deal with you know, around the world and stuff like that, and we're comfortable we can build our business. I do think if you look at things, you know, the rising tide is lifting all boats a little bit. I'm quite conscious of that. And how I look at the numbers at least. But it doesn't mean it's not gonna it does not mean it's gonna stop this year. Erika Najarian: Got it. And my follow-up question is for you, Jeremy. Underneath the $95 billion of NII ex markets for the year. Could you give us a sense of what kind of balance sheet growth you think, is underpinning that? And maybe some commentary on how you're thinking about you know, deposit growth in, you know, two thousand and twenty-six relative to your earlier commentary about yield-seeking flows. And how those statistics would compare to balance sheet growth of 8% in '25 and average deposit growth of 5% in '25. Jeremy Barnum: Sure. So, I mean, not to be pedantic here, Erica, but I'm gonna pivot away from balance sheet growth per se and just talk about, you know, loans and deposits recognizing that you know, some non-trivial portion of balance sheet growth is coming from inside of markets these days. And the name on that stuff is you know, variable and also not part of the NIIX markets. But taking a step back in terms of the big sort of balance sheet drivers and know, growth and mix drivers of the NII. Number one, you know, as the slide says and as I mentioned in my prepared remarks, card, card loan growth is still a driver. You know, I think we're expecting something like six or 7% car loan growth for 2026. So that is lower than we've seen recently, obviously, but we've been talking about that for some time. As a function of the normalization of the revolver account. So that as tailwind is largely behind us, and what we have now is just growth from overall system growth and consumer balance sheet growth as well as our optimism about share and client engagement, customer engagement across the card ecosystem. So that's one important loan driver. On the deposit side, you know, starting with wholesale, 2025 was an exceptionally strong year for wholesale deposit growth. So as we look to '26, we're still pretty optimistic about the wholesale deposit franchise and the payments franchise know, products, offerings, customer engagement, growth opportunities, etcetera, but it's gonna be tough to beat. The 2025 performance in wholesale deposit growth. So we have a more modest for 2026 wholesale deposit growth. And then I touched a little bit on what we're thinking about consumer deposit growth earlier, but just to reiterate, you know, the narrative there is the balance between what is very robust engagement and franchise success manifested through the 1.7 million new accounts that were originated this year, and the fact that the balances per account are sort of not growing quite as fast as we thought earlier in the year. As a function of yield-seeking flows, that are much, much lower than they were at the peak but are still not exactly zero. So there's a kind of tension between those two things. And at this point, we're sort of expecting that inflection in balance per account to kick in the 2026, at which point you would start to see kind of a reassertion of the consumer deposit growth, which would get us to you know, modest deposit growth for CCB in 2026, but certainly lower than that 6% scenario that we talked about at Investor Day, which is stuff we already told you about last quarter and that Mary Anne has discussed. Jamie Dimon: Can you just ask one more can you add one more factor? Which the Fed you know, they don't call it QE. But they're talking about doing $40 billion a month of buying t bills. That adds $40 billion a month into bank all things being equal to bank reserves. And most of that initially shows up in wholesale deposits. And then, you know, maybe gets redeployed. So we'll see how that plays out too. But it does create more liquidity in the system which I should have mentioned as another tailwind for you know, No. That's exactly right. And I think in our in our sort of crude framework, we, as Jamie says, would initially tend to assume that that growth in system-wide deposits would accrue to extremely high beta wholesale deposits and is therefore not gonna tend to be a big driver of the NII story year on year. But it's significant in terms of the system and the functioning line. Erika Najarian: Does that conclude your question, Erica? Erika Najarian: Yes. Thank you. Yes. Thank you. Jeremy Barnum: Thanks, Erica. Operator: Thank you. Our next question comes from Gerard Cassidy with RBC Capital Markets. Your line is open. Gerard Cassidy: Good morning, Jeremy. Good morning, Jimmy. Jeremy, thank you for the you for the data around the MBFI portfolio. Can you share with us an expansion you talked about the growth over this last seven years has been significant. And the drivers of the growth are, you know, the market dynamics and regulatory pressures. Can you expand upon that to give us a little more color of, know, what's behind that? Jamie Dimon: Yeah. Oh, you wanna take that? Go ahead, Jamie. Well, I'd look. Look. We it is. We obviously do things that we think are safe and proper and stuff like that. But it is arbitrage. We participate in that. We're better from regulatory capital holding know, AAA piece of something on top of something else. As opposed to doing the direct loan itself. That's what it is. It's also arbitrage between banks and insurance guys and stuff like that. And that has been some of that growth. Of the things I would tell the regulators is when you see arbitrage, it should you should look at it. I always ask the question why and ask you're better off doing it that way as opposed to another way. Yeah. Exactly. There's nothing mystical about the loans that all these MBFIs are making. This stuff has been going for a long period of time. It's just bigger now. Jeremy Barnum: Yeah. Exactly. On the point of nothing mystical, my version of that, Gerard, and part of the reason that I chose those words in the prepared remarks is to ask the question, well, like, what's the narrative here if you go back in terms of regulation and you know, competitive dynamics with the private credit ecosystem in particular and what has led to what and how is that all evolved. And I think you know, it's well understood that in addition to the regulatory capital factors, were also the leverage lending guidelines, which really did meaningfully constrain bank lending into this type of space. When those were released. And I there's an argument to say that that seeded or accelerated the growth of this ecosystem in ways that otherwise might not have happened. But at some level, that is what it is. And I think as we've been talking about for the last couple years, there's no reason that we can't compete head to head in that space. So the whole, you know, direct lending initiative and the realization that in many cases, what sponsors want is, like, a quick execution of a unitranche structure where they don't have to negotiate with a syndicate. But other times, they wanna go through the syndication process. And that's why we really leaned in to this whole product agnostic strategy that we talked about. And at the same time, in the cases where we don't wind up being the lender, yeah, sometimes we're competing with these folks. Sometimes they're our clients. Sometimes they're both. And, you know, done properly, as we talk about on the slide, we're very happy, you know, to be to be lenders to them. So it's all part of a you know, competitive partner ecosystem, and you know, yeah, we just wanted to frame it out a little bit given all the questions last quarter. No. That was very helpful. Appreciate it. And as a follow-up question, you guys obviously have given us the guidance for NII with and without markets. And when you go back to the markets number in 2024, I think you guys put up about a billion dollars in revenues. You show us '25 at 3.3 in market conditions, of course, that will impact your guidance on the $8 billion. But what's the strategy of growing that business from where it was in 'twenty-four to where we are today? Yeah. Good question. So a couple of things about this. So number one, broadly speaking, over short periods of time, that markets and AI number is gonna fluctuate primarily as a function of rates. And is liability sensitive. So in other words, at higher rates, the number is lower. So what we saw if you sort of and we would we we show the number every quarter. If you plot the evolution of that number as function of the policy rate, you're gonna see that relationship very strongly. It's also true, I pointed out in different moments, that probably the reason that we deemphasize it is that if there are particular mix changes in any given moment, know, Brazilian futures versus cash or something, you know, high-interest rate countries, you can get pretty big swings in the number in ways that have essentially no bottom line impact. Which is the reason we deemphasize the change. But third piece, is just that you know, as has been noted, the market's balance sheet has grown a lot. Over time. And so as we extend more financing to clients, the size of this effect gets bigger. Which is all the more reason that we find it useful to carve it out and make it clear that in general, short-term fluctuations don't have any bottom line impact. And Jamie wanted to something. Yes. We don't run the business at all trying to grow NII in particular because we just look at the revenues created by the trade. Sometimes NII, sometimes it's a net revenue. But growing the business is important. We have you know, the best FIC business in the world, one of the best equity business in the world. Have extraordinary people around the world. We grow the business by building technology adding research, adding cells, sales know, doing a better job in parts of the world where we don't have a great share, but someone else is doing better than us. So we're gonna grow that business. We're quite good at it. It's critical to the capital markets of the world. And, you know, the capital markets of the world are gonna grow. Dramatically. Over the next twenty years. So, you know, we're that's that's how we build a business. NII is just an outcome. On itself, almost irrelevant. Gerard Cassidy: Very good. Thank you. Operator: Thank you. Our next question comes from Mike Mayo with Wells Fargo Securities. Your line is open. Mike Mayo: Hi. I think I get it. JPMorgan spends for growth. You're getting growth. Up 7% year over year in the fourth quarter, and you're willing to sacrifice returns for more growth. I guess, because that increases SBA. But like, it is a wow the $9 billion increase in expenses, your guide year over year. And I get it. That some of that is simply because revenues are likely to come in higher than expected. But