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Operator: Good day, everyone, and welcome to today's Greystone Q2 results conference call. [Operator Instructions] Please note this call is being recorded, and I will be standing by. Now it's my pleasure to turn the call over to Brendan Hopkins. Brendan, please go ahead. Brendan Hopkins: Thank you, and thank you, everyone, for joining us today. We have a brief safe harbor and then we'll get started. So except for historical information contained herein, the statements in this conference call are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from forecasted results. With that said, I would like to turn the call over to Warren Kruger, CEO of Greystone. Warren Kruger: Thank you, Brendan, and welcome, everyone. I'd like to just kind of dive right in. I want to talk about the Q. As you can see, we've had a significant exogenous event occur with our customer of 11 years, iGPS. They called me one day and said, we're done today. Our 11-year relationship came to an end, which -- and the revenue came to an end that day as well. We may have gotten a few dribs and grabs after that, but not much. So it was a shock to our senses a little bit at the Greystone. I will say that we've had a wonderful 11-year run, and we -- the great news is with iGPS, they allowed us to build a wonderful infrastructure that allows us the next phase of our growth. And so that's a beautiful thing. So we laid off about 140 people right away. That was towards the end of November. So it will take some time for those numbers to be reflected. So you can see that, that -- some of those costs will be in the first half of our corporate year. We can talk about -- we want to about what happened, but we're going to move on with what we're doing and what we are going to do. I want to make sure everyone knows that I -- this is -- Greystone is my life. And I will tell you that I have 8,884,354 shares of Greystone stock. So no one is more affected than me personally. So this is something that I don't think take line down. This is -- we are very aggressive in what we're doing, and we're very excited about where we're going. So I will take some questions about what happened when we get to the Q&A. But I just want to talk about what we're doing now to add revenue and get back into a profitable mode and get back to where Greystone where we all want it to be. And first of all, I'll say that we have an 8-month contract to do some grinding granulating processing of about 18 million pounds of plastic. So that starts next week. So that revenue will start to be reflected after next week. So that will provide -- we have a tremendous recycling infrastructure that we were recycling about 300,000-plus pallets a year for iGPS. So a lot of resin. So for us, this is just -- it's something we've done a lot of in the past. If you've been a long time shareholder. We used to do a lot of grinding, granulating and [ weaving ] plastic for resale. We haven't done that because we've used most of it for product sales. Then I'm going to talk about where we're headed in terms of our leasing. We have our -- we were prohibited really from doing some leasing because of the iGPS contract. And so we've -- since we don't have that in place, we'll -- starting in the middle of February, we can really do some -- we are unencumbered. I'll tell you that we've been testing with Walmart a cellular track pallet. We are having good luck there. We're having success. We also designed a pallet for Walmart. There was a warehouse pallet that has been utilized in the Chicago import facility. And we used it out in California and one in the Ontario, California area. And we had to change that design. So that pallet was remanufacturing in Taiwan for us, and it has been delivered in December, and we have made product, and I'll be out in the Mira Loma import facility next week with Ron Schelhaas our -- who I've worked with for 20 years. We'll be at the Walmart import facility. And it's -- we've got about 5 million square feet out there. So it's a big import facility. And we've probably done about $30 million in revenue over the last 5 or 6 years with Walmart. And I really look forward to what we're doing there. We're trying to do a track and trace. So we always know where they are. The pallet is on a daily basis. We know how long the pallet dwell time is. We know what the temperature is. So we see that being helpful in their food side later on. So we're really excited about that. So we're going to move rapidly in that arena. We also have a great firm working with us company called Adaptive Pallet Solutions who they are -- they'll be working with us on some of these returnable programs where there's going to be a lot of management involved. So that's good news there. So we feel good about the pallets as a service and more -- will continue to take care of our customers on all our other product lines that continue to purchase products for export for the beer side or for the automobile side. But we do think that our big growth is going to come in the -- in putting in our pallets in closed loops rather than the open loop. And if you -- to distinguish between the open loop and the closed loop and open loop is more like if you go to Costco, and you see blue wooden pallets or red wooden pallets or the iGPS pallets, those pallets are ubiquitous and they're all over the United States. And they have to have an infrastructure across the United States to take care of that. And what we're -- our focus is on rivers and streams and lakes and ponds. In other words, where the pallets don't really leave the -- they're not sent across the country, so their 1s or 2x have to be recovered somewhere else. It's more in between a product manufacturer sending every week to someone on a consistent basis. And they're all tired of the wooden pallets that they have. Plastic pallets continue to be strong, [ drawn ] strong in demand. And so we feel good about that. So coupled with the processing of the resin and with our opportunity on the cellular tracking and tracing, we feel quite good about where we are. I think it will take a couple of quarters for us to add good revenue -- but I anticipate by -- in the next 6 months that we'll be back on track and we won't be -- we won't have this punch in the nose, which it was. It will just take us a little time. I've been doing this now for 23 years. It's not the first time we've been punched in the nose, and I'm sure it's not the last time we'll be punched in the nose. So anyway, I look forward to answering questions and I'm going to keep these -- this kind of brief because I know there's a lot of questions that need to be asked. So at this time, if there's -- I'd just like to open up to questions and answers. Operator: [Operator Instructions] And our first question today comes from Anthony Perala. Anthony Perala: I guess, looking, like you said, having got the first or last time you've been punched in the nose, just kind of looking for -- looking back historically, kind of the early 2010 period was another time that you operated with revenues that were in this area, kind of like $6 million to $8 million quarterly. I see anywhere from $23 million to $26 million of annual revenue in 2013 to 2016. And you were able to deliver 20% gross margins in those years, generate some cash. Is there any fundamental changes in the business that prohibit you from being able to put up those types of numbers with that level of revenue today? Warren Kruger: No, I think you're dead on. We are a lean -- we are very lean organization. We try to run it that way. We have fantastic -- our general manager is just fabulous. Or guy that's in charge of facilities and equipment and molds. He's been there longer than. He is unbelievable. And everyone knows -- everyone has a stake in this. It's their life. And so we take this -- every day, we take very serious. And we were preparing for the next level. We put in a lot of new equipment. I put in $10 million of new equipment, really haven't leveraged that equipment at all. So almost all of our debt is from new equipment that we have that we really haven't put into work. I have some outsourcing that I'm going to do over the next year. I've got people who have contacted me and asked me if I have extra capacity to produce some things. So we'll be doing some outsourcing some other products. We have been asked to do a couple of other non-pallet type programs like for showers, plastic bases for these outdoor showers. So we've been asked to do that. So we'll be doing a lot more of that type of thing. And to answer your question specifically, yes, I think that we'll have our numbers in order. I'll make sure that we have cash on hand to run the business. As we've always done that. If necessary, we'll get the money that we need. And our banks, we've gone to an interest only for the calendar year 2026 with our bank IBC. And so our payments were about $250,000 a month, and they'll now just go interest only. So it will be a significant help on our cash flow, and they've been great to work with and have no issues whatsoever. Anthony Perala: Do you have any MFPs that you mentioned in the Q, just kind of continue to negotiate an extension of the revolver. Any update on those negotiations? Warren Kruger: Yes, it's no problem. It's just they're waiting for the end of it, and we'll -- I just talked to -- a matter of fact, I had -- I met with them last Friday and the guy that I worked with, and that will be renewed. Anthony Perala: Okay. Okay. And then one just kind of more philosophical, like you pointed out, you own 8 million-plus shares here. Some of your partners, you get close to 50%. A check to purchase the entire other part of the business that you don't own is fairly reasonable, all things told, looking -- so I'm just curious if that's something you're evaluating or a management buyout or something like that. Just curious what you think of that. I guess more of an open-ended question. Warren Kruger: That is an interesting question. And I will tell you the last 90 days have been more of really spinning the place of firefighting and getting things prepared. We didn't have -- our last Board minute was prior -- Board meeting was prior to the iGPS call. And so we have a Board meeting coming up. And we will be addressing that because, I mean, at this price, being today, we've had big sell-off, 300 -- last I looked, there was like 335,000 shares that were traded today and the share price has fallen. At this price, it's -- we've got $60 million of equipment that we've put in over the years. We've got $10 million of brand-new equipment. So I feel very, very comfortable about those discussions. And you know what, it's something we've discussed in the past, and we'll discuss again. Operator: Next up, we have [ Adam Posner ]. Unknown Analyst: Thank you for your time and frankly, swift action during this potentially turbulent time. My question really is around morale. So given the recent layoffs and the news around iGPS, how's the team morale the facility and sort of beyond? Warren Kruger: Thank you for asking that question because I'm concerned about that. I'm really -- I care about those who I work with, and I care about those who worked with me a long time. And I will say that our general manager, just -- I'm going to give us a short little story here. Our general manager is Marilyn Carter. Marilyn came to us when she was about 25 years old and a single mother. We sent her over the years -- we sent her to school. She got her undergraduate degree. She got her master's degree at Drake. She has grown, and she's been with us 20 years almost. She's unbelievable. She knows how -- I think she knows how we want to do things. [ Joe Carter ] has been there for 25 years. He is fabulous. Ron Schelhaas, who is our former plant manager, Ron's working with me on the sales arena. He is so good with people and with Walmart, it's incredible. Their attitudes are great. They're said about what's happened. They don't understand sometimes as do I, the logic in at all. So -- and then I've got another -- so the staff that we have are loyal and hard-working and great people. And I had a conversation with one of our sales -- other salesmen this morning, Gary Morris. He has some -- I mean, in his pipeline, it's really, really good. So the Toyota thing on our extruded pallet, we finally -- there -- we've got some purchase orders, and we're sending some of those out. He's got some great things with Berry Plastics working. He's got some things with Southwire. He's got really, really, really, really good opportunities out there as does Ron. Ron Schelhaas, I'll meet him at the Walmart import facility in California. And so their attitude is great because they know we have a great product line. They know we have the best designed in for pallets in the United States. We feel that way. And we believe that things will be -- we will -- we'll make things happen. How about that? Unknown Analyst: Awesome. It sounds like you're doing a great job maintaining the crew there during this time. So thank you. Operator: Next, we'll hear from Robert Littlehale. Robert Littlehale: Warren, could you maybe talk a little bit more about iGPS situation. What prompted this phone call, this midnight phone call that you received? What happened there at that company? Warren Kruger: Robert -- and for those who don't know, I've -- Robert has probably been as long an investor as anyone besides myself. So I appreciate that. He was down, he probably bought some things at the nickel. I will tell you that it's -- we had a relationship. I worked with Robert and Jeffrey Levisman years ago. They were the original -- they bought the company with a fund about 11 years ago out of bankruptcy. And then we provided the first pallet what we call the MVP for them that worked for iGPS. So we grew with them quite rapidly and had a great relationship. Robert and Jeffrey were removed about 5 years ago. And I really enjoyed them. I enjoyed working with them. The new crew, I just didn't know the new crew. And I will tell you, I had a good relationship with their national sales manager there and their operations guys. But they never shared any information that we never shared much information. They put in a -- they told us they needed a secondary manufacturing facility just in case something happens. So they put one in for themselves down in Dallas, Texas, and they actually produce another product down there in Dallas. It's a similar -- it's not a similar. It's another pallet. It's not similar. And of course, we recycled probably 300,000 to 400,000 pallets a year for them, broken pallets. So it's not easy. It's not for the faint of heart to do this. I mean, it's -- it's a lot of resin. It's moving metal out, taking metal out. It's -- and I think what happened there is the fund that was in originally 11 years ago, I believe that they meant to be in for about 5 years, and here they are 11 years in. I don't know if they had to do a secondary fund to take that position. I'm not sure because I'm not privy to that. But I just believe that they tried to sell this last year and couldn't sell. And I think they finally said, okay, we're not going to be in a growth mode anymore. We're going to be in just a -- let's reap what we've sewn and let's just flatten out, and we'll just do maintenance -- we'll just do maintenance on our pallets and we just won't grow. So -- because when you take 800,000 pallets out of the system on an annual basis, that's going to slow your growth. And so I believe that, that's the case, Robert. I just think that they -- whoever the money people are said, okay, time to just stop going to maintenance only, let's generate cash, let's pay down debt if we have it, and let's return something to the shareholders. So that's my guess. And that's truly just a guess on my part. Robert Littlehale: The closed-loop pallets from a manufacturing standpoint, is it different? And do you have to retool in order to produce those? Or maybe you could talk about that? Warren Kruger: Well, we are -- we have multiple different pallets that we can put cellular devices in. The whole technology with cellular devices has changed just because the battery life is long, like 7 years. I mean you -- now you can put 1 out and appreciate your product over 7 years and you know where it is every single day. That's pretty interesting. It's also you can put -- you're putting a fire alarm in every single pallet you put out there because you can set the temperature and have it notify you at a certain level. So it's -- the technology is just unbelievable. And so we believe that we can tie in with existing RFID systems and tie the RFID that they're currently -- that customers are currently using with the cellular device so that we can know where the product is. And then if you have to go down to an individual level and find a specific palette with maybe a product on there, you can do it with existing RFID hand scanners and so forth. So we're -- just the interest in this is really high, and there's a lot of discussions within this industry about -- because it is an asset. At the end of the day, you buy these pallets or an asset, and they -- it's easy to float away. This is a big country. And now it's funny because we can monitor these things, and we know where they are every single day within meters. So it's pretty great. Robert Littlehale: So the customer achieves economies of scale and productivity enhancement by using these closed-loop pallets, I presume? Warren Kruger: Yes. Every those that -- and I'll give you an example. We're talking to a Midwestern company that they just have used CHEP or so long and they're just done with wood. They just said to us finally, hey, we are just so done with wood. We got a big bill for your -- the lost pallets that we don't think that we lost them, but it's hard to find out who's -- it's really -- it's -- you start pointing fingers at one another. And with us, we'll be able to say, hey, here it is. It's off the reservation. You either recover it or you're going to have to pay for it. And so we don't -- it's not ambiguity. It's going to be real life. It's going to be data. It will be data driven. And we also know people say, "Oh, my pallets turn really rapidly. And then you can now you can say, well, they've been sitting for 40 days." So you can also help with some of the things that people believe happening within their systems, but not happening. So data and information is powerful. And we're -- we believe that we can help the customers deliver information. Robert Littlehale: Final question. Just -- so your headcount is what currently? Warren Kruger: Oh, gosh, it's probably in the 80s. Yes. It's low. We were -- we've been as high as 250, and we -- I think we had -- we lost 140. I think we're in the 80 range, something like that. Operator: [Operator Instructions] Warren, we have no questions at time, I'll turn it back over to you for any additional or closing comments. Warren Kruger: Well, I want everybody to know that's on this call that our -- we care about our shareholders, and we work every day for our shareholders. And so I want you to know that. I am -- I was saddened about the big loss, but I will tell you I was emboldened as well. And it has now given me the -- we look forward opportunistically. And we have multiple products we can put our cellular devices in. And we're working -- our stocking and nonstocking distributors out there have been very good with us. They've said, "Hey, we'll support you and help you as well." So we're going to continue to work hard for our shareholders. So if -- and anyone is welcome to reach out to me at any time. If I don't call you -- answer it right then, I will follow up. So -- but I appreciate everyone being a shareholder, and thank you very much. Operator: That concludes our meeting today. You may now disconnect.
Operator: Welcome to the Bank7 Corp. Fourth Quarter Year 2025 Earnings Call. Before we get started, I'd like to highlight the legal information and disclaimer on Page 27 of the investor presentation. For those who do not have access to the presentation, management is going to discuss certain topics that contain forward-looking information which is based on management's beliefs as well as assumptions made by and information currently available to management. Although management believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties, and assumptions including, among other things, the direct and indirect effect of economic conditions on interest rates, credit quality, loan demand, liquidity, and monetary and supervisory policies of banking regulators. Should one or more of these risks materialize, should underlying assumptions prove incorrect, actual results may vary materially from those expected. Also, please note that this conference call contains references to non-GAAP financial measures. You can find reconciliations of these non-GAAP financial measures to GAAP financial measures in an 8-K that was filed this morning by the company. Representing the company on today's call, we have Brad Haynes, Chairman; Thomas L. Travis, President and CEO; J.P. Phillips, Chief Operating Officer; Jason E. Estes, Chief Credit Officer; Kelly J. Harris, Chief Financial Officer; and Paul Timmons, Director of Accounting. Please also note today's conference is being recorded. With that, I'd like to turn the call over to Thomas L. Travis. Please go ahead. Thomas L. Travis: Thank you. Good morning to everyone. We are delighted with our 2025 results. It seems like a broken record every quarter, but we have to acknowledge the great work done by our bankers and especially this year. The outstanding loan growth, the strong loan fee income, and very solid organic deposit growth is not easy to do. And we are very fortunate to have such a dynamic and professional group of bankers, people that have worked together for a very, very long time. And so always, always appreciate what they do and especially this year. And at the same time, while they were producing that tremendous growth in the loan fee income, they did it without sacrificing underwriting, and that enables us to really enjoy asset quality that is probably better than it's ever been. And it's also why we felt comfortable not increasing the provision more than we did this year or last year even though we made such tremendous strides in the growth. So just, a real congratulations and shout out to our great team. And at the same time, our operations, IT, finance functions, continue to evolve, and they make our lives easy. It's something we don't take for granted, so we want to thank and acknowledge the leadership in those functions as well. So we're well positioned to continue performing at a very high level and we're here to answer any questions anyone might have. Thank you. Operator: Thank you. We will now begin the question and answer session. To withdraw your question, please press star then 2. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. Once again, ladies and gentlemen, that's star then 1 if you have a question. Today's first question comes from Wood Neblett Lay at KBW. Wood Neblett Lay: Hey, good morning, guys. Morning, Thomas. Thomas L. Travis: Wanted to start on loan growth, another really strong quarter of growth. I know in the past, you kind of talked about, you know, sometimes growth is lumpy quarter over quarter. But we never really saw the downside in 2025. You know, has payoff activity been lighter than you expected, and how should we think about forward expectations for growth? Thomas L. Travis: Woody, this is Tom. Before Jason jumps in, I just want to tell you, I love the way you start your piece when you send it out. You know, I opened yours early this morning, and you start out with rock. And I like that. So thank you. Jason will take the question. Jason E. Estes: Hey, Woody. You know, it's interesting you bring up the payoffs because we study this every quarter. You know, we try and look at originations and payoff volumes. And, you know, not to sound like a broken record, but we're doing a lot of business in Oklahoma and Texas. And those economies, we're just thriving in this part of the country. Okay? And so we had, I would call it, accelerated payoffs throughout the year. There was just so much demand and loan opportunities. And, look, part of it's geography, and part of it is our team. You know? And so we're over here now with some more scale, and I'll just liken it to the snowball rolling down the hill. Right? And so now, you know, each year when we start, you know, January, and you just know your payoff pace is going to be a lot. Okay? Like, I think we'll have $25 million a month of payoffs this year. So to grow, you know, we need $3.545 billion a month of new funding. And so last year was no exception. I will say that the fourth quarter payoffs were lighter than they'd been in the first, second, and third. You're gonna see some of that come in in the first quarter. Wood Neblett Lay: Yeah. That's helpful color. And then, I mean, I guess, just a follow-up there. Knock on wood, but it feels like the momentum in your local market is continuing to be strong in 2026. I mean, can growth, you know, look like 2025 again in the year ahead? Or would that be a little bit of a stretch? Jason E. Estes: That sounds like a stretch to me. Where we're seeing the most pressure is pricing-wise, and we are not going to lose our discipline, Woody. So we are, you know, weekly meeting with clients, talking to banks, and we're trying to make sure, you know, we're within market and we are doing our best job of maximizing these loan dollars because we do think that we could grow loans at a similar pace, but you have to fund that, and you have to maintain those margins. And so we're balancing those items. Wood Neblett Lay: Yeah. And then last year, I just wanted to shift over to the net interest margin. And, you know, got some compression this quarter, which I don't think was a huge surprise given some of the commentary you gave last earnings call. But can you talk about how you expect the margin to trend if we get a couple additional cuts from here and remind us sort of of the historical ranges you would expect on the NIM? Thomas L. Travis: Before Kelly jumps into that, Woody, I would just a quick reminder that the slight compression that we experienced was we were coming off of almost an all-time high. And we tried to signal that last year. We knew we were running at a higher margin still within our historicals, but really way up there in the range. And so we need to be mindful of that. But go ahead, Kelly. Kelly J. Harris: And, Woody, we had a couple of rate cuts during the quarter, and you can tell in the slides on the deck that we've kind of reached an inflection point where we had a number of loans reach their floors. And so I think if you, on a forward-looking basis, using that with the loan growth, I mean, we feel really good about our current NIM. You know, could it go down slightly? Potentially? We do have some time deposits that are repricing during the quarter that would help offset some of that. And so I think, you know, going within that tight band, $4.45 is a great starting point for us. Thomas L. Travis: What was our historical low? Was it around $4.15 or $4.20, Kelly? Kelly J. Harris: $4.35. Thomas L. Travis: Yeah. Well, listen. If we get 75 basis points of cuts, and we put a lot of material in this deck. I mean, specifically on page 10 is a good illustration. But, you know, we've always said the more the deeper the cuts are, the more challenging it becomes. And our loan floors really help us, but then the depositors at the same time are insisting on higher rates. And so I think we've said in the past, in the recent past, that, you know, it wouldn't surprise us to dip down and touch our historical lows, which is below the number that Kelly said. But, you know, it wouldn't surprise us if it bled down a little further. Wood Neblett Lay: Got it. Alright. Well, that's all for me. I appreciate all the color. Operator: Thank you. And our next question today comes from Nathan James Race at Piper Sandler. Nathan James Race: Hey, Dave. Good morning. Just thinking about the direction of deposit cost going forward. I appreciate the comments earlier around having some opportunities to reduce CD pricing going forward. But wondering if you could speak to the non-maturity side of the deposit equation in terms of, you know, how much additional leverage you have to reduce those deposit costs and what that implies for deposit competition these days. Kelly J. Harris: Hey, Dave. This is Kelly. Our current cost of funds dipped from Q4. I think the current run rate is $2.40. I think that's going to be really driven off of balance sheet growth. Incoming new deposits. We did pick up a couple of nice deposits, you know, post year-end. Helped reduce that cost of funds. And so I think it's, you know, it ebbs and flows. I don't know if there's really a straight answer to give you. Nathan James Race: Okay. That's helpful. And maybe for Jason, if you could maybe just speak to some of the deposit competition you're seeing out there. Obviously, you had really strong loan growth in the quarter, so you had to fund that with deposits. But, you know, just curious what you're seeing across the ground. Jason E. Estes: Yeah. I think it's fair to say the last couple of cuts didn't really flow into deposit betas as strongly as maybe the first couple. And that's not, I don't think, unique to Bank7 Corp. I think that's just kind of across the industry. If you go out to the Internet and just look at what's available, you know, money market, CDs, it's just, you know, clearly you're hitting a point where the depositors are keenly aware now. Right? Interest rates are top of mind. And it was a little bit easier, you know, twelve months ago, eighteen months ago. But as these cuts have taken place, people are just paying attention to it. You know? And so are we, and we're trying to make sure we're getting our share of market share. So I think, you know, to your point or to your question of what do we see in real time? And it's, I think it's tough, you know, on the deposit side. Those last two cuts didn't really translate into typical betas. Nathan James Race: Understood. That's really helpful. And then maybe one last question for Tom. Maybe just zooming out a bit. I think 2025 was a tough year. If you just look at the performance of the stock relative to peers. So just curious, you know, you guys are still building capital at nice clips despite even the strong growth you had in the fourth quarter and throughout last year. So just curious if you're thinking more about buybacks to support the stock these days or just more broadly how you're thinking about excess capital? Thomas L. Travis: Regarding the stock price, we've always, everybody knows on this call and around the world, markets are gonna do what the markets are gonna do, and we really can't control that. Obviously, we can control it a little bit if we wanted to go and repurchase shares, which is not our objective. And we understand it's one of the levers in addition to others, but, you know, we're just focused on producing top-tier results and over time, the market will understand that and the stock price will respond. And I think the proof is in the pudding. I don't know what page it's on the deck, but if you look at our total shareholder return compared to the major exchange-traded banks or if you want to compare it to the KBW index, we are just top, top, top tier. So there's gonna be quarters and times where we don't look favorable compared to other banks, but that's okay because over time, we're gonna outperform them and the market will understand that. Nathan James Race: Got it. I appreciate all the color. Thanks, guys. Operator: Thank you. And as a reminder, if you'd like to ask a question, please press star then 1. Today's next question comes from Jordan Gendt with Stephens. Jordan Gendt: I just had a question kind of following up on that capital. And regarding M&A. In the past, you guys have mentioned sellers having high pricing valuation expectations. Along with, you know, an AOCI overhang. Are those still some of the biggest headwinds you guys are seeing in getting a deal done, or are you guys seeing more sellers come to the table and willing to negotiate? Thomas L. Travis: I think the AOCI has slightly come down. Many of the people that were burdened with that, I think they were using hope as a strategy, and they believed, you know, some of the wishful thinking that the rates were gonna come down and reality is really here. And then as it relates to other factors, there is still, if you run across a quality deposit franchise, it's going to be very difficult to buy that kind of operation. I don't want to use the word bargain, but it's just increasingly difficult. And the market is a mature market. It's an efficient market, and it recognizes that value. So I think all of those things are gonna always be in play. And, you know, we're scouring the countryside. We had a couple of opportunities over the last year in Oklahoma. You know, one, it didn't quite make it at the end. One, we were ready to go, but we didn't, we pulled away after doing our diligence. We had an out-of-market good opportunity that we also pulled away from. And so, you know, there's, it's never the same. But to your question about being able to make things work, we're going to stay very, very disciplined. And, obviously, we're not even gonna, when it comes to asset quality, that's nonnegotiable. Right? And so, but as it relates to price, the higher quality, the deposit franchise, the long-term deposit relationships that some banks have, that's gonna force you into a higher multiple and there's just nothing you can do about it. So while we're out, you know, talking to people, it's a high-class problem, but the capital is just gonna continue to pile up. And, you know, the good news about that is that it gives you more optionality when you finally do find something. And so I think for us, it's going to be stay disciplined, resist the urge to, you know, do any meaningful share buybacks so that we can pile up capital and just be prepared for a nice opportunity. And we've mentioned that, you know, we're not opposed to an MOE. And so it's a really good position to be in, but we also understand that we have to fade the heat because the capital's piling up so rapidly that the return on equity has come down. But the last thing I would say is that that return on equity may be coming down, but I don't know what the percentage of banks is, but I bet it's greater than 90% would love to have their capital ratio returns go down to 18% or whatever it is. So why I call it a high-class problem. Jordan Gendt: Perfect. Thank you for that. And then, kind of one follow-up question on the deposits, particularly the non-interest bearing. It looks like it kind of went down a little bit this quarter, and could you kind of maybe give a little color on that? And then maybe remind us of any seasonality that we should be expecting with the deposit side in 1Q? Jason E. Estes: Yeah. I think what you're seeing, you know, as those non-interest bearing accounts, that percentage bleeds down. Go back to my comments a minute ago about top-of-mind awareness. You know, when rates were zero, nobody cared if it was a money market account, a savings account, or a checking account because it just didn't matter. And that's changed, you know, with the last rate cycle, and it's just a thing that people are aware of. And we accept that. And we're responding, you know, to what the customer wants in that regard. Thomas L. Travis: I don't think that we're not heavy in public funds. Those are seasonal with regard to seasonality. Those balances do fluctuate. But other than that, I don't think we have much seasonality in the portfolio. Jordan Gendt: Okay. Perfect. And then just one more question on kind of the expense and fee guide. If you guys could give any additional commentary on that, on kind of what you're seeing. And then maybe just remind us of how many more quarters we can expect to see impact from the oil and gas revenues? Thomas L. Travis: As it relates to expense, it's nice and comforting that, you know, two of our three primary coverage people, I read their pieces this morning, and it's nice to see you recognize how good we are at controlling expenses. That's not gonna change. As it relates to the oil and gas, yeah, with all due respect, we think it's a nothing burger. It's a, I don't know if I want to call it a rounding error, but, you know, for the next, unless we were to sell the asset, for the next three or four years, it's just gonna be a gradual decline of any meaningful dollars to be harvested revenue. And so, you know, and as a reminder, we didn't really agree with our accountants a year and a half ago when they were using, you know, their formulas to recognize the revenue of the oil and gas. And we warned people that from a GAAP perspective that it, we felt like they were front-end loading it too much, and I still think that exists. And so, you know, from a strategic perspective, we've accomplished our goal. We continue to harvest, and we're happy with it. But from a GAAP accounting perspective, it's gonna continue to be a very insignificant portion of the bank. But we do recognize that we might have some fluctuations. And so from a GAAP perspective, it could negatively impact net income in a small, immaterial way. Kelly J. Harris: And from a dollar perspective, using Q4 as a fully solid guide, I think it was $9.1 million in core expense, a million in oil and gas, and then similar on the fee income side, a million split a million on the oil and gas, and a million core fee income, $2 million total. Jordan Gendt: Okay. Very, very similar to Q4. Perfect. Thank you for that answer. And that's it for me. Operator: Thank you. That concludes the question and answer session. I'd like to turn the conference back over to the company for any closing remarks. Thomas L. Travis: Thank you, everyone, for your coverage. And any shareholders that are on the line. We're excited about 2026 and our company, and we appreciate the partnership. Thank you. Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Lucy: Hello, everyone, and thank you for joining the First Horizon Fourth Quarter 2025 Earnings Conference Call. My name is Lucy, and I will be coordinating your call today. It is now my pleasure to hand over to your host, Tyler Craft, Head of Investor Relations, to begin. Please go ahead. Tyler Craft: Thank you, Lucy. Good morning. Welcome to our fourth quarter 2025 results conference call. Thank you for joining us. Today, our Chairman, President, and CEO, D. Bryan Jordan, and Chief Financial Officer, Hope Dmuchowski, will provide prepared remarks, after which we will be happy to take your questions. We are also pleased to have our Chief Credit Officer, Thomas Hung, here to assist us with questions as well. Our remarks today will reference our earnings presentation, which is available on our website at ir.firsthorizon.com. As always, I need to remind you that we will make forward-looking statements that are subject to risks and uncertainties. Therefore, we ask you to review the factors that may cause our results to differ from our expectations on page two of our presentation and in our SEC filings. Additionally, be aware that our comments will refer to adjusted results, which exclude the impact of notable items and other non-GAAP measures. Therefore, it is important for you to review the GAAP information in our earnings release, page three of our presentation, and the non-GAAP reconciliations at the end of our presentation. And last but not least, our comments reflect our current views, and you should understand that we are not obligated to update them. And with that, I will hand it over to Bryan. D. Bryan Jordan: Thank you, Tyler. Good morning, everyone. Thank you for joining us. In 2025, we showed significant progress in delivering value for our clients, associates, and shareholders. We delivered increased pre-provision net revenue and return on tangible common equity, hitting 15% in 2025. Loan and deposit trends were solid, and we improved balance sheet profitability through a better loan mix, price-disciplined control of deposit costs, and tighter integration of deposits within our client relationships. One example driving improved profitability is the year-over-year improvement of yields on market-based commercial real estate lending for new 2025 originations, 534 basis points. In 2025, we also returned just under $900 million of capital in stock repurchases and just over $300 million in dividends. With more clarity around economic conditions and regulatory trends, we believe we can continue to return additional capital to our shareholders while continuing to invest in growth opportunities. As you will see in our slide presentation, we are optimistic about our ability to improve profitability and continue to grow earnings in 2026. I will now hand the call over to Hope to walk through the results of the fourth quarter in more detail and provide some closing comments at the end of the call. Hope Dmuchowski: Thank you, Bryan. Good morning, everyone, and thank you for joining us today. We ended the year with a strong fourth quarter that includes earnings per share of $0.52, net interest margin of 3.512%, and loan growth. Starting on slide eight, we walk through some of the drivers of our approximately $2 million of net interest income growth as well as our net interest margin performance. Our margin compressed by four basis points, but excluding the impact of the Main Street Lending Program accretion discussed last quarter, NIM expanded by two basis points. Even with our slightly asset-sensitive balance sheet, the largest benefit to both NII and margin was deposit pricing, as our average interest-bearing cost declined by 25 basis points. Additionally, strong growth in loans to mortgage companies added to NII. On slide nine, we cover details around our deposit performance in the quarter. Period-end balances increased by $2 billion compared to the prior quarter. The average rate paid on interest-bearing deposits decreased to 2.53%, coming down from the third quarter average of 2.78%. We have maintained a cumulative deposit beta of 64% since rates started to fall in September 2024. Our interest-bearing spot rate ended the quarter at 2.34%. On slide 10, we cover our quarterly loan growth. Period-end loans increased $1.1 billion or 2% from the prior quarter. Our largest increase came from our loans to mortgage companies, which increased $767 million quarter over quarter. While the fourth quarter is not traditionally a high watermark for this business, we saw a pickup in the refinance market, which resulted in approximately one-third of activity from refinances, up from approximately 25% in recent quarters. We also saw excellent growth across our footprint in the rest of our C&I portfolio, with period-end balances increasing by $727 million from the prior quarter as origination volume increased quarter over quarter. Within the CRE portfolio, the pace of paydown slowed as the decline of period-end balances improved versus the prior quarters, with a $111 million reduction. Additionally, we saw a slight increase in commitments in our CRE portfolio during the quarter, providing momentum entering 2026. Commercial loan spreads remain consistent, generally mid-100s to upper 200 basis points. Turning to slide 11, we detail our fee income performance for the quarter, which increased $3 million from the prior quarter, excluding deferred compensation. The largest increase for fee income comes from our service charges and fee lines, which is largely driven by $4.4 million in income related to elevated activity in our equipment finance lease businesses. On slide 12, we cover adjusted expenses, which, excluding deferred compensation, increased $4 million from the prior quarter. Personnel expenses, excluding deferred compensation, increased by $12 million from last quarter, driven by $8 million in incentives and commissions, which primarily consisted of annual adjustments to bonuses impacted by hitting the high end of our revenue targets for the year. Outside services increased by $16 million, which includes project costs for some technology and product initiatives and increased advertising expenses in the quarter. Our non-interest expense declined primarily related to the foundation contribution discussed last quarter, as well as normal fluctuations in customer promotion costs and marketing campaigns earlier in the year. Turning to credit on slide 13, net charge-offs increased by $4 million to $30 million. Our net charge-off ratio of 19 basis points is in line with our expectation and recent performance. We recorded no provision for credit losses in the fourth quarter, and our ACL to loan ratio declined to 1.31% on broad improvement across our commercial portfolio and payoffs of non-pass credits. On slide 14, we ended the quarter with CET1 of 10.64% as buyback activity and strong loan growth, which included high loan to mortgage company growth, lowered our period-end CET1 levels. During the quarter, we bought back just under $335 million of common shares, bringing our full-year total to $894 million. We also announced a new repurchase program of $1.2 billion in October, and we currently have just under $1 billion of authorization remaining. On slide 15, we walk through the objectives and metrics within our current 2026 outlook. We once again expect year-over-year PPNR growth with mid-single-digit balance sheet growth and positive operating leverage. Our total revenue expectations range from 3% to 7% growth year over year, which accounts for a variety of interest rate and business mix scenarios. As we have mentioned previously, our expense outlook remains flattish, with the exception of incremental incentive expenses associated with higher countercyclical revenue. Continued improvements to market conditions for our fixed income, consumer mortgage, and loans to mortgage company lines of businesses could drive higher revenues and associated personnel expenses. We expect to achieve this while still making key investments in our businesses, including technology, personnel additions, and new branches. Our net charge-off expectation of 15 to 25 basis points reflects our continued confidence in our underwriting standards and credit processes. We expect taxes to be between 21% to 23%, similar to 2025. Lastly, our near-term CET1 target remains at 10.75%, with the level fluctuating approximately between 10.5% and 10.75% with loan growth throughout the year. We will continue to have conversations with our board about potential timing for lowering that target further in line with our intermediate-term expectations of 10% to 10.5%. I'll wrap up as we turn to slide 16. I am extremely pleased with the execution of our teams in the fourth quarter and throughout all of 2025. We once again operate at 15% adjusted ROSD this quarter, and our goal continues to be sustaining and exceeding this level. We are continually managing capital and credit to assure that we maximize returns for shareholders, as displayed this quarter with capital deployed into both loan growth and share buybacks. Our teams are focused on execution and delivering on our profitability objectives, including the more than $100 million revenue-driven incremental PPNR that we have discussed in the past. We made early progress on this in 2025 and expect the impact to continue to grow in 2026 and 2027. With that, I will give it back to Bryan. D. Bryan Jordan: Thank you, Hope. I'm proud of the progress we made in 2025 across many fronts. During the year, we distilled our strategic plan into a five-page framework to provide clarity for all of our associates about how we differentiate in the marketplace and create broad, deep, long-lasting client relationships. I believe this alignment will continue to help drive consistent execution across our organization, resulting in exceptional experiences and outcomes for our clients and our shareholders. As we look into 2026, our priorities are clear: serve our clients well, grow profitable relationships, and deliver on our financial objectives. We will capitalize on growing client confidence about the economy with continued loan growth. We see positive signs for growth in our current pipelines, especially in our commercial lending areas. I'm confident that our diverse business model and robust footprint position us to meet our revenue growth targets through a variety of economic scenarios. As we stated in our 2026 outlook, we also remain focused on expense discipline and efficiency while continuing to invest in technology and tools that make our associates more effective and deliver greater value for our customers. We talked in 2025 about our $100 million-plus PPNR improvement opportunity. We made initial progress in 2025 by improving the profitability of the balance sheet. We still see $100 million in additional opportunity and expect to make significant progress on that in 2026 and 2027. This profitability will be driven by deepening client relationships and products like treasury management and wealth management, leveraging our banker expertise to ensure clients have the right products for their needs, ensuring our pricing reflects the value we could deliver to clients, and ensuring we maximize the value of our footprint with our talent and distribution models. First Horizon has a lot of momentum going into 2026, and I'm excited to see our associates capitalize on those opportunities ahead. Our team put forth a great deal of effort in 2025. Thank you to our associates for their work this past year and to our clients and our shareholders for their continued confidence in our company. Lucy, with that, we can now open it up for questions. Lucy: Thank you. The first question comes from Casey Haire of Autonomous. Your line is now open. Please go ahead. Casey Haire: Great. Thanks. Good morning, everyone. I wanted to start on the revenue outlook, the 3% to 7%. That's about $135 million of revenues. I know it's tricky, but if you could just take us through your base case and what are some of the big wildcards to think about so we can, you know, make our own assumptions on that revenue outlook. Hope Dmuchowski: Happy New Year, Casey. Thank you for that question. You know, our base case, kind of middle of the range, is the current forward curve. So as you think about looking, you know, at the low and high end range, you know, we've got to think about where rates go, how quickly we might see rate drops versus the current forward curve, and then also loan growth. And so as we said, we have mid-single-digit loan growth in here. And so if we were able to exceed that, you'd be at the higher range. And of course, countercyclical. The Wall Street Journal reported this morning that December home buying was strong. I made a comment in my prepared remarks that we saw refinance pick up for the first time in multiple quarters. So as we start to see some of those countercyclical pick up and we hit our loan growth targets or higher, we end up on the higher end of that range. Casey Haire: Very good. And then on the expense front, I know you guys are, you know, kind of reiterating your flat outlook for this year. But I guess trying to understand what the obviously, I don't think that would be sustainable going forward. I guess what would the expense growth be had you not had these past years of heavy, you know, tech investment and digital infrastructure investment? Like, I'm just trying to get a sense of what would be, you know, where does the expense growth normalize to going forward after this flat year in '26? Hope Dmuchowski: When Bryan and I sit down and talk with our board about where we want to go in coming years, we always start with we want positive PPNR. And we really start with a base case of expenses being in line with inflation. You know, you have wage inflation, you have contract inflation. So we start with that, and then to your point, we did have some things that were kind of multiyear investments that are running down. But think about our normal growth in that inflationary area, which would be, you know, 2.5% to 3% currently. Casey Haire: Great. Thank you. Lucy: Thank you. The next question comes from Ryan Nash of Goldman Sachs. Your line is now open. Please go ahead. Ryan Nash: Good morning, everyone. Hope Dmuchowski: Morning. Ryan Nash: So, you know, Hope, you mentioned embedded in your revenue growth expectations is mid-single-digit loan growth. Maybe just unpack that and talk about some of the key drivers across the products. How are you thinking about the inflection of commercial real estate? What's baked in for a loan to mortgage companies, and, obviously, any other areas of growth in the broader C&I area. Thank you. Hope Dmuchowski: I'll take those one at a time, Ryan, and happy New Year. First, if we look to mortgage warehouse, we are expecting it to pick up. We had, you know, if you look at our trend page, you see it's the highest quarter we've had in five quarters. Seasonally, Q4 pays down, and we didn't see that. And with the pickup in refi, we think that we will, you know, our base case assumes that picks up in similar consecutive fashion. When we get to the higher side of our guidance, obviously, you know, looking at a double-digit mortgage warehouse growth in the lower end of our guidance would be, you know, flat or lower than this year. C&I, we have great momentum coming into the year. We talked on our last earnings call about being one of our highest quarters for new originations. Q4 had additional strong originations. So we think C&I has hit that inflection point. We're going to continue to see growth in 2026. CRE started to stabilize this quarter. We've seen good new production, but we do a lot of large construction increase. So it takes time for that to fund up. We've always had that spring-loaded balance sheet, Ryan. So I do think it'll, you know, stay stabilized with how quickly we can grow with how quickly our customers can get their projects running, get the supplies they need, and really start to hit that stride in the CRE market that's been slowed down the last couple of years. Ryan Nash: Got it. You know, maybe as a follow-up, given the expectation for mid-single-digit loan growth, I'm assuming you're expecting some decent deposit growth. Can you maybe just talk a little bit about deposit growth expectations, what you see as the key drivers? And in a better loan growth environment, do you think you could sustain this 64% beta for the remainder of the raising cycle? Thank you. Hope Dmuchowski: Yeah. Loan growth is always higher in our targets than our loan growth is always lower than our deposit growth. So the target that we give to our businesses is, you know, for that not to be offset and create a higher loan-to-deposit ratio. With that, we have a lot of initiatives that we've done in the past twelve to eighteen months, primarily our new treasury management system, that an additional product that we have delivered in the second half of the year that allows us to deepen relationships with existing clients and also go to market with clients that we maybe didn't have everything they needed for their business previously. We've seen great momentum in treasury management in the back half of the year. Also, we've mentioned before, we've hired a new Head of Consumer. We had, you see our advertising costs were slightly up, and our cash payments and other non-interest expense were up, have been up in the second half of the year. We're seeing great momentum with our new-to-bank offers, sustaining and deepening relationships in that space. We're opening new branches this year, and I think there's a lot of upside opportunity in our consumer franchise. Your comments about deposit costs, you know, I would say the number one thing that concerns me there outside of competition, as we always talk about, is what happens with the Fed's balance sheet. Now there's some congressional testimony about shrinking the Fed's balance sheet further. And so I really think it's a macroeconomic question as to what is the liquidity in the system in the coming year that will drive deposit prices much more than competition right now where I'm sitting. I don't know what you'd add to that, but there's a lot of uncertainty right now. D. Bryan Jordan: Well, I think you hit the key point. We do have opportunity in treasury management penetration. We have a very strong stable base there in our system. It is extraordinarily competitive, and we're making very good progress in terms of working with customers to increase that penetration. I think the opportunities across our footprint to continue to expand our retail consumer banking model, as Hope pointed out, are very positive. And deposit betas, you know, we're going to manage within the context of the market. We're going to be competitive. We think that, you know, the Fed's going to either contract or expand its balance sheet. Competitors are going to do this, that, or the other thing. We're going to pay attention at a very granular level and be competitive in the marketplace and grow the business and do it in a way that is thoughtful and built around long-term relationships and partnerships. I think we're well-positioned for that. Ryan Nash: Thanks for all the color. D. Bryan Jordan: Thank you. Lucy: The next question comes from John Pancari of Evercore. Your line is now open. Please go ahead. John Pancari: Morning. I wanted to see if, you know, within your revenue guide, if you could possibly help us unpack it across how you're thinking about net interest income trajectory and the fee side. I mean, on the net interest income side, I, you know, it looks like you grew net interest income about 4% in 2025. Looks like it may be a somewhat slower pace in '26, just maybe given less margin upside. But I want to see if you could maybe help us frame it. Is it low single digit? That's reasonable or mid-single for NII? And then as you look at fees, just give us a little bit more color on the ADR trends that you're seeing here and how that could play out in the cap market side? And how that influences your fee growth expectation. Hope Dmuchowski: John, thanks for the question. On fee income, obviously, the largest variable is, as I mentioned earlier, mortgage refinance, where we don't put something on our balance sheet. We do originations that we sell so that we can get that gain on sale back up to what it was two, three years ago when we saw more normalized resale activity. FHN Financial had a very strong second half of the year. If you look at the deck and you look at the fourth quarter ADR, we had mentioned that we thought 3Q may be an inflection point in the beginning of Q4, we were starting to see that come back down, and it's pretty flat quarter over quarter. So I think as you think about fee income, think about the core line items growing consistently with this year, but the upside being both gain on sale for mortgage and a refinance opportunity as well as FHN Financial upside. On the NII, as Bryan mentioned earlier and I did as well, the deposits are hard to predict exactly where we're going to land on deposit betas this year. I think that could have a big swing on that. And then loan growth, we had really low loan growth in our industry for two or three years now, and there is a pent-up demand out there. So I believe we can get certainty on rates. We can get certainty on the economic environment. We're going to see that pick up for our industry. I can't handicap right now, John, is that earlier in the first half of the year or the second half of the year in those, you know, average balance matters for NII more than that quarter over quarter. But I feel really strongly that, you know, we are well within that range. You can run a set of scenarios, and we will be within that revenue guide regardless of what happens in the macroeconomic environment this year. D. Bryan Jordan: Hey, John. This is Bryan. I'll add the coach comment. We're very intentional in not breaking apart the revenue projection into net kind of fee income. Simply because we have a very well-balanced business model. And that we have the countercyclical businesses. So we have businesses that will pick up if rates move down significantly. We have businesses that will do very well if rates move up, and the two balance each other out. And so when we build out a model looking at 2026 or 2027 and beyond, you know, we start with the premise that all models are wrong, some are useful. And so we look at it in the context of we feel good about the balance in our business, and that if you push down here, this will pop up. But at the end of the day, we feel confident in our ability to deliver revenue growth within the range that Hope has highlighted for you. John Pancari: Got it. Alright. Thanks, Bryan. Thanks, Hope. I appreciate that. And then separately, Bryan, I guess, we could just go M&A, just want to see if you can get some of your updated thoughts around potential whole bank M&A, a lot of attention obviously to your shift in your comments last quarter. You know, how are you thinking about the decision to potentially step in here and consider an acquisition, given the potential that the regulatory window could ultimately close and does that influence you? And then the backdrop of deals accelerating, but most importantly, what it means for you in terms of if something compelling financially or strategically comes up. Thanks. D. Bryan Jordan: Yeah. Thanks, John. One, I don't worry about the regulatory window first and foremost. I think that during the duration of the Trump administration, you're likely to see the regulatory window open. Your regulatory infrastructure is in place now, and they have multiyear appointments. So I don't worry about that. When it comes to thinking about our business and preparedness, I think as I highlighted in the third quarter call, we have the ability to integrate now, but our priorities are focused on the things that we've described in our prepared comments, which is penetrating our customer base, delivering on this strategic document that we have laid out for our organization, driving the $100 million of potential PPNR growth. And in that context, if we have the opportunity to fill in our branch franchise or deposit base by doing something small, we would consider it. I would tell you, like I did ninety days ago roughly, that's not a priority for us. Our priority is delivering higher returns, increased profitability, and leveraging the franchise and the footprint that we have. John Pancari: Got it. Thanks, Bryan. Lucy: The next question comes from Bernard Von Gazzicchi from Deutsche Bank. Your line is now open. Please go ahead. Bernard Von Gazzicchi: Hi, guys. Good morning. So you have a 15% plus sustainable ROTCE target over the near term. You hit the 15% mark the past two quarters. Are we at that sustainable 15% now and moving to the plus part of that? Or is there a time frame, like the end of the year, you feel that you can declare you hit the 15% in a sustainable manner? Hope Dmuchowski: Bernard, good morning. Welcome. I think we've hit that sustained number on a go-forward basis. It doesn't mean a single quarter could have dipped under that. I talked in my prepared remarks about how a could come down lower quarter to quarter as we look at loan growth. But on average, I do think we've hit that inflection point where we can deliver in the 15 plus percent, Rossi, target ongoing. But that's not an every quarter number. I would say it's an average in the near term. Longer term, that will be the minimum, but we've had a lot of uncertainty in the macroeconomic and a lot of things at play right now that could slightly dip us underneath that in 2026. D. Bryan Jordan: Yeah. I would add that, you know, the accounting around AOCI and things like that can move it in into a quarter and a quarter or two. But we feel very good about the sustainable nature of the progress that we've made over 2024 and 2025 in terms of proving profitability. So I think we are at a sustainable level. It may fluctuate up a little bit or down a little bit, but at the end of the day, I think what we've delivered and improved profitability is sustainable. And as we have in the past several quarters, the opportunity to return capital and manage our capital levels in line with peers is an opportunity that would further enhance that. So we've made good progress, and I think we're in a good place to increase that profitability as we go forward. Bernard Von Gazzicchi: Thank you for that. Maybe just on credit, so I know in the release, you noted the 11% sequential in criticized and classified during the quarter. You know, the resulting zero provision and the $30 million reserve release. You know, how are you thinking about your reserve build from here? Just given expectations on the path of criticized and classified, the expected 15 to 25 basis points of net charge-offs, as well as just expectations for mid-single-digit loan growth for the year. Thomas Hung: Yeah. Hey. Good morning, Bernard. This is Tom. I'm happy to address that question for you. You know, overall, we've had very strong momentum throughout all of 2025 in terms of working through our non-pass book. And, you know, as you noted in the fourth quarter alone, we had over $700 million of our non-pass resolutions. And there's a good mix of both payoffs and upgrades. On the whole year, that number added up to $2.2 billion. And so with the strong momentum we've had in those non-pass resolutions, that's why we have been able to have the other reserve releases we've had in the last couple of quarters. In terms of looking ahead, you know, a lot of other factors will impact what ultimately our reserves are, including broader economic outlook, the amount of loan growth we have, and also the mix of the businesses. You know, what I'm happy about is the momentum that we have in terms of how we've continued to be able to work down our non-pass book while maintaining very strong net charge-off performance in terms of forward outlook on reserves. But like I said, there's a number of factors that could change that, so it's harder to say. D. Bryan Jordan: Bernard, this is Bryan. I'll add to Tom. You know, the CECL model implies an awful lot of science, but there's a tremendous amount more art involved in it and the assumptions that are made about the economic scenarios. And if you step back from it and you look at our reserve levels today, we have something in the nature of six to seven years of reserves set aside at the current run rate. So we believe that we're conservatively positioned. We try to take a balanced view of the economy, and we don't look at it as all up or all down. But I think given the improvement that we've seen in CNC and the trends in the balance sheet, we think we're in a very good position for the reserve levels that we have. And then our credit trends, as highlighted in our outlook for 2026, are likely to be in the same area that we've seen over the last year or so. Bernard Von Gazzicchi: Thanks for the color, thanks for taking my questions. D. Bryan Jordan: Sure. Thank you. Lucy: The next question is from Jared Shaw of Barclays Capital. Your line is now open. Please go ahead. Jared Shaw: Maybe circling back on the capital discussion, when we look at that $1 billion or so of additional buyback authorization, what's the appetite for utilizing that over the course of '26 with the backdrop of growth? Should we expect that you stay active sort of at similar levels and see the capital ratios just continue to move lower? D. Bryan Jordan: Yes, Jared. This is a topic we work with our board on. So I don't want to get in front of that. But they have given us a substantial authorization, and we have a fair amount remaining under it. And as we've said in the past and as Hope has highlighted here, we will continue to talk about where the economy is, where our balance sheet is, how do we look at capital levels in the context of the peer universe and what's going on in the regulatory environment. Then having said all of that, you know, I would say I'm comfortable reaffirming what we've said in the past, which is we believe long term that we can operate our balance sheet in that 10% to 10.5%. And while you might get a spike one quarter in mortgage warehouse or you might get it for a year, year and a half, we're comfortable bringing those capital levels down over the longer term. So that's a long way of saying, one, we want to deploy our capital in organic profitable growth with our customer base. And if we don't have those opportunities, we will be disciplined. And as we've highlighted a couple of different ways, we returned $1.2 billion of capital in 2025, and we'll look for opportunities to be opportunistic, but we will participate in buybacks when appropriate. Jared Shaw: Okay. Thanks. And then maybe just shifting over to the loan growth side. C&I loans, as you pointed out, had a really good quarter. But utilization rates have been pretty much flat over the last year. How are you from your conversations with customers, what's sort of the appetite for bringing that utilization rate up over time? And is there any expectation in your guidance that utilization rates move higher? Or could that just be potential upside if you see increased optimism from existing lines? D. Bryan Jordan: Yeah. I'll start, and then Tom can help me. I think customers are generally still pretty optimistic. We see it in our pipelines, and the momentum in the economy appears to be very, very good today. I think, you know, as uncertainty emerges, whether it be, you know, Venezuela or Iran or oil prices or whatever the uncertainty could possibly be, then people will take stock. But I think people are generally biased for growth. And so I expect generally speaking, that C&I utilization will improve. I think the other dynamic I've talked a little bit earlier about loan growth and loan growth opportunities. In '24 and '25, we did a fair amount of work rebalancing. I mentioned improving the mix and profitability of the balance sheet. We also rebalanced where we were participating, and we got out of a number of what we viewed as unprofitable long-term participations and things of that nature. I think our balance sheet mix is set to be more profitable and to grow in a more sustainable and consistent level. Tom, anything you want to add? Thomas Hung: Yeah. I'll I would just add, starting with your question on utilization rate. We certainly watch that closely, but I think the drivers behind changes in that utilization rate are really kind of more telling because there can be positive and negative reasons for us. There that, you know, utilization rate going up and down. You know, if people are optimistic and looking to develop, we see that go up. It can also go up in periods of