Financial Data and Key Metrics Changes - The company raised its long-term non-GAAP operating margin target to 30%, indicating confidence in achieving this goal within a three-year timeframe [67] - The dollar-based net revenue retention rate decreased by one point to 106% when adjusted for foreign exchange [70] Business Line Data and Key Metrics Changes - The company reported strong momentum in AI products, with 90% of million-dollar-plus customers incorporating AI products into their operations [44] - The acquisition of WorkFusion is expected to enhance capabilities in financial crimes and public sector verticals, although its contribution to ARR is considered immaterial [15][32] Market Data and Key Metrics Changes - The company is seeing increased demand in the healthcare and financial sectors, particularly in areas like revenue cycle management and financial crime [32] - There is a noted variability in the macroeconomic environment, with strengths observed in financial services and healthcare, while some uncertainty remains in regions affected by geopolitical conflicts [26] Company Strategy and Development Direction - The company is focusing on a vertical strategy, emphasizing coding agents, process orchestration, and vertical solutions to meet customer demands [49] - The integration of AI and agentic automation is seen as complementary, driving renewed interest in automation across various workflows [42] Management's Comments on Operating Environment and Future Outlook - Management characterized the current operating environment as variable, with pockets of strength and pressure across different sectors [26] - There is optimism regarding the federal government sector, with expectations of increased long-term project opportunities [19] Other Important Information - The company is committed to maintaining a disciplined approach to investments, focusing on areas with higher returns to drive scalability [67] - The impact of foreign exchange on ARR was deemed immaterial, with sales execution being the primary driver for performance [51] Q&A Session Summary Question: How is the company thinking about net new ARR expansion potential? - Management indicated that there is minimal impact from foreign exchange on ARR and emphasized opportunities for margin expansion through technology advancements [5][6] Question: Can you provide details on the AI traction with respect to ARR? - Management noted strong momentum in AI diffusion within the platform, although specific ratios between components were not disclosed [11][12] Question: What is the contribution of WorkFusion to ARR? - Management clarified that the $25 million ARR figure reported elsewhere is inaccurate and that WorkFusion's contribution is below materiality thresholds [15] Question: How is the company positioned to capture market demand for automation and AI? - Management expressed confidence in their ability to help customers integrate AI into enterprise workflows, highlighting the advantages of their process orchestration technology [23] Question: What are the main drivers for dollar-based net revenue retention? - Management stated that both net new logos and expansion opportunities are expected to stabilize, with AI and agentic products driving growth [71]

Financial Data and Key Metrics Changes - In 2025, the company achieved full-year revenue of $486.8 million, which was broadly flat year-over-year compared to $490.4 million in 2024 [5][19] - Adjusted EBITDA for 2025 reached $87.3 million, a 10% increase from $78.8 million in 2024, exceeding guidance of $85 million [5][20] - The adjusted EBITDA margin improved to 17.9% in 2025, up 180 basis points from the prior year [20] - Q4 2025 revenue was $140.7 million, representing a 3% year-over-year increase, while Q4 adjusted EBITDA was $41.6 million, a 56% year-over-year increase [20] Business Line Data and Key Metrics Changes - The company focused on consolidating and integrating its portfolio, launching the Informa TechTarget Portal, which provided a 40% increase in audience reach year-over-year [8] - Demand products saw strong growth, particularly as the company rationalized its demand portfolio [29] - The company streamlined its brand demand products and repositioned NetLine to target cost-conscious demand generation, resulting in exceptional revenue and bookings growth [8] Market Data and Key Metrics Changes - The company operates in a $20 billion addressable market, holding only a 2.5% market share, indicating substantial growth opportunities [5] - Audience membership grew, with members becoming more active, and citations from AI answer engines increased by 235% year-over-year [10] Company Strategy and Development Direction - The company aims to return to top-line revenue growth in 2026, with adjusted EBITDA expected to expand to $95 million-$100 million [16] - The strategy includes leveraging AI technology across four key areas: conversational AI interfaces, personalized audience experiences, enhancing go-to-market