加载中...
共找到 17,113 条相关资讯
Operator: Good afternoon, ladies and gentlemen, and welcome to the Morguard Real Estate Investment Trust 2026 First Quarter Results Conference Call. [Operator Instructions] This call is being recorded on Friday, May 1, 2026. I would now like to turn the conference over to Andrew Tamlin, Chief Financial Officer. Please go ahead, sir. Andrew Tamlin: Thank you, and good afternoon, everyone. My name is Andrew Tamlin, Chief Financial Officer of Morguard REIT. Welcome to Morguard REIT's first quarter 2026 earnings conference call. I am joined this afternoon by John Ginis, Vice President of Retail Asset Management; Tom Johnston, Senior Vice President of Western Office Management; and Todd Febbo, Vice President of Office Asset Management, Eastern Canada. Thank you all for taking the time to join the call. Before we jump into the call, I would like to point out that our comments will mostly refer to the first quarter 2026 MD&A and financial statements, which have been posted to our website. I refer you specifically to the cautionary language at the front of the MD&A, which would also apply to any comments that we would make on this call. Our first quarter results were in line with expectations and consistent with last year's results. We have seen some softness in the office net operating income from two larger tenants that have given back space in Ottawa and Vancouver in recent months, but this has been mostly offset by improved retail results coming primarily from our enclosed model asset costs. The REIT's net operating income for the first quarter was $25.6 million, which was down slightly from $25.7 million in 2025. While we are missing the income from the two failed Bay stores, which form part of the 2025 results, we have had some good success in adding other quality tenants in the last 12 months throughout the portfolio. Further, positive leasing spreads throughout 2025 have also helped to improve the retail net operating income. Our community strip portfolio continues to produce solid same-store growth of 2.2%, allowing for one asset with a failed Peavey Mart, which I'll discuss in more detail later on. Just touching on the two Bay stores that we received back in 2025, at this point, we are focusing on short-term options for these two spaces. It will take some time to sort through these former Bay tenancies at Cambridge, and we are dedicating more focus to the broader redevelopment going out at St. Laurent, rather than the specific Bay vacancy at the site for now. Notwithstanding the failure of the Bay, there are still lots of positives in the retail sector. There remains lots of good conversations involve -- involving well-known national brands. It still remains expensive to construct new retail space, and hence, a lot of retailers are looking at options of existing space. The decline in office net operating income is primarily attributed to 84,000 square feet in space that was returned to the landlord in two separate occasions in the last few months. These two assets were located in Ottawa and Vancouver. All of our other office assets are seeing either similar or improved occupancy from a year ago and is consistent with the general theme of companies imposing back to the office policies. We believe these two vacancies will be short term in nature as both buildings are well located in favorable urban areas in these two cities. Our teams are focused on leasing opportunities in these areas. Just commenting quickly on our Penn West Plaza -- at our Penn West Plaza asset, our occupancy for this asset is still in the range of 80%, which we are pleased with. We are expecting net operating income for this asset to be approximately $2 million higher in 2026 than 2025, all to be reflected in the final three quarters of the year. This relates to some inducements booked in 2025 to gain tenancies that have started to burn off. Our leasing teams have noticed increasing interest in tours from office space in major urban areas as companies continue to push their employees to get back in the office. We are cautiously optimistic that this will translate into future office leasing deals into 2026 and 2027. Looking at the remainder of 2026, we do expect our retail results to remain stable. While we have a full year of the missing Bay income to work through, we are still seeing positive retail fundamentals, and there are some retail developments that we were working on, which I will touch on in a few minutes. We are expecting to see some continued softness in the office members in 2026 as we work through the vacancies in both Ottawa and Vancouver. Turning to financing and liquidity. The trust is $61 million in liquidity at the end of the year -- at the end of the quarter, which is down from $68 million at the end of 2025. The trust also has $218 million in unencumbered assets, along with some up financing opportunities in 2026. The trust interest expense declined $400,000 in the first quarter of 2026, mainly due to some lower interest rates on mortgage renewals. So far in 2026, the trust rated two mortgages totaling $27 million, lowering the interest rate from an average of 5.4% on these mortgages to an average of 4.7% on renewal. The trust has approximately 22% of its debt is variable at the end of the quarter, which has increased slightly from 21% at the end of the year. We do expect to see some opportunities for up financing in 2026 as we are currently in discussions with a number of lenders about these mortgages -- mortgage renewals. In general, we have seen this market open up more in the last year with lower spreads, especially on attractive assets along with lenders being more open to looking at lending opportunities for office product. As mentioned in past quarters, the trust's operating capital reserve has been established to be $35 million in 2026, which is unchanged from 2025. This equates to $8.750 million per quarter. Actual cash spent for the quarter amounted to only $3.4 million, which is typical to have a slow quarter of capital spending during the Canadian winter. Our overall occupancy level of 84.8% at March 31, 2026, has declined from 87.7% a year ago, due primarily to the Bay failures at Cambridge and Ottawa in addition to the office vacancies that I mentioned previously. We do expect this percentage to start to rise in the coming quarters as additional leasing deals get booked. When looking at the 1 million in remaining square feet that's coming up for renewal in the last three quarters of 2026, we do feel good about the vast majority of this space. I note that there are two retail tenants between 10,000 and 15,000 square feet each, along with the 35,000 square foot industrial that we anticipate will not be renewing. We do not anticipate that the retail vacancies will have much of an impact on our overall net operating income, and we do anticipate finding a replacement tenant for the industrial building in short order. Looking quickly at 2027 for the same tenant threshold. It is a similar story with only a couple of smaller office industrial type tenants that are at risk, none of which will be overly impactful. As mentioned in past quarters, we are now embarking on a strategic merchandising program for St. Laurent, which will see the addition of some new nationally recognized brand names being added to the tenant roster along with expansion plans for other tenants on the existing rent roll. The current development spend in the amount of $6.2 million includes build-outs for tenants such as Sephora and H&M. These are all now open, and we have received very positive reviews about their impact. We ultimately expect to spend in the range of $25 million to $30 million as we look to add more discriminating tenants and also look to activate the former Sears space at St. Laurent. We are looking to announce the next phase of this project shortly, which will continue to offer traffic generating mix of tenants to this asset. The trust also has had two No Frills grocery deals, which have been undertaken. During the fourth quarter of 2025, a new No Frills grocery store opened at Parkland Mall in Red Deer, and we are now seeing the income for that space. This cost was $1.5 million and activated previously vacant space. There is also a new Frills opening at the center in Saskatoon, an early center with a cost of approximately $5 million. The trust believes that both of these new popular grocery options will be strong additions to these malls. The trust will also be retenanting the old Peavey Mart box at our open-air retail asset Airdrie. The new tenant will be a gym operator and will represent a combined spend of approximately $1.5 million and will be quite accretive to the income of the REIT starting in 2027. Wrapping up, we continue to believe that there are strong fundamentals in the retail leasing environment and that the office fundamentals have changed for the better. We are looking forward to continued positive leasing conversations for all of our assets. Most of our enclosed malls remain dominant in their geographical area and our strip malls, which are largely grocery-anchored, have performed steady. Beyond our retail assets with high-quality office buildings in Canada's largest markets with a high degree of government office tenants. We continue to be positive about our business and the objective of building value for our unitholders. We look forward to continuing to execute our strategy, and thank you for your continued support. We will now open the floor to questions. Operator: [Operator Instructions] Our first question comes from the line of Linda Wang from TD Cowen. Linda Wang: This is Linda Wang on for Jonathan. So my first question is for the $159 million convertible debenture that's maturing at the end of this year. I was wondering if you could please provide some details on the plan for this amount. Andrew Tamlin: Thank you for the question. We're looking at doing a new issue for those debentures at some point later this year. It will be at an interest rate higher than the existing rate, but we are forecasting really just to do a new issue approximately the same amount, give or take. We'll be monitoring the market and that will be instructive as far as when we're going to be doing that. Linda Wang: Okay. And then on the office vacancies in Vancouver and Ottawa that you mentioned earlier, I was wondering if you have a time line on the backfill of those spaces? And then also specifically for the office portfolio, if there's any other similar downsizing or any material nonrenewals for the remainder of the year? Andrew Tamlin: I would expect we'd be able to fill those vacancies in the next year or two. It's -- these are going to be pretty good areas and will be in demand. So they shouldn't be open for too long. And there is nothing else that we're really worried about from an office perspective. I've just mentioned a few retail tenants that will be vacating. But on the office side, we feel pretty good about everything in the next year or so. Linda Wang: Okay. Sounds good. And then on the HBC location, I believe -- and I believe John mentioned during the last call, and you mentioned earlier that you can expect like a short-term lease. I was wondering if you have any updates specifically relating to that? And then also any updates on the long-term plan? Andrew Tamlin: Do you want to take that, John Ginis? John Ginis: Sure. Thanks, Andrew. Hi, Linda. So with respect to Ottawa, starting there, St. Laurent, we have executed a deal to backfill the lower level of the former HBC box with Urban Behavior. They will took occupancy actually today, and they should be open and operational within a matter of 3 to 4 days. Just as a reminder, they have been an occupant of ours at the shopping center in our former Sears. They have been operating there for about 4 years and have performed quite well. So retaining them was true their benefit and our benefit as well. Andrew spoke in his introductory remarks that we are looking to announce remerchandising of the former Sears premises. We'll talk about that in Q2. For the upper level of the former Sears, we're working through a transaction right now to lease that space and again, hoping to announce that in Q2 as well. You want to pivot to Cambridge. Cambridge two-level space, albeit it is a single-level mall, so it's a little bit more difficult to lease both levels. We are currently working through a transaction to lease the lower portion of the HBC space there. I can't give any specifics right now, but we're working through some documentation as we speak. Linda Wang: Okay. And then one last question for me. On the renewal for retail space in Q1. I believe the uplift on renewal was negative 9% for the enclosed regional centers and plus 2% for the community strip centers. I was wondering if there's any particular reason that drove this to be lower than 2025 average uplift? Andrew Tamlin: Yes. We typically see a trend like that in the first quarter, and it's really a function of some of the Christmas-type tenancies that are coming off the roles. So it's -- I would call that more temporary than anything. Linda Wang: Okay. And then I guess for the remaining, like the upcoming quarters, we can expect similar uplift compared to 2025 then? Andrew Tamlin: I would be expecting uplifts. I can't -- it's tough to put a number to it, but, yes, what I would say is that I don't know that -- we're not anticipating is what we're seeing in the first quarter will continue for the rest of the year, and this is more of a short-term seasonal trend. Operator: There are no questions at this time. Mr. Tamlin, please continue. Andrew Tamlin: Okay. Thank you, everybody, for joining the call, and we look forward to talking to everybody in Q2. Thank you, and enjoy the weekend. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to Camden Property Trust First Quarter 2026 Earnings Conference Call. I am Kimberly Callahan, senior vice president of investor relations. Joining me today for our prepared remarks are Richard J. Campo, Camden’s executive chairman; Alexander Jessett, chief executive officer; Laurie A. Baker, president and chief operating officer; and Unknown Executive, chief financial officer. D. Keith Oden, executive vice chairman, and Stanley Jones, senior vice president of real estate investments, will also be available for the Q&A portion of our call. Today’s event is being webcast through the Investors section of our website at camdenliving.com, and a replay will be available shortly after the call ends. Please note this event is being recorded. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them. Any forward-looking statements made on today’s call represent management’s current opinions, and the company assumes no obligation to update or supplement these statements because of subsequent events. As a reminder, Camden’s complete first quarter 2026 earnings release is available in the Investors section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures discussed on the call. We would like to respect everyone’s time and complete our call within one hour. So please limit your initial question to one, then rejoin the queue if you have a follow-up question or additional items to discuss. If we are unable to speak with everyone in the queue today, we would be happy to respond to additional questions by phone or email after the call concludes. At this time, I will turn the call over to Richard J. Campo. Richard J. Campo: Good morning. Our theme for today’s pre-call music is change. We recently announced some important changes to Camden’s executive team. With the promotions of Alexander Jessett, Laurie A. Baker, and Ben Fraker, we continued our longstanding commitment to succession planning featuring Camden’s homegrown talent. This will ensure the continuity of Camden’s family values, institutional knowledge, and unique culture. Alex, Laurie, and Ben each bring 25-plus years of tenure at Camden to their new leadership roles. And in the words of REO Speedwagon, I will be here when you are ready to roll with the changes. These promotions will ensure that Camden will be ready to roll with the changes in the years ahead. But one thing that never changes is Camden’s commitment to workplace excellence, which was recently reinforced by our place on the Fortune Best Place to Work list in America for the nineteenth consecutive year, ranking number 13 this year. 96% of our employees say Camden is a great place to work, which has led to the highest customer sentiment scores that we have ever seen. The macro case for improving apartment fundamentals continues to be strong. New supply has peaked and has been cut in half in most of our markets. First-quarter apartment net absorption was one of the best since 2016 despite slow job growth and tepid consumer sentiment. Apartments provide consumers with a compelling low housing cost alternative to owning a home. I want to give a big shout-out to Camden team members for continuing to improve the lives of our teammates, our residents, and our stakeholders one experience at a time. Next up is no stranger to you, but our new CEO, Alexander Jessett. Alexander Jessett: Thanks, Rick, and good morning. As Ben will cover in detail, we had a strong first quarter. Much of the outperformance was timing related, and we are looking forward to seeing how our peak leasing season unfolds throughout the remainder of this quarter and next. In the first quarter, we recorded our lowest bad debt level since the onset of COVID-19, at less than 40 basis points. We attribute this in part to income tax refunds received by many of our residents, combined with their continual financial strength and the impact of our enhanced resident credit screening. For middle and higher income earners, 2026 tax refunds are up approximately 10% over last year, creating enhanced spending power. Despite headline reports of declining consumer sentiment, the data illustrates the financial health of our target demographic remains strong, with spending up 3% year-over-year primarily on services and retail. Our renters pay a low 19% of their income toward rent, allowing them additional discretionary funds often not seen in the more expensive coastal markets. On the demand side, our markets remain strong. CBRE’s latest headquarter relocation study, which covers 725 public announcements between 2018 and 2025, shows activity accelerating in 2025 and concentrating on a short list of metros. Dallas–Fort Worth remains a top destination with more than 100 headquarter relocations since 2018. In 2025 alone, the metro added another 11 interstate or international headquarters from higher-cost markets, including Los Angeles, the Bay Area, New York, and Chicago. Additionally, for the twelve months ended January, Dallas led the nation in absolute job growth, followed by Houston at number two, and Austin at number four. On a percentage basis, Austin led the nation with most of our markets in the top 30. The Houston metro area led the nation last year in population growth, with just under 127 thousand new residents added in the twelve-month period ending 07/01/2025. That equates to one new resident every 4.1 minutes, or 347 new residents each day. Among the top 10 metros with the largest population gains, only the Dallas–Fort Worth metro came close, with roughly 124 thousand new residents. No other metro added even half as many. This disparity highlights Texas’s appeal to workers and families supported by relatively strong job markets, lower cost of living, and the absence of a state income tax. Beyond Dallas–Fort Worth, the CBRE relocation study showed a group of Sunbelt and growth markets emerging as consistent headquarter winners. It highlighted Miami, Austin, Charlotte, Nashville, Phoenix, Tampa, Atlanta, and Raleigh–Durham as rising contenders with a pro-business climate, including tax advantages, labor availability, and lower costs. The decades-long trend of domestic migration to the Sunbelt normalized in 2025, not disappeared. In fact, WIN’s migration tracker shows domestic migration reaccelerating in 2026 as compared to 2025 in most of our markets, with sequential annual increases over 10% in Austin, Dallas, Houston, Orlando, Phoenix, and Tampa. Camden is in the right high-demand markets ready for the upcoming lower supply environment. Turning to the real estate front, our California sales process is progressing on schedule. As we shared previously, we have had strong interest, with over 230 companies signing confidentiality agreements. We are currently in the diligence process with one buyer for the entire portfolio, with an anticipated close date in late June or early July. If it does not work out with this buyer, there are other strong buyers who could step in, although with a later closing date. At this point, we are not going to comment further on the potential buyer or the sales price other than to say it is in line with expectations. We continue to assume approximately 60% of the sales proceeds will be reinvested through 1031 exchanges into our existing high-demand, high-growth Sunbelt markets. The remainder of the proceeds, modeled at $650 million, has been used for share repurchases in late 2025 and year-to-date 2026. During the first quarter, we disposed of a high CapEx 40-year-old community in Dallas for $77 million, generating an approximate 12% unlevered IRR over an almost 30-year hold period. After quarter end, we acquired Camden Alpharetta, a 269-home apartment community in the Atlanta, Georgia metro area, and Camden at Lake Nona, a 288-home apartment community in the Orlando, Florida metro area, for a combined $170 million. We are actively underwriting several other acquisition opportunities and remain confident we can effectively deploy the 1031 proceeds from the California sale. However, as I previously noted, the timing of the exchanges can add considerable variability to our 2026 earnings, as we do not receive the sales proceeds until we complete the exchanges. I will now turn the call over to Laurie A. Baker, our president and chief operating officer. Laurie A. Baker: Thanks, Alex. Camden’s operating performance to date is generally in line with our expectations. While our first-quarter results were slightly ahead of budget, the outperformance was mainly driven by timing-related items. Overall, and as expected, we saw slow but steady improvements across our portfolio as we moved through the first quarter and into the beginning of peak leasing season. Our preliminary results for April are on track, with modest improvements in both occupancy and blended lease-rate growth compared to the first quarter. Turnover remains exceptionally low and our first quarter 2026 annualized net turnover rate of 30% was one of the lowest in our company’s history. This is in part due to minimal move-outs related to home purchases, which accounted for 9.2% of our total move-outs this quarter. But it also reflects record levels of resident retention, which are a testament to Camden’s unwavering focus on customer service and providing living excellence to our residents. We will continue to focus on renewals and retention going forward, helping us protect and maintain occupancy and to mitigate expenses related to unit turnover. Renewal offers for May, June, and July were sent out with an average increase in the mid-3% range. Our team at Camden remains committed to this year’s rallying cry of smarter, faster, better, which means smarter in leveraging data, insights, and AI to drive better outcomes, remove repetitive tasks, and improve our margins, faster with AI to enable quicker, more efficient service for our customers and teams, and better by amplifying our people and improving the customer experience as reflected in our highest customer sentiment score to date in the first quarter. I will now turn over the call to Unknown Executive, Camden’s chief financial officer. Unknown Executive: Thanks, Laurie, and good morning, everyone. I will begin with our capital markets activity from the quarter, followed by a review of our first-quarter results and our outlook for the second quarter and remainder of the year. During the first quarter, we continued to take disciplined actions to further strengthen our balance sheet and enhance our long-term financial flexibility. We proactively recast our $1.2 billion revolving line of credit, extending its maturity four years while preserving attractive covenant terms and lowering all-in pricing by 15 basis points. The recast enhances our liquidity position and reflects the continued support we receive from our bank partners. During the quarter, we also issued $600 million of 10-year unsecured bonds at an all-in effective rate of 5%. This issuance allowed us to lock in long-term fixed-rate financing, extend our weighted-average debt maturity, and reduce near-term refinancing risk. As Alex previously mentioned, we were active with our share repurchases during and subsequent to the quarter, with share repurchases of $423 million at an average price of $104.08 per share. These repurchases, along with $271 million in repurchases completed in 2025, reflect our disciplined and opportunistic capital allocation approach as our shares trade at a significant discount to NAV. While we will continue to monitor our share price performance, our updated full-year 2026 guidance assumes no other share repurchases. As a result of these actions, we ended the quarter with strong liquidity, well-laddered maturities, and leverage metrics that remain comfortably within our long-term targeted range. Turning to our first-quarter results, we delivered a solid start to the year. For the first quarter, core FFO was $1.70 per share, which exceeded the midpoint of our guidance by $0.04 per share, which we can attribute to the following items. The outperformance compared to guidance was driven by $0.01 from higher revenues from our operating properties, primarily attributable to lower-than-anticipated bad debt and higher collections on delinquent rent. Another $0.02 resulted from property expense savings, which were largely timing related and not indicative of a change to our full-year expense outlook. The remaining $0.01 of the beat was due to the timing of third-party construction fee income, which we had previously expected to earn later in 2026. Operating conditions during the quarter tracked our expectations for lease trade-out and occupancy. Additionally, outside of our core operating results, we recorded $58.2 million of non-core FFO charges, most of which were related to the previously disclosed $53 million class action lawsuit settlement detailed in the 8-K furnished on April 9. The remaining charges were primarily due to $4.9 million of anticipated investment losses from two climate technology funds. Turning to full-year 2026 same-store guidance, while we experienced better-than-expected bad debt and delinquency results during the first quarter, we believe it is premature to extrapolate one quarter’s performance into a full-year trend, particularly given market variability. As a result, we are reaffirming the midpoint of our full-year same-store revenue guidance at 0.75%. Similarly, the first-quarter expense outperformance was largely timing related, so we are reaffirming the midpoint of our same-store expense guidance at 3%. With the midpoints of both revenue and expense guidance unchanged, the midpoint of our same-store NOI guidance remains unchanged at negative 0.5%. Our same-store guidance continues to assume improving lease trade-out fundamentals as we enter peak leasing season, along with moderation in new supply pressure as the year progresses. With no change in our expected same-store results, and transaction volume and timing in range of our original plan, we are keeping the midpoint of our full-year core FFO per-share guidance of $6.75. We also provided guidance for the second quarter of 2026. We expect core FFO per share for the second quarter to be within the range of $1.65 to $1.69, representing a $0.03 per-share sequential decline from the first quarter at the midpoint. This anticipated decline is driven by a $0.04 sequential decrease in same-store NOI as higher expected revenues during our second quarter are offset by the seasonality and timing of certain repair and maintenance expenses and the timing of our annual merit increases. This $0.04 same-store NOI decrease is partially offset by $0.01 of additional non-same-store NOI from our completed and projected net acquisitions. In closing, Camden remains in a strong financial position. Our balance sheet strength, ample liquidity, and disciplined capital allocation provide us with meaningful flexibility as operating conditions evolve. At this point, we will open up the call for questions. Operator: We will now open the call for questions. The first question comes from Eric Wolfe with Citi. You may go ahead. Eric Wolfe: I think you said that April blends were modestly better than the first quarter, which I came in at, I think, around negative 1.4%. But you also said that April was generally in line with your expectations and what you had in guidance thus far. Could you maybe just talk about sort of the ramp that you expect for the rest of the year? I guess, it would seem like based on your guidance that you expect a pretty big ramp. I was just curious when you expect to see that, and if you see any early signs of that increase in spreads based on your Street data. Thanks. Alexander Jessett: Yeah, absolutely. So let us sort of frame it. Let us first talk about occupancy. April occupancy is right around 95.4%. That compares to 95.1% in the first quarter, so that is a pretty considerable increase. And then when you look at blended rates, blended rates for us in April—certainly not giving interim data because I do not want our peers to smack me—but we are seeing blended rates up about 100 basis points in April as compared to what we saw in the first quarter. So all of that is in trend and absolutely positive. If you look at how we are thinking this is going to lay out for the rest of the year, what we are anticipating is a pretty strong third quarter, with the hope that at that point in time, we have got enough of the new supply absorbed, and then that leads into sort of an atypical better fourth quarter than what you would normally see because you have got supply coming down so dramatically. So that is what is built into our numbers. I will tell you at this point in time, we are feeling pretty good about how April is shaking out, and we are certainly seeing several of our markets that I would classify as showing green shoots. The markets that are jumping out to me would be Atlanta, Dallas, Orlando, Nashville, Raleigh, and Southeast Florida. And we think those are going to be the markets that are really going to lead us in this sort of return to normalcy as all that excess supply is absorbed. Operator: The next question comes from Jamie Feldman with Wells Fargo. Jamie Feldman: Great. First, congratulations, everyone, on all the changes. Excited to see what comes next. I guess as we think about going back to those comments, can you talk about concessions? How have they been trending, and then as you think about the ramp you expect to see for the rest of the year, your expectations for concessions coming in and how that helps? Alexander Jessett: Yeah. I mean, as you know, we do not offer concessions. And so what we are doing is we have to look and see what is out there in the marketplace. And the good news is that we are seeing concessions come down fairly meaningfully in most of our markets. And once again, that is really tied to supply. If you look at the vast majority of our markets, new supply is down 50% since peak. And because of that, you are no longer in a situation where you have got a lot of developers that are trying to go from 0% occupied to 95% occupied and offering every single concession possible to get you there. So we are seeing concessions come down, as I said, pretty considerably in most of our markets. And really the easiest way and sort of the best comp that I have for that is the one asset that we have got in development, which is our Village District community in Raleigh. In that particular community, remember that we always assume that you are going to give one month free in a new lease-up, and that is to compensate for the fact that there is construction activity, etcetera, going on. And we are offering a concession there, but it is not much over that one month. And so what that really does tell you is that concessions are starting to get into check in our markets. Operator: The next question comes from Austin Todd Wurschmidt with KeyBanc Capital Markets. Please go ahead. Austin Todd Wurschmidt: Yeah. Laurie, I think you indicated asking rates on renewal leases are going out in the mid-3% range. I think last quarter you were sending out around 3% to 3.5% and achieved closer to or just below, I think, 3% was the number. Just curious what the take rate has been from the asking versus achieved, and do you think that starts to narrow a little bit as you get into the peak leasing season as it sounds like things have picked up a bit? Laurie A. Baker: Yeah. So we saw that in the first quarter—we were going out with the range in the mid-3s, and I think we reported that last quarter—and what we saw is just a little bit of price sensitivity in the first few months of the year, but we are now starting to see in our May, June, July lease renewals that are going out that we are able to get a little bit more of an increase in those numbers. And with our renewals being so high, we are feeling pretty good about kind of landing right around the same range of usually 50 basis points below where we send offers. And so as we have the opportunity to push in markets where we are getting a little more pricing power, we will continue to do so. In the markets where there are more concessions and supply, we may not be able to get to those top-line numbers that we are going out at, but we feel pretty good about the conversations we are having out there. And just know, it has a lot to do with how well we take care of our residents and explaining to them the costs that are associated with moving and the product we provide and the service level we provide. Those conversations typically go pretty well. So we are feeling good. Our teams are very focused on explaining what the concession market is and how our net pricing equates to that. So I think we are feeling good about, as we said earlier, going out with the mid-3s and a little higher as we get into our peak summer. Operator: The next question comes from Stephen Thomas Sakwa with Evercore ISI. Please go ahead. Stephen Thomas Sakwa: Thanks. I guess I wanted to ask maybe kind of a size/portfolio question. Obviously, there have been some stories about industry consolidation. And I am just wondering, at your portfolio size, as you think about the data you gather from your existing assets, do you think that data would be better if you were two, three, 4x bigger? And how are you using other data sources to think about pricing today? Alexander Jessett: Yeah. So the first thing I will tell you, we try not to comment on rumors about mergers and acquisitions that are out there. So that is point number one. Point number two, we are very fortunate, and the investor community is very fortunate, that leadership at all companies are really good. And so, whatever decisions other companies make, we have got to believe are right for them. For us, the way we sort of think about this is that bigger is not better. Better is better. And if you look at long-term trends, there is absolutely no correlation between the size of the company and total shareholder return. So that is the big-picture way of looking at it. And then when you look at data, here is what I will tell you. With the scale we have, we have got enough information. We have got enough data to make the appropriate decisions across every aspect of our business. And I do not think that if we were in a situation where all of a sudden we were two or three times the size we are, that we would see any type of significant increase in our ability to collect data, analyze data, and utilize data. I think we are in a world where we have got perfect clarity into all of our information. And remember that we are a pretty good-sized company, and we have got a lot of units that we can look at, and we see how those units are behaving, and we can see how our consumers are behaving. And so I am not really sure that there are any real significant improvements on the data side to come from being considerably bigger. Operator: The next question comes from Jana Galan with Bank of America. Please go ahead. Jana Galan: Thank you. Maybe a question on acquisitions as you prepare to deploy the disposition proceeds. Can you talk about cap rates in the Sunbelt markets you typically underwrite, year-one rent growth, and if you are seeing more opportunity in kind of core products or are you looking at maybe unstabilized or lease-up? Alexander Jessett: Sure. So, obviously, transaction volumes are still clearly below sort of pre-COVID levels, but today are trending in line with where we were in 2025. We are evaluating a number of opportunities as we look to redeploy the proceeds from the California transaction. Not seeing a lot in terms of lease-up acquisition opportunities this year. Those types of opportunities—I think sellers who have properties in lease-up—are really trying to get them to a point of stabilization before they go to the market to create as much liquidity for that asset as they possibly can. From a pricing standpoint, cap rates have really been stable over probably the last 18 months. The trades for newer, well-located properties in the Sunbelt—those cap rates are in the 4.5% to 5% range and have been for some time. That is certainly what we are seeing. Operator: The next question comes from Richard Anderson with Cantor Fitzgerald. Please go ahead. Richard Anderson: Hey, thanks. Good morning and congrats to everyone for all the moves—very exciting. So, my question is on sort of the cadence of the “recovery” from here. I think if we were sitting here at this time last year, we probably would have thought by now we would be seeing more in the way of real, you know, CPI-plus at least type growth, particularly out of the new lease category. It seems like that got delayed a year, given the tail of supply. But I am curious if you could comment about what you think the cadence of the growth recovery will be as we get into 2027? Is it more of a hockey stick like we saw in 2022—I would hope not—or more of a gradual improvement based on whatever forces are at work as supply burns off? I am just curious how you envision sort of the cadence from that third-quarter strength that you talked about and onward. Thanks. Alexander Jessett: Yeah, absolutely. So the first thing I will tell you is if you go back and look at 2025, if you remember, we had a little bit of a head fake because in 2025, April looked fantastic, and then all of a sudden, things just stopped pretty quickly, and a lot of that was tied to the factors that we know—“liberation day,” etcetera. If you look at what we are assuming, we are assuming that this recovery could look a lot like what we saw coming out of the GFC. And if you look at what we saw coming out of the GFC, we saw several years of really considerable growth. You look at 2011, I think our NOI was up about 7%. 2012, it was up 9%. 2013, it was up 6%. So you could see something similar to that. Now, if you look at the cadence, we certainly are—and I know you said you hope it is not a hockey stick—we are anticipating sort of a hockey stick in the latter part of 2026 as we get through this absorption. Then, when you get into 2027, at that point in time—clearly not going to give any guidance—but I would anticipate, if you just look back at what we saw coming out of the GFC, then it becomes a steady but strong growth on a go-forward basis. I would just add to that some numbers around the completions in Camden’s markets. The cadence looks like: in 2025, we had 200 thousand completions; that drops to about 140–150 thousand this year; that drops to 135 thousand in 2027; and down to 120 thousand in 2028. The thing that is important about that is it is very hard to change the trajectory of that completion number because if it is not already under construction, it is not coming by 2027. Operator: The next question comes from Bradley Barrett Heffern with RBC Capital Markets. Please go ahead. Bradley Barrett Heffern: Yes, thanks, everybody. Congratulations on all promotions. Glad to see the music is sticking around amid all the changes. Going back to the 1Q blends, typically we see a jump sequentially in the first quarter. Your peers have generally reported that. Last year was 100 basis points higher or so in the first quarter. Sounds like that was already assumed in guidance, but I am just wondering if you can talk through why you did not expect or see that sort of normal seasonal pattern. Alexander Jessett: Alright. So the first thing is, music is not going anywhere. Love our music, and expect to see that for, to the point whenever I am handing it over to somebody else. That music will continue. If you think about the first quarter, what we were doing in the first quarter was making sure that we were setting ourselves up appropriately for the rest of the year, and we feel good about the way our first quarter unfolded. It was in line with our expectations. It was in line with our guidance. It is interesting because there is obviously going to be a lot of comparison between the multifamilies, and we completely understand that. We are all in different markets. If you look at the markets in which we overlap with our competitors—and in particular, one of our competitors—we outperformed in most of those markets. And so however you get there on the revenue side, our revenue results, we feel really good about, and we feel that we are doing the right thing to set ourselves up for a successful second, third, and fourth quarter of this year. And when we look at our April results, our April results are doing very well, as we just talked about, and so we feel very good about how our trend is looking. Operator: The next question comes from Haendel St. Juste with Mizuho. Please go ahead. Haendel St. Juste: Hey, guys. Congrats on the promotions and thanks for taking my question. My question is on the buyback/capital deployment. As you said, you repurchased the $650 million that you outlined on prior calls. Another couple hundred million or so capacity in the buyback. Can you talk more about capital allocation from here, your level of interest in maybe more buybacks? Are they more dependent on incremental dispositions beyond the SoCal portfolio sale? Could you shift a bit of capital from maybe acquisitions to more buybacks? So some thoughts here on capital deployment, the options on the table, then remind us the tax limitations regarding 1031s. Thanks. Unknown Executive: Sure. So between 2025 and 2026, we bought back $693 million in advance of our California sale at an average price of $105 and change. That represents a 6.4% FFO yield. So that has been an excellent source and allocation of our capital. Like I said in my prepared remarks, we are going to continue to monitor our share price performance, but as of now, for our transaction plan, we have no additional share repurchases in our 2026 guidance. And as far as taxable room, we have planned for $1 billion in acquisitions, which is about the amount we need to maximize the use of proceeds to offset any additional special distributions we would need to make. But I will point out, just because we do not have any other share repurchases in our guidance, that does not mean that we will not do any additional share repurchases. We have plenty of capacity under our balance sheet, plenty of capacity with our leverage once the California transaction closes, that we can absolutely do more share repurchases. And so that is absolutely something that is up there for opportunities for us as we go forward. Operator: The next question comes from John P. Kim with BMO Capital Markets. Please go ahead. John P. Kim: Thank you. On the Southern California portfolio sale, I know you do not want to get into the details of it. But I wanted to ask about the rationale of selling to one buyer for the entire portfolio rather than splitting up the portfolio where you might have gotten better pricing. And given the amount of interest that you have gotten on this sale, why not more actively pursue acquisitions ahead of closing of it? Alexander Jessett: Yeah. We had a lot of interest, and we had a lot of interest on both the portfolio side, individual asset side, and then sub-portfolio sides. We believe at this point, what we have done with picking the one buyer that we have picked is we have limited our execution risk while maximizing proceeds. Now it is important to note that there were a lot of buyers clustered together, and so we did make a choice going with a particular buyer because of the strength of that buyer. But to your point, whether we could maximize proceeds by splitting it up—maybe we could have done a little bit more—but it would have introduced additional risk that we did not think made sense to us. And then as I did point out in prepared remarks, even though we have picked the buyer and we are still in the diligence process, the good news is that there were several buyers, and there are several buyers that are around. I think there are several buyers really hoping that our current buyer falls out, but we do not think that is going to happen. And then when it comes to opportunities for more acquisitions, we are really active right now. Since the last couple of weeks, we have actually been awarded $250 million worth of acquisitions. So that gets us up to pretty close to halfway towards our $1 billion goal. There is a lot out there, and I will tell you right now, we are the prettiest buyer in the market. Everybody is coming to us. Everybody is showing us opportunities because they know that we have the capacity to close, and they know that we are for real. And so I am expecting that we are going to come out with a really, really great additional portfolio to enhance what we have today from this process. So feeling really good about the acquisition opportunities, feeling really good about the California process and how it is progressing. Operator: The next question comes from Alexander David Goldfarb with Piper Sandler. Please go ahead. Alexander David Goldfarb: Hey. Good morning down there, and congrats all around Alex, Laurie, and Ben. I guess you guys will have to lead the Camden company skits at those off-sites. So question for you about the demand and supply. You and a number of the other Sunbelt players have all commented that certain markets are rebounding and showing strength. But overall, as you outlined, it is still going to be a tough market until later in the year. Is this a matter of there were a lot of projects from last year that just had slow lease-ups? Is this stuff that leaked into this year? Or is it that you need faster jobs? Basically, I am asking, is this a jobs issue, or is this a supply issue? And if it is supply, was this just projects that got delayed from last year or slower lease-ups? Just trying to better understand the dynamics here. Alexander Jessett: Alex, I am going to hit the most important point first. Rick and Keith are not going to be let out of skits. Fully anticipate seeing them, and seeing them dressed up, on a continual basis. This is entirely a supply story. Demand in our markets is incredibly strong. As I laid out in the prepared remarks, you can look at domestic migration. You can look at job creation. You can look at corporate headquarter relocation. All of those favor our markets over the coasts. This is merely a matter of absorbing the existing supply that is out there, and that is why we feel very good about how the latter part of 2026 should end up because you will have that excess supply being absorbed. To a point that was made earlier, if you look at our markets, our market supply is down 50% over its peak. If you look at most of our markets, and you just look at a year-over-year basis, you have got supply down anywhere between 20% to 60%. What that tells you is once that supply is absorbed, we are going to have very, very healthy revenue growth. Operator: The next question comes from Adam Kramer with Morgan Stanley. Please go ahead. Adam Kramer: Good morning. This is Derek Metzler here with Adam Kramer. My question is about the difference in Class A versus Class B—or affordable by comparison—product and urban versus suburban product. And as supply comes down and, obviously, it is mostly Class A, high-quality product supply that is coming down, how do you see the outlook for the Class A versus Class B and other products in your portfolio and across your markets performing over the next few quarters or years in the better supply environment? Alexander Jessett: Yeah. So A’s versus B’s for us right now is pretty flat. Where we are seeing the delta is suburban versus urban, and if you look on the revenue side and you just look at last quarter, our urban assets actually were 70 basis points better than our suburban assets. Once again, and to the earlier question, this is entirely a supply story. If you look in our markets, apartment supply is falling fastest in urban areas. And because of that, that is where we are seeing the additional pricing power. And then it is in statistics like that that make us feel very good about our ability to get positive rent growth as we move through the year because we do know that once you get past the supply falling in the urban areas, it is going to fall in the suburban areas as well. We will get it all absorbed, and that is what should lead to continued strength as we go throughout the year. Operator: The next question comes from Michael Goldsmith with UBS. Please go ahead. Michael Goldsmith: This is Amy on with Michael. We wanted to touch on Houston where occupancy was down pretty materially year-over-year in the quarter. Wondering what the outlook is for that market and if you think that the recent higher gas prices could have any positive impact there? Alexander Jessett: For Houston, Houston is a really interesting market. If you look at all of the fundamentals in Houston, they are fantastic. When you actually look at the results, though, they are not as great. And there are some really interesting data around consumer sentiment that seems particular to Houston. Houston’s consumer sentiment has fallen pretty dramatically in 2026 as compared to 2025. I think a lot of that is around just some of the effects of immigration, which does have a huge impact to Houston. And I think that that negative customer sentiment is having an impact in the way the Houston consumer spends their money. And, obviously, that is impacting rent. But if you get past the sentiment issue—and what we know about sentiment is humans are incredibly resilient, and they have an ability to return to the positive really fast—once they get past that sentiment issue, they are very strong. In Houston in particular, we have got a lot of job creation. We have got a lot of population growth. We know our consumer is doing really well. In fact, our rent-to-income in Houston is 16%. It is one of the lowest in our entire portfolio. So the consumer is there. The consumer has the ability to spend more money. Supply has come down pretty dramatically. Houston will get better. It is just a sentiment issue. Richard J. Campo: Let me add to that a little bit. When you think about consumers today—and Houston is a great example of that—and I echo Alex’s issue about immigration because immigration is a big issue, and it is definitely stressing a lot of folks out, especially since Houston is the most diverse city in America. We have a minority majority of Hispanic people that live here, and 25% of our population is foreign born in Houston. But the consumer in general is interesting. When you think about consumer sentiment generally across the country, it is not great. But if you look at job growth, wage growth, and consumer spending, it is good. So the consumer is kind of stressed about a lot of things. The things that they are stressed about are, number one, inflation continues to be an issue. And when you think about inflation, housing—so in Houston, for example, housing prices have gone up 60% since the pandemic. In Houston, Texas, people go, “Oh, it used to be affordable here,” and that is bothering consumers. But if you look nationwide, it is the same issue. Housing costs are up. Apartment rents, of course, have been flat for 36 months, but housing prices continue to be up. Interest rates were up. So all those things have kind of created this. And this uncertainty, by the way, politically, has created this tension in the consumer. The interesting part is the consumer is actually doing really well. And so the feeling they have is bad; the underlying consumer strength is good. But to Alex’s point, that tension or that stress or that feeling of uncertainty and “bad” that the consumer has is making them slower to make housing decisions and to move around. So you have less moving around than you would normally have. The other thing I think is really interesting is that when you look at what has happened to college people who graduated from college this year and last year, there has been sort of a failure to launch for about 10% or 12% of those graduates. If you look at stats on people living at home that were not living at home before, pre-COVID we have about a 900 thousand increase in 20- to 25-year-olds that are living at home or with roommates today. So it is a really interesting, kind of weird place. Even though the world is good from a consumer perspective, they are fairly uncertain. Operator: The next question comes from Richard Allen Hightower with Barclays. Please go ahead. Richard Allen Hightower: Hey, good morning, guys. I guess I want to combine two categories into one question for a second. So if I think about the earlier question about sort of the benefits of scale and data and how that informs revenue management and then, of course, the fact that you and several of your peers have sort of put the RealPage lawsuit stuff in the rearview mirror at this point. And I know that revenue management around that topic has already sort of changed throughout the industry. But just maybe help us understand, when you combine those two threads, what has changed about the way units get priced, how you use information, how the competitive marketplace uses information in a different way, and has anything really changed fundamentally on the ground since then? Alexander Jessett: So if you look at RealPage, first of all, all of that litigation—we did come to an agreement in terms—but it is not in the rearview mirror yet. We have got a little ways to go, and so hopefully we can stop talking about that in the next couple of quarters completely. If you look at the way revenue management works, revenue management really does rely a lot on your existing data—on your existing units, the amount of tours you give, how long that particular unit has been on the market, the occupancy of your particular community. And so fundamentally, sure, there have been some changes in the way revenue management works. We do not think that any of those changes will have any negative impact on us whatsoever. The other thing that is really important is, if you look at the way we do it, we have a full-time department called the revenue management department that does nothing but all day long price our individual units. Revenue management software is a tool. It is a tool that our humans use. And so our humans are constantly going through, repricing every single day, looking at recommendations, etcetera. One of the things that we used to say five, ten years ago was whenever we bought an existing community that was using YieldStar or some other revenue management software but only just had it turned on without any additional human interaction, we used to say we love to buy those because we knew we could come in and we could absolutely use our talents, use our resources, use our institutional knowledge, and use our data and make it better—make it perform far better than revenue management software on its own. So we do not think there is going to be any delta, any differential here whatsoever. And the reality is that we have all been using a “compliant” software now for quite some time. So we feel good about the resources we have and feel good about the way we will price our real estate and do not expect to see any negative impact whatsoever. Laurie A. Baker: Yeah, and I would just add that the benefit we have today is the fact that there are new operating models. There are new tools. We have AI. We have a BI team that is continuing to work with our on-site teams and that revenue team to provide data via our dashboards and gain more insights that we have just never even had the ability to make in-the-moment, real-time decisions about what is happening in the field. And so by the nature of how we have evolved as an organization—and our revenue team who has been involved since the very beginning—they have such good insight into what is happening with all of our properties, and getting the weekly, daily information allows us now to even price better with that information and those tools. But as Alex shared, this has always been based on what we do internally with our strategy, and our strategies change. Sometimes what is happening in a submarket or at a local community is driven by some of the outside circumstances, but it is our on-site team and the data we have about our occupancy and our traffic and our leasing velocity that dictates how we price and how we look at our renewals. Operator: The next question comes from Analyst with Goldman Sachs. Please go ahead. Analyst: Yes. Hi. Thanks for taking my question. Just wanted to go back to the tax refund benefit. Do you think that has been a big driver of the April sequential improvement in blends, just because up until this point it does not sound like we were seeing the typical seasonal uplift we would usually expect? And how do you think about the duration of that benefit into future months? Alexander Jessett: It is really interesting when you look at the data. So you saw this large increase in tax refunds, and what happened was folks spent it on a couple of things. One of them—which is, to quote somebody else here, somewhat un-American—they used it to pay down debt. And so that is sort of a one-time benefit. And then they used it for a lot of discretionary spend—think going to restaurants, think retail shopping. So they are absolutely spending the money. I do not think that that is the driver of what you are seeing in the April uptick. I think the driver of what you are seeing in the April uptick is us hitting the typical leasing season and the continued absorption of supply. So I do not think that is the factor. But I clearly do think it was a large component of our bad-debt significant outperformance in the first quarter. Operator: The final question comes from Alex Kim with Zelman and Associates. Please go ahead. Alex Kim: Hi. Congrats to everyone for the respective moves, and thanks for taking my question. I wanted to ask a little about the development environment today and some of the economics that you are seeing, particularly in relation to your capital allocation strategy. Where does development sit relative to acquisitions and then potentially looking at share repurchases? And then, just a bit more specifically, on Ken and Baker given that Denver seems to be a bit slower in the timeline for its recovery in revenue and operating fundamentals? Thanks. Alexander Jessett: If you look at the best uses of our capital today, number one is share repurchases. Obviously, we are limited on how much we can buy back if we are using dispositions to fund that. Once you get past that, developments and acquisitions are sort of a toss-up. At one point, I would have said development, absolutely—three years ago, development was absolutely better than acquisitions. Today, what we are seeing is that you can buy real estate at a discount to replacement cost almost everywhere. And so what that means is that acquisitions become a better use of capital if you are just looking at it from 10,000 feet. Then when you start to dial it back and you start to really dig into the numbers, there are certain environments and certain locations where developments make more sense. And so we certainly are continuing to do our developments. We will talk about Baker in a second, but we do have other land sites we control. At this point in time, we control three additional land sites that we have not purchased. Those three additional land sites we intend to buy this year, and those will be developments, and those will be developments that we believe are going to create pretty significant value for our shareholders. But keep in mind that we are talking about three development land sites versus buying $1 billion of stabilized assets. So that should answer the question right there about what we think is a better use on a broad stroke. When you look at Baker, Baker has been sitting there on our development pipeline for quite some time. The reason why it has been sitting there and not started is, at this point in time, the math is not that great. And we are in no hurry to go start something that we do not believe is the right thing to do for our shareholders. So we will continue to evaluate Baker. Baker is in the central business area of Denver. As everybody knows, that area is really soft right now. So we need to see some improvements in that area. If we see improvements in that area, we will start that development. And if we do not, we will not. We are committed to doing what is right for our shareholders and making sure that we use our capital to create the best investments. Operator: This concludes our question and answer session. I would like to turn the conference back over to Richard J. Campo for any closing remarks. Richard J. Campo: Thank you for joining us today and look forward to seeing all of you really soon. Hope everybody has a great weekend. Take care. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Mohawk Industries, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your questions, you may press star and 2. Please also note today's event is being recorded. At this time, I would like to turn the floor over to Nicholas Manthey, Chief Financial Officer. Please go ahead. Nicholas Manthey: Thanks, Jamie. Good morning, everyone, and welcome to the Mohawk Industries, Inc. quarterly investor conference call. Joining me today on the call are Jeffrey S. Lorberbaum and Paul De Cock. Today, we will update you on the company's first quarter performance and provide guidance for 2026. I would like to remind everyone that our press release and statements that we make during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which are subject to various risks and uncertainties, including, but not limited to, those set forth in our press release and our periodic filings with the Securities and Exchange Commission. This call may include discussion of non-GAAP numbers. For a reconciliation of any non-GAAP to GAAP amounts, please refer to our Form 8-Ks and press release in the Investors section of our website. I will now turn the call over to Jeff for his opening remarks. Jeffrey S. Lorberbaum: Thank you, Nick. Our performance for the first quarter was in line with our expectations despite a challenging environment. Our adjusted EPS was $1.90, up approximately 25% versus the prior year. Our results include benefits from productivity, restructuring, and product mix, offset by inflation and volume. Last year was impacted by the system conversion and had four fewer days. Our net sales were approximately $2.7 billion, an increase of 8% as reported or a decrease of 2.6% on a constant basis. Across our regions, the commercial sector continued to outperform residential, new home construction remained soft, and consumers continued to defer home purchases and remodeling projects due to economic uncertainty. We are implementing productivity actions and executing our previously announced projects to enhance our results. During the quarter, we repurchased 607 thousand shares of stock for $64 million as part of our current stock buyback authorization. Our strong balance sheet provides strategic and operational flexibility to take advantage of opportunities that arise. In February, the conflict in the Middle East intensified, increasing uncertainty in global energy markets. The full impact of the conflict is unpredictable given the disruption to the worldwide supply of oil and natural gas. Higher gasoline and diesel prices were the fastest and most visible impact of supply disruptions and are contributing to a more cautious consumer outlook. Energy prices as well as the cost of oil and natural gas derivatives are also increasing, which affects the costs of many of our products. Depending on the duration of the conflict, the economic impact will vary across our markets, with increased inflation reducing consumer sentiment and discretionary spending. U.S. natural gas prices have been less impacted due to significant domestic production, though oil prices in the U.S. have risen as they follow worldwide trends. In the U.S., 10-year treasury yields have increased, creating a corresponding rise in mortgage rates. The European continent will be more affected due to the dependence on oil and gas from the Middle East. We have made forward purchases to limit our exposure. European governments are reviewing initiatives to lessen the impact on businesses and consumers, such as cutting energy taxes, implementing fuel price caps, and coordinating European gas storage. The energy markets will remain volatile until the global supply normalizes. We are implementing price increases across many products and geographies and further price increases could be required. The impact of higher cost of raw materials will be greater in the second half of the year due to our flow-through of inventory. We are continuing to launch new product collections with industry-leading designs and features to enhance our sales and margins. We are implementing operational strategies that we have used to navigate past disruptions, prioritizing adaptability and cost control. We are maintaining flexibility to align with evolving demand, supply availability, and volatile costs. We are focused on the controllable parts of our business, including sales initiatives, inventory levels, and discretionary spending and investments. Now Nick will provide the details of our financial performance for the quarter. Nicholas Manthey: Thanks, Jeff. Our Q1 2026 financial results: Net sales for the quarter were $2.7 billion, up 8% as reported and a decrease of 2.6% on a constant basis. Our Global Ceramic segment delivered stronger mix, and we lapped the impact of the order management system conversion in Flooring North America, which partially offset the slower market conditions across our markets. Gross margin was 23.5% as reported and 24.8% on an adjusted basis. This is up 70 basis points from prior year, as the benefit of restructuring and productivity initiatives of $32 million and favorable FX of $20 million offset the increased input costs of $28 million. SG&A expenses were 19.4% as reported and 19.3% excluding charges, in line with prior year levels. That gave us operating income as reported of $112 million, or 4.1% of net sales. We had $38 million in nonrecurring charges, primarily related to our restructuring actions initiated last year. Our adjusted operating income was $149 million, or 5.5% of sales. That is an increase of 70 basis points versus prior year. The benefits of lapping the prior-year order management system conversion of $30 million and our restructuring and productivity initiatives of $36 million were partially offset by increased input costs of $38 million. Lower volumes given the weaker market conditions were offset by extra days in the quarter. Interest expense was $2 million, a decrease to prior year due to the reduction in short-term debt and the benefit of increased interest income. Our adjusted tax rate was 19.4%, and we are forecasting the full-year 2026 tax rate to be between 19% and 20%. That gave us earnings per share on both a reported and adjusted basis of $1.90. Turning to the segments. Global Ceramic had net sales just under $1.1 billion. That is a 10.4% increase as reported and basically flat on a constant basis. The ceramic business delivered positive price/mix given strength in the commercial channel and continued success in the countertop business, offset by lower volumes in the residential channel. Adjusted operating income was $55 million, or 5% of sales. That is an improvement of 20 basis points compared to the prior year, as the combination of productivity initiatives of $21 million and positive price/mix of $13 million only partially offset an increase in input costs of $30 million. Flooring North America net sales were $880 million. That is a 2% increase as reported, or a 4.1% decrease on a constant basis as sales were impacted by slower conditions in both new residential construction and residential remodeling. We had adjusted operating income of $35 million, or 4% of sales. That is an improvement of 100 basis points compared to prior year, as we lapped the impact of the order management system conversion of $30 million, which was partially offset by increased input costs of $13 million and the net impact of lower volumes. In Flooring Western World, we had sales of $751 million as reported. That is a 12.2% increase, or a decrease of 4.4% on a constant basis, with the decrease in volumes in the residential remodeling market impacting our flooring categories, partially offset by volume growth in both our panels and insulation businesses. Adjusted operating income was $74 million, or 9.8% of sales. That is an improvement of 70 basis points compared to prior year as the combination of productivity gains and lower input costs of $14 million were more than enough to offset negative price/mix. Corporate expenses and eliminations were $14 million in the quarter, and we estimate full-year 2026 expenses to be between $52 million and $55 million. Looking at the balance sheet, cash and cash equivalents ended the quarter at $872 million with free cash flow of $8 million in the quarter, which is in line with seasonal trends. Inventories were just shy of $2.7 billion, up less than 1% compared to prior quarter due to inflation. Property, plant, and equipment ended the quarter at just under $4.7 billion. CapEx spending in the quarter was $102 million, and we plan to invest approximately $480 million in 2026, focused on cost reduction initiatives, product innovation, and maintenance. The balance sheet remains in a very strong position with net debt of $1.2 billion and a net debt to EBITDA ratio of 0.9. In summary, our strong balance sheet provides us flexibility to navigate a challenging macro environment while staying positioned to pursue opportunities as the market recovers. Now Paul will review our Q1 operational performance. Paul De Cock: Thank you, Nick. Our Global Ceramic segment delivered improved sales and profitability year over year. All regions are responding to their local markets with new styles and sizes that are improving our average price and distribution in both residential and commercial. Our premium collections increased our mix with advanced technologies that enhance the visuals. Across all regions, productivity improvements and restructuring actions are improving our results. In the U.S., we benefited from stronger commercial sales and increased retail partnerships, which offset ongoing weakness in the builder channel. In March, we introduced our spring collection, which emphasizes higher-end decorative wall tile and large polished floor tile to enhance our mix. We announced price increases on ceramic tile and quartz countertops to offset the higher material and transportation cost. We continue to expand our countertop business with quartz volume growing as we ramp up our new production and introduce higher value products. The U.S. International Trade Commission recently ruled that imported quartz countertops from around the world are harming domestic production, and the Commission is determining tariffs and quotas to safeguard the industry. In our European ceramic business, we delivered solid sales and margin improvement with investments in sales personnel, showrooms, and new collections. In the region, we have greater participation in the commercial channels, which is outperforming the residential markets. The industry has announced limited price increases at this point given the market softness. We have purchased a portion of our natural gas requirements this year, which will reduce the impact of higher energy prices. Our Latin American ceramic businesses have been less impacted by the conflict. We are raising prices in Mexico and Brazil in response to increasing natural gas and transportation costs. In Mexico, our volume improved as we expanded distribution, improved service times, and grew sales with large-sized polished porcelain collections. In Brazil, our new product introductions are improving our mix, with growth in the higher value porcelain category. U.S. reciprocal tariffs on Brazil significantly reduced, which will improve our export volumes to the United States. Brazil's economy remains sluggish and the Central Bank is now cutting interest rates to stimulate growth. Our Flooring Rest of the World segment's results were driven by productivity, cost improvements, and additional days in the period. As the new year began, the European market was showing some improvement after multiple central bank rate cuts and lower inflation. With the war in Iran, consumer confidence declined as fuel and energy costs increased. We are implementing price increases to offset the higher costs impacting our business. In the quarter, our laminate sales benefited from growing retail partnerships and the success of our new collections, which combined elevated style and performance. We updated our LVT designs, added offerings at new price points, and expanded our retail distribution. Our sheet vinyl sales to the Middle East were disrupted, and alternative transport options are improving shipments. Our panels business improved sales and margins with our premium products, and we implemented price increases. We have since announced additional price increases to cover further inflation. Our new MDF recycling plant is expanding production and will further benefit our costs. Our insulation business performed well and improved our costs by reengineering our products. We are growing our insulation sales in Germany and Eastern Europe to support the start-up of our manufacturing facility in Poland. Our businesses in Australia and New Zealand improved results with favorable pricing, mix, and cost. Our new carpet collections, national promotions, and increased participation in the new construction channel enhanced our performance. Our Flooring North America segment remained slow during the quarter given lower remodeling and new construction activity and inventory reductions in the channel. Our results were positively impacted by restructuring, system improvements, and additional days in the period, partially offset by lower volume and inflation. Commercial continued to outperform residential, and we are improving our position in retail and new construction channels. During the quarter, we announced pricing actions in response to material, energy, and transportation increases. Mortgage rates rose almost half a point in March, leading to slower new home sales and declining builder sentiment. While new home sales softened, we have increased our presence in the top national and regional builders. We improved our hard surface mix with our best-in-class laminate, hybrid, and LVT collections. Our proprietary accessories coordinate with our hard surface offering, increasing complementary sales. Our new carpet introductions are being well received, with a focus on our premium polyester and SmartStrand collections. In February, we launched the industry's first carpet collections certified by the Asthma and Allergy Foundation to significantly reduce household allergens using natural probiotics. Our commercial order backlog has seasonally improved, with our carpet tile collections outperforming. Our recently acquired rubber flooring products are being embraced by architects and designers and are creating additional specification opportunities for our other commercial products. I will now return the call to Jeff. Jeffrey S. Lorberbaum: Thank you, Paul. One month into the second quarter, we continue to adapt our business to changes caused by the Middle East conflict. Thus far, we have announced price increases across much of our portfolio due to inflation, and our order backlog has continued to grow. Across our regions, the commercial channel remains solid, while residential remodeling and new home construction could be impacted by lower consumer confidence. Our high-end collections are performing better in the market, and our new products are enhancing our mix. We are maximizing our flexibility to react to changes in our supply chain, operating costs, and market demand. Presently, we are containing costs, reengineering products, and limiting capital expenditure. We will not see the full impact of our pricing actions and rising costs until the third quarter. The degree to which the Middle East conflict will impact our markets depends on the duration of the disruptions and the inflationary pressure. Given these factors and one less shipping day in the second quarter, we expect our adjusted EPS to be between $2.50 and $2.60, excluding restructuring or other one-time charges. We are managing all aspects of the business we can control and responding to market changes as they arise. In the past, Mohawk Industries, Inc. has adapted to cyclical changes as well as dramatic market disruptions while enhancing our business for the long term. Increased new home construction is necessary to satisfy growing household formations, and we expect deferred remodeling of aging housing stock across our regions will significantly increase flooring demand. As we navigate the current conditions, we are prepared to capitalize on the rebound in our industry that lies ahead. We will now open the call for questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys. To withdraw your questions, you may press star and 2. In the interest of time, we do ask that you please limit yourselves to a single question and a follow-up. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Trevor Scott Allinson from Wolfe. Please go ahead with your question. Trevor Scott Allinson: Hi. Good morning. Thank you for taking my questions. Jeff, I appreciate there is a lot of uncertainty in the market right now. At times in the past, you have given a range of outcomes for your business. Can you talk about what that range of outcomes looks like here as we move through 2026 and into early next year? What drives the high end versus the low end? And how are you running your business today to account for the uncertainty and prepare for either end of that spectrum? Jeffrey S. Lorberbaum: There is a lot of uncertainty in the marketplace, and we are preparing for multiple options and staying flexible. We look at the best case as we think forward. The supply of the Middle East could open up in the near term and could return the supplies to normal over the next six months. This would remove the economic uncertainty and would improve the category and the flooring industry in the second half. We would expect the inflationary pressures to remain, though, throughout the year. The alternative view is that the disruption in the Middle East stays for a significant period of time. The inflation continues to increase, and it could result in a pullback by both consumers and businesses. In this case, we have alternative plans to adjust our business strategy to manage through at lower rates. Our strategy is to remain flexible and to adapt to the changes that occur. As a reminder, most flooring projects being initiated today are really to meet the changing needs because they have been down since 2022 and should limit some of the downside if it gets worse. We expect a significant recovery given these four years of postponed flooring purchases. Trevor Scott Allinson: Okay. Thanks for that. That was very helpful. And then second question, perhaps related to those comments. Last quarter, you talked about expecting both sales and adjusted earnings to be up on a year-over-year basis in 2026. Given all the macro uncertainty, should we still think that it is a good base case for you to be able to grow those sales and adjusted earnings this year? Jeffrey S. Lorberbaum: In February, we had expected the category to improve, so we are really focused on maximizing opportunities this year. With the war interrupting things, the environment has really changed, and we are managing the inflation's impact on our margins. At this point, as we just went through, the potential impacts are really unpredictable, and it is too early to tell where it is going to end up. We will have to see how the conditions evolve. Operator: Thank you for all the color, and good luck moving forward. Our next question comes from John Lovallo from UBS. Please go ahead with your question. John Lovallo: Good morning, guys. Thanks for taking my questions. The first one is, can you provide some additional color on just maybe the magnitude of the price increases across regions and some of the key products? And what type of realization are you expecting given some of the challenges from a volume standpoint in the market? Jeffrey S. Lorberbaum: The conflict in the Middle East has really dramatically increased our material, energy, and transport costs across all the different product categories. We are seeing some differences in each region and product categories given different dynamics, and as you would expect, Europe is more affected given their energy dependence on the Middle East. Some of our products are also delivered over long distances, so we have to increase the prices to cover the freight cost as well. We have announced increases across the businesses, generally in the mid to high single digits, with significant variations by both product and geographies. And just to note, the imported products that we and the industry have had really long supply chains, and the price increases due to that will lag some of the others. John Lovallo: Got it. And then maybe to push a little bit more on this, if I can. Let us just say that things stay as they are today. Do you believe that you have enough pricing in the market to offset the current level of inflation, or would additional pricing be needed just to offset what we know today? Nicholas Manthey: Yeah, John. Thanks. I think if you look at Q1, our price/mix and productivity offset the impact of inflation. We expect similar dynamics in Q2. As Jeff outlined, we announced some more price increases in response to the inflation, and we will really see the full impact of both the inflation and the pricing in the second half, and we will adjust as necessary as the environment evolves. John Lovallo: Okay. Thank you, guys. Operator: Thanks, John. Our next question comes from Susan Marie Maklari from Goldman Sachs. Please go ahead with your question. Susan Marie Maklari: Thank you. Good morning, everyone. My first question is around the benefits of the new products. Can you talk about how the momentum you are seeing there is helping you to enhance the mix and incrementally perhaps offset some of that inflationary pressure that you are seeing? And do you also think that you are continuing to gain share with these new products? Jeffrey S. Lorberbaum: Each of the different businesses has new product introductions. There is a significant portion of them that are higher-value products with more differentiation and command higher prices in the marketplace. With that, each of the different businesses is introducing unique products with different features and benefits. Ceramic is driven a lot by technologies of different sizes, as well as different visuals with different decorating technologies to be able to create them. On the other side, we are introducing LVT collections with all the latest technologies and multiple alternatives for PVC in the marketplace, with better performance, better scratch resistance, and other characteristics. The carpet categories are introducing premium products in polyester, and the anti-allergen carpets have never been done, which is a concern by many consumers. In each of the categories, there are different products to provide reasons for the consumers to trade up and spend more money. Susan Marie Maklari: Okay. Thank you for that. And then turning to the margins, you have done a lot in terms of cost cutting and you are realizing some nice productivity across the business despite the headwinds. Can you talk about the ability to continue to see further productivity? And then any thoughts on how we should think about second quarter margins just across the three segments? Nicholas Manthey: Yes, Susan. On productivity, we generated over $200 million of productivity and restructuring savings last year. This year, we have another $50 million to $60 million of restructuring savings that we should realize. In addition to that, over the last few years, we have had additional productivity ranging from $80 million to $100 million. We will continue to evaluate different ways to rationalize our cost structure as we go forward and the environment changes. On Q2, we are assuming the present demand trends continue through the second quarter and there is somewhat of a limited impact from the conflict. The market volumes have been declining. We have seen oil and gas prices increase, which will begin to impact our cost in Q2. We do expect price and mix will improve and help address that higher inflation. Jeffrey S. Lorberbaum: And then, back to your original point, productivity and restructuring will continue to lower our costs similar to Q1. Susan Marie Maklari: Okay. So is it reasonable to assume that you see a fairly normal seasonal sequential lift in the margins? Nicholas Manthey: Yes. Typically, Q2 is our strongest quarter of the year. So going from Q1 to Q2, that is what you would expect. Susan Marie Maklari: Okay. Alright. Thank you. Good luck with the quarter. Operator: Thanks, Susan. Our next question comes from Adam Baumgarten from Vertical Research. Please go ahead with your question. Adam Baumgarten: Hey. Good morning, everyone. Just a question on input cost headwinds. Can you maybe size, as it stands today, what you are thinking about for the back half? As you said, you are going to kind of see the peak levels at that time frame? Nicholas Manthey: I think we are seeing inflation across the different materials, energy, and transportation. We are not going to quantify a precise impact given it is changing pretty much daily. In terms of cadence, the impact will begin in Q2 and ramp up into Q3. Jeffrey S. Lorberbaum: If you look at each of the different product categories, they are all driven by different things. Our carpet, LVT, and insulation are all oil-based and energy intensive, so the materials are being driven by the changes in gas and oil and the materials as well. In the ceramic business, it is really heavily caused by natural gas and transportation costs, and the transportation costs are both for raw materials as well as for shipping our products. The other businesses are wood-based, which is laminate, wood, and panels. They have significant chemical costs in them to put them all together, as well as energy and transportation costs. As we said before, inflation in Europe is higher, and we purchased a portion of the natural gas ahead to limit the volatility. We do see that the U.S. and Mexico have more stable natural gas prices and are less affected by it. We have announced price increases to cover all this as we go through. Adam Baumgarten: Okay. Great. That is helpful. And then just, I believe you guys and maybe your competitors had some price increases out on certain products earlier in April, and it has been about a month. Just curious how those are going as it pertains to that. Paul De Cock: Yes, that is correct. We have recently announced more price increases of mid to high single digits. With these levels of inflation, the industry must pass them through. Jeffrey S. Lorberbaum: In the marketplace, all the prices are going up. The market seems to be understanding it, and we think we are going to have to push them through because we need it. It is possible, given what is going on with the energy markets, we could need more. Operator: Got it. Thanks. Our next question comes from Stephen Kim from Evercore. Please go ahead with your question. Stephen Kim: Thanks very much, guys. Appreciate it. I think I heard you say in Flooring Rest of World that inputs were a positive, even though I think for the company as a whole, it was a headwind of, I think, $38 million. So just trying to understand, can you give us some context around that? I imagine you are anticipating that will probably flip negative again based on your comments. But could you just provide some context around the input in Flooring Rest of World? Nicholas Manthey: Yes, Steve. We did see some positivity in Q1 on a year-over-year basis. You are right. Given the conflict, we are seeing the natural gas and oil prices go up in Europe, and so we would expect that inflation to begin in Q2 and ramp up in the back half. Stephen Kim: Okay. That is helpful. Secondly, and maybe a little more broadly, I want to touch on the innovation comments that you made. There was a comment in your press release about reengineering products, and I wanted to get some understanding of what that meant. Are there certain products that you particularly want to call out? And then at a higher level, there is a lot about the wars, the lingering impact of the war that we do not know. The one thing we do know is that it has put a pause on shipments, and yet innovation is continuing, I would assume, uninterrupted. So what I am curious about is do you actually have a situation where that delay, this pause, if you will, in production and shipping could actually be a positive for you as you continue to work on innovation and R&D? Is this something that could actually lead to a competitive advantage for you as you develop new products such that when the conflict ends, when consumer confidence improves, you could actually capitalize on the R&D that was done during, let us say, a more quiet period? Is that a reasonable way of thinking about it, or is that not? Jeffrey S. Lorberbaum: It is a continuous process, and when you bring new products to market, depending on which market, it takes anywhere from nine months to a year and a half to flip them into the marketplace and then to mature over time. So it is not an immediate impact to get them pushed through the marketplace as normal. The big piece is that the industry and category started going down in 2022. It started with consumers pushing out things, housing sales going down around the world, and there is a huge pent-up demand and need for people in housing. The housing stock continues to get older, and when more confidence comes back, we are expecting many years of catch-up from what has not been spent the last three or four. Stephen Kim: And the role of new products in that, particularly in areas like the hybrid products in North America, for example. I am curious as to whether or not you think that category will be a little more settled and allow you to scale up production better than if, let us say, the consumer response had occurred last year. Is that a reasonable way of thinking about it? Jeffrey S. Lorberbaum: I do not think there is going to be that much difference relative to the new products because we have the capacity to support whatever is needed in the marketplace and react to it as we go through. I think the bigger impact is helping us increase the margins as the business increases and you get leverage in all the fixed costs over the business as it occurs. Stephen Kim: Okay. Great. Thanks very much. Operator: Thanks, Stephen. Our next question comes from Rafe Jason Jadrosich from Bank of America. Please go ahead with your question. Rafe Jason Jadrosich: Hi. Good morning. Thanks for taking my question. Paul De Cock: Good morning. Rafe Jason Jadrosich: Just to start, can you give an update on the Russia business? Just how big it is and how it has been performing? Jeffrey S. Lorberbaum: We do not break it out in that detail, but the Russian business has been performing well. There have been no impacts on the business and how we operate it. We continue to generate cash in the business. The business has slowed down with the general economy over there, and we are adapting to it. We have a leadership position in the category, and we are complying with all the regulations. Rafe Jason Jadrosich: That is helpful. And then I think last quarter you gave a little bit of color on what you were expecting full year for inflation. Obviously, the environment is moving around a lot. Is there any way to quantify the level of inflation in the first half relative to what you are expecting in the second half? Nicholas Manthey: Yeah, Rafe. The inflation will really begin to increase in Q2 and ramp up into the second half. Our pricing and other actions are intended to pass through those costs. As Jeff outlined, it really varies by product and region, and we will adjust our pricing as the levels of inflation change. Rafe Jason Jadrosich: Just asking another way, for the first half, do you have an aggregate—what is the inflation embedded in the first half? Nicholas Manthey: We are not going to break it out in that detail, but we do have inflation in the first half of the year, given the different aspects of our input costs. Rafe Jason Jadrosich: Okay. That is helpful. Thank you. Operator: Thanks, Rafe. Our next question comes from Philip H. Ng from Jefferies. Please go ahead with your question. Philip H. Ng: Hey, guys. I think it is more of a recent practice, but any color on how much you buy ahead in Europe on the gas side of things? And were you able to lock in some of that price before the war? And then, Jeff, I think in 2022, some of your competitors in Italy had some issues on the energy side of things, and Italy is a big import of LNG. Are any of your competitors having trouble sourcing energy? Are they hedged? I was a little surprised with the comment that pricing in Europe for ceramics was a bit more muted. Jeffrey S. Lorberbaum: Yes. We did buy gas before it went up. We continue to buy gas, and we continue to make decisions of what to buy on a going-forward basis to reduce the volatility of the European gas prices. We will have to see what happens in the marketplace with the inventories, gas prices, and the volatility. If the gas keeps going up, the industry will have to respond to it as we go through. There are other areas around the world like India where they do not have enough natural gas. That cut back the industry, and ceramic production we believe is off almost by 80% because they do not have the gas to do it. That should also create opportunities as we go around. Philip H. Ng: Okay. That is helpful. On the North American carpet, I believe you and your biggest competitor have a large concentration in share. There are a bunch of smaller guys. Give us some perspective on how the cost curve looks for carpet in the U.S. between the two of you. Does that drop off pretty hard? And just given where raws are shaping up in the back half, if you do not see much traction, are some of these smaller guys cash flow negative, operating at a loss, and how would you stack up in that situation as well? Paul De Cock: Thank you for the question. The market is soft in carpet in general. Remodeling and new construction sales have slowed. We have announced price increases to cover the inflation. We are introducing new products to also improve our mix, and we are taking further actions to cut our costs. Carpet volumes should improve as the market recovers. Jeffrey S. Lorberbaum: There has been some limited capacity taken out of the industry by us and others. There have been some smaller ones to go out, but not enough to change anything. Operator: Okay. Thank you so much. Thanks, Phil. Our next question comes from Richard Samuel Reid from Wells Fargo. Please go ahead with your question. Richard Samuel Reid: Thanks so much, guys. I just wanted to circle back to the prepared remarks. I heard a comment about your order backlog growing. I am just curious, is that restricted to any particular end markets or categories? We would love some additional context there. And then I also heard a comment about some of your channel partners reducing inventories. So perhaps two things that might be a little diametrically opposed there. Just want to flush those out. Thanks. Jeffrey S. Lorberbaum: As we came into the new year, the expectations for we and the entire industry were greater than they have turned out with the war. So we came into the year, and there were channels that started lowering some of their inventories as we started into the year. The backlog, as we have gone through, the trends of our business from March to April have not changed. The incoming orders are similar to those. The backlog has actually increased in April. We do not see any dramatic change in it now. On the other side, when you have price increases like we are having, there is some pull-forward, but we do not have enough view into the inventories of our customers to know how much that is. Richard Samuel Reid: That is helpful. Maybe switching gears, it is great to hear the commercial end market strength. Restricting the question to the U.S., in the past you have called out institutions and hospitality as areas where you have been growing. What is the latest on commercial end markets, and where are the areas where you are seeing the most strength? Paul De Cock: Around the world, we see the commercial channel continuing to outperform residential. The segments that are performing better would be hospitality, education, health care, and government. To increase specifications, we are expanding our showrooms, product features, and specialized sales forces to go after those segments. Richard Samuel Reid: All helpful context. I will pass it on. Thanks. Operator: Thanks, Sam. Our next question comes from Collin Verron from Deutsche Bank. Please go ahead with your question. Collin Verron: Great. Thanks for taking my question. I just want to follow up on the backlog building. Is that across the portfolio, or are you seeing pockets of weakness and strength just given what is going on in the Middle East? I thought it sounded like there was probably a little bit of caution, so maybe some downside in volume trends into April, but it sounds like they are building. Any clarification there would be helpful. Jeffrey S. Lorberbaum: It is generally across all the businesses. The backlogs are generally higher than they were a month or so ago. We are having difficulty separating the ongoing business trends from inventory changes in the customers. We are not going to be able to know that for a while. Collin Verron: Okay. That is helpful. And then just following up on natural gas, is there any way to understand how much of the gas you have already hedged for this year versus how much you would need to buy just to service production levels for the remainder of the year? Jeffrey S. Lorberbaum: It is different by business and different by country. In some countries, you cannot do it; the country purchases it and the price is the same. In other countries, we can purchase ahead. So it is not as simplistic an answer as you would like to have. Collin Verron: Understood. Thank you, and good luck. Operator: Thanks, Collin. Our next question comes from Michael Glaser Dahl from RBC. Please go ahead with your question. Michael Glaser Dahl: Hi. This is Mike. Just a follow-up on the near-term demand comments. What are you guys specifically assuming in the 2Q guide in terms of demand trends? Is it more of the same from what you have seen in April? And then on that order backlog comment, the sequential increase, is there any way you could help frame that on a year-over-year basis? Nicholas Manthey: Thanks, Mike. Again, we are assuming that the present demand trends continue through the second quarter, and there is limited impact from the conflict. Market volumes have been declining for a little while, and so we do not expect a big change in Q2. Jeffrey S. Lorberbaum: At this point, we have not seen a decrease in the sales and order trends. We are going to have the impact of the increase in prices as we go through, starting in the second quarter and ramping up in the third quarter. We will have to see how things evolve. The question we all have to answer is what is going to happen to the consumer confidence and spending patterns given the inflation that is coming through the marketplace and how the consumer is going to react. We are all going to get to find out together. Michael Glaser Dahl: Fair enough. From all the pricing that you have announced, are there regions or products where you could rank order where you think you have the most pricing power versus the least? Or if it is easier, just by segment, when we think about modeling the pricing tailwind. Jeffrey S. Lorberbaum: I am not sure there is a dramatic difference in any of them. The biggest differences would be the amount of inflation based on how big the cost increases impact each product category. It may sound different, but the ones with the highest inflation may be the easiest because the industry has to force through more. The imported products with long supply chains—those product categories—it is going to take a while before the chemical costs flow through, but they are going to flow through. Michael Glaser Dahl: Understood. Appreciate the color. Operator: Our next question comes from Michael Jason Rehaut from JPMorgan. Please go ahead with your question. Michael Jason Rehaut: Thanks. Good morning, everyone. First question, I just wanted to circle back to the price increases relative to the cost inflation that you expect to see in the back half. I just wanted to be sure of two things. First, when you talk about the cost increases, it is the ones that you have already announced in April—mid to high single digits—if that is really, at this point, what we are talking about. And second, as you see the cost inflation today, are the price increases sufficient to offset the back half cost inflation? Nicholas Manthey: Mike, our pricing that we have announced along with other cost actions are intended to offset the higher cost. We have announced mid to high single digits across most of our categories. Inflation is changing daily and weekly. We will adjust and adapt as we go through the second half of the year, and our intent is to pass them through. It is possible we will have to announce additional price increases if things keep inflating. Michael Jason Rehaut: Right. Okay. And the second question, just on mix. If you are seeing any green shoots of mix—I am really thinking about North America here, ceramic and North America flooring. How would you characterize the mix trends in residential? Have they improved at all? And could this be any help as well in the back half as you combat some other margin pressures? Jeffrey S. Lorberbaum: The higher-end consumer has more money and is spending more. That is helping on one side. On the other side, the middle is either postponing or trading down. There is huge pressure in the builder market to put in low-cost products in order to keep the prices of homes down. So you have both things going at the same time. I think that the people with money will continue to spend. We talked to some of our retailers. Some of them say the traffic is slower, but the people coming in are spending more money. We will have to see how the whole thing evolves. A lot of it is around consumer confidence and how they react to all this. Michael Jason Rehaut: Alright. Thank you very much. Operator: Thanks, Mike. Our next question comes from Keith Brian Hughes from Truist. Please go ahead with your question. Keith Brian Hughes: Thank you. The last time we saw this kind of inflation, a couple years ago during COVID, you saw some pretty significant hit on mix. Is there anything that has changed in the industry? Any reason we would feel less of that pressure? These are pretty significant price increases you are talking about. Jeffrey S. Lorberbaum: It is possible that we could see some declining mix in a piece. We are raising all the product categories to cover it, but it is not abnormal that some customers trade down. The higher-end customers have money, so it is not going to affect them. The higher end of the business has been doing better. But it is possible there will be some mix decline as people try to maintain budgets. Keith Brian Hughes: Okay. And we talked a lot about price increases and cost increases on this call. Is carpet where you are seeing the biggest inflation coming right now just based on the fibers that you use? Paul De Cock: No. We see inflation across the board in all the different categories. We have all the chemical input costs going up with similar levels, and as that filters through, we will have to take up the prices. In Europe, we see higher increases like we said. The impact of energy in Europe is much more significant, and so in some of our product categories, we see much higher impacts than on the flooring side, and we are acting appropriately. Jeffrey S. Lorberbaum: If I had to pick one that was highest, in Europe our polyurethane insulation business has a chemical component, and there are some shortages in the marketplace. We are putting through really significant increases in the category along with the competitors in the marketplace. Keith Brian Hughes: Okay. Thank you. Operator: Our next question comes from Matthew Bouley from Barclays. Please go ahead with your question. Matthew Bouley: Good morning. You have Anita Dahlia on for Matt today. Thank you for taking my questions. First off, we have seen industry peers announce price increases over the past few months, but as they too see some degree of incremental cost inflation, have you seen a continuation in disciplined pricing across the industry? Or is there evidence of share gain coming at the expense of price, either for Mohawk Industries, Inc. or competitors across LVT, carpet, and ceramic? Jeffrey S. Lorberbaum: The increases are flowing through the marketplace. It takes a while to go through. We will not see the full impact of them for another few weeks or even more. So we will have to see. So far, we are seeing more discipline than normal given the amounts of the increases. Everybody needs more to cover the cost. Matthew Bouley: Okay. That is helpful. Thank you. Then second, I wanted to talk a little bit more about the setup in Europe. You mentioned Europe has understandably become more impacted following the Middle East conflict. Any color on the trends you are seeing since last quarter? Specifically, are consumers deferring projects, or is it more a function of mix down? Paul De Cock: The market was showing some improvements in January following the multiple rate cuts that the European Central Bank had executed. But after the start of the war, consumer confidence declined, and that reduced the discretionary spend in the market. As we discussed, energy prices are higher in Europe. They are causing greater inflation, and we will have to push up the prices more. But consumers have record savings, and mortgage rates are much lower in Europe, and that should support growth as confidence comes back. Matthew Bouley: That is helpful. Thank you. Operator: Our next question comes from Brian Biros from TRG. Please go ahead with your question. Brian Biros: Hey. Good morning. Thank you for taking my questions today. How quickly can you pass on price in today’s market relative to previous price increases? Inflation pressures are well known, but the demand side is not really there. So I am curious how those conversations go and how quickly that can be reflected in today’s market once you announce an increase. Jeffrey S. Lorberbaum: The entire world knows this is going on. Our customers know what is going on. Our competitors have the same pressures we do. So the marketplace understands that it has to happen. In some cases, it may feel a little easier up to this point or not, but we are not through fully implementing it. On the other side, there is a concern that there is more to come, and so all of those things are affecting the way the industry is acting. Brian Biros: Okay. And then margins expanded in Q1. I think that might be the first time in maybe five or six quarters. Nice to see some level expansion even after all the restructuring efforts, and that was on lower volume still. It feels like there are still going to be pressures for the rest of the year, but do you guys look at Q1 as some type of indicator of what financials you can put up when things start to turn? Putting that in context would be helpful for thinking about Mohawk Industries, Inc. beyond the next few quarters. Thank you. Nicholas Manthey: Q1 market conditions were still very pressured. Looking forward, in the near term, our margin will depend on how the conflict evolves. We will have the inflation, and we are taking price to mitigate it. As Jeff mentioned, consumer confidence could be lower and could impact volumes. We are really focused on our productivity and restructuring efforts to lower our costs, and we do believe that over the long term, there is potential for margins to grow from here. Jeffrey S. Lorberbaum: As we said earlier, we talked about potential good outcomes and bad outcomes. Either one is still possible, and we have to be prepared to adapt to either one, hoping for the best. Operator: Our next question comes from David MacGregor from Longbow Research. Please go ahead with your question. David MacGregor: Thanks for taking the questions. I wanted to focus on the commercial business for a moment, and maybe it is a strategic question, Jeff. Given the relative resilience of the commercial businesses, as well as a different competitive structure and more opportunities for growth in that market segment, have you considered allocating capital to the expansion of that side of the business and bringing the residential/commercial mix more into balance? Jeffrey S. Lorberbaum: The commercial business is much smaller than the residential business. The opportunities are much less. So achieving the same market shares, the commercial business is dramatically smaller than the other. With that, we continue to invest more money in product innovation in the commercial market. It is easier to sell and promote features and benefits that are differentiated. We continue to invest to create differentiated offerings that we can specify in the marketplace. We are investing in more showrooms and investing in our sales organization to create more specifications. We agree with you. It is a good place to be. David MacGregor: I was asking the question more from an M&A standpoint. Jeffrey S. Lorberbaum: From M&A, we would consider the right commercial businesses that fit with ours and we think we can add value to. There will be opportunities as they arise over time in both the U.S. markets as well as the world markets. David MacGregor: Got it. Second question is the obligatory tariff expense question. A lot of noise and moving parts on this, but what is your current expectation for 2026 gross tariff expense prior to mitigating actions? Nicholas Manthey: The tariffs were reduced from a few months ago. Jeffrey S. Lorberbaum: But with the inflation occurring because of the conflict, the net effect is our costs are going to increase, and that is why we are taking the pricing adjustments to mitigate the higher cost. David MacGregor: Okay. You have not quantified that for the street? Nicholas Manthey: No. The tariff environment is changing, and we will see how it evolves. David MacGregor: Understood. Thanks very much. Operator: Thank you. And with that, ladies and gentlemen, we will be concluding today's question and answer session. I would like to turn the conference call back over to Jeffrey S. Lorberbaum for any closing remarks. Jeffrey S. Lorberbaum: We have managed global turmoil many times in our history, and it is always followed by an industry recovery. We expect multiple years of above-trend growth when it happens this time. As that occurs, in our industry the pricing and margins increase, our mix improves with people buying higher-value products, and we get significant leverage off of our cost structures and all the actions we have taken over the past few years. We appreciate you taking the time and being with us today. Thank you very much. Operator: The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to Magna International First Quarter 2026 Results Webcast and Conference Call. [Operator Instructions] I would now like to turn the conference over to Louis Tonelli, Vice President of Investor Relations. Louis, please go ahead. Louis Tonelli: Thanks, operator. Hello, everyone, and welcome to our conference call covering our Q1 2026 results. Joining me today are Swamy Kotagiri and Phil Fracassa. Yesterday, our Board of Directors met and approved our financial results for the first quarter of '26 and our updated outlook. We issued a press release this morning outlining both of these. You'll find today's press release, the conference call webcast, the slide presentation to go along with the call and our updated quarterly financial review all in the Investor Relations section of our website at magna.com. Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. Such statements involve certain risks, assumptions and uncertainties, which may cause the company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today's press release for a complete description of our safe harbor disclaimer. Please also refer to the reminder slide included in our presentation that relates to our commentary today. With that, I'll pass it over to Swamy. Seetarama Kotagiri: Thank you, Louis. Good morning, everyone, and thank you for joining us today. We appreciate your time and interest. Let's get started. Overall, I was very pleased with our strong Q1 2026 results, where we drove margin expansion with disciplined execution. In the quarter, sales were up 3% with weighted growth over market of 3%. Adjusted EBIT was up 58% with adjusted EBIT margin expanding 190 basis points to 5.4%, and adjusted EPS rose 77% to $1.38. We continue to demonstrate traction from our operational excellence initiatives across the company. Our robust cash flow reflects improved operating performance. We generated $677 million in operating cash flow and $372 million in free cash flow. In addition to strong earnings growth, our team did a great job securing additional commercial recoveries related to previous EV investments. Moody's recently reaffirmed its A3 credit rating for Magna and improved the outlook to Stable. We ended the quarter with a 1.5x rating agency leverage ratio, ahead of our expectations with $1.6 billion in cash on hand. Our 2026 outlook reinforces our confidence in our margin, EPS and cash flow trajectory. We continue to expect weighted sales growth over market of about 1.5% at the midpoint. We are reaffirming our prior outlook ranges for adjusted EBIT margin, adjusted EPS and free cash flow. While the situation in the Middle East introduces some uncertainty, we have a track record of navigating external disruptions, and we are confident in our ability to execute on what's within our control. Importantly, we expect to mitigate most cost headwinds over time. We remain focused on executing our proven capital allocation framework. We continue to invest in our business to support further profitable organic growth while returning $575 million in capital, including $440 million in stock repurchases to shareholders in the quarter. At the end of March, we had about 17 million shares remaining and available for repurchase under our NCIB. We plan to repurchase the remaining shares during 2026. We recently announced the margin accretive dispositions of our lighting and rooftop systems businesses. The transactions are consistent with our long-standing principles around portfolio management. We have highlighted in the past that we manage our portfolio using an objective set of criteria and regularly assess our product lines based on their addressable markets, market positions and returns. Specifically, we want to participate in meaningful or growing markets with stable or growing profit pools, strong or a clear path to strong market positions, profitable growth and sustainable competitive advantage. This has long been a key principle that ensures that we manage Magna for long-term success. The dispositions allow us to streamline the portfolio and focus on businesses that advance our long-term growth, margin and return objectives. The transactions are expected to close in the second half of the year. In our outlook, we have removed about $350 million of sales with minimal earnings and free cash flow impact. One example of our team's execution and innovation is the recent expansion of our hybrid driveline portfolio with the introduction of a dedicated hybrid drive for range-extended electric vehicles. The new system offers several advantages, including reduced size, weight and system cost, multiple operating modes and applicability across a broad range of vehicle segments. It underscores our commitment to providing OEMs with adaptable driveline solutions that support a wide range of vehicle performance and market expectations. Our team continues to partner closely with our OEM customers to deliver solutions that support Magna's growth. With that in mind, I would like to highlight a couple of recent complete vehicle EV program launches in Austria for China-based OEMs. This past quarter, we launched a second complete vehicle program for GAC. We also recently launched a third model, the P7+ for XPENG. Since September of 2025, we have now launched 5 vehicle models for these 2 China-based OEMs. More recently, we were awarded a fourth program with XPENG, which will launch later this year. This reinforces Magna's strong position in vehicle manufacturing and highlights the value of our flexible state-of-the-art production process, enabling fast-to-market, high-quality vehicles for any customer in the European market. Recently, Magna was once again recognized by Ethisphere as one of the world's most ethical companies marking our fifth consecutive year of recognition. This reflects our ongoing commitment to integrity, ethical decision-making and doing what's right, something we are very proud of. With that, I'll turn the call over to Phil. Philip Fracassa: Thank you, Swamy, and good morning, everyone. I will begin on Slide 19 with a summary of our strong first quarter results. Sales were $10.4 billion in the first quarter, up 3% from last year. Adjusted EBIT margin improved 190 basis points to 5.4%. Adjusted earnings were $1.38 per share, up 77%. And free cash flow was very strong at $372 million, up $685 million from last year. Each of these metrics came in ahead of our expectations. Now I'll take you through some of the details. Let's start with sales on Slide 20. First quarter sales were up 3% overall compared to last year. Excluding foreign currency translation, sales were down about 2%. Global light vehicle production declined 7% in the quarter. On a Magna-weighted basis, we estimate light vehicle production was down about 5%. This translates to 3% growth over market for Magna consolidated and 5% growth over market, excluding Complete Vehicles. Looking at the sales walk, foreign currency translation was positive $520 million or about 5%, driven by a weaker U.S. dollar compared to last year. Volumes, launches and other was relatively flat as lower light vehicle production, the end of production on certain programs, including the Ford Escape and normal course customer price concessions were largely offset by the launch of new programs, including the Ford Expedition Navigator, Mercedes-Benz CLA and Jeep Cherokee Recon and net favorable program sales mix. Sales in Complete Vehicles, excluding foreign currency, declined $172 million despite higher unit volumes. The higher unit volumes reflected new assembly programs and grants, including with XPENG and GAC, where sales are recognized on a value-added basis. Volumes with other customers where sales are generally recognized on a full cost basis, declined year-over-year collectively. This resulted in net lower assembly sales dollars. Engineering revenue was also lower, in line with our expectations. Now let's move to EBIT on Slide 21. First quarter adjusted EBIT was $558 million, an increase of $204 million or 58% from last year. Adjusted EBIT margin was 5.4%, up 190 basis points. Looking at the pluses and minuses, our largest benefit came from operational performance, volume and other items, about 80 basis points. This reflects continued momentum from operational excellence and other cost reduction initiatives. We also benefited from prior restructuring actions and favorable net foreign exchange gains. These positives more than offset the impact of lower organic sales and unfavorable mix. Equity income contributed around 70 basis points in the quarter, reflecting a favorable commercial settlement at one of our Power & Vision joint ventures that was originally planned for the second quarter. Margins were also supported by higher sales, favorable mix as well as productivity and efficiency improvements. Discrete items added around 55 basis points, driven mainly by lower warranty costs as we had a large expense accrual last year in seating. We also benefited from net favorable commercial items year-over-year in the quarter. And finally, tariff costs net of recoveries, reduced margins by about 15 basis points. While recovery mechanisms are in place with some customers, discussions with most OEMs for 2026 are ongoing, and we are following the frameworks we established last year. We remain confident that our net tariff impact for 2026 will be similar to 2025. In other words, a roughly neutral impact to EBIT margin for the full year. Looking below the EBIT line on Slide 22. Interest expense was $13 million lower than last year due mainly to our strong first quarter free cash flow. This led to lower short-term borrowings and higher cash balances, resulting in lower net interest expense for the quarter. Our first quarter adjusted tax rate was 23.8%, an improvement of 190 basis points versus last year. For the full year, we continue to forecast an adjusted tax rate of approximately 23%. Adjusted net income was $386 million, up $167 million or 76% from last year, driven mostly by the higher EBIT. And first quarter adjusted EPS was $1.38, up 77% from last year, mainly reflecting the higher net income as well as a slightly lower share count. Next, let's take a brief look at our business segment performance, which is summarized on Slide 23. Three of our four segments posted higher sales year-over-year and growth above market in the quarter with a notable 6% year-over-year increase in Power & Vision. The exception on the sales line was complete vehicles, where sales declined 4% as net lower volumes on full cost programs and lower engineering revenue were only partially offset by favorable foreign currency translation and the benefit of recent value-added program launches with China-based OEMs. Turning to EBIT. Body Exteriors & Structures, Power & Vision and Seating all posted notable year-over-year improvements in adjusted EBIT dollars and margins, reflecting strong operational execution. Power & Vision also benefited from a favorable commercial settlement in equity income, while Seating benefited from lower warranty costs. Complete Vehicles margin was lower than last year, but in line with our expectations, reflecting the impact of lower engineering revenue, offset partially by productivity and efficiency improvements. Now let's look at cash flow on Slide 24. In the first quarter, we generated $677 million in cash from operations, an increase of $600 million from last year. Operating cash flow in the current period includes over $450 million in balance sheet-related customer recoveries for certain EV programs in North America. We had originally expected to receive most of these recoveries later in 2026. Investment activities in the quarter included $219 million in CapEx, representing 2.1% of sales and $168 million for investments, other assets and intangibles, offset partially by proceeds from normal course asset dispositions. Netting everything out, we generated free cash flow of $372 million in the quarter, above our expectations and the most cash we have ever generated in the first 3 months of the year. We continue to return capital to shareholders in the first quarter with $135 million in dividends, along with $440 million in share buybacks. We repurchased 7.6 million shares during the quarter under our NCIB authorization, which left us with close to 17 million shares remaining at the end of March. We're planning to repurchase those shares before the NCIB expires in early November. Turning to Slide 25. Our balance sheet and capital structure remain strong. At the end of March, we had almost $5 billion in total liquidity including $1.6 billion of cash on hand. Our rating agency leverage ratio was 1.5x on March 31, better than we anticipated 3 months ago. This puts Magna in great position to continue our share repurchase strategy in 2026 and beyond. And we're pleased to note that Moody's recently affirmed Magna’s A3 investment-grade credit rating with an improved outlook of Stable. Next, let me cover our current outlook on Slide 26. Compared to our February outlook, we've reduced our North American production forecast by around 100,000 units to $14.9 million, and we reduced Europe by 200,000 units to $16.6 million, both reflecting current market conditions. Our China production assumptions remain unchanged. We've also updated our currency assumptions to reflect recent exchange rates. We're now expecting a slightly stronger euro, Canadian dollar and Chinese yuan in 2026 as compared to our February outlook. We continue to actively manage input costs and other volatility through commercial recoveries and cost actions. Our outlook reflects our current visibility into the balance of the year, and does not assume a prolonged geopolitical conflict in the Middle East. Moving to Slide 27. We are reaffirming our prior outlook ranges across key metrics including adjusted EBIT margin, adjusted EPS and free cash flow. We have slightly lowered our sales outlook range for the updated light vehicle production estimate provisions we covered earlier along with the expected second half closings of the lighting and rooftop systems divestitures within Power & Vision, offset partially by the benefit of foreign currency translation from a weaker U.S. dollar. We're also forecasting lower interest expense, reflecting the favorable timing of commercial recoveries, which should result in less borrowings throughout the year. All other outlook metrics from February are unchanged. Note that we continue to expect strong margin expansion with adjusted EBIT margin between 6% and 6.6%, despite slightly lower sales. Adjusted EPS between $6.25 and $7.25 per share and free cash flow between $1.6 billion and $1.8 billion. And while we don't provide a quarterly outlook, I would like to offer a framework for how we're thinking about EBIT and margin cadence for the rest of 2026. We expect 2026 adjusted EBIT to be back half weighted with first half EBIT just under 45% of full year EBIT. We're taking a measured approach to the second quarter, given the ongoing geopolitical dynamics and the potential for near-term volatility with adjusted EBIT margins expected to be relatively flat with the second quarter of last year. That's it for the financial review. Now I'll turn it back to Swamy to wrap things up. Swamy? Seetarama Kotagiri: Thank you, Phil. Before we take your questions, let me recap a couple of key points. We had a strong start to 2026 with adjusted EBIT margin expansion, cash generation and solid weighted sales growth over market. We are positioned for continued margin expansion and shareholder returns, supported by a solid 2026 outlook that is largely unchanged from February, reflecting our confidence in our operating performance. We are executing a disciplined capital allocation strategy, including significant return of capital and portfolio actions aligned with long-term value creation. Most importantly, we remain highly confident in Magna's future. We hope to see many of you in November at our investor event in New York City, where we will go into detail on our strategy, key initiatives and long-term financial outlook. Thank you for your attention. Now operator, let's open it up for questions. Operator: [Operator Instructions] And your first question comes from Alex Perry with Bank of America. Alexander Perry: Congrats on all the progress. I guess just first, I wanted to ask, can you give us an update on your raw material exposure. I guess, particularly on the resin side, what is the impact expected to have on the margins. Were there any other offsets that allowed you to keep your EBIT margin guide? And how should we think about sort of the flow-through there? Philip Fracassa: Sure, Alex. This is Phil. I'll start and then Swamy can chime in. Relative to raws, if we take a step back, if we look at exposures like steel and aluminum, as an example, we're largely protected through OEM resale programs and other pass-through mechanisms. The vast majority of our exposure there is covered. On resins, it would be a little bit less. A meaningful portion would be covered by pass-throughs as well or not resale, but more pass-throughs. But think of it as sub-50%, so a little bit exposed there. But as resins move, we would do what we normally do, which is kind of work with customers to recover the higher input costs. Looking at the first quarter, I'd say we saw minimal impact on all of that. We saw a little bit of higher freight costs in the quarter, but minimal impact across other input costs. And as we've talked about kind of many times, as we see input costs move, we typically recover on a lag basis to the extent if oil stays high, resins stay high, we would work with our customers to recover that over time and frankly, would expect to recover the bulk of any swings over the course of the rest of the year. Last comment I would make on, we get a lot of questions on energy, particularly in Europe, but we're in a much better position now than we were, say, in 2022. We're hedged about 2/3 of our both electricity and natural gas spend in Europe for this year and about 50% hedged for next year. So swings in costs, near term, we're pretty well protected there as well. Swamy, anything else? Seetarama Kotagiri: No, I think you covered it well, Phil. The one thing that you might look at is the logistics and the freight costs. But that's the reason why we talk in terms of ranges. We feel pretty confident based on everything that you said, we would be able to contain it. Alexander Perry: Really helpful. And then I guess just my follow-up question. So the production outlook came down a bit, but you kept sort of all the segments the same other than Power & Vision, which came down a bit. Maybe walk us through why that is and sort of how you're thinking about production in the various segments? Philip Fracassa: Sure, Alex. So what happened there was we had 3 things that happened in the outlook. First, we took the production estimates down, as you referenced, which was a slight downward revision in the revenue, if you will. We took foreign currency up as we're modeling a slightly weaker U.S. dollar than before. And that sort of offset one another as compared to February across most of the segments. And the one exception was P&V, where we also layered in the anticipated closing of lighting and rooftop systems and kind of in the second half, call it, near the end of the third quarter sort of what we modeled. And that kind of had the effect of bringing P&V revenue down about $400 million or so if you look at the outlook. But it was really kind of FX and vehicle production offsetting one another in the other segments. And honestly, the fact that we held the margins despite that because oftentimes when foreign currency improves, we don't get the same incremental that we do when volume goes up or down. So we were able to kind of offset that, hold the margin range where it was, hold the EPS range where it was, just given the -- given how well the business was performing, particularly in the first quarter of the year. Alexander Perry: That's incredibly helpful. Best of luck going forward. Operator: Your next question comes from the line of James Picariello with BNP Paribas. James Picariello: Can you just speak to the favorable commercial item? Can you just provide more color on what actually took place? Was it unexpected for the full year? Or was it more of a timing shift within the year in terms of the ability to get that recovery, which showed up in equity income, right? Philip Fracassa: Yes, exactly, James. So 2 things there. It was a recovery in the first quarter in equity income, it hit P&V. We had initially planned for it in the second quarter. So it wasn't a variance for the full year. It was a timing shift between Q2 and Q1, and it really related to recoveries for past investments in EV programs. And just to kind of give you an order of magnitude, it was the bulk of the equity income improvement in margins year-over-year was probably 60 basis points of that improvement was that item. And again, hitting in P&V, you'll note that P&V had really strong performance in the quarter, revenue up strong incremental margin on the revenue. But even excluding that item, the incrementals in P&V would have been quite strong on the order of 30% even without that item. So P&V performed really well, good growth across several different launches, good growth in some of our camera businesses, et cetera. But to answer the question, it was a onetime item, but it was timing between Q2 and Q1. James Picariello: Okay. That's crystal clear. Appreciate that. My apologies if I missed this in the prepared remarks. But for the lighting and rooftop divestiture, should we expect any proceeds from that? Or is it more of a partnership handoff type of arrangement because it's zero -- has neutral EBIT? Seetarama Kotagiri: James, as I said in the remarks, the transactions will be closing later this year, obviously, subject to approvals. They are margin accretive because they were below the Magna average, I would say. But it is a -- going back to the guiding principles, if you look at it from a strategic perspective in terms of market position, in terms of returns, we did not feel it was the right home and not the right path with us. That was the reason why the divestiture was done. We'll continue to look at portfolio just like we've always said with an objective lens. Philip Fracassa: Yes. And maybe just to round that out, James, I would want to point out that on our GAAP results, we did have -- we did book a loss related to those divestitures in the first quarter, just given where they were in terms of negotiations at the end of the quarter. So that was over a $400 million impairment that we took in the first quarter, which would be in the GAAP results excluded from adjusted. Seetarama Kotagiri: And there are some modest proceeds that will be used in the normal course, James, right, in terms of the cash flow looking at the balance sheet and how it will be used for share repurchases. James Picariello: Is this the beginning of a like ongoing pruning of the portfolio of smaller businesses? Or is this mainly a one-off? I'm just curious if there's anything strategic and sustained behind this type of sale for you guys? Seetarama Kotagiri: Yes. I don't think it is a onetime or it's -- if you go back into the last 10 years, you would have seen few pressure controls, you would have seen in the years. Honestly, James, this is an ongoing process. We continue to look at it every year. Can't speculate or won't comment on future actions, but I can tell you this is really a very rigorous ongoing process. Operator: Your next question comes from the line of Dan Levy with Barclays. Dan Levy: So your guide assumes 35 to 40 basis points of operational excellence. And you just did in the first quarter, I think it's 80 basis points. I know there's other stuff in that category in your earnings bridge. But maybe you can just give us a sense within the quarter, why you were out punching on that 35 to 40 basis points? And what changes in subsequent quarters? Or is there potential upside on that 35 to 40 basis points? Seetarama Kotagiri: Dan.The 35 to 40 basis points that we talked about obviously encompasses a lot of things that go on. The specific larger operational excellence initiatives that I mentioned in the past are really specific, for example, enterprise-wide digital architecture, data backbone, real-time performance management through data streaming dashboards and scalable automation of material handling and so on and so forth. But beyond that, there are thousands of initiatives that every division looks at in terms of material savings, in terms of OEE improvements. You can't really put an exact cadence. Definitely, with some of the programs in place and feel comfortable, the proliferation is a little bit accelerated. And it also depends on the cadence of how many ideas or VA/VE initiatives are in place in the fourth quarter and how they can materialize in Q1, right? But all in all, I would say we feel pretty good about the 35 basis points, 40 basis points. And if the macros hold good, yes, we feel pretty good that we'll keep that and continue the path. Philip Fracassa: Yes, Dan, just 2 things I might add there. We did accelerate really well last year with the operational excellence initiative. So probably a bit of an easier comp in the first quarter than maybe the comps we'll have as we move through the year. That would be one. But I would say, stepping back, a stronger than we expected performance on the operational excellence front in Q1. So to your point about if we can keep that going, I would agree with you that, that would present some upside for us. Seetarama Kotagiri: And that's why I keep saying, as we look at the proliferation, we are still in the early innings of the factory of the future. Dan Levy: Great. Okay. And then I just wanted to follow up on James' question on the divestitures here. So I get, there's constantly a portfolio review process to make sure that the products that you're in, that you have a strong market position, that's a relevant market and these businesses didn't clear that threshold. I guess I would just ask more broadly, the broader Magna portfolio, what percent of that would you deem to be in a market position that is not where it should be and where it's a tougher path to sort of getting to an appropriate market position? And how would you characterize Seating as it relates to your market position and path to improving the market position? Seetarama Kotagiri: Yes. It's a long question, Dan, and, you know, it's a complex one. As you look at most of the products, right, we're not really saying we have to be #1, but you need to have meaningful market position, but along with it also good returns and good profitability. And it's not at any one point in time. You have to look at it, you invest, you go through cycles. And if you see a good path and if you see good progress, we continue to stay on it. Specifically to seating position, we -- again, it's not just looking at it broadly as a global market. In North America, we have a good position. We have good position in Europe. We have really good position now in China. And more importantly, we have some really good innovation in terms of not just the product, but how we assemble the seat and how we take it forward. And as part of this operational excellence or Factory of the Future initiatives, you'll start seeing that. Hopefully, we can talk to you a little bit more when we see you in November for the Investor Day. But we feel pretty good, and you'll continue to see the traction on the profitability and the returns in that segment. Operator: Your next question comes from the line of Chris McNally with Evercore ISI. Chris McNally: Swamy, a little bit of a broader question around some of the risks in the second half of the year. And I know this is high-arching question that, you know, I think everyone is getting asked. But I'm curious your perspective, if you're more worried about sort of the known, unknowns in the second half or the unknown, unknowns. So when I think about known unknowns, raw materials transport, second half volumes sort of the typical that you're curious duration of the issue of the conflict. But the unknown unknowns is the one that we are having the hardest time grappling with as investors in the self, and things like memory availability, chip availability or just other disruptions. Just maybe you could opine on those 2 buckets for what you're seeing sitting here in April? Seetarama Kotagiri: Yes, Chris, I'm going to use your terminology, known unknowns and unknown unknowns. Honestly, I think if it's a known entity or variable, right, for example, things that you just mentioned, we at least have a scenario analysis and a playbook to say how we are going to address it. And that's the reason why we talk about outlook and ranges and not specific numbers. The