if we could please have some more details on the rest, this is the first time we have a chance to address that $9 billion increase in expense guide. So maybe some areas. Jeremy, as far as tech spending, I think went up $17 billion to $18 billion last year. Went up even more after you include the savings that you achieved and especially since you're past peak modernization. Where do you expect Textpend to be in 2026? And as it relates to AI, what was your spend last year, and where do you expect that to go, and what sort of payoffs? And then, Jamie, since you're upping the bar, upping the stakes with the $9 billion of investments, the degree of your confidence that you're going to get the desired returns and outcomes from that. Thank you. Jamie Dimon: So can I just we're not going to give Mike, we owe you all as shareholders as much information we can give you? But we're not going to give you information which I think puts us at a competitive disadvantage. So we've been quite with you guys. First of we try to put everything in there. Everything. So even the Apple spending was in there. Inflation is in there. The expectation that revenue might go up is in there. So if revenue don't go up, that number won't be as big. You know? And but for the most part and tech is gonna go up. We but the good news is when we look at the world, we see huge opportunity. And we're opening rural branches, which we think will be good. We're opening more branches in foreign countries. We're building better payment systems. We're adding better personalization in consumer banking credit card. We're adding AI across the company, and those are all opportunities. You know? And I understand your issue of concern about the $9 billion, but I think you should be saying if you really believe that they're real, you know, you should be doing that. That's the right way to grow a company. And you look at the complexity of the world, the amount of capital requirements, the our SRI initiative, I think that SRI initiative you know, may be far bigger than we thought. You know? And that's in there. So you know, we're gonna we'll you'll be justified by the results, but we're not gonna be giving, you know, detail on every single thing, every single quarter. And you got to just part of to trust me. I'm sorry. Mike Mayo: Alright. Well, I guess I could probably just leave it there. I do have a couple, a little bit more color if you want, Mike. I would also point out we do have company updates. Coming, so that's an opportunity to talk in a bit more detail on this. I do think we highlighted you know, the vast majority of the major thematic drivers on the page subject to Jamie's caveat about not giving away too much competitive information. Maybe I'll just do one minute of, like, a little bit of additional context. I think one thing that's notable is that we did do a big kind of living within our means thing last year, and we did that. And we're gonna continue to do that. So I think as a company, we still, generally speaking, want to make sure that when someone needs to get something done, whether it's in technology or elsewhere, their first reaction is not hire more people. Having said that, you know, the process of you know, emphasizing that a little bit more last year did give us some confidence that, you know, we were actually using resources optimally. And now as we look ahead, a lot that we wanna get done. There's a lot that we need to get done. The Apple Card is part of that, but there's other stuff too. And so at the margin, we are allowing ourselves to at least plan for some additional hiring and technology in order to support what Jamie's saying, like the long-term investment initiative, in particular, in the businesses. Where we need to, develop prod develop and deliver products and features. And, yeah, AI is a little bit of that. But there are other things too. There's maybe one other thing I would say, which I don't think is competitively sensitive and is important, which is that you know, if you think about what's happened to the headcount of a company over, say, the last five or six years, it's grown a lot. And that happened during an obviously complicated period. There was the whole return to the office. Hot desking, remote work, all this stuff. The end result of that is that the amount of real estate square footage over that period grew a lot more slowly than the headcount. At the same time, as we've decided as a company to be an in-office company, we realized it's obviously the case that we need to provide employees a reasonable in-office experience. And that, in some cases, means a little bit of dedensification and catching up on some space renovations around the world. Now we're not just talking about Midtown Manhattan here. For all of our 320,000 employees, they were a little bit overdue. So I would call that a little bit of catch up to the headcount. Jeremy, don't scare them. It's not a big driver the call. Small number. It's a small number. Okay. But I think it's thematically Health care is three hundred million dollars. You know? And I just you can go item by item, but everyone's gonna have health care in place. Inflation. Real estate's a very small number, so we shouldn't bounce Yeah. I don't wanna overemphasize it. I just thought it was. Thematically interesting and not, I would say, competitively sensitive. So that's what we got. We may give you a bit more color. That company update. Alright. Well, if I could just yeah. I guess, as you know, for any analyst, it's trust but verify. Right? So if I could just try one follow-up, just bloody think about your tech spending? Or AI spending for 2026? Jamie Dimon: It'll it's gonna go up a bit, but know, Mike, we have we're building more payment systems. We're building more AI systems. We're building more we're connecting more branches, which means you have the higher network expenses. You know, we're doing all the things you want us to do, You know? But the tech spend is always one of the harder ones to measure and evaluate. That's been true my whole life. You can imagine we're pretty detailed out of what we're doing, why we're doing it, are we delivering it on time, But there isn't an area where you if you dug into it, that you wouldn't say, yeah. You wanna be you better be the best in the world in tech. But we spend money on trading. We spend money on payments. We spend money on We spend money at asset management. We spend money in corporate. We spend my we need to have the best tech in the world. That drives investment. It drives margin. It drives competition. A lot of it is consumer-facing, digital, personalization, travel, offers, all these things. We think are wonderful things. And I like the fact that we have these organic opportunities. I'm I think it's something I'm looking at and saying, I'm looking at and saying it's a good thing that I can point out that we have in every single area, in every single part of the company, we can grow. In some areas, it's like trench warfare. Think of, you know, certain trading. And investment banking. In other areas, we're kinda out front, and we wanna build the next generation of technology. But you know, investment the thing about you've heard me talk about this before. A lot of businesses, you build a new plant, you capitalize it, and then you expense it over to twenty years. A lot of our business, everything gets expensed up front. It doesn't mean it isn't a good return. Mike Mayo: And you're studying more AI? Jamie Dimon: We will be setting more in a we will I think that AI we will be spending more, but it is not a big driver I do think it'll be driving more efficiency down the road. I also point out about that. You know, efficiency because other banks have to do it too, will eventually be passed on to the customer. This is like, you know, you're gonna build three points of margin and get to keep it. You don't. So you need to you need to build some of these things just to keep up. And, you know, we have Thank you. You know, we look at we and we look at all of our competitors, but those competitors include all the fintech. You have Stripe. You have SoFi. You have Revolut. You have you know, you have Schwab. You have everyone out there, and these are good players. And we analyze what they do and how they do it. I would stay up front. And we are going to stay up front so help us God. We're not gonna try to meet some expense target. And then, you know, ten years from now, you'd asking us us the question, how did JPMorgan get left behind? Mike Mayo: Alright. Thanks. You're welcome. Thanks, Mike. Operator: Thank you. Our next question comes from Ebrahim Poonawala with Bank of America. Your line is open. Ebrahim Poonawala: Hey, good morning. I guess maybe, Jeremy, quick one to a follow-up on this whole credit card interest rates. I think you said understandably, this would be very bad for the credit card industry. And JPMorgan. Given that the president put out a timeline for Jan twentieth. Is it fair for us to conclude there's been no communication from the administration to the banks or the industry on how they plan to implement this, and are you expecting anything over the coming days? Jeremy Barnum: Yeah. I guess I just this has happened so quickly, and there's just so little flow of information, at least that I'm aware of, that I just think it's better to not answer those questions. I mean, it's entirely possible that in the last twelve hours, someone spoken to someone. I don't know. But this is happening very quickly in a sort of unconventional way starting with a you know, social media post. So I understand why you're asking the question, but I just don't have anything for you. Ebrahim Poonawala: Got it. And just very quickly on capital, when we think about more updates coming on GSA, Basel and game probably over the coming months. When you think about the right level of capital, just in your seat, do you think two, 300 basis points of excess capital wherever the regulatory minimum shakes out is the right place to be given all the, risk that Jamie talked about, geopolitics, competitive landscape, etcetera? Or do you have a view on where in a perfect world you would want to operate the bank relative to where capital requirements shook out? Jeremy Barnum: Okay. So I wanna be very precise in my answer to your question here, and there are a few pieces to it. So let's start first with the fact that rules aren't done yet, and there are some things that are still out there. And then there's pro you know, periodically reference to a discussion about the right level of capital for banks or for the system. And our answer to that, which we said frequently, but I'll just say it again, is that the answer to that question is do every part of the methodology, across RWA G SIB, and stress testing correctly supported by data to get the right answer for that individual thing. And whatever