uncertainty, and so that's why I'm really more focused on the drivers underneath that number and what's driving it. I would also add, though, just overall, you know, what we're seeing across the board is increased momentum in our pipeline. Hope and Bryan have both mentioned C&I as an example. You know, what I would point to there is what I'm encouraged by is the increase in pipeline is coming from a pretty diverse set of businesses. We've seen it across our regional bank. We've also seen it to varying degrees in our specialty business units as well, and so this isn't concentrated in any one area, but it's more of a broad increase in pipeline that we've seen. Jared Shaw: Great. Thank you. D. Bryan Jordan: Thank you. Lucy: The next question comes from David Chiaverini of Jefferies. Your line is now open. Please go ahead. David Chiaverini: Hi, thanks for taking the question. I wanted to ask about the net interest margin outlook. Last quarter, you had guided to the high 330s, low 340s. Clearly, you outperformed that. It sounds like pricing trends are good on both sides of the balance sheet. How would you frame the outlook from here? Hope Dmuchowski: Yeah. I would say our outlook is still similar in that 340 range. There's a lot of timing and art on, you know, getting it exactly right in a quarter and an outlook. Specifically, this quarter, we had in my prepared remarks, I just discussed the uptick of growth in mortgage warehouse and the increase of NII there really helped our margin sustain quarter over quarter. Deposit costs, we're really proud of how we were able to work those down. I think we exceeded our expectations when we were on this call last quarter. So I don't see 350 as the go-forward. I really think we're in the mid-340s, kind of going, you know, some variation quarter to quarter. David Chiaverini: Great. Thanks for that. And then on the $100 million of incremental PPNR, you've been talking about that for a few quarters now. Curious as to how much of that has been achieved thus far and then perhaps the split between 2026 and 2027 of achieving that 100 million? D. Bryan Jordan: Yeah. We have been talking about it since roughly the middle of the year, and we talked about it in the context of 100 million plus. And we said the last couple of quarters that we continue to make progress. And we look at the opportunities across the business. It is clear to us that there are opportunities for greater penetration of treasury and wealth that I mentioned earlier in the call, greater opportunities for ensuring that we introduce broader relationships. So there are a huge number of opportunities. It will build over '26 and '27. So if you look at it mathematically, there's going to be more in '27 than there will be in '26. But we think we made significant progress in '25. I mentioned the improvement in market investor CRE lending and spreads there. By connecting our professional CRE business with the structure and pricing that we're doing in market investor CRE. And things like that build over time. So I'd expect you'll see some in 2026. You'll also see some in 2027. I would tell you as it relates to 2026, we have it built into the outlook that Hope has laid out to you. So it is embedded in that outlook. Hope Dmuchowski: I'll add to what Bryan said. And, you know, repeat. You know, our goal is sustainable momentum, and you're going to see that build quarter after quarter. You're not all going to suddenly see a spike. And so as you continue to see our earnings momentum, you continue to see our revenue growth really in line or outpacing our loan growth, you can attribute that to continuing to deepen these relationships. But it will build quarter after quarter, and as Bryan said, build '27 or build on '26. David Chiaverini: Very helpful. Thank you. Lucy: The next question comes from Peter Winter of D.A. Davidson. Your line is now open. Please go ahead. Peter Winter: The outlook for expenses flattish for '26, and it does imply expenses will be down quite a bit from the fourth quarter level. Just what are some of the levers for lower expenses versus 4Q? And do you think is a good starting point for the first quarter expense? Hope Dmuchowski: We have elevated expenses in Q4 due to the higher revenue. If you look on the increased commissions quarter over quarter, that is another strong quarter, but also at year-end, there's a series of true-ups that every company does. And so I would look at that run rate and say, what is it consistently going to be in Q1? Marketing and advertising is seasonal. And so it does tend to be slightly down in Q1 and then higher in Q3 and Q4 at times. So I'm not going to give you an exact, but I think when you look at the range and look at a glide path, take out the one-time items that we've commented on in our presentation. We also had a lot of technology projects that completed in the back half of this year, and that is part of what we're using now that run rate starting to come back in line to reinvest in branches and hiring. Peter Winter: Got it. Then if I can ask, I realize it's still early, but are you starting to see any disruption in your markets from the recent M&A deals? Any opportunities to hire bankers or bring in new customers or those conversations starting? D. Bryan Jordan: It is still early, and best I can tell, there's no real work going on right now in terms of systems conversions and things of that nature. But we have seen opportunities to recruit. We're recruiting as we always do across all of our footprint. And so we do believe that over time, we will have an opportunity to continue to bring talented bankers and support folks all across the organization onto the platform. And whether the disruption drives that or otherwise, I think our business model, our focus, our culture has been an advantage and will continue to be so. Peter Winter: Got it. Thank you. Lucy: The next question comes from Michael Rose of Raymond James. Your line is now open. Please go ahead. Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Just two quick ones for you. Just talk to me about the commercial real estate expectations, obviously, down Q on Q, down year over year. You got to have, in theory, a couple more rate cuts. You know, paydown activity, you know, probably still pretty healthy. Do you expect that business to inflect this year? And is that an area of potential growth as we move later into the year? Or do the headwinds from payoffs, paydowns from lower rates just kind of persist through the year? Thomas Hung: Yes. This is Tom Hung here. I think we can reasonably expect to see an inflection in our CRE this year. As Hope alluded to, what we do in CRE does skew a lot towards construction, and hence, we have more of a spring-loaded balance sheet there. Given the lower amount of construction in the last couple of years, that's why we have seen a decline in balances in that business. However, that has started to pick up. You know, I mentioned that pipeline momentum in the C&I business. I should also mention there's good pipeline activity in our CRE business as well. If I look at our CRE pipeline compared to even last quarter, it's up pretty meaningfully. And you mentioned especially with the rate decreases that have been happening, and there's expectations for further rate cuts, that really affects construction starts. And with more construction starts, that's why we're starting to see a very healthy build in our CRE pipeline. The final step I'll point to here is in our prepared opening remarks, one of the things we did mention as well is this quarter, for the first time in about two years, we had a net increase in our total CRE commitments. So I think that's a good early indicator of where we expect CRE balances to go. Michael Rose: Very helpful. Appreciate the color. And then maybe just last one for me. I know you guys have a small credit card book. There's obviously been some interest rate cap discussion out there. Just wanted to see if that might have any impact for you guys. Again, I know it's small. D. Bryan Jordan: Yeah. It is a small book, and if you apply the cap across our outstanding today, it'd be, you know, roughly a million dollars a quarter. So it's insignificant. Michael Rose: Great. I'll step back. Thanks for taking my questions. D. Bryan Jordan: Alright. Thank you. Lucy: The next question comes from Jon Arfstrom of RBC. Your line is now open. Jon Arfstrom: Morning. Good morning. Most of my questions have been asked and answered, but just hope a follow-up on Peter's question on the first quarter. Anything else you would flag in the first quarter in terms of the balance sheet and P&L, just so we can set up the year properly, the slope of the year. Hope Dmuchowski: Tom, that's a really general large question. I think we've hit the highlights. I'm really proud of where Q4 ended up, and it gives us tremendous momentum and excitement with our bankers and our clients going into Q1. I think when you look at mortgage warehouse especially, this tends to be a quarter where we always see our loans decline, and then we kind of dig out of it in January, February, and then March starts to stabilize in that business. We've continued to see strong momentum there in January. I do think that will be an upside for us. We won't have the normal quarter over quarter significant volatility we have. Fee income, it's really too hard on ADR to say where the quarter's going to come in as well as refinance. As you know, rates may be heading down, and that could pick up. John, I think we expect another strong quarter to look similar to this one across the board. On the expense side, we are adding bankers. So see in the deck, we've added over 100 employees, you know, 100 FTEs since midyear. Most of that is in client-facing, client-supporting technology positions that enhance the franchise and our ability to deliver revenue growth. I think, as I've said before, marketing and advertising really fluctuates quarter to quarter. Q1 comes down and then builds back up. If you look at our last two years of Q1 Q4 and Q1 expenses, John, pulling out that one-time commission, I think you're going to see it look very similar to normal seasonality. D. Bryan Jordan: Okay. That's very helpful. Mortgage company was another follow-up I had. So thank you on that. And then, you know, Thomas, Bryan, I don't know. Just one of the other questions is on the provision, and I guess we kind of danced around it before. But you've had two really good quarters. You're talking about positive trends in credit and mid-single-digit growth. But how do you want us to think about the provision from here given the strong numbers over the last couple of quarters? Thomas Hung: Yeah. I would start with, I think, the most important measure of our overall credit performance is really in our net charge-off numbers, and then I'm proud of how consistently strong we've been in that. Provision has a little more noise than it just because of the number of factors that go into it. Most notably, as we're calculating our reserves, obviously, our economic outlook as far as and loan growth can go into that number as well. So if provision is higher in quarters than we've had in the last two quarters, you know, that can certainly actually very much be a positive if it can be driven by the amount of loan growth that we're expecting and the momentum that we're seeing. And so just given kind of the number of factors that go into the provision number, I think, overall, I'm personally more focused on net charge-off as the best reflection of our credit quality. Hope Dmuchowski: John, I made this comment last quarter, I'll reiterate all the time. I do believe with all the facts we know today, we're done in that building phase. We spent two-plus years constantly increasing our provision, increasing our coverage. Not knowing what was, you know, what was going to happen, whether it was the pre-wave. There were just so many uncertainties. There's just as many uncertainties today, but I don't think we'll have to build. I think we're at the right reserve level. So you can really think about it, you know, more normalized as to would we have a release quarter, but it should trend with loan growth, which it has not been the last two years. Jon Arfstrom: Yep. That's what I'm looking for. Thank you very much. I appreciate it. Lucy: Thank you. The next question comes from Chris McGratty from KBW. Your line is now open. Please go ahead. Andrew Leishner: Hey. How's it going? This is Andrew Leishner on for Chris McGratty. Hope Dmuchowski: Hey. Good morning. Andrew Leishner: I know near term, you said you want to stay closer to 10.75% CET1. And you mentioned earlier on Jared's, I believe, longer term you can operate your balance sheet in the 10% to 10.5% CET1 range. But I guess what do you and the board need to see maybe from a market or regulatory perspective to get comfortable dropping down to that range? D. Bryan Jordan: Yeah. So it's really two levers, and the first is most important, and that is just sort of the economic data payout. If you were sitting here in 2025, everybody had concerns about how tariffs were going to impact in the short run. We've now seen nine months of evidence, and through a number of different means, it's had very little or minimal negative impact at this point. And so as those kind of economic factors play out, the outlook for the economy in '26 and '27 factor into our thinking. So as we look at the economy, we get more and more comfortable with the ability to bring those levels down. The second is there is a regulatory backdrop around capital and excess capital. And clearly, we pay attention to where we stack up in terms of peer comparisons. And you've heard some discussion and calls earlier this week that people are generally migrating capital levels down. So the combination of those things, I think, over time, gives us as a board more and more confidence that we can manage our capital levels down. Our approach has been to take it in fairly small steps, take it from a to ten seven five, and then we talk about 10 and a half. Then we talk about 10 and a quarter, and just do it in a way that we can manage through the distributing the excess capital or deploying it in the business. And so I think it's an evolving conversation. We'll do it in a measured and thoughtful way, but it's principally the economic drivers we're looking at. Andrew Leishner: Great. Thank you. And then just another follow-up on the C&I loan growth, and sorry if I missed this earlier. So outside the mortgage warehouse growth, and I know there was another $700 million of seeing, like, C&I growth excluding the mortgage warehouse. Can you just talk about where that source of growth came from? And going forward, how we should think about C&I growth and where it's coming from outside of Words Warehouse? Thanks. Thomas Hung: Yeah. Happy to address that one. C&I was obviously the largest number. But outside of that, across our C&I platform, I think what I'm very encouraged by is it came from actually a very diverse mix across all of our businesses. You know, our regional footprint had very strong productions across all of our regions. In our specialty lines, I guess I'll single out equipment finance as one business that had outside growth relative to some of the other businesses. But I think the most important takeaway here is it was pretty broad-based. And we saw it across most of our businesses and regions. Andrew Leishner: Okay. Great. Thank you. D. Bryan Jordan: Thank you. Lucy: The next question comes from Christopher Marinac of Janney Montgomery Scott. Christopher Marinac: Hey, thanks. Good morning. I wanted to follow-up on the regulatory disclosures last quarter on the NDFI loans. Think about 60% was related to mortgage warehouse. And, obviously, 40% is the rest. And I'm curious if the mortgage warehouse hope grows and gets to the upper end of the growth range this year, does that mean that the lower percentage on other NDFI loans would occur? Or would you still be seeing growth in some of this other business and other lines outside of mortgage? Thomas Hung: Sure. I'm happy to address that. I'll break that up into a few parts. I'll first off with the growth that we've had in mortgage warehouse that actually accounts for a larger percentage. It's more closer to two-thirds of our NDFI exposure is in mortgage warehouse. And from a safety and soundness perspective, I remain very, very confident in the way we have expertly managed that business for a lot of years now, most notably in that business, we take physical possession of the notes. So you can imagine the amount of paper coming in and out of our mortgage warehouse group each and every day. In terms of other NDFI, given the noise that's been in the market, you know, we certainly continue to look at that very closely, but I would point to, once again, the years of experience we have in that sector. Consistently strong performance. And I think there's some differentiation for us as well in terms of, you know, we have a full-time team of field examiners. That's seven full-time staff with nearly twenty years of average experience. And through that team who are on the road probably fifty weeks a year, we do our own field examinations out generally one to three per customer every year. We do supplement that with some third parties as well. And in addition to that, you know, once again, given kind of the recent noise, we have also completed a, recently, a comprehensive review of our non-mortgage warehouse NDFI book. We've segmented all of that into seven different segments, which have very different risk profiles, and we've done deep dive analysis into each of those segments with unique scorecards we developed based on the unique risk of each sector. So we continue to look at it very closely. You know, we and we originate, we continue to originate in those segments as well. You know, we do it in a prudent manner as we always have. And I think the results have been pretty good. Hope Dmuchowski: Following on Tom's comments about mortgage warehouse, I really do want to reiterate what I said. I said it's at November with Tammy Locascio, the head of that business at a conference. We do mortgage warehouse, and it looks exactly like a mortgage loan. We pick the closing attorney. We take physical ownership of the actual loan docket. It sits in the same vault as the mortgages that are on our balance sheet. So for us, when we do NDFI, we have that underlying collateral with us. And we get to sit at the table with the lawyer that we choose at the closing. So there always can be fraud, but we do do it some of our other peers. I want to point to that when you think about NDFI exposure. For us, if we had an issue with a borrower, we can we have the notes. We can sell them into the secondary market and get our money back, which is not traditionally how the NDFI is thought about. D. Bryan Jordan: To your mechanical part of your question, if the NDFI number goes up in the first quarter or quarter beyond, it's likely to be driven by fast growth in the mortgage warehouse lending business than any of the other NDFI lending business. Christopher Marinac: Great. Bryan, Tom, and Hope, thank you for that. That's all color. And, you know, I know the data is now a quarter stale, but it seemed that you had no losses in that business and that the problems in terms of just non-accruals were very small. So I suspect that's still the case today. Thomas Hung: Yeah. That's absolutely the case in our mortgage warehouse book. I mean, I think to be expected in our non-mortgage warehouse NBFI book, you know, there are slightly higher levels of classified assets and NPLs, and there's some charge-off in that business that I wouldn't call any of it a big outlier relative to the overall book. Christopher Marinac: Great. Thank you again for the detail here. D. Bryan Jordan: Thanks, Chris. Lucy: Thank you. The next question comes from Janet Leigh of TD Cowen. Your line is now open. Please go ahead. Janet Leigh: Good morning. Just to clarify on your expense guidance, so the flattish expense guidance, does that still hold if you achieve the higher end of your revenue guide of 3% to 7%? If you achieve 7%, is it still flat? Hope Dmuchowski: Janet, yes. It does. What I'll say is if we achieve the higher end of the range with more countercyclical commission businesses than we had this year, that's what brings it up above the 0%. Janet Leigh: Got it. Thank you. And just a quick follow-up. If I look at your fourth quarter loan growth results, period at 7% annualized, looks like a lot of the narrative around C&I potential mortgage warehouse, and CRE inflection, those all sound positive. And it feels like there's a level of conservatism baked into your mid-single-digit loan growth. Is this a fair assessment, or am I missing anything? Thanks. Hope Dmuchowski: Janet, we are traditionally a very disciplined lender. So if you look back at how First Horizon has lent for the last five or ten years, we tend to be pure average-ish. And so when we think about what we think the outlook is for the market, we're not trying to overperform. We want to make sure that we get great clients that we can work with, that they have the right underwriting standards. They're going, you know, the way we keep our net charge-offs so low through a cycle is through disciplined lending. And so absolutely, we could do more. Bryan's great quote that he always uses is, it's easy to lend money, it's harder to get it back. And so I think, you know, as I sit here today, I don't see an economy that's going to be above mid-single-digit loan growth unless there's some stimulus put in the system. D. Bryan Jordan: There's some mixed things going on in the loan growth percentages. We're not likely to grow our consumer mortgage portfolio at a very rapid rate this year. Just expect that most of what we will originate goes into the secondary market. But to your point, we feel very, very good about the business that you enumerated, and we think we have great opportunities to grow there. Janet Leigh: Thank you. D. Bryan Jordan: Thank you. Lucy: The next question from Anthony Elion of JPMorgan. Your line is now open. Please go ahead. Anthony Elion: Hi, everyone. Hope, on fixed income, I'm curious why ADR and fixed income revenue didn't grow in 4Q. It seems like the tailwinds were all there, including a lower rate outlook, volatility was moderate, and the yield curve remained steep. Hope Dmuchowski: Tiffany, we saw a significant slowdown in that business as it related to the government shutdown. And so we mentioned on our call last quarter that early October was starting out really slow. So it was really kind of a tale of two quarters where the first half of the quarter was pretty low ADRs and the back half came up. So it averaged to a good number, but there was a lot of volatility and really low ADR during the government shutdown. D. Bryan Jordan: Then the last half of December tends to be very slow as well. Anthony Elion: Thank you. And then one more on expenses. So could you put a finer point on the degree to which any incremental commissions from the fixed income business could impact the expense outlook? I only ask because I remember last year, your expense outlook quarter after quarter included increases in commissions. Helped give us more visibility into where total expense could come in for the year. Thank you. Hope Dmuchowski: As we think about the countercyclical, the rule of thumb is to assume 60% commission as revenue increases year over year. D. Bryan Jordan: I'll look at the commission-based nature of expense growth in 2026. If we get commission-based expense growth in 2026, it will be a high-class problem. That is profitable business for us. It is broadening and deepening relationships. And so while we don't anticipate that that's going to drive the expense number, if we get that and we end up with higher than flattish or flat expenses, that will be a high-class problem in my view. Anthony Elion: Thank you. D. Bryan Jordan: Thank you. Lucy: Our final question today comes from Timur Braziler from Wells Fargo. Your line is now open. Please go ahead. Timur Braziler: Good morning. Bryan, I just want to make sure I heard your last statement correctly. So is it implying the flattish expenses imply flattish countercyclical revenues in '26? To the extent that you get growth there, then you'll get growth in the expense base? D. Bryan Jordan: Well, back to my earlier point about all models are wrong. Some are useful. We have to make assumptions about what our countercyclical business is and our commission-oriented business is. So that includes our wealth management business. That includes our fixed income business. That includes incentives we play around, mortgage warehouse lending. So we've got a series of assumptions in there. I wouldn't overread that we don't expect that that balance will change, but we have incentive programs in our straight C&I lending and our commercial real estate lending. And as we look at the course of the year, we think all of it balances out given our expectations of where revenue is likely to come from. It'll largely be in a flattish area. Timur Braziler: Got it. And then just following up on the loans to mortgage companies, just wondering what portion of the growth is coming from new client acquisition, if any? Or has that ramp that you've been focused on over the course of the past year or so, has that largely concluded, and that business is now more or less stable, or is there still some level of benefit coming from new client acquisition there? Thomas Hung: Yeah. I'm happy to address that one. I don't have the exact split with me, but I can say that we continue to pick up new customers at a pretty good clip. As you may recall, there was some disruption to that industry earlier this year and also last year in terms of a few major players either exiting the space by decision or being acquired. And as a result, they became a good number of strong customers that were potentially looking for new homes. And so our team has done a great job through the execution and expertise we have in the space of picking up new clients, but we certainly also upsized with existing clients as mortgage volumes are picked up. And so the increase you're seeing is really a combination of a mix of the two. D. Bryan Jordan: And we get a larger share of originations as a result of all of that as well. Timur Braziler: Great. Thank you. Thomas Hung: Thank you. Lucy: We have no further questions at this time. So I'd like to hand back to Bryan for closing remarks. D. Bryan Jordan: Thank you, Lucy. Thank you all for joining us this morning. We appreciate your time and your interest. Please feel free to reach out if you have further questions or if there's anything that we can do to help fill in the blanks. Hope you all have a great day. Lucy: This concludes today's call. Thank you all for joining. You may now disconnect your line.
Operator: Hello, and welcome, everyone, to the Insteel Industries First Quarter 2026 Earnings Call. My name is Breeka, and I will be your operator today. All lines will be muted throughout the presentation portion of the call with a chance for Q&A at the end. I will now hand over to your host, H.O. Woltz III, CEO, to begin. Please go ahead. H.O. Woltz III: Good morning. Thank you for your interest in Insteel Industries, Inc. Welcome to our first quarter 2026 conference call, which will be conducted by Scot R. Jafroodi, our Vice President, CFO, and Treasurer, and me. Before we begin, let me remind you that some of the comments made in our presentation are considered to be forward-looking statements that are subject to various risks and uncertainties which could cause actual results to differ materially from those projected. These risk factors are described in our periodic filings with the SEC. The upturn in business activity we reported previously continued during our first quarter, and our fiscal 2025 acquisitions continue to perform well. While our ability to forecast future activity is limited, we are encouraged by the level of optimism in our markets as well as brisk order entry up to this point in January, which causes us to believe that 2026 will be a strong year for the company. While the relative strength of our markets is real, we are aware of uncertainties created by the administration's trade policies, the nation's fiscal conditions, and by the economic cycle. I am going to turn the call over to Scot R. Jafroodi to comment on our financial results. Following Scot's comments, I will pick the call back up to discuss our business outlook. Scot R. Jafroodi: Thank you, H.O. Woltz III, and good morning to everyone joining us today. As highlighted in this morning's press release, we delivered a strong start to the year. First quarter results benefited from improved demand for our concrete reinforcing products, which supported wider spreads between selling prices and raw material costs. Net earnings for the quarter rose to $7.276 million or 39¢ per share compared with $1.1 million or 6¢ per share in the same period last year. It is also worth noting that last year's first quarter results included $1 million of restructuring charges and acquisition-related costs, which collectively reduced earnings per share by 4¢. First quarter shipments, which are typically our softest period due to winter weather conditions and holiday schedules, increased 3.8% year-over-year. On a sequential basis, shipments declined 9.7% from the fourth quarter, which is consistent with normal seasonal patterns. The year-over-year growth in shipments reflects improved demand across our commercial and infrastructure markets along with incremental volume from the acquisitions we completed early last year. As we move forward, our year-over-year volume comparisons will normalize now that these acquisitions are fully integrated into our run rate. Turning to pricing, average selling prices increased 18.8% year-over-year, reflecting the pricing actions we took throughout fiscal 2025 to offset higher steel wire rod costs driven by tight domestic supply conditions and increased Section 232 steel tariffs, as well as to address rising raw operating costs. Sequentially, average selling prices were essentially unchanged from the fourth quarter as we did not take additional pricing actions during the current period. However, with scrap and wire rod prices now moving higher again, we implemented our old price increases across most product lines, which took effect earlier this month. Gross profit for the quarter improved to $18.1 million from $9.5 million a year ago, with gross margin expanding 400 basis points to 11.3% from 7.3%. This improvement was driven by widening spreads, higher shipment volumes, and lower unit manufacturing costs. On a sequential basis, gross profit declined by $10.5 million from the fourth quarter, and gross margin narrowed by 480 basis points, driven primarily by the consumption of higher-cost inventory. As I just mentioned, the price increases implemented in January are expected to benefit second-quarter spreads and margins as higher selling prices begin to align with the consumption of lower-cost inventories under the first-in, first-out accounting methodology. SG&A expenses for the quarter rose by approximately $900,000 to $8.8 million or 5.5% of net sales compared with $7.9 million or 6.1% of net sales in the prior year. The year-over-year increase was driven primarily by an $800,000 rise in compensation expense under our return on capital-based incentive plan, reflecting stronger financial performance in the current year. As you may recall, we did not incur any incentive compensation expense in the first quarter of last year. Our effective tax rate decreased to 21% compared to 26.1% in the prior year period. The decline was primarily driven by a reduction in the valuation allowance on deferred tax assets along with a discrete tax item related to the calculation of state deferred taxes. Looking ahead, we expect our effective tax rate for the remainder of the year to be approximately 23%, subject to the level of pretax earnings, post-tax book-to-tax differences, and the other assumptions and estimates underlying our tax provision calculation. Moving to the cash flow statement and the balance sheet, cash flow from operations used $700,000 in the quarter, compared to providing $19 million last year. Net working capital used $16.6 million of cash in the first quarter, driven primarily by a $34.5 million increase in inventories, partially offset by a $14.1 million reduction in accounts receivable. The inventory increase reflects higher raw material purchases, including a meaningful amount of offshore material, along with an increase in the average carrying value of inventory. On the receivable side, the decline was largely tied to lower shipments, which is consistent with the normal seasonal slowdown in sales we see this time of year. Reported on the inventory position represented approximately 3.9 months of shipments on a forward-looking basis, calculated off of our forecasted second-quarter volumes, compared with 3.5 months at the end of the fourth quarter. As we discussed on our prior call, we expected a temporary inventory build in the first quarter as we supplemented domestic wire rod supply with offshore purchases. Looking ahead, we expect inventory levels to moderate over the course of the second quarter as purchasing activity normalizes and shipment volumes increase. It is also worth noting that our first-quarter inventories are carried at an average unit cost that is generally in line with our first-quarter cost of sales and remain below current replacement levels. We incurred $1.5 million of capital expenditures in the first quarter and remain committed to a full-year target of $20 million. H.O. Woltz III will provide more detail on this topic in his remarks. In December, we returned $19.4 million of capital to our shareholders through the payment of a $1 per share special cash dividend in addition to our regular quarterly dividend. This marks the ninth time in the last ten years that we have issued a special dividend. Also, during the first quarter, we continued our share buyback, repurchasing $745,000 of common equity equal to approximately 24,000 shares. From a liquidity perspective, we ended the quarter with $15.6 million in cash on hand and no borrowings outstanding on our $100 million revolving credit facility. Turning to the macro indicators for our construction end markets, the latest readings from two key leading measures, the Architectural Billing Index (ABI) and Dodge Momentum Index (DMI), continue to signal a mixed and somewhat cautious outlook for nonresidential commercial construction activity. In November, the ABI registered 45.3, remaining firmly in negative territory as any reading below 50 can indicate a contraction in activity. This marks the thirteenth consecutive month of declining billings. Inquiries for new projects showed only modest improvement, and the value of newly signed design contracts continued to soften. In contrast, the Dodge Momentum Index signaled strengthening activity, rising 7% in December and supported by more than 3.5% growth in commercial planning, driven in large part by data center construction. Year-over-year, the DMI was up over 50% overall, including a 45% increase in the commercial segment. Turning to the broader market backdrop, the most recent construction spending data from the US Department of Commerce shows that through August, total construction