bigger question is the unknown unknowns, right? Because you haven't thought about it. You might have some scenario planning, but it's not as granular. So those are the bigger questions. If you look at the DRAM, we are focused on it. We are tracking it. We are monitoring it. We're working with our customers. Continuity is the most important in terms of supply. We are doing that. We're managing costs through sourcing actions and customer alignment. That we believe, if the world doesn't flip upside down, we can manage it within our outlook ranges. That's an example of something that is a scenario planning and we can address. Things that we don't know in terms of complete volatility, big macro issues, lack of certainty and volatility are the 2 things that you have to constantly worry about. Chris McNally: That's great. And if we could just double click, Swamy, on the one on memory because we obviously get this question a lot. We see obviously everything going on with AI and the hyperscalers. But -- is it fair to summarize that the industry's view because I think that many companies have been asked this, that right now on memory, there's more of an issue around price, meaning you may have had some contracts and basically memory providers are coming back and asking for closer to spot as opposed to contract, and that's some of the risk as opposed to literally pulling the volume, which would not allow for cars to be made. Is that a fair summary of where the industry kind of view is right now that there's a little bit more of this price discussion, I want to be paid for spot as opposed to pulling volumes? Seetarama Kotagiri: The short answer, Chris, I would say your summary is correct in the short term, right? It's more a pricing and how do we manage that in terms of demand and keeping capacity and so on and so forth. In the long term, you've got to look at design options and so on. In short, your summary is correct. Operator: Your next question comes from the line of Joe Spak with UBS. Joseph Spak: Phil, just -- I'm sorry to go back to this. I just want to make sure I understand some of your comments on recoveries because it sounded like maybe it was, I don't know, $60 million, $70 million in EBIT. I'm trying to just sort of figure out how that relates to -- in the report, it said the recovery for your investments in the quarter was like $475 million in cash flow. So I just want to make sure those numbers are correct, that part of that recovery in the cash flow was not in the operating income. And then on that recovery in the cash flow, I just want to make sure that is what you sort of expected? And is that mostly done? Or do you still expect more cash recovery to come down the pike? Philip Fracassa: Yes. Thanks, Joe. Great question. So I think you've got it right. So first of all, the 60 basis points or call it, $60-ish million, the equity income item was did run through the P&L, but it's the $475 million that we called out in our MD&A was really balance sheet only. So the vast majority of that recovery was a balance sheet recovery. So getting sort of reimbursed for prior investments that we made that were sort of sitting on the balance sheet. So very little P&L impact from that. And we did largely expect that in 2026, but just later in the year, maybe a little bit overall for the full year, maybe a little bit higher than we previously anticipated. But -- so is there any more to come? There's a little bit more we would expect between now and the end of the year, not of that same order of magnitude. It's reflected in the full year outlook as we continue to work with customers on other negotiations that are ongoing. But the -- beyond that $60 million that ran through equity income, we had very little running through the P&L for the other recoveries. It was really just cash only. Joseph Spak: Okay. Really appreciate that clarification because I was having trouble connecting those 2. Second question, Swamy, and I apologize in advance because I don't want to put you in the middle of a geopolitical storm, but there have been reports of Chinese OEMs looking to maybe build vehicles in Canada. And I was wondering if you were able to comment on any conversations you might have or even more broadly, how you would view that potential opportunity? Because obviously, you mentioned some of the wins with the domestic Chinese, whether it's Complete Vehicles or others. So you have that good relationship there. And I was wondering how that could sort of spill over to this region. Seetarama Kotagiri: Yes, Joe, for the exact reason that you mentioned, I would like to remain a businessman and a capital allocator and not a policy commentator. So I won't comment on speculation. I can say that Magna's model is to be neutral global partner to all OEMs. And we are not -- as you've heard me talk about it, we continue to win business in Europe with our Complete Vehicle assembly with all OEMs. Today, it happens to be the Chinese OEMs. And we continue to win business in China with Chinese OEMs. Any OEM that continues to grow in the ecosystem, we have an opportunity to supply Magna systems and components and also do vehicle assembly where possible. Operator: Your next question comes from the line of Tom Narayan with RBC Capital Markets. Thomas Ito: This is Thomas Ito on for Tom. It looks like your guidance implies some pretty substantial margin uplift in BES and Seating for the remainder of 2026. Just wondering, is this sort of just the timing of customer recoveries or are there other factors going on in these segments? Philip Fracassa: No. I mean, I would say it's really continued progress on the operational excellence initiatives and then obviously getting really strong pull-through revenue. The P&V was a -- we're expecting strong growth in P&V for the full year. We didn't have the item in the first quarter. For the full year, the margins will be on the implied guide would be pretty close to the first quarter performance, but still really solid growth year-over-year. And the BES and Seating over the course of the rest of the year would expect the operational excellence really being the biggest item that's kind of sticking out relative to the improvement from Q1 through to Q4. I don't know, Louis, anything else you'd add. Thomas Ito: Okay. Got it. And I guess as a quick follow-up, we saw another supplier announce some revenue impacts related to the IEEPA tariff adjustments. Could you just comment on whether any such adjustments are incorporated in that '26 guidance? Philip Fracassa: Yes. I mean it's a great question and I figured we would get it. So on tariffs, let's just take a step back. We came into the year based on last year's rates, if you will. We had about $160 million gross impact last year. The run rate would have put us at around $200 million this year. Again, looking to recover that from our customers. We had a lot of development. IEEPA came out, 122 came in. We had some changes in 232. Net-net, our gross exposure has come down. So from $200 million, now we're thinking it's closer to last year's number actually, right around $160 million. Our net exposure relatively unchanged and we still expect maybe a little bit better, but relatively unchanged. We still expect a margin headwind of less than 10 basis points, but year-over-year would be neutral in that scenario. And then relative to the last element would be the refunds, I would say we are working to file those refund claims sort of as we speak. We're in the midst of filing them as we speak. And it's a good sized number. We talked about it was probably over half of our tariff exposure, roughly half of our tariff exposure was IEEPA. So as those refunds are filed, as those refunds come in, we didn't book any of those refunds in the first quarter. As those refunds come in, we'll obviously work with our customers on that given that they funded -- they covered about 80% of our tariff costs last year. So we'll work with them as those refunds come in to make sure that they're allocated appropriately. Operator: Your next question comes from the line of Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: I was hoping to follow up on the comments you made in the prepared remarks about the expected cadence of earnings this year. And in particular, I think you said Q2 margins would be broadly stable year-over-year. Can you just give us a few of the puts and takes in there? Is there some timing of things that shifted from Q2 into Q1? Or I guess, how should we think about the stable margin year-over-year this quarter? Philip Fracassa: Yes. I think it's -- well, relative to expectations, we had that equity income item that kind of moved from Q2 to Q1. But as we sort of set up the cadence for the rest of the year, we did, I would say, deliberately take a little bit more measured view on the second quarter, a little bit more cautious view, if you will. And so as you look at year-over-year at sort of the midpoint of the guide, we'd probably see a little bit of increase in revenue year-over-year with kind of a proportionate incremental margin kind of keeping margins relatively flat. We've got foreign currency as a positive in there, which kind of come through as with a little bit lower margin and then the volumes kind of coming down a little bit with a little bit bigger impact. So really nothing more than that. The operational excellence continues, but it was really more just trying to be a little bit more measured in how we were thinking about the second quarter as kind of we're sitting here in time and space. But as we look out to the rest of the year, still very confident in the full year guide and very confident in the margins and earnings, et cetera. And if you remember in February, we talked about first half EBIT being kind of slightly above 40%. This time around, we're probably seeing a little bit more one half weighting on the EBIT, maybe sub 45%. So think 43-ish kind of percent first half, second half, and that should kind of get you in the ballpark. Emmanuel Rosner: Okay. That's helpful. And then I was hoping to ask about your growth over market, which I think you said you measured it as like 3 points for this quarter, I guess, for Q1 or 5x Complete Vehicle, still good conviction in, I think, 0% to 3% for the full year. Can you talk about some of the upcoming big launches that you have that will drive this growth of the market and potentially serve like any sort of cadence within that? Seetarama Kotagiri: Emmanuel, I think like you said, it's really a reflection of the launch activity. It's a bit of good program mix and also content growth across all our core segments. So net-net, if you look at the end of production programs and compare it to the new production launches that we have, which is many across these different geographic regions, different customers, different programs. And if you take the content, so that's positive net-net, right? So that's the reason why we are seeing that. And the Complete Vehicles, you heard me talk about the specific program launches with GAC, with XPENG and the discussions continue. Operator: Your next question comes from the line of Colin Langan with Wells Fargo. Colin Langan: I just want to follow up again on the recovery impact. You mentioned the 60 basis points from JV. If I look at the slides in discrete items, it looks like half of the discrete items are also recoveries. So is there another $25 million, $30 million outside of the JV recoveries? And then I thought last quarter, you had said that recoveries for the year were neutral, and yet we have a big help in Q1. So does that mean as we go into the second half, that there's headwinds as those recoveries are down year-over-year? Philip Fracassa: So on the first part of the question, yes, in the discrete items, we did see the favorable warranty costs, which was a big item. And we also had the net impact of -- we did have favorable commercial items as well, which sort of spans the gamut of not just EV-related recoveries, but recoveries for other commercial matters as well. And as you know, that can sort of vary quarter-to-quarter. I think we did talk about coming into the year thinking we'd be largely neutral for the full year on the P&L with respect to recoveries. But on the cash, we did get a fair amount of cash for EV-related recoveries last year. If you remember, in the fourth quarter, we had a big cash inflow in the fourth quarter. So we did expect recoveries as it related to the EVs to be a fair bit comparable. So we do expect to be that way for the full year. So we -- it was more front-loaded this year. It was a little bit more backloaded last year. But our guide of free cash flow of kind of $1.7 billion at the midpoint sort of implies about $1.3 billion for the rest of the year, and that will be, as always, is kind of back half weighted. Louis Tonelli: On the recoveries, the recovery related to equity income was kind of in the equity income in the roll between '25 and '26. So I guess it's just bucketing. We had that in equity income is part of the reason why we had higher margin this year, not in this kind of recoveries. Recoveries we're talking about here are more on a consolidated basis. Colin Langan: You still expect recoveries to be neutral for the year. The initial guide did incorporate the JV help from recoveries. Seetarama Kotagiri: It did, yes. Colin Langan: And then just broadly, if I go into the second, I mean, Q2 is supposed to be flat. Organic sales are -- I think the guide implies are fairly slightly down actually. You have $100 million sort of implied EBIT improvement. I kind of feel of like we're out of some of the puts and takes outside of warranty. JV incomes are, I think, kind of most of that good news in the initial guide is done. So is it all just operational efficiencies or other items that are kind of going to add some help to kind of offset the -- at least at the midpoint, weaker sales? Seetarama Kotagiri: Yes. I would say some of it is as you talked about operational excellence, but as new programs come in, they have different economic terms, and there is a mix of, as I said, launches, right, that are happening towards the second half of the year. So I would say it's a combination of the 2 columns. Operator: Your next question comes from the line of Andrew Percoco with Morgan Stanley. Andrew Percoco: I wanted to start out on your disposing of your lighting and rooftop systems business. But I kind of want to get a sense for is there anything -- as we think about the evolving landscape, particularly around ADAS and AVs, are there any areas where you might want to grow your portfolio or add to the offerings that you currently have around that ecosystem? Seetarama Kotagiri: Yes. Andrew, I think I've said that the last couple of quarters, and we feel pretty good where we stand with our portfolio right now. I think the focus is really on organic growth and trying to get the efficiencies up, get the traction that we have in operational excellence continue, focus on the cash flow and continue the journey right now. But if there is some really good opportunity in terms of small tuck-ins that add value here and there, obviously, we'd be open to it. But our focus really is on continuing to keep the roadmap that we have in front of us for cash flow and good value. Andrew Percoco: Okay. That makes sense. And then maybe just around these recoveries. I'm curious like if you -- if you or the industry in general, are planning to adjust how you maybe strike these contracts with your OEM partners going forward. I know there's been a big kind of rightsizing exercise in the industry around EV manufacturing capacity, but the OEMs are still very much committed to exploring new vehicle platforms. So I'm just curious, as you kind of think about that next cycle, how you might evolve that contracting structure to maybe avoid some of the overinvestment that we've seen in prior cycles? Seetarama Kotagiri: Yes. I don't know if we can change the decision of the OEMs, but we definitely can bring our opinion to the table. And there are cases where we have looked at different terms, right, there is sharing of capital deployment, let's say, looking at volumes and how we band them and how we look at the step function of cadence as you go into the program rather than putting all the capacity upfront. There are several of those discussions. We are fortunate to have those strategic discussions with the customers. And as an industry, I think the big elephant in the room is like how do you become good stewards of the capital, right? How do you extrapolate what's there, what's capacity that's existing, how do you use it more efficiently rather than just adding more. But like you said, it's a 2-way traffic, and we have many of those discussions. Operator: Your next question comes from the line of Jonathan Goldman with Scotiabank. Jonathan Goldman: Most of them have been asked already. I guess just one on the guidance. I think you talked about the rooftop and lighting business being below the Magna consolidated margin levels, but you maintained the margin guidance for the year. I would have thought the divestiture may have been margin accretive. So I just want to know what are the offsets there? Seetarama Kotagiri: So I think, Jonathan, good question. But we are looking at the broad picture of Magna, given the uncertainty in the market that we have. And what we're looking at, that's the range we are talking about. Philip Fracassa: Yes. The only -- yes, that's exactly right. The only thing I would add, Jonathan, is it was really -- we're talking about, call it, 3 to 4 months of the year, so not a big number in the current year. And the other point to keep in mind, too, is we took revenue up for currency, which comes through at an EBIT margin, if you will. We took revenue down a little bit for volume, which sort of comes out at an incremental or a decremental as the case may be. So there's a little bit of that going on there, too. But there's no question to both P&V and to Magna as a whole, that the divestitures would be modestly accretive to margins just given where they were operating. Jonathan Goldman: Okay. That's good color. And then maybe just circling back on that one, Phil, the revenue guidance, maybe switching to mix, maybe more currency in the sales this year. Is the offset the lower production volumes that you've updated the guide for? Philip Fracassa: Yes. I would say when you think about -- so we're kind of holding the EBIT -- we're holding the EPS guide, we did see a little bit of a benefit on the interest line below EBIT as, you know, the free cash flow in the first quarter was much sooner than we anticipated that cash coming in. So it will result in lower borrowings throughout the year, a little bit of interest benefit. So while revenue is down a little bit, with holding margins would bring EBIT down a little bit, a little bit of offset in interest expense, which kind of enables us to hold the range where it was before. And again, kind of holding the range despite the strong Q1 was really as much just being a little bit prudent on the rest of the year at this point. Operator: Your next question comes from the line of Mark Delaney with Goldman Sachs. Mark Delaney: One on margins. When considering the efficiency efforts that the company has underway for this year, the expectation of 35 bps to 40 bps as well as the portfolio optimization you announced relative to lighting and the rooftop part of the business. Maybe put that into the context of where Magna thinks its EBIT margins can go over the medium to longer term. And in the past, the company has spoken about the potential to get to a 7% plus type range. I'm curious where you think you are on that journey, especially in light of some of the decisions and progress you reported today. Seetarama Kotagiri: I think I can tell you we are in a good path to the roadmap that we laid out. Right now, we are focused on executing like we did in Q1 over the last 2 or 3 quarters, and we see a good path into '26. That's why we were able to reaffirm the outlook of 2026. Now regarding the midterm and long term, I would say the best time to get through that without confusing anything is the November Investor Day. We will be able to lay out the next 3 to 5 years. Mark Delaney: Looking forward to that. And my last question was around the production environment. You already described your view on overall production volumes by region, but we're hoping you can share a bit more around mix. And curious if you're seeing any changes in the kinds of vehicles your OEM customers are looking to manufacture? And perhaps is there some increase in the number of EVs and hybrids that they're planning to make in light of the recent increase in gasoline prices? Seetarama Kotagiri: Not really a significant shift in what's been talked about. Obviously, there's an increased interest in hybrids, and it's very regional. In China, we continue to see the EV proliferation. In Europe, it's a little bit more hybrids and EVs continue there at a slower pace maybe. In the North America, we see renewed interest in hybrids. But in terms of vehicle segments, no, not really, we are not seeing a material shift in anything else. Operator: Your next question comes from the line of Michael Glen with Raymond James. Michael Glen: Swamy, with the wins happening in Europe with the Chinese OEMs, are you at all supplying any parts to those vehicles yet? Or is it strictly assembly? Is there an opportunity to expand and supply parts? Seetarama Kotagiri: Yes. I think, Michael, right now, it is just assembly. Obviously, the conversations as this expands into volume, there is a localization discussion, and that's where we see the opportunity for other system and component supply. Michael Glen: Okay. And then just following on that, maybe just broadly with Europe. I know you don't break Europe out separately as a segment. But how do we sort of think about gains with new entrant OEMs into Europe and then what appears to be the lagging legacy OEMs. As a whole, is this a net negative to Magna? Or are the gains being made with the new entrants offsetting a difficult legacy business? Seetarama Kotagiri: Yes. Difficult to break down at that granularity for sure, Michael. I think I would say with the presence of Magna in China and as we continue to build that relationships, we believe that they come to different parts of the world, we will have a seat at the table. At this point of time, it's very difficult to talk at that level to say how much and how it's offsetting and so on. But overall, we still continue to grow our business in Europe. Operator: That concludes our question-and-answer session. I will now turn it back to Louis Tonelli for closing comments. Louis Tonelli: All right. Thanks, everyone, for listening in today. If you have any follow-up questions, please don't hesitate to reach out to me. Thanks, and have a great day. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you all for joining, and you may now disconnect.
Operator: Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Black Diamond Group First Quarter 2026 Results Conference Call. [Operator Instructions] I would now like to turn the call over to Emma Covenden, VP, Investor and Stakeholder Relations. Please go ahead. Emma Covenden: Thank you. Good morning, and welcome to Black Diamond Group's first quarter 2026 results conference call. With me this morning we have Chief Executive Officer, Trevor Haynes; Chief Financial Officer, Toby Labrie. Chief Operating Officer of Modular Space Solutions, Ted Redmond, Chief Operating Officer of Workforce Solutions, Mike Ridley; and President of Royal Camp Services, Jon Warren. Please be reminded that our discussion today may include forward-looking statements regarding Black Diamond's future results and that such statements are subject to a number of risks and uncertainties. Actual financial and operational results may differ materially from these forward-looking expectations. Management may also make reference to various non-GAAP financial measures in today's call such as adjusted EBITDA or net debt. For more information on these terms and others, please review the sections of Black Diamond's first quarter 2026 management discussion and analysis entitled Forward-Looking statements, Risks and Uncertainties and non-GAAP financial measures. This quarter's MD&A, financial statements and press release may be found on the company's website at www.blackdiamondgroup.com and also on the SEDAR+ website at www.sedarplus.ca. Dollar amounts discussed in today's call are expressed in Canadian dollars, unless noted otherwise and may be rounded. The format for today will be similar to prior calls. Trevor will start with a high-level overview of the company's performance and highlights from the quarter, including our view of the current and forward-looking operating environment. Trevor will then pass the call over to Toby for a more in-depth summary of the financials, including details of the quarter, and then we will open the line for question and answer. With that, I'll turn the call over to Trevor. Trevor Haynes: Thank you, Emma. And good morning, everyone. Thank you for joining our earnings conference call today. Yesterday afternoon, Black Diamond Group reported our first quarter 2026 results, showcasing continued stability across the platform. Consolidated revenue of $130 million increased by 27% with adjusted EBITDA of $32 million, up 21% in the comparative quarter. These results are inclusive of contribution from Royal Camp Services, which was acquired in November of 2025. Consolidated rental revenue increased 16% year-over-year to $43.8 million, driven by disciplined capital allocation for organic fleet growth, optimal and steady utilization and moderate rate improvement. Contracted future rental revenue totaled a robust $142.5 million at quarter end, which we continue to view as healthy and supportive of activity levels as we progress through the year and into the next. This trend of compounding performance across the business is not only a result of our well-defined growth strategies and strong leadership across the platform, but also the ability and character of our high-performance teams. Thank you all for your dedication to safety and serving our customers, disciplined focus on execution and relentless commitment in creating value for our stakeholders. Total capital expenditures were $16.8 million, consistent with the comparative quarter and capital commitments at quarter end totaled $26.5 million, largely allocated toward contract-backed asset additions. The organic reinvestment in the business underscores our commitment to putting our shareholders' capital to work prudently and in a manner that garners the highest rates of return. Given this, we will maintain our disciplined capital deployment approach and further scale our fleet in line with end market demand. Beyond organic growth of the business, the company is also well positioned to take advantage of all capital allocation mechanisms at our disposal, including accretive inorganic opportunities, debt repayment and return to shareholders through dividends or share buybacks. Our recent expansion of the asset-based lending facility to $550 million from $425 million with an uncommitted accordion of $75 million at preferred terms ensures we have the financial flexibility to continue scaling business. Looking ahead, our outlook remains constructive, with convexity of optionality across the business. We continue to see stable baseline performance across all our operating businesses underpinned by high-margin recurring rental revenue and generally healthy end market dynamics across Canada, United States and Australia. For WFS, the breadth and volume of opportunities in our pipeline suggests that nation-building thematic in Canada is indeed a substance and the pending impact of asset deployment on fleet utilization is a matter of timing. We remain bullish on our ability to unlock the significant operating leverage in this area of the business, but caution a realistic assumption on the timing of this scenario. MSS remains a resilient cash-generative business with clear runway for growth, underpinned by strong fundamentals and tailwinds in the infrastructure and construction verticals. While U.S. public sector education funding uncertainty has impacted the cadence of new sales, we expect this to stabilize moving forward. Finally, we are encouraged by the exponential growth trends we're seeing in LodgeLink. This performance reinforces its accretive potential which we expect to compound as the platform moves toward general availability of its new generation 3.0 product as we exit 2026. To summarize, we are pleased with the results of the company in the first quarter and expect similar steady near-term performance to carry through the first half of the year with the potential for a more pronounced acceleration in the back quarters with strong financial flexibility, disciplined capital allocation, best-in-class operational execution and a growing base of high-margin rental revenue, we are well positioned to continue compounding value through 2026 and beyond. With that, I'll now turn the call over to Toby. Toby Labrie: Thanks, Trevor, and good morning, everyone. I'll focus today on the results of our segments, margins and balance sheet. First, I'll address earnings per share for the quarter while EPS declined $0.06 from the comparative quarter, the decrease was due to several circumstantial factors versus any indication of eroding business performance beyond its typical episodic nature as shown through our growing consolidated revenue, EBITDA and cash flow. First, the impact of depreciation and amortization related to the acquired Royal Camp business had a $0.075 impact on EPS. EPS was also impacted by shares issued in conjunction with the bought deal and acquisition of Royal Camp services last year, higher stock-based compensation due to the increased share price and moderated activity in the company's legacy WFS operations due to the prepayments of a large U.S. contract in Q4 2025, partially offset by meaningful contributions from Royal Camp and stable performance from MSS. With respect to specific business unit performance, I'll begin with Workforce Solutions, where revenue of $81.5 million increased 54% and adjusted EBITDA of $18.9 million was up 48% from the comparative quarter, driven primarily by large services growth and contributions from Royal Camp services. Utilization for the segment was 56.5%, leaving meaningful available fleet capacity as we look to significant opportunities on the horizon. MSS generated rental revenue of $26.8 million, up 5%, with adjusted EBITDA of $19.4 million, consistent year-over-year. Utilization remained within the optimal range at 77.7% and average monthly rates increased 3% on a constant currency basis. We continue to see strength in our value-added products and services with VAPS revenue increasing 35%, driving VAPS as a percentage of rental revenue to 10.8% which continues to be an important focus and driver of margin expansion. LodgeLink delivered a strong quarter with total trade value of $32.7 million, an increase of 52% generating net revenue of $3.7 million, up 37% and total travel segments increasing 15% to 154,979 from the comparative quarter. From a balance sheet perspective, net debt at quarter end was $330.7 million, with net debt to trailing 12-month adjusted leverage EBITDA of 2.1x remaining at the low end of our target leverage range. Liquidity at quarter end was $93.3 million prior to the $125 million expansion of the ABL facility, providing flexibility to support further growth. The average interest rate paid on debt during the quarter was 4.21%, which was 62 basis points lower than the comparative quarter as benchmark interest rates are lower year-over-year. Business' ability to generate stable and growing free cash flow supported by a strong balance sheet remains a defining characteristic of Black Diamond. In the first quarter of 2026, we generated $17.8 million of free cash flow, representing a 5% increase from the comparative quarter. We also continue to make progress on the ERP implementation. Total investment to date is approximately $9.3 million with roughly $2.6 million remaining. Project is on schedule with this phase of MSS and corporate scheduled to go live in the current quarter. To reiterate Trevor's comments, we remain confident in the performance of the business. The near-term outlook is steady from these first quarter results with meaningful improvements expected in the second half of 2026 due to seasonal education and construction sector related activity. We continue to gain confidence in a further potential positive inflection point beginning as early as late 2026 aligned with progress on major nation building, infrastructure and resource projects in Canada. While the timing of large-scale construction project starts often extends beyond initial expectations, their extended duration once underway, has historically provided durable multiyear demand that we believe we are well positioned to capture over time. With that, operator, I'll ask you to open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Kyle McPhee from ATB Cormark. Kyle McPhee: I just want to start on the workforce demand wave on the way here. I'm hoping you can help us quantify some of the upside potential here. Do you expect to be able to start utilizing all of your unutilized camp fleet assets over the midterm? Is the demand coming down the pipe enough to soak up all of your excess suite notably when you layer in your odds of winning a chunk of this business on the way. Trevor Haynes: Kyle, thanks for the question. The simple answer is yes, although there's many factors involved. Certainly, what we're looking at here, from my perspective, having been involved in remote accommodation business for a better part of 40 years. I don't think I've ever seen a pipeline of active project bidding like we have today. And by that, I mean the breadth of what we're seeing certainly across pretty much every type of mining across the country as well as energy infrastructure basically coast to coast and across the north when you pull in the Canadian military initiatives. So from that perspective, we're very optimistic, and it's based on what we're seeing in our pipeline. When we add up the number of beds of demand when we think of everything that we're quoting to, it does exceed the available capacity. We've got about 6,000 beds of ready-to-deploy assets. So then we have to get into the nuance of, well, which projects go ahead in the near term and in what combination and how do we align. I would say, Mike, we're really well positioned with regard to our First Nations partners, our relationship with customers, et cetera, et cetera, our capabilities. Maybe add a little bit more granular color. Michael Ridley: Yes. I mean, if and when these go, whether FID is later this year or early next year, Trevor's point with some of our partnerships that we have in Western Canada, in particular, we're very well positioned and poised to win our fair share of work. And even beyond these nation-building projects, the sales pipeline in all of our markets right now is very, very active. When you look at mining in Eastern Canada, for example, even in the West, construction, government spend, disaster relief, homelessness, oil and gas in the Duvernay and Montney is also very active. And then moving down into the U.S., solid oil and gas sector, construction, everybody's talking about data centers these days and what they bring and benefiting potentially for Black Diamond, not only our workforce business, but we're very active with our MSS business on data centers as well. And then over in Australia, again, a really strong resource sector, construction, government, education. So yes, I would agree with Trevor's comments around -- I've been in the industry since '97. And in terms of what the sales pipeline looks like it's as strong as I've ever seen it. Trevor Haynes: As much as we talk about the timing with regard to major projects and sort of the front-end ramp-up characteristics of those projects. It's important to point out, there's many smaller projects around mining, et cetera that are mobilizing now. So there isn't this sort of gap we're looking at before the bigger projects pick up, and that's what gives us the confidence of current operating levels, Jon, anything to add from the Royal perspective. I think quick to point out to investors, we now have the full menu so to speak, of providing catering along with assets. So the opportunity is even bigger. Michael Ridley: Yes, definitely. The timing is the key thing. Even with some starting what's coming off and how do those roll into the other projects, I think that will be a big part of it. So -- and then as far as the operational side goes, ramping up for that, I think we have good opportunity to roll the operations into those different projects as they come on. Trevor Haynes: To summarize, Kyle, we really like what we're looking at in our opportunity pipeline. We're very active, and we do believe we're really well positioned with the great Royal team and platform added to the Black Diamond capabilities. So we just need the thematic to evolve over the next months, and we believe we'll see activity gradually climbing. Kyle McPhee: Okay. That's a lot of good color. Really appreciate it. Trevor, you mentioned you add up the total potential pipeline of sector-wide bed demand. Can you share what that kind of total pipeline number is, sector-wide? Trevor Haynes: Well, it's complicated because you get some elements of duplication where you have multiple subcontractors bidding on the same pipeline project, et cetera. So it's difficult for us to comment. I would say it's netting out of that, I mean, we're well in excess of $1 billion of high-quality outstanding bids, that's being somewhat conservative. I'm sure you can get read-throughs from some of our general contractor customer partners and what they're looking at and how they talk about their bid pipeline, et cetera. I think ours would chime with theirs. Kyle McPhee: Yes. And I'm not even just talking specific to Black Diamond. Just if all projects in the pipeline come to fruition sector-wide, how many more beds are needed. I think some of your peers are kind of softly indicating 10,000 to 15,000 more beds, maybe more, does that sound ballpark accurate? Trevor Haynes: Certainly. I think it's a scenario if all of these large projects go ahead, most of the existing beds, you can decide who wins prime contracts, et cetera, and how we organize amongst the industry. But pretty much everything existing will be needed to go out. And then we get into a question of been a long time since any meaningful capacity has been built for remote accommodation in Canada. So what is the capacity of the supply chain, and it's sort of an open question. But what we want to focus on currently is making sure we're positioned to service our customers on the immediate opportunity, and we've got a reasonable amount of capacity to match with that. And as we work through it, we'll start taking up -- the question of how to strategically add capacity if that's what's needed. Kyle McPhee: And do you expect this type of demand to benefit your MSS segment as well. I mean you just briefly mentioned the U.S. data centers might benefit both segments. But all these big infrastructure projects across Canada. Is that WFS beneficiary only? Or do you expect it to be meaningful for MSS? Trevor Haynes: No, it's absolutely an opportunity for the MSS platform as well. All of these remote locations also require the temporary project office, hard wall laboratories, security, training buildings, all over these project sites, and then areas of infrastructure build that aren't remote and don't require or not to the extent that the truly remote projects do require temporary accommodation for trades, they still require the site infrastructure for all the various types of temporary buildings. So we think the thematic applies to both MSS and WFS. And then, Ted, when we look at the U.S. side for MSS, the data center opportunity is much bigger for our BOXX Modular platform than for our workforce platform. And maybe bit of color on that, Ted. Edward Redmond: Yes. These data center projects are large construction projects. The data center trend has been going on for 10 years, and we've been participating in it over the last 10 years. What's changed is the dollars being put into it have increased dramatically and I think there's well over $1 trillion of data center projects in the U.S. So we're participating in this growth. We've got long-term contractor customers who were renting construction complexes too to house their construction staff. And once you get on a project to keep adding in more buildings on the sites that they have. So once you get on a site, your buildings stay on for quite a long time. So we're currently on a significant number of data centers, and we think that, that's going to continue. Trevor Haynes: If we switch back to the Canadian nation building thematic, any -- in Ontario, Darlington, et cetera, boost infrastructure and around our major cities, high-speed rail. This is all right down the fairway for MSS, Ted. Edward Redmond: There's almost $1 trillion of Canadian infrastructure projects, all the ones Trevor mentioned. And we're strong in the Ontario market. We're already working on a number of those infrastructure projects and bidding on the ones that are coming forward. Operator: Your network question comes from the line of Frederic Bastien from Raymond James. Frederic Bastien: It's been, I guess, nearly 6 months that you've had that Royal has been under your ownership. Can you just indicate how well the acquisition is going? Is it going as planned? Any anything that we -- you can point to that would help in our modeling as well. Trevor Haynes: The integration until we've done close to 35 acquisitions, many great outcomes. I would say so far with Royal, it's probably the quickest and most seamless integration from a people perspective. Really great alignment. The Royal team are really good solid group of professionals, and it's fit in well with our team. So we're already working in concert on the commercial side. And looking at all the assets as one asset pool as we match up against opportunities. So from that perspective, it's gone well. Some of the synergies, I think, Mike and Jon we've replaced external caterers with Royal to a really positive effect and picked up an element of margin in operated facilities. And it takes a bit longer on the system side for switchover of ERP, et cetera. But I would say, from integration, that's the work that's left to do, but a big risk of whether or not the businesses have good social fit, I think, is pretty low. Jon, maybe you can. Daryle Warren: Yes. I honestly couldn't see it pulling any better. The 6 months has just flown by. It seems like it was yesterday, but it seems like it was so far back. The teams just came together in every department very well. Our IT is fully integrated now. We're on the Black Diamond platform doing very well. The catering operations at Sunset Prairie. We're getting great accolades there, as you mentioned, now we're getting that margin. So we moved into a couple of drill counts as well, and we're working together on that. And then the cross-marketing the platforms, Trevor was speaking about and how we can bring MSS into workforce, and we've got several units that are in place in different locations. Very happy with that. Trevor Haynes: I think the exciting part is being able to bring the full turnkey across the Black Diamond platform and the asset platform to the Royal platform. The upside is in the new revenues we should be able to capture that would be more difficult on our own. Hopefully, that addresses your question, Frederic. Frederic Bastien: Yes, that's helpful. Could you address seasonality of the business? How do we think about historically as we go into the spring breakup, things slow down with respect to energy services company, how is Royal similar to that or not similar? Trevor Haynes: When you think about the energy sector, the way it works today is much different than the old shallow drilling days. I mean we see less and less seasonality, but I'll let Jon and Mike comment on that. Daryle Warren: At some of the open camps, we do have the drilling rigs that do quiet down for pretty much the month of April. But it's also the start of turnaround season. So -- but we lost in drilling, we gained a turnaround and right behind that international. Trevor Haynes: Turnaround at the oil sands. Daryle Warren: Yes, the oil sand side of things. So -- and we're starting to see the rig starting to come back in May. So it was a very short break up. It's not like it was 10 years ago or 15 years ago, where it would be a 3-month season, it was very quiet so. Trevor Haynes: Quick to point out a lot of the Royal revenue comes from long-term operating cams, where Royal is providing the turnkey service, a good deal of that is mining related. Daryle Warren: And mining very, yes, constant. It doesn't really have a season where it slows up. Trevor Haynes: So a little less seasonality, Frederic currently and going forward is our expectation. Michael Ridley: And just one other -- I feel like I talk about it every quarter is just, again, our core strategy in being more diversified and not necessarily focused on oil and gas, I think it really balances out the year very nicely in terms of the type of work that we're focused on in all sectors where it is much less seasonal than it was to Jon and Trevor's point years ago. Frederic Bastien: Awesome. And one more for me, please. MSS, obviously, you have grown this business through acquisition in the past. You were busy on the workforce side last year. You also did an acquisition in LodgeLink. How's the M&A landscape looking for that particular space rentals business? Trevor Haynes: Yes, we maintain healthy pipeline, as you know, ebbs and flows, the number of platforms that are looking to sell. Also, we have competition. So we start to predict when and whether we're able to complete something, but we're always working on it. And I think we've got a pretty good reputation in our industries as good buyers. I would point out on the MSS side, the industry is more and more consolidated. And so there's just fewer pieces out there. And so our first means of growth is organic and where we have strong end market demand. We're leaning in, it's a lower risk, actually higher return debt way to grow. And if we can augment that with some tuck-ins, we'd be very happy. I don't know if there's anything you would add there, Ted. Edward Redmond: Well, we're putting out a significant amount of capital over the last 5 years. And our target is to have good, strong organic growth. So we've got a whole series of growth strategies we're working on around that. And we're definitely looking for opportunities in all of our markets where we've got high utilization by customer demand, and we just -- we try to make sure that we have the fleet available to meet that customer demand. Trevor Haynes: We've got the dry powder to transact. So for all the analysts on the call, maybe not your investment bankers to bring us some fantastic ideas. Operator: Your next question comes from the line of Razi Hasan from Paradigm Capital. Razi Hasan: Maybe just one on the gross margin. Could you maybe give us some indication on how you see gross margin levels through the remainder of the year? Trevor Haynes: Thanks for the question. I think let's go straight to you, Toby. Toby Labrie: Yes. Thanks, Razi, for the question. Our margins within our existing revenue streams are -- continue to remain fairly consistent. We expect those to remain fairly consistent. So the biggest fluctuation you'll see is generally with the revenue mix itself. And so as we have higher rental revenue -- rental revenue being our highest margin business, lodging kind of following up as the second and then our nonrental being the lower margin business. So as that mix changes from quarter-to-quarter, you'll see changes in our overall margin levels. So with Q1 being relatively late on sales and nonrental seeing a bit higher gross margin levels overall. And as we see higher sales volumes and higher overall revenue typically in Q3 when we have more education, sales and nonrental-related activity, in particular, we tend to see a bit our overall margins dropping a little bit. But overall, on a full year basis, we expect things to be pretty consistent year-over-year. Razi Hasan: Okay. That's helpful. And then maybe just one more. I think you mentioned earlier, Trevor, just in regards to having a realistic time line for capital deployment on nation-building projects. Could you maybe talk about how you think utilization levels in the workforce segment carry through for the remainder of the year, you're at 56.5% or so now. How do you see that ending by the end of the year? Trevor Haynes: Yes. I mean that's something we look at and try to forecast out here. It's not an exact science because even when projects go to field level execution, and we expect a few -- that are in the headlines to move forward this year. The front-end work of preparing sites and starting to move the initial capacity for housing trades. There's a ramp-up element to it. Some of these locations are complicated, impacted by weather and various restrictions on action, et cetera. So what we expect to see is being able to give indication that we are mobilizing on larger projects, and then you would see operations type of revenue upfront as we begin to move assets in place and then a ramp-up on each project as the capacity grows to peak demand alongside of the number of trades that are going into the site. That isn't exactly a 1% increment, they do go out in blocks. And so you're going to see these sort of staircase step changes in utilization as we progress to a higher utilization run. So I'm not sure if that's a very precise answer for you, but that's the way we think about what happens over the next 3, 4, 5 quarters here. Operator: The next question comes from the line of John Gibson from BMO Capital Markets. John Gibson: When we think about unused capacity out there for workforce, you and your peers report in the mid-50s utilization, but based on increasing work in labor housing requirements is most of this equipment able to go back to work or could we reach a point where we maybe need new build workforce holding more quickly than expected? Trevor Haynes: John, thanks. To begin with characterizing the condition of our unutilized fleet, our view is that when we talked about 6,000 beds of capacity that essentially all of that is in market-ready condition. There's always a little bit of work as we assemble them, an air conditioner might not turn on or something, and so we have a little bit of maintenance capital. So we do believe that the fleet is ready for market. As we said earlier, based on what we see in the pipeline there are scenarios where demand could exceed our internal capacity. We think we've got arrangements in place that would allow us to access other equipment existing in the market, be able to meet demand prior to backing the decision of how to add new manufacturing capacity into our system or into our industry. So we kind of have a sort of a staged view of how utilization may exceed what we have available in our system. But again, our capacity is marketable with very little capital required to get it to market. If that's the primary question. John Gibson: Yes. I guess what I was -- that answered my question mostly. I just was wondering like, are we seeing a higher level of customization now that may require some new build equipment if not in your existing fleet more quicker than expected? Michael Ridley: Yes. I don't think much. I mean we are putting -- just to sort of add on the Trevor. I think the short answer is that most of our units are ready to go with minimal capital required to get into the market. Customization, project-specific with good term, good customers, good returns. We will certainly look at deploying capital in that regard -- some of our other asset types or subscribers are small format asset, we are adding capital in that area, 3-person sleepers, 4-person sleepers, self-contained units, drill camps. Not necessarily a huge piece of the pie, but we're putting capital into that to serve some of the changing dynamics in the oil and gas sector, for example, what the market is demanding. Trevor Haynes: And it's also because we're essentially fully utilized with those managers that were more streaming in the Montney. Michael Ridley: Yes. And with that, we're seeing reimprovement in that particular area as well. So yes. The base large-format fleet though is ready to go. Daryle Warren: Sorry, just going to mention the type of fleet that we have goes well with the demand, the layouts and such is exactly what is being asked for. Trevor Haynes: The private watch format. Daryle Warren: Yes. In combination of Black Diamond and Royal's fleet just mention it as well. John Gibson: No, that's great. That answers it. Second one, can you talk more specifically about military-related spending and how you're positioned, are you seeing demand on the WFS or MSS side and just, I guess, how are you positioned with government qualifications, that sort of stuff to win your share work there? Trevor Haynes: Yes. Interestingly, we've been spending time building relationships with Canadian military and government procurement staff, say, 4 years Emma and also handles our government relations. So we've positioned ourselves quite well with our security clearances and certifications, et cetera, we did create a new corporate entity called Black Diamond Defense Services based in Ottawa with the skill sets for being able to effectively interact and those customers on the specifics of what they need. And so when we think about that, it's opportunity for all 3 businesses and assess WFS as well as LodgeLink. And with various partners to take on expanded scope to provide larger turnkey contract outcomes for Canadian military. We're running in parallel or some opportunities that are moving forward quite quickly. And so I think, like Jon, we're going to see project deployment of some magnitude, likely over the next 6 months will show revenue from military. Daryle Warren: Yes. It's -- we've got a project we're working on right now that potentially is looking good for Q3 for deployment and operations to handle workforce accommodations on one of those projects. Trevor Haynes: Infrastructure build and it should be 5, 6, 7 years. So short answer, we've been working on it for a while. We're positioning as best we can, and we've got real opportunities in that vertical. John Gibson: Okay. Great. Appreciate that. Last one for me. I'm not sure if you can answer this. But what percentage of your U.S. business would be data center levered now? And where does this get to over the next few years? Trevor Haynes: I'm not sure we have that on hand, Ted, but maybe you do. Edward Redmond: Yes. I don't have an exact number for you. I think it's increasing part of our business. Our business is very diversified. We're in many of the major markets in the U.S. Southwest and the U.S. East, those cities have a lot of different projects going on them, data centers, are not uniformly distributed. There are some states where there's more data centers like Texas, and we've got significant data center activity in Texas. Other states are less data center friendly. So it is a much less than 50% of our construction activity in construction. If you look at our MD&A, you can see is only a portion of our total revenue. So it's a meaningful but and growing segment of our business. Operator: Your next question comes from the line of Vritti Munjal from Canaccord Genuity. Vritti Munjal: I'm filling in for Matt. You've indicated LodgeLink 3.0 is progressing towards general availability. Could you give us some color on the time line? And how should we expect the economics of the new platform relative to the current platform? Kind of more specifically, does it improve revenue margin structurally? Or do you see like more volume-driven benefits? Trevor Haynes: Yes. Thank you for the question. We're really excited about what's happening at LodgeLink. We've done a lot of work in positioning LodgeLink for its next phase, and we've been working at that as we've talked about 3.0 for the better part of 15, 16 months now. The new product, which is sort of a much more integrated, more dynamic type of workforce travel solution, it is really compelling. We're in -- we're just moving from pilot phase to advanced pilot. We expect to have the product in beta this summer and at a certain point this fall, I don't have an exact date yet. We'll see how beta goes. We expect to have general availability or GA. As we get there, there'll be a maturing of the revenue model that we anticipate will bring in a new type of user or revenue to add to the margins that we enjoy on the supply and through our intermediary partners. At the same time, our customer sign-ups, even prior to 3.0 availability have been really quite strong and retention of our largest long-term customers continues to be high 90s to 100%. So we've got lots of validation points that what we're doing is adding value in the ecosystem of demand and supply. And really, what we're doing here is really complicated itineraries moving large groups of people around. So we're really excited. We think we'll get to GA later this year. Quickly, the inflection point will show. Certainly, our KPIs will give a strong indication, but it is business-to-business sale and business to business sort of operational behavior will change for our customers' teams. And so there's an element of transition time line there. But we hope to have some really good data points to indicate whether the market -- product is hitting the market or the target market by late this year. Nothing has changed in our view about how large this addressable market is. We've got good traction in Australia, and we're looking more broadly at Asia Pacific and we just think this is going to be a tremendous part of our business as we continue to move through the next phase. So thank you for asking. Vritti Munjal: Yes, that's very helpful. Just one more for me. With regards to the Spencer Group integration this quarter, you -- the margin compression this quarter you attributed to Spencer Group corporate travel mix. Is 11%, 11.5% the right steady-state margin that we expect for LodgeLink? Or do you expect say, the crew accommodation business to reaccelerate and pull up the blended margin back to the 12%, 13% range we've seen before the acquisition. Trevor Haynes: The blended margin. If we look at the business without the Spencer revenues added, we actually had slight margin improvement that we would ascribe to elements of economy of scale as we're just handling more and more volume. When we blend in the more traditional travel management revenue streams, the margins are lower, but it's a profitable small business part of our LodgeLink platform. Mostly the intent was to get infrastructure, the IATA licenses, et cetera, to be able to grow our LodgeLink business in Australia. So why do I point that out? Because we anticipate seeing significant growth on the LodgeLink side, moderate growth on the traditional travel management. And so the margins even on a blended basis will increasingly be influenced by the LodgeLink side. So you should see gradual improvement as that mix changes based on the different growth levels of the 2 types of revenue stream. Hopefully, that makes sense to you. I don't know, Toby, if I explained that well enough. Toby Labrie: Yes. Yes, I think that's right. I think the -- you saw the margins blend down even though we were seeing margin expansion year-over-year. But as Trevor mentioned, as we continue to see that mix of revenue shift towards stronger growth on the accommodation side. We should see that on a sequential quarterly basis continue to improve. Operator: That concludes the question-and-answer session. I would now like to turn it over to Trevor Haynes for closing remarks. Trevor Haynes: Thank you. Thank you, everyone, for joining today. Once again, we're pretty pleased with how the business is operating. We think we've got a great deal of optionality as we look forward with a nice stable base and compounding our core business here. And thanks again to our teams across the platform for their great work. Hope everybody has a great day and a good weekend. Thank you. Operator: That concludes today's meeting. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Advantage Energy Limited Q1 2026 Results Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, May 1, 2026. And I would like to turn the conference over to Brian Bagnell, Vice President. Please go ahead, sir. Brian Bagnell: Thank you, Sylvie, and welcome, everybody, to today's conference call to discuss Advantage's first quarter 2026 results. Before we begin, I'd like to remind listeners that our remarks today will include forward-looking information and references to specified financial measures. Advisories on these items are contained in our news release, MD&A and annual information form, which are available on our website and on SEDAR. I'll also note that we posted an updated corporate presentation on our website. I'm here today with Mike Belenkie, President and CEO of Advantage; Craig Blackwood, our CFO; and the other members of our executive team. We'll start today by speaking to some of our financial and operational highlights. Once Mike has finished speaking, we'll pass it back to the operator for questions. And as usual, I'd like to ask that if you have any detailed modeling questions that you follow up with us individually after the call. And with that, I'll turn the call over to Mike Belenkie. Michael Belenkie: Thank you, Brian, and thanks, everyone, for joining us today. It's my pleasure to discuss our results for the first quarter of 2026, and the year is off to a great start. Advantage generated adjusted funds flow of $121 million or $0.73 per share. It was a highly active quarter with capital spending of $136 million, which is almost 50% of our full year capital budget just in the 1 quarter. We offset a portion of our spending by selling an unutilized infrastructure asset for $12 million plus assets in kind with an additional $7 million. And this helped us keep debt levels relatively flat at $556 million. Production averaged 81,375 BOEs per day in the quarter, which was a 2% increase from the fourth quarter of 2025. And liquids continue to play an increasingly important role in our business, generating 44% of total sales revenue during the quarter at an average realized price of $84 per barrel. So even in a quarter with weak gas prices and an intensive spending profile, the business continues to generate strong cash flows. We drilled 12 gross wells in Glacier and Valhalla and 13 gross wells were recently brought on production. Our oil-weighted Charlie Lake asset continues to exceed expectations with 5 wells brought on production in the first quarter. We're forecasting the asset will deliver over $120 million of free cash flow this year, reinforcing the benefits of diversification. Meanwhile, our recent wells in Valhalla Montney delivered strong initial rates and well condensate ratios exceeded 185 barrels per million cubic feet, which is in line with the greater Wembley play, though this is early data, and we will be keeping an eye on the decline profiles. Most significantly during the quarter, construction of our new 75 million cubic feet per day progress gas plant reached mechanical completion and commissioning is now underway. The progress gas plant is perfectly located at the intersection of 3 of our liquids-rich plays, the Valhalla Montney, the Progress Montney and the Charlie Lake. Not only will this plant drive the next phase of growth for Advantage and help reduce operating costs, but it's also a realization of a regional development strategy we've been pursuing for the last 15 years. The last pieces of the puzzle have now fallen into place with Glacier, Valhalla, Progress and the overlapping Charlie Lake assets all the way up to Gordondale, now forming one massive contiguous resource block with a network of owned and operated strategic infrastructure. This is a significant milestone for us, and I'd like to take a moment to thank our team for their hard work, finishing this important project on time and on budget. With spending on Progress behind us, we're entering a period of highly efficient capital development with escalating free cash flow. We don't plan to spend any capital on capacity expansions for at least 2 years, with almost all spending aimed at high rate of return wells into existing infrastructure. We have less than $100 million of capital planned in the second half of 2026. This has brought us to an important inflection point in our capital efficiency and free cash flow profile. Beginning in the third quarter of 2026, we expect production to average approximately 90,000 BOEs per day, and it should stay there through to the end of 2027, and beyond and that will deliver production growth in 2027 of about 7% over 2026. Now looking forward, our corporate strategy remains the same to maximize cash flow per share without compromising our balance sheet. This means a laser-like focus on picking the highest rate of return wells with every penny of discretionary capital. Naturally, our liquids plays have superior returns right now with AECO hovering around $1 per GJ and WTI at $100. This is a historical disconnect. At these prices, we expect our forecasted oil and NGL volumes to average approximately CAD 100 per barrel and account for 58% of sales between the second and fourth quarters of 2026. We're reallocating approximately $25 million of capital this year from Glacier gas targets, which at strip would be expected to have payouts of about 1.5 years. to Wembley oil targets, which are expected to have payouts of about 8 months. Our Charlie Lake wells currently have payouts of about 6 months. Although the BOE volumes for oil wells are typically lower than gassy wells. And when I say that, I'm speaking about the IP30s and so on. The impact of our -- the impact of these shifting to oil wells in our 2026 program will be minor on our total production forecast. So there is no need to adjust our 2026 production guidance. Depending on how long oil prices remain strong, we may shift additional capital to liquids drilling later this year. Debt reduction remains a top priority. We expect to achieve our net debt target range of about $400 million to $500 million during the second half of 2026 with cash flows supported by our hedging program and market diversification even if natural gas pricing remains weak. Given our proximity to that target, Advantage is opportunistically allocating a portion of free cash flow to share buybacks through the second quarter and into the summer. That approach is consistent with our long-standing capital allocation framework, especially given our current trading dynamics with Canadian gas producers trading at a significant discount to the greater market and Advantage at a discount within that group. We have hedged approximately 41% of our forecasted natural gas production in 2026 as well as 29% of our production in '27 and 18% in 2028. As a result of our hedging and downstream market diversification, our AECO exposure has now fallen to approximately 18% for the remainder of 2026. We have also hedged approximately 42% of our crude and NGL production this year and 26% in 2027. These steps have been important to reduce the volatility of our cash flows by reducing exposure to localized pricing weakness. As we look a little further into the future, we expect to continue our 5% to 10% annual production growth for the foreseeable future, although this growth is always carefully tuned to suit the commodity price outlook. We have owned and operated gas capacity that exceeds 500 million cubic feet per day plus the midstream service, and this is adequate for us to grow our production to 100,000 BOEs per day without any major infrastructure expansions. Depending on commodity pricing, we could be approaching this 100,000 BOE per day milestone as early as year-end 2028. And as one more thing, we also have an additional 100 million cubic feet per day of capacity ready to be reactivated at Conroy in British Columbia when market conditions are supportive for us to enter the province. I also want to briefly touch on Entropy. Construction of the Glacier CCS Phase 2 project is almost complete and commissioning is expected to begin in the coming months. This project is intended to substantially decarbonize the Glacier facility and drive a positive step change in operating income, which comes from contracted power sales and contractually guaranteed carbon pricing. All funding for the project is being provided by Brookfield and Canada Growth Fund. Overall, our message today is straightforward. The first quarter reflected a business that continues to perform well through the commodity price cycle while approaching a major step change in capital efficiency. We are bringing the Progress gas plant into service, improving our commodity exposure through hedging and market diversification and moving towards a period of strong free cash flow, driving debt reduction and ramping share buybacks. So with that, I'd like to thank our employees, our Board and our shareholders for their continued support. I'll pass it back to Brian for questions. Brian Bagnell: Thank you, Mike. Sylvie, we'll pass it over to you to see if there are any questions from the phone lines. Operator: [Operator Instructions] And currently, sir, it appears we have no questions registered from the phone line. Brian Bagnell: Okay. Thank you, Sylvie, and thank you, everybody, for joining the call today. If you have any questions, please feel free to follow up with us after the call. Thank you very much. Operator: Thank you, sir. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have yourselves a good weekend.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's First Quarter 2026 Investor Call. This call and the associated webcast are the property of Liberty Global, and any redistribution, retransmission or rebroadcast of this call or webcast in any form without the express written consent of Liberty Global is strictly prohibited. [Operator Instructions] Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at libertyglobal.com. [Operator Instructions] Page 2 of the slides details the company's safe harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical facts. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Forms 10-Q and 10-K as amended. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectation or in the conditions on which any such statement is based. I would now like to turn the call over to Mr. Mike Fries. Michael Fries: All right. Thanks, operator. Hello, everyone. I appreciate you joining the call today. As usual, Charlie and I will handle the prepared remarks and the presentation, and then I have my core leadership team on the call with me and on standby for Q&A as needed. We've got a lot of ground to cover, so I'm just going to jump right in on the first slide, which provides some key takeaways from the quarter. To begin with, we delivered strong operational performance, and we'll go through it all in a moment. But one big headline here, this was our fourth straight quarter of steady broadband improvement across each of our big 3 markets with fixed and mobile ARPUs remaining largely stable. Now Charlie will walk through how this translates into our financial results, but the punchline is, we will be confirming all of our 2026 guidance today. There are lots of reasons for this commercial momentum, including our multi-brand strategies, our network investments, AI implementations around personalization and churn and call centers. And we'll talk about all that a bit today. But really, what we'll do in our second quarter call is do a deeper dive on our AI initiatives. So stay tuned for that. Equally important for this audience is the fact that we are making real progress on the value unlock initiatives announced this past February. The acquisition of Vodafone's 50% stake in our Dutch JV is on track to close this summer, and we see no obstacles to getting that deal done on time. And that, of course, is just one of the main building blocks underlying our strategy to spin off our Benelux assets in the second half of next year. And I'll walk you through each of those building blocks in just a moment as well as the value we could and should create for you all by spinning off the Ziggo Group. Now quickly on Netomnia, that transaction in the U.K. is now officially in the regulatory process. And while the noise from 1 or 2 competitors has escalated recently, we're pretty confident this deal will be approved. It's a very positive development for the U.K. fiber market, which is in desperate need of rationalization, as you all know. And it's a great outcome for VMO2 for all the reasons we reviewed on the last call. And finally, you won't be surprised to hear that we are highly focused on capital allocation at the corporate level. Over the last 2 years, we brought our net corporate costs down by 75%. We talked about that on the last call. And we've articulated what we believe is a clear investment strategy around telecom and growth, and we strengthened our balance sheet. After funding the $1.2 billion needed to close the Vodafone transaction and executing on around $700 million of asset sales from our growth portfolio, we should end the year with around $1.5 billion of corporate cash. And as noted here on the slide, through April, we've generated around $300 million in proceeds. So we're sort of on our way. And then finally, just one quick remark on the broader telecom environment in Europe. As you would know, the sector has performed well in the last 12 months or so. That's driven in part by improved operational performance, reduced CapEx and a general rotation out of software and into industrials. You're all familiar with those trends. I would add to the list what appears to be an improving regulatory climate in Europe when it comes to telecom broadly and more specifically when it comes to consolidation. Now we await the formal release of the EU merger guidelines, for example, but these changes are expected to redefine the rules, and that's going to be a big positive together with an increasing commitment to sovereignty to our sector and the broader telecom industry. So I'm sure you're aware of that, but important to note. Now moving on to the next slide, let me start by saying that there will come a point in time when I don't need to put this chart in the deck. But for now, I think it's helpful to summarize our operating structure, specifically our 3 core pillars of value creation, Liberty Telecom, Liberty Growth and in the center Liberty Global itself and to highlight the strategies we're executing to create and deliver that value. Liberty Growth on the far right houses our portfolio of media, infra and tech investments totaling $3.4 billion today. And here, we're focused on rotating capital, investing in high-growth sectors with scale and tailwinds. We'll try to spotlight a few of those in each quarter. And today, we'll lay out the thesis for the experienced economy. In the center sits Liberty Global itself with $1.9 billion of cash and a team with decades of experience operating and investing in these businesses. And as we reported last quarter, we've restructured our operating model and reduced net corporate costs by 75% since 2024 to around $50 million this year. And these 2 asset pools alone, by the way, our cash and the market value of our growth investments, exceed the current price of our stock by around 30%, which means, of course, that everything in our core Liberty Telecom business on the left, nearly $22 billion of revenue, $8 billion of EBITDA and 4 incredible converged telecom champions are receiving no value at all on our stock. In fact, negative value, if you give us credit for our substantial reduction in corporate costs. Now as we said over and over and over, our primary goal here in Telecom to drive commercial momentum and importantly, to unlock value for shareholders. And that was the impetus behind our Sunrise spin-off, which you all know about and which we believe has worked extremely well for investors. And that's why in the last call, we described the formation of the Ziggo Group, a combination of our Benelux assets in Holland and Belgium and our intention to spin off our interest tax-free to shareholders in the second half of 2027. So where are we on that specific initiative? I referenced earlier the building blocks that form the foundation of our expected value unlock for the Ziggo Group. And you can see the most significant ones outlined on the left-hand side of the next slide. Let me just say that each of these steps, each of these blocks, if you will, are centered around strategic catalysts, free cash flow growth and deleveraging. And they each represent a foundational element of the value creation plan here. This is the primary blueprint we've been executing, of course, with dozens of overlays and work streams, but it should give you greater confidence and awareness of our plans here. Let's start with Belgium. The first step was, of course, separating Telenet from its fixed network, which is now a 2/3, 1/3 JV called Wyre. This restructuring accomplishes or has accomplished 4 key things. First, it isolates a significant fiber CapEx and debt capital needed to upgrade the HFC network in Flanders into an off-balance sheet vehicle. Second, it precipitated a comprehensive network cooperation agreement between Wyre and Telenet on one hand and Proximus and its fiber asset, Fiberklaar on the other hand, which I'm pleased to say was just signed yesterday and will result in a single network ours or theirs in about 75% of Flanders. That's a great, great outcome. Third, it creates a cleaner, more consumer and B2B focused Telenet, ServCo, with a significant free cash flow turnaround story supported by declining mobile CapEx and mostly AI-driven OpEx reductions. And then fourth, it facilitates a reduction in Telenet's leverage from both the rebalancing of debt between Wyre and Telenet and the sale of a portion of our stake in Wyre at a premium, by the way, which will be used to repay debt at Telenet. So really critical steps to getting where we want to be. Moving to the Netherlands. For me, the first strategic catalyst here was bringing in a new management team, one that could set the tone for a return to growth and for winning results in the Dutch market, and Stephen and his team have delivered exactly that. And the second strategic catalyst was, of course, reaching an agreement with Vodafone to buy their 50% stake in our Dutch JV. This deal, as I just said, is scheduled to close in less than 3 months. Now -- not only is that deal accretive from a financial point of view, but it strategically unlocks about EUR 1 billion in synergies we referenced and it provides the structural elements necessary to complete a tax-free spin-off next year. Each of these steps accelerates our commitment to reducing leverage at VodafoneZiggo, which we'll accomplish through asset sales, a return to EBITDA and free cash flow growth and synergies. Now on the top right of this slide, you can see a side-by-side of Sunrise and the combined Ziggo Group. If you look at 2025, the Ziggo Group is bigger. It's about 2 to 2.5x larger in revenue and EBITDA and a bit more profitable. But importantly, you'll see that in 2028, we're estimating free cash flow of around EUR 500 million and leverage of 4.5x, which presents a comparable financial profile to Sunrise when we spun it off in Q4 '24. The chart on the bottom right provides an illustrative bridge to the EUR 500 million of free cash flow, which is estimated to be EUR 120 million this year. And the biggest components of that, as you can see, are the nonrecurring nature of some costs this year in Holland, combined synergies, Telenet's mobile CapEx reduction and organic EBITDA growth. We think the Ziggo Group represents a compelling equity story and it's anchored around 4 selling points. Number one, this is a strong regional business with 2 of Europe's most rational telecom markets that are best-in-class brands. Number two, we have clear network strategies here with declining CapEx as 5G investments subside and fiber costs are moved off balance sheet in Belgium and a cost-efficient DOCSIS 4 rollout in Holland. So declining CapEx and great visibility to the network strategies. Number three, rising free cash flow and declining leverage, and that's supported by organic growth, synergies and EUR 1.2 billion to EUR 1.4 billion of local asset sales I've already described, towers, property, et cetera. And then number four, our commitment to pay dividends from free cash flow as we've done with Sunrise. So we have lots of work to do, but this plan and this path forward is clear for us, and we look forward to updating you each quarter on our progress. Now what does it all add up to? I'm sure many of you are wondering what sort of value creation do we think is achievable here. The chart on the next slide is actually simpler than it looks, but it moves left to right, and it demonstrates how we have and how we intend to create value through this unlocked strategy. Let's start on the far left. The day we announced our intention to spin off Sunrise in February 2024, our stock closed at $18. Of course, 9 months later, we completed the spin-off and using Sunrise's current stock price, we feel we delivered a tax-free dividend that's valued today at $13 per Liberty share. So together with our $12 stock, you get to $25 or about a 40% value appreciation in the last 14 months or so. So far, so good. About 2 months ago, we announced the second step in our value unlock strategy with our intention to consolidate Benelux and spin off the Ziggo Group in the second half of next year. So what might that be worth? And these numbers are illustrative. Lawyers, maybe, say that, of course. But if we -- if you move to the right and the third column, I think you'll see the answer. We believe a publicly listed Ziggo Group, if it were to trade at, let's say, the same implicit valuation of Sunrise today and essentially an 11.5% free cash flow yield could be worth up to $14 per Liberty share based upon the 2028 free cash flow estimate of EUR 500 million that we just discussed. And without debating the point, we believe this could be conservative. As you would know, many of our peers, KPN, Swisscom, Orange, Zegona, they trade at free cash flow yields of 5% to 7%, albeit with different leverage profiles. So let's stick with the 11.5% free cash flow yield. The primary question then is where will Liberty itself trade post spin. Remember, we believe that the entire Liberty Telecom Group has negative value on our stock today. We're around $4 per share despite our announced intentions regarding Ziggo, with our cash and growth assets worth $16 and our stock at $12, that's the only conclusion we can reach. Now to arrive at $14 post the Ziggo Group spin, we simply added our pro forma cash balance after the Vodafone deal and asset sales, together with the value of our remaining growth assets, including our residual stake in Wyre, and we get to $14. By the way, these numbers assume that the market continues to assign no equity value, that's 0 equity value to our remaining telecom businesses in the U.K. and Ireland. Of course, we think there is substantial equity value in these businesses, but we don't need to agree on that to get to these numbers. So to recap, if you follow the light blue boxes, from February '24, the day we announced our plan to spin off Sunrise to today, we created $7 on what was an $18 stock. So that's 40%, and we believe for those who had held on to the Liberty stock and the Sunrise stock, that number gets to 41% with the Ziggo Group spin. If you do the same thing with the dark blue boxes for those who bought their shares after the Sunrise spin-off, we think we can take $12 today to as much as $28 by the second half of next year when we spin the Ziggo Group. Now while there are no sure things in life and plenty to do between now and then, trust me, the building blocks we think are in place, and we feel good about the plans and these estimates here. Now one of the reasons for that good feeling is the progress Stephen and his team have made over the last 5 quarters. This next slide summarizes some of those initiatives and some of the progress beginning early last year when we repositioned broadband pricing, we changed the operating model and rejuvenated our campaigns, even expanded our footprint through the deal with Delta Fiber. As a result of that, we saw steady improvements right away in broadband, where we've been losing over 30,000 subscribers every quarter. Those changes continued into '26 when we rejuvenated the Ziggo brand with a new campaign, The Everything Network, that was supported by our UEFA rights, by the way, which we just extended. We also launched broadband into our no-frills flanker brand, bringing a simple and value-driven connectivity product to that critical segment. And you can see at the bottom right, the broadband net adds have been moving in the right direction for 4 straight quarters. In fact, our first quarter result was the best in 3 years, driven by all the initiatives I just referenced, pricing adjustments, new campaigns, product expansion and network improvements. And by the way, we have the largest reach of 2-gig broadband services in the country. And we just launched field trials with DOCSIS 4 in anticipation of launching 4 and 8 gig products later this year. So operationally, VodafoneZiggo is in great shape and improving, exactly what you want to see as we plan for a public listing next year. Now the next 2 slides summarize Q1 operating performance across our 4 markets. I'm going to do this quickly since the CEOs are on the call and they can provide color if needed. I think the main headline here is that we continue to see good broadband trends pretty much across the board and stable fixed and mobile ARPUs. Starting with VodafoneZiggo, like I just talked about, our broadband performance improved for the fourth consecutive quarter and postpaid mobile net adds also improved sequentially. We continue to invest in our fixed and mobile markets in Holland with both the Vodafone and Ziggo networks receiving outstanding awards in the Umlaut test. With ARPUs of nearly EUR 57 in fixed and EUR 18 in mobile staying steady, this has been a good outcome. Turning to Belgium. Telenet delivered its highest quarterly broadband result in 10 years, driven by successful cross-sell campaigns and strong performance with our BASE, our flanker brand there. Postpaid mobile results remain subdued in Belgium as the market is pretty competitive. And here, too, our base brand is outperforming, while both mobile ARPU at EUR 16 and fixed ARPU at EUR 63 remained largely stable ahead of upcoming price adjustments in Q2. Now turning to the U.K. on the next slide. Despite a market that remains highly competitive, Virgin Media O2 delivered a third straight quarter of broadband improvement with just 6,000 losses compared to 43,000 losses a year ago. And this was supported by strong commercial and retention initiatives and, of course, lower churn. Importantly, and despite pressure on the overall market pricing, here, our fixed ARPU remained relatively stable at GBP 46.50, supported by more and more personalized and AI-driven pricing. And with the Netomnia deal working its way through the regulatory process, we continue our fiber-to-the-home expansion with 8.7 million fiber homes available today. In U.K. mobile, we launched O2 Satellite. You might have seen that making us the first operator in the U.K. to switch on direct-to-device satellite connectivity. In addition, our mobile network transformation is progressing with new RAN upgrade agreements and the transfer of the second tranche of spectrum from Vodafone 3, that's hugely important to us. O2 now has the largest 5G stand-alone footprint in the U.K. Net postpaid losses of 60,000 were materially better than last quarter as churn from the Q4 price adjustment, we've talked about that, subsided, and ARPU of around GBP 17 was broadly stable. In Ireland, lastly, we continue to execute strategically with growth in wholesale and off-net traffic more than compensating for retail pressure on-net. Fixed retail ARPU of EUR 61 remained stable despite no price rise in '25. And importantly, our fiber rollout, this is critical, remains on track to be substantially complete in 2026, with nearly 20% of the retail base now taking a fiber product, and that will also drive free cash flow in 2027 and beyond. Now just one slide on our Liberty Growth portfolio, currently valued at $3.4 billion and centered around 4 key verticals you know: infrastructure and energy, technology and AI, services and, of course, media and sports. Our strategy here has been consistent for some time. We are exiting positions that are no longer strategic and using that capital to both invest in new opportunities as they arise and as needed, provide capital for transactions that will unlock value in our telecom assets. That second point is really important. Historically, we've divested investment positions totaling something like $1.6 billion since 2019, and we've targeted another $700 million in sale proceeds this year, of which, as I said, $300 million is already accounted for. Now a few comments on sports and live events. Of course, we're already invested heavily here through Formula E, but we also believe there are significant structural tailwinds that warrant us evaluating additional opportunities, and we're doing that. And these points are probably well known to all of you, I'm sure, but there's clearly a generational shift from physical goods to experiences, that's live events, sports, travel and entertainment. Many of these markets are fragmented and most are protected from AI disruption. So it's an interesting space. It's also a clear momentum in the sector, right? Just look at sports, global revenue in sports growing well in excess of GDP over the last 10 years and by almost everybody's estimation, poised to increase and accelerate from here. What's our right to play, you might be asking? Well, we know how to consolidate fragmented industries, both in telecom, but also we've been doing that for decades and recently with All3Media before exiting at a premium. We've got strong relationships across these sectors. Really, the deal flow is the easy part. And when you factor in our expertise in things like treasury, operations and technology, it's a pretty strong combination. And we have a good track record in sports, specifically with Formula E, the fastest-growing motorsport globally and one of only 8 global sports leagues, which is a great segue to my last slide. I always get excited when I talk about Formula E, sometimes too excited. But I think this moment is perhaps our biggest yet. Like over the last 10 years, and you've been following this, we have constantly innovated, investing significant energy and time in the car, the technology and the racing. Well, the wait is over. Last week at the [indiscernible] circuit in France, Formula E unleashed the next-generation race car, GEN4, we call it, and the motorsports world is still reverberating. First of all, you have to see it in person. Yes, it is a beast, but it's a beautiful, beautiful race car. The step-up in power and performance is incredible. 600 kilowatts of power represents a 71% increase in base output over the current GEN3 Evo car. The acceleration is insane, 0 to 100 kilometers in 1.8 seconds. That's meaningfully faster than an F1 car and top speed in excess of 335 kilometers an hour, nearly 210 miles per hour. We estimate -- because it's an estimate at this point, that lap times will decrease by 10 seconds on average from the current generation car. That's a lifetime in racing. It's also the first single-seater race car with active all-wheel drive all the time, which will provide incredible acceleration in torque out of the turns. And of course, it meets all of our expectations from a sustainability point of view. It's made from at least 20% recyclable materials. It's 98.5% recyclable itself and allows us to continue claiming that our race-related carbon footprint for the entire championship would fit into F1 team, by the way. Speaking of F1, yes, we might have taken a few shots at them since the GEN4 launch. It might be deserved also, you're obviously aware of the issues they're dealing with currently and that they're going through with the hybrid engine. And it just reinforces our view that going halfway on anything does not make history. And we love the position that we're in technologically, competitively from an entertainment and motorsports point of view. But hey, just don't take my word for it. In the next slide, you can see -- go ahead and scan social media, the motor sports press. There is widespread consensus. I know I'm quoting this GEN4 car is a "monster." It's "ushering" in the most extreme era of electric cars, and it's expected to change perceptions of Formula E forever. Even Max gives it a thumbs up, as you can see on the bottom right. So anyway, super excited about GEN4 car in front of the E. And with that, Charlie, I'll turn it over to you. Charles Bracken: Thanks, Mike. My first slide sets out the Q1 financial results for our Benelux companies. Now as you can see on this slide, we're now presenting Wyre's financial performance for the first time separate to Telenet to give investors clarity on their respective financials before we complete the full separation of the 2 companies and their capital structures later this year. VodafoneZiggo reported a revenue decline of 1.8% in Q1, driven by a lower customer base and ongoing repricing impact. Now this was partially offset by the price indexation and higher revenue from Ziggo Sports and adjusted EBITDA declined 6.4%, driven by higher marketing costs and some incremental investments in network resilience and service reliability, in line with our guidance in March. At Telenet, revenue was broadly stable in Q1, reflecting our strategic decision not to renew Belgium football rights, which was partly offset by a strong broadband performance, which was driven by effective cross-selling into the video customer base. Adjusted EBITDA grew 8.9%, driven by lower content costs following the exit from the football broadcasting rights. And at Wyre, revenue declined by 1%, impacted by the implementation of a new pricing model, which was partially offset by strength in wholesale growth. Adjusted EBITDA declined by 4.6%, and this was driven by an investment in build capability as we start to accelerate Wyre's fiber build-out capability. Turning to the U.K. and Ireland. Virgin Media O2 delivered a total service revenue decline of 3% on a guidance basis. Now this was impacted by competitive pressure in the consumer fixed market and lower B2B revenue as the newly rebranded O2 business rationalizes its product portfolio to support its long-term growth in the mobile segment. This was partially offset by wholesale revenue growth, which was supported by growth in MVNO revenue and adjusted EBITDA declined by 3.4% as a result of the lower total service revenues and a noncash provision for legal matters recorded in the quarter. This was partially offset by cost reduction initiatives. At Virgin Media Ireland, revenues declined by 1.4% in Q1, impacted by intense competition in the consumer fixed and mobile markets as well as a decline in advertising revenues at VMTV. This was partially offset by a strong wholesale performance. Meanwhile, adjusted EBITDA declined by 7.1%, driven by these top line pressures and was also impacted by a one-off benefit in Q1 last year. Turning to the next slide. We remain committed to our disciplined capital allocation model as we rotate capital into higher growth investments and strategic transactions. Starting on the top left, Telenet reported EUR 10 million of free cash flow during the quarter and is expected to deliver at least EUR 20 million of free cash flow for the full year. Additionally, Liberty Corporate delivered adjusted EBITDA of negative $2 million, putting us firmly on track to achieve our full year 2026 guidance of negative $50 million. Turning to the bottom left. CapEx has meaningfully stepped down at Telenet in Q1 on a guidance basis, driven by the 5G upgrade nearing completion at the end of 2025 and lower spend on digital platforms. Capital intensity remains elevated at the other OpCos, reflecting investments in our fixed networks and also 5G upgrades. Moving to the Liberty Growth walk in the top right. The fair market value of our growth portfolio remained broadly stable versus 2025 year-end at $3.4 billion. This was driven by modest investments in AtlasEdge, egg Power, NextFibre and EdgeConneX, offset by the partial disposals of our ITV and some of our EdgeConneX stake as well as a positive fair market value adjustment at EdgeConneX, along with the recent decision to move Liberty Blume out of our Corporate & Services segment and into the growth portfolio. Turning to our cash walk on the bottom right. We ended the quarter with a consolidated cash balance of $1.9 billion. Q1 distributable free cash flow was impacted by high CapEx levels related to the fiber-to-the-home rollouts at Wyre and Virgin Media Ireland. In addition to working capital movements at Telenet, that's worth noting, we continue to anticipate that Wyre will draw on its stand-alone facility following BCA approval, and will fully repay the short-term funding provided by Liberty Global consolidated cash by Telenet. As a reminder, we are aiming to end 2026 with around $1.5 billion of corporate cash despite the expected outflows associated with the incremental Vodafone stake and also, to a lesser extent, the Netomnia acquisition. And finally, turning to our full year guidance targets for 2026. We are reconfirming all guidance metrics of VMO2, VodafoneZiggo and Telenet as well as our guidance for corporate costs. And that concludes our prepared remarks for Q1, and I'd like to hand over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Carl Murdock-Smith with Citigroup. Carl Murdock-Smith: That's great. Two questions, please. Firstly, I wanted to ask on Virgin Media O2 about the wholesale service revenue growth. In the release, you say that, that included GBP 15 million of fixed pre-enablement and installation income. Am I right in saying that, that increase was due to a change in accounting treatment, meaning that it's now recognized as revenue, whereas previously it wasn't? I recognize that it's low margin, but that has provided almost a 1% boost to service revenue overall in Q1. So my question is, did you know about that change in treatment when you issued the guidance in February? Or does it provide potential upside to the revenue guide of 3% to 5% decline, particularly as you come in at the very high end of that range in Q1? And then secondly, I just wondered if you could expand slightly on the O2 satellite news and your kind of level of excitement around that? How much customer interest are you anticipating? And more broadly, just what is your view on the role of satellite in telecoms as a complement or competitor going forward? Michael Fries: [indiscernible] go over to Lutz first, but let me just say that as we look at the satellite space generally, we think, of course, satellite broadband, Starlink broadband has a role to play on the planet. There will be plenty of people who will utilize that broadband service and need that broadband service. We believe the direct device mobile opportunity is far more limited by technology, by market access, but we do like the idea of having a satellite service attached to our mobile network. We think it adds just another level of service and commitment to customers. And of course, the U.K. is the first market to where we have done that. So Lutz, I'll turn it over to you for satellite and then someone -- Charlie, I guess, will answer the wholesale question. Lutz? Lutz Schuler: Yes. Carl, so we are very satisfied with the launch of O2 Satellite, not disclosing numbers. But the fact that we have, at the moment, not the iPhone available, we will have it available in a week from now, and we have already quite high demand is leading us to the assumption that this is really a reliable service, an interesting and attractive service for customers. And also in combination with our improved mobile network, our 5G stand-alone coverage, we are really creating the right perception for customers, which means we have the most reliable mobile network from everybody in terms of coverage and data speed. And so therefore, we are very happy with that. Michael Fries: Charlie, do you want to address the wholesale? Charles Bracken: Just on the wholesale revenue, I mean, I think it was basically in budget, and that is a very difficult business to forecast by its very nature because it's -- but I think it was a pretty strong quarter. Lutz, do you have anything to add on that? Lutz Schuler: I mean I can give some color, right? I mean this -- I think, Carl, you're right. It was not -- we didn't account it the same way before. The reason for that was not to beef up our service revenue. And as you see, right, we are coming currently more at the upper end of the guidance. The reason for that is, that will be a growing and a continuous service revenue stream because we will more and more connect customers either from other networks or from other ISPs. So therefore, when you look at that way, I think that change makes sense. But as you said yourself, right, we are coming in at the upper end of our guidance. And you could drag that number a little bit. It is [indiscernible] of it if you want to accrue for it, but it won't change anything in the guidance. And I mean, we wouldn't change it. It's only one quarter, but so far, we are happy with what we have. Operator: Our next question comes from the line of Polo Tang with UBS. Polo Tang: I have 2. The first one is just on U.K. competitive dynamics for Lutz. So could you maybe talk through how the recent price rises in April have landed because the percentage increase is quite large, and I think it's double digit for most subscribers. So I'm just wondering if there's been any change in terms of churn. Separately, your postpaid mobile losses are continuing. So how optimistic are you that this can stabilize through the year? Second question is just a broader question on use of cash going forward. So you've talked a lot in this -- in the prepared remarks about ventures and the focus on sports and media. I think press reports suggested you were considering buying a European NBA franchise. So are you pivoting the group more towards media and sports? Or is the plan still to break up the group and return cash to shareholders? So any color on that would be great. Michael Fries: Sure. I'll start with that, Polo. They're not mutually exclusive. That's point one. Point two is our primary commitment, and I think it should be clear, but I'll repeat it here, is to create value for shareholders. And we believe, as I've said a few different times, the biggest opportunity to do that is to highlight and find ways to illuminate value in our telecom business. So that is our priority. That is number one. And as I mentioned a moment ago in my remarks, when we look at the use of capital, that factors in squarely to that -- to the strategy. So as I said, we will use capital and rotate capital into growth opportunities should they be presented to us, but also into the telecom business if it helps to unlock value for shareholders. And then I think I went on to say that second one is an important point. So that's the first part of the answer. I'd say, secondly, we are opportunistically looking at and being presented with sources of opportunities. Sorry, somebody has got this -- somebody is ringing. Anyway, with opportunities in the sports space and in the media space generally. And there's a reason why the portfolio was $3.4 billion large because we have been very active as an investor. And maybe it's been quiet, and we don't spend as much time on our earnings calls doing it, but it's arguably the biggest component of our stock price today are the investments that we've assembled strategically and purposely over the last, let's say, 5 to 7 years. And we're divesting ourselves of a huge chunk of those investments and rightly so because we need cash to do the things we've been talking about today. And then we will opportunistically look at new investments if they make sense. But don't get me wrong, we are committed to the unlock strategy, and that is priority #1. Lutz, do you want to talk about competitive nature of U.K.? Lutz Schuler: Yes. Polo, so in mobile, you see in our numbers that we have been shrinking in service revenue around 3% but this is before the price rise. And right, a reason for the net losses in Q1 was the higher price rise we decided for. Now we are seeing this landing very well. We have the first month of the second quarter behind us, Polo. And our explanation for that is that those who didn't want to pay it less and -- before that has materialized. Now we don't see any spike in churn. And obviously, we also have to wait for May, but the findings here are so far so good. On the fixed side, the competitive situation is also unchanged, I would say. So all are very aggressive, as we all know, and also other competitors have to follow. But here, remember, I said at the last call, we have to optimize our prevention machine as we used to do it with the retention machine, which we have done now. So therefore, we are quite proud about the fact that we have almost stabilized -- managed to stabilize our fixed customer base in Q1, and we expect something like that in the future. And yes, it comes at the cost of some ARPU which is 1.6%. But in the scheme of things, that is a balanced approach. And let me finish with -- remind you when we've given the guidance, right, 70%, 80% of the service revenue decline is attributed to our expectation on the fixed consumer service revenue market. And that means that we are planning for a recovery in mobile service revenue, Polo, and we are going to see this as we speak from the price rise in Q2. Operator: Our next question comes from the line of Robert Grindle with Deutsche Bank. Robert Grindle: I see the progress on the long-form agreement with Proximus, but approval for the collaboration is still outstanding. What happens if you're delayed for another 6 to 9 months? Do you progress the build of planned? Or is the project pushed back? And I think Charlie said the Wyre revenues were impacted by a new pricing model. Could the Wyre Telenet ServCo financials change from here? Should there be a change in the wholesale rates associated with any approval? Or will this financial base you've given us now be effectively unchanged? Michael Fries: Thanks, Robert. We've got John Porter on the line, who's worked tirelessly on this Proximus transaction [indiscernible] outstanding result for Telenet and for us. Do you want to speak to the regulatory process from here, John? Unknown Executive: Sure. Well, we've been in lockstep with the Competition Authority and the BIPT over the last 2 years. They are right up to date on every aspect of the transaction between ourselves and Proximus. We have very positive inclination from them and believe that they will expedite the final review of the transaction. There is then a necessary 30-day review at the European Commission. That is not an approval process. It's just a chance for them to reflect on the transaction and see if it has broader implications. So we are cautiously optimistic that we will complete this transaction over the next, say, 6 to 8 weeks. And it's a virtual impossibility that it would go longer than that because I think we'd all down tools. But I think that we are -- the main critical path has been achieved between ourselves and Proximus and everybody is ready to get going. Charles Bracken: And let me just step in on the -- I'll just say, we're separating the 2 companies. There is a little bit of tweaking. For example, there is a bit of movement on the wholesale rate to Telenet, and there's also some management fees that are being reevaluated. So I think we'll get a more stable view on the numbers in Q2, but I would say it's pretty good news for the ServCo. I'd also say on the financing side, just a real shout out to our treasury team, the $4.35 billion of underwritten financing that's clearly in place and we could draw has -- now been fully syndicated, which is a great success, very successfully syndicated, and with the completion of the BCA approval, we'll be drawing that down and indeed paying some of the money that we decided it was more efficient to bridge from our balance sheet rather than draw revolvers to do so. So I think it's all around good news for the eventual Ziggo Group spin because I think the Telenet part of the equation is very much on track for the free cash flow target we set them in 2028. Operator: Our next question comes from the line of Joshua Mills with BNP Paribas. Joshua Mills: Two from my side. One was just going back to Slide 6, where you lay out the strategic plan for the new Ziggo Group. My question is around the leverage. So there's a lot of moving parts there. Can you just remind us what the pro forma leverage position of this business would be today if you put it together? And how much you're expecting to bring in the Wyre stake sale and then the other asset sales to make up the EUR 1.2 billion to EUR 1.4 billion. I just want to understand the assumptions underpinning that, what you're at today and then how you get down to the 4.5x. That would be the first question. And then the second question is just around the Dutch business. We've seen continued improvement in the broadband performance. Can you give a bit more color as to what's driving that on the customer side on perception? Is it people happier with price? Is it, that they have noticed a change in the network quality? Any detail you have would be great. And as a final add-on, your competitors have highlighted potential benefits from the data breach at Odido. I think in the Q1 and probably going into Q2, Q3 net add trends there. How much of an impact have you seen from that on your own business in Q1 and Q2? Michael Fries: Thanks, Joshua. Look, Stephen will prepare answers to the Dutch questions. On the asset sales, the EUR 1.2 billion to EUR 1.4 billion, those consist primarily of towers and technical facilities, et cetera. And we're not really providing a breakdown of those numbers today because we're in active sale process. So we're not going to provide expectations or estimates of what we think that is. But we think that's the range of total combined asset sales, which would be used to pay down debt. Charlie, do you want to address the pro forma leverage? It really depends on what point in time you look for that number and what's happened with the Wyre stake. Do you want to address that, Charlie? Charles Bracken: Yes. I mean it's actually a very complicated question because clearly, the Belgian assets that are going to go into the Ziggo Group do not include because there will be a full separation of the Wyre assets. With the $4.35 billion of underwritten and now syndicated debt, we will therefore be paying down debt at Telenet or Telenet ServCo, but Telenet will be what we'll call it going forward. And it remains because of the investment profile, Ziggo -- but Ziggo is relatively highly elevated. So there's a lot of moving parts in answering that question. I would just reconfirm what Mike said is we're very confident in a path to get down to the -- around 4.5x by 2028. It does depend on some asset sales, but we feel pretty good about those being delivered. And with those asset sales and indeed continuing organic EBITDA growth, particularly in Holland, I think we should be there or thereabouts on target. I'm very happy to take it offline to get some of the detail because there's a lot of moving parts about why... Michael Fries: And it's in the low to mid -- yes, the combined group is going to be in the low to mid-5s. Telenet itself will be in the mid-4s. VodafoneZiggo will be higher, and then we'll start layering in the various deleveraging steps, additional steps as well. So there's a clear path, but perhaps in next call, Joshua, we'll give you a little bit more detail. But that is the general trend. Joshua Mills: That's great. And this isn't assuming any injection of cash from the -- sorry, there's no assumption of... Charles Bracken: [indiscernible] no cash from corporate, but I think it is important to note that we are putting our money where our mouth is. There's no distributions to Liberty Global in terms of equity distributions. We're reinvesting the free cash flow of Holland back in the business this year and indeed in Belgium. So that is a commitment to our bondholders and also to the fact that we are very confident in this growth profile. Do you want to answer the question? Stephen van Rooyen: Yes. And in terms of the operational performance of the broadband business -- yes, can you hear me? Yes. So in terms of the operational performance of the broadband business over the last 12 months, if you follow the story, we've done a number of very clear interventions. The first is -- we got our pricing right for the broadband products that we're selling. We were mispriced in the marketplace. We fixed that a year ago. When we talk about the back book repricing, we're pleased with the progress we've made on that. You haven't seen that in the ARPU. So we've managed that, I think, pretty well. Second thing we've done is we've gotten top of churn. We've been much more proactive in how we manage our customer base, which I think has had an effect on bringing churn down. We're now down 3 points year-on-year. We've invested more in marketing, by repositioning the business. The business was underspending on marketing and was out of sync with how, in my view, connectivity should be sold. We've invested, as you saw, in upgrading the speeds of the network. So you've seen us launch with the only 2 -- we're the only national 2-gigabit service. So we've taken speed as a headwind off the table for us. And then more generally, I think we've done a pretty good job of just tightening how we take the business to market. And you've seen that flow through sequentially each quarter as each of these initiatives have landed. And we have a series of initiatives coming through the rest of 2026, which we anticipate to continue to help us with the momentum behind the story. Unknown Executive: The Odido question, Stephen? Stephen van Rooyen: I'm sorry, I missed the Odido question. Can you repeat that? Michael Fries: The question was, are you seeing any benefit from their cyber attack? Stephen van Rooyen: Yes. It happened late in the quarter. It happened around week 10. So we saw some impact from that, but it's -- we didn't see a lot of it in the quarter. Because of the size of the mobile base -- we felt a bit more of it in the mobile base. But nothing that I think is material in the Q1 results because it only represented a handful of weeks. Joshua Mills: Great. And -- I mean I was more talking about the Q2 results. Obviously, it happened later in the first quarter, but are you seeing any impact so far in Q2? Stephen van Rooyen: No, we're happy with our progress on Q2 so far, but it's quite early. I have to come back to you when we do the Q2 results in a couple of months. Operator: Our next question comes from the line of James Ratzer with New Street Research. James Ratzer: I had 2 really both around Belgium. So in Telenet, you obviously had a very good quarter in terms of broadband net adds. And I'd love you can just give a bit more color behind what's driving that? Is that now growth out of footprint in Wallonia? Is that coming on your kind of BASE brand within Flanders? Or is it something else? I'd be interested to kind of get just a bit more color on the drivers there of broadband subs growth. And then secondly, just going back to the point that was raised earlier about Wyre revenue growth, which was down year-on-year in Q1. Is that a kind of one-off for this quarter, Charlie, you were mentioning around pricing and it goes back to growth in the following quarters. I'd just love to understand a bit more about the kind of dynamics there between kind of P and Q because I've been thinking that with kind of pricing there, we should see Wyre as a top line growth company. Michael Fries: John, do you want to take the Belgium question? Unknown Executive: Yes, I can take it. So on the first -- on the broadband, the BAU has been strong, particularly in the BASE brand, and their growth is about 50-50 between the Telenet footprint and growth in the South. So we are steadily growing and that growth in the South is increasing incrementally. There is a, what will be a year-long enhancement of that growth as we migrate out of DVB-C and into full IP for our video distribution. So we are the last operator in the market to have DVB-C where you don't require Internet to get television, but we are shutting that down over the next year. So we're expecting to see continued strong growth. But as you can see, the last -- the quarter ending '25 and the quarter -- the first quarter of the year, very strong, and those are the main drivers. On the Wyre revenue, there, we implemented a wholesale deal, a new wholesale deal on the HFC, which is making -- essentially structuring the higher speed tiers to be more accessible. The wholesale price is going down a little bit, and that's what you're seeing flowing through. That is -- will be part of the overarching deal done with Proximus, and we'll be able to give you more detail on that down the road. But the drop will not continue to drop, but it is the new HFC wholesale pricing. James Ratzer: So from those new prices, do prices then rise with inflation from this slightly lower level looking into 2027, '28? Unknown Executive: There is an inflationary component to both the fiber wholesale and the HFC wholesale. Operator: Our next question comes from the line of Matthew Harrigan with StoneX. Matthew Harrigan: This is very much a contextual question rather than kind of blocking and tackling valuation anomalies. But you made a quick reference to more benign regulatory environment in your markets. But what's even more interesting on a macro basis is the emphasis on your industrial base and defense. And clearly, telecom is a vital pivot in defense. Is there any possibilities for your telecom business or I guess, particularly your venture portfolio in that end, I'm sure Charlie [indiscernible] to be manufacturing drones, but it still feels like something that could be an interesting tailwind, particularly since you're involved in so many areas of verticals? Michael Fries: Matthew, listen, the whole sovereignty debate, it's no longer a debate. It's a verifiable conviction. It's net positive for us in the telecom space. Now we won't all benefit equally, but every telecom player will benefit from the European Union and the countries within the European Union's focus with their own cybersecurity, their own data protection, their own data centers, their own AI infrastructure. So inevitably, whether it's AtlasEdge or our investments in EdgeConneX on the infrastructure side in our Liberty Growth portfolio, whether it's our OpCos themselves and their ability to provide services and B2B services and connectivity to governments and others, I think it's a net positive for telcos in Europe, which is why I mentioned it along with the loosening regulatory framework, which I think will also be a net positive. We may or may not be part of any of that consolidation, but we know that consolidation itself brings benefits to customers as well as operators and investors. So I think it's a real positive step. In terms of defense itself, we're not -- unlike perhaps some of our peers who are more closely aligned with the government, we are not involved in any specific defense type investment opportunities or infrastructure. But if we were approached, we would certainly consider it if it was consistent with our overall strategy. I don't see us veering off, if you will, into that. But -- does that answer your question, Matt? Matthew Harrigan: Absolutely. Operator: Out next question comes from the line of Ulrich Rathe with Bernstein Societe Generale Group. Ulrich Rathe: Two questions. First one is, Mike, you talked about the improving regulatory climate with regards to consolidation. Other management teams in the sector have flagged mixed signals they perceived to come out of Europe. So could you talk through what specifically you have in mind there, what insights or uses you have to share [indiscernible] more positive assessment? And the second question is on the EUR 1 billion synergies that you talked about in Ziggo. Can you talk about the sort of rough makeup of that in terms of operation and other source of synergies? Michael Fries: On the synergies point, I don't know if we've been specific, so I'm going to pause. But typically, you wouldn't be surprised to learn that it's consisting of 3 or 4 key line items. There's a financial synergy. That's more, I would say, a free cash flow type synergy from -- that we haven't -- well, from taxes essentially, there's operating costs that we think are achievable and we can create more efficiencies around. There's procurement and CapEx type synergies. So it's not going to be -- and when we get closer to legal day 1, we'll clearly provide more detail to you. Right now, we're still in the midst of closing the deal. But there's lots of things we can be doing and will be doing in those 2 operations and within and among them to create those synergies. And if I had to put my team on the spot right now, they'd say that's probably a low number. On the regulatory side, we did just get the EU merger guidelines released, and they are quite positive, at least in comparison to the kind of posture and position that the European Union would take previously when it came to in-market consolidation, right? I mean they're looking at a much more, I guess, moderate and pragmatic approach, and they're seeing that benefits could certainly accrue for mergers versus just always seeing the negative in those mergers. There's always been a structural bias against scale. And now they're seeing -- actually scale could increase investment, could increase innovation. And it's actually spelled out in the document that was released recently. So that to us is when it's in writing, if it's just a speech, I don't give that much credit. But when they put it in writing as they have with these new EU merger guidelines, that is a -- that is a positive step. Now it needs to be put to the test, and there will be plenty of deals that will put it to the test soon, I imagine. But never before have they written down in black and white, the sort of statements that we're reading today in terms of -- which are consistent with the arguments we've been making that consolidation in market is the first step to repair in European telecom space. Operator: Our last question comes from the line of David Wright with Bank of America. David Wright: Yes, last question. So a couple, please, guys. Just on the -- I guess it's for Ziggo, but DOCSIS 4.0, I think you may have said, Mike, that there are some trials ongoing. If we could just get some estimates of maybe the sort of trajectory of commercial launch for 4.0 in Holland. When do you expect the first sort of significant retail launch, et cetera? And is it something that you think you could even price a little as you move into the real sort of mega tiers of speed? And then the second question, maybe a little more conceptual. We're observing a lot of discussion around the kind of InfraCo, ServCo split, and you guys have obviously sort of embraced that. And there's obviously a clear sort of capital allocation justification and the ability to separate the 2 businesses that are quite structurally different. But I just wondered, does having a separate InfraCo make a more agile ServCo in terms of just day-to-day operations? Is the business just more able to respond and sort of change shape in the sort of digital age? It's a little more conceptual. Mike, if you have anything to add on that, I'd appreciate it. Michael Fries: Sure, sure. Stephen jump in here if I get it wrong, but I believe our 4- and 8-gig trials are the latter part of the year, maybe even late Q3, Q4. But what we did was get the field trials underway to demonstrate that it works. It works well, that the technology we're using is really state-of-the-art even in relation to the U.S. operators. But as we get closer to going public in the latter part of this year, then we'll have more information, but it's happening. And we think it's going to be a big positive for the market and for our business for sure. On the ServCo side. Look, I mean, Belgium is the test. What does it do when you end up taking the fixed network, you still own the mobile network, but taking the fixed network and putting it into a separate entity, I think, and John will agree, I'm sure it forces you to be more efficient, more agile and your margins change, all of a sudden, there's a wholesale fee in your P&L that you have to account for. In principle, Telenet will continue to be a very competitive brand and a very competitive B2C company and B2B company. It's -- with respect to its network, its fixed network, it will be renting instead of owning that network. But the relationship that's developed with Wyre is highly integrated, highly -- with mutual benefits, both directions. And so on balance, I think -- and this is the only place we've done it, it really is Belgium. I think on balance, and John can chime in, I think it does create a bit more energy in that ServCo, a bit more focus on margins and competition with a little less to worry about and a slightly better CapEx profile. And that CapEx profile frees up free cash. Telenet will generate significant free cash here shortly as it has, and we'll have to figure out how to reinvest that free cash, whether it's deleveraging or in actually new products and services. But anything more to add to that, John? Unknown Executive: Yes, a bit. I mean the CapEx we are spending, we are now concentrating on customer experience. I mean we pivoted our strategy, obviously, away from network and product differentiation because we have to, into customer experience. And the timing is right because, of course, with a lot of AI initiatives around the company and a new greenfield CRM platform, the focus is well and truly on straight-through digital journeys for our customers, which delivers better experience and a better bottom line. So it's been -- I think I -- certainly, your hypothesis is valid. Michael Fries: Listen, we appreciate everybody joining us on the call. It's been a good -- thanks, David. It's been a good start to the year. I hope you agree, and we're really encouraged by the progress that we're making. And trust me, we are laser-focused on value creation and value unlock, starting, of course, in the Benelux, where we're not only performing well, but the strategic road map. And as I point out, the building blocks are all in place. So we'll keep you abreast and updated on those things, and we'll speak to you soon. Thanks, everybody. Have a great weekend. Operator: Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Good morning, and welcome to NatWest Group's Q1 2026 Results Management Presentation. Today's presentation will be hosted by CEO, Paul Thwaite; and CFO, Katie Murray. After the presentation, we will take questions. Paul Thwaite: Good morning, and thank you for joining us today. As usual, I'm here with Katie. I'll start with a brief introduction before Katie takes you through the numbers, and we'll then open it up for questions. We started the year with strong momentum across our 3 businesses and made good progress against each of our 3 strategic priorities. First, we continue to pursue disciplined growth. In Retail Banking, we increased our share of the mortgage market as we expand our offering and announced new partnerships such as becoming the exclusive mortgage provider for Rightmove. In Private Banking & Wealth Management, our acquisition of Evelyn Partners makes a strong addition to the group. The transaction is progressing well, and we expect it to complete in the second quarter, subject to the usual regulatory approval. In Commercial & Institutional, we are the leading bank for U.K. start-ups, and we grew our share this quarter as we onboarded 24,000 new start-ups, a 25% uplift on the same period last year, supported by easier agentic onboarding. Second, we are leveraging our investments in simplification and have delivered over GBP 100 million of additional cost savings in the first quarter. We employ over 12,000 software engineers, and we are complementing that talent with artificial intelligence. So over 40% of our code is now written by AI, and we are scaling agentic software development. Typically, our development process for new customer propositions requires 12 engineers and takes 6 weeks. But in some scenarios, with a team of 3 engineers and 7 agents, we can deliver in just 6 hours, making us more productive and delivering faster for our customers. Third, we continue to manage our balance sheet actively, helping to free up capacity for further growth and allocate capital dynamically in this fast-changing environment. So let's turn now to the financial headlines. Customer lending grew 6.6% year-on-year to GBP 400 billion, whilst customer deposits grew 2.6% to GBP 445 billion. Lending growth of GBP 7.3 billion in the first quarter was well balanced across our businesses, including GBP 3.3 billion in mortgages and GBP 3.8 billion in Commercial & Institutional. We also provided over GBP 10 billion of climate and transition finance, taking the total to GBP 29 billion since last July, making good progress towards our GBP 200 billion 2030 target. Deposits increased by GBP 3.1 billion in the first quarter with growth in Corporate & Institutional, partly offset by an expected decrease in Retail and Private Banking as customers use their savings to make annual tax payments. Assets under management and administration grew 16.9% year-on-year to GBP 57 billion. 23,000 people invested with us for the first time during the quarter, with net inflows to assets under management of GBP 900 million. Taken together, client assets and liabilities have increased to just over GBP 900 billion, up 5.2% year-on-year, in line with our 2028 annual growth rate target of more than 4%. Income grew 6.9% to GBP 4.2 billion, and costs were up 4.8% to GBP 2 billion as we increased our operating leverage and reduced our cost/income ratio by 2.1 percentage points to 46.5%. Our return on tangible equity was 18.2%, driving strong capital generation of 65 basis points in the first quarter. Earnings per share grew 15.5% year-on-year to 17.9p. Tangible net asset value per share was up 15.1% to GBP 4, and we continue to maintain a strong balance sheet with a CET1 ratio of 14.3%. Since we announced our full year results in February, conflict in the Middle East has clearly increased geopolitical uncertainty. While sentiment is now more considered, we have yet to see any material impact on our customers. Both households and corporates remain resilient with historically high levels of savings and low levels of debt and arrears. In light of this uncertainty, we have revised our economic scenarios and now expect higher inflation with interest rates remaining at 3.75% for the rest of the year, resulting in slower economic growth and a modest increase in unemployment. This means we have taken an additional provision in the first quarter of GBP 140 million, which reflects our macroeconomic assumptions, not our credit performance, which remains strong. With rates staying higher for longer, we now expect full year income to be at the top end of the GBP 17.2 billion to GBP 17.6 billion range we set out in February. So we remain confident about the outlook and our 2026 guidance. That confidence is underpinned by the knowledge that we have built a resilient business, which is well positioned for a broad range of macro environments. We have a clear strategic focus on growth that delivers good returns with a prime lending portfolio that's well diversified and largely secured. We have invested and simplified so that we are now the most efficient large U.K. bank with a cost-to-income ratio that continues to improve, and we are actively managing our balance sheet. For example, we have taken the opportunity of a sharp move upwards in the yield curve to accelerate the increase in our structural hedge, supporting income growth in the years ahead. We have also increased our capital efficiency significantly in recent years, driving high levels of capital generation. All these factors have contributed to our strong performance in the Bank of England stress tests, giving us confidence in our outlook and guidance not just this year, but over the medium term. With that, I'll hand over to Katie to take you through the numbers in more detail. Katie Murray: Thank you, Paul. My comments for the first quarter use the fourth quarter as a comparator. Income, excluding notable items, reduced 1.1% to GBP 4.2 billion, and total operating costs were 9.2% lower at GBP 2 billion, delivering 11.6% growth in operating profit before impairment to GBP 2.3 billion. The impairment charge was GBP 283 million, equivalent to 26 basis points of loans, including the charge for our updated economic scenarios that Paul mentioned. This resulted in operating profit of GBP 2 billion, with profit attributable to ordinary shareholders of GBP 1.4 billion, and return on tangible equity was 18.2%. Turning now to income. Income, excluding notable items, was GBP 4.2 billion. Excluding the impact of 2 fewer days in the quarter, income across the 3 businesses continued to grow, supported by both volumes and margin. Net interest margin was 247 basis points, up 2 basis points due to deposit margin expansion and a small benefit from funding and other, with lending margin declining by 2 basis points, mainly driven by mortgages. As you heard from Paul, our 2026 guidance now assumes that the Bank of England base rate remains at 3.75% this year rather than coming down to 3.25%. Together with our revised economic scenarios, this means we now expect income, excluding notable items, to be at the top end of our GBP 17.2 billion to GBP 17.6 billion range, excluding the impact of Evelyn Partners. Turning now to customer assets and liabilities, or CAL. You will recall we introduced our 2028 growth target for CAL in February. I am pleased we are entering another year with strong growth, continuing our track record. Our CAL increased by GBP 8.4 billion or 0.9% in the quarter to GBP 900 billion. This includes lending growth of GBP 7.3 billion, deposit growth of GBP 3.1 billion and a reduction in assets under management and administration of GBP 1.8 billion as strong AUM inflows were offset by market movements. I'll touch on each of these elements in turn. We are reporting another quarter of strong broad-based loan growth across the group with gross loans to customers up by GBP 7.3 billion. Retail Banking and Private Banking & Wealth Management balances grew GBP 3.5 billion or 1.5%. This comprises GBP 3.3 billion in mortgage lending and GBP 200 million in unsecured lending. Mortgage stock share increased marginally to 12.6%, and we have a robust pipeline following record applications in March. Commercial & Institutional lending increased by GBP 3.8 billion or 2.4%. This includes growth in corporate and institutions, driven by good demand across a broad range of sectors, including project finance, renewables and utilities and funds lending, together with increased lending in commercial mid-market, notably in commercial real estate and the housing sector. You will also see we have provided a detailed breakdown of our financial institution exposures, including private credit in the appendix of our presentation. Turning now to deposits. Customer deposits increased by GBP 3.1 billion despite the expected higher seasonal tax outflows. Commercial & Institutional deposits increased by GBP 5.1 billion. This was partly offset by a slight decline in Retail Banking and Private Banking & Wealth Management deposits as a result of higher customer tax payments of GBP 10.3 billion. Retail Banking outflows were partly offset by growth in current account and ISA balances. Overall, our deposit mix remained broadly stable. Turning now to assets under management. Assets under management and administration closed the quarter at GBP 56.7 billion. We are pleased with positive AUM net inflows of GBP 0.9 billion, which equates to 8.2% of opening AUM, demonstrating continued client confidence and strong momentum. There was a reduction in assets under administration of GBP 1.4 billion, driven by gilt redemptions to support client tax payments. Overall, balances were impacted by negative market movements of GBP 1.7 billion. However, these were reversed during April. Turning now to costs. Other operating expenses were GBP 2 billion, an increase of 4.8% year-on-year and a decrease of 8.3% compared with the fourth quarter. Our cost/income ratio in the quarter was 46.5%. We are pleased with the progress we've made on our transformation, and we made decisions to accelerate investment spend and incur higher restructuring costs in the first quarter, which drove the overall cost growth year-on-year. The reduction from the fourth quarter is mainly due to ongoing cost savings as well as lower bank levies. We remain confident in the delivery of our full year 2026 cost guidance of around GBP 8.2 billion, though our cost profile will be uneven throughout the year. Turning now to our updated macroeconomic assumptions. Following a period of global macro uncertainty, we have revised our economic assumptions. In our revised base case, we assumed inflation now means CPI will peak at 3.5% in 2026 rather than fall to 2% by the end of the year. This means interest rates stay higher for longer, and we assume the bank rate remains at 3.75% throughout the year. We expect lower GDP growth of 0.4% and a modest increase in unemployment to a peak of 5.7%, above our previous assumptions of 5.4%. This remains at levels we are comfortable with in terms of lending risk appetite and credit quality. We will continue to review our assumptions as the situation progresses. Our balance sheet remains well provisioned with an expected credit loss of GBP 3.7 billion and ECL coverage ratio of 84 basis points. Our latest scenarios also show that even if we were to give 100% weight to our new moderate downside scenario, this would increase Stage 1 and 2 ECL by GBP 99 million or 2 basis points. Turning now to the impairment charge. The impairment charge for the quarter was GBP 283 million, equivalent to 26 basis points of loans. This includes a charge of GBP 140 million as a result of changes in economic scenarios and total post-model adjustment releases of GBP 34 million as elements were effectively consumed by changes in our economic scenarios. Excluding these, our underlying impairment charge was 16 basis points. There were no new signs of stress across our 3 businesses, and the current credit performance of our book remains strong. We continue to expect a loan impairment rate below 25 basis points for 2026. So our guidance is unchanged. Turning now to capital. We ended the quarter with a common equity Tier 1 ratio of 14.3%, up 30 basis points since the end of the year. Capital generation before distributions was strong at 65 basis points. This includes 69 basis points from earnings. Other regulatory capital movements added 16 basis points. Growth in risk-weighted assets consumed 21 basis points of capital, and our usual accrual for ordinary dividend payments reduced capital by a further 37 basis points. Risk-weighted assets increased by GBP 2.7 billion. GBP 4.3 billion of business movements broadly reflects our lending growth and increased market risk. This was partly offset by a reduction of GBP 2.2 billion as a result of actively managing our RWAs to create capacity for further growth. Other movements included FX and immaterial CRD IV model updates. We remain confident in our ability to continue generating strong capital from earnings and to manage risk-weighted assets and expect around 200 basis points of capital generation before distributions this year, whilst operating at a CET1 ratio of around 13%. Turning now to guidance. We now expect income, excluding notable items, to be at the top end of our range of GBP 17.2 billion to GBP 17.6 billion, excluding the impact of the Evelyn Partners acquisition. All our other guidance and targets remain unchanged. And with that, I'll hand back to the operator for Q&A. Thank you. Operator: [Operator Instructions] We'll take our first question from Andrew Coombs of Citi. Andrew Coombs: If I could just have one on loan and deposit growth and then I guess the second on average interest-earning assets. On the loan and deposit growth, again, it's a strong performance Q-on-Q, again, led by C&I. If I speak to any investor, particularly those outside the U.K., they always struggle to link the economic performance in the U.K. with the strong loan growth and loan demand that you're seeing. So perhaps you can just touch upon what drove the loan and deposit growth, particularly in C&I, where is that demand coming from? How sustainable do you think it is throughout the remainder of the year and into next year? And then the second