the sum of those things is, for the system, for any individual bank is what it is. And it should very much not be a sort of goal-seeking exercise or some arbitrary number at the level of the system or for large banks or for small banks and certainly not for any given firm. I think the good news is that from what we're hearing and from what we understand, that is in fact the direction of travel from the agencies, and so that's encouraging. Let's see what happens. But you know, in that context, obvious example that we always talk about, but it's really just worth saying out loud again, is G SIB where, you know, at some point, you really have to ask yourself, you know, what is the right difference between the amount of capital that we should be required to hold and, for example, a very large American regional bank, especially given the enormous amount of progress that's been made over the last ten or fifteen years on resolvability and all other aspects of the framework. So, I won't give you the long speech about why g SID is completely poorly conceived. Hopefully, that gets adjusted in a way that's reasonable, but should be done correctly. Jamie Dimon: Wanna jump in, Jay? Hey. Look. We'd end up with $30.40, or more billions of dollars of excess capital. Yeah. We have tons of capital. There's no scenario where capital is gonna be the issue. I think it's very important that you gotta look across the full spectrum of capital, liquidity, stress testing, and all these things about what can you do to make the system safer. For a lot of these banks, it's not capital You know? It's interest rate exposure or it's liquidity or it's resolution-related type of stuff. And so I think there's overly focused in capital and so you're gonna get to see as people respond to all the Fed you know, APRs they put out, whatever the NPRs they put out, know, what people think about capital. But I actually believe and this is the important fact, that you could make the system with less capital change liquidity, and make it safer. That's what we should be focusing on. Make it as safer so that you all don't have to worry about bank failures. And it isn't just capital. Jeremy Barnum: Yeah. Very much so. Do want to go back and answer your actual question. Does for the avoidance of doubt because you talked about kind of the right level of capital for us and where we wanna run the company, and you referred to, like, a few 100 basis points. And I think there, it's very important to draw the distinction between what we think is the right amount of excess capital for us to carry now given the risk that we see now in the short to medium term, We obviously have a lot of access right now relative to basically any version of final rules. And, you know, that feels more appropriate than ever, I would argue, given, you know, what what what we see out there in terms of the risks and potential opportunities to deploy in the event of a disruption. There's another version of your question which is implicitly a question about long-term buffers, and I that's what I'm sort of wanna steer away from because in the end, like, we're gonna run the company at the right level of capital and capital requirements are requirements. There's a larger discussion about buffer usability. So I'm I just wanna not leave any doubt about a sort of implicit 300 basis point management buffer, which is very much not the way we're thinking about that. There should be no buffers. And the fact is these capital numbers are already set to handle maximum stress. That's how they're set. Ebrahim Poonawala: That was very comprehensive. Thank you both. Jeremy Barnum: Thanks, Ibrahim. Operator: Thank you. Our next question comes from Jim Mitchell with Seaport Global Securities. Your line is open. Jim Mitchell: I just want ask about loan growth. Jeremy, as you pointed out, a lot of the growth has been driven by NDF and cards. But we've seen three rate cuts in September. We have a few more expected. Deregulation is beginning to have an impact in areas like leverage lending, with more to come. So are you seeing any sort of I guess, number one, are you seeing any early signs of a broadening out of demand across other categories like traditional C and I mortgage, or auto? And what are your expectations for '26? Jeremy Barnum: Yeah, Jim. So things about that. You know, I did actually hear that it was a pretty busy day. The home lending business on the back of, what happened in the mortgage market. So you know, maybe we'll actually start to see some pick up there. But, you know, obviously, there are still some larger dynamics in the housing market. That that will be a challenge there. So at a high level, when we look out to 2026, I still think that for CCB, know, the story is really about card. I think in wholesale, if you set aside sort of markets lending for the sake of argument, I actually think we have a what I would describe as a moderately optimistic outlook for loan growth in terms of traditional C and I. And CC and CIB. Now obviously, you don't need to hear my speech about how NCIB you know, C and I lending is an output, not an input. It's kind of a loss leader or whatever. But still, it does give you some indication of the level of client engagement and optimism maybe in c suites. And I think the way that outlook of ours is built up for sort of like modest C and I loan growth outside of markets is a combination of the generally optimistic outlook for frankly, the global corporate environment as a whole as well as some optimism about our growth and expansion strategies, and that's space, are significant and is one of the areas in which we're investing. And, of course, as we acquire new clients, while we don't acquire them for the sake of lending, the new clients often come with loans, and that's very much part of the strategy. So I would say broadly, nothing that dramatic. As a function of the lower rate environment in particular, but you know, a modestly optimistic outlook. Jim Mitchell: Okay. And maybe just a follow-up on credit. You had some more charge-offs this quarter that seemed a little elevated. But NPAs came down in commercial. So just trying to think what's your view there? Do you feel like with rates coming down and the outlook pretty solid, do you feel like, still steady Eddie? Any improvement or any concerns out there on the corporate credit side? Jeremy Barnum: Yes. Good question. I guess a couple of nuances there. So the charge-offs this quarter were largely already provisioned actually, which is part of the reason that we sort of explained the wholesale credit cost narrative through the lens of the net provisions. If you do charge-offs and allowance, it's a little bit nonintuitive. But when you do that and you look at the drivers of the provision, I think it's fair to say that at the margin, and it's a very small margin, I would point out, but it's more negative than positive, meaning downgrades are exceeding upgrades. By a little bit. And we did make some, you know, parameter updates to assume slightly higher loss given default, in the wholesale lending portfolio, which drove a little bit of an increase in the allowance. I don't wanna make too big a deal out of that stuff. It's pretty small in this scheme of things, and I definitely would not say we're saying anything concerning in a broader sense. And, also, it's worth noting that when it comes to wholesale charge-offs, you know, the numbers have been running at exceptionally low levels for a long time. As the portfolio has also grown. So simply bringing that back to slightly more normal through cycle charge-off rates would still involve some increase in charge-offs. So in other words, it's a wholesale version of the whole, like, normalization versus deterioration story that we were talking a lot. About in card as the cycle normalized. With the caveat being, of course, that in wholesale, tend to be a lot more lumpy. And, you know, any given moment, you don't know whether something is idiosyncratic or the a sign of a larger trend. But at a high level, I would say nothing that concerning. And it's not particularly in my mind, driven by rate one way or the other. Jim Mitchell: Okay. Great. Thanks. Jeremy Barnum: Thanks. By the way, we lost Jamie. He had to go to another meeting, but you still have me for any remaining questions. Operator: Thank you. Our last question will come from Chris McGratty with KBW. Your line is open. Chris McGratty: Great. Good morning. Thanks for squeezing me in. Jeremy, my question is on consumer deposit competition. As rates come down, and we talked about loan growth showing some signs of life. I'm interested in your thoughts on incremental competition by market, product, peer, more or less competitive. Anything you could add? Jeremy Barnum: I mean, space is always very competitive, I would say. Has been, you know, throughout this entire cycle. I wouldn't I haven't heard anything recently to change that narrative one way or the other. You know? I mean, I think the larger point, of course, is that all else being equal, with a lower policy rate, you would expect yield-seeking flows to abate even further. Again, they're already at very low levels, but as we discussed previously when talking about consumer deposit outlook, there's currently a little bit of this sort of standoff between those low level of yield-seeking flows. And the pending return to growth of deposits per account. And one thing that you might expect all on SQL is that when the headline policy rate drops, it incrementally decreases the amount of yield-seeking flow pressure. Aside, obviously, from the direct translation into lower CD rates, which is just straightforward. But at a high level, I would say I haven't really heard anything interesting or new beyond the background ever-present factor of a very competitive marketplace? Chris McGratty: Great. Thank you. And then a follow-up on AWM, the flows and margins. Remain very, very good. Interested in your thoughts about sustainability and opportunities for the pieces of growth in the medium term? Jeremy Barnum: Yeah. I mean, AWM is one of the businesses where we're investing. I think we've been optimistic there for a long time. We've been investing there for a long time. We've had a bunch of, you know, product innovation in the asset management space. That's worked out very well and led to AUM growth. And, yeah, I mean, specifically, you know, hiring advisers. And bankers, in the private bank has been a source of you know, it's been very successful, and we're continuing to lean in there quite aggressively. So our franchise is doing great. Flows have been exceptional. And it's one of our areas of optimism for the future. Chris McGratty: Great. Thank you. Operator: Thank you. We have no further questions. Jeremy Barnum: Okay. Very much everyone. See you next quarter. Operator: Thank you all for participating in today's conference. You may disconnect at this time and have a great rest of your day.