spending on a seasonally adjusted basis was down about 1.6% year-over-year. Nonresidential spending declined 1.5%, and public highway and street construction, one of our key end markets, was down about 1% compared to the same period last year. Finally, US cement shipments, another key measure that we monitor, fell 4.3% in August and were down 3.4% year-to-date. That said, as we close out 2026, we are encouraged by the steady demand we are seeing across our core markets. While we recognize the broader economic backdrop remains uncertain, the demand trends we are seeing and the conversations we are having with customers give us confidence as we look ahead to the balance of the year. This concludes my prepared remarks. I will now turn the call back over to H.O. Woltz III. H.O. Woltz III: As I noted in my opening comments, we are pleased with the acceleration of business activity that continued through our first quarter. Our first quarter performance will never be strong due to the limited number of working days in the quarter after giving effect to Thanksgiving and Christmas shutdowns through much of the industry and to seasonal weather patterns. So our first quarter results are never indicative of the level of demand for our products. Nevertheless, we are pleased with the performance for the quarter and see no indication that the level of activity in our markets is poised to subside. As we consider the drivers of demand for our products, the facts are no clearer to us today than they have been in the past. We believe, however, that funding from the Infrastructure Investment and Jobs Act (IIJA) is responsible for much of the uptick in demand we have experienced, although we cannot definitively state that any single project was funded by IIJA. I suspect the same is true for our customers. They have enjoyed better volume levels without knowing the precise source of funding that drives demand for their products. While IIJA funding expires in 2026, funded projects will proceed into 2027 and beyond. The consensus today is that there is bipartisan support for a replacement infrastructure funding mechanism. Of course, that remains to be seen. The other notable source of demand that we expect to remain robust into 2027 is from the data center construction boom that has been well publicized. While community pushback seems to be growing as the scale of data center resource intensity is more fully appreciated, we have commitments from customers for projects that have been approved and funded and that should run through calendar 2026. The timing of the data center activity is fortuitous since other sectors of the private nonresidential construction market are weak. We believe the data center work will serve as a timely bridge while we wait for the recovery of more traditional private nonresidential projects. Turning to another subject, the steel industry may have been more affected by the administration's tariff policy than any other industry. The Section 232 tariff of 50% on imports of steel has caused market prices in the US for hot rolled wire rod, our primary raw material, to rise to a level that is 50% to 100% higher than the global market price. While we are fortunate that imports of PC strand are now subject to the Section 232 tariff under the derivative products provision, domestic wire rod prices have risen to an extent that dilutes the benefit of the Section 232 tariff on PC strand. Probably of more importance is the uncertainty that continues to surround the administration's tariff policy. Recently, I read that the Secretary of Commerce had speculated that the Section 232 tariff might be modified or removed with respect to the Europeans if the right trade deal were struck between the US and European Union. It is reasonable to assume that this could be true with respect to other countries as well. Notably, negotiations surrounding USMCA come to mind. Such speculation by the administration increases uncertainty and instability in US markets. It is important for investors to understand that Insteel Industries, Inc. operates in a small segment of the domestic hot rolled carbon steel market. Domestic production of wire rod, our primary raw material, is approximately 3.5 million tons per year, while US production of all hot rolled carbon steel is roughly 100 million tons per year. Difficult economic conditions in recent years for producers of wire rod resulted in the permanent closure of two producing mills and financial struggles together with significantly diminished output for a third producer. Altogether, these curtailments reduced actual domestic production of wire rod by more than 800,000 tons per year and reduced domestic capacity to produce wire rod by nearly 1.2 million tons per year relative to apparent domestic consumption of approximately 5 million tons per year. So by our calculation, capacity equal to nearly 25% of apparent domestic consumption is offline, most of it permanently. These capacity curtailments together with the imposition of the Section 232 tariff caused the US wire rod market to tighten significantly and created serious questions about the adequacy of domestic supply. Insteel Industries, Inc. therefore turned to the offshore market for a portion of its supply. The economics of offshore transactions, which include substantial freight costs, require the purchase of large quantities with a resulting impact on inventories and networking capital requirements as reflected on our balance sheet. Net working capital has risen over $50 million in the last twelve months. We expect to continue importing a portion of our raw material requirement until such time as domestic availability improves. We believe, however, that the net working capital impact of importing will be more muted going forward and that we will see significant working capital release as market conditions normalize. But it is not possible to quantify this at the present time. Finally, turning to CapEx, as mentioned in the release and by Scot R. Jafroodi, we expect to invest approximately $20 million in our plants and information systems infrastructure here in 2026. We expect our investments to support the growth of our engineered structural mesh business, to reduce our cash production costs, and to enhance the robust nature of our information system. Consistent with past practice, we will provide quarterly updates of our investment activities and expectations as the year progresses. We believe our estimate is conservative in keeping with prior forecasts for CapEx levels. Looking ahead, we are aware of substantial risks related to the state of the economy and the administration's tariff policies. Regardless of developments in these areas, we are well-positioned to pursue growth-related activities, both organic and through acquisitions, to optimize our costs. This concludes our prepared remarks, and we will now take your questions. Breeka, would you please explain the procedure for asking questions? Operator: Of course. If you wish to ask a question, please press star followed by one on your telephone keypad now. Please press star followed by two. And when preparing to ask your question, ensure your device is unmuted locally. We have our first question from Julio Alberto Romero from Sidoti and Company. Your line is now open. Please go ahead. Julio Alberto Romero: Thanks. Hey, good morning, H.O. Woltz III and Scot R. Jafroodi. To begin, you sounded pretty constructive on the overall demand outlook, particularly with the data center and IIJA-related projects. You mentioned the commitments you have from customers on the data center side that have been approved and funded and run through calendar 2026. Can you give us a little bit more color on these commitments? Are these new commitments in your pipeline? Have they been accelerating? And what is your sense of how far out these commitments are beyond calendar 2026? H.O. Woltz III: Well, I mean, the data center business is new to Insteel Industries, Inc. It is new to much of the economy. I think 2025 was the first year we had done any significant data center business, but certainly, now that we are in that market and connected with some of the companies that regularly do that business, we are seeing repeat opportunities and robust demand, which comes as no surprise based on what has been publicized about that industry and that build-out. Julio Alberto Romero: Got it. That is helpful. And, talking about the volumes in the quarter, you experienced growth of roughly 4%. Can you talk about how that was affected, if at all, by constraints of wire rod? Both in this quarter and on a go-forward basis? H.O. Woltz III: Do you mean just the domestic situation? Julio Alberto Romero: Yeah. I think the last couple of quarters you called out that raw material constraints have kind of constrained your volume output. But it sounds like that was less of an effect this quarter. H.O. Woltz III: So the reason that I went through the mill closures and sort of the macro with respect to wire rod supply and demand is to give readers of our release and participants on this call a sense for why our inventories have grown. Our inventories have grown because we are unable to acquire sufficient quantities of wire rod domestically, and we are forced to go offshore. I will point out that the situation in the wire rod market is very different than the situation that confronts purchasers of other hot rolled steel products because wire rod capacity has contracted significantly, and capacity has expanded significantly in other hot rolled products. So when we concluded that it was unlikely we could support our business objectives by buying solely domestically, we went to the offshore market to fill the gaps. We will continue doing so until such time as we see that availability improves in the US and that suppliers are willing to work for an order. Julio Alberto Romero: Very helpful context there. Last one, if I may, and I will pass it on, is on the SG&A front. You were able to grow sales 23% while SG&A grew by 11%. My question is, are you beginning to realize SG&A leverage from your acquisitions of EWP and OWP at this point in time? Or is that leverage still coming in your view? H.O. Woltz III: Well, I mean, we certainly realize the synergies we expected to come from the acquisition. I would say that together with the added shipments and sales volume is really what that acquisition was all about. We are pleased with its performance, and we are moving along well. Julio Alberto Romero: Excellent. I will pass it on. Thanks very much. Scot R. Jafroodi: Thank you. Operator: Our next question is from Tyson Lee Bauer from KC Capital. Your line is now open. Please go ahead. Tyson Lee Bauer: Good morning, gentlemen. Insteel Industries, Inc. has consistently been able to run counter to the industry stats as far as your ability to grow shipments and your ability to grow as a company. Versus, I think you mentioned, thirteen straight months of ABI billings below 50 and some of the other general industry stats. What has allowed you to run counter to those? Are we seeing an underlying acceleration away from just standard rebar to more of your ESM products and other products that would account for your ability to grow facing those kinds of industry headwinds? H.O. Woltz III: Well, if I remember correctly, Tyson, the first time that business conditions for Insteel Industries, Inc. seemed to diverge significantly from what the major macro indices would indicate was 2025. Several things have happened internally that have helped us with that. Our work in the cash-in-place market has helped. Our acquisitions have helped. I think there are things going on internally that are different than what you may see in macro indicators for construction activity in the US market. We will continue pursuing the paths that we are pursuing now. Tyson Lee Bauer: In the past, you benefited from when we were going into 2021 with the distribution centers. Now we are looking at data centers, both DC, ironically. You are working with those contractors that specialize there. Are you being spec'd into those designs as you were with some of the online retail customers before in the DCs? As we see that develop and that industry grow, are you kind of in lockstep with that? H.O. Woltz III: Yeah. I think every project is different. But as a general goal, I would say no. We are not spec'd in. Rebar is spec'd in. We make a conversion of rebar applications to engineered structural mesh applications and rely on the value proposition of our product. Particularly with respect to data centers, one of the significant value propositions that we offer is speed. These owners and lessors of these centers are really focused on constructing them and getting them up and operating quickly. Our product helps with that whole charge. Tyson Lee Bauer: So you do have an inherent advantage based on what your product is to grow along with that growing segment, that niche. H.O. Woltz III: Yeah. I think the value proposition of our product relative to rebar is solid. There is no question about that. Tyson Lee Bauer: Okay. Inventory levels, it sounds like that may have peaked this past quarter. Will we see a gradual downtick? Will that downtick accelerate as we get into fiscal three and fiscal four? H.O. Woltz III: Well, I think it depends on the level of shipments that we see. If the scenario that we believe will unfold actually unfolds, and that is one of strong business conditions in 2026, then I think that is correct. But keep in mind that we will go back to the offshore market for Q3 and Q4 if we do not see significant improvements in the balance of supply and demand domestically. Tyson Lee Bauer: Okay. The CapEx of $20 million, is that roughly split fifty-fifty maintenance, $10 million, $10 million for whether it be cost reductions or product line expansions, more of the growth side or improvement in margin? Is that kind of the split you are looking at? H.O. Woltz III: I would say that is close to correct. We are still identifying some of the capacity expansion opportunities that exist out there. Of course, we are always interested in incorporating new technology into our manufacturing operations that will help us reduce cash costs of operation. We still have the underlying labor availability issue. As you might suspect, the more new technology we bring into the plants, the less labor-intensive our operation is. We are very much oriented toward looking at that. Tyson Lee Bauer: Okay. And last one for me. As the administration goes to Davos, it is supposed to lay a plan to increase and incentivize greater activity in the residential side, which is about 15% of your overall business. Betting against the administration has proved futile. So you kind of go with what they are pushing, especially in an election year. How quickly can that residential market for you turn where it becomes a benefit as opposed to just kind of being stuck in the mud the last couple of years? H.O. Woltz III: My view would be probably not fast enough to have any meaningful impact on 2026 for Insteel Industries, Inc. More importantly, our participation in residential markets would be related to slab-on-grade construction of housing units where the slabs are post-tensioned, and we are using PC strand. That is the segment of business where we knock heads with the imports most closely. Tyson Lee Bauer: Okay. I am going to sneak one in. The labor cost outlook, we have heard other companies talk about general wage increases, health costs on that side of it. Have you indexed or looked at labor costs in increases for this year and what kind of offsets you have there? H.O. Woltz III: Yeah. We have 11 or 12 different considerations because we look at prevailing labor markets in each of the areas where we operate. They are each different. But the upward pressure on labor costs still exists. We are incurring significant reciprocal and Section 232 tariff expenses in purchases of non-raw material items like spare parts, seeing energy increase. The inflationary environment is alive and well within our operations, and it really, like I say, every one's an independent event. Tyson Lee Bauer: Okay. Thank you, gentlemen. Operator: Thank you. We currently have no further questions, so I will hand back over to the management team for closing remarks. H.O. Woltz III: Okay. We appreciate your interest in Insteel Industries, Inc. and its operating results, and we look forward to talking to you next quarter. In the meantime, if you have questions, do not hesitate to follow up with us. Thank you. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Katie: Good morning. My name is Katie, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Fourth Quarter 2025 Earnings Conference Call. On behalf of The Goldman Sachs Group, Inc., I will begin the call with the following disclaimer. The earnings presentation can be found on the Investor Relations page of The Goldman Sachs Group, Inc. website and contains information on forward-looking statements and non-GAAP measures. This audiocast is copyrighted material of The Goldman Sachs Group, Inc. and may not be duplicated, reproduced, or rebroadcast without consent. This call is being recorded today, 01/15/2026. I will now turn the call over to Chairman and Chief Executive Officer, David Solomon, and Chief Financial Officer, Dennis Coleman. Thank you. Mr. Solomon, you may begin your conference. David Solomon: Thank you, operator. Good morning, everyone. Thank you all for joining us. I am very pleased with our strong performance in the fourth quarter. We generated earnings per share of $14.1, an ROE of 16%, and an RoTE of 17.1%. For the full year, we delivered earnings per share of $51.32, a 27% increase versus last year, and ROE of 15% and ROTE of 16%. Before we review our financials in detail, I want to discuss our longer-term performance and provide an update to you on our strategy. Beginning on Page one, in 2020, we held the firm's first investor day and laid out a clear and comprehensive strategy to grow and strengthen the firm. We also set a number of targets so we would be held accountable for our progress. Since then, guided by our purpose to be the most exceptional financial institution in the world, supported by our four values of client service, integrity, partnership, and excellence, we continue to successfully execute on this strategy. We increased firm-wide revenues by roughly 60%. We grew EPS by 144%. We improved our returns by 500 basis points. And we delivered a total shareholder return of over 340%, the most of our peer group over this time frame. As you can see on page two, we achieved this while also materially improving the risk profile of the firm and enhancing the resilience of our earnings. We have doubled our more durable revenues. We have reduced historical principal investments by over 90% from roughly $64 billion down to $6 billion. The results of these multiyear efforts to scale capital-light businesses and reduce our capital intensity were reflected in our most recent CCAR stress test, where we've driven a 320 basis point improvement in our stress capital buffer. Overall, we have strengthened and grown the firm through relentless focus on delivering excellence to our clients. Turning to page three, I want to highlight our strong execution in 2025. Our success is fueled by our world-class interconnected franchises that deliver one Goldman Sachs to our clients around the globe. In global banking and markets, we maintained our position as the number one M&A adviser in investment banking and number one equities franchise alongside our leading position in FICC. We improved our standing with the top 150 clients in these businesses, which has contributed to 350 basis points of wallet share gain in GBM since 2019. We significantly increased our more durable FICC and equity financing revenues, which grew to a new record of $11.4 billion for the year and generated returns in excess of 16% in the segment. In asset wealth management, we are a top-five active asset manager, a leading alternatives franchise, and a premier ultra-high-net-worth wealth manager. We've consistently grown more durable management, other fees, and private banking and lending revenues, which were both records in 2025. And also raised a record $115 billion in alternatives. Our strong execution has led to improvement in both the margins and the returns in this segment. Importantly, we're taking the final steps needed to narrow our strategic focus. In addition to completing the transition of the General Motors credit card program last August, last week, we announced an agreement to transition the Apple Card portfolio. Let's turn to Page four for a deeper dive on our franchises, starting with investment banking, where we have been the number one M&A adviser for twenty-three consecutive years. Very few, if any, service businesses of our size can claim long-standing leadership to this degree. This is a reflection of the strength of our client relationships as well as the quality of our people and the advice and execution capabilities they bring to our clients. Since 2020, we've generated an incremental $5 billion in advisory revenues versus the number two competitor. And in 2025 alone, we've advised on more than $1.6 trillion of announced M&A transaction volumes, over $250 billion ahead of the next closest peer. Over the last year, we've seen high levels of client engagement across our investment banking franchise. And we expect activity to accelerate in 2026. Our outlook is supported by a number of catalysts: corporate focus on strategically positioning scale and innovation, the tremendous public and private capital fueling growth in AI, as well as a strong pickup in sponsor activity. Given our best-in-class sponsor franchise, we're especially well-positioned to help sponsors deploy the $1 trillion of dry powder they hold and monetize the roughly $4 trillion of value across their portfolio companies. Increased levels of engagement are reflected in our backlog, which stands at its highest level in four years. M&A transactions often kick off a flywheel of activity across our entire franchise. Whether it's acquisition financing, hedging activity, secondary market making, or investing opportunities for our AWM clients, it is unquestionable that there is a significant multiplier effect. And as the number one advisor for over two decades, we are uniquely positioned to capture the significant forward opportunity. Moving to Page five, another growth engine for GBM has been our leading origination and financing businesses. Last year, we announced the creation of the Capital Solutions Group, formalizing a hub to provide our clients a comprehensive suite of financing origination, structuring, and risk management offerings across both public and private markets. On the public side, we are optimistic about the outlook for equity and debt underwriting, particularly amid the resurgence in the IPO market and higher acquisition finance-related activity. We have a long-standing track record and leading market positions. On the private side, our ability to structure holistic solutions has led to a number of asset-backed financings across infrastructure, transportation, and data centers. Supported by strong origination and structuring that feed opportunities across our client franchise and our asset management platform. These capabilities have supported our deliberate strategy to grow our more durable financing revenues, providing a ballast to our results and comprising 37% of total FICC and equity revenues in 2025. Since 2021, these have increased at a 17% CAGR. And with risk management always top of mind, we still expect to prudently drive growth from here. On page six, we illustrate the strength and resilience of the FICC and equities intermediation businesses. We have a demonstrated ability to deliver strong results in a broad array of market environments. While client activity levels in different asset classes ebb and flow in any given quarter, our overall results have been remarkably consistent over time. This reflects the breadth and diversification of these businesses, which have been bolstered by our share gains. We see even more opportunities to further strengthen our client franchise. This includes investing to improve our market-making capabilities and broaden offerings for active and passive ETF issuers. In addition, we are working to close share gaps with key client segments, including insurers, wealth managers, and RIAs, as well as in certain product areas like corporate derivatives. Geographically, we are looking to close the share gap in Asia, in part by focusing on these areas. Turning to page seven, our scaled asset and wealth management business has $3.6 trillion in assets under supervision, with global breadth and depth across products and solutions. We've grown more durable revenues across management and other fees in private banking and lending at a 12% CAGR, ahead of our target, and we continue to see significant opportunities across wealth management, alternatives, and solutions. We have also improved our AWM margins and returns. And given our growth outlook across these businesses, we are setting new targets. We are increasing our pretax margin target to 30%, which will help drive high-teen returns in AWM over the medium term. Let's dive deeper into our key growth opportunities, starting with wealth management on page eight. Over the last fifty years, we have built a premier franchise with $1.9 trillion in client assets that is centered around meeting the distinct investing, planning, and borrowing needs of ultra-high-net-worth individuals, family offices, endowments, and foundations. Over the last five years, we drove long-term fee-based inflows at an annual pace of 6% and grew wealth management revenues at a CAGR of 11%. And we expect further growth from here. Specifically, we are broadening our client base by increasing the number of advisers and content specialists globally. We're expanding our loan product offerings in line with client demand. We are enhancing alternatives investment offerings to facilitate clients moving closer to their optimal target allocation. And we are continuing to elevate the overall client experience, including via enhanced digital offerings and more expansive thought leadership engagements that leverage the convening power of Goldman Sachs. To sharpen our focus on future growth in wealth management, we are introducing a new target of 5% long-term fee-based net inflows annually from the platform. On Page nine, we highlight our other key growth opportunities in asset wealth management, alternatives, and solutions. We have a leading alternatives platform where we've raised $438 billion since our 2020 investor day. And we have grown alternatives management and other fees to a record $2.4 billion. We continue to scale our flagship fund programs while concurrently developing new strategies. Given our success in strengthening and growing our alternative platforms, we believe we can raise between $75 billion and $100 billion annually on a sustainable basis. As these funds continue to be deployed, we expect double-digit growth in alternative management and other fees. We expect fee-paying alternative assets under supervision to reach $750 billion by 2030. This further supports our existing target of generating $1 billion in incentive fees annually. We're also pleased with the progress across our solutions business, where we see secular growth in demand for our products and services. We are the number one outsourced CIO manager in the US, providing clients a one-stop shop for their investment needs: advice, portfolio construction, risk management, and hedging. And we've won significant global mandates this year from firms, including Eli Lilly and Shell. We are also the number one separately managed account and the second-largest insurance solutions provider. Looking forward, we see continued opportunities for growth, including in third-party wealth, in the context of alternatives offering, ETFs, and customized solutions like direct indexing. In addition, we are expanding our capabilities in the retirement channel via partnerships, further deepening our strong relationships with insurers, and enhancing our offerings for institutional clients, including sovereign wealth funds. Turning to page 10, building on our strong organic growth, we are accelerating our growth trajectory in asset wealth management through our recent strategic partnerships and acquisitions. Our collaboration with T. Rowe Price delivers a range of public and private market solutions for retirement and wealth investors. Last month, we announced the launch of co-branded model portfolios, the first of four planned product offerings. We recently closed the acquisition of Industry Ventures, a venture capital platform that adds an attractive technology investment capability to our market-leading secondaries investing franchise, XIG, where we now have over $500 billion in assets under supervision. Most recently, we announced the acquisition of Innovator, which significantly scales our businesses to be in the top 10 of active ETF providers globally, particularly in the fast-growing outcome-based ETF segment. While the bar for transformational M&A remains very high, we will continue to look for ways to accelerate growth in asset wealth management. Turning to Page 11, we have a long history of prudent and dynamic capital management, and our philosophy remains unchanged. We prioritize investing across our client franchises at attractive returns, sustainably growing our dividend, and returning excess capital to shareholders in the form of buybacks. We see meaningful opportunities to deploy capital across our franchise. This includes leaning into acquisition financing as M&A activity accelerates, supporting growth in equities and fixed financing, and increasing lending to our ultra-high-net-worth clients. That said, given our strong earnings generation capability and excess capital positions, we also have the capacity to return more capital to shareholders. Today, we are announcing a $0.50 increase in our quarterly dividend to $4.5, representing a 50% increase from a year ago. In addition, we have $32 billion of remaining buyback capacity under our current share repurchase authorization. And while we are mindful of our current stock price, we will remain dynamic in executing repurchases. Turning to Page 12, as we continue to grow the firm and strategically deploy our balance sheet to support client activity, our unwavering focus remains on maintaining a disciplined risk management framework and robust standards. We've been on a multiyear journey to diversify our funding footprint, including building strategic deposit-raising channels such as private banking, markets, and transaction banking. This has significantly improved our funding structure. Our deposits have grown to $501 billion and now represent roughly 40% of our total funding. We continue to optimize activity in our bank, which held 35% of firm-wide assets at year-end, versus 25% at the time of our first Investor Day. Overall, this progress underscores our commitment to the diversification and resiliency of our funding profile, which has improved our funding costs and our financial flexibility. All in, our robust capital position, diversified funding mix, dynamic liquidity management, and strong risk discipline are foundational to the strength and stability of our balance sheet, allowing us to meet the evolving demands of our clients. Moving to Page 13, last quarter, we announced the launch of One Goldman Sachs 3.0, our new operating model propelled by Ella AI. We are excited to embark on this effort, starting with six work streams we identified as ripe for disruption. Our people have begun thorough assessments of opportunities for efficiency, and we will then invest to reengineer these processes from the ground up. We will be measuring and driving accountability, and we will update you over the coming year with additional details regarding these metrics. Let's turn to page 14. The exceptional service we provide our clients is a direct result of our people, who are our most important asset. Our client franchise is powered by our best-in-class talent and culture. And it is critical that we continue to invest in Goldman Sachs as an aspirational brand around the globe, which allows us to attract quality talent at all levels. As an example, in 2025, we had over 1.1 million experienced hire applications, a 33% increase from last year. And in our summer internship program, we maintained a selection rate of less than 1%. Many of these individuals will have long careers at the firm, exemplified by the fact that roughly 45% of our partners started as campus hires. And while some leave for opportunities elsewhere, these firms often become important clients to Goldman Sachs. Today, more than 650 of our alumni are in C-suite roles at companies with either a market cap greater than $1 billion or assets under management greater than $5 billion. On page 15, we outline our firm-wide through-the-cycle targets. Given the successful execution against our strategic priorities, we are confident that we will continue to deliver on these. And in the near term, we believe that our catalysts position us to exceed our return target. We have the number one M&A advisor within our leading global banking and markets franchise that is poised to capitalize on a cyclical upswing in investment banking activity. A scaled asset wealth management business with higher margin and return targets and clear opportunities for future growth. And tailwinds from a more balanced regulatory regime. In closing, I am incredibly proud of what we have delivered, and I am confident that we will continue to serve our clients with excellence and drive strong returns for our shareholders. Let me now turn it over to Dennis to cover our financial results in more detail. Dennis Coleman: Thank you, David. And good morning. Let's start with our results on page 16 of the presentation. In the fourth quarter, we generated revenues of $13.5 billion, earnings per share of $14.01, an ROE of 16%, and an RoTE of 17.1%. For the full year, we delivered earnings per share of $51.32, a 27% increase versus last year. An ROE of 15% and an RoTE of 16%, improving 230 and 250 basis points, respectively, compared to 2024. As David mentioned, we announced an agreement to transition the Apple Card portfolio. For the quarter, the transition had a net positive impact of $0.46 to EPS and 50 basis points to ROE, as a $2.3 billion revenue reduction was more than offset by a $2.5 billion reserve release upon moving the portfolio to held for sale. Given that we are taking our final steps to narrow our strategic focus, you will have seen we implemented minor organizational changes and made corresponding updates to our segments, which are incorporated in our earnings presentation today. Turning to results by segment, starting on Page 18, Global Banking and Markets produced record revenues of $41.5 billion for the year, up 18% amid broad-based strength versus last year. In the fourth quarter, investment banking fees of $2.6 billion rose 25% year over year, driven by increases in each of advisory, debt underwriting, and equity. For 2025, we maintained our number one in the league tables for announced and completed M&A, and also ranked first in leveraged lending. We ranked third in equity underwriting and second in common stock offerings, convertibles, and