question, I mentioned that loans are up Q-on-Q, deposits up Q-on-Q, but your average interest-earning assets are down 0.2% Q-on-Q. And it seems to be due to a reduction in the liquid asset buffer. So perhaps you could just touch upon that as well and what's driving the disconnect between the average interest-earning assets and the movement in the loan balances. Paul Thwaite: Thanks, Andy. Okay. Katie, why don't I take lending and deposits and then you come back on AIEA. Katie Murray: Okay. Paul Thwaite: Good stuff. So Andy, as you say, good, strong growth on both sides of the balance sheet, pleased on lending and deposits, especially as you know the context of quarter 1 deposits is always higher outflows because of tax payments. Why don't I give an overview, and then I'll drop down into C&I because I'm conscious you wanted some specific color there. So lending overall, I'd say it's pretty broad-based. You can see growth in mortgages. You can see growth in C&I. You can see growth in unsecured within Retail as well. And within C&I, you can see it through different business lines. I'd also add that the pipeline remains pretty strong as well in both businesses. So we're encouraged by that. So not only is the activity good, the pipeline -- I was going through it yesterday and -- Wednesday actually, the pipeline of activity looks strong looking ahead into quarter 2 and quarter 3. And as you know, we've consistently grown above market, growth on the lending side. I'll come back to some of the reasons why I think that's true. On deposits, 2 sides to this. As I said, we've got the tax outflows in Retail and Private Banking. They were up 28% year-on-year. So it's a big number, GBP 10 billion of deposits. And that was offset by growth in C&I, which was from a combination of things. Some of that was operational deposits, some of that was interest-bearing deposits. I think there, when you think about the size of our corporate and commercial franchise, the reality is we benefit as deposits flow onto corporate balance sheets. If you look into Retail, actually, personal current accounts were up, which is good. That's obviously healthy from a number of factors. And we are starting to see the impact of our -- what we call our Boxed proposition where we're providing savings products to companies like AA, Saga at Sainsbury's, et cetera. So that's also supporting Retail deposits. So that hopefully gives you a kind of big picture view. On C&I specifically, demand has been strong. I think we're very well positioned on what I'd call some of the structural drivers. So project finance, infrastructure, transition finance, utilities, funds lending, energy transition, et cetera. And I think what you can see is the growth in those parts of the market is bigger than, let's call it, the U.K. systems growth. So I think that helps to explain why our C&I franchise captures the opportunities there, but also outperforms the market. As I said, the pipelines are strong. So to your point on sustainability, I think those trends are -- they're structural trends, not kind of short-term opportunistic trends. So I think the lending growth and the lending pipelines will continue to support sustainable growth. So net-net, good balance sheet performance. C&I, yes, but also on the Retail side of the business as well. So hopefully, that gives you a bit of color. Katie? Katie Murray: Sure. Thanks very much, Andy. So you're absolutely right. When you look at AIEAs, they were sort of stable in the quarter. They were down kind of 0.2%. A couple of things within there. So reduction reflects the optimization of our surplus liquidity. We repaid around GBP 4 billion of TFSME at the end of Q4, and we deployed surplus liquidity to meet our customer loan demand, which we've just been talking about, in a quarter of seasonally lower deposit growth. If you look at the kind of the Q1 loan growth of GBP 7.3 billion versus the GBP 3.1 billion of deposit growth, there's a natural kind of mismatch within there. What I would say is we're 3% higher than AIEAs a year ago, and we do expect them to grow from here going forward as our customer lending increases. Operator: Our next question comes from Alvaro Serrano of Morgan Stanley. Alvaro de Tejada: Hopefully, you can hear me okay. Paul Thwaite: We can hear you clearly. Alvaro de Tejada: I actually had 2 questions related to spreads. And the first one is on mortgages. At least I had the expectation of a step down in spread on mortgages in Q1, given the roll-off of the COVID ones. But actually, the spread has held up reasonably well versus my expectations, at least. I think they contributed [ 324 ]. Can you -- maybe this one is for Katie, but can you maybe talk to if there's still sort of headwinds ahead and talk to the mortgage front book spreads? And then similarly on commercial, the spreads there, compared to base rates, have been increasing steadily the last 8 quarters or so as you grow the book. What kind of business are you underwriting there? And what do you think it can -- should it continue to improve? Or how do you see the outlook on pricing on corporates as well, commercial? Paul Thwaite: Okay. Great, Alvaro. Katie, do you want to start with mortgage? Katie Murray: Yes, absolutely. Thanks very much. Alvaro, so if we look at Q1, we continue to write mortgages at front book spreads that were below the back book as we did through last year, which we talked about a lot, very much in line with our strategy of delivering steady growth at attractive returns. So I'd say our year-to-date margins are in line with expectations. We did see a bit of volatility in March. We repriced every 2 days, so that's 11 kind of changes in 22 days, which I think is a great testament to the flexibility we've built into the system. And we can even see that ability to handle that increased mortgage demand as a result of that investment in the platform and digitization, which has meant we've been able to execute new business at margins which are ahead of the back book in April, which is great to see. You're absolutely right to mention the COVID mortgages. We are seeing a little bit of the book margins being impacted by that churn of the 5-year COVID era mortgages, and they're rolling off at spreads that are higher than we're currently writing. I would expect that to have worked its way through during the rest of this year. So we expect a little bit of pressure from this on the book margin over the coming quarters. But I guess as I go to where we are today, where we're writing the mortgages at front book spreads, which are below the back book, what we're seeing is it's starting to bring that back book margin down. We're kind of writing now, you've heard me talk a lot about this kind of below 70 basis points over the last number of quarters. That's kind of continued. And as I look at that number, I think that we will see the book margin to reprice to around 60 basis points over the course of this year. Interestingly, April margins have been above the back book, and we're pleased we were able to capture that. So I talked to you, remember at the year-end, Alvaro, around 1 to 2 basis points impact on our NIM walk per quarter throughout this year. You absolutely saw that already in our walk. This quarter, you should expect to see that. What I'd also really encourage you is don't forget to see that you have the deposit margin expansion that's going to more than offset that negative. Hopefully, Alvaro, that gives you what you need. Paul, are you going to do the commercial spread or shall I... Paul Thwaite: Yes, happy to. Katie Murray: Okay. Perfect. Paul Thwaite: Thanks, Katie, and thanks, Alvaro. On commercial spreads, a couple of general points first. I would say, Alvaro, actually, commercial lending margins, I would see them as fairly stable on a product-by-product basis. So that's how I'd think about it. There's obviously always a mix effect depending on where you write the business. But there's been no material deltas, changes over the recent past nor would we expect it going forward. So that's, I guess, one positioning piece. Secondly, in our commercial book, a significant proportion of customers are paying variable rates. So you will see that -- you will see kind of rates reprice in line with short-term rates and how that changes. So hopefully, those 2 points just contextualize what you'll be looking at in terms of the commercial lending book. If you drop down into the individual businesses or asset classes within the commercial and institutional bank, there's different dynamics. Obviously, at the very small end, margins are much higher, but the total value of lending there is small relative to the overall commercial book. So whilst we're growing that business, and it's higher-margin business, from a weighted average perspective, the impacts are relatively limited. In the commercial mid-market, that's a competitive space across the field. But depending upon the asset class, the margins can vary quite a lot. So if it's social housing, lower margins, but very high risk-adjusted returns; commercial real estate, thinner margins, more of a commoditized product. And then at the large corporate side, obviously, you've got the kind of revolver aspect to that, but also where you've got kind of project financing and infrastructure finance, a bit of the same dynamics as my example on social housing. At a spread level, margins are relatively tight. But given the capital treatment, the risk-adjusted returns are very attractive. So they're all very good areas to deploy capital at good returns. So nothing major to call out, I'd say, on commercial spreads, but that hopefully gives you a bit of the contours of how that business works. Thanks, Alvaro. Operator: Our next question today comes from Benjamin Toms of RBC. Benjamin Toms: The first one is on your income guidance, which you've upgraded to the top end of your previously provided range. Just wanted to kind of get some color, your thoughts on whether you'd characterize this guidance as being conservative. I'm just noting that consensus is kind of still quite a way above that guidance and whether you're comfortable with that gap? And then secondly, there's been some pretty fairly intense competition in the ISA -- cash ISA deposit market, and NatWest Group competing but one of your large peers is not. Can you just talk a little bit about how you weigh up collecting deposit volumes versus margins at a group level at the moment? Paul Thwaite: Great. Thanks, Ben. I'll take the guidance and income, Katie, and then you can talk a little bit around Retail savings and ISAs. Okay. So yes, as you said, Ben, we've strengthened the income guidance. We're guiding to the top end of the range, of the GBP 17.2 billion to GBP 17.6 billion. We're doing that for a couple of reasons. One, you can see the momentum in quarter 1. So the underlying performance has been good, which is great. And then you've got the kind of net effect of the change in economics. Obviously, we've changed our rate assumptions. You've seen that from 2 cuts. Assumed 2 cuts now to 0. But we've also assumed -- you have to follow the logic through. You would assume if you have -- if you don't have rate reductions, it would be reasonable to expect some small softening in demand. So we've assumed that. But net-net, we see that as positive to income. So that's kind of how we're positioning at the top end. We haven't changed the guidance for RoTE. We're maintaining the greater than 17% there, but we're increasingly confident on that. As I said in February, and I'll say again, it's always a greater -- that's always been a greater than guidance, and we always aim to beat our target. So we haven't changed that, but we're increasingly confident because obviously, the conditions for that are supportive. I should point out, I think, it's obvious, but that all excludes Evelyn. But net-net, Ben, I would say it's a good start. We're confident around '26, hence, the nudge up in guidance. We haven't changed '28. But obviously, you can see from the trends that it's -- the conditions are supportive towards the medium term as well. Katie Murray: Thanks very much. Ben, so I guess if I look at our ISAs and the kind of recent activity, I think the first thing I would really say is we see really strong relationship value in our fixed term deposits. We have high retention rates, greater than 80%, and some of those are retained in the higher-margin instant-access products as well as us also having an opportunity in the future to engage with these customers on investment products, and we've seen good growth there as well this quarter with a lot of new investors coming in, but we also expect that ambition to kind of grow and that's supported by the acquisition of Evelyn Partners, obviously, in this last quarter. During Q1, with the volatility that we saw in the swap markets, we actively managed our hedging across both our assets and liabilities, which enabled us to really price effectively on the fixed rate deposits. Overall, you can see our deposit mix has been stable, both at the group level and in Retail. When I look at fixed rate ISA specifically, the balances are small in the context of the group, low single-digit percentages of deposits. And in terms of overall deposit dynamics and margins, really very happy with the progress, particularly around things like current account growth, and we expect to see ongoing group deposit margin expansion in the coming quarters. So overall, a real comment on balance across the portfolio. Thanks. Paul Thwaite: I'd add one small thing on that, actually, Ben, because I've got the pricing tables in front of me. It's quite interesting when you look through. And as Katie said, we've been very thoughtful about how we manage the volatility in swap rates and how we play that back into pricing to maintain margins. And you can see you've got 3 or 4 of the larger banks ahead of us on pricing. But as Katie alluded to, the volumes have been encouraging. So I think we've been very thoughtful in how we're playing in that market. Operator: Our next question comes from Guy Stebbings of BNP Paribas. Guy Stebbings: I think, I just have one sort of broad question on the income guidance for this year and the assumptions sort of underpinning it. It's clear in terms of what you're doing on policy rate. But in terms of the long end of the curve, when you're thinking about the hedge reinvestment, could you confirm what the assumption is there? Then in terms of volumes, I'm just trying to work out whether you're assuming slightly more sort of conservative macroeconomic assumptions as per the ECL models, but that would be going against sort of the positive comments you're saying in terms of what you're actually seeing on lending volumes, et cetera. So can you clarify what sort of expectations are on volumes? And then on mortgage spreads, just in light of the comment you made there, I'm just trying to understand whether anything has changed. So you've talked about the stock of the back book trending down towards 60. I presume that's kind of entirely consistent with what you were expecting a few months back. And actually, your comment on April being above the back book is slightly encouraging. So could you just confirm if those mortgage spread trends are sort of in line, better or worse than what you were thinking a month or 2 ago? Paul Thwaite: Great. Thanks, Guy. Very clear. Katie, you got any preference on order? We've got hedge, volume... Katie Murray: I'll start off with spreads and hedge, and then why don't you jump back in on volume, yes? Paul Thwaite: Yes. Katie Murray: Perfect. Thanks so much. If I look at the hedge, first of all, a few things just to kind of share with you on that. So first of all, when we talked about the hedge at the year-end, we said that we would increase our structural hedge this year above GBP 200 billion as -- and then you've seen it, as deposit balances have grown and equity base will increase given the business growth. What we did earlier in Q1 was as we saw those yield curves move really sharply higher in the quarter, we did take a decision to accelerate the increase of our product hedge. So we added about GBP 5 billion additional in Q1. So that means that we've locked in income for the outer years and, of course, modestly reduced our rate sensitivity as a result of that. When I look at the kind of first 3 months of the year overall, we're reinvesting our product hedge at about 3.8%. That's against guidance I've given you at the year-end of 3.5%. I would now expect that reinvestment rate on average for the whole year and given what we've seen also in April to be around 3.9% on the product hedge and 4.7% on the equity hedge, which is up from 4.5% as we go through there. So as I look at those kind of current assumptions of rates, the growth that we've seen, I do continue to expect total hedge income will grow annually through to 2030 as you see the improved levels that we spoke about in February. If I then look to your mortgage spreads, you've got it completely right. Mortgage margin is very much in line with our expectations. They are currently a little bit better. I would encourage you not to bank that forever, but we're very happy with how the team are managing the book at the moment. We can see the reduction in book margins absolutely being driven by refinancing. If you think a little bit of our mix, 30% of the book will reprice this year and the roll-off is a little over 90 basis points on a blended basis. So that really drives the stock margin lower over the course of the year, completely in line with our expectations and very much in line with the income guidance that we've given you throughout this year and upgrading this morning. Paul Thwaite: On volumes, Guy, so this -- as you say, this kind of tried to thread the needle a little bit between, I guess, the logic of the kind of mechanistic logic of the economic assumptions versus activity year-to-date and pipelines. And I think that's what we're trying to balance. If you take the logic of the economic assumptions through, i.e., higher for longer, slight tick up in unemployment and slower growth, then the logic of that would be, you would see some softening in, for example, the mortgage market vis-a-vis our original predictions and likewise, some softening in business lending. So that's what the economic assumptions drive. Then when you look at the activity, as you rightly point out, what we've said is quarter 1 has been very strong on the kind of lending side. The pipelines in the respective businesses look strong. So the activity is there. I guess what we're trying to do is strike the right balance between optimism on that side, but also, I guess, the reality of how the economics play out over the course of the next 9 months might impact demand. And we factored that into how we've guided toward the changed guidance to the top end of the range. So hopefully, that just unpacks a little bit how we're thinking about it. Operator: Our next question comes from Jonathan Pierce of Jefferies. Jonathan Richard Pierce: Good. I've got 2 questions, please. The first, the other C&I noninterest income, it's been running at about GBP 230 million to GBP 240 million a quarter for the last 6 quarters, dropped down to GBP 170 million in the first quarter. It does feel like there was a bit of a one-off in there. I don't know if you can quantify how big that was and whether you've seen anything else coming through since the end of March? Secondly, more broadly on this impairment sensitivity, just trying to get a feel as to how much confidence you have of -- I've asked you this before, Katie, actually, in the IFRS 9 ECL models. I mean you're telling us today that the weighted average assumption for GDP growth is about 0.3%, 0.4% a year next couple of years. The downside is minus 0.4% this year and minus 1.6% next year. It's also got unemployment going up to 6.2% next year, I think. But you're telling us your ECL in that scenario would only increase by about GBP 99 million. Now I get that that's a general provision measure. But by definition, the ECL on those Stage 1 and 2 is reflective of losses you expect in the future on the performing book. So are you genuinely confident? And if so, why more qualitatively in this idea that even if we saw a recession, even if we saw unemployment moving into the 6s, your impairment charge ex any initial ECL build would not move up very significantly at all? Paul Thwaite: Good. Thanks, Jonathan. I'll take the first one. Katie, you can take the second one. Katie Murray: Sure. Paul Thwaite: So Jonathan, your characterization is right. So actually pretty stable income line in the last 6 quarters, dropped off -- the C&I noninterest income dropped off in quarter 1 '26. If you look at that compared to '25, it's, I think, GBP 20 million versus GBP 64 million. Not exclusively, but almost exclusively, it's explained by sterling rates, as you say, so kind of one-off. You've seen that across lots of desks and lots of banks. So we have a relatively small rates business. It's obviously -- it's indexed to sterling, given what we are as NatWest. So that really explains the delta that you're seeing there. And you'll see yes, GBP 64 million in quarter 1 '25 and GBP 20 million in quarter 1 '26. That's a big part of the difference versus the previous quarters. A couple of things I'd say, it's obviously very small in the context of the overall revenue line. And also given the more subdued volatility, we'd expect improvements as we go through quarter 2 onwards, not just in that line, but overall on C&I noninterest income. So I think you're seeing it and reading it pretty accurately there. Okay, Katie? Katie Murray: Sure. On impairments, thanks, Jonathan. But as I look at it, I mean, these are models that we test extensively. They go through both our own verification and independent verification, and they're also kind of reviewed very closely by kind of external parties. So I am comfortable in them. And I think that the thing that I do like with IFRS 9 is this concept, which is in and around the kind of PMA. So that kind of enables me where there are moments of discomfort. And you can see that we sometimes have them when you can see in different classifications, it's wider than just the kind of the sort of economic uncertainty. So when you see other numbers in there, you can go actually, that's a bit of the model they're kind of working on. So completely comfortable on the models is what I would say first. And you're right, if I look to the ECL on kind of Stage 1 and 2, if I went 100% kind of to the downside, it suggests an extra GBP 99 million. But I would remind you that Stage 1 and Stage 2, so there would be some Stage 3 losses. They are impossible for us to quantify as to what they would be. So we don't seek to attempt that. So I would probably suggest to you that the actual charge could be a bit higher if that was the case. Obviously, that's not our base case just now. In terms of what we're looking at. We -- at this stage, we are happy with the base case. We're happy with the guidance that we've done. We've obviously added a bit on the mezz, 110 net, a little bit out of PMA. That's just kind of mechanics of the calculation, which has taken us to the 26 basis point charge this quarter. But if I take out that mezz, we've overlaid, it's kind of 16 basis points. So what we can see is a good, well-diversified, well-performing book to date. We've given you a good estimate if we were to move. But at the moment, obviously, we're comfortable and happy to have that little bit of extra buffer as we enter a little bit of greater uncertainty than we've seen recently. So comfortable at this stage, Jonathan. Thank you. Operator: Our next question comes from Benjamin Caven-Roberts of Goldman Sachs. Benjamin Caven-Roberts: Just 2 for me, please. First, a follow-up on the cost of risk. I see you mentioned about 60% of mortgage balances now with customer rates above 4%. How are you thinking about the refinancing profile for that remaining portion and the extent to which those customers are moving on to rates a fair bit higher than what they had expected when entering those mortgages? I know you do stress rate assumptions as well when issuing the mortgage originally, but clearly, a lot of volatility in swaps and rate expectations right now. So just keen to hear your thoughts on that. And then secondly, thanks a lot for the extra disclosure on the financial institutions. If we look at that business and private credit altogether, how are you thinking about the growth of that book? Is it something you expect to grow more quickly or more slowly relative to the recent past? And have you changed your strategy at all in terms of the underwriting there? Paul Thwaite: Great. Thank you, Ben. Katie, you go for first question. Katie Murray: Yes. In terms of cost of risk, Ben, so you're absolutely right. There's -- and you've obviously -- you've got far in the pack this morning. So Slide 32 kind of lays it out really nicely. So I guess a couple of things I would talk about as we look at our prime mortgage book. So obviously, the level of security gives us a lot of comfort. Our sort of greater than 3-month arrears are below the sector average and quite significantly so. So it's well underwritten. And I guess the guide on the financing of the remaining 40% that aren't on customer rates over 4%, we do kind of use what's happened in the last couple of years to kind of help guide us on that. So what you've seen in that time, obviously, there has been wage growth across the different areas. People who are coming up are very aware that they're coming up. They are -- what we see has been really interesting over the last couple of months is our kind of a greater increase on the use of the 2-year versus the 1 year. If you look at our -- sorry, versus the 5-year, forgive me, if we look at our kind of 5-year fixed as a percentage of our fixed book, it's about 66% 5-year. But actually, if I look just at what's even been happening in the last little while, that's kind of flipped almost completely to that we're writing about 77% 2-year at the moment. So customers, they understand what they're doing. They are understanding what they need to do in terms of managing their exposure. We do see them looking to lock in refinancing early so that they can get the benefit of the rate, and they've certainly been preparing for this. And as we talk to them as they go through those transitions. Obviously, it's a big change when you go from your COVID rate to the new rate, but it's something people have definitely been looking for, and we've seen them managing it really, really quite well, I would say. And Paul, on the... Paul Thwaite: Yes, yes. So Ben, so yes, so I'm glad you liked and have seen the new disclosure. We hope that's helpful to everybody. In terms of the kind of outlook for the -- obviously, it's a very broad business when you look at the breakdown there. But in terms of the areas that you referenced, we have been growing the business, I guess, over a number of years, but it's been in a very disciplined way. If you look at limits there, they haven't really moved since this time last year, so quarter 2 '25. Likewise, we haven't materially changed our risk appetite. We're always very focused on being senior lender, good protection from first loss, making sure that the risk-adjusted returns are supported. So our strategy really has been not around growing limits, but prioritizing risk-adjusted returns versus volume-driven growth. As you know, we haven't been involved in any of the recent public names. Looking forward, what I would expect actually is to see some of the spreads to widen, so i.e., the same business, the same risk, but actually better risk-adjusted returns. That would be my assumption because as you know, a lot of that business is relatively short term in nature, so you get to reprice. So that's how we're seeing. Hopefully, that gives you a sense of it in terms of limits, but also, I guess, business strategy, which is returns led rather than volume-led. Operator: Our next question comes from Chris Cant of Autonomous. Christopher Cant: Two, please. On corporate banking, commercial banking, in the context of what we've got going on in the Middle East, are there any areas of your book that you'd be more nervous on, please? And I'm not thinking specifically just about oil price as an input here. I guess there is the potential for product shortages or oil-related product shortages regardless of price if this persists. So are there any sectors that you're nervous on when you're speaking to your corporate customers, what are they worried about? And on the comment around refi of the mortgage book, my understanding there is that customers essentially have sort of a bit of a free option to lock in, but then change products if rates shift after they've preemptively locked in. Are there any risks to you and to kind of NII later in the year given swap volatility. Just conscious, I guess, the value of that option being given to customers is arguably higher right now. So any comments on how you manage that, how we should think about that would be appreciated. Paul Thwaite: Thanks, Chris. I'll take the first. Katie, you take the second. On the -- I guess, the kind of core mid-market commercial bank, Chris, obviously, we're staying very close to all the various sectors and also the different regions there. It's very consciously a very diversified book. We gave you quite a lot of breakdowns on the relative sectors and segments. In terms of -- to your specifics around sectors or subsectors that might see greater impacts. Probably similar to some of the previous kind of challenges, I would say, sectors like agriculture, aspects of hospitality and leisure. So where you see some of the -- not just what you call pure energy input prices, but you have fuel, fertilizer, food, et cetera, where you see exposure there would be areas that we are -- we will pay more attention to. And as we've done in the past, we work closely with those sectors if support packages are needed. We're not at that stage yet, and we're seeing no deterioration. I think generally, what I'd say, if you think back through what we're seeing in the Middle East, what we saw through the tariff period, a similar time last year through Ukraine and even through the pandemic, customers are -- I'd say business customers are a lot more adaptable and resilient than maybe they were prior to the pandemic. Their ability to change their cost base and/or pass on costs, the kind of the way in which they've engineered their business models over time have given them more flexibility. So what we see is a faster response, but also greater adaptability, which ironically, I think is down to the fact that a lot of these businesses and sectors have had to face a lot over the course of the last 4 or 5 years. So that's how we see it. But there are probably 2 sectors that are kind of on our minds. Katie? Katie Murray: Sure. Thanks very much. And then your great question, Chris, we've kind of watched this happen historically, we've seen other peaks. But look, it's something that we manage incredibly tightly on this. We've got very sophisticated modeling that we have in play. We based on it looking very much at the kind of individual kind of customer behavior, looking at what happened in other periods of interest rate volatility, who would move, who would kind of stick. You heard me mention earlier today as well that what we've done and the investment that we've done within our mortgage system has allowed us to kind of be able to react really, really quickly. I mentioned that we repriced 11x over the course of 22 days during March. I mean that is a significant change from where we were a number of years ago. So very comfortable with the dynamic overall. What I would kind of add is that we do see that most people who do refinance with us do ultimately kind of stick with us as well. So there's that good kind of customer engagement, which is just -- is really, really critical. We're also kind of largely locked in already for our forthcoming roll-offs. But I would say all of these things are embedded in the guidance that I've talked about today about the book actively kind of repricing to 60 bps over the course of the year. And so while we manage it actively, but I don't see it will be something that would change what I've said to you this morning already on that number. Operator: Our next question comes from Sheel Shah of JPMorgan. Sheel Shah: First question on corporate deposits, please, because this is a line item that has remained under GBP 200 billion or so for the last 2 years, and we're finally seeing a lot of growth come through the business. And not only the growth, but also the rates that you're paying on these corporate deposits, looking at your other disclosure looks to be declining as well. So I'd be interested to get some insight as to what's happening there? And then secondly, on the cost base, I know the first quarter had some increased investment in restructuring costs, but you also mentioned on the call earlier that the cost profile will be uneven through the year. So just wondering how you're thinking about that across the remainder of the quarters? Paul Thwaite: Thanks, Sheel. I'll take deposits. Katie, cost, yes? So I'm pleased you've noticed the trajectory there, Sheel. Deposits in the commercial bank is a big area of strategic focus for the team and has been, I would say, increasingly over the course of the last 18 months. So part of the performance momentum there is around focus. Given also the growth we've seen in lending, there's been a natural need to increase deposits in the commercial bank. So focus has played a part. But we've also broadened the product range. We've also digitized parts of the product range as well. So we've got business focus. We've got enhanced proposition for different segments within the commercial and corporate bank. And as you'd expect us to have, we also have a much broader focus on transaction banking, which obviously brings high-value operational deposits. And to your point, depending on the nature of those deposits, high liquidity value, but also in relative terms versus interest-bearing deposits, good cost of funding. So it's a strategic focus supported by a number of operational and tactical activities that support our client base but also help the LDR. Katie? Katie Murray: Costs, sure, absolutely. So you're absolutely right. Q1 is a little bit higher than normal, reflecting some of our decisions to front-load investments and restructuring costs alongside staff and inflation-related increases from 2025. But you'd expect me to say this, it's our history. It's what we deliver every single year. We are really confident in hitting our cost guidance of around GBP 8.2 billion. That excludes the impact of Evelyn. I'm just going to take the opportunity just to talk a little bit about Evelyn costs. We'll share more about that as well when we kind of -- once we've kind of finished the acquisition and things like that, which is going well. But there are a few things that you need to be thinking about that will impact some of those Evelyn costs as they come through. Obviously, first, we've got day 1 transaction costs. That was included in our guidance of the 130 basis points of capital. We've obviously got the operating costs that will come through from the point of consolidation in terms of Evelyn's own costs. We're then familiar, we talked a lot about the cost to achieve in terms of the GBP 150 million total cost to achieve to drive the GBP 100 million of cost synergies. And finally, we are going to have ongoing amortization of the intangibles that will be created upon completion. That doesn't impact our capital generation going forward as we've incurred that as part of the capital impact of the 130 basis points. Obviously, I'll give you more detail when we get to the point of completion. But when you think of lumpiness, think of -- they're absolutely rock solid on their 8.2. That's where they'll land because they always do. But there will be a little bit as Evelyn comes in. So think about that in your models of those 4 different kind of categories. Hopefully, that's helpful to you, Sheel, as well. Operator: Our next question comes from Aman Rakkar of Barclays. Aman Rakkar: Hopefully you can hear me okay, sorry. Paul Thwaite: We can. Yes. Aman Rakkar: I had 2 questions then. So could I just trouble you on the deposit margin, please? I think that 2 bps deposit margin Q-on-Q contribution, I think it's the softest uplift Q-on-Q. And obviously, you've got multiple moving parts in that, notably a massive structural hedge tailwind, but presumably offset by compression on kind of actual deposit spreads in the quarter. So I was interested in your sense of the deposit margin contribution on a sequential basis in coming quarters, please? And to what extent do you think this kind of intense deposit competition dynamic, particularly for term deposits, I mean, lots of people writing term deposits at negative spread kind of feeds into that would be really helpful. And then the second question was a broader question just around actually the income dynamic beyond this year because it feels like there's a building confidence around the income profile beyond this year, principally because of the interest rate environment. It's not really materially moving the needle on this year's guide as much as it perhaps will do on the forward look, not least because of the structural hedge. But I'm thinking about the cadence for net interest income through the course of this year is presumably going to be quite robust, right, in terms of what it means for next year. So is that the right characterization? And kind of what do you as a management team do with that, the kind of building confidence on the income outlook in the medium term versus what is quite an uncertain near-term dynamic in the Middle East? Katie Murray: Perfect. So deposit margin, 2 basis points in this quarter. I think you need to just think a little bit about the overall movement in balances in the quarter. So you've got tax outflows, GBP 10.3 billion. They are predominantly in January. Some do dribble into February, but they are predominantly there. We're confident around the deposit margin expansion will be greater in the coming months as we move forward from here. If we then look at kind of income beyond 2026, we expect annual income growth through 2026 to 2028. We're confident in that growth trajectory. Obviously, disciplined growth across lending, deposits and AUMAs continue in line with our CAL target of greater than 4%. That will obviously be boosted by the Evelyn Partners acquisition when it comes online. The higher for longer interest rate environment, we've got -- now got the terminal bank rate of 3.75% alongside the actions that we took in -- already taken in Q1 to move higher in the yield curve, meaning that we are increasingly confident on the income tailwind from the structural hedge, supporting income all the way through to 2030. You've got other variables like customer behavior, competitor behavior around pricing and macroeconomics. We'll see how these develop. But again, you can see what we've got in terms of our economics in there. And given that kind of interest rate sensitivity that we have, we do see that as a net positive for income beyond 2026. So overall, confident and building on our confidence that we had when we spoke to you in February as well. Thanks very much, Aman. Paul Thwaite: Yes. And as to your final point, Aman, how do management characterize that? I think as Katie finished there, net-net, it feels like we're in a stronger position on income and returns, both '26, but also looking out to '28. Operator: Our next question comes from Amit Goel of Mediobanca. Amit Goel: Hopefully, you can hear me okay. Paul Thwaite: Yes, we've got you crystal clear. Amit Goel: So one, just kind of following up. I suppose just on Slide 30, just on that deposit margin and contribution, just trying to reconcile on each of the divisions, it seems like the cost is coming down, but on the group, it's flattish. So I just wanted to check what's driving that? And then secondly, just on Evelyn, just curious how the business -- I mean, if you've got any color in terms of how the business has been developing since the acquisition announcement and I guess, during the first quarter and beyond in terms of AUA. So just anything on that would be helpful. Paul Thwaite: You go first. Katie Murray: The first one, absolutely. So if you look at the businesses, what that is, is that's representing the customer rate on deposits or loans, whereas if I look at the group number, it's the overall cost, including hedging. So it's not perfectly like-for-like as you look across those 2 lines. Paul, Evelyn? Paul Thwaite: Yes. So Amit, obviously, I can't comment on a business that we don't yet own. So that wouldn't be appropriate. What I would say is in terms of the planning to closure is going very well. We're moving at pace. We hope to announce that in the coming months. The work on -- the appropriate work on integration is progressing really well. You can see from our AUMA performance as in NatWest, the AUM performance, the strength, net new money above 8%, again, despite the market movements, top quartile investment performance. The -- going back to the AUM, kind of 10% up on year-on-year, which is great. So there's a limit. There's obvious limits to what I can say. But in the work that we're doing so far, we're very encouraged. I've spoken at length around the scale and the capabilities that Evelyn will bring. I think if you look at the success we're starting to have around retail investments and premier investment in the NatWest space, the acquisition of Evelyn is only going to accelerate that. So to me, the demand signals and the performance signals are good. Once we've closed, as Katie alluded to earlier in relation to the cost question, once we've closed, we'll obviously share a lot more detail in terms of the overall numbers and the plans, and we are eager to do that as soon as we can. Thanks, Amit. Operator: Our final questions come from Ed Firth of KBW. Edward Hugo Firth: I just have 2. The first one is just on detail. I think at the time of Evelyn, we were talking about GBP 300 million of revenue and GBP 300 million of costs in the first year. Is that still the right number we should be getting? So that was just my first question. Paul Thwaite: Yes, nothing has changed since the original disclosures, Ed. That's the best way to think about it. Edward Hugo Firth: Perfect. Okay. And then the second question was related to Jonathan's question really about risk because I've just struck that in your sort of worst-case scenario, you're talking about a low few hundred millions of credit losses, I guess, something like that. I know it's more than GBP 99 million, but it's not huge. And that's on a GBP 30 billion tangible equity invest, and you're making pre-provision profits of GBP 10 billion a year. And so I'm just wondering, how do you think about appetite to risk? I mean, do you really feel confident that you're taking enough risk? Because it feels to me that potentially there's quite a gap there for you to be doing quite a lot more and growing revenue quite a lot faster than you are. And I guess related to that, can I just ask about Slide 33 again? I mean it's a great slide, and thank you very much indeed for giving it to us. And I wish all the other banks would as well. But it does strike me that particularly your funds lending looks quite a lot bigger than I would ever have imagined. And is that -- I mean, I don't know the market that well, but I guess you do. You're a market leader in that space. Is that -- would you imagine that you are sort of bigger than most people? Or would you think that you're just a player and that's pretty standing? Because unfortunately, other people don't give us that type of a disclosure. Paul Thwaite: Great. Okay. Thanks, Ed. Good to hear from you. Quite a few different questions there. So we've got the kind of the extreme downside kind of credit piece. Katie, why don't you have a shot at that. I'll cover funds. And then there's a bit, I guess, linked to the -- just on lending risk appetite as well. Katie Murray: Yes, I'll crack on impairment, and you can jump in after that. So Ed, what I'd probably do is guide you a little bit. If you go after the call, on Page 27 of our IMS today, we gave you, I think, helpfully as a nonstandard Q1 disclosure, the -- what the -- our new change in our scenarios would be. And you can see that on the downside scenario for Stage 1 and Stage 2, it's GBP 99 million additional. But if you went to the extreme downside, that's a GBP 1.7 billion hit. So really very different in terms of numbers. And you can also see that, that's obviously greater than the hit we would have had at the year-end in that space. So I would just -- I'd probably just rebalance your numbers a little bit on that. That's obviously just Stage 1 and Stage 2. We would -- I would kind of point out that, that extreme downside is really quite far away from our base case. But obviously, it's blended into the number. I think we gave about 14% probability kind of weighting. So quite far out there, but it is something to kind of consider as you look at the numbers. And Paul, shall I come to you for the other? Paul Thwaite: Yes, yes, fine. Thank you, Katie. So on funds lending, I'm glad you liked the disclosure, right, I would say. On funds lending, that's a really long-standing business for us in excess of 20 years. A large part of that business is in our RBSI, which is our Channel Islands business, been in our disclosures for all that period of time. Probably worth diving in into a little bit of the detail. I wouldn't say we were a leader in that business. I'd say we're a strong player where we choose to participate. It's worth bearing in mind of that funds lending business, 80% of it is, I guess, what you know as subscription lines or capital call facilities. So that's where you kind of got exposure to LPs, and we take security charge over the LPs. Typically, that's pretty short dated as well, just to give you a bit more context, 1 to 3 years. So when you look at that line, the best part of GBP 17 billion is sublines. The other part is NAV, which is a smaller part, kind of GBP 3 billion, GBP 4 billion. And that's where you're seeing it, in effect, in a senior creditor when you're lending on to a particular asset. Average LTVs, again, just to help you there, around 30%, and you've got an institutional investor base. So very long-standing business. It's been predominantly led out of our Channel Islands business, no historical losses. So a good business, but there'll be -- as you look across European U.S. banks, you'll see different levels of exposure. I'd say we're strong, but certainly not a leader. Katie Murray: And in terms of risk, do we feel we've got the balance very much we're taking to get to his last question? Paul Thwaite: Yes. I think I hear both -- I guess, Ed, I hear both sides of the story. From some investors, I hear they really value the low-risk business model, well-diversified credit base, high risk-adjusted returns that you see. And then you hear the other side is, could you take more risk. I think the way we've approached our different asset portfolios, both in retail and commercial, has stood us in good stead. It allows us to perform well with a low cost of risk. We generate a high cost -- a high amount of capital. Our RoTEs are obviously sector-leading. So it feels like that -- we've got the balance right. We do at times, increase our risk appetite. You go back over the course of the last couple of years, you can see some of the moves we've made in retail. We've broadened our addressable markets in mortgages and credit cards. But I kind of feel that a U.K.-centric low-risk business model, high capital generation serves us well. So it feels like we're in the right space. Hopefully, that gives you a bit of insight into how management think about it, Ed. Thanks. Operator: Thank you for all your questions today. I will now hand over to Paul for closing comments. Paul Thwaite: Yes. Thanks, Oliver. So I just want to close with, I think, a couple of key points, which I think are particularly important given the context we're in and I think demonstrate why we think we're very well positioned as a bank. The first one is our deposit franchise and the gearing that gives us to rates. Obviously, that's driven by our corporate franchise. It supports our revenue growth, especially in a higher for longer environment. The second thing I would point to is the growth track record that we've built and continue to build and the targets that we've put out there. We think we've got a good track record and further opportunities across our 3 businesses. You can see also the progress we're making around cost management and our cost/income ratio and continuing benefits of operating leverage. And then to link it to Ed's question, if you look at the loan book and you look at the Bank of England stress tests, we are the most resilient bank under stress. I think that's as a consequence of our diversified business mix. So the lowest stress drawdown of any U.K. bank. So you add all that up together, superior returns, high capital generation, which can drive stronger distributions. So from my perspective, we feel very well placed as we look into the circumstances that face us. Thanks for your time. I hope you have a good weekend. Cheers. Katie Murray: Thank you. Operator: That concludes today's presentation. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the NextDecade Corporation First Quarter 2026 Investor Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. And now I would like to turn the call over to Megan Light, NextDecade's Vice President of Investor Relations. Megan Light: Thank you, and good morning, everyone. Welcome to NextDecade's First Quarter 2026 Investor Update Call and Webcast. The slide presentation and access to the webcast for today's call are available on our website at www.next-decade.com. Today, I am joined by Matt Schatzman, NextDecade's Chairman and Chief Executive Officer; and Mike Mott, NextDecade's Interim Chief Financial Officer. Before we begin, I would like to remind listeners that discussion on this call, including answers to your questions, contain forward-looking statements within the meaning of U.S. federal securities laws. These statements have been based on assumptions and analysis made by NextDecade in light of current expectations, perceptions of historical trends, current conditions and projections about future events and trends. Although NextDecade believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that the expectations will prove to be correct. NextDecade's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in NextDecade's periodic reports that are filed with and available from the Securities and Exchange Commission. In addition, discussion on this call includes references to certain non-GAAP financial measures such as adjusted EBITDA and distributable cash flow. A definition of an additional information regarding these measures can be found in the appendix to our presentation. And now I will turn the call over to Matt Schatzman, NextDecade's Chairman and Chief Executive Officer. Matthew Schatzman: Thank you, Megan, and good morning, everyone. Thank you for joining us today. First quarter was productive across the NextDecade organization, and we're making solid progress on the key 2026 priorities that we introduced on our fourth quarter call. First, one of our highest priorities continues to be progressing construction at the Rio Grande LNG facility safely, on budget and ahead of schedule. Safety is ingrained in our culture and our work. And in the first quarter, we achieved a low total recordable incident rate or TRIR of less than 0.1. I'm proud of both our team and the Bechtel team for continuing to progress construction at a rapid pace while maintaining high safety standards. We also continue to be within budget across all 5 trains under construction. Train 1 early electrical commissioning is underway. Phase 1 continues to track ahead of the guaranteed substantial completion dates for the EPC contracts, and we're making excellent early progress on Trains 4 and 5 at the site. Based on our current progress, Phase 1 is tracking ahead of the schedule reflected in our early volume guidance, providing a buffer to achieve the numbers we have provided. Our second key priority for 2026 is continuing to prepare our organization for commissioning, first LNG and the transition to operations. We've been advancing hiring, system implementations and process development ahead of first LNG. We've been rapidly hiring and expanding our team, and we currently have over 400 employees with the majority based in Brownsville. As part of our enterprise readiness efforts, we've made significant progress building the digital and operational foundation required for first LNG. Core enterprise platforms are starting to go live, and we've created a robust in-house integration capability that allows systems to exchange data and supports end-to-end business processes. This work positions us to scale efficiently, reduce operational risk and enter operations with strong governance, visibility and control across the enterprise. We're laser-focused on ensuring that the organization is prepared for introducing first gas into the facility in the second half of this year and producing the first LNG from Train 1 in the first half of next year. Our third key priority is to manage near-term exposure to LNG market margins through the sale of projected early LNG cargoes. As we mentioned on the fourth quarter call, early this year, we began marketing early cargoes that we expect to produce in Phase I prior to the commencement of our long-term SPAs for Train 3. In February, we sold over 175 TBtu on a free-on-board or FOB basis with fixed liquefaction fees that are expected to achieve margins calculated as the FOB sales price less our expected cost of natural gas feedstock and fuel of over $3 per MMBtu. These sales reduced the Phase 1 early LNG production exposed to LNG market price fluctuations by 33%. Market margins have increased since the Iran conflict began. And as we increase our visibility into expected early LNG production and gain additional assurance on the timing from Bechtel later this year and early next year, we expect to sell additional early volumes to further reduce our market exposure during our ramp-up period. Our final key priority for this year is advancing the development and permitting of Trains 6 through 8. Bechtel is in the process of performing a front-end engineering and design or FEED study for the Train 6 and third berth, and we expect to file the formal FERC application for Train 6 before the end of this quarter. Additionally, we've begun early commercialization efforts for Train 6, and we're seeing strong demand from potential customers for long-term volumes. I'd like to remind everyone that additional LNG supplies were needed in the early 2030s before the Iran conflict began and demand from long-term SPAs is even stronger today. Construction at the Rio Grande LNG Facility continues to progress safely, on budget and ahead of schedule. As of March 2026, Trains 1 and 2 are 67.8% complete. Train 3 is 44.2% complete and Trains 4 and 5 are 10.6% and 6.8% complete, respectively. During the overall -- within these overall completion numbers, Trains 1 and 2 are functionally complete on the engineering and procurement front with the engineering of Trains 1 and 2, just over 98% complete and the procurement just over 94% complete. Train 3 is not far behind Trains 1 and 2 with engineering over 90% complete, and procurement over 80% complete. Since our last update, Bechtel has continued to make strong progress in construction of Phase 1 with work on Train 1 focused on piping, equipment installation, cable pulling, testing and system completions. The main cryogenic heat exchanger for Train 1 has also been successfully installed. Trains 2 and 3 made notable progress on civil works, piping, structural steel and equipment installation and placement of the Train 2 compressor packages is underway. For Tanks 1 and 2, welding of the inner tanks is progressing and concrete roof placement has been completed for both tanks. Early civil works are progressing for Train 4. Site preparation activities are underway for Train 5 and production piling has commenced for Tank 3. Across the site, construction of permanent buildings is advancing, construction activities of the gas inlet area are ongoing, dredging activities for the berths and turning basin are substantially complete, and channel deepening is nearing completion. The Bay Runner pipeline has been under construction since last fall and is expected to reach in service in the third quarter of this year. Bay Runner is being constructed by Whistler LLC, a joint venture between WhiteWater Midstream, Enbridge and MPLX and will be our primary pipeline capacity into the terminal for Trains 1 through 3. Early electrical commissioning of Train 1 continues, and we continue to expect first gas into the facility in the second half of this year and first LNG production from Train 1 in the first half of 2027. In early April, FERC approved our request to shift to a 24/7 construction schedule at the site, a transition that has been contemplated in the EPC contracts and will not increase our EPC or total project cost. 24/7 format should facilitate Bechtel making continued progress ahead of schedule. We're currently tracking ahead of the schedule reflected in our early volumes and cash flow guidance, giving us some buffer for the unexpected events during commissioning and start-up of the trains while still achieving the production guidance we have provided. We're supporting our goal of increasing our capacity at the Rio Grande LNG facility up to 60 million tonnes per annum by advancing the development and permitting of Train 6 through 8. As we mentioned on our highlight slide, the FEED study for Train 6 is underway with Bechtel. Train 6 will have the same design as Trains 1 through 5, and the FEED study will support our regulatory filings with FERC and give us a general idea of where we expect to land on cost for Train 6. We currently expect Train 6 to look a lot like Train 5 from a project cost perspective, adjusted for inflation. We are also preparing to file a formal application with FERC for Train 6 and a third berth before the end of the second quarter of this year. The current administration's emphasis on U.S. energy dominance as a national security issue, including last week's determination that expanding LNG capacity is necessary under the Defense Production Act is expected to be helpful for the development of U.S. LNG, and we expect permitting new capacity to be smoother and faster under the current administration than prior ones. Additionally, the D.C. Circuit Court's reversal in our case in March 2025 and the Supreme Court Seven County case later last year have set precedents that will go a long way in limiting the ability of certain groups tie-up permits in court over matters that have been appropriately analyzed by FERC in its environmental reviews. The permitting and regulatory framework for LNG infrastructure during the current administration appears to be taking less time, which is very encouraging. It gives us confidence that our future trains will receive approval faster than our first 5 trains. We believe it is possible that we could receive our FERC permit for Train 6 as early as mid-2027, which could set us up for an FID in the second half of 2027, if we can also sufficiently commercialize and finance Train 6 during that time frame. We expect that FID in the second half of 2027 would result in Train 6 coming online as early as 2032. As I mentioned earlier, we began commercializing efforts for Train 6 and we're seeing very strong demand from potential SPA counterparties. We believe that one of the main outcomes of the Iran conflict will be increased attractiveness of long-term U.S. LNG volumes, and we'll discuss that more in a few minutes. The potential demand we are currently seeing for Train 6 provides us with a sales pipeline that is larger than the capacity of Train 6 and places us in a strong position for the subsequent commercialization of Train 7 and 8. We're advancing development of Train 7 and 8 with a focus on determining the supporting infrastructure they will require and finalizing their location on the site. Train 7 and 8 will need a flood control mechanisms such as levee wall as they'll be outside the main levee around the site, and we're also evaluating potential tank and berth requirements. We continue to have the goals of permitting these trains during the current administration and commercializing them while they are in the permitting process. We currently have full ownership of Train 6 through 8, and we believe these trains could contribute significantly to future NextDecade distributable cash flow across a wide range of financing scenarios. This year, as we advance permitting and commercialization of Train 6, we're working on potential financing options with the goal of maximizing distributable cash flow on a per share basis. Since our last call, global LNG market dynamics have shifted significantly as a result of the Iran conflict. Closure of the Strait of Hormuz during March and April pulled approximately [ 14 million ] tons of LNG supply out of the market with capacity at Ras Laffan and Das Island shut in. Each month of continued shut-in will result in a loss of an additional approximately 7 million tons, and we expect the production ramp-up at Ras Laffan will take weeks, if not months. Based on public announcements, the 2 damaged trains at Ras Laffan totaling almost 13 million tons per annum of capacity are estimated to require between 3 and 5 years to repair. Also, it's estimated that expansion capacity in Qatar could be delayed by up to a year due to recent events. In total, a significant amount of LNG supply has been pulled out of the market between now and 2030, which we expect will tighten global balances. There's a lot we don't know today, including the full extent of the damage of Ras Laffan exact timing for production to return to the market and the ultimate impact of short-term demand destruction in price-sensitive markets, particularly in Southeast Asia. Before the conflict began, we expected the impending supply wave of LNG to spur extra normal gas demand growth and additional gas infrastructure investments in developing markets over the next few years. Clearly, with less supply in the market currently, this will slow down. Longer term, we do not see a slowdown in demand for natural gas and in particular, LNG. One very effective way for buyers around the world to acquire LNG at attractive prices is through long-term supply -- is through long-term supply and U.S. LNG SPAs indexed to Henry Hub, are particularly attractive due to the diversified prolific natural gas resource base in the U.S., which effectively shelters buyers from the spikes in the price of LNG and natural gas in other parts of the world. Henry Hub pricing has decreased since the Iran conflict began and customers with long-term contracts out of the U.S. that are indexed to Henry Hub are currently able to deliver into Europe and Asia at levels below $8 per MMBtu. Long-term LNG supplies out of the U.S. have been a buffer against market price shocks, not only during the current conflict but also during the prior market spikes associated with the Russia-Ukraine war and weather-related seasonal demand spikes. Long-term U.S. LNG supplies have also been attractively priced relative to short-term supplies in tight market conditions like -- like we have seen in the past 2 to 3 years. Since 2021, an example, U.S. long-term SPA calculated at 115% of Henry Hub plus a fixed fee of $2.50 and shipping costs of approximately $2 would have delivered into Asia at an average of $8.83 per MMBtu. The JKM spot price over the same period was over $17.50, around double the long-term price. Excluding the market spikes related to Russia-Ukraine in 2022. From 2023 to present, the example U.S. long-term SPA price averaged approximately $5 per MMBtu, lower than the short-term LNG price. Long-term Henry Hub-linked SPAs have also compared favorably to long-term LNG contracts linked to oil. Since 2021, long-term LNG contracts linked to Brent would have needed slopes below 11%, inclusive of any fixed adder to beat the pricing of the most recent wave of long-term Henry Hub-linked LNG contracts out of the U.S. Historically, these Brent-linked LNG contracts have had slopes between 11% and 15% plus a fixed adder. Before the conflict began, we received strong indications of demand for long-term supplies out of Train 6. And demand for long-term contracts is even higher today. With a prolific and diversified natural gas resource in the U.S., and the favorable geopolitical environment, buyers can have confidence in U.S. supplies from reliability, energy security and economic standpoint. We expect buyers to increasingly value long-term contracts out of the U.S., which will spur additional capacity growth in the market. And with Train 6 through 8 under development, we're in a very good position to provide a meaningful amount of additional capacity to meet that demand. Now I'd like to turn it over to Mike to talk about our financial priorities. Mike? Michael Mott: Thanks, Matt, and thanks to everyone for joining us today. Matt has just walked you through key construction, operational and strategic priorities for 2026. Now I will spend a few minutes on our financial priorities for the year. First, we are focused on actively managing debt at the project level. Specifically, we plan to continue opportunistically refinancing portions of our project level credit facilities in the debt capital markets. Today, we have over $9 billion of credit facility commitments for Phase 1, about $3.8 billion for Train 4 and roughly $3.6 billion for Train 5. Over time, we expect to refinance each of these bank facilities into a mix of bullet and amortizing debt securities. We expect to refinance the full term loan balances before the commercial operation dates for Trains 3, 4 and 5, respectively. Since Phase 1 FID, we have refinanced more than $1.85 billion of Phase 1 bank debt, and we expect to continue taking advantage of market opportunities this year. Importantly, this approach allows us to better manage project level maturities by spreading them out over time and thoughtfully balancing bullet and amortizing structures. Our second financial priority is evaluating equity financing options for Train 6. As Matt mentioned, we are targeting an FID in the second half of 2027, subject to achieving permitting, commercialization and financing prerequisites. This timing comes before we expect to be generating meaningful operating cash flows that could fund our equity requirements for Train 6, requiring us to look to other financing alternatives for this capital. We expect to contract a high percentage of Train 6 capacity, which could support project-level bank facilities covering up to approximately 75% of total project costs. Maximizing project level debt lowers the overall cost of capital and meaningfully reduces our equity requirements. Based on current SPA pricing, early estimates of Train 6 costs and the current interest rate environment, we expect the project to be highly accretive to NextDecade's distributable cash flow. As a result, all else equal, we will seek to both preserve our high economic interest in Train 6 and select the equity funding options that are most accretive to our distributable cash flow on a per share basis to maximize value for our shareholders. The FinCo bank facility that will be used to fund a portion of our equity commitments for Trains 4 and 5 remains a very attractive source of capital. It is priced at only about 150 basis points over our project level bank facilities and provides significant flexibility through delayed draws and penalty-free prepayments. We believe additional FinCo capacity will be available to help fund a portion of Train 6's equity needs. Beyond that, we are actively evaluating a range of alternatives to fund the remaining Train 6 equity requirements. We will continue working through these alternatives over the course of the year with a focus on finding the most accretive outcomes, and we expect to share more detail with you later this year as these options take shape. Today, we are reaffirming our early volume and cash flow guidance, along with our steady-state outlook. This slide provides a high-level summary highlighting the key points. You can find more detailed assumptions and supporting slides in the investor presentation we posted earlier today. Let me start with a discussion of early volumes. We continue to project total LNG production of approximately 3,800 TBtu from early cargoes beginning with start-up of Train 1 in 2027 and extending through first commercial delivery to our long-term SPA customers under Train 5. Importantly, that total includes about 1,275 TBtu of LNG production in excess of what's currently contracted under long-term SPAs. As we discussed on our fourth quarter call, earlier this year, we sold forward more than 175 TBtu of those early volumes on an FOB basis. These sales carry fixed liquefaction fees and are expected to achieve cargo margins of more than $3 per MMBtu calculated as the FOB LNG sales price less our expected feed gas and fuel costs. As a result, we have reduced our exposure to LNG market pricing on early Phase 1 volumes by roughly 1/3. As Matt mentioned earlier, we expect Bechtel to deliver our trains ahead of the guaranteed substantial completion dates. As a result, the majority of the uncontracted volumes reflected in our early production guidance are expected to be produced after substantial completion and prior to DFCD under the SPAs for each train. As construction continues to progress, our confidence in these projections remains very strong. In fact, Bechtel is currently tracking modestly ahead of the schedule assumed in our guidance, which provides additional buffer and creates potential upside for early volumes that are not currently reflected in our projections. We expect the cash flow generated from sales of these early volumes to be used primarily to pay down a portion of FinCo and SuperFinCo loans that support our equity commitments for Trains 4 and 5. Our early cash flow outlook guidance remains unchanged. Under an assumed margin of $5 per MMBtu on volumes in excess of our contracted SPAs, we project early production could generate approximately $2 billion in NextDecade share of distributable cash flow at the Rio Grande LNG project level. At a $3 per MMBtu margin, we project approximately $1.2 billion of distributable cash flow. There is potential upside to both scenarios driven by continued schedule strength, the pace of ramp-up to