Shamali: Good morning. My name is Shamali. And I will be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. Third Quarter Fiscal Year 2026 Earnings Release Conference Call and Investor Presentation. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, simply press star and then the number two. Thank you. At this time, I will turn today's call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference. Brian Shore: Thank you, operator. Welcome, everybody. Happy New Year. This is Brian Shore. Welcome to the Park Aerospace Corp. Fiscal Year 2026 Third Quarter Investor Conference Call. I have with me, as usual, Mark Esquivel, our President and CEO correction, COO. I gave you a promotion there, Mark. Sorry. And just some little housekeeping stuff, we announced and released our third quarter earnings release or published our third quarter earnings release right after close. You want to get ahold of that because in the release, there's link information to access the presentation we are about to go through. The presentation is also posted on our website. So we have a lot to cover, so let's get started. We have our dilemma. We have a lot of new investors, a lot of veteran investors. So how much do we cover the background stuff is, you know, always a little bit of an issue. We will do the best we can. Also, I just want to mention that we did file an S-3 registration statement with the SEC after the close as well. So we are going to get started with the presentation. We have a lot to cover. Obviously, at the end of our presentation, we will be happy to take any questions you might have. So let's plow ahead. Slide two, forward-looking disclaimer. If you have any questions about this language, please let us know. Let's go on to slide three, table of contents. Fiscal Year '26 the Q3 investor presentation, we are about to go through that. And then the supplementary financial information in appendix one. We are not going to review that or cover it, but if you have any questions about it, please let us know. As has become our practice in recent quarters, we are featuring the James Webb Space Telescope, runaway supermassive black hole, 10,000,000 times the mass of the sun. That sounds pretty big to me, being boosted from its galaxy at a 1,000 kilometers per second, which is about 2,000,000 miles an hour. Thank you, James Webb Space Telescope. The James Webb was produced with 18 Park proprietary sigma struts. James Webb is now orbiting, I think it's called a range orbit about a million miles from Earth. Okay, let's go on to slide four. Our quarterly results. Let's just focus on Q3, where we just announced sales, $17,333,000. Gross profit, $5,003,000. Gross margin, 34.1%. Adjusted EBITDA, $4,228,000. Adjusted EBITDA margin, 24.4%. We are not going to go over the history, but we provide it to you for perspective. The prior quarters. I mean, what do we say about Q3 about our Q3 record we just announced during our October '2 investor call. Sales estimate was $16.5 to $17.5 million, so we came in within that range. Adjusted EBITDA estimate was $3,700,000 to $4,100,000. So we came in a little bit above that range. Just want to remind you that when we provide you with these estimates, we do not do what is called guidance that, I guess, everybody else does, almost everybody else does. When we tell you, we give you an estimate, we are telling you what Mark and I are telling you what we think will happen. We do not provide any fudge room so we can, you know, we reduce our what we think by 10% so we can come in and beat the number and be heroes. We do not get involved in that kind of stuff. I just want to always remind you when we talk about our estimates, what they mean, what they do not mean. Okay. Let's go on to slide five. Good quarterly results continuing this. The Q3 considerations. Alright. We always have to talk about the Erie Business Partner Agreement because it has an impact upon our quarters. Guess a little tedious, but I think we need to explain it. We entered into a business partner group, Arian group. They are, you know, wonderful, a French company. We have known them for about twenty years. They are, I think, a JV between Saffron and Airbus. A large company. That was in January 2022, under which Arien appointed Park as exclusive North American distributor for their Ray Car of C2B fabric used to produce ablative composite materials for advanced missile programs. So this is, you know, a lot of people consider it to be the Cadillac of this category of fabric that is used for ablative, as they call sometimes. Missile programs. So this is why we have to talk about it because OEMs buy the fabric or stockpile the fabric because they are trying to protect their Let's just go into it. We had zero sales of the fabric in Q3. Very critical missile programs, but they have to buy from us. And so we are the exclusive distributor in North America. They the OEMs we buy the fabric from Aireon, our partner. And then we resell it or sell it rather to the OEMs with a for a small markup. Right? And we do not even deliver to the OEMs. We store the product, the fabric in our factory as a favor to them, I guess. Because ultimately, they do not need it. They are going to give us the releases at some point to go ahead and take that fabric and produce the prepreg material. With it. So small markup, I probably should have put this bread in here because it is not going to explain it. Even as far as I presented considering tariffs, This is because we passed through all the tariffs and they are significant, but you passed through passed through on a dollar per dollar basis to go into our sales line. But we do not provide a markup on the tariffs that would be kinda ridiculous. So that actually makes the markup even percentage even lower if you follow and say, we sold We had so we had zero sales of fabric in Q3. And we had a little bit more than a million sale million dollars of sales of the materials manufactured with C2B product in Q3. So when we produce the prepreg, that actually results in very good margins. So when we have significant sales of material, not too significant fabric, that is actually a plus for our bottom line. But the opposite often happens, and we will talk about that when we talk about our Q4 forecast. We have a lot of sales of fabric not as much of materials that will drive down our margins. It is all good. It is all wonderful. It is ultimately everything that we all the fabric that we sell to the OEMs and they stockpile, we will end up producing. That is the reason we keep it in our factory. But the timing kind of distorts our quarters sometimes, so that is what we have to talk with, Let's go on to slide six. Total miss shipments and Q3, approximately 740,000. That number is up quite a bit. It was caused principally by international freight supply chain and customer spec. And engineering issues. So what was going on here? Industry challenges are reemerging as industry recovers and program ramps accelerate. This is actually a good thing, good news. You know, after the pandemic or when the pandemic started, it was a mess because supply chain was so screwed up. And after a couple years, we kinda got back to something what would be more acceptable. Which is okay. But now that the industry is recovering, and the programs are ramping quickly, now the supply chain, the industry is actually getting a little bit behind the power curve again. That is what is going on there. So actually, it is good news. That impact of tariffs and tariff related costs and charges maybe Mark can help us with this. Go ahead, Mark. Mark A. Esquivel: Yeah. I did. This is a very eventful update again, but which is, I think, a good thing. We have minimal impact. On tariffs in our Q3 just as we have had previously. I think we talked about it. You know, we price our materials on short term basis. Most of our business. So we are able to pass them on. If we do get them, The second bullet, possible future, of impact. So, again, this has been quiet again for us the last few months or you know, it seems to stabilize as far as what is coming our way. That does not mean there could be changes to that. But as far as the you know, the near term, it you know, we I probably think the bullet would be pretty similar to the first one. You know, going forward in the next week quarter. But you just never know, but there is minimal impact for Park. At this point. Brian Shore: Okay. Thanks, Mark. Let's go on to slide seven. Keep moving here. This is a slide that our veteran investors are familiar with every quarter. We share with you our top five customers and we do a little picture of that is associated with each of these companies, the top five companies alphabetically. The seven thirty seven MAX, you know, we have said in the past, we do not have much content on that. That is actually Norian. That is a weather master radon that Norian produces for the seven thirty seven product line. What else do want to talk about here? I guess maybe oh, the Valkyrie. Yeah. So we have talked about the Valkyrie quite a bit. Over the last few years. This is a creative program that we are on. But US the recent news is the marine corps just selected the Valkyrie for its collaborative combat combat aircraft program, loyal wingman, sometimes it is called. So that is very good news for Kratos and also for Park. The PAC three, that is an AA item, and the Airbus h h m 20 neo, that is obviously Middle River. Sikorsky, Sikorsky, New Orleans, we already talked about which program is associated with Neurocrine. Let's go on to slide eight, our pie chart here. So the comment is always that if you look at fiscal '21, which is really the pandemic year, the pie chart quite different. The other years, kind of very similar. Year over year. People ask if the military piece of the pie chart will grow and it might, but commercial is growing too, we are not sure. My expectation would be that business aircraft as a percentage would maybe shrink over time. So let's go to slide nine, Park Loves, Niche Military Aerospace aerospace program. This is a slide that we include every quarter as well. And these are not necessarily the biggest military programs we are on. These are just things we want to share with you. As we mentioned in last couple of quarters, we feel less comfortable giving many specifics about these programs, but these are all programs at Park. Is in are is associated with. Let's see. The only thing that I would mention in terms of for recent news is the the standard missile six SM six program. The Navy just just awarded Raytheon a contract to boost the s m six production. This is all public, so you can look it up yourself. Do not think we need to comment on any other programs here. Let's go on to oh, sorry. Could not find slide 10. Slide 10. This