high-yield offerings. Even with very strong accruals in the fourth quarter, our investment banking backlog rose for a seventh consecutive quarter to a four-year high, primarily driven by advisory. As David mentioned, we are optimistic about the investment banking outlook for 2026 and the multiplier effect this activity has across our franchise. FICC net revenues were $3.1 billion for the quarter, up 12% year over year. In intermediation, the 15% year-over-year increase was driven by rates and commodities, and in financing, revenues rose 7% to a new record on better results within mortgages and structured lending. Equities net revenues were $4.3 billion in the quarter. Equities intermediation revenues were $2.2 billion, up 11% year over year on better performance in derivatives. Equities financing results hit a quarterly record of $2.1 billion, up 42% versus the prior year amid record average balances in prime. For the full year, total equities net revenues were a record $16.5 billion, surpassing last year's record by over $3 billion, helped by the multiyear investments we've made in this business. Moving to asset wealth management on page 20, for 2025, revenues were $16.7 billion, and our pretax margin was 25%. Segment ROE for the year was 12.5%, and in the mid-teens when adjusted for the 230 basis point impact from HPI and its related equity as well as the FDIC special assessment fee. In the quarter, management and other fees were a record $3.1 billion, up 5% sequentially and 10% year over year. Private banking and lending revenues rose 5% year over year to $776 million, as higher results from lending and deposits related to wealth management clients were partially offset by NIM compression in the Marcus deposit portfolio. Incentive fees for the quarter were $181 million, bringing our full-year incentive fees to $489 million, up 24% versus the prior year. We expect to make further progress in 2026 towards our annual target of $1 billion. Now moving to page 21, total assets under supervision ended the quarter at a record $3.6 trillion, driven by $66 billion of long-term fee-based net inflows across asset classes and $50 billion of liquidity inflows. In conjunction with our new long-term fee-based inflow target in wealth management, we are providing enhanced disclosures outlining inflows and long-term AUS by channel. Turning to page 22 on alternatives, alternative AUS totaled $420 billion at the end of the fourth quarter, driving $645 million in management and other fees. Gross third-party fundraising was $45 billion in the fourth quarter and $115 billion for the year. Moving to Page 24, our total loan portfolio at quarter-end was $238 billion, up sequentially reflecting higher collateralized lending balances. Provision for credit losses reflected a net benefit of $2.1 billion, including the previously mentioned reserve release associated with the Apple Card portfolio. Let's turn to expenses on page 25. Total operating expenses for the year were $37.5 billion. Compensation expenses were $18.9 billion and included $250 million of severance costs, driving a full-year compensation ratio net of provisions of 31.8%. Full-year non-compensation costs of $18.6 billion were up 9% year over year, driven primarily by higher transaction-based activity. While the operating environment for our businesses continues to improve, we remain committed to our key strategic priority of operating more efficiently and are maintaining a rigorous focus on advancing our productivity and efficiency initiatives as part of One Goldman Sachs 3.0. Our effective tax rate for 2025 was 21.4%. For 2026, we expect a tax rate of approximately 20%. Next, capital on Slide 26. Our common equity Tier one ratio was 14.4% at the end of the fourth quarter under the standardized approach. In the fourth quarter, we returned approximately $4.2 billion to common shareholders, including common stock repurchases of $3 billion and dividends of $1.2 billion. In conclusion, our strong performance this year reflects the strength of our client franchise and our multiyear execution on our strategic priorities. We see a highly constructive setup for 2026 as the improving investment banking environment and our deep client connectivity position us to capture significant opportunities across the entire firm. At the same time, we remain mindful that the operating environment can shift quickly. Economic growth, policy uncertainty, geopolitical developments, and market volatility are factors we continue to monitor closely. And as always, disciplined risk management will remain central to how we serve clients and allocate resources. Even so, with solid momentum and growth opportunities across our businesses, we are optimistic about the forward outlook for Goldman Sachs and remain confident in our ability to deliver for clients and drive strong returns for shareholders. With that, we will now open up the line for questions. Katie: Thank you. Ladies and gentlemen, we will now take a moment to compile the Q&A roster. Press star then one on your telephone keypad if you would like to ask a question. If you would like to withdraw your question, press star then 2 on your telephone keypad. If you're asking a question and you are in a hands-free unit or a speakerphone, we'd like to ask you to use your handset when asking your question. Please limit yourself to one question and one follow-up question. We will take our first question from Glenn Schorr with Evercore. Glenn Schorr: Hi. Thanks very much. Great thoughts and detail in there. One narrow one first. I guess I'll ask it simply. How do you plan to scale wealth from here? And I want to include that if you could. Your aspirations. Meaning, we had a little experiment with United Capital, but, like, you're amazing in ultra-high-net-worth. And I'm curious about the rest of wealth. You've done a couple of things in RIA land, so maybe we could talk about that and then zoom out after that. Thanks. David Solomon: Sure. And appreciate the question, Glenn. I think our ultra-high-net-worth franchise is extraordinary. I think we have a leading position here in the United States. Strong position, but obviously with room for more share and footprint in Europe and in Asia. But I think it's a highly differentiated offering for wealthy individuals and people that have very, very complex needs from a wealth perspective. That business scales with people. You heard in and technology. But you heard in our remarks that we're continuing to invest in broadening the footprint and the coverage available and the resources to expand that ultra-high-net-worth footprint. As you point out, we did do an experiment with United Capital, but we've reached the conclusion that the right way for us, given our manufacturing capability, and asset management, is to really explore broader access to wealth through third-party wealth channels. And so I think you know we're making very significant investments in our third-party wealth capability. That includes partnerships with RIAs and footprint with RIAs. And we have great product manufacturing capability. We can use others' distribution very, very effectively given our brand and our very, very complete diverse product offering. And that will help us continue to scale. But in direct full-service product wealth, we're going to stick with ultra-high-net-worth wealth. And what's interesting is obviously, you've got a bunch of secular things going on that are growing the available people that need these services. You have a huge generational wealth transfer that's going on that's bringing a whole new generation into these services. And it's a very fragmented business, and we think we have a very differentiated offering with lots of upside. And look, you heard what we said about our capabilities and wealth and our target to continue to grow those long-term fee-based wealth assets by 5% as we go forward. Glenn Schorr: I appreciate all that, David. Bigger picture, obviously, really strong results, good backdrop. Middle of the range despite all these strong results because I think there's mixed operating leverage or people always want more operating leverage during big market peaks. So I'm gonna flip the comment around and just ask, what's your level of confidence you've raised the floor with everything that you've laid out and everything you've executed on? Because in the past, when markets pull back off highs, returns for you and others would drift back to the, like, low double digits and sometimes a little bit lower. But, like, I guess I'm curious about how much you think all that progress you've built, how much have you raised the floor? David Solomon: I think we've raised the floor meaningfully. You know, based on the work we've done, the growth that we've done. You know, in particular, the growth of durable revenues, which will be less affected, less affected, not not affected, but less affected if we get into some sort of a downturn or a more challenging environment. If you step back to our Investor Day, the firm's returns in the ten years before our Investor Day averaged nine and change percent. And so I think we now are operating with a global banking and markets franchise that should run mid-teens through the cycle. That doesn't mean you couldn't get a very tough environment where it runs lower, but you can also get environments, and this is part of what we've said about 2026, where it has the potential to run higher. I think we've uplifted the floor very significantly. Now, of course, in very severe downturns, it slows down activity. It impedes confidence. But I just think the firm is bigger, more diversified, much more durable, and better positioned when we have that kind of environment than we've been before. Now I'm not gonna predict the future, and I know it's never a straight line. But I think we've uplifted it very materially. Katie: We'll take our next question from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: Good morning. I guess maybe just sticking with the true cycle ROE, David, maybe the other end of the spectrum when I talk to investors, given that the stock trading, given the performance you've had, and two structural things seem to be happening at Goldman Sachs. One is obviously, the regulatory backdrop changing is creating more capital flex. And the productivity focus that you had double down with the Goldman Sachs 3.0, is it fair for a shareholder to assume that absent, like, big peaks in falls, that the business is rebasing to maybe something better than mid-teens returns towards closer to high teens? Or is that sort of misplaced and misunderstanding kind of the business dynamics? David Solomon: Well, I appreciate the question, and, look, our goal is gonna continue to be to work very, very hard to do everything we can to continue to take the returns higher. We were very pointed in our comments on the last slide in that presentation that we're reaffirming our mid-teens targets. You know, I certainly remember it. It's not that many quarters ago where many people on this call would ask questions about how we were going to get to the teens. So we've arrived. I think we were pointed in saying, this is an environment where the potential to be positioned to exceed targets in the near term is there, but as the previous set of questions just pointed out, there'll be other environments where there could be headwinds. So I think we're very comfortable that we are operating as a mid-teens firm. We think that we can do things that over time will drive upside to that, but we're not going to set targets until we're very comfortable that we further elevated the firm. I think one of the most important things coming out of the presentation is the next step in our asset wealth management journey to tell you that given the work we've done and the progress we've made, we now have more confidence that we can operate that business at a higher margin, 30%, which drives a higher return. And so we're comfortable putting that target out. And that, of course, elevates the overall performance of the firm. The other thing I just want to highlight that comes out of your comment is people think about the regulatory environment as changing the capital rules and giving us more capital flexibility. But I'd also highlight the regulatory environment in the last five years put costs and burdens on the firm that we now won't have going forward that actually gives us flexibility to invest over time in other things that drive growth. So it's not just the capital stuff, that's important. It's also the fact that we and others in the industry were burdened by additional costs that now can be directed to what I call more productive growth and return for our clients and for our shareholders. Ebrahim Poonawala: That's great. And I guess maybe a second one just on capital deployment. So it's very clear the bar for M&A is high. But when you think about just the stock valuation today, regulatory backdrop, there is a cycle or an environment where there is room to do something transformational. Just give us a sense in terms of do you see this as the right time or if the right opportunity presents itself to do something that would shift the mix, boost the mix of AWM business a lot more, or do you think that's kind of anti-Goldman's DNA to do something that would be too large or transformational? David Solomon: I appreciate the question, Ebrahim, but I'm gonna be very consistent with what I've said multiple times with this question. We feel very good about what we did in 2025, the T. Rowe partnership and the two small acquisitions. They fill in gaps. They accelerate our journey in asset wealth management. But the bar for doing something significant and transformational is very, very high. And it has to be high, one, because there are very few really, really great large businesses. Most of them are not for sale and available. And I think the cultural aspects of Goldman Sachs and what makes Goldman Sachs unique and different, there has to be a tremendous sensitivity to integrating business into it to make sure that Goldman Sachs can continue to be Goldman Sachs. And so I won't say that we don't look at those things and think about those things. But I really my key message is the bar is very high. I do think that we will see other things like the things that we've done that can accelerate our journey and therefore increase the growth trajectory of the asset wealth management business. Katie: We'll take our next question from Erika Najarian with UBS. Erika Najarian: Hi, good morning. I hate framing this question this way, but I can't think of a better way to frame it. In terms of the capital market cycle ahead, what quote inning are we in? And as investors think about the scale of potential upside to Goldman? Maybe compare and contrast the preconditions that you see for the capital markets backdrop in 2026 with 2021. And I'm only asking this question as investors try to think about the EPS potential of your company. And I think 2021 was is sort of seen as a ceiling in terms of what you could produce in this business. David Solomon: I'll give you a couple of things, Erika, to think about, and I appreciate the question. You know, the first thing I'd just say is as a student of these businesses for decades and decades and decades, I would bet you that 2021 is not the ceiling. That doesn't mean that in this cycle, we surpass 2021 because things can change and things can go wrong. But this business, when you go back and you step out and you look over twenty-five, thirty years, there's not a ceiling that hasn't been exceeded at some point down the road as you run through cycles. And I'm sure given the growth in market capital world and activity, the 2021 activity levels will be exceeded again. They might be exceeded in 2026. You know, there was a slide that my team was showing me that shows a range of outcomes, including a conservative outcome for M&A, a base outcome for M&A, and a bull outcome for M&A. And the base outcome is pretty close to 2021, and the bull outcome is ahead of 2021. I think the world is set up at the moment to be incredibly constructive in 2026 for M&A and capital markets activity. And I think the likely scenario is it is a very, very good year for M&A and capital markets activity. What could change that? Something could go on in the world, some sort of an exogenous event or a macro event that changes the sentiment. If you look at 2025, we saw that in April. For a period of time, and things got slowed down. Don't think that's the likely outcome. But it's certainly in the distribution as a possibility. But I do think that we are, you know, not yet in the middle of the potential for a full-on M&A and sponsor cycle. And I think over the next few years, barring some sort of an exogenous event that slows it down, we're gonna have a pretty constructive environment for those activities given the combination of fiscal, monetary, capital investment, deregulatory stimulus. You've got this combination of stimulus activity that I think is pretty constructive for these businesses. Erika, a couple things I'd add on that just to supplement everything David said. If you look at sort of industry-wide volumes of the various categories of investment banking activities compared to, say, the last five years, a number of them have started to trend above the average level. One that's decidedly below the averages remains the IPO business for equity. That's a lucrative business that, you know, we have a very long-standing leadership position in. And it's also the case that while, you know, some of the debt activities have been trending up in terms of overall volumes, we still haven't seen enormous volumes of sponsor capital committed deals or, you know, large-cap capital committed investment-grade activity. So there still remains, you know, other types of transaction activity as we progress through the cycle that is, you know, very strategic to clients, things that Goldman Sachs is very good at executing, you know, that could further propel upside across the capital markets line items. Erika Najarian: Great. And just the follow-up question is, I really appreciate how you laid out your internal opportunities to deploy the capital, excess capital, which is so much. Right? If you take into account the excess, your buffer, and potentially the redefinition of that capital, you know, as we think about, you know, a year where, you know, you talked about the cap markets, your ability to organically generate capital is also, you know, best in class. How do we think about how that buyback fits in? Appreciate your prepared remarks that if you're going to be opportunistic, you did $12 billion in '26, but it seems like you have plenty of room to meet or exceed that and, you know, and check off your wish list. Is that the right way to think about it? David Solomon: Sure, Erika. So, you know, I'll quickly give you our standard on the prioritization of the deployment of capital. And that remains unchanged, as David said. And that's what we'll focus on first. But to get to your buyback question, given the degree of excess capital that we sit with today, and our expectation that we'll continue to generate capital over the course of the next year, you know, buybacks remain an important tool in our toolkit. Over the long term, you will notice that Goldman Sachs has, you know, reduced its share count, you know, quite significantly and quite sustainably. And it gives us leverage to continue to generate EPS growth. So like anyone, we are mindful of the price at which our equity is trading. But we're also trying to take, you know, a strategic long-term approach. The first and foremost fuel the franchise to support client activity, but also, you know, drive returns for shareholders over multiple years. So buybacks continue to feature as an important part of our capital deployment strategy. Katie: Thank you. We'll take our question from Betsy Graseck with Morgan Stanley. Betsy Graseck: Hi, good morning. Just continuing on this theme, I wanted to understand a little bit about how the equities markets, revenues, and the fixed income revenues are aligned with the issuance calendar. Just wondering how much of the issuance that's going on is those two line items as well, or is issuance all within banking? David Solomon: So, thank you for the question, Betsy. I'm not sure I understood the very tail end of your question, but maybe I'll start off answering it, and then you can redirect me. I think across our FIC and equity businesses, we obviously have a very diversified portfolio of activities, both intermediation and financing. Even with intermediation, diversified by asset class, by cash, derivatives, and equities. And I think there are contributions that the primary market activity makes to enhance the overall liquidity provision secondary market making opportunity set. But my own view is that we'll continue to see an increase in the overall level of capital markets activity. And if that pulls through as well as we hope and expect, that should catalyze incremental levels of activity across intermediation activities as investors even more dynamically work to assess their existing secondary market portfolio versus quote unquote making room for primary, etcetera. So I think there remains opportunity on in that front as we move into 2026. Betsy Graseck: And then you mentioned that your backlog today is the highest in four years. Maybe we could just ask you to unpack a little bit. There's a lot of different backlogs, so, would you mind going through what you're anticipating, getting on unreleased into production, so to speak, as we go through '26? David Solomon: Sure. So the way we report our backlog consistently each and every quarter. So there's no change to the way we're reporting that. It's comprised of our advisory activities, our debt underwriting, our equity underwriting. We're very, very deliberate in our disclosures each and every quarter to highlight if the delta is in the backlog, have particular drivers. In this particular case, we say a couple things. We say it's the seventh consecutive quarter. It's the highest in four years. It's one of the highest levels ever. It is a large level of backlog, and we make that point because, obviously, the results that we just delivered in Q4 and for full year 2025 were very strong. But the indication is that not only we delivered those results, but more than replenished those results. And so that is what's giving us the confidence. And then all of David's comments that he made with respect to the flywheel and the catalyzing of activity, because the growth in the backlog is driven by advisory, we're also trying to give our investors the sense that that could in turn drive other pieces of activity across the firm, other types of activity that doesn't get registered in backlog and doesn't lend itself to that type of reporting metric. So that's sort of our orientation, and that's what I would offer up to help you get, you know, the insight on why we're putting that out there and highlighting it. Katie: Thank you. We'll take our next question from Brennan Hawken with BMO. Brennan Hawken: Good morning. Thanks for taking my question. First of all, sort of great timing on the Apple Card deal. Like, having that announced the week before we get the tweet on the limits. I mean, I couldn't help but juggle about that. I'd love to hear about obviously, you've got a long pathway to close, twenty-four months and then it closes. But could you help us maybe understand the right way we should be thinking about, like, platform's run rate after it closes and then whether or not there's any operating expenses given this is your last card exit. That might be running off? And what are the plans for the deposits, the Apple deposits that may not have been reflected in the announcement? David Solomon: Sure. Brennan, thank you for the question. Thank you for the observation. The same thing occurred to us. So thinking about platform solutions on the forward, it's really comprised, you know, the vast majority of it is the Apple Card business and the savings program. The loans are now obviously in a fair value, standpoint from an accounting perspective. So they're marked to market. The performance contributors will obviously be, you know, NII, charge-offs, operating expenses, etcetera. I think we'd observe from a seasonality perspective and across the balance of the year perspective, the same dynamics we've observed over the last couple of years of the portfolio where the first quarter is typically stronger in terms of reflecting, you know, pay down of balances and things like that, which then, you know, generally speaking, grow over the balance of the year. When you put that all together, our expectation is we'll have a small, you know, pretax loss for the year in the segment, but nothing that's material for Goldman Sachs. You asked, you asked also, Brennan, about savings. Like, you know, I just wanted to comment on this. Yeah. So there currently is no agreement to transition the savings program. We're gonna continue to service and maintain, you know, our existing Apple savings customers, and we're gonna continue to offer them high-yield savings accounts, you know, as Apple Card users. And users should expect that this service will be seamless. It'll be uninterrupted. And they'll continue to earn the same competitive rate they've been getting on their savings. And it's attractive to us. Obviously, we are very focused on the transition of the card, and there's a lot of work to do over the next twenty-four months. The transition of the card. But at some point in the future, we will expect to have additional conversations about the future of Apple savings. As we've mentioned, our deposits are diversified in tenor and channel, and that remains true even if we excluded Apple savings deposits. They're just a small fraction of the deposits. But at this point, there have been no discussions about the savings plan. Brennan Hawken: Got it. Thanks for that, David. And Dennis. I for my so know, one of the sort of debate points this morning with investors was on the efficiency ratio. And how things looked year over year. Now, of course, you have to adjust for the revenue impact of the Apple Card announcement. But and I might be doing the math wrong, but so correct me if that's the case. But when I do make that adjustment, it looks like there's, you know, a negative year-over-year impact on the efficiency ratio, like, it was a the efficiency ratio was stronger last fourth quarter versus this fourth quarter. Is my math right? And if so, could you speak to maybe what some of the factors were that prevented greater operating leverage and how we should think about operating leverage going forward? David Solomon: Sure, Brennan. I'll start with that. So first, thank you for observing correctly that the efficiency ratio is one of those places where based on the accounting for the Apple Card transition, it goes in the opposite direction versus our intention and the trajectory that we've been on. So that does explain why it's going in that direction based on the reduction to revenues. But you need to look at the efficiency ratio on a full-year basis. There have been some other things I've seen where people are looking at quarter, you know, year-over-year, fourth-quarter operating expenses or efficiency, given the way that we manage compensation and non-compensation expenses over the course of the full year, you need to look at that sort of in totality. And in this particular, when you do that, for the year-over-year fourth-quarter look in this particular year, it looks like you have, you know, a significant increase in operating expenses. But when you step back and look at the full-year performance, it's very clear that the firm delivered significant operating leverage. Obviously, we have reported revs at plus 9%. We have pretax at plus 19, and we have EPS at 27%. And so you have to sort of step back, take account of the provision release, and look at the full-year results. The fourth-quarter year-over-year, the only thing I'd add, the fourth-quarter year-over-year was affected by the way we accrued comp last year. And the way we accrued comp this year and the revenues in the quarter. And so it's you can't look at the fourth-quarter year-over-year. To Dennis' point, you have to look at the year. Katie: Thank you. We'll take our next question from Mike Mayo with Wells Fargo Securities. Mike Mayo: Hi. I guess it's an exciting time. This is a new era for Goldman Sachs. Goldman Sachs 3.0. And you're redesigning the whole firm around AI, so that could be very exciting. I'm looking for the output that you're looking for from this. I know it's early days, but whenever I ask about AI, it's always answers at the 10,000-foot level. Like, it's transformational. It's a game changer. It's a superpower. You know, we all get that. But what are you hoping to achieve? So, like, this decade, your revenues are up two-thirds. Your headcount's up one-fourth. So that's one way maybe you could frame the output that you like to achieve. But how much more in revenues? How much more in efficiency? Just you put some meat on the bones? Thank you. David Solomon: I appreciate the question, Mike, and I appreciate the way you frame it. And I understand why there's a strong desire to get more from us. What I promise you is you're going to get more over time as we're in a position to give you metrics, to give you targets, and to really explain it. Wanna step back at a high level. Just the one thing that I'd say, and I'd frame it slightly differently than you'd frame it, this is not a new era for Goldman Sachs. One GS 3.0 is not gonna transform the whole firm with AI. We are focused on our two core businesses, driving growth in our two core businesses, and both, I think, we're incredibly well-positioned and positioned to win. AI and this technology is an opportunity for us to drive productivity and efficiency in the organization. And we are very, very focused on it. Because it will add to our capacity to invest in growth in the business. At a high level, and I think I've talked about this a little bit before, there are two things that I would focus on. One, we have very smart, very productive people. And you can give them these models, these tools, these applications. You can put them in their hands. They're very good at playing with them and figuring out on a day-to-day basis they can use these tools to make themselves more productive, to do more, to affect our clients more. And we're pretty good at that. We put technology in our hands for decades. They're pretty good at taking that technology and figuring out how to use it. And that is going on, and there is progress in that. The thing you're talking about is our ability to, really, in the enterprise, deploy the technology to reimagine operating processes and create real efficiency. And we think there is an ability to do that on a basis that would be meaningful and significant for Goldman Sachs. It's not just to take cost out, but it's also to free up capacity to invest in other areas where we see growth opportunities we've been a little bit constrained. I talked about wealth management because somebody asked a question. And our desire to put more feet on the ground to broaden our footprint and our platform. We would like to do more of that this year than we're doing. But we're constrained because we're also trying to balance and deliver returns. If we can remake processes and create more operating efficiency and flexibility, that will free up more capacity from an efficiency perspective to invest in these growth areas. To change operating processes in the firm, and we've identified six specific processes that we're attacking. Takes an enormous amount of work to bring people along. We started doing this in the fall. We're making good progress. To be honest, I had hoped to give a little bit more transparency at this earnings call, but we don't have the full confidence to put information out publicly. But we are committed to giving you more over the course of the next quarters so you can track with us the efficiency progress and how we're deploying that progress into the business. And so we'll continue to keep you posted as we do it. But I think it's meaningful, but for the moment, it's focused on six distinct processes. Mike Mayo: And just as one follow-up, if we were to look at one metric for progress five years from now, would that be, like, revenues per employee? Would that be efficiency? Would it be headcount or how do you think about that? David Solomon: Well, if you look out five years from now, I think this technology and I think this has to be put in the lens of a journey that a firm like ours has been on for decades. I mean, I joined Goldman Sachs in 1999. On a revenue per employee basis. I mean, you pointed out a revenue per employee metric over the last five years. You go back and you look twenty-five years, you know the same thing. We continue our people continue to get more productive. I think this technology and the work we can do in One GS 3.0 creates an ability for us in the next five years to accelerate the pace of that one to get. And so that is a metric, but I don't think the only metric. Katie: Thank you. We'll take our next question from Steven Chubak with Wolfe Research. Steven Chubak: So David, there have been a number of significant developments in the area of market structure, whether it's tokenization, the recent expansion of prediction markets. You guys are always quite front-footed when it comes to innovation, and I was hoping you could speak to how you're evaluating some of these emerging opportunities within the market structure or tokenization landscape. Where do you see the most compelling opportunities for Goldman? And how are you positioning the firm to participate in a more meaningful way? David Solomon: Yeah. So I appreciate the question, Steven. First, I'll start I mean, you mentioned two things in the both things that we have an enormous number of people on the firm extremely focused on. You know, tokenization, stablecoins, obviously, there's a lot going on in Washington right now. With the Clarity app that was actually in Washington on Tuesday. You know, speaking to people about things that we think are important, you know, to us in the context and framing to that. Obviously, that bill based on the news over the last twenty-four hours, has a long way to go before that bill is gonna progress. But I do think these innovations are important. I don't think we have to be the leader, but it would not surprise you that we have a big team of people spending a lot of time with senior leadership and doing a lot of work so that we can clearly decide where we're investing in playing and how those technologies can expand or accelerate a variety of our existing businesses. And where there are new business opportunities candidly around those technologies. I think the prediction markets are also super interesting. I personally met with two big prediction companies in their leadership in the last two weeks and spent a couple of hours with each, you know, to learn more about that. We have a team of people here that are spending time with them and are looking at it. When you think about some of these activities, particularly when you look at some of the ones that are CFTC regulated, they look like derivative contract activities. And so I can certainly see opportunities where these cross into our business, and we're very focused on