programs, and automating operations [11][13] - The company is focusing on larger customers and high-growth markets, establishing dedicated sales teams to strengthen relationships [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the progress made and the strong foundation established for sustainable growth, anticipating a similar market environment in 2026 [23] - The company noted that the integration and restructuring investments impacted free cash flow in 2025, but strong underlying cash generation characteristics remain [22] Other Important Information - The company received 48 awards for the quality of its journalism in 2025, highlighting its commitment to original and trusted content [9] - The balance sheet showed cash and cash equivalents of around $41 million, with net debt at approximately $66 million, reflecting strong cash-generating characteristics [22][23] Q&A Session Summary Question: Was the 10% revenue growth from largest customers a full-year basis or Q4 metric? - Management confirmed it was a full-year basis on a combined company basis [26] Question: Are the largest customers part of the previously mentioned 7,500 customers? - Management clarified that they are stratifying the customer base differently, focusing on a cohort of 30 portfolio customers [27] Question: What products resonated with the largest cohort of customers? - Strong demand was noted for demand products and content, as customers sought to establish a distinctive voice in the marketplace [29][30] Question: What themes were recognized across the smaller customer base? - Management indicated challenges in the Asia Pacific region and noted customer churn in the small to medium end of the IT marketplace [31][32] Question: Is a 2% growth a prudent starting point for modeling 2026? - Management agreed that the proposed modeling approach makes sense and could be slightly higher than 2% [33][34] Question: What will drive the incremental adjusted EBITDA in 2026? - Management indicated that the impact of synergies from the combination will be more pronounced throughout 2026 [36][37]

Financial Data and Key Metrics Changes - In 2025, net sales totaled $1 billion, with a gross margin expansion of 380 basis points to 55.9% and a reduction in SG&A by over $100 million, resulting in a positive adjusted operating income of $11 million, an improvement of $48 million year-over-year [5][30][25] - Q4 net sales were $274 million, reflecting a decline of 20%, including a 4-point impact from store closures [25] - Fourth quarter gross margin was 57.4%, up 350 basis points from the previous year, while full-year gross margin was 55.9%, representing a 380 basis point increase compared to 2024 [26][5] Business Line Data and Key Metrics Changes - The wholesale traditional watch business grew by 2% globally for the full year in 2025, driven by a focus on scalable markets like the U.S. and India [6] - The company successfully established a full-price selling model, improving profitability in both wholesale and direct-to-consumer channels [6][5] Market Data and Key Metrics Changes - The company is experiencing strong momentum across markets and demographics, particularly in India, which has been the fastest-growing large economy for the past four years [19][8] - The U.S., France, Germany, and India are identified as must-win markets for the wholesale channel [15] Company Strategy and Development Direction - The company is focused on three strategic pillars: returning to profitable growth, optimizing the operating model, and building shareholder value [9][22] - In 2026, the company plans to fuel innovation through design, technology, and storytelling, with a focus on deepening consumer engagement and growing traditional watch and jewelry categories [10][11] - The company aims to achieve a return to top-line growth, high single-digit adjusted operating margin, and positive free cash flow over the next three years [9][35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the turnaround plan, highlighting the resilience of consumers and the positive response to new product innovations [60][61] - The company anticipates that 2026 will be a low point for sales under the turnaround plan, with expectations for a return to growth in the fourth quarter [33][35] Other Important Information - The company ended 2025 with $96 million in cash and cash equivalents and $67 million available under its asset-based revolver, with no utilization of its ATM program [31] - The company has reduced inventory levels by more than $200 million over the last three years, aligning inventory with sales expectations [31] Q&A Session Summary Question: What were the drivers of gross margin in the quarter, and what gives confidence the improvements are sustainable? - Management highlighted the shift to a full-price selling model and improved relationships with partners as key drivers of gross margin improvements, with confidence in sustainability due to renegotiated minimum guarantees for 2026 [39][41] Question: What gives confidence in achieving a return to growth in the fourth quarter of 2026? - Management emphasized the transformation over the last 18 months, the strength of the product pipeline, and positive consumer relationships as factors supporting confidence in growth [42][43] Question: What more can be done to improve the cost structure? - Management indicated a continuous improvement approach, focusing on operational efficiencies, technology simplification, and leveraging automation and AI [45][47]