is another slide that we have included for probably, I know, a dozen presentations. So a lot of you are very familiar with it. No real change to it. GE Aerospace jet engine programs, you know, major major program opportunity for Park, firm pricing LTA, from nineteen to twenty nine with Middle River Aerostructure Systems, MRAS, which is currently a sub of SD Engineering Aerospace, a Singapore aerospace company. But when we got all these programs, they were a sub of GE Aviation, GE Aerospace. That is why these programs are all related GE engines or CFM engines. We built a redundant factory for them and exchange for agreeing to to to give us the LTA through '29. What programs are we talking about? The first if you look at the bottom left side of the page, the first five are all h three twenty neo aircraft family programs. They are all the same engine, LEAP one a engine. Which is a CFM engine. The seven forty seven eight that airplane is no longer being produced, but there are still spares that were involved with COMEC nine one nine. COMEC is a Chinese aircraft company. With LEAP one c engines. The nine one nine is COMAK's offering to compete a single aisle to compete with the seven thirty seven and the eight for 20. On the right hand side of the page, nine nine zero nine, it is also a COMAT aircraft, and that is a regional jet. And that also is a GE engine, of course. The Bombardier Global 7,500 passport 20 engine. The picture here is the seven forty seven-eight. As you can see, engine installs We like this picture because it just gives you perspective on the size of these nacelles and everything you see there is made with park material and a lot of what you do not see inside the nacelles are made with park material as well. On that 47 program. Let's go on to slide 11. So more on GE Aerospace, we are continuing Let's skip the first item. Second item, vacate containment wrap. This is for the triple seven x g nine x engines for triple seven x. That is produced with our AFP material and other composite materials. And let's go on to the third item. Emirates Park LTA, which you already mentioned, was amended to include three proprietary park film adhesive formulation product forms. And the last item, life or program agreement, which was requested by MRAS and SDE. Remember, SDE is the owner of MRAS now. And we have said your agreement is under negotiation for a few quarters now. But this time, it is on us, you know, because the MRAS team wanted to get together with us in December and we said, look, we are really going to focus on this expansion. And this expansion is for their benefit, you know. So we say, can we delay the the next meeting on the life of program a couple of months? And they said, fine. So that one is on us. We cannot blame anybody except us. The fact that this is still still an open item. As we said previously, we would love to have the life of program, but we are okay either way. Let's go on to slide 12, continuing with the update. On the this is now updated on GE Aerospace and Engine Programs. So let's start with the eight three twenty NEO aircraft m one. That is the big dog of all the November '25, Airbus had already delivered 4,275 a through 20 neo aircraft, and Airbus has a huge backlog of these aircraft, 7,900 as of, like, September That is a total of over when you look at how much I mean, we are delivered and what is in the backlog, it is all over over 12,000 airplanes. That is huge. We and look at the delivery history here at the bottom of the the bottom half of slide. We will go through the numbers. But you could kinda see what happened is that they were ramping up as the program was growing and then hit the pandemic and, you know, kinda hit a brick wall. And the ramp up has was slowed down a little bit. I think they are ramping up much more aggressively now in December '25, they delivered 97 airplanes which is a lot, but they plan to deliver even more. You probably read about this, but the h 20 neo has issues with fuselage panels and also software that was caused by solar activities, which reduced the deliveries Those those issues have been resolved but nevertheless, we probably held back to deliveries in '25. Let's go on to slide 13. This is the key thing. Airbus is targeting a delivery rate of 75. Remember what I 50, 51, 75 per month in 2027. So that is, doing the math, a 50% increase over where we are now, which is a lot. Considering it is a very large program. It is 50% of a lot. On 10/07/2025, the a three twenty aircraft family became the world's most delivered commercial jet. That was surpassing the seven thirty seven and A320 aircraft family continues to rack up new orders. The game changing a three twenty one XLR, we have spoken about this you know, lawsuit in the last few quarters. Maybe I go through each item, but if you have questions about it, please let us know. This is a pretty exciting game changing aircraft for for Airbus. So this is part of the a three twenty a three twenty neo family. I just want you to understand that. Were there approved engines for the a three twenty new aircraft family, there are two of them. One is the CFM LEAP one a engine. That is a program we are on. The other one is a Pratt and Whitney GTF engine, p w 1,100 g engine. We are not we are not involved in Pratt program, only the CFM program. On slide 14, we supply it to the oh, I just talked about the first item, the first one. Okay? Second bullet item. So, basically, if you look at the market share of firm engine orders, between the CFMA through LEAP or one a and the Pratt engine, you know, and this is for the a three twenty program, of course. The leap CFM leap engine has a 64.5% mark share, you know, much more than half. So and it has been that way for a while. The LEAP market share is much more than the Pratt market share which is good for Park, because we are on the LEAP program and not the Pratt program. At that delivery rate of 75 airplanes per month, that is 64.5% market share translates into, you know, a lot of engines pure 1,160 Just so you understand, this relate this this this 64.5% is based upon all orders, all backlog for both engines. We are talking about thousands and thousands and thousands of airplanes, so it is not it is not a number that is usually distorted by kind of a small perspective or short time short time frame perspective. Let's keep going. The PRED engine, unfortunately, continues to struggle with serious reliability issues. I just read an article this morning that these reliability issues are expected to continue. Now for LEAP engine, reliability has been a selling point. Reliability is a very, very key thing for an airline. Not reliability relates to how how much downtime your airplane has late to maintenance. So if these airplanes are down for maintenance or inspections for these engines, that is a real bad problem because when the airplanes turn it around, they are not making money. Airlines their margins are not that great. They cannot afford to have excess downtime. And that is why the reliability issue is a real serious problem. I do not know what is going to happen but, you know, when I even speculate that because reliability continues to be a problem with Pratt, and the CFM LEAP is is doing well with reliability, that could drive the market share potentially even more to the leap side of the ledger. CFM is significantly ramped up production deliveries of LEAP benches according to LEAP one a. That is really significant because we talked about supply chain restrictions holding back the market, holding back deliveries. There are a lot of different things, but what was often was mentioned most often were engines. So the fact that CFM is leaping up I am sorry, ramping up the LEAP engine is a good thing because that will help Airbus ramp up their 20 needle program, which, of course, is what we want. Slide 15. What are we doing here? As of, 09/30/2025, there were 7,900 firm LEAP one eight. See what I am talking about. There is a lot of there there is a lot of engine orders. Firm leap one a engine orders. So, you know, we are recently told that our our customer was given indication as to how many engine how many nacelles, basically. That is where they produce nacelles They need to plan to produce for this program and we cannot disclose that number but it is significantly more than 7,900. Significantly more. The a three twenty neo aircraft family program can end up being our largest program. We will see. But over the long over the course of the of the program, it could be I do not know. Everybody is different opinion about this, but my I will give you my opinion, which is probably not worth much. But my opinion is that that Airbus will will be making these airplanes with these engines in 2040. We will see if I am wrong or right. Comeback nine one nine, is a Chinese aircraft. It has been a while. We talked about that. It also has a LEAP engine. LEAP one c. And this is the the single aisle to compete against the seven thirty seven b for '20. Comac is expected to fall short of his 25 two to 25 delivery target. Not surprising. It is a Chinese company so sometimes they have historically had some trouble kinda getting their programs up and going. Target shortfall, they say it is caused by supply chain, whatever, you know, the international international production issues, international trade production issues. So I do not know. Let's just go on to the next slide. I do not think we need to be let's go on the next slide. We are still under nine one nine. Comeback is increasing manufacturing capacity to achieve production rates of one fifty and twenty seven, two twenty nine. Now if you look at that juggernaut slide and you throw down the presentation, we are assuming one fifty. We are assuming a top set of one fifty. But Comac is building capacity for 200 per year. Comac reportedly has over 1,200 orders for the nine one nine. Now let's look at the nine zero nine. This is a regional jet and, again, produced by Comac with a GE engine, a different type of GE engine, of course. So according to the state run Global Times, under seventy five nine zero nines have been delivered. The nine zero nine zero nine operating routes of the ten and twelve Asian countries, which is good because originally, these airplanes are thought to be well, China only airplanes. That is obviously not happening. I mean, Comac does not want it to happen anyway. Nine zero nine aircraft now carried over 30,000,000 passengers. That is a lot of passengers in these small airplanes. There were seven 385 open orders So here is a good thing to talk about because this aircraft is in a rate for a couple years. So it took Old Comac a while to get to rate, but they are rate. They got there, and that is the key thing. So with the nine one nine, maybe it will take a little bit longer from the get to rate, but the my opinion anyway is they will get to