understanding that, understanding the regulatory structure, that's going to develop around that, seeing where there are opportunities for us to have capabilities or to partner to serve our clients around these. I think it's early on both. I think sometimes the, you know, the I think there's a lot of reason to be excited and interested in these things, but the pace of change might not be as quick as quick and as immediate as some of the pundits are talking about in both these. But I think they're important, real, and we're spending a lot of time. Steven Chubak: No. Thanks for all that color, David. And just a quick follow-up on the financing opportunity. If I think back five plus years ago ahead of the 2020 Investor Day, when you first started talking about the financing opportunity, you noted it was less than 20% of Goldman's trading revenue. It was 40% at some of your larger money center peers. And that you were planning to narrow that gap. And if I fast forward to today, you're now approaching that 40% threshold. And I was hoping to get your thoughts on how large you think that financing piece can grow over time. And your approach also managing risk against any potential drawdown or deleveraging events within that business. David Solomon: Yeah. No. It's a very good question, Steve. And you're focused on the right thing and so are we. I mean, I think what I would say is over the last five years, we've gone for being underweighted given our market footprint and our market shares and our wallet shares. To be more closely weighted. I think we've got a little bit of room. But it wouldn't surprise you in the formation of the capital solutions group and thinking about the connectivity between our asset management business and our origination capabilities, we see the potential to basically put a lot of this activity over time into our asset management business and allow our clients to have access, you know, to these origination flows. And so we're very conscious from a risk management perspective. We see opportunities to continue to serve our clients. But because of our asset management business, we have the ability to grow this, and not all of it has to be on balance sheet the same way. And so we're keenly focused on the evolution of that in the coming years, and that's something you'll hear us talk more about. Katie: Thank you. We'll take our next question from Dan Fannon with Jefferies. Dan Fannon: Thanks. Good morning. Another one just on expenses and really noncomp and one all you've been doing with the GS 3.0. Was curious as you start 2026, how does the growth for noncomp look versus maybe 2025 in the budgeting process? And maybe what's the difference in terms of some of those metrics? David Solomon: So appreciate the question. You've heard us say, you know, over many, many, many years, we maintain a rigorous focus on managing these expenses as tightly as we possibly can. There are a lot of them, certainly by dollar quantum, that are very linked with the overall level of activity inside of the firm. Notably, transaction-based expenses, and also, to an extent, some of the market development expenses. We're at a point in the cycle where, as an example, it's more important to feed some T and E into the firm to get people front-footed and meeting face-to-face with clients than it is to overly constrain that expenditure. Transaction-based, similarly, as we continue to grow, these activities there are necessarily transaction-based expenses that go alongside those. On the other side of the equation are those types of expenses over which we have more control, and we have a very concerted effort to constrain the growth of fees, which may be inflation-linked, or may be, you know, substitutes for other types of work. And we're focused on sort of grinding those down as much as we possibly can. Dan Fannon: Thanks. And as a follow-up for the private banking and lending, I was hoping to get an updated outlook as you think about 2026 and a backdrop where rates are coming down, how you're thinking about the offsets of revenue from both demand and deposits? David Solomon: Sure. So, you know, there, we've obviously been quite deliberate trying to, you know, make sure you have all the pieces of the puzzle. You know, as we head into 2026, we've dealt with some of the sequential comparisons in that line item based on the one particular loan that had been previously impaired, and then we had, you know, exceptional levels of revenue. We want to understand that as a comparison. That, frankly, still be relevant as we head into 2026. Our focus is continuing to grow lending activities and the lending penetration. We made good progress there. That's a piece of unlocking incremental growth in the wealth channel, remains very important to clients. So we'll expect to grow lending. We'll focus on growing our overall level of deposit activity across the segment. Yeah. But we do expect there could be some NIM compression given our expectations on the rate cycle. And so we just want to flag that as an expectation as we head into 2026. Katie: We'll take our next question from Matt O'Connor with Deutsche Bank. Matt O'Connor: I was hoping to follow-up on the 5% long-term asset flow target within wealth. You were slightly above this in 4Q and just wanted to get more color in terms of how you arrived at that and maybe framing how much is doing more with existing advisers and customers versus the efforts that you have to hire more advisers? And presumably attract new customers? David Solomon: So look, we think, you know, wealth is a big opportunity for the firm. We have a very strong business at the moment. We think there's a good opportunity to grow it. And we are making extra efforts to drive accountability and focus on our execution against that opportunity set. And so this is an external target that we expect you all to hold us to account. And we also think it's an important signal to send to all of our people in terms of how laser-focused we are on this opportunity set. As you said, we have a track record of delivering this type of annual growth. So we want to maintain the focus. That is one component of the overall sort of revenue equation and opportunity set in wealth management. But it's an effort for us to just apply incremental amounts of granular focus. This is one of the key underpinnings to the overall revenue trajectory in the wealth business. Matt O'Connor: And any color you want to provide in terms of talked about billing advisers. You've got some planned this year. You said you'd like to do more, but you're mindful of kind of managing the profitability. Just any way of framing whether it's your plan this year or just kind of longer term where you're at now and where you'd like to be? David Solomon: I think the best way, Matt, to frame it is this is a very, very fragmented business. My guess is an ultra-high-net-worth. Our share in the United States, for example, is somewhere mid-single digits. And that's probably leading share. So you think about there are hundreds and hundreds of firms and people that do this in a variety of ways. So with our franchise and our platform, I said before early in the call, it scales with people. There is lots of ability to still grow market share in this business if you've got a leading franchise. By adding advisors, adding footprint, broadening the clients that we touch, so we think we've got good trajectory to do that. And there's real focus on that. And I'd add too, Alts is a component of it. We put out specific targets around sort of Alts opportunity set. And while we obviously have penetration of alts within our clients, given that, you know, the average wealth of a client on our platform is north of $75 million. It's not only appropriate, but you could advise a distribution of exposure to alternatives and there's still probably opportunity to grow that with our clients. In addition to the footprint, the advisers, the mix of their activities, lending remains an opportunity there. And we do as we've mentioned, we see more opportunities to enhance our technology investment, the digital experience for those clients, and ensure that we're, you know, very well positioned with existing clients, and their successors. Katie: We'll take our next question from Gerard Cassidy with RBC Capital. Gerard Cassidy: Good morning, Dennis. Good morning, David. Can you guys share with us, in the past, David, you talked about the IPO market and the sponsors maybe not getting the valuation that they would like as being one of the areas that had to loosen up, and it appears like it is. But when you look at this year, and I think, Dennis, you touched on it in your remarks, that we're still below where's IPO business is still below the long-term averages. Is it market conditions do you think will be a greater influence on the market this year? Or is it still the valuation challenge that you've referenced in the past? David Solomon: I don't think you've got the valuation challenge we've referenced. I think you're gonna see a bunch of the sponsor stuff unlock, and you're gonna see more activity, you know, from sponsors. I also think one of the dynamics that we have, and it's just the reality of market structure and the way the world's evolved, companies are staying private longer, and we've got a lot of big, big companies in the pipe that I think just for a variety of reasons are reaching a moment in time where they're saying, you know what? It's time to go. And I think you're also this year gonna see a bunch of IPOs this year and next year of very, very large companies, which is something we really haven't seen a lot of. So combination of sponsor momentum and more of the big companies that have stayed private longer are now turning toward the public markets. And I think the confluence of that's gonna be constructive. Provided we have the kind of market environment we have now. Gerard Cassidy: Right. Right. Okay. That's helpful. Thank you. And second, and not to really get political on this question, but it seems like the M&A activity as you guys do so well and as your peers in 2025. It seems like this administration is more supportive of consolidation than maybe the prior administration. When you talk to executives about transactions, are they more focused on just, you know, the economic outlook and the opportunities there? Or does the, you know, regulation also factor into their thinking, thinking that the window is open now and they really need to move possibly before the change in administration in 2029? David Solomon: Yeah. Sure. Sure, Gerard. I think a way to frame it, you framed it. We had a very, very different environment from a regulatory perspective for M&A for the last four years. And that doesn't mean that it's just a blank check, you know, no regulatory oversight of large-scale consolidation. But CEOs definitely believe that the art of the deal and scaled consolidation is possible now. And when CEOs see that opportunity, because scale matters so much in business, business is so competitive. CEOs get very front-footed. And so I think CEOs and boards are looking and saying, okay. We've got a window here. Of a handful of years where the opportunity to consider big strategic transformative things is certainly possible. And therefore, you've got a much, much more front-foot forward, you know, across industry group of CEOs really thinking about is there something we should do? Is there something we should dream about? That really advances our competitive position? And that's leading to you see that filtering into our backlog, but I think that's leading to a significant upswing in activity provided we don't have some sort of an exogenous event that changes the current sentiment that we now have. Katie: We'll take our next question from Chris McGratty with KBW. Chris McGratty: Oh, great. Good morning. Lot of discussion on the capital impact from dereg. I think in your earlier remarks, you talked about expenses. I'm wondering if you could quantify that potential pool of money that could be freed and redeployed? I guess, how much of a drag has it been? David Solomon: Appreciate the question. I'll follow on, you know, David's comments. I mean, I don't think we're gonna give you an exact number, but you can imagine that there are a variety of, call it, different human capital consulting professional fee type surge experiences that have been observable across the industry over the last couple of years. And while there will always be work to be done, and each and every institution has a responsibility to still govern and run itself in line with regulatory expectations, the current levels of engagement and focus are on the safety and soundness of the banking system. And there's just a different formulation and mix of expenses required to ensure that most important goal of safety and soundness, and it therefore frees up capacity from some of the secondary or tertiary activities, which can then be redeployed to, you know, driving growth across the franchise and actually, frankly, strengthening the safety of the soundness of the firm in another respect. So I think I wouldn't look at it as much of a bottom-line unlock as much as an opportunity to redeploy towards helping to grow the firm and actually improve its resiliency. David Solomon: The only thing I'd add, Chris, to what Dennis said just to get a little bit more we're not gonna be able to quantify for you. But the things that you should look at, you know, obviously, if you go back over the last ten years, capital in the large banks has grown meaningfully. Over the last ten years. And now it's actually the growth has certainly stopped. And because one of the big things that drove the capital growth was the stress capital buffers for all the firm and the CCAR process, which was very, very opaque, there's now going to be more transparency around the models in the CCAR process. I think you're getting a different result there. So one piece of the quantification comes from doing the analysis to look at how SCBs change from kind of 20, you know, the late part of last decade up to 2025 and where they are now and how they've evolved. That's a quantification. The second one was there was an expectation that Basel III was going to put more capital on top of the stack. That's another way that people thought capital was growing. Now the perception is as a Basel III, is going to be more of a neutral event when it's ultimately closed out. And then the third thing is G SIB was supposed to be calibrated to growth in the world and market cap growth that was put in the statute, but it never followed through. So G SIB, as the world grew, G SIB wasn't supposed to grow as fast as it was growing, but it grew faster. That's now going to be recalibrated. That's another one. So if you wanna kinda calculate those differences, those are three important things I would point you to can look at the different banks and calculate that impact. Chris McGratty: That's very helpful. Thank you for that, David. Second question would be more of a business mix desire rate. If you look at the fourth-quarter revenue mix, trading 50%, IB 20, you know, AWM 25, dominant share, great growth. If you were to fast forward over the next few years, like, what do you think this mix looks like? Maybe do you wanna be viewed by the market? Because there are, I think, implications for the multiple that we all wanna put on your stock. Thank you. David Solomon: Yeah. We're gonna continue to invest in the growth of asset wealth management, and we would like the mix to continue to evolve. I think it can evolve very slowly with the organic growth differential. Because, you know, this is not an unfortunately, but it's a reality. We've been able to grow global banking markets faster than we might have expected. And even though we've grown asset wealth management very nicely, just given the scale of global banking markets, that's made the shift in mix slower than we might have all imagined if we go back five, six years and kind of think about the trajectory that we're on. We will try to find things that accelerate that. In addition to the organic, you know, inorganically. Again, with a real discipline around that, as I've stated over and over again. I do think if you look forward, the mix of the firm will continue because the growth in asset wealth management is faster. It will continue to shift. And we're focused on that. Katie: Thank you. We'll take our next question from Saul Martinez with HSBC. Saul Martinez: Hi, thanks for taking my questions, squeezing me in. I just have one question. And it is a clarification more than anything to Erika's question about where we are in the investment banking cycle. And I think, David, in your response, you said that your people are suggesting that in a base case view, 2026 investment banking fees could be closer to approach where they were in 2021, which was, you know, over $14 billion and, you know, we're running, you know, I think '25 was a bit over 9. The delta really is ECM, obviously, and, you know, advisory and DCM are kind of tracking to those the '21 levels already. But just wanted to clarify that. Were you talking about IV fees as a whole, or were you talking about the individual segments, advisory, DCM? You know, I apologize if it was clear to everybody else but me. But, you know, obviously, an environment where you do $14 billion of investment banking fees would seem like an environment where your ROEs for GBM and the firm as a whole would be, you know, materially above the mid-teen level. But just if you can just clarify that, that would be helpful. David Solomon: Sure. I'm sorry, Saul, if I confused you. What I was referring to was advisory fees only. I was, okay. I'm sorry. What I was referring to was advisory volume. Excuse me. Advisory volumes. Now advisory volumes are very correlated to fees. Okay? But the chart that I was referring to is one that looked at three different cases for advisory volume. Okay? So it wasn't equity capital markets, etcetera. I will tell you that what went on in 2021 with equity capital raising, particularly on the stock phenomenon, that's not going to occur in 2026. So my guess would be that equity capital markets level will still be meaningfully below the 2021 peak in 2026, but they will be higher than they were this year. That would be my estimate based on what we see today. But I was talking specifically about advisory volumes when I made that quote. And look. The advisory, as we've said over and over again, when advisory activity grows, the flywheel creates lots of activity. And we were talking industry-wide, not just GS. Looking just at industry-wide volume. Saul Martinez: Yep. Okay. Got it. No. That's helpful. Thank you for clarifying that. David Solomon: Yep. Katie: Thank you. At this time, there are no additional questions. Ladies and gentlemen, this concludes The Goldman Sachs Group, Inc. Fourth Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to Cogeco Inc. and Cogeco Communications Inc. Q1 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Patrice Ouimet, Chief Financial Officer of Cogeco Inc. and Cogeco Communications Inc. Please go ahead, Mr. Ouimet. Patrice Ouimet: So good morning, and welcome to our first quarter results conference call. So as usual, before we begin the call, I'd like to remind listeners that today's discussion will include estimates and other forward-looking information. We ask that you review the cautionary language in the press release and MD&A issued yesterday as well as in our annual reports regarding the various risks, assumptions and uncertainties that could cause our actual results to differ. With that, I will pass the line to Fred Perron for opening remarks. Frederic Perron: Mercy, Patrice. Good morning, everyone, and a warm Happy New Year. Our consolidated results for the quarter were in line with our plan as well as what we had mentioned to you last quarter, and we're on track to deliver our guidance for the full year for all KPIs. In the U.S., our turnaround is working. We've materially improved our subscriber trends for a second consecutive quarter, just as we said we would, translating into our best U.S. customer metrics in the past 15 quarters and we're just getting started. Our goal is now to grow our customer base across our entire U.S. operation on a repeatable basis. We had told you that this was the goal for Ohio in the past, and we're now delivering on that. So we're now further raising our ambition in light of our latest plans and progress. We won't be hitting that new ambition next quarter quite yet, but it is within realistic reach in the medium term. It's important to remind everyone of a few key points about our American business. First, in half of our U.S. footprint, our penetration is still below 20%, which gives us ample room to keep growing our customer base in those areas and offset any losses in other regions. Second, we're making great progress at selectively upgrading our network in a capital-efficient manner including the launch of 2.5 gigabit speeds during the quarter, which is helping us protect and grow our business in key areas. Third, we're still in the process of ramping up new sales channels and beefing up important marketing capabilities. We're also launching an oxio-like fully digital second brand next month. Thanks to the above points and more, we're confident about materially improving financial trends for our U.S. business starting in the second half of this year. This was already recognized by Moody's and S&P, who both improved their outlook on our debt in recent weeks, while DBRS reaffirmed its stable outlook. In Canada, our performance remains solid and resilient with positive year-on-year EBITDA trends. We continue to consistently grow our customer base and our wireless subscriber growth is also going well. Wireline competitive intensity got a little heated in some of our markets during Black Friday and through the holidays. So we expect a more modest wireline customer growth in the upcoming Q2, but this remains manageable overall from a revenue perspective. Before turning to our radio operations, I'd like to reflect on yesterday's report released by the commission for complaints for telecom and television services, which ranked Cogeco as the best telecommunications company in Canada in terms of customer complaint reduction when aggregating brands. In a year where complaints within the telecom industry rose by 17%, Cogeco made significant progress in improving its customer service, which has resulted in a leading 15% reduction in customer complaints versus the prior year, a 25% reduction in billing complaints and no reaches to the Internet code. At Cogeco Media, Q1 revenue increased again this quarter on a year-over-year basis, lifted by strength in our digital advertising solutions and continued listener engagement. So in closing, I'd summarize our overall situation by saying that our 3-year transformation is on track, that our Canadian performance is resilient and solid, our U.S. turnaround is working. And last but not least, we continue to have one of the best balance sheets and cash flow profiles in the industry, which positions well -- positions us well to keep increasing shareholder value over time just as we have been. On that, I'll turn it over to Patrice for more details about our results. Patrice Ouimet: So thank you, Fred. So in Canada, Cogeco Connexion's revenue was stable in the first quarter as we had a mix of a higher Internet subscriber base, which added 8,900 Internet subscribers during the quarter, and lower revenue per customer from fewer video and wireline phone subscribers. Adjusted EBITDA grew by 2% in constant currency due to stable revenue and lower operating expenses resulting mainly from cost reduction initiatives and operating efficiencies coming from our 3-year transformation program. We added 1,100 homes passed during the quarter, mainly with fiber-to-the-home under a network expansion program. In the U.S., Breezeline's revenue declined by 9.9% in constant currency due to the cumulative decline in the subscriber base over the past year, a smaller rate increase than in the prior year, along with a competitive pricing environment. The 1,100 Internet subscriber decline represents a significant improvement over the last quarter and last year, while Internet subscriber additions in Ohio recorded its best quarter since we acquired that business 4 years ago with positive growth of 2,600 subscriber additions. Adjusted EBITDA declined by 9.1% in constant currency, mainly due to lower revenue, offset in part by lower operating expenses, driven by cost reduction initiatives and operating efficiencies. Note that last year's comparative Q1 period had the highest adjusted EBITDA level of all quarters in fiscal '25. Turning to our consolidated numbers for Cogeco Communications. At the consolidated level, revenue in constant currency declined by 4.9%, and adjusted EBITDA declined by 3.7%. The adjusted EBITDA decline was driven by a decline in U.S., partially offset by growth in Canada. Diluted earnings per share declined by 12.2%, mainly due to a onetime gain recorded in the prior year that was associated with a sale and leaseback transaction as well as lower adjusted EBITDA. Capital intensity was 22.2%, up from 20.4% last year, although we are on track to hit our CapEx guidance for the year. Free cash flow in constant currency declined by 15.9% in the quarter, mainly due to proceeds from last year's sale and leaseback transaction. Our net debt to EBITDA ratio was 3.2 turns at the end of the quarter, up slightly from the 3.1 turn reported in Q4. We continue to target a net debt to EBITDA ratio in the low 3 turns range. And we've declared a quarterly dividend of $0.987 per share, which is up 7% year-on-year. At Cogeco Inc., revenue in constant currency decreased by 4.5% and adjusted EBITDA declined by 3.1%, largely explained by Cogeco Communications results. Media operations revenue increased by 8.1% year-on-year, driven by solid market positioning and growth in digital advertising solutions. And we've also declared a quarterly dividend of $0.987 per share at Cogeco Inc., which is also up 7% year-on-year. Now turning to financial guidelines. We are maintaining our annual guidelines for Cogeco Communications fiscal 2026 year, which we first provided to investors in October. As it relates to the upcoming Q2, we are expecting consolidated revenue and EBITDA in constant currency to decline in the low to mid-single digits compared to last year. The declines are explained by the U.S. business. We are, however, expecting much stronger financial performance in the U.S. in the second half of the year, as we'll benefit from improving customer trends and a new wave of in-flight cost and revenue initiatives. We expect both financial expense and acquisition integration and restructuring costs to be similar to Q1, while our depreciation expense should be slightly lower than in Q1. At Cogeco Inc., we are maintaining the financial guidelines as well. And now, Fred and I will be happy to take your questions. Operator: [Operator Instructions] And your first question comes from the line of Aravinda Galappatthige from Canaccord Genuity. Aravinda Galappatthige: Maybe just to clarify on the Q2 guide, Patrice, is it fair to suggest that the U.S. numbers you don't expect like any sort of variance to what we saw in Q1 and Q4, sort of high single-digit declines? And then maybe just to build on that, can you also talk to the sort of the degree of improvement that you expect in the second half? I mean is it within the realm of possibility that you sort of get even towards breakeven as you exit fiscal '26? Maybe I'll just stop there. Patrice Ouimet: Yes, Aravinda. So as part of Q2 with the information we provided at a consolidated level, I think it's a fair assumption to assume that the U.S. business will be in a similar position than in Q1, obviously, plus or minus some changes there. But definitely, where we expect the change is in the second half. And when we think about the second half of the year, we've been losing some customers historically in the U.S. But when you look at the past 2 reported quarters, the situation has improved quite a bit. So that will play into it. We do have some price increases that kick in, in a different periods in January. So that will play a role into -- especially in Q3 and Q4. And we have a number of other elements in terms of cost improvements and some other revenue measures that are going to kick in during the second half of the year. So that's what explains basically the change. Frederic Perron: Yes. And Aravinda, it's Fred. Those initiatives that Patrice is alluding to that will kick in, in the second half. They're all quantified. They're all on track. They're all in delivery right now. So we feel pretty solid. I know the other part of your question was, can we expect a positive year-on-year EBITDA exit rate in the U.S. by the end of the year? Patrice, I don't know if you want to... Patrice Ouimet: Yes. I think it's still a bit early days to think about individual quarters, but definitely trending towards a neutral position is -- for those quarters is a good assumption, what I said the last quarter, but again, it's still a bit early days to talk about just one particular quarter. Aravinda Galappatthige: And then for Canada, Fred, I think you alluded to the prospect of maybe just a slightly muted broadband trends in Q2. We obviously did see some activity even from your end. Maybe just sort of characterize for us what -- where you're seeing that pressure? Is it more on the legacy side? Or is it -- are you perhaps not seeing as much tailwind from the other sources, oxio and your broadband -- your rural expansions? Maybe a little bit more context there. . Frederic Perron: Sure. Oxio is still going very strong, mostly in our current footprint at good margins. And that gives us a lot of optimism about launching an oxio-like brand in the U.S. as well, and we can talk about that later. So that's still strong. Network expansion is still early days. Our Ontario programs are being dragged a little bit over time due to permitting things. So that will take some time before it kicks in. As it relates to the legacy business, the way I would characterize it is the end of our Q1 and the Q2 that we're in right now appears to be a period of experimentation by the different players, whether it's dabbling into resale or some promotional activity during Black Friday. So it's been a little up and down. The past couple of weeks have been better but -- and therefore, we're calling for a more muted growth in Q2, but I wouldn't see it as the new normal. Aravinda Galappatthige: And just lastly, maybe just on the take-up on the wireless side of the business in Canada, again, very early days, but you ran a fairly attractive promotion for a while. Any kind of feedback that you care to share would be useful. Frederic Perron: Yes. Wireless Canada is going really well. Our baseline pricing is in line with the rest of the market, where we have promotions, it was an introductory promotion because we were launching the product in the fall. But it was a promotion for one year on the first line only. And the sales are going so well right now that we've already done 2 pullbacks on that introductory offer. So we don't offer a free line for a year anymore. So we're already in the process of pulling back on those introductory promotions because the sales are going so well. Operator: And your next question comes from the line of Vince Valentini from TD Securities. Vince Valentini: First, let's stick with that wireless. Can you give us any color of what strong means to you? Like are you over 20,000 subscribers in wireless in Canada? I mean I think we're all grasping with what your definition of strong is? Frederic Perron: Vince, the -- we don't disclose our wireless numbers. It's relative to our internal targets. It will take a couple of years before our wireless customer base to be material and really benefit our bottom line. But when you look at what some of the U.S. cables are doing after a few years of being into wireless, it's really a needle mover to their EBITDA positively. But I would not expect much of an impact in the short term, but we're not yet at a place of disclosing the customer base. Vince Valentini: Okay. And on the competition in Canada, you were just talking about, can you unpack it all? Is it a fixed wireless aggression problem or you mentioned TPIA? Is it more the TPIA or just traditional Bell competition? And a sub-question on that. If it -- to the extent you're seeing TPIA experimentation, are you seeing that of somebody reselling your networks or you're at least getting the wholesale fee? Or are you seeing that on the telco fiber network? Frederic Perron: Sure. Happy to answer the question. If you unpack FWA resell and just normal promotional activity, FWA is not having an impact on us. We track churn reasons. And I know some of the advertised prices can be eye-popping on FWA, but we're really not feeling it. On resale, yes, it does seem to be a phase of experimentation. As I said, the past couple of weeks have been a bit better. Hopefully, people will realize that it's not good for anybody. But to your other question, yes, a big chunk of that resale activity shows back up in wholesale revenue for us. So while the subscriber metrics may be more muted, that's why I was saying that in my introductory comments that it's manageable from a revenue perspective. And then in terms of normal promotional activity, yes, it popped up during Black Friday and the holidays. But let's see how it evolves. It may just be a point in time thing. Vince Valentini: Switching to the improving trend in the U.S. Internet subs. You say you won't get back to positive sub adds in the second quarter, but you're still trending well. Can you frame this at all? Like should we be thinking about another quarter with only losing 1,000 or 2,000 Internet subs? Or was there something unusually strong in the first quarter that can't be replicated and maybe you slip back to 4,000 or 5,000 sub losses? Frederic Perron: Without going too precise because we're still in the quarter, right? But the second quarter, I do expect some losses maybe a little bit more than the current quarter, but it's yet to be seen. But no, it was not an unusual phenomenon in the first quarter. The trends are sustainable. And in fact, after the second quarter, we see a clear line of sight to the improvement trend resuming. We have enough quantified measures in place to believe that, that will be the case and turning positive in totality in the U.S. on HSI subs on a repeatable basis is now something we believe is realistic and is our goal in the medium term. Vince Valentini: Excellent. And last one, if I could. Very nice to see the rating warnings, whatever you call them, removed from Moody's and S&P. Does that now free you up to consider using your free cash flow and balance sheet strength for share buybacks? I mean, as I'm sure you appreciate, if you're still on track for $600 million or more in free cash flow in fiscal 2027, that's an incredible free cash flow yield and a lot of excess cash after paying your dividend. Do you think about starting to use that as opportunistically to buy back shares? Patrice Ouimet: Yes. So as we go through fiscal '26, we're still going to concentrate on reducing debt. We're still slightly higher than the 3x target. When you look also at the ratings on the debt, there is an