Financial Data and Key Metrics Changes - Core net income increased by 52% to $111 million, achieving a record pre-tax ROE of 26% [5] - Book value grew by 21% and net interest margin (NIM) remained stable at 3.6% [7] - Total loan production for 2025 reached $2.7 billion, a 47.5% year-over-year increase [11] Business Line Data and Key Metrics Changes - Originations volume increased by 49% to a record $2.7 billion, with 9 new securitizations totaling $2.6 billion [5] - The loan portfolio grew by 28% year-over-year, reaching $6.5 billion [11] - Non-performing loans (NPLs) decreased to 8.5% from 10.7% at the end of 2024 [13] Market Data and Key Metrics Changes - The securitization market is described as robust, with a deep bench of investors supporting the company [21] - The weighted average coupon on new Q4 held for investment originations was just over 10% [10] Company Strategy and Development Direction - The company aims to grow book value and maximize shareholder returns, supported by a strong liquidity position [6] - A transformative partnership was established by selling $129 million of NPLs while retaining servicing rights, which is expected to drive future earnings [6] Management's Comments on Operating Environment and Future Outlook - The management expressed optimism about the healthy real estate markets and stable credit conditions, indicating a positive outlook for 2026 [21] - The company does not foresee significant impacts from potential changes in the broader financial markets, as their clients are less rate-sensitive [27] Other Important Information - The company issued its first rated unsecured debt offering for $500 million, enhancing liquidity and reducing reliance on short-term warehouse lines [6] - Total liquidity at year-end was just under $117 million, with $92 million in cash and cash equivalents [11] Q&A Session Questions and Answers Question: Impact of potential rate cuts on loan demand - Management indicated that while a rate drop could lower costs and make offerings more attractive, it is not expected to be a significant driver of growth as clients are more transaction-sensitive [27][29] Question: Update on competitive dynamics in lending markets - Management noted that competition remains stable with no significant changes, and the disruption in private credit markets may create opportunities for the company [40][41] Question: Deployment of proceeds from the debt raise and liquidity management - The company has fully deployed the $500 million proceeds, paying down warehouse balances and maintaining a minimum cash reserve of $30-$50 million for safety [46] Question: Comparison of spreads and returns in single-family versus small balance commercial segments - Management stated that commercial assets yield wider spreads compared to single-family loans, with a difference of approximately 125 basis points [50]

Financial Data and Key Metrics Changes - Fourth quarter ARR reached $1.853 billion, up 11% year-over-year, driven by $70 million of net new ARR and revenue of $481 million, up 14% year-over-year [5][26] - Full year GAAP profitability achieved for the first time in the company's history, with GAAP operating income of $57 million and fourth quarter GAAP net income of $104 million [30][31] - Non-GAAP operating income for Q4 was $150 million, representing a 31% margin, while full year non-GAAP operating income was $370 million, a 23% margin [6][30] Business Line Data and Key Metrics Changes - AI product ARR, including Agentic, IDP, and Maestro, reached nearly $200 million this quarter, with strong growth driven by Agentic [13] - The number of customers with more than $1 million in ARR increased to 357, while those with over $100,000 in ARR grew to approximately 2,565 [29] - Dollar-based gross retention was 97%, and dollar-based net retention rate remained at 107% [29] Market Data and Key Metrics Changes - Over $1.2 billion in cloud ARR, which includes both hybrid and SaaS, up over 20% year-over-year [27] - 90% of customers with more than $1 million in ARR are using AI products, indicating strong attachment and potential for expansion [27] - The company ended the quarter with approximately 10,750 customers, successfully signing new enterprise logos [28] Company Strategy and Development Direction - The company is focused on accelerating growth across its customer base, expanding penetration inside its install base, and scaling AI adoption on top of deterministic automation [24] - The strategy