rate, and that will be very good park. These are starting from base zero. So let's go to slide 17. The Bombardier Global 8,000 variant, the 7,500 variant, and it was just certified and first delivery last month. The fastest civilian aircraft since the Concorde, 8,000 nautical mile range. This triple seven x, with g nine x engines, The triple seven x tax program has amassed a lot of hours, a lot of flights. Boeing reportedly has over 600 orders for the aircraft. The certification test program is moving into phase three of the TIA, which is important. I mean, I am not going to know what that means. Not expert anyway, but it is an important step along the way to getting your aircraft certified with air FAA. Slide 18, stolen triple seven x. Boeing now anticipates FA certification entry into service and first delivery of triple seven x n 27. This airplane is delayed too, so we cannot all just say, well, the Chinese are sometimes late with your aircraft. The c the Boeing CEO has indicated that 777X aircraft and the engines are performing quite well. Mentioned increased FAA scrutiny as key factor in their certification delay. I think what he is really getting at, I what is nice about it is that the FAA is being more stricter because of the issues with the the MAX, the seven three seven MAX. Why do not we go on to slide 19? Here is some numbers, GE Aerospace programs. This is why we emphasize a lot because it is a, you know, it is it is a big deal for BART, the GE Aerospace jet engine programs. We will not go into the sales history. You can see it here for your benefit. Q3 sales were $7,500,000. Our forecast for Q4, 7.25%, eight seven 3 quarters, 8 a quarter million. And for the year, $29,000,000 to $29,500,000, just kind of adding down And you could see that there is a recovery going on here in fiscal twenty almost $29,000,000, and it is going to fell off a cliff during the pandemic. There has been a real struggle to get back to that level that it is only now. That we are at that level this this fiscal year. And my feeling and sense is that this number is going to will move up quite aggressively over the next two or three years. Let's go on to slide 20. Okay. This is now going talking about park, just GEs, solar park. Park's financial performance history and forecast estimates. So and the you know, top part of the page, in yellow, fiscal year twenty six u three. Well, we already gave you those numbers. And then we have estimates forecast estimates. Remember what we said, these are not this is not guidance. This is what Mark and I think is going to happen for the rest of our ability Sometimes we are wrong. Sometimes it is higher. Sometimes it is lower. We will be telling you telling you what we think is going to happen. Q4, about $23.5 million to $24.5 million. EBITDA of 4.75 to 5.25. Now a lot of smart people are thinking, well, what is going on here? Q3 sales were $17,300,000. Q4 sales a lot more Q3 EBITDA $4,200,000 So why is it the forecast for Q4 EBITDA a lot more? We have a lot more sales. You gotta look at the footnote, there are two asterisks. Forecasted to include approximately $7,200,000 of C2B fabric sales. So that is a small market very, very light margins, and that is what is going on there. That is what you need to understand. That is why with those kind of sales, we are not seeing much higher EBITDA numbers. And then while we are at it, let's look at the total for forecast total for '26. This is just adding down. Take into account the Q4 forecast. $72,500,000 to point 5,000,000, and here is your EBITDA number. And, again, look at the at the footnote three asterisk, forecast to include approximately $9,800,000 of C2Bit fabric sales mostly in Q4 it looks like. Alright? Okay. Let's go on to slide 21. So this is just some history with on the right hand column, the '26 forecast estimate included, the estimate we just went over with you. So we will go over that again. I think what is interesting is look at the top line, this sales starting in 1718, nineteen, twenty went up $1,010,000,000 approximately per year from '17 to '20, and then it fell off a cliff. You still have the pandemic and the supply chain issues and industry chaos that resulted for a long time. And even last year in '25, we still had barely gotten back to that fiscal twenty number. Now we start seeing fiscal twenty six. We start to see some acceleration getting out of that rut that the industry has been in for a long time, like five years. It has been a long five years, I would say. So it is what it is, but it has been a long five years. Let's look at the notes down here. So Supply chain limitations affecting your your fish industry. That is what we just discussed. We looked at sales numbers, ramping up, of course, for the Juggernaut. And, again, reminding you the fiscal twenty five sales includes $7,500,000 of C2B fabrics and a '26 sales include $9,800,000 of C2B fabric. Very important to understand those things. Okay? And until now, you know, I should just go back and say, the OEMs have been stocked by lots, lots, need to be fabric much more than the what we are producing in terms of how that would translate into producing the producing prepreg with the C2B fabric. So let's go on to slide 22. Change your gears a little bit. Our buyback authorization and activity, an update Okay. So we announced in May 22, our board authorized to purchase $1,500,000 shares of our common stock Under this authorization, Parkers purchased total 718,000 shares of its common stock at an average price of $12.94. $12.94. So you have to say we are some kind of geniuses I mean, considering the stock prices now, I mean, I know. I do not what you think, but we probably should be invited on CNBC or maybe to to talk and be a guest lecturer at the Wharton School of Economics Let's keep going. We do not have to talk about well, except that we are we did not buy any stock in Q2 or Q3. We are not we bought any stock so far in Q4. Let's go on to Slide '23. Trying to rush you a little bit, sorry. Our balance sheet cash and very incredible cash dividend history, we have zero long term debt, $63,600,000 of cash at the end of Q3. Forty one consecutive years of uninterrupted regular regular quarterly cash dividends. And now paid $608,600,000 or $29.72.5 per share in cash dividends since the beginning of 2005. We are kinda stinking up on that $30 per share number. Parks founders always kinda like to include this photo with the with the cash dividend history because this is really the beginning of Park. When we really had almost nothing. We started with basically nothing. Let's go on to slide 24. It is a lot a lot of money, a lot of dividends, I would say, for a company to start with basically nothing. Slide 24, financial outlook for GE, GE Aerospace, Gen programs, the Juggernaut. We have used that term for a while now. The timing, we are not sure that Juggernaut is coming as now. With the capital n o w. Cannot be stopped. Better be ready. Let's go on to slide 25. I am rushing a little bit. I just want to stop and say for a second for some of you new shareholders, if you want a more detailed explanation of some of these things, please just call us. We are happy to go over these items in more detail. We are kind of rushing through them. We just want to get to some of the the newer items that toward the end of the presentation. Slide 25. So the we are talking about engineers per year assumptions. And there is a footnote explaining how we came up with those assumptions. Revenue per engine, that is that is that in sorry, that information is provided to us. By our customer. And the annual revenue per program just multiplying across. And we end up with a total of $61,800,000 at the outlook year. So couple notes here, our revenue per engine unit estimates are updated. We have been given updated information from our customer. And here is something we have not really touched on, why the engine units or your assumptions may be conservative. Let's just try explain this quickly. So h and 40 neo, let's look at that one. We have 1,080 engines. We are talking about the year. That is based upon 75 airplanes per month, two engines per airplane, a 60% mark share for LEAP. Just do the math. That is eight eighty. Alright? So that is based on how many LEAP how many a three twenty airplanes will be built with LEAP engines. Do you think that every engine itself structure that is produced will end up on those engines? That would be a really, you know, ideal situation, but you know, something called scrap and fallout and things get rejected sometimes. We are not taking that into account at all. We are not taking spares into account either. So that is why this assumption about NGUs per year might be a little conservative. I just want to touch on that. Okay? Slide 26, we do not have to go over this. These are all the footnotes related to the how we computed the numbers and did the math on slide 25. Let's keep going. Okay. Now we are to changing gears completely. Warren Peace Parks new Juggernaut. Actually, that term, the new Juggernaut came from one of our investors. We liked it, so we decided to stick with it. Some of this is a review from last quarter. Some of it is a little new. Unprecedented demand for missile systems. Missile system stockpiles have been seriously depleted. By the wars in Europe and Mideast. There is an urgent need to replenish those depleted missile system stockpiles. According to Wall Street Journal reporting, the Pentagon is pushing defense OEMs to double or even quadruple missile missile system production on a breakneck schedule. That is a direct quote, obviously. List of Pentagon targeted missile systems include the Patriot missile system, the LRASM, and the SM six. Patriot probably being a particular priority. Apart actively participates in all of those missile systems. Review of an update on the Patriot Missile Defense System, that is the big one for us. Also, we focus on it because it is public. We do not we are not providing any confidential inside information. Everything we are providing you is based upon public information. There is just lots and lots of public information. About the patriot missile system. You know, president Trump talks about it. Sometimes. A large deployment of PAC three Patriot missile defense systems, largest, sorry, in history, response to Iran's ballistic missile strikes. On our Ford Air Base in Qatar. That was, I guess, a few months ago after we bombed Iran, bombed our nuclear sites. On slide 38. So what happened here is we moved the Patriot missile systems to Qatar anticipation of this attack from South Korea and Japan, but I do not know if South Korea and Japan are so happy about that. The Department of War wants a very significantly increased patron missile stockpiles in Asia. So, we just took a lot of them out of Asia. So obviously, we had a problem on our hands in terms of Patriot missile systems availability. Israel's and Ukraine's Patriot missile systems have been seriously completed. A result of those wars. Recent news from US defense OEMs including RTX Boeing Lockheed l three indicating significant ramp up of Patriot missile system production. It is apparent that US plants do much more than just replenish the depleted stockpiles. On 09/03/2025, Lockheed missile and fire control division received its bigger biggest contract in history, a $9,800,000,000 with a b, or from the US army. That is the branch that uses the patriot systems. For about 2,000, just a little less than 2,000 Patriot missiles. It is a lot. Slide 29. Here is some big stuff. Slide 29. Well, new. On 01/06/2006. What was that? About a week ago? Yeah. About a week ago. Lockheed announced it reached a seven year agreement This is all being driven by the Department of War. With the US Department of War to increase its Patriot PAC three missile segment enhancement, MSC interceptor. These are basically pager missiles. Production to a capacity from 600 to 2,000. 