expectation as well of continued decrease in leverage. That being said, as we get to next fiscal year, to your point, which starts in September, then we do expect to have hit that target and also have visibility on strong free cash flow next year. And that's a discussion we'll have definitely at that point internally on what do we do with the excess cash? Do we resume a buyback program that we've run for many years in the past. So that's a possibility for sure. Do we repay more debt. We do a mix of both. But I would say it's not something in the shorter term, but it's going to come -- that discussion will come soon enough. Vince Valentini: Okay. I appreciate that, Patrice. Just to state the obvious, hopefully, it's obvious. I mean your dividend yield is higher than your cost of debt. So buying back shares still has a cash-on-cash benefit, which hopefully, the rating agencies would appreciate. And certainly, I know the equity market would appreciate, but I leave it to you guys and I will pass the line. Operator: And your next question comes from the line of Maher Yaghi from Scotiabank. Maher Yaghi: [Foreign Language] I just wanted to ask you first on your oxio strategy. I know there's probably a lot more to say when you actually launch it in the U.S., but it's been quite successful for you as a brand in Canada. And the idea to replicate that in the U.S., obviously makes sense. I just wanted to ask you, is the goal for the oxio-like brand in the U.S. is to sell a service in territory only or also out of territory like you are doing in Canada? Frederic Perron: [Foreign Language] Maher, it's Fred. Thank you for the question. We are indeed super excited about the launch of an oxio-like brand in the U.S. The short answer to your question is it's in territory only in the U.S. But when you look at the upside potential, oxio in territory is already doing so well for us in Canada. We've reported our best subscriber performance in Canada in the past 13 years. Last quarter and this quarter was solid as well and oxio is a big part of that. Now if you contrast Canada and the U.S., the opportunity is even bigger in the U.S. because in Canada, our penetration on Cogeco is already in the low 40s percent. But in the U.S. in totality, we're in the low 30s. And in half of our footprint, we're below 20% penetration. So you just start thinking about the possible upside from such a second brand, and it gets pretty exciting. Maher Yaghi: Okay. Okay. My second question is on the improving trends in the U.S. on the subscriber side. Obviously, it was quite noticeable in Q1 compared to a year ago. But I just wanted to understand what you are giving up to improve those subs because you're kind of doing pretty much the same strategy that Charter and Comcast are doing in the U.S., which is repricing your base or repricing the offers in the marketplace for your Internet service. For example, I can see you're selling 1 gig for $45 a month in Ohio right now and the first month is free. That service used to be $75 a couple of months ago. So in -- when I think about the objective here, how should we think about ARPU progression or the ARPU negative impact in the U.S. as you reprice your product to improve subs. And when we come out of this transition, where do you expect revenue growth to land at? Frederic Perron: Okay. Maher, it's Fred again. I'll start answering and maybe Patrice will want to add a little bit on this one. First of all, when you look at our year-on-year decline in ARPU, it's not because of a massive drop in acquisition prices for new customers. It's because mainly of cord cutting. So we're cutting -- some customers are cutting the cord on TV, and TV itself has a higher ARPU than our Internet product, but it comes with very little margins. So I would say that's the main driver. There is a bit of promotional activity for sure. And it is a fact, to your point, that new customers come in at a lower ARPU than existing customer, that's true in Canada as well. But our improvement in our PSU trends that we're reporting this quarter is not because of any massive change on that front. We just stay along with the market, and there has not been a massive change in pricing. Our improvement comes from execution. It comes from beefing up some sales channels that were previously underexploited, especially in those areas where our penetration is below 20%. And it comes from simplifying our pricing as opposed to reducing it. So that's how I'd characterize it. Patrice? Patrice Ouimet: No, I think you summed it well. Happy to take other questions, but I think these were the main points. Maher Yaghi: Yes. So I did look into the mix of PSUs that you have in the U.S. And when I look at Q1 '25, about 25% of your PSUs were on video. And in Q1 this year, it's 24%. So -- and then on home phone, it was 12% last year and 12% this year. So obviously, there's slightly less video as a percent of the overall PSU base in this quarter versus last year's Q1, but it hasn't moved that much. So I'm trying to figure out what's driving the 4% price decline per PSU in the U.S.? And when should we expect that to improve? Frederic Perron: Yes. So the -- what this analysis doesn't show, Maher, is which segments of TV customers are losing versus those that we're adding. So in many cases, we're losing the higher ARPU TV customers, and we're adding lower ARPU ones. So it would get into a pretty detailed analysis, and I'm sure you can talk about it with Patrice on the follow-up calls, but we've analyzed this in and out and cord cutting is the main driver of the ARPU decline. Of course, to your point, new customers also do come in on promotional rates, at a lower rate, and that's also a factor. But our point is simply that the improvement in Q1 is not due to any material change in that trend. Maher Yaghi: Okay. One last question. In terms of the growth that we're seeing in Canada, obviously, quite noticeable as well. How should we think about these net adds on broadband in Canada as -- from a sustainability point of view? And can you maybe tell us what's giving you the advantage to load as many customers as you are? Is it oxio or the Cogeco brand is also successful in the marketplace these days? Frederic Perron: In prior quarters, including this one, it was a combination of both. It depends quarter-by-quarter. Sometimes network expansion helped, less so in more recent quarters. The Cogeco brand has held its own over time. And then it's really oxio that's helped generated, I would say, differentiated growth in Canada versus some of our peers. And that's why we're so excited about an oxio brand in the U.S. As it relates to moving forward, as we've said, Q2 PSU growth in Canada will be more muted, but we're recovering a lot of that in wholesale revenue. Is that the new normal? Not necessarily. It's still a stage where people are experimenting. And as I said, the past couple of weeks have been a bit better. Operator: And your next question comes from the line of Matthew Griffiths from Bank of America. Matthew Griffiths: So just going back to the U.S. broadband sub picture that you're providing. Is there a way to kind of share with us whether the improvements that you're expecting are going to be coming from reduced churn? Or you've mentioned sales channels as something that you've been working on improving. So is it a gross add difference going forward that we should be expecting as the driver? And then secondly, I think you mentioned medium term as the time period for U.S. broadband subs turning positive. Should we -- should I read medium term as like 2027? Or is it slightly further out than that? Is the next year too soon? Is that still near term? And maybe just finally on the transformation efforts, as you're progressing through this working through the second year kind of checklist for lack of a better word, like what have you -- what kind of details can you give us on what you've completed and what you're moving on to in that program? Frederic Perron: Sure. Matt, it's Fred. On your first question, the improvement in the U.S. coming from churn versus gross new sales. We have initiatives in flight to keep improving our churn management and our retention blocking and tackling. But most of the improvement will come from gross new sales. And that's the simple math of what I was saying before, which is in half of our footprint, our penetration is below 20%. So there is a real opportunity to deploy new sales channels in that footprint plus our soon to be launched second brand to materially grow our penetration in that footprint. On the definition of medium term, a handful of quarters is what we're shooting for right now. But -- so it's not past calendar 2027, but -- or even fiscal 2027, it's not beyond that. Our goal is shorter term than that. But please just give us a bit of grace on that one, and we'll get there. But it has to be -- we have to see how the competitive environment evolves and give or take a couple of quarters, but we'll get there. That's our goal. Patrice Ouimet: And on the transformation -- yes, sorry, go ahead. Matthew Griffiths: No, no, I was just -- the transformation. Patrice Ouimet: Yes. Yes. So on the transformation, I would say, to your point, we're in year 2 of the 3-year program. The first year was more focused on cost optimization, which included the reorganization of Canadian and U.S. businesses initially and a number of other elements after. We had more to do on the cost front as well, optimizing the way we operate our chatbots, IVR systems and there's a lot going on as well in the number of basically proactive maintenance and making sure we tackle issues in the systems before they become a customer-facing issue, which reduces truck rolls. So there's a lot of these things still on the map for year 2 and year 3. But I would say what's a bit newer in year 2 and 3 is more focused on revenue generation. We've talked about this before, but this was not the focus of year 1. And that has to do with the way we sell our products, the way we segment the market, the way we have contacts with the market as well, churn reduction is an element as well. As part of that as well, launching the second brand is -- the idea is to be able to tackle basically different segments of the market. It's more difficult to do with only one brand. So I would say this is -- there's a lot going on. And the last piece I would say is, as we started this a while ago, the opportunity to use AI to do some of this work was not there at that point, but it is today. So we have a heavy emphasis on actually using AI and the latest and greatest to make this happen rather than do it the traditional way. So hopefully, that gives you some hints on what we're doing today. Matthew Griffiths: That's super helpful. And maybe -- sorry, if I could ask one other thing. On the 20% share in some markets, has there been any -- I'm sure you've looked into why that is? And maybe can you share with us like why is it so low in some markets? And what in your plan addresses that why and fixes it? Frederic Perron: Okay. It comes from 3 places: first, Ohio, is the main part of that. You may remember that we bought the Ohio business 4 years ago or so. And it was already an overbuilder. So by definition, the share there was already lower and there was a loss of share, unfortunately, through the integration at the time. The second is in newly built footprint, I think it's a newly built footprint over the past few years where we see an opportunity to execute better from a sales perspective there. We're not building those new network expansions anymore. We've stopped them shortly after I was named CEO a couple of years ago, but they do under-index in terms of sales, and we're now ramping that up. And the last area is Florida, where Florida was typically focused on bulk sales, but we have a residential footprint there where we think we can deploy more sales force. So you add all those 3 things together, and that's how we get there. But Ohio is the main one. Operator: Your next question comes from the line of Drew McReynolds from RBC. Drew McReynolds: Yes. Fred, thanks for clarifying that last question. That's super helpful. Two others for me. Number one, on the Canadian broadband margins and, I guess, more importantly, the trajectory. I know revenue mix is certainly -- will drive cable margins for the industry going forward. But just would love to get your sense, really good margin performance. We see Rogers at kind of stable revenues to almost 58%. And obviously, that's a little bit of a bigger scale. But what do you see as upside kind of medium term here on Canadian margin? And then just secondly, with respect to commercial revenues, I guess, business revenues, both in Canada and the U.S., it generally looks kind of flattish. And just wondering if there's anything to flag in that segment from the perspective of cablecos in general being underpenetrated in the business market, particularly SMB. Just would like to get an update just what your growth expectations are for that segment? Patrice Ouimet: It's great. So in terms of margins, well, we've been increasing margins over the years in Canada, as you know. It comes from different elements. There's a portion that's mix, but a portion of that comes through the cost reductions that we've been able to do. So it depends on the years. But typically, like 0.5 point to 1 point has been something we've been able to do. When you throw in acquisitions, obviously, it can change the mix, but we haven't done meaningful ones recently. So when you look at this full year, I would say versus where we are in Q1, it's -- we're probably going to be in a similar place. So we've had a good increase versus last year. But I would say, yes, that's probably it. And if your question is longer term, we do think as we continue to invest in automation and improvement in our operations. I gave a few examples on the call earlier. These typically produce increasing margins as we're a lot more efficient in the way we operate. So we'll keep on working on this in the future. Frederic Perron: Business segments? Patrice Ouimet: Yes. And for the business segment, yes, it's been more flattish. This is actually an area -- I would say business for us is about 10%-ish of our business and residential is the balance. So obviously, our focus has been more on residential. We do have some focus -- I would say, a bit newer focus on commercial. So we're going to be putting some efforts there. That being said, we also don't want to go into too many products on the commercial side. Given the size of the business, it's often not worthwhile doing. So for now, I would say, yes, it's more neutral-ish, but we do feel that there is some upside in that business in both countries going forward. It will be less material than what we do in residential, though. Operator: And your next question comes from the line of Stephanie Price from CIBC. Stephanie Price: I just wanted to circle back on Ohio. So net adds in the high region improved sequentially again this quarter. Just curious about what you've done in that region to move it back to growth and your ability to use the same playbook to move to growth in the rest of the U.S.? Frederic Perron: Sure. Stephanie, without giving the entire playbook to our competitors, what I would say is we've deployed new sales channels in that footprint and we're not done doing that. That's number one. Number two, we've simplified our pricing. Customers were telling us that our pricing was too complicated before. So we've made it more transparent, more simple. And then there's other blocking and tackling around analytics, customer base management, more refined targeting both of new customers and existing customers for upsell and retention. And then, of course, last but not least, that's the obvious place to start with our second brand. That's not in the results yet, but that's going to be in the future results. Stephanie Price: And then you mentioned in the U.S. penetration below 20%. One of the reasons was newly built out footprint. It looks like you added about 3,000 homes passed in the quarter in the U.S. Maybe you can talk a little bit about the opportunity there. Frederic Perron: Yes. I wouldn't say -- we're not building much any more new footprint, Stephanie, in the U.S. That's something that we've stopped just because of the nature of the market. Any numbers that you see such as that 3,000 is more the residual impact of either prior long-standing projects being completed or residual commitments to some local government but we're not starting many new projects on that front. The opportunity is on filling the pipe, so to speak, and deploying some of the same tactics that I was talking about in your Ohio question in that footprint as well. Operator: [Operator Instructions] And your next question comes from the line of Jerome Dubreuil from Desjardins. Jerome Dubreuil: First one, another one on the subscriber trends in the U.S. going forward. You seem quite confident on that front. I'm wondering if on top of the operational efficiencies that you're planning to roll out, is there any change on the pace of fiber building in your footprint that you have noticed maybe that leads you to this forecast? Frederic Perron: The forecast goes mostly from the execution things, Jerome, that we've been talking about on this call. I would describe the competitive environment as steady with some puts and takes. But it's true that fiber penetration used to be nowhere in the U.S., and we're getting closer over time to what would be a stability point, the same way we've experienced that in Canada in the past and navigated it quite well. But I would say, by and large, it's the different measures that we've been explaining on this call. Jerome Dubreuil: Okay. Great. Second one for me. Consolidated CapEx in the quarter was pretty much where we expected it to be. But there was quite a shift out of the U.S. and into Canada. I'm wondering if there's something to unpack there or if it's more of a timing thing? Patrice Ouimet: Yes, it's more of a timing thing. The CapEx by quarter can be more volatile, but there was more CPE spend in Canada this quarter, which we won't have in the next few quarters. So I would say, overall, we're on track for the full year, but I would not take the trend of the Q1 and apply it to the full year. It's going to revert back to more normal numbers over the full year. Operator: And there are no further questions at this time. I will now hand the call back to Mr. Ouimet for any closing remarks. Patrice Ouimet: Okay. Great. So thanks for being on the call today and happy to take any other questions you have in the future. So have a good day. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Velan Inc. Q3 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, January 15, 2026. I would now like to turn the conference over to Rishi Sharma, Chief Financial Officer. Please go ahead. Rishi Sharma: Thank you, operator. Good morning. [Foreign Language] Thank you for joining us for our conference call. Let's start by discussing the disclaimer from our related IR presentation, which is available on our website in the Investor Relations section. As usual, the first paragraph mentions that the presentation provides an analysis of our consolidated results for the third quarter ended November 30, 2025. The Board of Directors approved these results yesterday, January 14, 2026. The second paragraph refers to non-IFRS and supplementary financial measures, which are defined and reconciled at the end of the presentation. The last paragraph addresses forward-looking information, which is subject to risks and uncertainties that are not guaranteed to occur. Forward-looking statements contained in this presentation are expressly qualified by this cautionary statement. Finally, unless indicated otherwise, all amounts are expressed in U.S. dollars, and all financial metrics discussed are from continuing operations. I'll now turn the call over to Mr. Jim Mannebach, Chairman of the Board and CEO of Velan. James Mannebach: Thank you, Rishi. And good morning, afternoon and evening, everyone. Please turn to Slide 4 for general overview of the third quarter of fiscal 2026. Velan delivered healthy adjusted EBITDA of $9.5 million on sales of $71.7 million, driven by the execution of high-margin projects and continued tight management of operating expenses. With respect to sales, let me point out that as expected, most rescheduled orders from the previous quarter recaptured in Q3 2026. A similar customer dynamic occurred in certain complex projects in the third quarter, leaving us again with orders worth a few million dollars still pushed out to later periods. Now let's turn to Slide 5. Our order backlog reached $296.8 million at the end of the third quarter, up 8% from the beginning of the year. At quarter end, 80.4% of the backlog, representing orders of $238.5 million, were deliverable within 12 months compared to 83.4% at the end of Q3 last year. Bookings amounted to $77.9 million in the third quarter of fiscal 2026, a year-over-year increase of 32%, further driving momentum in our backlog. The strong growth reflects higher bookings by our North American operations in the nuclear and oil and gas sectors, along with increased bookings by our Italian and Chinese units. These factors were partially offset by reduced orders from the German operations. In North America, Velan secured a valve order of more than CAD 20 million from Ontario Power Generation, or OPG, for reactors being refurbished at the Pickering Nuclear Generation Station, confirming our leadership position in this fast-growing nuclear sector. First shipment is scheduled for January 2027 with subsequent deliveries to be completed by the end of January '28. Note that Velan supported the original valves more than 45 years ago and has continuously supported the Pickering complex throughout its construction and refurbishing program. Turning to Slide 6. I'd now like to address the recent announcement regarding the proposed sale of Velan Holding's controlling interest in the company to Toronto-based Birch Hill Equity Partners Management, Inc. Velan Holding, which is held by certain Velan family members, has agreed to sell its 15.6 million multiple voting shares, representing approximately 72% of Velan's outstanding shares and 93% of its aggregate voting rights to Birch Hill at a price of CAD 13.10 per share for aggregate gross proceeds of CAD 203.9 million. This is a private transaction and is expected to close in the first half of calendar 2026, subject to receipt of required regulatory approvals and other customary closing conditions. The transaction is not subject to any financing conditions or approval by our shareholders. Velan's Special Committee of Independent Directors recommended to the Board of Directors that it's in the best interest of the company to facilitate the consummation of this transaction. And while the company is not a party to the private transaction, it has entered into a cooperation agreement with the parties, which will ensure a smooth transition with Birch Hill, as we jointly secure regulatory approvals and complete other customary closing conditions. The company continues to draw its inspiration from our founder, A.K. Velan, and the tireless efforts of the Velan family since our founding more than 75 years ago. We are extremely proud of our heritage and look forward to growing on our legacy as a world-leading Canadian valve company. Birch Hill has a proven track record of partnering with Canadian industrial leaders and accelerating performance. Their broad business experience and deep access to capital will enable Velan to speed advancement of our business plan, which is focused on value creation for all stakeholders, including customers, employees and of course, shareholders. We look forward to partnering with Birch Hill as we accelerate the execution of our strategic plan. Before turning the call back over to Rishi, I want to reiterate on Slide 7. Velan is well positioned in its main markets through its trustworthy brand, high-quality products and proven expertise in developing solutions for the most critical applications. Nuclear energy is enjoying a strong resurgence driven by massive power requirements and rising demand for clean energy sources. Our recent contract win with OPG is a clear example of government's refurbishing existing reactors to meet their energy requirements well into many future years. New deployment of small modular reactors, or SMRs, are also expected to be part of the overall solution. As a reminder, Velan is a key supplier to the first SMR initiative in North America at OPG's Darlington site. On the oil and gas front, we've recently witnessed geopolitical pressures in key strategic areas, highlighting the global need for this fossil fuel. Of course, Velan remains impartial, but we stand to benefit since the company supplies the most reliable engineered valves to the majority of refineries in North America, along with a growing presence overseas, especially in the Middle East through our announced joint venture in the Kingdom of Saudi Arabia. These 2 sectors, nuclear and oil and gas were the driving force behind a remarkable 32% bookings growth in the third quarter. If we add our important presence in other areas such as defense, liquefied natural gas and mining, the underlying theme is that Velan is well positioned to leverage strengths across a wide range of industrial sectors throughout the world. Rishi, I turn the call back over to you. Rishi Sharma: Thank you, Jim. Turning to our third quarter results on Slide 9. Sales totaled USD 71.7 million, down 2.4% from $73.4 million 1 year ago. The decline reflects lower shipments from our Italian operations, following strong sales in last year's third quarter and as Jim mentioned, customer dynamic resulted in orders totaling a few million dollars being pushed out to later periods. These factors were partially offset by higher sales in India and Germany, along with a positive foreign exchange impact. By customer geographic location, North America represented 48% of total sales in the quarter compared to 55% last year. Asia Pacific accounted for 33% of total revenues versus 44% a year ago. For its part, Europe represented 8% of sales this year with Africa, the Middle East as well as South and Central America, rounding off our quarterly sales. Moving to Slide 10. Gross profit reached $27.2 million in Q3 2026 compared to $28.3 million last year. As a percentage of sales, gross profit remained relatively steady, reaching 37.9% compared to 38.6% last year. This stability was driven by higher-margin projects though offset by lower absorption due to reduced volume and tariff impacts. Currency movements had a slight positive effect on gross profit for the period. Administration costs decreased to $16.5 million or 23% of sales in the third quarter of fiscal 2026 from $17 million or 23.2% of sales 1 year ago. The year-over-year reduction can be attributed to cost-reduction initiatives. We also incurred restructuring expenses of $1.3 million in Q3 2026, which consisted of transaction-related costs. Excluding nonrecurring elements, adjusted EBITDA amounted to $9.5 million in the third quarter of fiscal 2026 versus $14.3 million last year. The year-over-year variation can be attributed to a lower gross profit and to a slight increase in other expenses mainly caused by unfavorable currency movements on unrealized variations. These factors were partially offset by the favorable effect of a provision reversal. Net income totaled $3 million or $0.14 per share in Q3 2026 compared to a net loss of $47.8 million or $2.22 per share last year. Excluding nonrecurring elements, adjusted net income amounted to $4 million versus $8.5 million a year ago. On Slide 11, for the first 9 months of fiscal 2026, sales were relatively stable year-over-year and were up more than 2%, excluding last year's nonrecurring revenue contribution. Gross profit, meanwhile, was marginally down both in dollars and as a percentage of sales. Turning to Slide 12. Cash flow from operating activities before net changes in provisions used $6.7 million in the third quarter of fiscal 2026 compared to $0.6 million used a year ago. The unfavorable movement in cash was mainly due to negative changes in noncash working capital items versus last year. More specifically, a temporary increase in accounts receivable and late-stage work in process inventory related to changes in customer delivery schedules were largely responsible for the year-over-year variation. Once this customer dynamic normalizes, cash inflows are expected to follow. During the quarter, we also paid $1.5 million in dividends, representing regular payments for dividends declared. It should be noted that the company has agreed to suspend the payment of dividends until the closing of the transaction between Velan Holding and Birch Hill. Ordinary course dividends are planned to resume thereafter as if and when declared by the Board of Directors. Finally, our balance sheet remains strong at quarter end with $36.3 million in cash and cash equivalents and short-term investments of $0.4 million. Bank indebtness stood at $16.1 million, while long-term debt, including the current portion, was $17.7 million. Considering our credit facility, working capital financing, letters of credit and guarantees, we have access to multiple sources of additional funds. Altogether, Velan has approximately $86 million readily available to execute its strategy and finance its expansion to sustain long-term profitable growth. I'll now turn the call over to the operator for the Q&A session. Operator: [Operator Instructions] Your first question comes from [ Sebastian Sharlin ] with Agave Capital. Unknown Analyst: My first question, actually, it's quite personal and maybe it's too early to ask, but are you staying, both of you? James Mannebach: Well, I appreciate the interest in that. Yes, it's business as usual for us at Velan. Birch Hill has a long history of partnering and participating with management, and we don't see any change in that in the immediate future. So I look forward to working with them. In fact, they have a very unique, I think, data-driven decision-making process that I think will be very, very helpful to us. And yes, so business as usual, no expected changes in the foreseeable future with management in place driving our strategic plan going forward. Unknown Analyst: Great. And can we know a little more -- or should we expect more announcements in coming months as this transaction closes? I respect that there are Canadian buyers, so it should alleviate some of the problems we may have seen or foreseen with, let's say, foreign buyers in a strategic asset as Velan, but should we expect more announcements regarding changes to strategy or appetite M&A? So I really understand there's quite a big difference between the 2 controlling shareholders we'll have now and in the future. Rishi Sharma: Thanks, Sebastian. I think the first course of action and priority is obviously to support through the engagement of the cooperation agreement at the closing and get to the closing of the transaction. So that's the immediate requirement as well as obviously delivering a strong fourth quarter, I think that goes without saying for us and the management team, it's business as usual in terms of orders, bookings, delivery, profitability and cash generation. Beyond that, post-closing, I think we'll see. I think business as usual, there's a strategic plan. There's objectives that we have. I think through the partnership and our new controlling shareholder with Birch Hill, there could be, but I think there will be some time required to kind of reassess the plan going forward. So I don't expect immediate announcements to that effect. But I think post-closing, there will probably be some plans that will be shared. Unknown Analyst: Okay. And did I read correctly that Velan, the company is going to assume the legal cost of the transaction, even though if it's a private one, the $12 million that's highlighted in the press release? Rishi Sharma: Yes. So the special committee recommended that in the best interest of the corporation going forward that those costs be borne by the company. So if you look at the note, the total transaction, direct transaction fees are in the amount of USD 10 million to USD 11 million. There's an additional $5 million, call it, cost that will be incurred relating to change of control triggered items, mostly relating to vesting and accelerated vesting of incentive plans. And against that $16 million, we have about $4 million that's been paid throughout the year or accrued. So it's really a recommendation and support in terms of the best interest of the company going forward that those costs being absorbed by the company. Unknown Analyst: Okay. Yes. And perhaps, I guess the elephant in the room is maybe what do we don't know or do we miss for the discrepancy between the $13 sell price versus the, say, average price of the last 6 months of Velan, which was probably above $17 or $18. Do you agree with that price? If the company is paying for the legal fees for it, it means it agrees the special committees, it agrees that's the valuation that's correct for Velan? James Mannebach: Yes. Well, I think it's important to note, as we've already said, this is a private transaction between Birch Hill and Velan Holding. The company facilitated the secondary trade to ensure it was completed in an organized manner. But we weren't a part of the trade, we weren't involved in the pricing matters. As such, we're really not in a position -- I'm not in a position to comment on valuation and pricing. As you know, also, the minority shareholders will continue to participate in the company's next phase of growth, right, as it executes its strategic plan. And adding to what Rishi said, I look forward to an acceleration of deployment of those strategic plans with the new partner, Birch Hill. So I think we're on a good track, building out the fundamentals of this business to drive value creation over the long term. And I think that's the perspective that needs to be taken. And again, as I said, it's a private transaction between the parties that we weren't involved in the pricing. Rishi Sharma: Yes. And just to add on that, I think the way that Jim and I look at the transaction cost is it's really an investment in bringing on a partner as strategic as Birch Hill that has operational discipline that has the capital that we may have access to in the case of growth and executing on the strategic plan. But beyond that, as Jim mentioned, private transaction between the 2 parties are sole obligation here is the cooperation to ensure that we get to a close. Unknown Analyst: Okay. I mean it's a lot to reconcile in one day. But at the same time, I want to -- yes, I just want to reassess I know, and I appreciate all the work you 2 have been doing and the whole team in the last 3 years, not fixing the problem, but addressing the challenges of the business. So yes, I just want to admit I was disappointed when I saw the release yesterday, but the fact that you're staying that we get that we're not forced into selling at that price. I guess it's a mixed signal, but somewhat reassuring. I just wanted to highlight this point. It seems quite obvious, though, that it deserves to be addressed. Rishi Sharma: Yes, Sebastian, thank you. James Mannebach: Thank you. I appreciate the recognition as well. And as I said, underscoring the point, we really look forward to accelerating execution of our plans. I think we're in a really strong position in nuclear and oil and gas and other demanding applications, as I mentioned in my comments and partnering with Birch Hill, bringing their perspective to the business, I think it's really a win in the long run for everyone. Operator: [Operator Instructions] Your next question comes from Alex Ciarnelli with SM Investors. Alessandro Ciarnelli: Most of my questions have been asked. And I guess the bigger one was the reconciliation of the pricing, which you addressed. I don't know if this was asked, I was on the morning meeting of the company for a few minutes. But I think the press release was talking about the review of strategic alternatives under supervision of the special committee. So were there other options maybe to sell the entire company or maybe if you can talk about this review in general? James Mannebach: Yes. You've been engaged in our calls for quite a while now. And as you know, we've consistently and publicly stated that the company was reviewing options, right, to maximize value for the shareholders. And this process is continuous, right, going back many years, including the special committee's engagement with respect to the asbestos and the French subsidiary divestitures. But given that the offer was made to Velan Holding solely for the multiple shares of Velan Holding, after the special committee reviewed the circumstances and the particulars, as Rishi has already commented on and I as well, concluded that it was in the best interest of the company to facilitate the transaction. Really beyond that, I'm not sure what else I can say about that other than as I said -- I just said a moment ago, we've been quite clear and transparent that we've been considering value-creating opportunities for these years. Alessandro Ciarnelli: I'll change gears. I'll ask just the SMR on the entire power generation project, if I remember correctly, it was approved in May. I don't know if there's any updates, how is that going? I know it's long term, but... James Mannebach: Yes. We're very encouraged by what we're seeing. We see with the owner as well as with the GE Hitachi project that you're referring to specifically continues to progress very nicely. Obviously, this is new technology being developed, and this is right in the wheelhouse of our business to grow off of what we've already done in nuclear over 50 years now and apply it to this new emerging approach to more compact SMR nuclear power generation. So what we've seen so far is very encouraging, very positive. And as I said just a moment ago, really plays to the strength of Velan, the brand and our people, especially at this moment, our engineering people. So we're quite encouraged by what we're seeing to the moment. Long way to go, but encouraging to the moment. Alessandro Ciarnelli: Last one for me. This might be a strange question and some ways to ask it. We saw what happened in Venezuela. Is that actually an opportunity for the oil and gas for you guys? Or too early to say? Rishi Sharma: I don't think it's a strange question. Of course, we don't know what's going to happen. It was sort of an unexpected move, I guess, by the United States anyway. But as you know, the majors that are involved in Venezuelan oil before the nationalization of those assets were all customers of Velan. And what we've seen in the public disclosures about the intentions of the United States going forward is encouraging to us as well because for the parties that President Trump is talking about, we have good relations with and expect to have a good opportunity to provide valuable product to them as they improve the operations of Venezuela. So very early, and strained circumstances you alluded to. But I think it's -- from a commercial market point of view, is positive for us. Alessandro Ciarnelli: Sorry, one more thing. This is for Rishi. I sent you an e-mail about the conference. I don't know if you're interested or not, but if you can answer, I can relay. I can send it again if you want to. Rishi Sharma: It's been a little bit busy last few days, but I'll -- as you can imagine, I'll definitely get back to you on that. Thank you. Operator: There are no further questions at this time. I will now turn the call over to Jim for closing remarks. James Mannebach: Well, thank you, operator. It's been an interesting couple of days, few weeks, months, for sure. The business in the last quarter, I'm very encouraged by the uptake in orders, especially in the nuclear and oil and gas space for us. I think it bodes well for our future. And we'll look forward to chatting with you all at the end of our fiscal year, which is just in a few weeks away. Anyway, we appreciate the support and always the interest of you, the investors and stakeholders. Thank you so much, and have a great day. Rishi Sharma: Thank you. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Loop Industries Third Quarter Fiscal 2026 Corporate Update Call. [Operator Instructions] This conference call is being recorded today, Thursday, January 15, 2026. The earnings release accompanying this call was issued after the market close yesterday, Wednesday, January 15, (sic) [ 14 ] 2026. On the call today are Daniel Solomita, Founder and Chief Executive Officer; Spencer Hart, Chief Financial Officer; and Kevin O'Dowd, Head of Investor Relations. I would now like to turn the call over to Kevin O'Dowd to read the company's forward-looking statement disclaimer. Kevin O'Dowd: Thank you, operator. Before we begin, please note that today's discussion will include forward-looking statements within the meaning of U.S. securities laws. These statements relate to our expectations, projections, beliefs, future plans and strategies, anticipated events and other matters regarding future performance. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. For a discussion of these risks and uncertainties, please refer to the Risk Factors and Forward-Looking Statements sections of our most recent annual report on Form 10-K, our quarterly report on Form 10-Q filed with the SEC and the earnings release issued after earlier today. These filings are available on the SEC's website at sec.gov or through our Investor Relations teams. With that, I'll now turn the call over to Daniel Solomita, Founder, and Chief Executive Officer of Loop Industries. Daniel Solomita: Thank you very much, Kevin. Q3 was a busy quarter for Loop as we move towards the construction phase of our Infinite Loop India manufacturing facility and progressing with our partnership with Reed Societe Generale Group for our project in Europe. I'm pleased to report on several positive developments. The Infinite Loop India project is on budget and on schedule. Before getting into the details, I want to officially welcome Spencer Hart, joining Loop as CFO. I've gotten to know Spencer well over the past year since he joined our Board of Directors. His leadership and knowledge of the capital markets and financing structures will be a great asset for Loop moving forward. In Q3, we announced that we have executed a supply contract with Nike, the large American sports apparel company to be an anchor customer for the Infinite Loop India manufacturing facility. The contract is for Loop to supply Nike with a fixed amount of twist, our textile-to-textile polyester resin on an annual basis at a fixed price for multiple years. There's a guaranteed take-or-pay element to the contract as well, which means if Nike does not take the delivery of the material, they still have to pay us a percentage of the sales price. We are currently in discussions with several CPG and apparel brand companies to secure additional offtake agreements. Textile-to-textile is becoming a very important growth driver as European regulations are being put in place to mandate more recycled content in clothing and recycled content from textile to textile, which means starting from a polyester textile waste and producing a new polyester textile with it. We're forcing the apparel companies to find a solution to recycling old clothing at the end of its life. Loop's technology is uniquely suited to recycle post-consumer textile waste. Post-consumer textile waste is difficult to recycle because of the different components that go into making the clothing. You often have polyester mixed with cotton, polyester mixed with nylon, button, zippers, et cetera. And all of these components have different monomers or starting components. And for this reason, it poses a tremendous challenge to recycle. Typical recycling is done at very high pressure, high temperature, where you're either forcing the depolymerization to be done under very extreme conditions or you're simply just melting the plastic down into a new form. And both of those do not work well for the textile industry because of the different components. And where Loop's technology overcomes that is because of our low temperature depolymerization, -- what we do is at very low temperature, we break down the polyester into the DMT and MEG. And because of the low temperature, all of the other components like the cotton, the nylon, the buttons and the zippers, they stay whole and we filter them out after the depolymerization, which gives us a huge advantage. And that's why Loop's Technology is uniquely suited to be able to process this type of clothing waste. Our project in India is also located next to a free trade zone. So we'd be able to import the waste clothing from Europe or from other parts of the world into that free trade zone and then transport that to our facilities to help the brands in Europe be able to recycle the material that once they've collected it. So it's a really huge benefit to Loop. And this government regulation starting in 2026 and is going to start being enforced in 2028, which is exactly the right timing for us. Our plant is scheduled to be completed construction at the end of '27. So 2028 is a perfect timing for us to be able to do this. So because of all of these regulations, we're really seeing an uptick in the demand for the textile-to-textile side. And we were on the phone the other day with a very large textile manufacturing clothing company, and they said textile-to-textile is not a nice to have anymore. It's a must-have because of the European regulation. So that's going to be a big driving force in the future. 66% of all of the PET and polyester manufactured in the world, which I believe is about 85 million tons per year, -- 85 million tons per year is coming from the polyester textile side. So it's this really a huge shift in the marketplace, which we are really uniquely suited to be able to capitalize on. And the Indian facility is perfectly located for that. Besides the low-cost manufacturing, like I said, it's near the textile hub in India, the Gujarat province, a lot of textiles. So the main feedstock we'll be using for the process is textile for the textile-to-textile. So it's really perfect timing for us and perfect timing for this Indian project. On the engineering front, we hired Toyo, the large Japanese engineering and construction company to complete the detailed engineering, which started November 1 and runs through the construction of the plant. Toyo has a very large presence in India and has done tremendous work to date. Our engineering team is now fully deployed on working for this project and generating revenue for Loop from this project from the joint venture. So we really feel that we're in really good hands with Toyo. They're doing an excellent job, and we're excited to be working with them through the construction of the facility. Debt syndication is moving well. We are building a syndicate of lenders for the project debt financing. We've received several term sheets for multilateral development banks, sovereign wealth funds as well as international and local commercial banks. Returns so far are in line with our expectations, and we anticipate closing the debt financing in the coming months, in line with our project schedule. So that's really the update on India. As far as the progress with our partnership with Reed Societe Generale Group, as you know, we've licensed our -- we licensed -- we sold Reed SocGen, a license to our technology to build 1 plant in Europe. SocGen has spent time working on site selection. I believe they started with looking at 20 sites across Europe. They've narrowed it down to 3. There's 1 lead site in Germany that is being negotiated right now. And we think that should finalized very shortly, sometime probably the end of January, beginning of February, at which time we anticipate to begin generating meaningful revenue and profits from providing the engineering for that project. So the engineering and milestone payments will be over the next 3 years for the project. And we believe that, that would cover all of Loop's back-office expenses for the next several years. Cash operating expenses for the quarter were $2.2 million, reflecting a year-over-year decrease of $1.1 million. At the end of the third quarter, we had total liquidity available of $7.7 million. In the coming quarters, this number will continue to decrease. The operating cash expenses will continue to decrease as more expenses are transferred to the joint venture in India and the project in Europe as well as we've seen some meaningful reductions in other areas of our spend -- our annual spend. Our focus is on raising the remaining financing required for our equity contribution to ELITe and for the operating expenses until the start-up of the Indian facility. We are engaged with multiple parties regarding a financing to fund our investments in ELITe. This capital, along with anticipated engineering revenues derived from the India and European projects is expected to fund Loop's ongoing operations until its first facility becomes operational. I'd like to turn it over to Spencer Hart now, our new CFO, and let Spencer say a few words. Spencer Hart: Thanks, Daniel. It's nice to be on the call with you on my -- one of my first days as being CFO. As a brief introduction, I've spent over 30 years in my career in investment banking. And I've followed Loop for many years. About a year ago, I joined the Board of Directors, and I'm a big believer in the company and Daniel and in the whole management team. I think there's an opportunity here to build a great company and create significant value in the process. During my investment banking career, one of my areas of focus was raising equity and debt capital for my clients. And so I'm going to be very focused on supporting Daniel, raising the capital for Loop to bring us to the next stage of our strategic development. For this quarter, Daniel gave you a good update on the business. The detailed quarterly results are [indiscernible] which were filed last night. I would just point out that the company has managed expenses very well in the third quarter, bringing cash operating expenses down over $1 million from last year's third quarter. We have opportunities to reduce that further, and some of those opportunities have already been locked in. With that, I'll pass it back to Daniel for closing remarks. Daniel Solomita: Sorry about that. Thank you very much, Spencer. In conclusion, really pleased with the progress we're making both in India and in Europe, starting to really making meaningful revenue from -- and profitability from the engineering fees in Europe and in India, or are you going to be able to sustain our back office spend for the many years coming. So that's all really positive development for us. And we're really confident in the financing as well. So looking forward to getting all this done in this quarter. With that, I'll open it up for questions. Operator: [Operator Instructions] Our first question today comes from the line of Gerard Sweeney with ROTH Capital Partners. Gerard Sweeney: So I had a question on Nike. Sorry, you guys can hear me, correct? Daniel Solomita: Yes, can hear you fine, thank you. Gerard Sweeney: Got it. So question on Nike or actually the facility in India, 70,000 metric tons. Nike, obviously, huge global brand, great opportunity for Loop. Just curious, how much of the facility in India is under contract? And you have Nike, and I believe you have a few other people. Maybe you could just delve into where it sits on the output and who's going to -- the offtake for the output? Daniel Solomita: Yes, we expect to have -- thanks for the question, Gerry. We expect to have following 5 to 6 customers total for the facility. Today, we have Taro Plast and we have Nike. We're in negotiations with several other CPG brands on the packaging side for Europe. So some of our customers that we've dealt with, and we've had long-standing relationships that we produce products for before, that we have products on the shelves with them in different geographical regions today. We're finalizing negotiations with them for packaging for the European market. and the textile side as well for a few other textile companies. So I would suspect we'll probably have another 3 to 4 customers to have the entire capacity of the facility under contract. Gerard Sweeney: Got it. So it's going to be a mix of packaging and textile. And on that front, or pricing, I know you don't necessarily want to give pricing but maybe in broad strokes or broad terms, textile and packaging, is it similar pricing and margins? Or is there one area better than another? And if you don't want to go into that right now that's fine. Daniel Solomita: Yes. Yes. I think overall, we have a target average sales price for the facility. And so we're really unique in a technology that we're able to play in both sides, right? We can play on the packaging side, create FDA-approved food-grade plastic for water bottles, and we can also play on the textile side. And so we're agnostic. We can do both, which really positions us uniquely in the marketplace to be able to deliver on, hey, if market -- the bottle market is hotter, then we can produce more bottle. If the fiber market is hotter, we can produce more fiber. So right now, we're gauging the different levels. I would say right now, the textile side is a little -- there are higher premiums being paid on the textile side because of the textile-to-textile, the regulation coming in and a little bit more of the uniqueness on that side, where both sides can get -- so the bottle sides can get mechanical recycling to give them a certain percentage of what they need. But if they want the quality, then they have to come to Loop for the quality that the virgin quality material. So right now, I would say probably textiles, you'll get a little bit of a higher premium there, but it's very comparable. It's really also on the customers' need. It's what does the customer really need and what does the customer's margins look like. Generally, the textile companies or the fashion companies work with a little bit higher margin. And we are the finished product, like we are the textile. So that polyester fiber that we are making is the actual textile. Whereas if you think about the packaging side and the bottle players, we're the container that their drink comes in. So we're not the actual product. We're the packaging around the product. So it's a little bit of a different mentality. But we can play on either market and we're ready to move as needed. Gerard Sweeney: Got you. And another question on that front. This is maybe on the marketing side and probably something that hasn't been brought up in a while. But I know historically, you've always said even on some of the sort of runs you've done for Avion, it's like made with Loop or Loop material. Are you still going to be able to market the textile and packaging with some of that marketing opportunity like Loop -- made with Loop recycled product or Loop inside along those fronts? Daniel Solomita: Yes, we definitely want to continue on the marketing side with that. On the packaging side, we've had that in the past. We expect to continue that in the future. On the textile side, we created a sub-brand for Loops material called twist. And so that's a part of the discussion when we talk about this with the textile companies. And one of the big things that the textile companies need from us is to be able to recycle their waste because now they're going to be responsible for collecting their waste. And that's going to put a huge pressure on the system. So they're going to have to organize the collection. Once the collection is there, they're going to need our technology to be able to recycle that for them. And so those are really great opportunities to do co-marketing and co-branding around those entire circularity of the entire product portfolio. So them sending us the weight, reprocessing and sending it back to them, creating that loop. That's something that we think we can really take advantage of on the marketing side. Gerard Sweeney: Got you. And then finally, just last question, just time line for the India facility. Just if you can remind us groundbreaking and then mechanical and completion then commissioning so. Daniel Solomita: Yes. I mean groundbreaking is a term that it's kind of an outdated term because what is groundbreaking. Our project is -- the project has already been approved. There's not like there's any approval needed. Our project is moving forward. Loop our partner, very dedicated, focused to get this done. We've started all of the detailed engineering, which feeds into the construction. So the project is on schedule and on budget. We are moving forward and having construction completed in Q4 of 2027. So that was always the goal, and we're on that time line as well. So you'll see some meaningful updates on the progress of the facility. We will eventually have some type of a ceremony on the site. But the project is green lit. It's not like the project is not going to be moving forward or there's one event that has to happen. We're just moving forward, methodically getting this done, getting the debt financing in place and then we can move forward with the construction of the project. Operator: Our next question comes from Marvin Wolff with Paradigm Capital. Marvin Wolff: Can you hear me okay? Daniel Solomita: Marvin, Yes, I can hear you fine. Marvin Wolff: I just had a question with respect to the German site selection that's going on now. How big a plan would that be once that comes on board? Daniel Solomita: So it's the same size, it's 70,000 tons capacity, exactly the same size as the Indian facility. Marvin Wolff: Okay. And I guess it's too early to talk about customers for that plant, but I would assume you're in early discussions with people. Daniel Solomita: Yes. So the European plant would mainly be on the packaging side because the supply chain for textiles is mainly in Asia. So -- but there could be some textiles being recycled at the facility. Because of this European regulation that's come in, having the facility in Germany, having these textile companies being able to send us the material in Germany to be able to process is going to be a big advantage for them. So it's going to be the -- our same customers, the same Loop customers that we've always been dealing with are going to be the customers supporting that facility as well. Most of the European packaging and textile brands are going to be customers of the plant. Because of the low-cost nature, we bought -- what we did is we brought the low cost mentality of India into Europe by doing modularization. So being able to build our technology in modules in a low-cost country, shipping them on site allows us to really reduce CapEx, which allows us to offer better pricing to our customers. So we've seen a reduction of CapEx of probably close to 50% by doing it modular versus doing it in stick build. And so that's a big part of our business moving forward. That engineering that I keep on talking about as well, building our -- taking our design from India and now building that into modular fashion to be able to build this in a low-cost country, put together like LEGO blocks, disassemble it, ship it to Europe and reassemble the LEGO blocks to be able to reduce CapEx and offer better pricing to our customers. So we're really competitive on pricing in the European market, and this project in Europe is going to be very competitive as well. Marvin Wolff: And if you could just remind us, what is the size of the debt package you're looking at? Daniel Solomita: For India, the debt package is $130 million. Marvin Wolff: Okay. Daniel Solomita: Which is 70% of... Marvin Wolff: And what is the equity component that Loop is going to have to provide? Daniel Solomita: The equity components that Loop is going to have to provide is approximately $28 million. Marvin Wolff: $28 million. Very good. Well, you're making great progress, and it's good to see it come along with some continued, if you will, intensity. Daniel Solomita: Yes, it's steady progress, doing everything the right way and getting that plant built for the end of 2027. That's the goal. Marvin Wolff: Yes. Okay. Very good. Well, at the end of '27 comes faster than you think, right? It's only less than 24 months away now. Daniel Solomita: Yes, the engineering teams and Toyo and the joint ventures engineering team and our partner, Ester's engineering teams are working full out nonstop. Everyone is fully dedicated to that facility. So the amount of work going on behind the scenes is tremendous. You don't always see that as -- because there's not a lot of press releases or things around that. But the amount of work being done to get this facility done is tremendous. So all hands on deck getting this built. And it all starts... Marvin Wolff: Yes, it's fabulous, very good... Daniel Solomita: The engineering and the technology, right? That's the foundation of all these things. You can build a plant and then it doesn't work. And so that's where we've spent the time, did it the right way. We've had this plant operating in Canada for over 5 years, getting all of the knowledge, all of the learnings, all of the engineering work that's been put into these plants. And so now we've done it the right way. We've done it methodically. It hasn't always been the easiest road, but we're doing it very methodically to get us to where we need to be in 2027 to deliver this product to our customers. Operator: Our next question comes from Varyk Kutnick with Divyde Capital Partners. Varyk Kutnick: So in the past, you've talked about the gross CapEx per pound in India being $0.61 with maybe net around $0.75. Does that same number translate to the European facility, especially when you talk about the modularity of it? Daniel Solomita: So the European facility will be a little bit more expensive. So you could take the module cost, the CapEx that you provided, that would be, let's say, the cost for the modules. So then you have to add the transportation and the reconnection of the module. So there's a little bit more cost involved. The good thing about the European and especially when we go to these site selections, the most important thing and one of the biggest costs in these plants is all of the utilities, the natural gas, the hot oil, the steam generation, the cooling towers. So in a chemical plant, the utilities are the most expensive part of the entire project. And the duty of this project and the beauty of the facility that we have in Germany is that it's a big chemical plant. It's a site that has utilities. And so instead of us having to put in our boilers, putting in our steam generation, putting in the natural gas connection, putting in the cooling towers, the nitrogen, all of those things that go around the utility package, it's already there on site. So that's going to be able to offset some of the increased costs for the transportation and the reconnection of the modules. So we expect the plant to be a little bit more expensive than the Indian project, but not tremendously more expensive because of the offset of the utilities, where in India, it's a pure greenfield. We have to put everything on the site. This is a site that has a lot of utilities. So instead of having to build our own boilers on site, we just connect into the existing boilers that the site already has. And so it's more efficient from a CapEx perspective. And that's a big part of the decision when you choose these sites. If you have utilities on site, it brings down CapEx tremendously. Energy costs are also very, very important and the ability to transport the modules on the site. So that's -- it will be a little bit more expensive, Varyk, but it's still in the -- generally in the same numbers. Varyk Kutnick: Right. I mean, if I look at the rest of the field, you guys are about half the cost on a CapEx per pound basis. Where does that magic come from? Daniel Solomita: The magic comes from the learnings that we -- we really had to reinvent ourselves. So what happened a little bit of -- going back a little bit what happened during COVID is the price of building everything went up. So the price of CapEx went up if you're building a house, you're building a store or you're building a chemical plant, the CapEx went up. And during COVID, that was fine because the CapEx went up, but the price of plastic went up as well. So you had a trade-off. You had plastic at very high prices because of very tight supply chains and you had CapEx going up. So the economics still made sense. What happened right after COVID, once China opened up its factories again and Asia opened up its factory, the price of plastic came down, CapEx didn't continue increasing at the same rate, but they leveled off. They still remain high, but the price of plastic came down. And that's why not only plastic, but all commodities. That's why you saw a lot of projects in this space get canceled during that time because there was just a mixed mass of high CapEx and versus lower commodity prices. And so we had to reinvent ourselves as a company. We had a project that fell into the same path. And that's where we have to reinvent ourselves. So going into India, low-cost manufacturing, lower labor rates, lower labor rates trends translates to lower construction costs, everything from cement, steel, installation cost. Everything that we're doing now is done in a low-cost industry. We don't have any specialized equipment. In a chemical plant, everything is tanks, reactors, agitators, heat exchangers, pumps. Those are all equipment that can be sourced locally. So if I'm building in India, Indian labor is making those parts rather than, let's say, building it in Germany, where German labor, which is significantly higher, builds those projects. And if you look at India right now, India is 80% -- labor costs are 80% cheaper in India than they are in China today. And that's where we can do this low-cost manufacturing, and that's how we can be so successful. Varyk Kutnick: Got you. I appreciate the color on that. And obviously, is it safe to assume that your return on invested capital, obviously, you guys hold this at a JV level, but your payback period would be significantly better. And hopefully, that's the type of cash you could use to fund future growth? Or when we think about more facilities, is it going to come out of cash flow of India? Or is it going to be funded through other means? Daniel Solomita: It's going to be funded through the cash flows in India, 100%. So in India, we have enough space to build a 100,000 ton capacity right after the first one is done. So the total capacity of the site is going to be 170,000 tons. We've done multiple feedstock studies. We've hired different third parties to do the studies, easily identified over 500,000 metric tons of textile waste of it, just textile waste, forget about the packaging, just textile waste available for us to process, just in India, not accounting for imports from Europe or imports from Vietnam, 500,000. So we have 170,000 capacity on the site. Some of it will be packaging waste for the packaging customers. So it won't all be textile waste. But we'll be able to -- all of that is going to be financed through the cash flow. The money that we get the 5% for the royalty fee plus covers all of our back office expenses and more because we're really being cautious with our cash and spending a lot, like I said, a lot of the cost of the R&D and the engineering and everything else is now being paid by the joint venture. So it lightened the amount of cash at the head office that our burn is. And so the licensing fee plus the engineering fees, we're going to be cash flow positive at the corporate level just through those. And so everything else is going to be coming out of the funds from the facility from the joint venture. The payback is less than 3 years in India for the plant. So... Varyk Kutnick: I come over in Europe then Reed [ SGS ] says, they get to partner with you, they design, license, engineer, collect with minimal balance sheet risk. And this hopefully with the payback period under 3 years, this is a scalable project well past India into Europe and other places. Daniel Solomita: Absolutely. So... Varyk Kutnick: The Nike deal, I don't think people have mentioned that and what a big deal that itself. Daniel Solomita: Nike is huge. Obviously, if you could choose -- if I could look back and choose any customer that I wanted to work with, Nike is right up there as one of the top companies that anybody wants to have as a customer, right? Such a great organization, such a great company, such a great brand. And they have all of these different brands within Nike that are so successful. So we were really honored to be able to have Nike as our anchor customer, and it's just tremendous working with a company of that size. And they're true innovators. They need textile to textile and they're really moving quickly to get that done. So we couldn't be happier about having Nike as the anchor customer here. Varyk Kutnick: Yes. I mean it's just on the Internet, so I'm going to throw it in here. But I mean, obviously, Nike produces about 2 billion pounds of plastic and shoes per year, I should say, clothing and shoes per year. I mean, [indiscernible] India, which will do 154 million pounds, I mean, you're about 5% of their total capacity. So I think the scale of this, when you actually think and zoom out, especially when you throw in other apparel players, it's bigger than we could ever dream of. Daniel Solomita: Yes. Like I said, 60 -- so the entire polyester fiber market is 66% of 85 million tons. So it's a huge number. So we have 170,000 tons out of -- we're talking about somewhere 60 million tons. So there's a tremendous amount of growth on the textile side, and Loop's technology is uniquely positioned to handle that because of the low temperature methanolysis. That's the key to all of this to be able to not contaminate your stream with the cotton, with the nylon with the buttons, with the zippers, with all of the different components that go into these textiles, that's the key to Loop's technology, and that's why we're uniquely positioned to be able to do this. Operator: We have not received any further questions. And so I'll hand the call back over to Daniel for any closing comments. Daniel Solomita: Yes, nothing further from me. Thank you very much, everybody, and we'll be speaking again soon. Operator: Thank you. This concludes our call. Thank you all for your participation. You may now disconnect your lines.
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