includes a unified platform combining deterministic automation, agentic automation, and enterprise-grade orchestration [8] - The company aims to leverage its vertical expertise in regulated industries, particularly healthcare and financial services, to drive growth [17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growing demand for automation and AI, highlighting that AI initiatives are driving renewed interest in automation [81] - The operating environment is characterized as variable, with pockets of strength in sectors like financial services and healthcare, while some areas remain uncertain [66] - The company expects to cross $2 billion in ARR in fiscal year 2027, reflecting confidence in its growth trajectory [21] Other Important Information - The company repurchased approximately 30.9 million shares for about $337 million during the fiscal year, completing a $1 billion stock repurchase program [31][32] - The company is committed to managing stock-based compensation, expecting dilution to be between 2%-3% year-over-year for fiscal year 2027 [35] Q&A Session Summary Question: What is the outlook for net new ARR expansion potential? - Management indicated that there is no significant FX contribution impacting net new ARR and expressed confidence in the stabilization of net new ARR [42][44] Question: Can you provide details on the composition of AI product ARR? - Management noted strong momentum in AI products but did not disclose specific ratios between different components, emphasizing their complementary nature [49][51] Question: How is the federal government business performing? - Management reported good traction in the federal sector, with a strong position in certain agencies and an increased appetite for long-term projects [56][58] Question: What is the current environment for automation and AI budgets? - Management believes they are well-positioned to capture market demand, leveraging their process orchestration technologies and the integration of AI into enterprise workflows [61][62] Question: How does the company view the impact of agentic automation on customer contracts? - Management indicated that AI initiatives are surfacing more opportunities for deterministic automation, enhancing the overall automation landscape for customers [81]

Financial Data and Key Metrics Changes - The company reported revenue of $3.3 million for the fourth quarter, a 16% increase from $2.8 million in the same quarter last year [35] - Adjusted gross margin for the fourth quarter was 66.8%, up 12 points from 56.5% in the prior year quarter [35] - Net loss from continuing operations was $6.5 million, an improvement from $7.2 million a year ago [36] - Total cash on hand, including $8 million in escrow, was $44.4 million after paying off $28 million in debt [36][39] Business Line Data and Key Metrics Changes - The return to direct distribution positively impacted revenue for both cardiovascular and SimpliDerm product lines [35] - The company divested its BioEnvelope business, which generated $88 million, allowing for a focus on the NXT-41 product line [39] Market Data and Key Metrics Changes - The breast reconstruction market is valued at $1.5 billion, with 162,000 breasts reconstructed annually after mastectomy [11][12] - The company aims to address the 15%-20% postoperative infection rate in breast reconstruction patients, which is a significant market challenge [11][13] Company Strategy and Development Direction - The company is focused on solving the problem of postoperative infections in breast reconstruction through its NXT-41X product, which combines a biological matrix with sustained antibiotic release [11][24] - The strategic reset includes a focus on the NXT-41 product line, with plans for FDA submission and commercialization [39][41] - The company is exploring strategic options for SimpliDerm to concentrate resources on NXT-41X [30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the NXT-41 product's potential to transform the market and emphasized the importance of addressing high infection rates in breast reconstruction [39][41] - The company is well-resourced with a strong balance sheet and a capable team, positioning it for future growth [41] Other Important Information - The company has been recognized as a Great Place to Work, which is expected to enhance its ability to attract talent and improve financial performance [32][33] - The company has a manufacturing facility capable of generating $120 million in revenue for NXT-41X [28] Q&A Session Summary Question: What kind of questions are you preparing for from the FDA regarding NXT-41? - Management indicated that they are preparing for questions related to biocompatibility and have retained supporting data for their application [45][46] Question: How quickly can you shift the filing to NXT-41X after NXT-41 approval? - Management stated that the plan is to transition efficiently from NXT-41 to NXT-41X, learning from the NXT-41 submission process [49] Question: How does SimpliDerm experience help with commercial readiness for NXT-41X? - Management highlighted that understanding the market and reimbursement processes, along with building relationships with key opinion leaders, are crucial for commercial readiness [51][53] Question: How do you think NXT-41X will compare in infection reduction to other techniques? - Management expressed confidence that NXT-41X could achieve significant infection reduction, emphasizing its advantages in uniform distribution and sustained antibiotic release [55][56]