06/2000. You see that number? The last two years. This is even more interesting in a way. Lockheed record increases production of of Patriot PAC free interceptors by 60%. So do the math, It was a if it was increased by 60% to get to 600, that that means it was 375. Two years ago. So we are going from I am just doing the math. Three seventy five to 2,000. You get those numbers? It is on kind of unheard of. Unheard of. The new seven year agreement framework is designed to encourage Lockheed and its suppliers to make the capital investments necessary This is a team again for Department of War. They want the Defense Department to make capital investments rather than paying dividends and buybacks and stuff like that. Necessary to boost production capacity to levels needed to support to dramatically increase PAC-three missile program requirements. Do we need encouragement? No. We do not need any encouragement. We are already building our factory. We would get to that in a minute. I am planning to build a factory to support this program. Lockheed or poorly supplied PEG factory missile supply. Sorry. Missile systems to The US and 60 other countries. So a lot of countries that want to system and are not getting it right now. Breaking news. This is this morning. US Department of War is investing $1,000,000,000 in l three Harris solid rocket business, that is Airjet, to boost critical solid rocket production for Patriot and other missile systems. This is a new separate publicly traded company will be created in connection with this investment. This is a big deal. It is a big deal for Park as well. But you see what is going on here? This is Department Ward driving all this stuff. It is new world order, as we say, later on the presentation. Let's go on to Slide 30. The story continues. What do we have to do with the Patriot missile system? Park supports the factory Patriot missile system with special ablative materials produced with airing room. There is an airing group name again. Their proprietary C2B fabric. This one probably should be in bold, we are trying to be modest about it. Park is sole source qualified. For specialty ablative materials on a PAC three missile system program. You just think about that. And think about all we just talked about, what we discussed regarding this this program. Parkers recently asked to increase our expected output, especially by the materials from for the program by significant orders of magnitude. So how are we going to do that? We will fully support this request with the additional manufacturing capacity provided by parks major facilities expansion discussed below. We did not need any incentive or encouragement. We are already there. Okay. Let's keep going. Now we gotta go back and talk about area area group a little bit. More, not from the perspective of how it affects our quarters from a kind of bigger picture perspective. We have agreements with Airing Group a really wonderful French aerospace company JV between Airbus and Safran, relating to their proprietary C2B fabric used by Park to produce a blade and composite materials for the Patriot missile system and other missile systems. Then we entered into a business partner agreement, that is what they call it, They because they refer to us as their partner, very nice. With Erin in January 22, under which Arian appointed Park as its exclusive North American distributor other C2B fabric. Slide 31. On March 2725, we entered into what they call a new agreement with Aireon under which Park agreed to advance €4,587,000 to area against future purchase by park of C2P fabric. Now that was a fifty fifty deal. Park this advances to be used by by Aireon to increase its CQP manufacturing capacity in Europe. So they kicked in the same amount. We went fifty fifty on this investment. To increase the capacity in Europe, and we already paid our first installment of that amount of that amount. Sorry. Here in group with Park, our partnering on a study to investigate the economic and other considerations relating to potential establishment of a major C2B fabric manufacturing facility in The US. Park committed to contribute Again, it is fifty fifty deal. It is greater €50,000 to the study. We expect that amount to be expensed in our Q4. Originally, we said Q3 is probably in Q4, but that is another fifty fifty deal. This is something we are partnering on this study. The bottom park is engaged in ongoing discussions with Erin Group relating to potentially significantly increasing C2B fabric manufacturing capacity in The US to support critical Department of War missiles programs, including the Patriot Missile System program. It is very important that we highlight this because there is a significant need for for a much more C2B fabric capacity. So it is very important that this additional capacity be installed to support these programs as they ramp up aggressively. Let's go on slide 32. So we have referenced the pay missile steps. I am already explaining this a little bit, but it is a very high profile, well known, numerous other but there are new sorry. There are numerous other critical missile programs currently in production or in development which Park is actively supporting. Unfortunately, many of these programs are too confidential or sensitive for us to identify at this time. Please understand that certain of these programs represent very significant revenue opportunities for Park over long periods of time. So last thing on war and peace. How about The US defense industry's new world order? We already talked about this a little bit. President Trump wants to increase The US defense defense budget to $1,500,000,000,000 with a t in order to build our dream military. So this is a two edged sword for the defenses industry. You know? The it is being what is it? Somebody giveth and taketh away. Here is the taketh away. But according to president Trump, the defendant industry needs to get us back together. So buybacks, dividends, no. Once you invest in defense programs, CEO even CEO pay limits, So, you know, there has been a real issue with the aerospace industry generally. Programs getting being not on time and not on budget. And I think that the department ward does not really like that very much. They are asking the defense industry to kind of get its act together. What do we think about the new world order? We think it is great. Parkton is great. We think it is wonderful. Slide 33, Okay. Let's talk about our new plan. Sorry it is going on so long. I am rushing as you probably can hear through this as quickly as I can. The park's new major new composite materials manufacturing plant. So now we are going to give you a little bit more information about this new plant. We are planning to build a major new composite material manufacturing plant. New plant is being designed to be fully functioning and integrated a fully functioning, sorry, and and integrated composite material manufacturing plan. It will include the following manufacturing line solution training, hot mill film, hot mill tape, confidential manufacturing lines, and support equipment, New plan will also include full production, lab facilities, office space storage, and freezer, and ancillary equipment necessary to support all plant manufacturing activities and operations. It is like a fully integrated plant with everything that is needed. New plant is being designed or produced parks, to produce and support parks complete composite materials product line, including film adhesives and lightning strike materials. Slide 34, the plate is not gonna is not being designed currently anyway to produce a composite parts, structures, assemblies. Okay? Plan plant size, it is getting pretty big, a 120,000 square feet. This could change, but that is our current guesstimate on the plant size. When a plant is complete and operational, get this, new plant will approximately double parts current composite materials manufacturing capacity. So that is, you know, see why the plant is that big. When will a new plant be completed? Well, we we have some internal discussion about that and even debate. But let's just say for now, the second half of calendar '27. And when will be operational? What do mean by operational? Not fully ramped up. That means we are producing and selling some product. You know, some product has been qualified. For production sale. Maybe second half of, let's say, calendar year '28, would be a target for when the plant will be operational. Estimated capital budget for new plant, approximately $50,000,000. What is the timing of the capital spend on the plant Again, this is planning in flux. At this point, fiscal year '27, that is the coming fiscal year, probably 60% of that money Fiscal '28, maybe 30% of the money. Fiscal year '29, maybe 10% of the money. That sort of money will be going out the door. How will we fund the capital spending for the new plan? Well, with our cash, with our cash flow, and to some extent from the offering that we just announced if that offering is successful. But is the new plant project dependent on the public offering discussed below? Absolutely not. We are doing this. There is no question about it. Nothing has to be decided. It is going to be done. We are just finishing the planning. It is not dependent on anything. It is something we are committed to doing for very good reasons for Park and for our investors. Okay. Let's go on to slide 35. Stolen a new plant, Where will the new plant be located? We have a finalist location in Midwest, but we are still waiting for approvals from local community. Economic development. These things, for us, go much more slowly than we like. Why are we building this new plant? Well, that is obviously the $64,000 question. Or maybe the $50,000,000 question. Are juggernauts plural? You know, both of our