full production, the potential for production above nameplate capacity and possible additional market price upside. Turning to leverage and capital structure. On our last call, we introduced a steady-state leverage target of 3 to 3.5x NextDecade level debt to adjusted EBITDA. We believe this target is appropriate given the long-dated, highly visible cash flows created by our highly contracted portfolio with high-quality creditworthy customers. In the $5 per MMBtu early volume margin scenario, we expect NextDecade level debt to fall within that target range as we move into steady-state operations. In the $3 per MMBtu scenario, we would expect to pursue additional balance sheet optimization. In that case, we would consider contracting approximately an additional 2 million tons per annum under long-term SPAs across Trains 4 and 5. That would increase our 5-train portfolio to roughly 90% contracted, allow us to maximize project level debt, reduce overall equity requirements for both NextDecade and our partners and ultimately reduce the amount we expect to draw under the FinCo loan, bringing NextDecade level debt back into our target range for steady-state operations. Because we contributed the net proceeds from the SuperFinCo term loan into Trains 4 and 5 at FID, we do not expect any additional NextDecade equity funding obligations through draws on the FinCo loan for those trains for at least the next 2 to 3 years. This gives us a long runway to determine the optimal level of long-term contracting. And as Matt mentioned, we are seeing very strong demand in the long-term contracting market today. Moving our discussion to steady-state operations. We are also reaffirming our steady-state guidance today. In our base case scenario, assuming $5 per MMBtu market margins, both for early volumes and during steady state, we project annual NextDecade distributable cash flow of approximately $500 million following DFCD for the Train 5 SPAs and prior to our economic interest flip for Trains 4 and 5 in the mid-2030s. After the flip, beginning in the mid-2030s, we project annual distributable cash flow of approximately $800 million. In our additional pricing scenario, assuming $3 per MMBtu margins on early volumes, $5 per MMBtu margins on steady-state volumes and an incremental 2 MTPA of long-term SPAs across Trains 4 and 5, we project annual distributable cash flow of approximately $400 million prior to the economic interest flip for Trains 4 and 5, which we would expect to occur a couple of years later than in our base case. In this scenario, we project post-flip distributable cash flow of approximately $500 million annually. As with our early volume outlook, there are potential upsides to our steady-state guidance, including continued schedule improvement, ramp-up timing, production above nameplate capacity and ongoing operational efficiencies. Thank you again for joining us today. With that, we'll open the call up for questions. Operator: [Operator Instructions] The first question is from Sunil Sibal from Seaport Global Securities. Sunil Sibal: So I wanted to start off on your request for additional work hours at the site. I was curious, is that kind of based or baked into your base construction schedule? Or does that kind of accelerate that from the base schedule? Matthew Schatzman: Thanks for the question. The 24/7 contemplated in the original EPC. It was an option and it's something that Bechtel could call on if they wanted to use it. And I think that's what they're doing. They want to maintain the current schedule, and they want the flexibility to utilize 24/7, and that's what we requested at FERC. How they end up utilizing it and how many people they actually use is up to them. But I wanted to make sure it was clear to the market that this is not an incremental cost to us. This is something that was already baked into the EPC. And I think it's a positive sign that shows we have -- although we are already ahead of schedule, we haven't even utilized all the potential capabilities of the 24/7 schedule to further accelerate. I'm very optimistic that Bechtel is going to remain ahead of schedule at this point. And I think by adding the 24/7 optionality, that gives us even more confidence. Sunil Sibal: Okay. And I think you mentioned DPA in your prepared comments. So I was curious what seems like that's primarily related to accelerated permitting or there are other kind of potential levers that gives you or other LNG developers in your view? Matthew Schatzman: Sorry, I missed the first part of that, referencing what... Sunil Sibal: The Defense Production Act, the invocation? Matthew Schatzman: Yes. Yes. I think we'll have to see exactly how this impacts the timing. But clearly, what we've seen recently are some changes in the way FERC has handled some of the current requirements such as the prefiling waiver for VV, which I view as very positive. That may only apply in certain circumstances. It's something that we're currently in discussions with FERC on, and we're waiting to hear additional guidance. But clearly, the Trump's memorandum regarding the importance of LNG, along with other energy infrastructure in the U.S. to energy security during this period of time, especially with LNG for our allies, I think is a very positive sign and suggests that we're going to see these things move very rapidly relative to even what we've seen in the past couple of years under the first couple of years of the Trump administration. Sunil Sibal: Got it. And then just a clarification on some of your comments. So I think you mentioned that as far as Train 6 is concerned, construction cost is kind of in line with Train 5 plus inflation. And then you also commented that based on where the supply/demand for long-term contracts is that, that market has strengthened. So I'm kind of curious when you think about your project, say, Train 6, between these 2 factors kind of interplaying, do you see improving returns on investment on the project versus where things were Train 5 -- for Train 5 last year? And then how are you seeing in terms of the demand for additional cargoes, is that primarily Europe, Asia? Any color on that in terms of your discussion so far? Matthew Schatzman: Yes. On the second part, you're talking about the long-term demand? Are you talking about for the excess cargo? You said additional cargoes. You mean for long-term SPAs? Or are you talking about for the short-term cargo sales? Sunil Sibal: Actually, both. Matthew Schatzman: Okay. All right. So first off, the economics for Train 5 were extremely good, and we expect the economics for Train 6 to track closely to the economic outcome for Train 5, again, adjusted for inflation. And we still have to price up the EPC contract. And we likely won't do that until we're confident that FID is within months of that. And it's all dependent on how long we can get price validity, but it's tended to be about 90 days or so at most. But inflation, we have to monitor it. It's inflation, it's interest rates are the 2 main factors that are going to impact the project cost, inflation on the EPC, obviously, interest rates on the financing costs and interest during construction. Both of those appear to be okay right now, but we'll have to see. We've had some early discussions with equipment providers for the main equipment. I've been very pleased, very optimistic that we're not currently seeing the same sort of constraints that we saw back last year as far as timing. But we're not planning to FID until second half of next year. So a lot of things can happen between now and then. But at least in the interim, what we're seeing right now, I should say, things are tracking, I think, very positively. As far as the demand for the LNG, I think it's the same group that we saw for 4 and 5. It's Asia, Middle East, not seen as much out of Europe as far as long-term contracting, but still a lot of interest from major intermediaries that sell into Europe and have markets into Europe. But Asia and I think Middle East, especially look like they're going to be players in the next phase of RGLNG's expansion. In the shorter term, I'd say it's a combination of Europe and Asia. Operator: The next question is from Wade Suki from Capital One. Wade Suki: Just thought maybe just dovetail a little bit on Sunil's question, maybe expand a little bit on kind of cost inflation. I know we're not going to maybe get word until next year. But labor running a little hot, maybe you could speak a little bit to kind of the various equipment components, electrical, kind of just thinking about other Gulf Coast projects progressing. Now we have rebuilding, reconstruction going -- well, hopefully going abroad with all the damaged facilities. Just wondering if you can kind of speak to those items as you see them today. Matthew Schatzman: Yes. Inflation appear -- you've seen the most recent numbers that came out. Inflation appears to be heating up a little bit, but over time has been relatively modest. Again, we would expect the EPC cost to go up by at least inflation. A large part of our EPC since we're stick built in the U.S. is going to be labor. Labor does tend to be a little bit higher than inflation, although this past year, it wasn't much above inflation. We all monitor this closely, not only for the EPC, but for every year, we have to look at our own employees' costs, and we want to be fair. So I think at least right now, it's not a worry, a major worry, but we'll see how things progress over the year. As far as equipment, again, as I said, I've been pleasantly surprised at this point with the feedback we've received from our major suppliers as far as the expected availability for equipment for Train 6, 7 and 8 and the timing of when we'll be able to receive that equipment. As far as the cost, that will be determined once we price everything up for the EPC contract. I do expect electrical equipment to continue to be in high demand, not just for LNG, but obviously for data center build-out and power generation. So we'll see how that comes in. But I would expect that any sort of cost inflation that we're going to see will likely be offset by contracting -- price contracting. And again, we're not seeing any sort of -- we're not seeing the same sort of price increases that we saw after the pandemic prior to Phase which was fairly substantial. And then as you recall, between Phase 1 and Train 4 and 5, we had about a 10% increase, and there was a 2-year spread there. So it was running closer to 5% per annum as opposed to the current inflation. But that tracks pretty closely with what we were seeing in inflation. And obviously, some of the equipment stuff got really, really hot, especially around turbine orders, et cetera, that became the constraints as far as schedule and delivery of the project. Wade Suki: Great. Appreciate the color there. You kind of walked right into my next question, Matt, just to what extent these might kind of influence, if at all, long-term SPA pricing. And always appreciate your broader thoughts or insight -- whatever insight you could give us on what you're seeing out there with regard to kind of leading-edge rates. That would be great. Any color would be awesome. Matthew Schatzman: Yes. Look, I think the market for LNG is between $2.50 and $3 on a fixed fee basis, 150% Henry Hub in that range. And I think it depends on the returns you're going to receive are going to be dependent on whether or not you're running a brownfield project or a greenfield project. The greenfield projects, I think, need higher contracting prices in order to get off the ground. If they go lower than and compete with the brownfields like us, I think they're going to have to get their upside through expansion. If they don't have a lot of expansion capability, I think it's a challenging market from an equity return perspective. Clearly, as you guys have seen for our Train 4 and 5, we are -- we tend to not be on the lower end of the market. We tend to be, I think, in the mid-range of the market, kind of the true market price if you look at it from a bid offer perspective. And that's where I expect we will be or close to that for Train 6, 7 and 8. Operator: The next question is from Craig Shere from Tuohy Brothers. Craig Shere: Is your nat gas sourcing team fully in place now? And you've talked about hedging out some of the initial commissioning cargoes and that you expect $3 plus netbacks net of your feedstock costs. Could you, by the end of the year, make any more formal announcements, not just on the sales side, but on the purchase side and what you're doing there? Matthew Schatzman: Yes, that's something we'll take into consideration. We've been active on the supply side for a long term, and been working on that, and I expect that we should be able to give an update as to what we've done on a long-term basis. In addition, some of our customers have to give us notice before the end of the year as to their willingness to sell us gas under long-term contract prices. So either later this year into the year, maybe in the first quarter, Craig, we can provide some guidance as to what we -- on a basis, a year or greater. I think that will be a good update. So thanks for the steer. As far as the team, together nicely. So we already had a gas supply team in place, but we're building out the short term, what I'll call the trading and optimization team. They'll be managing our gas supply for us, and we expect to have them definitely in-house completed before we have to start introducing gas into the facility, which will be later this year. Craig Shere: Great. And you mentioned about this 24/7 construction that Bechtel officially kind of was the one who asked for it, and it's their discretion how to use it. Maybe you could just speak to their incentives by individual train or by individual FID, they may -- depending on how well things are going overall, may not necessarily make more money or incentives to accelerate further versus where they're already tracking. But when you think about a -- well, now already 5-train project moving on to 6 and more that perhaps even if they slightly increase their costs that you don't have to pay for, that their NPV building out 6 to 8 trains over time could be higher and that they're still incentivized to maximize this under most conditions. Could you opine on that? Matthew Schatzman: I think what I'd say simply, Craig, is that without getting into the details of the commercial arrangement, which I don't believe we have disclosed, what I would say is that Bechtel is highly incented to deliver substantial completion of each train prior to the guaranteed substantial completion date and that there is value there that I think can more than compensate them for an increased labor cost if they choose to use it. There's also, as you know, guarantees. I mean, we're nowhere -- at this point, we've already said and guided that we're nowhere near that guaranteed substantial completion date as far as the delivery of the trains. But they want to make sure that they achieve prior to guaranteed substantial completion because if they went past it, which, again, we're nowhere in this realm, there are key pole mechanisms and damages associated with that. So there's a bunch of different incentives for them to ensure that they deliver the trains on schedule, and there are more incentives for them to deliver them ahead of schedule. Operator: The last question is from Alexander Bidwell from Webber Research. Alexander Bidwell: Just wanted to, I guess, piggyback off some of the prior questions around Phase 1 construction. With the projects tracking ahead of schedule, could you walk us through the path to maintaining that momentum as well as any avenues that could further accelerate the project schedule? Matthew Schatzman: Yes. I think it's -- importantly, it's execution. We don't currently have any concerns about equipment and supply chain. That appears to be going very well. So we haven't seen any major impact associated with the conflict in Iran impacting that, which is good to see. I think the key here is we'll continue to provide you updates each quarter. You will see the progress from the standpoint of the construction. You note that where engineering is effectively complete. Procurement is effectively complete for Phase 1 or close to it. So it really boils down to execution at the site and building it. 4 and 5, again, further out in the future, but you should expect to start seeing steel foundations being finished up this year and hopefully steel erecting at the trains. We've already talked about the pilings for Tank 3. I hope to see that progress for Train 4 as well this year. But I think it really boils down to execution. There's really -- there's not one thing that we're specifically looking for. As far as the construction, it's just ongoing, continuing to do and execute what Bechtel has been able to do so far. The next phase, though, I think, is of equal importance, and that is the commissioning phase. You'll see gas being introduced in the facility this year. You should expect to see that. We'll be working on the warm side of the facility there. We're working on the flares, and we'll be working on the gas processing side of it. The cold side, you're going to -- you shouldn't expect to see that until next year when we start to start running compressors and start testing. And then start hopefully producing LNG, as we said, in the first half of 2027. We haven't provided any specificity on which month that's going to be. I hope to be able to provide some additional guidance on that later this year as we continue to progress with Bechtel and we get a better indication of when that's going to occur. And then, of course, once we get through the commissioning process, which I think I've told the market that we're doing with Bechtel, our operations team is seconded into Bechtel for the commissioning so that we have a seamless handover at substantial completion. Our team will have already worked on operating the facility during the commissioning with Bechtel, which we think is best practice. That should happen -- that will happen at substantial completion, which again is tracking ahead of guaranteed substantial completion which currently, I think we've guided is the fourth quarter of next year. So those are the key components. We've been very -- we believe and continue to try to be conservative in our guidance to the market because this is our first train. We are -- we've been around the block on this and other projects. We know how these things work. So far, everything has gone extremely well. We would anticipate based on how well Bechtel has done building the facility that we expect the commissioning and handover to go extremely well also. But we're not planning for the best, hoping for the best. We're going to plan for expected disruptions as you typically see when you're starting a facility, especially a new one. We will learn lessons from that. And then we would expect Trains 2 and 3 to go even smoother because we'll learn from Train 1 commissioning and startup. So I think these are the key components. And again, we will continue to update the market as we can with more details on when that facility is going to -- when Train 1 is going to start up, when we expect to produce first LNG and when we expect to load our first cargo. And then the spread of timing between Train 1 and Train 2, Train 2 and Train 3. Alexander Bidwell: All right. Appreciate the color. And then just, I guess, real quick on the shipping side. I was wondering if you could provide any additional color on your plans around shipping capacity. I understand you guys have some vessels set to be chartered in, but is there any plans to expand or add additional vessels to handle the merchant book? Matthew Schatzman: Yes. We have 5 vessels under charter, 3 long-term charters that are utilized for our Guangdong DES deal. We've chartered those from Dynagas. There are 3 new vessels. In fact, the first one just sailed yesterday from the Hyundai shipyard. I was there on Tuesday and took a tour of the vessel. It's a phenomenal piece of kit that Hyundai has built for Dynagas and Dynagas has designed. We have 2 more of those coming this year. And then we have 2 more vessels that we've subchartered. All of these will be used for our commissioning process for Train 1, and then we'll start utilizing those larger ships that we have -- that are being built for us to deliver to our long-term market in China. We will likely run a DES-type business for our excess cargoes. We believe that being able to do a delivered-ex-ship business for our excess volumes provides additional flexibility and optionality and should increase the value. So we do anticipate chartering more ships on a short-term basis for Phase 1 volumes above the firm volumes that we've already sold. And then for Train 4 and 5, we are looking at additional capacity potentially on a longer-term basis due to the fact that we currently, as you know, haven't sold all of our firm capacity out of those trains. However, as Mike mentioned in his comments, should we decide to sell more of that capacity a year or 2 from now, depending on how the short-term market goes, that may reduce how much capacity we would need under a longer-term basis. So we're going to be very mindful of that and make sure that we don't overcontract capacity before we need it. But we will be chartering more ships, simply put. Operator: That concludes our call today. Thank you for joining and for your interest in NextDecade.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of our team will be happy to help. Please standby, your meeting is about to begin. Good morning, everyone. Welcome to the Ares Management Corporation First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. As a reminder, this conference call is being recorded on Friday, May 1, 2026. I would now like to turn the call over to Greg Mason, Co-Head of Public Markets and Investor Relations for Ares Management Corporation. Please go ahead, sir. Greg Mason: Good morning, and thank you for joining us today for our first quarter 2026 conference call. I am joined today by Michael J. Arougheti, our Chief Executive Officer, and Jarrod Morgan Phillips, our Chief Financial Officer. We also have a number of executives with us today who will be available during Q&A. Before we begin, I want to remind you that comments made during this call contain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filings. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results, and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in Ares Management Corporation or any Ares Management Corporation fund. During this call, we will refer to certain non-GAAP financial measures which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our first quarter earnings presentation available on the Investor Resources section of our website for reconciliations of these non-GAAP measures to the most directly comparable GAAP measure. Note that we plan to file our Form 10-Q later this month. This morning, we announced that we declared a quarterly dividend of 1.35 dollars per share on the Company’s Class A and non-voting common stock, representing an increase of over 20% from the same quarter a year ago. The dividend will be paid on June 30, 2026, to holders of record on June 16. Now I will turn the call over to Mike, who will start with some comments on the current market environment and our first quarter financial results. Michael J. Arougheti: Thank you, Greg, and good morning. We hope everybody is doing well. In the first quarter, we continued to generate strong financial results and significant growth across our key financial metrics, and we are excited and confident about the opportunities ahead for our business. Our AUM increased 18% year-over-year to 644 billion dollars, and our fee-paying AUM increased 19% to 400 billion dollars. This is translating into strong top line growth and profitability, as management fees increased 22% year-over-year, FRE grew 26%, and realized income increased 24%. We also continued to generate strong fund performance for our investors across an expanding array of investment strategies, which is helping to drive increased and more diversified investor demand across our firm. In fact, we are on track for another record year of fundraising as we raised 30 billion dollars of gross capital in Q1, which is our highest ever first quarter, and that is up 46% compared to last year’s record first quarter. Our pipeline of new institutional funds remains robust for this year and next year, with three of our largest institutional private credit funds in the market over the next twelve months, two of which have already launched with significant momentum. Our institutional franchise remains strong. Three-quarters of our 644 billion dollars of AUM is comprised of institutional capital with 14% from publicly traded closed-end funds and other sources and just over 10% from evergreen wealth products. With nearly 1,700 investment professionals across more than 55 global offices, we operate one of the largest and most diversified origination platforms in the private markets. This platform enables us to source differentiated investments throughout market cycles and to capture market share during periods of volatility. Even with the typical seasonal slowdown in the first quarter, which was further amplified by heightened geopolitical issues, our deployment was still over 32 billion dollars across the firm, which was higher than the first quarter of last year. As sponsors and business owners gain increasing comfort with the market backdrop, we are seeing our forward investment pipeline increase to a new record level with notable strength across European and U.S. Direct Lending, Alternative Credit and Infrastructure. The expansion of our platform is also driving new investment opportunities. For example, over the past two years, we have added 14 new investment products and strategies, which now total 68 billion dollars in AUM. These new additions to the platform enable us to continue to expand our global origination capabilities and help us to find supply-demand imbalances and scenarios. Our available capital continues to expand on the back of our strong fundraising, and it now stands at over 158 billion dollars. As one of the largest institutionally backed private credit providers globally, we believe that we have the most credit dry powder of any public player in the market, totaling more than 100 billion dollars. This sets us up well for continued growth in FPAUM as we invest in today’s increasingly attractive market. Now let me dive into a few key drivers of our business, starting with fundraising. In short, we continue to see strong demand from institutional investors as many are seeking to take advantage of improving market conditions across private credit, real assets and secondaries. Institutional demand is broad-based; we continue to see investors consolidating relationships with scaled platforms like Ares Management Corporation that can generate consistent performance across cycles. Within our Credit Group, we raised over 20 billion dollars in Q1, driven by strong demand across both drawdown funds and perpetual capital vehicles. In the first quarter, we held the final close for ASOF III, our latest opportunistic credit fund, raising over 8.3 billion dollars of equity commitments and nearly 10 billion dollars including related transaction vehicles. ASOF III significantly exceeded its target and the size of the prior vintage. We believe that the timing of this raise is particularly compelling as the team is seeing a large pipeline of investment opportunities. In January, we launched the third vintage of our Alternative Credit fund with a target of 6.5 billion dollars. Our Alternative Credit strategy is where we invest across the multi-trillion dollar addressable market in global asset-backed finance. Our prior Alternative Credit fund totaled 6.6 billion dollars in capital, and the current fund is experiencing strong demand from existing and new institutional investors well in excess of the target. We expect to complete the fundraise in the second quarter at its hard cap as the fund is already meaningfully oversubscribed. In U.S. Direct Lending, we are accelerating the launch of our fourth senior direct lending fund due to improving market conditions, which are offering enhanced economics, lower leverage and improved deal terms in U.S. Direct Lending investments. We anticipate a first close in late third quarter or early fourth quarter of this year. We also have some exciting structural enhancements to our main fund series, which we believe will benefit investors and enhance our fundraising capabilities in the strategy. In our third U.S. senior direct lending fund, SDL 3, we raised approximately 15.3 billion dollars in equity commitments across both levered and unlevered sleeves in the fund against a 10 billion dollar cover. The fourth vintage in the series will be a fully levered fund, and we plan to launch a new unlevered evergreen U.S. senior direct lending core product. The two products will continue to invest together just like previous vintages, but will now provide investors with both a commingled and an evergreen opportunity. Like our third fund, we would expect this fourth fund series to also exceed its 10 billion dollar cover. In Digital Infrastructure, we are raising a global data center equity fund to take advantage of the multi-decade supply-demand imbalance, as the hyperscalers drive demand for trillions of dollars of cloud and AI computing over the next five years, a significant portion of which will need to be solved by private equity and private credit. Our Digital Infrastructure group, which includes our own vertically integrated operating platform, Ada Infrastructure, has a differentiated position in the market characterized by long-standing hyperscaler relationships, significant investment and development expertise, and multiple seed projects in the pipeline in top-tier markets. We expect to hold a significant first close for our global data center fund this summer. As many of you know, we operate one of the largest real estate platforms globally, and our scale continues to drive accelerating demand across our real estate funds. In the first quarter, our eleventh U.S. Value-Add fund closed at its increased hard cap of 3.1 billion dollars in fund commitments and approximately 3 billion dollars of total capital. Similarly, our fifth Japan Logistics Development Fund is seeing very strong demand following the excellent performance of prior vintages. We expect to hold a first close this spring and ultimately reach the hard cap later this year. And in Secondaries, we are back in the market with our third real estate secondary fund and expect a first close in the back half of the year. Within our Wealth business, we had another strong quarter driven by accelerating demand in our six products outside of U.S. private credit. In fact, we raised the same amount of gross and net equity capital of 4 billion dollars and 3 billion dollars, respectively, in the first quarter as we did in the fourth quarter of last year. On a year-over-year basis, our Wealth AUM increased 54% to 68 billion dollars. We believe that our diversified product offering is enabling us to gain market share as advisors broaden their focus away from U.S. private credit toward other alternative products like infrastructure, real estate and private equity. For example, during the first quarter, our core infrastructure fund raised 1 billion dollars in equity subscriptions and now has over 3 billion dollars of AUM, and the fund just launched on its first major platform with its first capital raise on that platform closing today. We are also seeing improving flows across our two non-traded REITs, with more than 640 million dollars of inflows in the quarter, and our European direct lending wealth products had equity flows of nearly 1.2 billion dollars. Within U.S. Direct Lending, equity flows into our non-traded BDC have moderated relative to prior periods, while fund performance and underlying credit fundamentals remain strong. Since inception, the non-traded BDC has generated an annualized return of over 10% for Class I shares. Notably, the majority of repurchase requests during the most recent quarter came from a limited number of family offices and smaller institutions in select regions, and over 95% of our investors did not request redemptions. It is important to remember that these vehicles are specifically designed to align liquidity with the underlying assets. For example, the non-traded BDC’s 5% quarterly repurchase framework approximates the natural repayments of a typical U.S. direct lending portfolio. This repurchase framework is intended to provide access to attractively yielding illiquid assets while also mitigating against the risk of forced asset sales amid heightened redemption requests. Finally, we believe that we are well positioned to continue to drive strong growth regardless of redemption activity in our U.S. private credit vehicles. These two private credit wealth products account for approximately 4.5% of our overall fee-paying AUM. While we believe it is a very unlikely scenario, if these two funds were to experience 5% quarterly redemptions for a full year with no gross inflows, we estimate that, based on existing fund structures and redemption mechanics, it could impact our FPAUM by approximately 1% annually. Considering that our FPAUM increased by over 19% in the past twelve months, and our current AUM-not-yet-paying-fees available for deployment represents another 19% of future growth in FPAUM, we would expect the impact of any redemption activity to be minimal. In reality, any deployment that would have gone to these non-traded vehicles will likely be taken up by other traded and institutional funds and SMAs with limited to no impact to our current year profitability. On the investing side, overall deployment activity increased modestly compared to 2025, driven by real estate, alternative credit, European direct lending and private equity. The transaction market environment for U.S. Direct Lending was slower in the first quarter as industry-wide deal count and middle market M&A declined by 41% in Q1 2026 versus Q1 2025 due to impacts from the Iran war and changing inflation and rate expectations. During slower periods, we often gain considerable market share due to our certainty of capital and broad sourcing capabilities, and the first quarter was no exception. Over the past several weeks, we are beginning to see a pickup in new U.S. Direct Lending transaction activity as market participants adjust to changing market conditions. As Jarrod will discuss later in the call, our investment portfolios are performing well and credit fundamentals remain positive. Of course, the broader market will see defaults which will inevitably garner attention, but we are not seeing signs of an impending default cycle, and we believe that private credit players are getting well compensated for the risks with enhanced economics. We have operated our U.S. Direct Lending strategy for over 20 years, and looking at Ares’ BDC, Ares Capital Corporation, we have deployed and exited more than 70 billion dollars in capital with an asset-level realized gross IRR of 13% on all exited investments. In our view, the growth of the private credit asset class is part of a multi-decade structural evolution supported first by continued expansion of the private markets relative to the public markets; secondly, it is driven by bank consolidation, the need for tight bank regulation given the dependence on federally insured deposits and the inherent asset-liability mismatch and leverage in the banking system; and lastly, the syndicated bank loan and high yield markets have been focused on larger companies for decades, which has left a growing void for middle market companies, which comprise about one-third of our economy. The U.S. private credit market, which is funded 75% or more by institutional investors, serves as a stabilizing force in the economy when bank lending contracts or when the capital markets become constrained. For example, if you look over the last 25 years, U.S. private credit has contracted once, which was over 10 years ago, versus the banking sector, which has contracted eight times over the same period. Today, Ares Management Corporation has over 100 billion dollars in available capital to invest in credit, and we estimate that the industry has over 500 billion dollars of available capital, which is larger than the size of the entire non-traded BDC industry. While private credit has expanded at low double-digit rates over the past decade, this growth tracks in line with the growth of the 5 trillion dollar private equity sector and other private market asset classes. Also, the percentage of our economy’s GDP funded by corporate credit, including private credit, bank C&I loans, syndicated bank loans and high yield bonds, has not changed over the past decade. This indicates that the growth of private credit is not increasing the amount of leverage or credit in the economy, and is providing more consistent funding throughout business cycles. Every loan funded by private credit with comparatively less fund or balance sheet leverage should reduce risk of volatility. Software is a topic that is rightfully drawing a lot of attention, but there seems to be confusion on how to distinguish between software exposures and different software companies. Senior debt is much more protected from downside risks than equity in the capital structure and individual software companies have varying degrees of potential AI disruption risks and opportunities. In the traded loan markets, we are seeing a bifurcation in the prices of software loans between the potentially less and more impacted companies. For example, we have tracked a basket of companies focused on core operational software, systems of record and highly regulated markets where their loans have traded down 2% on average year-to-date to 98–99 dollars, versus another basket of software companies primarily focused on content generation, data analysis or productivity tools where their loans have declined 24% on average year-to-date and now trade below 65 dollars. As we have discussed in the past, Ares’ software exposure, which is 6% of overall AUM and less than 8% of our AUM in private credit, is focused on senior lending, primarily to software companies in the former basket serving the core operations of complex businesses in regulated industries with proprietary data. As you may have heard from the Ares Capital call earlier this week, we engaged one of the top three global management consulting firms to supplement our own internal analysis of our software-oriented portfolio. They conducted a nine-week independent and detailed review of the potential forward-looking AI risk in our software-oriented portfolio companies, and the study also included our relatively lower software exposure in our European direct lending portfolio. The study graded each company on a spectrum based on risk characteristics and concluded that our software-oriented portfolio is very well positioned with 86% of the portfolio with low risk of potential AI disruption. Approximately 13% of the portfolio was classified as medium risk—these companies are performing well today but have a greater need and an opportunity to adapt to AI risks to their business—and only 1% of the portfolio was categorized as having high risk of AI disruption. If the consultant’s framework, which aligns with our own rigorous underwriting views, proves directionally correct, the portion of our software exposure that is medium to high risk represents less than 2% of our U.S. and European direct lending AUM and well under 1% of our total firmwide AUM. And lastly, before turning the call over to Jarrod, I wanted to highlight the successful IPO last week of X-energy, which is a small modular nuclear reactor company. In 2022, we identified X-energy as a revolutionary company through our first SPAC, Ares Acquisition Corp. I. As we approached the de-SPAC process in 2023, high inflation and rapidly rising interest rates impacted market conditions for the transaction. We chose to support X-energy in a private transaction and the company continued to execute its strategy, including receiving support from strategic investors like Amazon. Last week, X-energy completed its IPO that was meaningfully oversubscribed, raising over 1 billion dollars at a 20% premium to the high end of the proposed range, and represented the largest equity offering ever for a nuclear company. The cost basis of our balance sheet investment is a little over 100 million dollars and, based on the recent trading price of the stock, our current fair value net of employee compensation is close to 700 million dollars. We are excited to celebrate this significant milestone with our partners at X-energy. And with that, I will turn the call over to Jarrod to provide additional details on our financial results. Jarrod? Jarrod Morgan Phillips: Thanks, Mike. Our financial results in the first quarter demonstrate the strength, durability and diversification of our platform, with continued strong growth across our key financial metrics. Importantly, these results reinforce what we believe is one of the defining characteristics of our business model, which is our ability to continue growing, often faster, through periods of market dislocation given our FRE-rich earnings profile, balance sheet-light strategy, diversity of our AUM and investment strategies, and the scale of our global platform. As we look ahead, we remain confident that we are on track to meet our financial objectives for the year. We continue to benefit from a large base of AUM that is not yet paying fees, strong fundraising momentum—especially in the institutional channel—and improving conditions for our deployment across a broader set of strategies. We believe the combination of long-duration capital, flexible investment mandates, significant dry powder, an asset-light balance sheet and a management-fee-centric model positions us well to navigate through a range of market environments while continuing to drive growth in earnings over time. Turning to our results, quarterly management fees exceeded 1 billion dollars for the first time in our firm’s history and increased 22% compared to the prior-year period. This growth continues to be driven by expansion in FPAUM, which increased 19% year-over-year due to strong underlying fundraising and deployment activity across the platform. Fee related performance revenues totaled 20 million dollars in the quarter, which were driven by APMF. As a reminder, the timing of FRPR varies by fund and investment strategy. Within Credit, we typically recognize FRPR from our Alternative Credit strategy in the third quarter, with most of the remaining credit strategies recognized in the fourth quarter. In Real Estate, FRPR is concentrated in the fourth quarter, while APMF and certain other perpetual vehicles generate FRPR on a more recurring quarterly basis. Fee-related earnings were 454 million dollars in the quarter, increasing 26% year-over-year. Our FRE margin expanded 90 basis points year-over-year to 42.4%. We continue to have good visibility into margin expansion for the full year towards the high end of our targeted range, driven by a number of factors including continued efficiencies from the GCP integration, the data center business shifting from a negative to a positive FRE contributor with the new global digital infrastructure fund paying on committed capital, and our expectations for continued strong growth in AUM and FPAUM from deployment. Turning to performance income, we generated 75 million dollars in realized net performance income, an 84% increase over the year-ago period. Interest expense increased to 51 million dollars due to normal increased Q1 seasonality. Additionally, interest income should remain around the Q1 level going forward. Realized income for the quarter was 503 million dollars, representing growth of 24% year-over-year, and after-tax realized income per share was 1.24 dollars, up 14% compared to the prior-year period. Our tax rate in the quarter totaled 13.5%, just above the midpoint of our 11% to 15% expected range for the year, in line with where we would expect the rate to be for the remainder of the year. As Mike stated, our fund performance remains strong across the platform. Over the last twelve months, we generated time-weighted returns of approximately 12% to 15% in our U.S. Direct Lending strategies, 15% in Alternative Credit, 12% in Opportunistic Credit, 9% in European Direct Lending and over 20% in APAC Credit. We continue to see strong fundamental performance in our funds, and when we look across private and public credit markets, nothing we are observing suggests we are at or near a turn in the credit cycle. Across our direct lending portfolios, we are seeing continued near 10% EBITDA growth, loan-to-value ratios in the mid-40% range, private equity funds continue to fund new transactions with majority-in-equity and improving interest coverage ratios of 2.2x. Non-accrual ratios are well below historical norms and we are generally financing much larger, more resilient businesses today versus past vintages. The relatively small number of credit issues we see are company-specific rather than indicative of broader trends. We are not seeing any credit deterioration broadly within software, as we have only one software company on non-accrual. Within Real Assets, our diversified non-traded REIT has generated a total return of approximately 12% over the last twelve months. Our infrastructure debt strategy produced gross returns of approximately 9% over the last twelve months. In Secondaries, APMF has generated a since-inception net return of over 14%, while our primary private equity strategies continue to deliver strong performance with net returns of approximately 15% in ACOF VI. Overall, these results reflect the breadth and consistency of our investment performance across strategies and continue to be a key differentiator for Ares Management Corporation as we look to drive long-term growth in AUM and earnings. In conclusion, for the year 2026, we are on track with our longer-term goals of generating compound annual growth of 16% to 20% in FRE, 20% to 25% in realized income and 20% in dividends. We anticipate continued FRE margin expansion and we expect to be within the upper end of our 0 to 150 basis points annual target this year. We are on track for another record year of fundraising, and our expansive origination platform, record levels of dry powder and flexible capital position us for strong deployment even in uncertain markets. I will now turn the call back over to Mike for his concluding remarks. Michael J. Arougheti: Thanks, Jarrod. As we step back and reflect on the events of the first quarter, we believe one of the most important takeaways is the continued strength and resilience of our institutional fundraising franchise. Last week, we held our global annual meeting for our institutional investors. We welcomed over 1,100 attendees from across the world to both highlight the breadth and depth of Ares Management Corporation’s investment platform and to expand and deepen relationships with our largest investors. We continue to see enthusiastic engagement from large, sophisticated investors who are allocating capital with a long-term perspective and are increasingly consolidating relationships with scale managers that can deliver across strategies and cycles. That demand has remained consistent despite the recent market noise, and in many cases, we are seeing investors lean in given the improving opportunity set. I think it is noteworthy that we continue to exceed our fundraising targets in most of our flagship fundraises, and in many cases, we are getting to the hard cap in a shorter amount of time than in prior vintages. We also believe that the current environment is setting up very well for enhanced deployment. Periods of uncertainty tend to create more attractive investment terms and risk-adjusted returns, and we are already seeing a broader set of opportunities across Credit, Real Assets and Secondaries. Given the ongoing impacts from geopolitical issues and certain redemptions in retail-focused funds, the current environment is offering wider spreads, higher fees and better terms. With over 150 billion dollars of available capital and a highly diversified platform, we are well positioned to take advantage of these conditions and deploy capital at more attractive risk-adjusted returns. Importantly, our business model continues to provide us with a degree of diversification, stability and flexibility. We operate leading businesses across an array of global Credit, Real Estate, Infrastructure, Secondaries and PE strategies. Our earnings are driven by management fees supported by long-duration capital and complemented by performance income that we believe will continue to grow over time. This combination enables us to remain patient and opportunistic while continuing to generate durable growth in earnings. We are excited about the many levers that we have for profitable growth and our ability to continue driving long-term shareholder value. I will remind everyone that Ares Management Corporation experienced its two fastest periods of growth during the GFC and COVID, as we were able to leverage our competitive advantages to consolidate share and as our institutional investors increased their allocations to us to take advantage of improving returns in choppy markets. As always, I want to thank our employees around the world for their continued hard work and dedication, and I want to thank our investors for their ongoing support and confidence in our platform. We will now open the call for questions. Operator: Thank you. We will go first today to Craig Siegenthaler with Bank of America. Craig Siegenthaler: Good morning, Mike and team. Hope everyone is doing well. Michael J. Arougheti: Thanks. You too, Craig. Craig Siegenthaler: You had a strong fundraising quarter in the Credit platform, and that is despite a deceleration in two of your newer retail funds that, as you said, only represent 5% of your AUM. Can you provide some perspective on the evolving demand dynamics between the institutional channel, the insurance channel, and also the retail channel within private credit? Michael J. Arougheti: Sure. Thanks for the question, Craig. I am going to step back and contextualize the answer with some things that I know I have talked to you about and others on the line. When you think about how the private credit market has been evolving and how Ares Management Corporation has chosen to participate in it, remember we actually started in private credit with Ares Capital Corporation, a traded BDC, and as we referenced on the call, that entity has a substantial public track record through cycles. If you look at the 21-plus year track record there, the return coming out of ARCC has beaten the S&P 500, the syndicated bank loan market, the high yield bond market and probably most anything else that people have invested in. It is a wonderful company and a wonderful structure. But what we learned was that because of the ebbs and flows, particularly within the retail market, it was challenging to take full advantage of cycles when they developed only in that traded BDC fund structure. And so we launched in earnest our institutional fund platform with the SDL and ACE series, which have obviously scaled with similarly strong performance. Watching those two work together, what you learn is diversification of funding is critically important to navigate cycles and drive outperformance, but also the ability to have those funds working hand in hand is performance-enhancing for both funds given our ability to continue to invest into the franchise, drive new originations, have the dry powder to support our best performing companies, etc. So you need both. Then we entered the wealth channel; we were actually last in our space to come into the market in earnest given some of the learnings we had about the procyclicality of flows sometimes within that channel, both good and bad. We have been very measured as we have thought about how to build the fund complex to capture the full complement of opportunities across the cycle within traded, non-traded and institutional. But what we have always tried to articulate is the assets are the same. As I said in the prepared remarks, if we originate a senior secured loan and we have availability of capital in each of those three pools, each of those three pools will get to participate. Not surprisingly, if you are beginning to see slowing inflows or increased redemptions in the non-traded part of our business, that does not detract from our global deployment opportunity, and those assets will find their way into other funds and therefore will not have an impact on our profitability. Insurance is something slightly different. It is important to talk about it separately because 90% plus of insurance companies’ balance sheets are investment-grade rated and high-grade. It is exciting to talk about the growth of the private high-grade market, but it is a different asset class in many respects from the traditional private credit and sub-investment-grade credit market. So when you think about the demand, you have to think about it in terms of not just the channels, Craig, but also high-grade versus sub-investment-grade. If you look at our 20 billion dollars of capital raised in our credit strategies in the quarter, I think it is indicative of what is happening in the market. We raised 20 billion dollars of capital in our credit strategies in the quarter, 5 billion dollars of which was in wealth. If you break down that 5 billion dollars in wealth further, 3 billion dollars was in our two U.S. Direct Lending funds, and about 2 billion dollars was in our European Direct Lending fund and our Sports, Media and Entertainment fund, which we would characterize as a quasi-private-credit product. Those two—Europe and SME—are actually enjoying very strong gross and net inflows as well despite the noise in U.S. Private Credit. As I referenced on the call, we are seeing our third vintage of the Opportunistic Credit fund, ASOF, hit its hard cap; we are seeing our third vintage of our ABF fund hit its hard cap and be meaningfully oversubscribed; and we talked about the early momentum that we see in the next senior direct lending vintage. Everything we are seeing on the ground is that the institutional investor is not anxious, they are not allocating away from private credit, and in fact, they are looking at this as a huge opportunity to take advantage of a dislocation and bring liquidity into the market to capture excess return. Thanks for the question. Operator: Thank you. We will go next to Alexander Blostein with Goldman Sachs. Alexander Blostein: Hey, Mike. Good morning, everybody. I was hoping we could dig a bit more into your comments around the deployment pipelines. You made a point that they are currently at a record in the Credit business. Can you expand on which parts of the Credit business you have seen the biggest incremental pickup in deployment opportunities, how the market has evolved in the last several months, especially considering that the non-traded BDCs and the evergreen vehicles for the most part have been the incremental buyer in the last few years, and how that might change the market structure and the spreads you currently see available in the States? Michael J. Arougheti: Thanks for the question, Alex. I would just comment that I do not know that they are the incremental buyer. If you look at the market structure, whether you include certain portions of high-grade private credit or not, you will see that the non-traded BDCs in aggregate—AUM, not new flows—are somewhere between 15%–20% of the overall private credit market. Because they do not operate with a significant amount of dry powder, when you look at the net flows into non-traded BDCs relative to aggregate dry powder in the institutional market, I do not think they were the incremental buyer. That goes back to our point earlier about the deployment opportunity this creates. In terms of the pipelines, the diversification of the platform really shines through in the quarter. We saw really strong deployment in our Infrastructure and Real Estate businesses; our European Direct Lending business had very strong deployment; Secondaries and Structured Solutions were very strong; ABF saw a little bit of a slowdown in the U.S. Direct Lending part of the business. I think that slowdown is more about what is happening in middle market M&A and the private equity market as they digest the war in Iran and the implications for inflation and the rate backdrop. But, as was said on the ARCC call, over the last number of weeks we have seen people pick their pencils back up and the pipeline has re-engaged. As we saw last year, there is a strong possibility that deployment will pick up in that part of the market pretty aggressively as we head into the back half of the year. It has been broad-based, which is part of the value of having the global diversification that we have. If there was one theme that I would point out that is accelerating, it is liquidity-generated opportunity—there are a lot of companies in the public and private markets that, because of the rate environment or flows, are going to need to seek creative liquidity solutions through opportunistic credit, secondaries and even direct lending and recap solutions that I think are going to drive significant deployment. We are excited about the setup, and pretty much every investment team is incredibly active right now. Operator: We will go next to Steven Chubak with Wolfe Research. Steven Chubak: Hi, good morning and thanks for taking my question. I wanted to double click into some of the comments on retail. While non-traded BDC flows have come under pressure, flows in other products you alluded to, Mike—such as infrastructure and secondaries—have been much more resilient, and some of the flows are even beginning to accelerate. What are you hearing from advisers and gatekeepers as it relates to retail appetite for strategies outside of credit? And given the fundraising pressures on the private credit side, do you still see a credible path to hitting the recently revised 2028 fundraising target of 125 billion dollars? Michael J. Arougheti: Thanks for the question. Zooming out, it is important to appreciate that development in the wealth channel is about investor access and bringing differentiated solutions to a part of the market that heretofore did not have the opportunity to invest. The large wealth platforms and large RIA and advisory platforms would tell you that their clients are meaningfully underinvested in the types of solutions that we and others like us are offering—around differentiated equity exposure, differentiated yield exposure, and tax-advantaged access to real assets. There is a major secular trend at play that will overwhelm, in my opinion, whatever periodic noise we see—whether it was the periodic noise we had in real estate a couple of years ago or the periodic noise we are seeing now in U.S. Direct Lending. As I mentioned in the prepared remarks, we have eight products in the channel—you could maybe add two more because we have two 1031 exchange platforms—that continue to see demand pull-through. While the U.S. Private Credit funds are seeing slowing demand, we are seeing increasing demand elsewhere because of the secular momentum I talked about. I would also remind people, because we put this out when we talked about our redemptions, if you look at our non-traded BDC, which is generating top-market performance, and see where redemptions were coming from, it was smaller family offices and some smaller institutions in non-U.S. regions. It was not what I would call the well-advised high net worth investor that tends to be the consumer of this product. From another angle, 95% of our investor base in the BDC did not want to redeem, and that was in addition to meaningful inflows in the period. I am not sure the redemption narrative is right, because it is not a broad-based repudiation of alts in the wealth channel. It seems to be something different. The adviser community—we spend a lot of time on education and support with individual advisers and their investors—and that is why you are not seeing broad-based requests for redemptions. It tends to be more isolated. On the 125 billion dollars, yes, we have not changed our guidance. Operator: We will go next to Patrick Davitt with Autonomous Research. Patrick Davitt: Good morning, everyone. I hear the more constructive direct lending pipeline commentary, but you cannot really see that in the hard numbers that have been put out there yet. Can you put a bit more meat around how that shadow pipeline compares to historical periods and when you think it could start converting into real announcements? Michael J. Arougheti: There is a lag, obviously. The deals that we are closing now have been in process with visibility for months. As you would expect, we have a top-down view of all of the transaction flow that is working its way through the business, including the Direct Lending business. The aggregate pipeline across the firm is at a record level, and the Direct Lending pipeline is increasing in momentum. We would hope that pulls through. A lot of times when you see things like the conflict in Iran, you get a pause as everybody evaluates, and then once people understand what we are working with, the pipeline will pick up. The longer-term catalysts are still in place—you have a significant amount of private equity invested that is aging and needs resolution through a sale transaction, refinancing or other capital structure solutions; you have an administration that is pro-business and a regulatory backdrop that is pro-M&A; and with rates stabilized, even if they are not coming down as the market anticipated a few months ago, a stable rate backdrop should be constructive for transaction activity. Last year, with the tariffs in April, you saw a similar pause—meaningful pipeline build through January–February, tariffs hit, pause, then reacceleration and it turned out to be a record deployment year. I cannot guarantee that is the case, but you do see these periodic pauses. The catalysts are intact, and the weight of money that needs to get resolved is going to drive people to the deal table. Operator: We will go next to William Raymond Katz with TD Cowen. William Raymond Katz: Thank you very much for taking the questions. Maybe one for Jarrod. On the realization side, Q1 came out a little lighter than many of us anticipated. It sounds like there is momentum not only for you but the industry at large. Can you give us a general sense of how you are thinking about the year playing through? And second, given the momentum on the FRE margins for this year, how should we think about 2027 given the significant scaling across the platform? Jarrod Morgan Phillips: Thanks, Bill. On realizations, it is similar to what Mike said. The more active the transactional backdrop, the more ability you have to pull realizations forward; the less active, you may have some extended durations. The nice thing about our European waterfalls that we have talked about in the past is they are predominantly from our credit funds. That means if the duration is extended, you are continuing to earn interest back on those, which increases your accrued balance to be recaptured later as part of the European waterfall. We just put out an 8-K when we were explaining what we thought would happen for this quarter and reiterated the same guidance we had provided for the year. Looking into next year, there is really no change there. The hardest thing for us is to peg the exact quarter, because we do not control whether a deal is refinanced or whether transaction activity results in a lot of deal turnover. The good thing is, because of the nature of these assets, you are not dependent on a market price coming to fruition through a transaction. That is one of our favorite parts about the waterfall. We are excited to have our first harvest from our first U.S. senior direct lending fund here in the first quarter. In terms of margin, we give that 0 to 150 basis points guidance on purpose as we get closer to the year. Our business is built so that as we deploy, it creates natural scale. But we do not want to take away from investment opportunity to do something like invest in the data center business, which we knew would be FRE-negative for a period of time until we launched a fund; then it will be very accretive to the firm overall and margin accretive. We want to keep flexibility for those opportunities. We expect to be well within that 0 to 150 basis points guidance and will look at opportunities through the current volatility and into the back half of the year. Operator: Thank you. We will go next to Analyst with RBC Capital Markets. Analyst: Great. Thanks and good morning everyone. Wanted to ask about the secondaries market opportunity. It sounds like we are seeing an acceleration this year versus last, and you have secondaries across four asset classes, so it is pretty built out. Can you give us an update on what you are seeing on the ground with regards to the secondary opportunity accelerating? Michael J. Arougheti: Sure. I will give context. We came into the secondaries business in earnest through the acquisition of Landmark almost six years ago. The thesis was that transformation was happening along three axes. One, a shift from LP-led to GP-led—not just sale of portfolios by LPs, but GPs using the secondary market for creative liquidity solutions, everything from NAV loans to GP prefs to minority stake sales. That evolution was going to transform the industry. Two, the installed base or primary market for other parts of the alternatives landscape—real estate, infrastructure and credit—was growing to a level that would require more robust secondary solutions. Three, we were beginning to see growth in wealth and retail that wanted to access more diversified broad-based private equity exposures than we could deliver from our core buyout business. We made that acquisition, launched into the wealth channel, scaled the product set to attack the GP-led market, and pioneered the credit secondaries business, which we have grown into a meaningful growth engine for the firm. The reason for that context is because that is exactly what is happening. Primary markets have grown and evolved; LPs and GPs alike are looking for creative liquidity; the GP-led part of the market represents half, if not more, of the current deployment opportunity and is here to stay. The combination of those trends is why you are seeing so much opportunity. Most interestingly, if you look at annual deployment in secondaries against industry dry powder, it is about a 1:1 relationship, which probably makes it the least well-capitalized segment of the alternative asset space. We like that because you tend to generate excess return where there is a supply-demand imbalance. Not only is the market opportunity growing, but fundraising has not kept pace with demand, which is one reason we are scaling nicely. Operator: We will go next to Kenneth Brooks Worthington with JPMorgan. Kenneth Brooks Worthington: Hi, good morning. Can you talk about the deployment opportunity for direct lending in Europe? I know the M&A backdrop is a little different there than in the U.S., but you have a record-size fund. What are you seeing there? Michael J. Arougheti: Europe has many of the same dynamics as the U.S. We have fully developed businesses in Credit across Europe—opportunistic, direct lending, real estate, infrastructure and more. Deployment there has been quite robust. I was pleasantly surprised with deployment in Q1 in the European market. Going into this year, some may have expected slower transaction activity, but some of the geopolitical reorganization around the world has brought more attention to investing in the Eurozone. The market opportunity is probably better than we would have expected. If the first quarter is an indication, the European Direct Lending business is in a good spot. The benefit of diversification: last year Europe had a slower year than the U.S. as the U.S. accelerated in the back half; this quarter U.S. Direct Lending is a little slower and European Direct Lending surprised to the upside. Looking top-down across the credit business, we are happy with the pace of deployment, and the pipelines in Europe are as healthy as they are here. Operator: We will go next to Michael Brown with UBS. Michael Brown: Hey, good morning—almost good afternoon. Mike, a question on software. You emphasized low LTV, near-zero non-accruals, and talked about this on the ARCC call, but much of this is a bit backward looking. Can you give color on the forward look, how you stress test the portfolio, what you see in underlying fundamentals that give you confidence that these companies will continue to operate successfully? And how are you approaching software now—leaning in or leaning back within direct lending? Any interesting opportunities in credit ops or even secondaries? Michael J. Arougheti: The most important thing is that, at least in terms of our exposure, the software portfolio is incredibly well diversified in terms of number of names; it is sponsor-backed; and it sits at roughly a 40% loan-to-value. If you look at ARCC’s current quarter as a proxy, you will see that we marked down the equity value within the software portfolio commensurate with broader markets, so the LTV in portfolio actually went up slightly. But when you are sitting at the top of the capital structure at 40% with 60% equity value below you, you have to eat through all of that equity before taking losses in your credit book. That is the most significant mitigant to loss as this plays out. The weighted average remaining maturity in our software portfolio—probably similar to the general market—is about three years, which means there will be a moment over the next couple of years where owners and lenders evaluate where each company sits, how disrupted it has been, whether it will benefit into the future, and how it gets resolved—transfer of ownership, a debt paydown, a debt repricing, etc. This will play out slowly over time. In our book now, contractual revenues are actually growing, and we are seeing EBITDA growth in the 10% range, reflecting new customer adds. As you add customers, contract length is probably outside the maturity date, so in many businesses the financial picture will not erode even if there is a view that the business model needs to adapt. We are very confident in the quality of the software book. We think we are getting well paid for the risk. As new software deals come in, there are deals getting done because people understand there are competitive moats and you can get paid incremental return because of anxiety around software. We are also using the opportunity to exit some names where we have less conviction. One reason you saw the gross-to-net number that you did in the direct lending portfolio this quarter is we took the opportunity to get out of a couple of names where we had less confidence. To oversimplify: as CEO of Ares Management Corporation, we have over 500 core systems that run our company—financial systems, cybersecurity, order and trade management systems. We are not ripping those systems out. We are putting an AI layer in to get the most efficient output from those systems and the data that sits within them. Those system providers are using AI to deliver a better product to us. Personalize it: you are probably not ripping Excel out of your computer—you are using AI to supplement a core system. Many AI opportunities will enhance rather than displace core systems. Those are the types of things we have focused on investing in. Operator: We will go next to Benjamin Elliot Budish with Barclays. Benjamin Elliot Budish: Hi. Good afternoon, and thanks for taking the question. Maybe another one for Jarrod. Typically, you give a few more guidance tidbits. Is there anything you can share around expectations for the European-style realization revenues for the year, G&A growth, and any help with expectations for FRPR? I know FRPR is a Q4 thing, but anything else to fine tune would be helpful. It sounds like margin expansion may be a bit predicated on cadence of deployment quarter to quarter, but anything else helpful? Jarrod Morgan Phillips: Thanks, Ben. I feel like I covered most of the main ones we normally give through Investor Day, etc. On G&A, that is encompassed within the margin guidance. One thing to highlight—Mike mentioned it earlier—we had an amazing AGM with over 1,100 attendees. Normally we have AGMs throughout the year. In terms of G&A, you will probably see a bit more of an increase next quarter, but that means we have that travel and AGM expense for the different strategies largely out of the third and fourth quarters. There will be a little imbalance in the trend. You can look back to 2024 as a similar time. It will be somewhere in the high single digits to low double digits type of increase in G&A for the travel and related expense. Otherwise, everything is pretty well in line with guidance we have given prior. As Mike said in prepared remarks, we feel well positioned in the current market with the breadth of the platform—there are a lot of things that are extremely active right now that will help drive us toward those goals. Operator: We will go next to Brennan Hawken with BMO Capital Markets. Mr. Hawken, your line is open. Brennan Hawken: Yes, I was—sorry about that. Mike, you spoke to credit selection impacting recent gross-to-net trends. Based on your expectations today, where do you see those trends shifting and what primary factors are going to drive that? Michael J. Arougheti: I do not think we are changing anything in the playbook, Brennan. If you look at the history of our direct lending business—we have been doing this for over 30 years, over 20 here—the model is the same: originate the broadest possible funnel and apply rigorous diligence and portfolio management to drive return. Two hallmarks of our outperformance may be underappreciated. One is our selectivity rate. In private credit portfolios across the board, we typically have a yes rate of about 5%, meaning we only do 5% of the deals we see. That is a function of high conviction on the types of things we like to invest in and those we do not. Second, in core direct lending, roughly half of deployment tends to come from incumbent relationships within the portfolio, which makes for much easier, high-conviction underwriting—companies we have lived with for years, deep relationships with management, understanding risks and opportunities, and observed performance. Those two—low selectivity and the compounding effect of incumbent relationships—are reasons for our performance. If you look at loss rates across private credit, they have all been trending close to zero. That is not by accident. We are not doing anything different now. You are probably a little more selective given market anxieties and keeping liquidity a little drier because we are heading into a spread-widening environment where we will get better economics next month than this month. That is probably driving some of it. But core underwriting tenets and how we think about outperformance have not changed. Operator: We will go next to Brian J. Mckenna with Citizens. Brian J. Mckenna: Thanks for squeezing me in. In the past, you have talked about the benefits of managing flexible pools of capital across the public and private markets. Given the first quarter volatility, did you take advantage of any dislocation across your funds? And can you remind us why having this type of AUM base is so important in delivering outperformance for your clients through cycles? Michael J. Arougheti: That is another hallmark of how we set the business up. Beyond diversification and access points, within individual fund strategies we also have flexible mandates. Our Opportunistic Credit business—where we just had that meaningful ~10 billion dollar capital raise—is a pool that can invest private and public. The closing is coming at an opportune moment as there are dislocations beginning to form in both markets. Having the ability to look at relative value in both and drive to the better risk-adjusted return is good for performance. It is not just public vs. private; it could be senior vs. junior or debt vs. equity. You are constantly looking at relative value across markets, geographies and capital structure. If you are a single-asset, single-point-in-the-capital-structure investor, everything you look at will be squeezed into that framework, which means in certain parts of the cycle you will misprice risk. We have developed with high conviction around flexibility in asset class, position and market, which has created an investment culture around relative value and risk-adjusted return that is pretty unique. Specifically to your question—yes, in parts of the public and traded credit markets, there are increasing opportunities to pivot, and I would not be surprised if we see that pick up in the next couple of months. Operator: We will go next to Analyst with Raymond James. Analyst: Hey, good afternoon. Could you go into a bit more detail on your data center business? Do you have data center AUM outside the Digital Infrastructure business? And what do you think the total market size could be for data centers in the intermediate term? Unknown Speaker: I will take that one. We have been investing in the digital space broadly for the past 10 to 15 years—everything from towers to networks to data centers—across several areas within the firm, including Real Estate, Infrastructure, Asset-Backed, as well as our Direct Lending business and Secondaries in both Real Estate and Infrastructure. This has been a longstanding investment focus for us, with over 10 billion dollars invested historically in the space. One exciting development with the GCP acquisition last year was adding the Ada digital development capability that Mike mentioned, which came with a very attractive seed portfolio for which we raised about 2.5 billion dollars last summer for initial assets in Japan, and we are currently going out with a broader fundraise to address not only the seed assets but the significant pipeline behind it. So yes, we have data center exposure elsewhere, but adding this development capability is very powerful for our future. In terms of market size, it is absolutely massive—a multi-trillion dollar market opportunity. Some of that will be in the domain of the hyperscalers themselves; however, we have sized the third-party market at around 900 billion dollars. When you look at the supply-demand imbalance in terms of capital being raised to address it, it is meaningful. We are really excited about the market opportunity ahead, and the interest in what we are doing is very strong. Michael J. Arougheti: I would add one overlay. When you are talking about data centers, it is not just data centers—it is GPUs, power and energy. We are also one of the leaders in the renewable energy and energy transition space, and you saw what we were able to do with our X-energy IPO. The digital infrastructure opportunity is pulling together all of these teams at scale to address the market opportunity. We also have a large infrastructure debt business and are one of the larger lenders to other platforms and portfolios in the institutional market. Operator: We will go next to Analyst with Jefferies. Analyst: Thanks. I wanted to follow up on your comments around the strength in institutional market demand. Is there any differentiation among that subset—Middle East or sovereign wealth—given global dynamics, or is it truly broad-based? Michael J. Arougheti: It is pretty broad-based. We are not seeing major shifts by geography or by channel. Consistent with what I said earlier, there is a consolidation theme—larger institutions doing more with fewer GP partners—so the larger platforms are net beneficiaries. When you look at gross dollars raised in the market, you are likely to see a disproportionate share going to the larger incumbent platforms in many asset classes we play in. That is the predominant takeaway. It is also important, as we talk about diversification, that you have businesses in all regions—Europe, U.S., Middle East, Asia—because from time to time those investors want to increase allocation in their home region. Being able to meet them there, not just on the fundraising side but also on the investment side, is increasingly important. Operator: Thank you. That is all the time we have for questions today. If you missed any part of today’s call, an archived replay of the conference will be available through June 1, 2026, to domestic callers by dialing 302-393 and to international callers by dialing +1 (402) 220-7206. An archived replay will also be available on the webcast link located on the homepage of the Investor Resources section of our website. Again, thanks so much for joining us, and we wish you all a great day. Goodbye. Michael J. Arougheti: Goodbye.