Financial Data and Key Metrics Changes - Revenue for Q2 fiscal 2026 was $341.3 million, representing a 9.4% year-over-year growth, exceeding expectations [6][19] - Revenue per active client reached $577, up 7.4% year-over-year, marking the highest reported since the company went public [20] - Adjusted EBITDA was $15.9 million, or 4.7% of revenue, outperforming expectations [21] - Gross margin was 43.6%, slightly above the midpoint of the FY26 range [20] Business Line Data and Key Metrics Changes - The Fix channel was the primary driver of revenue growth, with both women's and men's Fix businesses growing in double digits [7][10] - Average order value for Fixes increased nearly 10% year-over-year, marking the tenth consecutive quarter of growth [7] - The adoption of larger Fixes, offering up to eight items, is growing, contributing to higher average unit retail, which increased by 7.7% year-over-year [9] Market Data and Key Metrics Changes - Stitch Fix's 9.4% revenue growth contrasts with a 0.5% contraction in the total U.S. apparel, footwear, and accessories market during the same period [7] - The company continues to gain market share, significantly outperforming the broader market [6] Company Strategy and Development Direction - The company is focused on enhancing client experience through technology and innovation, particularly leveraging AI to improve personalization and engagement [14][17] - Strategic category expansion in activewear, athleisure, footwear, and accessories is expected to unlock significant revenue opportunities, estimated at approximately $1 billion [10][11] - The company aims to maintain a balance between growth and profitability while continuing to optimize its brand mix [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to sustain momentum across various income cohorts, indicating strong consumer performance [28] - The company anticipates continued sequential growth in active clients, with a focus on sustainable and profitable client growth [32] - Management acknowledged potential headwinds from macroeconomic factors, including consumer sentiment and rising gas prices, but remains optimistic about market share gains [55][56] Other Important Information - The company ended Q2 with 2.3 million active clients, in line with expectations, and reported the highest retention rate in nearly four years [12][13] - The introduction of family accounts is seen as a potential growth driver for client acquisition and engagement [12] Q&A Session Summary Question: Insights on current consumer behavior and active client growth - Management noted positive performance across all income cohorts and emphasized the quality of the assortment, with a 50% year-over-year increase in sales from new styles [28][29] - Active client growth is expected to be slightly less than 1% quarter-over-quarter in Q3, with a focus on rebuilding a healthy client base [31] Question: Context around revenue deceleration and external pressures - Management indicated that the deceleration is primarily due to tougher AOV comparisons and a strong holiday season in Q2, with macroeconomic factors also considered [39][54] Question: Assortment and women's business performance - Management confirmed ongoing efforts to improve assortment quality and noted strong revenue growth in the women's Fix business, with significant opportunities remaining [41][42] Question: Repeat customers and wallet share - Management highlighted the importance of serving clients across various use cases, contributing to revenue growth and increased engagement [44][45] Question: Guidance on Q3 active client inflection - Management expressed confidence in sequential improvement in active clients, driven by new acquisitions and re-engaged clients [49][50] Question: Impact of GLP-1 usage on customer engagement - Management reported positive results from clients undergoing body transformations, indicating increased engagement and confidence among these clients [59][60]