juggernauts, we talked about require it. Our long term business and sales outlooks require it. Significant additional composite materials manufacturing capacity is required. To support our juggernauts. And long term business and sales outlooks. And we are doing this to ensure we continue to have the manufacturing capacity needed for park to be parked So we are doing this to ensure park is able to to be the company of, yes, the can do company, the yes we can company, So we are not looking to become a mill. We are not going to abandon how we got here. Why we have the the great in my opinion, success we have. Why we have more opportunities than we could ever handle. So it would be really foolish for us to abandon how we got here become a mill company where, you know, we just run our factory like a mill, and then somebody want customer wants something. Okay. We could help you out maybe a year from next month. I am not exaggerating. That is really what happens in this industry. That is not for us. Let's go on to slide 36. What are our crawling cards? Flexibility, responsiveness, and urgency. So we are doing this to ensure Parker's able to continue to do those things which got us here. It would be very unfortunate mistake for us to abandon the things which got us here. A very bad mistake. So our new plan needs to be designed with being parked in mind. Meaning being flexible, being responsive, having urgency, saying, yes. We can. You need something. We are going to move everything around. We just we just talking yesterday, maybe Friday. About whatever large customers, they want to move so many things around. It was any other supplier, we would say, well, sorry. We do not ever say sorry. Sure. We will move everything around a lot. It requires us to juggle a lot. It requires production juggle a lot, but that is what we do for a living. Okay? And that is why we had the success that we had in my opinion. When our new manufacturing plant is complete and fully operational, Mobile Park's total composite materials manufacturing capacity be? Well, you know, it is a question that is not so easy to answer. It depends on how do you define manufacturing capacity. Park being parked manufacturing capacity, that means run the business the way we want to run it so we have that maximum flexibility responsiveness, urgency. If we run a factory like a mill, I just plant it, you know, for us six days a week, twenty four hours a day, we could do that. But then our flexibility is almost no. But parking park manufacturing capacity, maybe about $220,000,000. Parking park manufacturing capacity, but pushing it to some extent. Still being parked, but pushing it to some extent. About 260,000,000 these are preliminary estimate numbers. We have been asked by a number of investors Please give us some help here. Please give us some perspective on the manufacturing capacity. The maximum state of manufacturing capacity, this is what we do not want. Would be about 315 or $20,000,000. That is not what we want. Okay? So when you ask we have not asked what the manufacturing capacity is, we have to say, well, depends on what you mean by that. Let's go on to slide 37, and I just want to say these are numbers we are working on. We are doing a massive amount of work. You know, Mark and the guys on the expansion plan. So a lot of work has been done, but we are not quite finished with everything. And even after we are finished, things can move. You know, mix can change. Things like that, which will affect capacity and sales. Slide 37. Park's long term sales outlook for composite materials, including film adhesive materials and lightning strike protection materials, So we gotta say again, what does this mean? It is our number is approximately 200,000,000. 200,000,000? Okay? But how is this out? What computed. It is really under important to understand what this means because not a forecast, it is an outlook. And this is how this outlook was computed with line items that are known items. These are known sales and known programs and known customers. There is no other category. There is all line items of known opportunities, known customers, known programs. That is how it is computed. Well, that is what that outlook includes. What does it not include? So do you think that in the next three or four years, will will there be no other opportunities, like, six months from now or a year from now or tomorrow. We will get a call from an OEM about a program they want us to work on. My guess is it would probably be tomorrow because we are getting so many opportunities. You are not including any of that. Which we do not know. You know, what comes. So it is important you understand it is not a forecast. It is just an outlook. How we what the methodology that we use. What are the high and low risk of the outlook? So I think we feel pretty about the line items in the forecast, but it is possible that that will you know, that either we are on those programs or we will get in those programs Those programs will be ours. But it is possible those programs will not pan out to the level that we have been we are being told by our customers you know, maybe they will not be as strong, maybe it will take a longer to ramp up I do not know. It is possible. So that there is risk on the low side. What about the high side? The high side is all those things we just talked about, things we do not know yet. That are definitely going to come. They are not there is no way We we have not used we have not provided other category in our forecast or outlook rather. The way we computed it. Just things we know about. What is the target year for the outlook? Well, that is another controversial question internally. I think we are saying fiscal year '31, and I will tell you I would say the end of fiscal '31. You said fiscal thirty year '31 sounds like a long time from now. But it starts four years from now. That means for us to be able to be at that level, everything had to be ramped up. The plant would have to be fully built and the new plant and qualified. All the programs have to be qualified. And we would have, you know, hired all the people, all the staffing and we are fully ramped up. So to me, to do that in four years, that is a little aggressive. That is why I think what we should think about to be a little more conservative is the end of fiscal 03/01, is more like five years from now. Does not mean we want to be sales, but to be ramped up that low, probably, I would think to be more conservative, we might want to think five years from now, rather than four years from now. Thoughts about our ROI? For parks investment in the new plant, $50,000,000. We are not going to go through the what the bottom line impact is now, but, you know, you think about it. We have this year, what is $72,000,000 of sales We are talking about $200,000,000 of sales. $50,000,000 investment. So you could probably do the math a little bit on your own. You had some real smart investors. We are not going to go with that number now, but we think that their way would be extremely attractive that we would not if without any any investor would ever have a problem with Let's go on to slide 38. We new Park's newly announced public offering, just touch on this quickly. Today, sorry, it is going on so long. Today, we filed a form s three registration statement of prospective supplement with the SEC for a $50,000,000 at the market public offering of parts common stock. What is the purpose in this offering and financing? First of all, to replenish a portion of the $50,000,000 that we plan to invest in our new composite plant, composite materials plant, that is part of it. But very importantly, to ensure that Park has the necessary funds to be in a position to take advantage of and exploit key opportunities currently being presented to Park and new key opportunities as they arise in the future. The availability of funds necessary to exploit key opportunities has been a key strategic advantage to Park. So, you know, you are probably thinking, well, can you give me an example? Yeah. I can give you an example. We talked about GE Aerospace. You know, how many hundreds of millions of dollars of business was represented. Well, remember what happened. GE said to us it was GE at the time, not not as GE Yeah. We will give you the LTA for 2029. But Park, we are concerned to get your sole source qualified in these programs we want you to build a redundant factory. And then if you commit to doing that, we will give you the LTA. And we said, sure. We will do that. We did not say sure, but we gotta go see if we can get the money or go to banks and you know, that it would have been terrible. This GE, if you are smart, would think, well, I do not know if Park is going to get the money. Let's go talk to somebody else. That never happened. Because we said right there, on the spot, yep. We will do it. And we had the money to do it. It was about $20,000,000 at a time. I think we believe if we had to do that plan now, it would probably be twice as much between the inflation. We are quite sure it is in parks and our very best interest for park to be able to continue to exploit such opportunities as they arise in the future. Just a little interesting information. Do not know. Footnote. You know where our last public offering was? It was well, Martina found a tombstone in our office. It was 03/06/1996, thirty years ago. It was a $100,000,000 convertible note. Offering that was converted to all equity almost all equity. I think 96 of it was converted to equity. Were Needham, Robin Stevens, and Lehman. We would have until last two. Anyway, just a little interesting history. Sorry to go on for so long, everybody, but operator, we are happy to take any questions at this time to the extent there are any Operator? Thank you. Thank you. Shamali: We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star to to remove yourself from the queue. Participating in speaker equipment, it may be necessary to pick up your handset before pressing the star key. And again, if you have any questions, you may press star then the number 1 on your telephone keypad to join the queue and ask a question. And it looks like we have no questions at this time. Therefore, I will turn it before back over to Mr. Brian Shore for closing remarks. Brian Shore: Thank you, operator. Thank you, everybody, for listening. We apologize the presentation went on so long. There is a lot to cover. Please feel free to give us a call if you have any follow-up questions. Know, of the items, I think, we kinda skimmed over a little bit quickly, so feel free to give us call. We are happy to help you out with any follow-up questions. Have a good day, and once again, happy New Year. All the best to you and your family in 2026. Goodbye. Shamali: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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