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Ensign Group, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Mr. Keetch. Please go ahead. Chad Keetch: Thank you, operator, and welcome, everyone. We filed our earnings press release yesterday, and it is available on the Investor Relations section of our website at ensigngroup.net. A replay of this call will also be available on our website until 5 p.m. Pacific on May 29, 2026. We want to remind anyone that may be listening to a replay of this call that all the statements made are as of today, May 1, 2026, and these statements have not been or will be updated subsequent to today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Ensign and its independent subsidiaries do not undertake to publicly update or revise any forward-looking statements or changes arise as a result of new information, future events, changing circumstances or for any other reason. In addition, the Ensign Group, Inc. is a holding company with no direct operating assets, employees or revenues. Certain of our independent subsidiaries, collectively referred to as the service center, provide accounting, payroll, human resources, information technology, legal, risk management and other services to the other independent subsidiaries through contractual relationships. In addition, our captive insurance subsidiary, which we refer to as the insurance captive, provides certain claims made coverage to our operating companies for general and professional liability as well as for workers' compensation insurance liabilities. Ensign also owns Standard Bearer Healthcare REIT, which is a captive real estate investment trust that invests in health care properties and enters into lease agreements with certain independent subsidiaries of Ensign as well as third-party tenants that are unaffiliated with the Ensign Group. The words Ensign, company, we, our and us refer to the Ensign Group, Inc. and its consolidated subsidiaries. All of our independent subsidiaries, the Service Center, Standard Bearer Healthcare REIT and the insurance captive are operated by separate independent companies that have their own management, employees and assets. References herein to the consolidated company and its assets and activities as well as the use of the words we, us, our and similar terms are not meant to imply nor should it be construed as meaning that the Ensign Group has direct operating assets, employees or revenue or that any of the subsidiaries are operated by the Ensign Group. Also, we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, and they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our Form 10-Q. And with that, I'll turn the call over to Barry Port, our CEO. Barry? Barry Port: Our local leaders and their teams continue to be an example of excellence in health care services as they earn the trust of patients, families and their local health care communities through high-quality outcomes. As each operation solidifies its reputation in respective markets, they're not only seeing more patients, but they're also being entrusted to care for increasingly complex cases, including a larger share of Medicare, managed care and other skilled patients. This is only possible because of the extraordinary clinical outcomes achieved by our dedicated and talented caregivers. As we've said many times, our consistent financial performance is a direct reflection of a relentless patient-focused culture, one that empowers our frontline teams to deliver exceptional care in a family-like environment where people genuinely care about one another. On the census front, our same-store and transitioning occupancy reached new record highs during the quarter of 84.3% and 85.1%, respectively. On the skilled mix front, our same-store and transitioning operations, skilled revenue and days increased by 9.6% and 5.1%, respectively, over the prior year quarter, and Medicare revenue increased by 9.8% and 9.2%, respectively. We also wanted to comment on some of the recent noise around managed care volumes. What we are seeing in inside affiliated operations does not support the concern of a broad-based slowdown in skilled nursing demand. While hospital and managed care volumes may ebb and flow as patients move through the system, that volatility tends to normalize for us, resulting in consistently strong occupancy and skilled mix trends as demonstrated by our current and recent quarter results. In fact, between Q4 and Q1, we saw growth across all skilled payers. Our same-store and transitioning managed care and Medicare census increased sequentially by 6.2% and 8.3%, respectively. The primary driver of these improvements continues to be the expanding trust from the communities we serve earned through consistent high-quality outcomes. Likewise, regarding commentary around increased clinical reviews and heightened scrutiny of post-acute utilization, this is not new. Our experience over many years is that this dynamic refines demand rather than reduces it. Our admission trends have remained consistently strong. As patient acuity continues to rise and payers look to move patients efficiently to lower cost settings, we have not seen any meaningful system-wide reduction in admissions or skilled mix. The patients who truly need skilled nursing are still coming. We're simply seeing a continued shift towards higher acuity admissions, which plays directly into our strengths. We have built our model around being the provider of choice in our local markets through strong clinical capabilities, deep hospital relationships and the ability to care for more complex patient types. As payers become more disciplined, that does not reduce our volume. In fact, in many cases, it shifts volumes more specifically higher acuity volume towards operators who can deliver outcomes. It is also important to remember that Ensign's model is highly diversified across many geographies, payers, referral sources and local community partners. We are not dependent on any single payer, region or utilization trend. Even when one plan tightens in a specific market, we have consistently offset that through other market share gains, stronger referral relationships, higher acuity admissions and growth across other channels. Our clinical leaders also continue to drive outstanding outcomes, which is particularly impressive given our growth over the past several years. According to the most recently published CMS data, same-store affiliated facilities outperformed their peers in annual survey results by 22% at the state level and 31% at the county level. This is especially notable given that many of these facilities were 1 or 2 star at acquisition. Additionally, our same-store operations outperformed industry peers in 5-star quality measures by 24% nationally and 20% at a state level. In fact, we ended the quarter with 85% of all of our operations at 4- or 5-star quality measures. These results reinforce our position as the provider of choice in our markets and demonstrate our ability to create long-term value through sustained clinical excellence. This clinical strength depends on attracting and retaining exceptional talent. We are encouraged by the depth of talent continuing to join our organization. On the retention side, we're seeing improvements in turnover, stable wage growth and reduced reliance on agency staffing even with increased occupancy. We are especially proud of the exceptionally low turnover among our directors of nursing, which has declined by 32% over the past 2 years. This level of leadership stability is a key driver of consistent high-quality care. In addition, we continue to acquire new operations with significant long-term upside and expect to maintain a healthy pace of growth. Since 2024, we have successfully sourced, underwritten and closed and transitioned 99 new operations across several markets, many of which are already performing at or above expectations. We also continue to benefit from powerful demographic tailwinds, which we expect to further support census momentum that we are seeing across our portfolio. While we are pleased with our current record same-store occupancy, we are equally excited about the remaining organic growth opportunity. At 84% occupancy, we still have meaningful runway with many of our most mature operations consistently achieving occupancy rates in the mid-90% range. This embedded growth remains one of the most compelling drivers of our long-term performance. Due to the strength of the first quarter and the acquisitions we announced yesterday, we are increasing our annual 2026 earnings guidance to $7.48 to $7.62 per diluted share, up from our original guidance of $7.41 to $7.61. We are also increasing our annual revenue guidance to $5.81 billion to $5.86 billion, up from $5.77 billion to $5.84 billion. The midpoint of our earnings guidance represents a 15% increase over 2025 and 37% growth over 2024. We remain highly confident in 2026 and expect our local teams to continue executing, innovating and integrating new operations while delivering strong results. Next, I'll ask Chad to add some additional insights regarding our recent growth. Chad? Chad Keetch: Thank you, Barry. During the quarter and since, we accelerated our growth by adding 22 new operations, including 21 real estate assets, bringing the number of operations acquired during 2025 and since to 71. These recent additions include 20 in Texas, 1 in Arizona and 1 in Wisconsin. In total, we added 2,662 new skilled nursing beds, 100 senior living units and 55 independent living units across 3 states. This growth brings the number of operations in our recently acquired group of operations to 17.4% of our entire portfolio. We were thrilled to complete these acquisitions and to expand our presence in some key markets in each of these states, particularly in Texas. Like in the recent Stonehenge acquisition we closed in Utah, this Texas portfolio is made up of very new, high-quality construction in populated and growing metro areas. As we've discussed in our recent past, in certain strategic situations, paying higher prices can be justified for performing assets that have newer physical plants. And while some of those deals may take a bit longer to generate the returns we expect, we've seen these deals pay off over time as our leaders implement the proper adjustments to key clinical and financial systems, along with establishing a culture of ownership and accountability. We continue to learn from and improve our transition process and believe that those lessons are showing through in the performance of our recently acquired acquisitions. In particular, as we continue to scale, we have leadership spread across many mature markets, enhancing ability to make larger deals smaller by breaking them into bite-size pieces, transitioning in the traditional ensign way but with a local cluster-driven plan that gives each operation the time and attention they deserve. The performance of our newly acquired operations, particularly in the last few years, shows that our building-by-building approach to transitions works for single operations, small portfolios and larger portfolios, particularly when the larger deals span several markets and geographies. While we will certainly continue to evaluate and consider any deal that's out there, we are also very comfortable growing the way we've grown over the last few quarters with lots of transactions across many states, including small deals to larger portfolios and where it makes sense, higher-priced strategic assets. As we look at the current pipeline, we continue to see opportunities that include everything from larger portfolios, landlords looking to replace current tenants, nonprofits looking to divest of their post-acute assets and a steady flow of traditional onesie-twosies. We have several new additions lining up for Q2 and Q3 of 2026 as our local leadership teams and their partners at the service center work together to source, underwrite and carefully select the right opportunities. We continue to have a lot of success in closing deals with sellers who are not just interested in receiving top dollar, but care deeply about the quality and reputation of the company they select to inherit their legacy, and they choose us because they believe in our mission to dignify post-acute care. During the quarter, we were pleased to complete the construction of a replacement facility at one of our high-performing skilled nursing operations in San Diego County. Grossmont Post-acute in La Mesa, California, which is located next to Sharp Grossmont Hospital, which was housed in an aging building that the landlord decided to replace with the new medical office space. After several years and lots of hard work, we successfully completed the construction and have moved all the patients and staff to a brand-new state-of-the-art building while also adding 15 beds to the original license for a total of 105 beds. In just a few months of operation, Grossmont has increased daily census of skilled patients from around 72 to 95. We will continue to look for opportunities to add beds to successful operations and where appropriate, to invest in newer construction in markets we know well. Our local leaders continue to recruit future CEOs for Ensign affiliated operations, and we have a deep bench of CEOs in training that are eagerly preparing for their opportunity to lead. This high-quality influx of leadership talent, combined with our decentralized transition model allows us to grow without being limited by typical corporate bottlenecks. We also continue to store enough dry powder on our balance sheet to fund a significant amount of growth, including adding even more real estate assets to our portfolio. Therefore, our unique acquisition and transition strategy puts us in an excellent position to continue growing in a healthy and sustainable way. Lastly, we are also pleased with the continued growth of Standard Bearer, which added 21 new assets during the quarter and since. Standard Bearer is now comprised of 173 owned properties, of which 137 are leased to an Ensign affiliated operator and 37 are leased to third-party operators. We were excited to add to our growing list of relationships with unaffiliated operators, which further diversifies our tenant base and helps our organization as a whole continue to advance our mission by working closely with like-minded operators that want to make a difference in the industry. Going forward, Standard Bearer will work together with our existing operating partners and new relationships we are developing in order to acquire portfolios comprised of operations that Ensign would operate and facilities that high-quality third parties are interested in operating under a lease. Collectively, Standard Bearer generated rental revenue of $36.1 million for the quarter, of which $30.8 million was derived from Ensign affiliated operations. For the quarter, Standard Bearer reported $21.6 million in FFO and as of the end of the quarter, had an EBITDAR to rent coverage ratio of 2.7x. And with that, I will turn the call over to Spencer, our COO, to add more color around operations. Spencer? Spencer Burton: Thanks, Chad, and hello, everyone. I wanted to share 2 outstanding operations that have achieved exceptional growth through clinical excellence, strong relationships with managed care organizations and proactive leadership development. The first operation is Sun West Choice Healthcare & Rehab, a 140-bed skilled nursing facility located in the Metro Phoenix area. Sun West illustrates the ongoing improvements that a strong same-store operation can achieve by recognizing its community niche and delivering high-quality outcomes with consistent customer service. When this operation was acquired in 2018, it faced serious clinical and staffing challenges as well as a poor reputation in its health care community. However, the Sun West team led by CEO, Doug Bowen; and COO, Michelle Norton, have methodically transformed their operation into a CMS 5-star facility of choice. Like many of our most mature operations, Sun West consistently remains essentially full with occupancy increasing only slightly from 95% in the first quarter of 2025 to 96% this quarter. However, revenues grew 10% over prior year quarter, driven by improved acuity-based reimbursement and a higher skilled mix. During the same period, skilled mix days increased 21%, fueled in large part by 37% growth in managed care. The Phoenix health care market is heavily penetrated by managed care plans, all of which emphasize strong outcomes, shorter length of stay and reduced hospitalizations. In this environment Sun West has focused on differentiating itself by building consistency in staffing with care staff turnover rates far better than the CMS average for Arizona. These managed care relationships, combined with sustained excellence in outcomes, particularly for high acuity patients, have allowed Sun West to develop specialty units for underserved and hard-to-place patient populations, including patients with severe dementia and behavioral needs. Today, these special units run at high occupancy and have strengthened the facility's clinical reputation, which in turn contributed to Sun West's 43% EBIT growth over prior year quarter. Our second facility highlight, Mystic Park Rehabilitation and Healthcare in San Antonio, Texas, has made significant progress since acquisition in late 2022. At the time of transition, the facility was facing serious clinical challenges and scrutiny from state regulators. Under the leadership of CEO, Osiris White and COO, Selena Cervantes, the operation has been fundamentally transformed. It now achieves a 5-star rating in CMS quality measures with survey points scoring 70% better than the state average. Recently published CMS data places Mystic Park in the top 10% for expected discharge function scores from CMS, reflecting significantly stronger than industry patient outcomes in skilled rehabilitation. Also, nursing staff turnover has declined to well below the state and national averages. Operational performance has followed these clinical gains. In Q1, skilled mix days increased 61% over prior year quarter, driving 19% revenue growth and a 163% increase in earnings during the same time frame. In addition to being an exceptional turnaround story, Mystic Park also illustrates how facility level excellence enables broader growth across our organization. For example, the leadership pipeline developed at the facility has supported the recently announced growth in Texas. Because of the stable team and strong systems at Mystic Park, Osiris, the CEO, was able to transfer to lead the newly formed North Houston market, which includes 4 of the 17 facilities acquired on May 1. Selena and the remaining Mystic team have selected a San Antonio-based AIT to be the next leader. And because he completed his training in the San Antonio market, he's well prepared to lead the facility's continued progress while benefiting from the team's strong experience and established systems. This model, stabilize, improve quality, develop leaders and scale remains central to our ability to grow while maintaining cultural and clinical standards. And with that, I'll turn the time over to Suzanne to provide more detail on the company's financial performance and our guidance. Suzanne Snapper: Thank you, Spencer, and good morning, everyone. Detailed financials for the quarter are contained in our 10-Q and press release filed yesterday. Some additional highlights for the quarter compared to the prior year quarter include the following; GAAP diluted earnings per share was $1.67, an increase of 21.9%. Adjusted diluted earnings per share was $1.85, an increase of 21.7%. Consolidated GAAP revenue and adjusted revenues were both $1.4 billion, an increase of 18.4%. GAAP net income was $99.7 million, an increase of 24.2% and adjusted net income was $110.2 million, an increase of 23.9%. Other key metrics as of March 31, 2026, include cash and cash equivalents of $539.5 million and cash flow from operations of $100.2 million. During the first 3 months of 2026, we spent more than $60 million to execute on our strategic growth plan. We made these investments from a position of strength as shown by our lease adjusted net debt-to-EBITDA ratio of 1.73x after taking these investments into consideration. Our continued ability to maintain low leverage even during periods of significant acquisitions is particularly noteworthy and demonstrates our commitment to disciplined growth as well as our belief that we can continue to achieve sustainable growth in the long run. In early April, CMS released the proposed 2027 skilled nursing facility payment rule, which includes a net market basket increase of 2.4%. This increase provides reimbursement stability and is consistent with the expectations included in our guidance. In addition, we currently have more than $592 million of available capacity under our line of credit, which when combined with the cash on our balance sheet, gives us over $1 billion in dry powder for future investments. We also own 179 assets, 155 of which are owned completely debt-free. They continue to gain significant value over time, adding even more liquidity to help with future growth. The company paid quarterly cash dividends of $0.065 per share. We have a long history of paying dividends and have increased the annual dividend for 23 consecutive years. As Barry mentioned, we are increasing our annual 2026 earnings guidance to between $7.48 and $7.62 per diluted share and our annual revenue guidance between $5.81 billion and $5.86 billion. We have evaluated multiple scenarios and based upon the strength in our performance and positive momentum we've seen in occupancy and skilled mix as well as continued progress on labor, agency management and other operational initiatives, we have confidence that we can achieve these results. Our 2026 guidance is based on diluted weighted average common shares outstanding of approximately 60 million, a tax rate of 25%, the inclusion of acquisitions closed and expected to be closed through the second quarter of 2026, the inclusion of management's expectations for reimbursement rates with the primary exclusion coming from stock-based compensation and system implementation costs. Additionally, other factors that could impact quarterly performance include variation in reimbursement systems, delays and changes in state budgets, seasonality in occupancy and skilled mix, the influence of the general economy, census and staffing, the short-term impact of our acquisition activities, variations in insurance accruals and other factors. And now I'll turn it back over to Barry. Barry? Barry Port: Thanks, Suzanne. As we wrap up, I want to again express how honored and grateful we are to work alongside the incredible leaders, caregivers and support teams across our organization who make these results possible. What they do every day goes far beyond metrics. It changes lives. And as we see in very personal ways, I want to share a quick example. Recently, our CFO's father, Joe, underwent a complex bypass procedure that required extended recovery at our very own Victoria Healthcare and Rehabilitation Center. The caregivers and therapists there didn't just provide excellent care. They surrounded them with the kind of coordinated compassionate support that helps them regain his strength, walk again and ultimately return home strong and safe. That team represents the very best of what we do, but what they do is not unique. Stories like Joe's are playing out every day for thousands of patients at hundreds of our affiliated campuses all over the country every single day. Patients like Joe may not choose to be in our care, but they absolutely need to be and increasingly so as acuity rises and recovery becomes more complex. The role of high-quality skilled nursing has never been more essential. The demand is real, it is growing, and it's happening in every market we serve. And that's what gives us so much confidence in our future. Our performance this quarter is not the result of short-term dynamics or simple luck. It's the result of a model built on clinical excellence, local leadership and a culture that puts patients first. And when you combine that with the demographic tailwinds ahead of us and the continued trust that we are earning in our communities, we believe the opportunity in front of us is as strong as it's ever been. Thank you again for your continued interest and support. And with that, we'll now turn to the Q&A portion of our call. Operator, can you please provide instructions for the Q&A. Operator: [Operator Instructions] Your first question comes from the line of Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: Great. Very glad to hear that Joe is making a strong recovery. And then I just wanted to touch on some of the clinical review commentary. I really appreciate all the commentary and definitely appreciate the -- and understand the ebb and flow of skilled intensity and that the clinical review is nothing new. But just wanted to get your comments on any broad trends you might be seeing in clinical review intensity, just given that so much of the Medicare Advantage population is in plans that are focused on retaining margin and rebuilding margin this year. And like on a related note, when managed care plans kind of see facilities like Sun West see such massive increases in skilled mix and managed care mix. Does that ever trigger higher clinical review? Any comments you have there? Barry Port: Yes. I just think the comments around clinical review are being a bit overblown. It's really not a new phenomenon. It's something that's been embedded and in place for a long time, especially when, to your point, Ben, acuity is high. We're used to dealing with clinical review. We have an entire team that is dedicated to providing analysis and documentation to support the care that we're providing, both proactively and then also in response to any general inquiries. And that team has been in place for many, many years. And -- but we're just not seeing certainly, any of that -- at least of the recent comments translate into our business. We saw growth in our United business. We saw significant growth in several other payers in the quarter and across the year. Our occupancy reached record levels this quarter, and our managed care and Medicare census both increased sequentially from Q4 to Q1. So what we think is happening is that some of the hospital softness not related to the managed care piece that you asked about was episodic, respiratory weather related. And that tends to normalize by the time patients move through the system. On the Optum side, we view this less as demand going away, more as demand being refined. The higher acuity patients who truly need skilled nursing are still coming. And in many cases, we're capturing a larger share of those patients. Benjamin Hendrix: And just a quick follow-up on the EPS guidance. We're getting some questions around the guidance raise, specifically against that sizable M&A activity that you've recently announced. Just wondering if you could help us bridge to the guidance revision, specifically how much is driven by organic growth versus M&A? I believe some concern that maybe if M&A is contributing to the growth, is there an implication that maybe the organic is getting a little softer? Or is it just some conservatism in the number? Any comments there? Suzanne Snapper: Yes, I think it's a great question. I think when we look at this acquisition that we closed today, -- what we -- our commentary on it has been that the physical plants are really, really good shape, and Chad can add more color on that. But really the type of acquisition that we're taking is a turnaround acquisition. And so when we kind of embed turnaround acquisitions into our guidance like we have for years is that really you see that bump in revenue at a disproportionate rate to the bump in EPS. And that's exactly what we would expect. We're super excited about this acquisition, but we would expect most of it not just to hit the revenue line, not really to contribute to earnings at the same rate as our existing operations, and that's very consistent with what we've always seen when we're taking a turnaround operation. Chad Keetch: Yes. I mean that's a comment that just relates to over the next several months, right? I think obviously, long term, we expect them to be very, very successful and accretive like you said, like we've done for years. Suzanne Snapper: We're really excited about the guidance. The guidance raise. I mean, obviously reflects a strong Q1, but also that continued execution. Some seasonality in there for Q2 and Q3 because that's through the summer months. And we also usually have not as high as skilled mix during this month and then costs rise as a relative to the revenue that we do bring in because the acuity tends to slow down a little bit. Barry Port: We base our guidance on what we expect these to do, although I think you can also look backwards and listen to our commentary about how other recent acquisitions have contributed ahead of schedule. And I wouldn't be surprised if that happened. If it does, we'll revise again. But it's not necessarily conservatism. We try to reflect an accurate picture of where we think these will contribute. But obviously, we've had to update and revise as time has gone on when things have gone faster than we're scheduled to. Operator: Our next question comes from the line of David MacDonald with Truist. David MacDonald: Just a couple of questions. One, can you pull the deal pipeline apart for us a little bit? I mean if we look -- the average deal size feels like it's getting a bit bigger. Can you guys just make some -- just give us some sense of when you look at the pipeline of deals, has the average deal size relative to a handful of years ago gotten bigger? And then secondly, are you seeing opportunities to buy the real estate in more of those deals that are within the pipeline? Barry Port: Yes. Thanks for the question. I think there definitely is a trend of more and more, call it, midsized regional portfolios are coming to market for sure. So that's -- I would say there's more supply of that type of deal. But the other thing, I mean, it's not that we haven't had those in the past. I would say we have, I guess, emphasized this a little bit in our calls over the last several quarters, too. But we have approached these larger portfolios a little bit differently. If you go way back to 2016 or so, we did a larger portfolio in Texas called the Legend deal. And it was, at the time, the biggest deal we've done, and we tried to kind of do it like a merger and just sort of have that group to sort of fold into our organization and left a lot of their structure in place and those types of things. And that took us years to kind of unwind. Since then, we've been successful in several larger deals and doing what I kind of described in our prepared remarks by breaking it into bite-size pieces and using our cluster model and that local leadership structure to take a larger deal and make it 3 or 4 buildings per cluster market and not 20. And that's been something that I think has increased our appetite, I would say, for larger acquisitions. And so it's both things. It's -- we've seen more of those come to market, and I think we're more and more confident that we can do those successfully in our ensign way. And then on the real estate question, I think, I would say it's probably not necessarily a trend that we're seeing more real estate opportunities. And it wouldn't surprise me if we have a big acquisition here or in the near future or in the sort of midterm future that would include a lot of lease buildings, too. I think our priorities remain the same. Our first priority would be to own it and operate it if we can. And then second would be to do really attractive long-term leases. We have a lot of great real estate partners that we love to work with and including our REIT partners and others that are private real estate holders. So we're actively looking at doing those deals, too. And then the third priority would be to own it and lease to a third party like we did in the Wisconsin senior living deal. So hopefully that helps. David MacDonald: And yes. And then just one quick follow-up. On -- some of the labor, I guess 2-part question. One, can you guys just spend a minute on what you guys are doing on recruiting and retention that's driving such success on the labor side? And if I could sneak one more in. Just on the ERP system implementation, is there 1 or 2 areas that you would call out where that has made your life meaningfully easier or improved efficiencies meaningfully? Spencer Burton: On the labor question, I'll start with that one. And thanks for the question on it. We -- it's a focus for us as an organization, but really how it works is you've got more and more visibility, our data systems give us more real-time and more consistent ways to measure ourselves on labor metrics. And then you combine that with our model, which is CEO, COO caliber leaders in every operation that are then clustered into groups where there's consistent sharing of best practices and pure accountability. And then those are folded into markets where data is and practices are shared more widely. We've really seen, for example, in our overtime management, our labor management, we've seen a really nice kind of synchronization of local efforts, improved data visibility, best practice sharing and then service center, providing more kind of macro tools that allow people to do it more effectively on a local level. It's been really fun to see overtime improve, agency spending improve, turnover improve, and it continues to be a major focus for us. We're not satisfied with where we are yet, but we're really grateful for the improvements. Suzanne Snapper: And then on the second question, we actually just implemented our ERP system on January 1. So we're in that stage of working through the very first quarter and very first month closing everything out. So we're not to that efficiency stage. But obviously, the entire purpose of doing ERP system is to have more efficiency, have better data, have more information that we can actually, like Spencer just mentioned, pass to the field in a quicker, faster, more effective way at a more granular level. So we're really excited about the implementation. We know that right now, we're at the beginning phases and it might feel like a little bit more work than less work, but the opportunity that we can have from what we'll have in the long run from a system implementation like we just went through will really be something that we'll be able to use for years and years to come and really have an opportunity to make information easier, more accessible and just change the entire process that we do on the back end. Operator: Our next question comes from the line of Raj Kumar with Stephens. Raj Kumar: Just maybe kind of thinking about the kind of overall philosophy and maybe the kind of evolution of the model when we think outside of SNF senior living and kind of all the other stuff that Ensign does within the post-acute continuum. I guess when we think about certain areas of interest, does kind of I-SNP come to mind? I know you guys partner with plans, but in terms of kind of expanding the quality of care and the control around that, has there ever been kind of an area of interest for you? Just kind of curious on your thoughts on that, just given kind of your footprint in the post-acute spectrum. Barry Port: I'll start and Suzanne is much more knowledgeable about this. But the short answer is, yes, yes, it's something we're always looking at. It's obviously something we participate in, in several markets. It's something we watch closely. There are some pros and cons to the model, and we could get into that at another time. But we tend to, as you can tell, stick to what we know we are good at and then partner closely with our managed care providers who are probably more focused on this area than a pure-play operator could be. But that said, there are obvious opportunities there to kind of control certain aspects of payment and to kind of be more of a quasi-payer and convener when it comes to that model. Suzanne, anything you want to add to that? Suzanne Snapper: I was just going to add exactly that. There's always -- we're always doing what we call pilot programs in different markets and different places. They all look a little bit different. None of them are really a large portion of our total operations, but I think that that's what keeps us nimble and keeps us quick in looking to see if we do want to do something at a larger scale one time, we'll have already tested out in a pilot and have a proven concept for them to kind of expand upon that. And so definitely lots of versions of IQIPS or quality improvement programs and a whole bunch of -- yes, there's a whole bunch of different specialty programs that we have or capitation programs that we have. So we have a lot of those going on throughout the organization. I would characterize them as all small pilot programs that we continue to learn from. And then if one really pops, we start to expand. And again, it's not us expanding it. It's educating that how the program works and then the operations partners that we have in the field, really latching on to that because they can see the value that it creates service that it delivers to the patients. Raj Kumar: Great. Yes. I appreciate the color there. And maybe just from a modeling perspective, kind of integrating these large portfolio of assets. And so as you kind of think about seasonality from a skill mix and occupancy perspective and then kind of the impact of the onboarded portfolio to the kind of consolidated metrics, how should we kind of be thinking about that as we think about the remainder of the year? Suzanne Snapper: So I would say that our pattern would be typical to our normal pattern, right, that we've seen outside of the COVID years, where you really typically see a Q2, Q3 more seasonally light for skilled mix and then really a stronger Q4. Barry or Spencer, do you have any other color? Barry Port: No, I think that's right. Operator: Our next question comes from the line of A.J. Rice with UBS. Albert Rice: First, maybe, obviously, the company and the sector came through the one big beautiful bill discussion pretty well. We are obviously hearing some states are a little challenged in their budgeting. Others are doing fine. Just wonder if you could maybe speak to what you're seeing in your discussions regarding Medicaid rates and the outlook. Is it sort of steady state from your perspective? And maybe just give some flavor on that. Suzanne Snapper: This is Suzanne. Definitely steady state right now. I think what we're seeing is people looking beyond '26 and '27 where they're thinking about potentially how to navigate waters where it might be a little bit more, the funds might be not as fluid. And so I think one of the things that we're doing to make sure we're ahead of that is just being super active. We are meeting with the states, meeting with folks who are in our situations representing us and really taking an active role in where Medicaid could go for us and educating what we do for their residents -- our residents and obviously, the folks that are in the state. And so we feel really good about where it sits today on the Medicaid front because of people recognizing the services that we deliver and the need for those services. Albert Rice: Okay. You talked about the I-SNP opportunity. I know another area you were looking at sort of as a demo, it sounded like a few quarters ago was in the behavioral health area that that's obviously a place that there's some supply-demand constraints. I wondered if you could give us any update on what you're thinking about institutional behavioral health. And it sounds like there are some other demo areas that you're looking at. Is there anything else that looks particularly exciting that you would call out? Spencer Burton: So on the behavioral health, there is continued innovation. And you see this as you visit different markets, there's constantly this drive from our operators to figure out what our hospital partners, what the communities and what the plans need. We've continued to see demand for specialized behavioral health be really strong, and we've continued to develop those and add those units, get contracts even with state Medicaid systems and other managed providers where they know that they need people in a lower cost setting like ours. They know that we have the capacity to do it, and they're contracting with us or in some cases, even asking us to expand to meet their needs. So that continues to be a really strong area, but it's very locally driven with service center support versus a service center kind of mandate or strategy. As far as non-SNF-based behavioral health, we're not doing anything in that area to speak of. And then just to your question about other kind of innovative areas, absolutely. There's -- with almost 400 operations, there's so many ideas. Really, what we try and do is provide the framework to help people analyze, people understand the regulatory backdrop that they'd be operating against, understand true demand and supply and trends. And we're seeing a lot of cool, as Suzanne mentioned, these piloting type things that that's what allows us to grow, and that's what allows us to be so excited about the future is it's not us coming up with one strategy. It's almost 400 operators and their teams and their clinicians coming up with what the communities need and then we help them. And yes, absolutely, we expect to do more in the future. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Q1 2026 Earnings Call of Puma SE. [Operator Instructions] I would now like to turn the conference over to Manuel Bosing, Director, Investor Relations. Please go ahead. Manuel Bosing: Thank you very much, Maura. Hello, everyone, and welcome to the PUMA conference call for the first quarter. Joining me today are our CEO, Arthur Hoeld; and our CFO, Markus Neubrand. Before we start, please take note of the cautionary statement regarding forward-looking information. Arthur and Markus will guide you through today's presentation covering our business recap, financial update and way forward. After the presentation, we will open the floor for your questions. [Operator Instructions] With that, over to you, Arthur. Arthur Hoeld: Manuel, thank you very much, and welcome and good afternoon from my side as well. Before we start to get into the business topics and the updates about Q1, I, of course, want to take a moment to also reference another announcement which we made this morning. Markus Neubrand, our CFO, has decided with the Supervisory Board to step down from his office as of today, end of the month, and will remain in the company until end of September. I would like to use the opportunity and say a sincere thank you to Markus for the support I got personally from him during my on-boarding phase at PUMA, and also for guiding not just the financial team, but the organization through what was not the easiest of times for our company. He was instrumental in terms of developing the reset program with us and also getting the company now into a transition mode for the years to come. So Markus, thank you very much. We'll handle the call together, almost as always, like this, the last couple of quarters, and I wish you all the best for your personal future as well. At the same time, we have announced the arrival of a new CEO, which is Mark Langer. Mark will start with us early next month, i.e., on Monday next week. And I'm very much looking forward to welcome an industry veteran, someone that is very familiar to most of you in his new role as of early May. With that being said, we'll now start to get into the results. And I would [ briefly ] like to touch upon the top line results. Markus will, of course, in detail, explain what you have also already seen in the announcement this morning. So first of all, Q1 was a result that is in line with our expectations, and we would like to call this a very solid start into the year of 2026, a transition year as we called out. We've made significant progress this year already in our operating model, which is necessary to build the foundation for our future growth here at PUMA. Despite the macroeconomic and geopolitical uncertainties, we do remain confident on our track to achieve our plans for this year and beyond. When we look at the first quarter, sales are a minus 1% versus last year currency adjusted. The decline in demand is partially offset by continued clearance of our inventory progressing ahead of our plan. Wholesale declined due to a lower demand, primarily in EMEA, with DTC continued to show support by strong outlet performance, i.e., the clearance business there, and a modest growth in e-commerce despite us continuing to have reduced promotion levels versus previous year. The footwear division declined to continued challenges we see in the style area, but we're also very encouraged by solid development with our NITRO franchises in running and in HYROX, i.e., training. Our profitability has improved versus last year, and our EBIT stands at shy of EUR 52 million right now. Improved gross margin and a lower OpEx is certainly something which is worthwhile noting, and Markus will go into more details later on. Let me start also by focusing what is pivotal and what is most important for a sports brand like PUMA, and that's the success of our athletes and our teams in the first quarter. We have talked about an all PUMA final at the Africa Cup of Nations in January. We've also seen an all PUMA final at European Men's Handball Championships between Denmark and Germany. Great start to the year, which was then continued when you look at track and field with another world record, the 15th set by Men's Handball in pole vaulting, where is now at a staggering 6 meters and 31. At the World Athletic Indoor Championship, 21 PUMA athletes grabbed medals, and that was by far the best performing brand that we've seen in championship, including our Swiss Simon Ehammer setting a new world record in heptathlon. Amanal Petros set a new German record in the half-marathon in Berlin, again underlining the great achievements and the great potential that the NITRO technology has for us as a brand. Ferrari has seen three consecutive podium finishes in the first three races of the new Formula 1 season, and Joanna Wietrzyk has set a new world record in the HYROX women's racing in Warsaw only recently. Finally, a quick look at football, which is, of course, pivotal this year. Man City took the Carabao Cup against Arsenal a few weeks ago. And as you've also noticed, they have advanced to the FA Cup final and are at the moment, leaders of the table in the premiership. So all in all, a great start to the year, a great sporting start for PUMA as a brand. But at the same time, we can also record that our recent product launches have really achieved, and in some instance, even overachieved our best hopes. We have 11 teams qualified for the FIFA World Cup in North America in a couple of weeks' time. We've launched those kits with the so-called Rolling Nations event in New York just a few weeks ago, and had more than 10,000 visitors live for that event. From an HYROX perspective, we're very, very pleased that we've been the first one to market that has launched a specifically developed product around the event in Las Vegas, and product has been sold out, but will of course, get restocked in the very near future. We've seen continued great results with our NITRO technology here with the launch of the Deviate NITRO Elite 4 at the London Marathon, but also being displayed in Boston recently. Mathias Gidsel has launched its very own first handball shoe, and also here a sellout result, which was unprecedented for us in that area. There was a lot of great news from a sports perspective, but also from a style perspective. When you look at our street culture, we're very intrigued by the continued success we have with low profile. In this case, with the launch of H-Street, a campaign was featuring the PUMA ambassador and K-pop artist, Rosé. And at the same time, we're looking ahead into the future, where we are revitalizing Suede, a key iconic footwear piece for PUMA in the future with different activations, including our House of Suede at the Paris Fashion Week. So, there's a lot of things which have happened, which give us confidence that we are on the right track. But everything, of course, is framed within the three-year program that we have outlined to all of you at the middle of last year. Our transformation started with a reset in 2025 and is now in execution mode in 2026, a year of transition. And at this point in time, I would just like to briefly recap again our objectives for 2026 that do remain unchanged. It is, on the one hand, a continuation of a three-year transformation journey that our company and our brand will undergo. We will definitely accelerate PUMA's brand momentum and that brand momentum will fuel future commercial success. It is very key that we continue to remind ourselves that commercial success will follow brand success, and that's exactly the order in which we're working towards. That also means we're going to shift towards a higher quality revenue with improved focus on profitability, including better placements in our retail environment and with our customer collaborations. We will continue to work on our financial discipline and will deliver reliable results in the quarters and in the future. All will be underpinned by us building a high-performing team around the world, and some key efforts, not just from a structural perspective, have already been taken in 2025. When you look at the continued execution of our right-sizing efforts, there are a few which are worth mentioning. We have a continued focus to elevate our distribution quality, particularly in key markets like North America. As previously shared, our mass merchant business in the U.S. will see a steep double-digit decline until end of this year, and the work has started already. In a moment, I'll also elaborate on the take-back of overstock at wholesale partners, we've made some significant progress. In our very own channels, we have significantly reduced level of discounts and will further decline, will, however, always remain on industry standards. Our industry does see significant promotional activities, and PUMA will, of course, at key moments, key commercial moments, be on par with our competition to also make sure we liquidate our inventories. We see continued efforts to improve our cash management. We've made an immediate reduction of our purchase orders, and these are fully implemented already for before winter '26 season. We have a dedicated work stream in place to analyze our account receivables, and we have put tangible actions in place to optimize those. We are equally continually focused on our cost base, for short-term tactical cost reallocations, which will be part of the ongoing transition, but equally, and I'll show you a detail of that one, with the full elevation of our range size and the complexity in our organization. And finally, a continued assessment of our operational efficiencies in line with the ongoing efforts to improve PUMA's operating model. To name here is our reorganization of our home market, Europe, which is in full swing and has been communicated to all affected teams in the first quarter already. Looking at specific examples, here is our progress on the continued right-sizing efforts. We talked about the overstock reduction at wholesale partners, and I can report that we have in North America, achieved a mid-double-digit decline of inventory levels at selected wholesalers. I will call it a very solid progress in the first quarter of 2026 to also liquidate our excess inventory. The target for us remains that we normalize to healthy levels and they were rebuilding as sustainable business with our strategic partners based on the better segmentation, consumer activation and also life cycle management. Last year, we have announced that we're going to rightsize also our range size and the complexity that comes with it. Historically, PUMA has had a fairly complex and specifically for the size of our organization, partly inefficient range. We have immediately reviewed starting in July and August last year, and we've taken decisive actions which already impact and affect spring/summer '27 as a collection. Significant progress has been made by the teams to increase the efficiency of the range and to also normalize our SKU content to a healthy level for the size of our PUMA business. It's worth mentioning here that our storytelling product and distribution approach, which we have concerted and aligned together, have really led to a better point of view as a brand and ultimately will allow us to have a more succinct brand identity, both in terms of the customer presentation but also in terms of how we energize our consumers around the brand again. And then finally, we have an ongoing reduction of our corporate positions by 20% from the end of '26 versus the beginning of 2025, so in the span over 24 months. As a reminder, 500 positions have been successfully reduced in the first half in '25 as part of the Next Level Cost Efficiency program. Middle of last year, we then identified another 900 positions to be reduced until the end of this year. And here is the status of where we are with the execution of that program. 