Financial Data and Key Metrics Changes - Full-year revenue for 2025 was $121.6 million, representing a 5% increase from 2024 [7][16] - Q4 revenue was $29.5 million, a 3% decrease from Q3 and a 34% decline year-over-year [16] - Full-year swap volume reached $6.89 billion, a 21% increase from 2024, while Q4 swap volume was $1.59 billion, down 9% sequentially and down 32% year-over-year [16][17] - Revenue from staking nearly doubled to over $4 million, driven by improvements in Solana staking [17] Business Line Data and Key Metrics Changes - XO Swap, the B2B swaps platform, generated $416 million in Q4 volume, accounting for 26% of total quarterly volume [17] - Fiat onboarding revenue increased by 28% compared to 2024 [17] - Funded users at the end of the year were 1.7 million, down 6% from the previous quarter and 11% year-over-year [17] Market Data and Key Metrics Changes - The broader retail environment impacted the number of monthly active users, which declined to 1.5 million, down 35% year-over-year [18] - The decline in digital asset prices during Q4 affected overall revenue and trading activity [16][18] Company Strategy and Development Direction - The company is transitioning from a speculation-driven model to a payments-focused model, aiming to create revenue streams independent of cryptocurrency market fluctuations [7][14] - Exodus Pay is central to this strategy, designed to integrate various financial services into a single app, making it user-friendly and accessible [9][45] - The W3C acquisition is a key part of the vertical integration strategy, allowing the company to own the full payment stack and diversify revenue [10][11] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges faced in 2025 but emphasized the importance of building infrastructure to reduce dependency on market conditions [5][14] - The company is optimistic about the future, with expectations that investments made in 2025 will start to yield results in 2026 [14] - AI is seen as a transformative factor, with potential to create a new class of customers needing wallet infrastructure [12] Other Important Information - The company is pausing Bitcoin dividend plans to prioritize M&A and growth initiatives [19] - The integration of AI tools is enhancing productivity within the engineering team [12] Q&A Session Summary Question: Can you expand on the steps needed for agentic payments? - Management discussed the need for secure wallet infrastructure to enable AI agents to transact, emphasizing user control over wallets and the importance of security measures [23][28] Question: What about the cost structure and one-time expenses in Q4? - Management noted legal costs and interest related to the Galaxy loan as part of the cost structure, with expectations for slightly lower costs moving forward [30][31] Question: What are the drivers behind improved monetization in XO Swap? - Management highlighted the growth in the number of partners and the expectation of continued growth in the B2B2C model, despite potential fluctuations in partner operations [35][36] Question: When will the next wave of XO Swap partners ramp up? - Management indicated steady growth and the anticipation of announcing significant new partners in the future, while emphasizing the integration timeline for partners [39][41] Question: How will capital be allocated for consumer-facing initiatives? - Management reiterated that Exodus Pay is an evolution of the company, focusing on consumer needs and aligning capital allocation with mainstream market demands [61][68]

Financial Data and Key Metrics Changes - For Q4 2025, the company reported revenue of $397.6 million, a 17% year-over-year increase, with organic growth of 12% [19] - Adjusted EBITDA grew 53% year-over-year to $39.5 million, with margins expanding to 9.9% [22] - Full-year 2025 adjusted EBITDA was $115 million, exceeding previous guidance [25] - The company increased its cash balance to $66 million, up from $36 million in Q3 2025 [22] Business Line Data and Key Metrics Changes - The company served over 205,000 residents, a 10% increase year-over-year [19] - Script volume grew 14% year-over-year, with vaccine script volumes up 3% [19][20] - Gross profit rose 27% to $85.5 million, with gross margins expanding to 21.5% from 19.8% [19] Market Data and Key Metrics Changes - The company anticipates a revenue forecast of $1.4 billion to $1.42 billion for 2026, reflecting new pricing impacts from the IRA [26] - The long-term care pharmacy environment is evolving with ongoing consolidation and increasing operational complexity [13] Company Strategy and Development Direction - The company plans to continue investing in acquisitions and greenfield startups while enhancing data analytics capabilities [8] - The company aims to offset anticipated EBITDA impacts from the IRA and maintain service levels during industry transitions [12][11] - The focus remains on supporting partners with reliable execution amid industry changes [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth momentum despite industry challenges, raising 2026 adjusted EBITDA guidance to $120 million-$124 million [17][26] - The demographic shift with the aging population is expected to create incremental tailwinds for the company [13] - Management is closely monitoring the operational complexities introduced by the IRA [11] Other Important Information - The company completed three acquisitions mid-year, contributing to reported revenue growth of 18% for the full year [6] - The company achieved a full-year return on equity of 27% [8] Q&A Session Summary Question: Can you help us understand the durable aspects of Q4 results? - Management indicated that the run rate for EBITDA is approximately $110 million, with variability in Q4 not projected to continue [32] Question: Did the vaccine program contribute more this year than last year? - Management confirmed that the vaccine program continued to be significant in Q4, with improved profitability [34] Question: What progress has been made in balancing profit contributions between generics and branded drugs? - Management noted progress in aligning gross margin dollars with the high volume of generic prescriptions [36] Question: Is the gap between potential margin and realized margin still the same? - Management indicated that the gap has increased to approximately 90 basis points [37] Question: Can you discuss opportunities arising from competitors facing challenges? - Management acknowledged potential opportunities from competitors in distress, particularly in the context of ongoing bankruptcy processes [48] Question: Are you seeing efficiencies in labor costs? - Management stated that efficiencies are primarily due to scaling the existing platform rather than improvements in labor inflation [49] Question: How is the integration of recently acquired facilities progressing? - Management reported faster ramp-up and integration of recently acquired facilities, particularly in the Pacific Northwest [56] Question: What is the outlook for M&A opportunities given the current market conditions? - Management expressed a robust pipeline for M&A in 2026, while remaining disciplined in their approach [60]

Financial Data and Key Metrics Changes - In Q4 2025, net sales decreased by 2.4% to $1.52 billion, with comparable sales down 1.6% [9][10] - For the full year 2025, Adjusted EBITDA increased by 21.3% to $408 million, with a margin of 6.8% [8][9] - Operating cash flow rose by 77% year-over-year, contributing to a reduction in the leverage ratio from 4.2x to 3x [4][9] - Free cash flow improved by 276% to $187 million [9][12] Business Line Data and Key Metrics Changes - The company focused on moving away from unprofitable sales, resulting in a decline in total sales but improved profitability [10][12] - Gross margin rate expanded by 66 basis points to 38.7% for the full year 2025 [8] - Operating profit increased by $113 million, with operating margin expanding by 190 basis points [8] Market Data and Key Metrics Changes - The company ended 2025 with 1,382 stores in the U.S., following 25 net store closures in 2024 and 16 in 2025 [10] - The company expects net store closures between 15 and 20 in 2026, with closures weighted towards the latter half of the year [15] Company Strategy and Development Direction - The company is entering a new phase called "Reach for the Sky," focusing on sustainable top-line growth through four pillars: compelling product offerings, services at scale, trusted store experiences, and an integrated omni-channel model [18][19] - The strategy includes expanding the fresh food category, launching new national brands, and increasing the frequency of product drops [20][21][23] - The company aims to leverage its wholly owned services, including vet hospitals and grooming, as a key growth engine [26][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in starting 2026 from a position of strength despite a challenging macro environment [14] - The guidance for Q1 2026 anticipates net sales to be down 1% to flat, with Adjusted EBITDA expected between $92 million and $94 million [15][16] - Management emphasized that growth initiatives are designed to be self-help in nature, not reliant on favorable macro conditions [34] Other Important Information - The company has made significant progress in improving its economic model, focusing on profitability and cash generation [8][12] - The company plans to enhance its loyalty program and digital capabilities in 2026 [31][32] Q&A Session Questions and Answers Question: What will lead Petco's growth from here? - Management indicated that growth will come from all four pillars simultaneously, with product taking the longest to implement [37][39] Question: What are the drivers of the increase in gross margins? - Management highlighted the focus on pricing, promotions, and product mix as key levers for maintaining healthy margins [44][45] Question: How is the brand assortment evolving? - Management stated that the brand assortment is widening to cater to both premium and mainstream customers [52][54] Question: What percentage of customers engage in services? - Management noted that there is significant room for growth in services, particularly in vet hospitals and grooming [61][63] Question: How will the company capture customers who do not buy dog food? - Management emphasized the importance of cross-selling and leveraging customer data to increase sales among existing customers [66][67]