50%, i.e., 450 positions were already identified, communicated and executed, i.e., the affected employees have already left the organization latest by the end of Q1. Out of the remaining 50%, that's another 450 positions, 80% were already identified and communicated with the departure of the affected employees ongoing. So it's only 20% remaining, and they are entirely identified with communication in different stages, depending on the local requirements and processes that we, of course, adhere to. And then last but not least, it's also worthwhile mentioning that we continue the leadership changes in our senior lineup. We have briefly mentioned the switch from Markus to Mark, from a CEO, positioning. But underneath also we continue to have adjustments in our leadership organization. Four new additions have been communicated recently. Emily Mueller-Lennox will return to PUMA and will start her duties as Vice President of the Business Unit Kids under Maria's leadership. Also in Maria's team, we have recently announced and appointed a new Vice President of Creative Direction. Creative direction for us is pivotal for the turnaround of the PUMA brand to strengthen our brand identity and really to discuss a next level from a creation to product execution perspective. James has vast industry experience between innovation and product excellence, and it's really exciting to see him on board now. Two further leaders have been announced, starting with Maria's organization, Laurent Fricker will start in June to take up the position of VP, BU Style. And in that capacity, he will be overseeing our Select and our Prime business. That's a business which we last year separated from our core business to make sure we're going to have really a different and a prosperous business in that pivotal area, also from a commercial perspective. Last but not least, moving to commerce. Bertrand Blanc will take up the position of Vice President Wholesale in Matthias' team starting next Monday already, and his key missions to ensure that we are rebuilding a healthy and sustainable business with key strategic partners across our markets. Finally, we are also in the final stages of closing our hiring for the new VP of e-commerce, who would then complete the lineup in Matthias' Center of Excellence across all channels. That's it for me from now, and I would like now to hand over to Markus. Thank you. Markus Neubrand: Thank you, Arthur, and hello to everyone, also from my side. Following Arthur's business recap, I will now walk you through the key financial metrics for PUMA's first quarter, highlighting the impact of the right-sizing efforts Arthur outlined on our financials. We began our transition year 2026 with a solid first quarter. On sales, we saw a decrease of 1% currency adjusted, which is a notable improvement from the previous two quarters. Sales development was influenced by both reset activities and clearance. On one hand, we continue to see a negative impact on sales from our reset measures, which included reduction of undesirable business and lower promotions in our full price stores and e-commerce. On the other hand, we saw positive effect from clearance of elevated inventories. The clearance was executed through selected wholesale partners and our own factory outlets. Overall, without the negative impact from reset initiatives and the positive effect from clearance, we recorded an underlying decline in sales in the low to mid-single digits. We expect that both clearance and reset impact will continue but further decrease throughout the year. Now, let's look at the sales breakdown by channel. Wholesale decreased by 2.8%, mainly due to a lower demand from wholesale partners in EMEA. Direct-to-consumer sales grew by 3.8%, driven primarily by a 5.7% rise in owned and operated retail store sales, which mainly resulted from inventory clearance in our outlets. E-commerce also saw a 0.6% uptick, supported by new APAC marketplaces and reduced promotional activity. Overall, the D2C share increased to 28.3% from 27.5% last year. Looking at our regional performance in the first quarter. EMEA sales declined by around 10% currency adjusted. This was broadly driven by weaker underlying demand in the region, and due to our reduction of undesirable wholesale business. In addition, sales in the Middle East, which attributes less than 2% of our sales, were impacted by the ongoing regional conflict. The Americas delivered currency-adjusted growth of around 6% with double-digit growth in Latin America, supported by improving underlying demand and 2% growth in North America. Inventory clearance supported sales development in both regions, especially in the U.S. market, where it offset the lower mass merchant business. Sales in Asia Pacific increased by around 8% currency adjusted, driven primarily by strong D2C performance across both owned and operated stores and e-commerce. On the product side, we continue to see strong demand for low profile and especially the Speedcat family. Greater China grew 9% on the back of a strong Chinese New Year performance, and the rest of Asia Pacific increased by around 7%, reflecting strong D2C momentum in Southeast Asia. Turning to performance by product division in the first quarter. Footwear sales declined 2.3% -- within footwear, running and training continued to show strong momentum, supported by NITRO styles and the rapid expansion of HYROX-related products, which partially offset declines in other categories. Apparel sales increased 0.9%, driven primarily by training and golf categories. Football also delivered a solid performance, supported by strong demand for federation kits ahead of the FIFA World Cup. Accessory sales up 0.3%, mainly supported by the golf category. Let me now walk you through our operating performance in the first quarter. As mentioned earlier, sales are down 1% currency adjusted with a reported decline of 6.3% due to FX headwinds, especially in U.S. dollar, Turkish lira and Argentine peso. Gross profit margin improved by 60 basis points to 47.7%, which I will elaborate a bit more in just a minute. Royalty and commission income increased by 13%, mainly reflecting a stronger Formula 1 business, supported by an additional raise compared to the prior year. Operating expenses, excluding one-time effects, decreased by 5.5% to EUR 848 million. I will come to more details in a later slide as well. Driven by higher gross profit margin and lower operating expenses, adjusted EBIT increased to around EUR 64 million, up 5% year-on-year. One-time effects were down year-over-year and amounted to EUR 12.6 million, mainly related to personal expenses connected to the cost efficiency program. EBIT, therefore, came in at around EUR 52 million, up almost 20% year-on-year. Financial results at around minus negative EUR 60 million improved significantly. This was mainly due to favorable currency movements, particularly U.S. dollar and Mexican peso, which more than offset the slight increase of interest expenses on bank debt. Income taxes increased to around EUR 10 million, driven by higher earnings before tax. Consequently, profit from continued operations came in at EUR 26.5 million, a significant improvement compared to Q1 2025. Let me now explain the development of our gross profit margin in the first quarter. Overall, gross profit margin increased 60 basis points to 47.7%. The most significant driver you see here is promotions and inventory reserves. While promotions had a negative impact on gross profit margin, the reversal of inventory reserves recorded in the second half of 2025 contributed to a significant positive impact. In addition, we recorded lower freight costs compared to the higher base in Q1 2025. A more favorable channel mix, reflecting a higher share of direct-to-consumer also supported the margin development. These positive effects were partly offset by product mix and regional mix as well as currency effects, which weighed on the margin compared to last year. Now, moving over to our operating expenses, which fell 5.5% to EUR 848 million, excluding one-time effects. The reduction was driven by savings from the cost efficiency program and lower marketing expenses. Marketing decreased compared to high levels in Q1 2025. This was based on phasing effects and not a structural reduction, as we continue to invest in brand and growth opportunities. Together with favorable currency movements, these factors offset the higher cost and channel mix due to the mentioned increase of the D2C share and increase in other OpEx costs. Let me now walk you through the development of our EBIT margin in the first quarter. EBIT margin improved from 2.2% in Q1 2025 to 2.8% in Q1 2026. The main positive driver was the increase in gross profit margin by 60 basis points, as mentioned before. Royalty and commission income also contributed 20 basis points, driven by a stronger Formula 1 business. Although OpEx fell in absolute terms, OpEx ratio increased by 40 basis points since costs did not decrease as sharply as sales. One-time effects, on the other hand, contributed a 20 basis point increase to the EBIT margin as these effects declined compared to the previous year. Let us now take a closer look at working capital. Inventories declined by around 9% to EUR 1.9 billion, mainly driven by lower purchasing volumes in line with the expected lower sales base for the year and inventory clearance. Trade receivables decreased by around 20% to EUR 1.2 billion, mainly due to lower sales levels. Trade payables were down around 26% to around EUR 1 billion, also reflecting reduced purchasing volumes in the quarter. Overall, working capital decreased by almost 10% year-over-year to EUR 1.8 billion, reflecting continued progress on inventory cleanup and disciplined purchasing and evidencing overall improved working capital management. Looking specifically at inventory development, inventory levels continued to decline in the first quarter and are slightly ahead of plan, supported by lower purchasing volumes and ongoing clearance activities. As communicated previously, we expect inventories to normalize by the end of 2026, assuming disciplined purchasing and continued execution of our clearance plans. Turning to free cash flow. Free cash flow was reported at minus EUR 201 million for the end of Q1, consistent with the typical seasonal pattern in our business, free cash flow remained negative in the first quarter. However, it demonstrates a notable improvement over the previous year. This year-over-year improvement was mainly driven by more efficient working capital management, including inventory clearance and lower and more prudent purchasing volume, as we discussed earlier, higher earnings before taxes, lower capital expenditures, while we continued our investment focusing on D2C channel to enhance our long-term competitiveness. As said during our full year 2025 presentation in February, we expect free cash flow to be positive in 2026. Finally, let me comment on net debt development. Net debt increased seasonally to EUR 1.3 billion, up year-over-year from around EUR 1 billion at the end of Q1 2025. This increase mainly reflected higher bank liabilities supporting the operating business and financing working capital. Cash position stood at EUR 326 million, up around 15% year-over-year. In addition, we had unutilized credit lines of around EUR 800 million, resulting in total financial headroom of around EUR 1.1 billion. This means that we maintained sufficient financial headroom to support the transformation journey and strategic investments. Given the currently elevated level of net debt, deleveraging is a clear priority, and we target to reduce net debt over the coming years. Before I hand back to Arthur, as he mentioned earlier, this will be my last earnings call as CFO of -- at PUMA's. It has been a privilege working with the team through the transformation journey, and PUMA is well on track. With that, I will now hand back to Arthur for the way forward. Arthur Hoeld: Of course. Thank you very much again. Let me now turn toward our outlook for the full year 2025. We will be building on the momentum from a very solid start to the new year, and we are going to reiterate our full year outlook. It is important to highlight that our outlook does not reflect potential implications from the ongoing conflict in the Middle East or the U.S. Supreme Court decisions on U.S. tariffs. In the Middle East, our priority has been the well-being of our staff, ensuring their safety remains of paramount focus for us. From a business perspective, direct exposure to the region is relatively limited, with sales accounting for less than 2% of the total group revenues. On the risk side, we do see two layers, however. At this point, the impact on sales and supply chain is manageable, and we're prepared for different scenarios. The greater uncertainty, however, lies in broader consumer sentiment in response to the evolving economic and geopolitical environment globally. On tariffs, following the Supreme Court ruling over U.S. tariffs have come down. That said, visibility on refunds is still limited, and the situation may shift quickly again. For our top line, for full year '26, we expect a currency-adjusted sales decline in the low to mid-single-digit percentage range. We are expecting that our second half in 2026 will be stronger than our first half. And additionally, sales growth in the second quarter of '26 is anticipated to be clearly below the first quarter. With regards to our sales channels, we do anticipate a decrease in wholesales, while our direct-to-consumer business is expected to maintain growth. We anticipate a substantial improvement in gross profit margin, while OpEx are not expected to materially lower in absolute terms as we do continue to invest in strengthening our DTC channels, as Markus has already referred to. Our EBIT is forecast to range between minus EUR 50 million to minus EUR 150 million. This includes one-off effects, which are projected to be significantly lower compared to last year '25. CapEx is expected to come in at around EUR 200 million and will focus mainly on our digital infrastructure and the investments in our DTC channels. Looking forward, again, of course, I would like to bring it back to sports -- and the sports company that we are. Well anticipated is the FIFA World Cup with 11 PUMA teams competing. It's the best representation this brand has since 2006, where at the time, the PUMA team was listing the trophy. From HYROX perspective, there are several high-profile events coming up, most notably the largest event to date in New York, with more than 50,000 participants and the World Cup in Stockholm, where the HYROX World Championship will take place again with significant amount of PUMA product being competing in the events. And last but not least, Formula 1 will return to Miami after a break with many, many other exciting races coming up where we definitely see the potential of PUMA as a brand that is well established in the Formula 1, in the motorsport scene, which seems to have a growing dynamic with consumers worldwide. I would also like to reiterate and repeat again that for our brand, our North Star remains to become a top three sports brand in the future again. We are committed to return to above-industry growth and equally committed to return to healthy profits in '27 and beyond. At this point in time, we'd like to thank all shareholders, partners and first and foremost, all employees in joining us on the journey. To wrap it up, there are three major messages for the first quarter in '26. Our financial results came in as expected, both from a sales and from a profitability perspective, as we've outlined. We are well on our transformation journey. We are progressing as planned with a solid start into a transition year 2026. And for the full year, our outlook is confirmed and we remain committed to achieving our plans as outlined. With that, I would like to hand it back to Manuel. Thank you. Manuel Bosing: Thank you, Arthur. Thank you, Markus. We are now ready to start the Q&A session. Operator, please open the lines for questions. Operator: [Operator Instructions] First question comes from the line of Will Wood from Bernstein. William Woods: The first question, I'm trying to understand the phasing of your sales throughout the year. You maintain the kind of guidance of low to mid-single-digit decline, but obviously, Q1 was much better at negative 1%, and you said that you expect improvement throughout the year. Can you give any commentary on how Q2 is going? And how much of the Q1 performance was driven by the boost of clearing inventory versus the underlying growth in the business? And then the second question is on, obviously, as we move into H2 and 2027, I appreciate it's still early days, but it's -- I think the focus will shift from resetting the brand and the transition year to rebuilding the brand heat into 2027. How are you feeling about the product pipeline into 2027 at the moment? Are you happy with the spring/summer range, et cetera? And any commentary there? Markus Neubrand: Thank you both for your questions. I will start answering the first one and then hand over to Arthur. Regarding the cadence of the revenue growth by quarter throughout 2026. as Arthur outlined, I think on the way forward, we expect the second half of 2026 to be stronger than the first half of 2026. Therefore, it's fair to assume that the top line development in the second quarter will be more muted compared to Q1. We expect Q2 to expect it to come in clearly below the Q1 results in terms of sales growth. Talking about, and I think then also part of your question that you want to understand regarding Q1 development. The inventory clearance, as outlined also in our prepared remarks in Q1, had a positive impact on our sales growth and the positive impact on the inventory clearance was more pronounced than the negative impact from the reset activities relating to the cleanup of the division undesirable business and reduced promotional level. Arthur Hoeld: And to your second question, Will, in terms of rebuilding brand heat and our perspective on the range on spring/summer '27, I do believe we are making progress there. We're making progress in terms of building on our strength, which is definitely the NITRO platform, across running and training. Specifically, we will launch new products in both areas, and we have received pretty positive feedback in the same vein as for our new football boot collection. Where we do see progress as well, but where of course the work is still ahead of us, is in the style and the lifestyle area, where we see continued success, and we believe continued success from a low-profile perspective also into '27, but our efforts are clearly now around making the Suede a more iconic proposition in '26 -- '27 with brand activities starting in '26 again, and then also further dimensioning our offer with lifestyle running as one of the key future pillars. These efforts have started to be built into spring/summer '27, but they will be by no means complete yet from a product nor from a marketing activation perspective. Thank you. Operator: The next question comes from the line of Thierry Cota from Bank of America. Thierry Cota: Two questions from me. First, on the OpEx, they were down 5.5% in Q1. I was wondering whether you could give us the drop at constant currency, and if you think that around 5% drop is a good estimate for the whole year? And secondly, on the balance sheet, I think you've said that you wanted to have a clean inventory at the end of the year. I was wondering what that means in terms of percentage of sales, is it around 23%, which I think was the level in '24, a good level. Do you think you can reach that? And the working capital, likewise, do you think could drop back by the end of the year to the mid-teens, please? Markus Neubrand: Thank you, Thierry, for your two questions. Let me start with the second part first regarding the inventory development. As mentioned during my prepared remarks, we firmly committed to normalize our inventories by the end of this year. If you look at the inventory as a percentage of sales, it's expected to further come down over the following quarters to more normalized levels below 25% of sales until the end of the year. The decline will be driven by inventory clearance and adjusted purchasing volume as we outlined, I think that earlier, -- in my prepared remarks. The first question when talking about the OpEx development, as mentioned also in my prepared remarks, FX was a positive, I think contributor and then also to the overall OpEx decrease. But also on a currency adjusted on a constant currency basis, our OpEx decreased also in Q1. I think please understand, I think we're not disclosing, I think, that level of detail for the full year and what that means in terms of OpEx development here. I need to go back to the statement also Arthur made a our outlook, where we -- I think that also for the OpEx overall will not be materially lower. And I think then also compared to 2025, as we continue also to invest into our D2C business and into our brand. Operator: The next question comes from Monique Pollard from Citi. Monique Pollard: What I first wanted to understand is, you talked in the release about the strong demand for low profile and Speedcat in China, and you referred to in the questions above, the benefits you are seeing from low profile and how that can be a driver for success into 2027. Just wondered if you could highlight for us any other markets where you're seeing meaningful demand for low profile. I guess, you know, the tie-up with Rose, that you're seeing good benefits in some other pockets of Asia and whether there are any other markets. And then the second question was on the Americas' growth. So, you know, strong growth up 6.1% and Latin America in particular, very strong in the period, up 10.5% -- just wondered if there's anything that's driving that growth that you can call out outside of, obviously, the clearance activity that you've talked to. Arthur Hoeld: So let me start with the low-profile answer to your question. We do see significant traction of the business continuously in pretty much all Asian markets, that is Korea, that is Japan, but specifically Southeast Asia, where we have restocking activity at this point in time going on. However, also on the other side of the globe, in North America, we do see customers, primarily customers which are more style focused and have a stronger women's basis. Who do significant results to the tune that PUMA at this point in time, with some retailers is the #2 brand from a sellout perspective. So we definitely recognize a continued continuation of the trend of low profile where only very few brands are playing, but it also it is worthwhile noting that our reset activities last year are definitely paying off now. So by right-sizing the market, right-sizing the volumes that are out there, we are extending and prolonging the life cycle of these silhouettes, which are very much the benefit of our product range and our product offer. When you then talk about the Americas, I think it's two different answers I would like to give you. In Latin America, both from a brand but also a distribution perspective, we have been well-positioned over the years. The job the team has done there, the cleanliness of the market, the distribution, and the power of presenting our brand, our product propositions, has historically already been very good, and we're now, of course, continuing to harvest the fruits. In North America, I think it's worthwhile mentioning that some of the reset activities, of course, have led to a significant impact from a wholesale perspective. But as I said, there are pockets of growth also with partners over there. And then our DTC business is, of course, also benefiting from inventories that we're liquidating for our factory outlets and a decent business in our own e-commerce channel despite promotional reductions. Thank you. Operator: The next question comes from the line of Piral Dadhania from RBC. Piral Dadhania: My first one just relates to NITRO as a product platform. I think you talked, Arthur, around some of your plans on the lifestyle side for the remainder of '26 and '27, in response to previous questions. Could you just help us understand what the plan is in relation to commercialization of NITRO, both in running and also using it in other footwear styles and subcategories? And then my second question is one which you may or may not be able to answer, and it just relates to any update in terms of the Anta acquisition of minority stake in PUMA. Have you got any visibility on the timing of when that deal may close? Arthur Hoeld: Thank you, Piral. Let me start with the second question because the answer is rather short. There are no news versus what we announced earlier in the year. We are awaiting the closure of the transaction, and that timing remains to be seen. So no further news to share on that topic. From a NITRO perspective, the NITRO platform will be relevant across most performance categories in Puma. That means we are not only having products available in the running segment, well known, but also our latest HYROX proposition is fully based on a NITRO platform. The specific indoor handball shoe that we've launched in collaboration with Mathias Gidsel, the world's best player in this field, was also based on a NITRO technology, a Nitro platform. So, NITRO is more than, quote-unquote, "Just a running platform." It will really be the major footwear technology that we are promoting across all different performance segments when it comes to '26 and 2027. Thank you. Operator: Next question comes from the line of Adam Cochrane from Deutsche Bank. Adam Cochrane: Two questions, if I may. The first one is, in terms of the lead time on your new product purchases when you're talking about your new ranges for spring/summer '27, given the input cost inflation that we're hearing about because of oil prices, when do you actually have to start ordering these product the suppliers? And are you hearing anything on potential cost inflation on those future ranges? And the second question is, can you just give us an idea of how far you are through in terms of the clearance activities, just as a way that we can try and benchmark, is it 25% of the way through, 50% at the end of the first quarter? And on that regard, there's quite a big gross margin gain from the inventory provision reversal. Is that something that might happen again in future quarters? Or is that just something that is, as you sell the product? Or do you just revalue the inventory as at the end of the first quarter? Markus Neubrand: Adam, thank you for your questions. Let me first answer the second part, I think, regarding the clearance progress of the inventories. As we mentioned, I think we are slightly ahead of plan, made good progress in Q1 with the reduction of our inventories and with the clearance, I think which also resulted in the decrease of the inventories, I think since we peaked, if you look at the chart in the middle of 2025. With the targeted clearance also through selective wholesale partners and our factory outlets, we, of course, also then recognize -- also then -- need to revalue our inventories, which leads also to inventory reserves. On the other side, as we also outlined the gross profit margins, you've seen also that our promotions, I think that also in wholesale have been more pronounced, I think which you can see. I think that, of course, as the mechanism, I think as we're working through the target reduction. This process will continue throughout 2026. I think as we are firmly committed to normalize the inventories until the end of the year. When we provided also the guidance for the full year, we outlined that we expect the gross profit margin to improve. And one of the key drivers, I think that also the substantial improvement of the gross profit margin in 2026 will be driven by lower promotions, but also, of course, with the targeted reduction of that excess inventory, which will also the reverse of inventory reserves, I think will contribute to that gross profit margin development. Then coming to your first question related to the Middle East crisis and the oil price driven, I think, then increase of the input costs. If we look at, first, let me start for autumn/winter '26, all of the orders, I think until end of autumn 2026 have been placed. And I think we see no cost inflation on our product costs. For spring/summer '27, I think that's where we know and I think as in the early stages. So that's where we start to present I think and to take orders now within the next months from our accounts. And now as we speak, we are in discussions with our vendors. And we see selective, I think then also increases in the product cost, but not material in spring/summer '27. And Autumn/Winter '27, of course, is still too early to see, nothing that, of course, how the situation overall evolves. Operator: The next question comes from the line of Andreas Riemann from ODDO BHF. Andreas Riemann: First one to Arthur on SKU reduction. So by how much did you reduce SKUs? And would you say that you are going forward plan to sell a global product to all markets? Or is part of your offer still a local product that reflects local preferences? That would be the first question. The second one for Markus. The financial result improved actually materially and you speak about currency benefits. So have you changed your hedging strategy? And is that sustainable? Or was Q1 rather a one-off? This is the second question. Arthur Hoeld: Thank you very much, Andreas. So to start with the first question in terms of range size reduction, we have reduced our range size by a significant mid-double digit. So the process between spring/summer '25 and now spring/summer '28, the collection that we're at the moment developing has been significant, and we are committed to also then executing that. What this means, of course, there will be a more significant global footprint from PUMA, i.e., also more mandatory part of the collection that we would like to see in each and every market. That's also part of our life cycle management across both style, but also the performance areas. What that does not mean, however, is that we're reducing or even abolishing our policy to offer locally relevant products. We continue to have regional creation centers in Asia and North America and India to make sure we're going to cater for the needs of the local consumer to complement and to complete the range offer. So it will be a mix and a blend between a stronger global offer, a stronger global life cycle management and the additions, the well-needed additions in order to cater for demand from a local perspective. Thank you. Markus Neubrand: Thank you, Andreas, for your question on the financial results. Yes, a significant improvement, as outlined year-over-year in the Q1 of 2026. Let me first start with the -- also what I mentioned in prepared remarks. Our interest expenses on bank debt has been slightly increasing, of course, given the elevated levels and higher levels of bank financing compared year-over-year. The biggest factor, and I think that I also outlined in the prepared remarks, is driven by positive favorable currency movements. And here, particularly the U.S. dollar and Mexican peso had a positive impact, I think also on -- I think then also our financial results. I think that means from a translation, but also valuation of derivatives, I think that impact our financial results. So given the nature also of FX, of those developments, I think where it would be rather prudent not to, and I think then continue to project, I think, such favorable currency movements for the quarters to come. Operator: The next question comes from the line of Warwick Okines from BNP Paribas. Alexander Richard Okines: Just a couple of trying to understand the shape of the year, please. So firstly, just back on the Q2 sales comments you made. Is the main reason for the lower or the bigger sales decline in Q2 compared with Q1? Is the main factor here, less promotional support? Or are there other factors? 'Cause presumably the drag from the reset is moderating? And then the second question is just if you could comment a little bit more about the EBIT shape for the year. It's helpful for you to have commented about inventory reversals continuing for the rest of the year. But maybe just to comment on how you see the phasing of your EBIT losses through the next three quarters. Markus Neubrand: Thank you very much for your questions. Q2, and I think as I mentioned earlier, is expected from a sales growth perspective to come in clearly below Q1. And the key reason is the impact of the reset and here specifically the reduction of the undesirable business, I think which is more pronounced in the second quarter compared to what we expect, I think, then also what we've seen in Q1. The clearance, I think, as I mentioned earlier, of the excess inventories, of course, continues throughout the year. Coming to the second part of your question, of course, now from a sales perspective, also what does it mean also from an EBIT development for the remainder of 2026. It is fair to say that we started 2026 clearly on a positive note from an EBIT perspective. There's still a lot of moving parts for the remaining of the year, including, of course, the top line development, as I just outlined, but as well also the level of one-time costs as we will make sure to set the right foundation in 2026 to return to growth in 2027. If we then also look at the geopolitical and macroeconomic uncertainties that we -- especially with the Iran conflict that we see and the tariffs, the Iran conflict, the negative impact is expected on sales and margin and even more importantly, on consumer sentiment, tariffs as of now, there will be a positive impact on margin, but to which extent is still unclear and can, as we know, change on a daily basis. Therefore, we confirm our reported EBIT guidance for full year 2026 to be within the range -- guided range of minus EUR 50 million to minus EUR 150 million. Operator: [Operator Instructions] The next question comes from the line of Jurgen Kolb from Kepler Cheuvreux. Jurgen Kolb: Thanks very much for everything and probably also welcome back, Mark. I guess you're listening in, so welcome back to the market. On the two questions, first of all, on the run shoe business, I think you mentioned that the running shoes, the NITRO foam is selling strong and is quite successful. Maybe you could talk a little bit about your progress on getting the shoes into the specialty store chain, and in which markets are you actually seeing the strong sell-through or a marked improvement? Secondly, on current trends, I guess you indicated the Middle East conflict, obviously, the main or the difficult to forecast effect is from the consumer behavior. Have you noticed any underlying trend changes from the consumer? I know it's probably difficult for you because there is so much going on in your stores and with the wholesaler in terms of clearing inventories and what have you. But in terms of any observations that you have could be quite interesting to note if there's anything currently going on. Arthur Hoeld: Jurgen, thank you very much for the question. So when you talk about the running shoe specialists, what we have embarked upon last year is that specifically in Europe and in North America, we have drastically ramped up our specialist sales force. That means specialists PUMA people who visit running accounts, who will be then promoting the PUMA brand, but also our NITRO technology. Only in Paris this weekend, we had 110 specialty accounts from all over the globe, spending two days with us, getting excited about our collections, but also giving us feedback in terms of where they see our efforts. That's primarily where we see growth happening, but equal spilling over into the mainstream accounts that would be in Europe, and Intersport, and others basically. So that's what we project in '26 and in '27, then the major part of the growth to be coming from. We don't have any specific region where NITRO is either overexposed or underperforming. We do see this as a global development for us actually. And when you talk about underlying consumer sentiment, it is difficult to, of course, project where the market is going and consumer sentiment is on the one hand, driven by significant inventory and promotional activities again. We, of course, also do see that there is energy in the market there is energy in the market, both in Europe and U.S. in terms of consumers continuously seeking the sporting goods industry and seeking out sneakers. From our very own perspective, we are very much focusing on the major areas that we've discussed earlier to improve both our brand trajectory, but also our product offer simply based on the effect that despite any economic headwinds or despite industry dynamics, we see significant headroom for PUMA to grow versus competition from our current perspective. Thank you very much. Jurgen Kolb: And just one very, very quick update on an add-on question. Your contracts with the container shipping companies and the freight contracts there, when does it end? And are you already in negotiations for the next contract? Markus Neubrand: Jurgen, good question, and I'll take that one. The contract, I think that we have, I think, with our carriers on the inbound side, runs until the end of June of this year. And yes, as we currently speak, I think that's where we're already in advanced negotiations with our partners on the inbound transportation side. Jurgen Kolb: I assume costs are not going up. Markus Neubrand: I think looking at what is currently, and I think if you look at the market, with the oil prices and you know and I think how the mechanisms are in those contracts, there are surcharges. And I think that also what we've seen, I think, since the start of the Middle East crisis, also that there have been bunker and fuel surcharges being raised. So that's actually where we see, of course, also then an impact also from the Middle East crisis, I think then also to come through. But as Arthur mentioned, overall, I think that also we have plans in place. I think looking at our supply chain, I think then also and evaluating different scenarios how to mitigate these impacts. Operator: There are no further questions at this time. I hand back to Manuel Bing for closing comments. Manuel Bosing: Thank you very much, Maura, and thanks to everyone for your questions. We appreciate your interest in PUMA. We'll stay in touch, and we look forward to speaking with you again soon. This concludes our call for Q1 2026. Thank you, everyone, and goodbye. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.
Operator: Good afternoon, and welcome to Poolbeg Pharma PLC Full Year Results Investor Presentation. [Operator Instructions] I'd now like to hand you over to Jeremy Skillington, CEO. Good afternoon, sir. Jeremy Skillington: Good afternoon, and thank you for the introduction. I appreciate everybody joining us this late afternoon. Finally, a bit of a sunny Dublin. It's -- bleak winter is over. And we're delighted here to be able to present on the back of our full year results announced this morning, company update, company presentation and let you know where we are with particularly POLB 001 clinical trials. So again, appreciate you joining us this evening. And I'll be sharing presentation duties tonight with Liam Tremble, our Principal Scientist, who will talk more of the POLB 001 clinical trial attributes. So just to give a setting, just a grounding, a reminder, Poolbeg, we're a clinical-stage company developing POLB 001 that we believe has the potential to transform the lives of cancer patients by delivering these cancer immunotherapies in particular safely and locally. There's a big unmet need. There's a lot of issues around Cytokine Release Syndrome associated with cancer immunotherapies, and we believe we have a solution for that. We'll talk a little bit more about the scientific and medical rationale for that later on. We're also developing an oral medication for obesity treatment, we'll touch upon later on as an oral GLP-1. Again, very exciting space to be in. We are an AIM listed company, listed in London. And we believe we've got a strong investment case. We've got a terrific team here behind us, both on the, as I said, the clinical business development, which will be critical, and I'll talk a lot about that and, of course, on the corporate and finance side as well. The clinical -- stage programs we're developing, getting into the clinic, these are clear large unmet medical needs and large, growing markets. We've done an in-depth analysis, particularly on POLB 001, again, we'll touch upon later on. So very excited about to get these moving forward. We have financial runway into 2027. So we've got several key clinical inflection points coming up. So we're funded through these clinical inflection points and into 2027. And that gives us scope then for partnering, for collaboration and licensing discussions. So again, we have had many discussions with potential partners over the last several months. Again, I'll touch upon those later on. So there's a strong interest in what we're doing. So a strong potential to secure partnerships. Of course, what comes with that is financial revenue, and we'll touch upon that later on. So right now, we're certainly in clinical development execution mode, particularly with POLB 001. But over the last 6, 9, 12 months, we've been gearing up on the partnering aspects, talking to a lot of big pharma companies, midsized pharma companies, and again, pitching and promoting Poolbeg. We've got high-value programs with strong IP. Those of us -- those of you who have kind of followed Poolbeg have seen the RNS that's talking about IP grants, very important in this industry. The proof-of-concept clinical trials we touched upon are ready to be done, touch upon the timing on that later on. And what we've built thus far with regard to the programs, we've got very high-quality and compelling human data in the POLB 001 setting. Again, touch upon that, Liam will cover. So again, our discussion with partners have gone exceptionally well. They're very keen, obviously. They see the value inflection point, and the derisking episode will be the clinical data that will read out in the summer of this year. A summary of what we announced this morning in our annual results. So we believe 2025 was a transformative year for Poolbeg. We really got ourselves kind of focused and driven and aligned with not just the market, but the clinical community as well, the Cytokine Release Syndrome community in the cancer immunotherapy space. We finished the year with GBP 7.7 million in cash, again, a healthy cash position. That allows us, as mentioned, to execute on our clinical development programs. The first bullet here, we have the TOPICAL trial, is fully prepared. And with that, that's the POLB 001 CRS prevention trial. We've appointed ACT as the clinical trial executor, the CRO that will run the trial. We've had fantastic discussions with Johnson & Johnson, and they have agreed to supply us with their approved bispecific antibody teclistamab. And they've given that to us at no cost because, obviously, they're keen to see the reduction in Cytokine Release Syndrome or CRS with teclistamab. And we've enrolled now -- we've lined up 6 U.K. cancer centers to be part of this clinical trial, and we've finished the protocol and we've gotten MHRA approval, which is very important to allow us to start dosing patients. Importantly, during 2025, we've got Orphan Drug designation from the U.S. FDA. So again, they recognize the scientific validity of what we are doing, what we are trying and reducing CRS. It is linked to patients who will receive these T cell engagers. And these are wonder drugs that are now demonstrating cures in these blood cancer patients such as multiple myeloma. So again, they're very good to get that. There's a lot of additional bonuses that comes with that, we'll touch upon later on. But certainly, from a partnering standpoint, that actually adds a lot of value to the program when it comes to talking with a big pharma company. So intellectual property is very important for this industry. It protects the programs as we get to the market. It doesn't allow any competitors to invade our space. We did get multiple patents granted last year. Many of you know, in the hypercytokinemia or the severe influenza space, we've been progressing down those roads for many years. But importantly, we got our first patent grants earlier this year in Australia when it comes to the cancer immunotherapy and CRS aspect. So very happy with that. And again, that helps bolster the discussions with pharma companies when they know that the program is protected. We also generated last year positive in vivo data, again, demonstrating that we can impact Cytokine Release Syndrome in an in vivo model. Liam will talk later on about a very exciting program we have in collaboration with Johnson & Johnson with the University of Manchester, that's looking into broader research into the immunology around Cytokine Release Syndrome. And then lastly, making progress on our oral GLP-1 program, which is now expected to start in the second half of this year due to the revised manufacturing lead time. I will highlight that last year, we were, again, very delighted to fund-raise GBP 4.865 million from the market. Tough conditions in the market, but I think the investors saw the potential of what Poolbeg is doing and what we can bring to the market. And speaking of this market, we've done some independent analysis where we see that preventing CRS in these cancer immunotherapies is a market opportunity of over $10 billion. And we'll talk about the details around that later on. When it comes to 2026, this year, again, we are at full pace right now. It's a full-steam-ahead situation. As I said, the first 4 months or so of this year has been, again, very productive from a Poolbeg standpoint. I mentioned the patent grant, and again, that's in the cancer immunotherapy space, which again adds validity to the program that we're doing. And again, we're hopeful that there will be many other opportunities to announce patent grants in other territories as we're going forward. We are, as I said -- have a wide patent application in various territories and they're moving through the processes there. It can be kind of a long process, but I think we're encouraged by the responses we're receiving from the various PTO organizations and the EPO organizations going through. Again, exciting this year, we've -- our LPS challenge study. This is our Phase Ib study that again was a very successful study run in the Netherlands. We were able to get peer-reviewed data published in that. And again, this peer-reviewed is important because as people look at the data, they look at the paper itself and they saw worthy of publication. We've gotten some very good feedback from that. And that springboards us then onto -- into the CRS prevention study we're talking about. When we see prevention of that inflammatory response in the LPS challenge, we're hopeful that we'll see a similar prevention of the inflammatory response when it comes to Cytokine Release Syndrome that's caused by these cancer immunotherapies. We're very excited. We had several discussions last year with Dr. Adrian Kilcoyne. He's an expert in the Cytokine Release Syndrome space. He's had many, many interactions with the U.S. FDA around developing clinical trial programs around CRS. He came onboard to join our Scientific Advisory Board and is now a very active member of our development team when it comes to planning what the future holds for CRS clinical trials. I mentioned we got MHRA approval this year as well. Very exciting. Again, it's a rigorous process where they take and review all of our data, clinical and preclinical. As I say, it's a very high bar for any drug to get into human clinical trials. So the MHRA gave us that approval in the past few weeks and we've announced at the RNS. And that gives us the green light to progress and move into the clinical studies that Liam will talk about. Again, we want to make sure, when we're talking to partners, we want to make sure -- or we make sure that they're aware that this is a significant market opportunity. So to achieve that end, we've had independent analysis done where we look at the market, the Cytokine Release Syndrome, the incidence that occurs in the various bispecific antibodies and CAR T cell therapies, these T cell engagers. And the impact it has on the health care system, the impact it has on patients, what it costs for the health care systems. So again, we were able to do an in-depth analysis looking at -- it's a multibillion-dollar peak U.S. sales potential stand-alone. So we spoke to 3 different payers talking about CRS and our program, and they're very enthused that this is a drug that they would happily reimburse if and when it gets onto the market because they see CRS is a cost drain for them as an insurance company. So they'd like to get rid of that. And as you know, we're talking about prevention of CRS. So I think it's a very important goal, a very important goal that we want to achieve here. And it's very well received by these insurance payers both in Medicare as well and Medicaid. Again, momentum in partnering has accelerated. As we get closer to the clinic, it's becoming more kind of apparent. What we have here is a very exciting program, as I mentioned, some of the large pharma companies and more midsized companies that maybe are in the more cancer supportive care area specifically. So they're all very excited to wait and see what this data hold, this clinical data hold as it reads out. And as I said, we've got multiple upcoming milestones in the near future. So again, I talk about momentum, I talk about running at full speed. So as I say, the POLB 001, the trial site initiation visits have been scheduled. So these are the 6 sites that we've -- are going to run this trial in the U.K. It's going to be led by Dr. Emma Searle at The Christie in Manchester, and she's brought some of her hematology colleagues onboard to be part of this clinical trial. So very excited to get that moving. As I say, the next step then is trial -- patient recruitment and dosing, so basically getting the patients onboard, these multiple -- these relapsed/refractory multiple myeloma patients, get them onboard and get them dosed, to get the clinical trial to -- the clinical trial up and running. But we always comment that like 80%, 90% of the work is done in advance of dosing patients. So we've come down the road quite a long way. So we're very excited to be at this stage right now. So again, we're looking to have this interim data, the POLB 001 CRS prevention data, in the summer. So again, it's linked to the patient enrollment. These are very short clinical trials Liam will speak to, so we should have data relatively rapidly out here. And then the second half of the year, we're looking for to commence our oral GLP-1 clinical trial. I'll talk a little bit about that later on. So fantastic, exciting time for the company. Again, very productive 2025, very productive first 4 months of 2026. So we're excited to be progressing this forward, and again, generating that key data, which will be the value inflection point, really derisking the program. And then transactions and collaborations, license agreements will follow from there. So we're very excited to be in the space. And again, thank you for attending this evening. Liam will present on the POLB 001 program. I'll return in the end and talk about the market opportunity and the oral GLP-1 program. And then we will open up the floor for questions. So again, thanks for your time right now. Liam, over to you. Liam Tremble: Brilliant. Cheers, Jeremy. So just I'm going to do a brief introduction to POLB 001. But before we jump into the asset itself, I want to give a little bit of context of where the field has come. So obviously, over the last number of decades, a massive amount of progress has been made for cancers. It's not been symmetrical. Some cancers have had significantly more progress than others. But if we look at something like multiple myeloma, it's really been a poster child for where significant progress has been seen. So for somebody diagnosed 23 years ago, 2003, 5-year survival, 10-year survival really wasn't that great. 30%, 5 years; 10 years, about 20%. And it's because the treatment options really weren't that effective. And a lot of these you might be a little bit familiar with: pomalidomide, chemotherapy, corticosteroids. They didn't do a massive amount for all patients. Fast forward 20 years and the progress has been exponential. If you're diagnosed now, 5-year survival rate is well over 80%, or estimated; 10 years, well over 60%. And I say estimated because the progress is so quick that the pace of clinical trials is faster than the survival data we have from those clinical trials. So at the moment, in multiple myeloma, we've obviously -- we've had immunotherapies be approved in the last number of years, so CAR T cell therapies, bispecific antibodies, but also a number of other therapies like antibody drug conjugates, proteasome inhibitors. It's quite common now for multiple myeloma patients to actually get quadruplet therapies as first line or even quintuplet now because the therapies are so effective. And a lot of the projections, so this is a disease with a median, so 50% of people get it age 69 or older. And some of these frontline therapies have median progression-free survival projected to be up around 15 years. So really in myeloma, you're at a position where people are discussing functional cures where really patients will pass away from old age rather than their disease. And that's what we're ultimately trying to achieve for all cancers. What's important about this is that when we get to this stage where multiple effective options exist, patient preference has a significant impact on market uptake of the drug. Patients don't always go for the drug with the best overall survival. They also consider things like time at home, treatment time, having to travel to hospitals. Some of the tolerability issues can be quite significant for these drugs. The immunotherapies, for instance, have a lot of severe infections that can happen for years afterwards. So they all have a very meaningful impact on what drugs patients actually decide to take. So for these CAR T cell therapies and bispecific antibodies, they really are revolutionary. For the CAR T cell therapies, are potentially curative in some patients. And it's really making sure that they are accessible to all patients. So if I zoom in on the bispecific antibodies, these are breakthrough immunotherapy as well. And they're extending into early lines of therapy. As I'll show you on some of the later slides, at the moment, they have to give micro-step of doses. And it's quite common for patients to be hospitalized for 5 to 10 days just for these initial doses because of the risk of CRS. So they have a significant amount of time in hospital just to get on to these therapies. And then obviously, they have downstream infection risks as well. So a lot of these therapies as well are restricted to specialist cancer centers who have the expertise and the tools to manage these patients. It depends on what country you're coming from, but in some countries, this is a very significant obstacle to accessing these therapies. Particularly in the U.S., people talk to things called treatment deserts. It's where patients can live hundreds of kilometers and miles from their nearest hospital who can administer these therapies, and really is a significant issue for a lot of late-stage patients. So CRS, as I mentioned, is a major barrier for some of these immunotherapies to become more widely available, with over 70% of some patients being affected on the immunotherapies, and hospital stays due to the risk of CRS may negatively affect the uptake of these therapies themselves. So the next slide. So just zooming in on that for 2 seconds. So on the left-hand side of this slide as well, we've shown a simple diagram to have these therapies and how 001, POLB 001, could change the treatment paradigm. So the current standard of care, on the left here, is typically a patient will come into hospital, they will get their immunotherapy. And the immunotherapy will actually activate their immune system. And what this induces is Cytokine Release Syndrome. And the risk of Cytokine Release Syndrome or indeed CRS after the onset can result in significant hospitalization for these patients. So it can persist for days to weeks. And in severe cases, it can mean that the patients have to discontinue the immunotherapy, so they have to opt for something else. And obviously, they lose time between these different choices. So it's really important that when patients do opt to go on to a therapy, that they can continue with it. If we bring in 001, potentially, we have something where they can take orally before they have the immunotherapy. They come into the hospital, they are administered it. And rather than the immunotherapy causing activation of the immune system, we still allow activation of the immune system, but it doesn't cause Cytokine Release Syndrome. And if we're able to avoid Cytokine Release Syndrome, then we can potentially prevent this hospitalization and make this step onto the treatment a lot more manageable and feasible for the patients themselves and for the health care systems that have to deliver it. So just zooming in on POLB 001 a little bit deeper. So it's a p38 MAP kinase inhibitor. What this means is that it selectively prevents excessive inflammation without immunosuppression. So compared to some other drugs, they completely block a pathway. Actually, p38 is kind of like a master inflammation switch where if you activate p38, you can get global expression of a lot of pro-inflammatory cytokines, which are things that cause CRS. If you don't p38, actually the production of these falls 80% to 90%. So the drug itself is an oral agent, again, particularly important where we positioned this as a prophylaxis. It really needs to be easy for the patients and the hospitals to administrate. And we have a strong patent portfolio with potential coverage out to at least 2044. So we do have a strong preclinical and clinical data package to date. So favorable safety and tolerability profile, which again we think is really important as we move into this indication. And we have potential inhibition of IL-6, TNF and other key inflammatory markers. IL-6 and TNF we mentioned because we know these are the main drivers or significant drivers of the Cytokine Release Syndrome itself. So as well, Jeremy will go into later in the presentation that there is a very significant market opportunity behind this drug. So over USD 10 billion market opportunity. There isn't anything approved in the preventative setting and there's a growing number of these drugs that induce CRS and they're going into earlier lines of therapy. So this problem is only becoming much, much more significant for hospitals across the world. So at the moment, these bispecific antibodies will only be delivered in specialist cancer centers until there's a way to make them safer and easier to deliver. And POLB could make that treatment safe enough to extend bispecifics to a much wider treatment population. Just there in the bottom of this slide, so we have engaged a lot of key opinion leaders on this who also believe in the program. And that's Gareth Morgan from the U.S. Just to show you some of the data that we've presented before. So the last clinical trial that POLB 001 was in was an LPS human challenge trial. So this is essentially where you use a pro-inflammatory stimulus, LPS. It's a component of the bacterial cell wall that induces a mild inflammatory response in patients. So we can give this to healthy volunteers. It stimulates the immune system very similar to the way the immunotherapy would. And they get something that approximate Cytokine Release Syndrome. So it's an incredibly strong model for us to test the efficacy of POLB 001 in. What we also saw in that trial was that POLB actually had an excellent safety and tolerability profile, as we expected. We were able to confirm potent target inhibition, that's the p38 MAP kinase. And we had a clear dose response relationship observed, which is really important from a drug development perspective. And then we also, from a CRS perspective, had a major reduction of key inflammatory cytokines. On this slide, we're showing IL-6 and IL-8. So just briefly, this LPS challenge trial was placebo-controlled and had 3 different doses of POLB 001. So the gray line, as indicated underneath, is the placebo. The green line is 30 mg of POLB 001 given twice daily. The blue line, again, twice daily 70 mg, and the red line is the highest dose of 150 mg POLB 001 given twice daily. And what we can see in the graph is that actually, if you just give placebo with the LPS challenge, you see this spike of IL-6 and as well, on the right-hand side, IL-8. But actually, as we introduce increasing concentrations of POLB 001, we see a suppression of these increases, which is exactly what we hypothesize it will do in Cytokine Release Syndrome. So the lowest dose produced a small decrease, but the 2 upper doses, actually you can see, they almost overlap, and this is probably the maximal inhibition through p38, where the inhibition is in the region of 85% to 95%, which is really promising as we move forward into further trials. So we have the potential to effectively prevent Cytokine Release Syndrome while preserving key immune system functionality. I think that's a key element that we always have from clinicians in that a lot of the existing drugs and that completely blocked pathway, they have their downsides. They often induce cytopenias or other adverse events, which really isn't preferable in an indication like this. So as Jeremy mentioned, we are really excited at the moment. We recently announced that we have all the approvals in place to start dosing patients, and the trial is moving forward at speed. So POLB 001 first-in-patients TOPICAL trial, and it's being conducted in the U.K. So it's a trial of prevention of immune cytokine adverse events in myeloma. It's being led by Dr. Emma Searle, who's a leading hematologist based in The Christie Hospital in Manchester. And it's being run by Accelerating Clinical Trials. Again, we've previously spoken about this to the market, that this is a specialist blood cancer organization who are equipped to run trials in the U.K., in these clinical trial centers that we're tapping into to recruit these patients. It's a really strong team who know the sites, who know the investigators, who are equipped to really accelerate this trial the way we need to. And the objective of the trial is to investigate the safety of POLB 001 and also the efficacy, in particular, its ability to reduce the incidence of CRS in patients receiving an approved bispecific antibody, teclistamab. Teclistamab being an immunotherapy that induces Cytokine Release Syndrome. So we'll have approximately 30 patients, and we will be recruiting a patient population of relapsed/refractory multiple myeloma patients and receiving this antibody. So we are really excited. All of the leading sites in the U.K. are really participating on this trial. So it's been led by Dr. Emma Searle, as I mentioned, at The Christie. But also we have UCH, we have The Royal Marsden, Birmingham, NHS North Midlands, Royal Stoke and Edinburgh. And so we have an exceptionally strong team that we're really optimistic that we can complete this trial quickly. Just a little bit more detail about the actual trial itself. So this is the design of the trial. On the top left, this schematic is showing the trial design. So I mentioned with the bispecific antibodies earlier in the presentation that they're getting step-up of micro-doses. So if you were to give a full dose of these bispecific antibodies, what would happen is you'll activate your T cells, you get other immune cells activated, you get overwhelming Cytokine Release Syndrome, which could potentially kill patients. The only way at the moment to deliver them safely is to give these micro-doses. And the micro-doses are there to give the body a small exposure to cytokines. And the body needs to get used to seeing these cytokines without inducing severe CRS. And once the body has seen the cytokines once or twice, actually then they can go forward with normal dosing. But these step-up doses are critical purely to mitigate the risk of Cytokine Release Syndrome. These typically happen over a 5 to 8-day period. During this period, patients are typically hospitalized, depending on the cancer center that they're in. And so what we're trying to do in the trial is we are going to pre-dose POLB 001 for prevention from before that first step-up dose until after the first dose. So here in the schematic, that would be indicated on day 1, 4, 7. So we'd be dosing. Actually 96% to 100% of all the Cytokine Release Syndrome happens in that period. And that's the period that's really hard for clinicians actually managing these patients at the moment and is mandating the hospitalization. So twice daily oral dosing of POLB 001. It's a single-arm trial, meaning no placebo. But we're really trying to get the evidence of efficacy as quickly as possible, so we want to give everybody our drug. 30 patients, as I mentioned. Teclistamab, really promisingly, is being provided by J&J. And it's an open-label trial in that all the patients know that they're getting POLB 001. So we're really excited that we have fantastic investigators. We have the collaboration with J&J. And we have the right team to really deliver this trial quickly. And the protocol has been finalized. All the regulatory approvals are in place and site initiation deals are scheduled, and patient recruitment and dosing to commence shortly. And we hope to be able to give further updates as we go. The key endpoints, as I mentioned: incidence of CRS, severity of CRS, confirmation of the safety and pharmacokinetics. That's more just to make sure that the drug, as I mentioned, is exposed to patients at the right level. And then obviously, CRS management and tocilizumab usage. CRS management, what we mean is the duration of hospitalization. So everything to do with the current challenges of managing CRS to be managed or measured in this trial. We have a great team of investigators. We have J&J. That's because there is a massive amount of excitement about this program. If we can find a drug that really solves the CRS problem, I think a lot of people realize the potential of it. So there's also been a GBP 3.4 million grant to the University of Manchester and The Christie. The program is called RISE. So RISE is about reducing immune stress from excessive cytokine release with advanced therapies. And it's being led by the University of Manchester and NHS Christie Trust, where we're the lead site on the TOPICAL trial, is the clinical lead. We are the lead business partner because we are experts in Cytokine Release Syndrome at this stage. And J&J are an industry partner providing teclistamab for it as well. So it's being led by a fantastic cell therapist who delivers solid cancer cell therapies to patients, Dr. Jonathan Lim. He's a Clinical Senior Lecturer and Honorary Consultant Medical Oncologist at The Christie and the University of Manchester. So we really have a multidisciplinary team. And the whole idea of this grant is actually to research things of this is an on-target effect of immunotherapy. So there's nothing surprising that these immunotherapies induce Cytokine Release Syndrome. It's predictable. We know the mechanism, we know the triggers. We know how to potentially prevent it. But that's a great opportunity to learn more, to really research this in the clinic. So POLB 001 is going to be a key element of the overall research grant for preclinical and clinical, but the TOPICAL trial itself will be a central focus of it. So we'll be generating additional clinical evidence as part of this on CRS from bispecific antibodies and CAR T cell therapies. Because as Jeremy will have mentioned before, there is a major commercial opportunity for the prevention of CRS related to CAR T cell therapies as well, not just bispecific antibodies. And so this is real significant recognition of the unmet need in CRS, and it's something that we're really excited for. We do expect if there's positive results from this trial, that the interest in the program is only going to grow. So we're really excited moving forward. And with that, I will hand back to Jeremy. Jeremy Skillington: That's wonderful, Liam. Thank you for that. I think it's a very nice segue as we do talk about the market opportunities. So as I mentioned at the outset, we've done a lot of work trying to assess what the global CRS market looks like. We've taken on board some consultants to get that independent perspective. And I'd say it's a very important acknowledgement when it comes to the partnering and partnerships, kind of what the value we're bringing to the table is here. So as I say, we're looking, from our analysis, about a $10 billion market opportunity. And I'd break that down as to how we came to that number briefly. But I just want to flag that for both bispecifics and CAR T, these are quite expensive drugs in their own right. But as Liam mentioned, we believe that these are life-saving drugs. Sometimes there's cures observed. But for CAR T, now it's more of a laborious approach where you take a patient's T cells out, you re-engineer them, and you introduce them back in, and they're bringing the immune system closer to the tumor. And these are quite expensive. But as I said, these are reimbursed in the U.S. by the American insurance companies. When you look at bispecific antibodies, it's slightly less, but it's still a significant cost to the insurance companies. Now what we did with this analysis is that we narrowed in on 2 different tumor types, 2 different blood tumor types: diffuse large B cell lymphoma and multiple myeloma. And if you look at the markets in the U.S. and the European 5, the incidence of these diseases, they total to about 500,000 patients between now and -- between 2023 and 2030. So the market is kind of large. Market is growing. But what we did when we looked at what would we charge, what would we charge the insurance companies for POLB 001, we looked at a very interesting and probably very appropriate comparator. This is a drug, Neulasta, which is used to treat neutropenia. So when patients get chemotherapy as an example, then they get -- they're obviously trying to reduce their tumor burden, but it also reduces a lot of their kind of white blood cells. So this Neulasta brings those back up. When that was launched many years ago, it was introduced in at about $18,000 per cycle. So we kind of took that realm, that POLB 001 could be in that. If you take roughly $20,000 by the 500,000 patients, then you're looking at a $10 billion market opportunity just for these 2 tumor types and for these 2 markets, the U.S. and the EU 5. And obviously, we could go broader than that. We've mentioned a few times that CAR T cell therapies, bispecifics are now moving more into solid tumors, so there's an opportunity there where CRS is also observed. And interestingly, looking into autoimmune diseases. But that's a story for another night. But as I say, we're looking to prevent CRS from happening in the first place. And I think that if we -- this is where we got J&J's attention, for example. And I'll talk a little bit later on about our partnering initiatives. But they got the attention. To prevent is obviously better than cure. It's an old statement that's well worn. But they see that if we can prevent CRS, then they can get their drug, their bispecific antibody, as an example, into community hospitals, getting it away from these dedicated cancer centers. Because you need people on hand to manage the CRS, but if the CRS isn't there, then we're in a fantastic situation. So as I say, it is a cost to insurance companies, cost to the health care system. We talk about Grade 3 CRS actually costing greater than $70,000 as a management, as treatment. But of course, let's not forget the patients who have to go through this issue. So there's many things at play here. But more recently, this is the most recent piece of work that we did that was very enlightening, where it's one thing about understanding the patient population, these multiple myeloma, diffuse large B cell lymphoma, but we needed to talk to ultimately the payers. These are insurance company. We looked at the U.S. because that's the large and major market. And we partnered with Acumetis Global. So they held 3 different payers that cover 75 million lives in the U.S. They introduced them to POLB 001, the target product profile, what it is, what it does, what it's intended to do, and asked about payments. "What would you be willing to pay for these drugs?" And I think there's a -- it's quite a long quote here. I won't go through it all. But it was very clear that there's a willingness to pay for a commercially meaningful price for POLB 001. Because they know the offset. They know that they can -- patients will spend less time in hospitals, so overall their insurance burden is less. It's obviously beneficial for the patients. But it takes the pressure off the health care system as well. And maybe it spreads a little bit thinner. Instead of these patients being in these dedicated cancer clinics, they can go kind of outside to their community hospitals. And that's really where people are attempting to go, have the treatments on your doorstep. And I think from a psychological standpoint, these patients are already going through cancer treatment, but if they can get it closer, their treatments closer to home, all the better off because they'll have family support networks around. So as they say, they see that POLB 001 is a compelling CRS solution with significant market potential. So that was obviously music to our ears when we -- we kind of believed in the program, but to see it in black and white that the payers would be willing to pay was very exciting and very gratifying, I must say. But again, from the market opportunity, and I've outlined this already, so 500,000 patients. There is that bottleneck where they can't get access to the drug rapidly because beds are being taken up in the CAR T setting. As I say, if you can remove CRS, then you can open up this. And we've talked, as Liam said, many key opinion leaders, thought leaders in the space, multiple myeloma docs. And they're all echoing the fact that if you can reduce or eliminate CRS, then a whole load of infrastructure falls away. Their lives are easier, the patients' lives are easier. And as I say, we now, we're confident that the insurance companies are willing to pay for the drug as it goes forward. So again, very exciting time for the company. Again, there is -- I see a question coming in about partnering, so maybe I'll address that right now. With my background, I'm a scientist by training, but in the industry, I spent a lot of time on business development in the partnering setting. So we spent the last, in particular, the last 9, 12 months really focusing, ramping up the partnering, as we're getting closer to the clinic, that laying the groundwork, talking to the big pharma companies, as I said, the midsize companies, about 001, what we do. We've caught a lot of attention. And I think that happens, and it's not by coincidence, that it's closer to the clinic, because then there'll be a data readout, and as I mentioned, a derisking readout. So again, people appreciate that there are more and more cancer immunotherapies coming to the market, and CRS is still an issue with them. Pharma companies are looking to fill their own pipeline as well with new programs coming through. And that's all linked to the patent cliff. I mean it's been shared that GBP 300 billion in annual prescription drug revenue will fall off because of patent cliffs. They'll be substituted by generics. So pharma need to kind of boost their bottom lines, so they get more drugs into their pipeline. But I think when we talk to the smaller companies and show that we can have POLB 001 in combination with any and all CAR T or any and all bispecific, they see this as a significant market opportunity. So over the last, as I mentioned, 9, 12 months, we've attended a lot of conferences. JPMorgan in San Francisco this year was particularly productive. Again, face-to-face meetings with decision-makers at pharma companies. We attended BIO in Europe, LSX as well. And these are, again, lots of partnering meetings talking about POLB 001. Just last weekend, Liam and our clinical colleague, Mina, attended the British Society of Hematology, meeting directly with our investigators, again, building momentum on that front. And then in the near-term future, we're attending the European Hematology Association meeting in Stockholm and then BIO Convention in San Diego. And again, that's where all the pharma kind of descend on a city. Obviously, the EHA is hematology-specific, so we'll be talking directly to the decision-makers in the hematology or myeloma spaces. And then BIO is on the business development front. And we've got meetings set up there as well. And again, they're very excited to see the clinical data as it comes through. So I think, obviously, from our past successes, you could say, great discussions with Johnson & Johnson providing their bispecific antibody free of charge. They want to see CRS reduced, and we're hopeful we'll be able to do that with this TOPICAL trial we've discussed. And as I say, the midsize pharmas are interesting because they've got smaller pipelines, but they see this cancer supportive care element that they could obviously get this drug to market relatively quickly. We can talk separately on that, but these are very short-term trials because we're only looking at that initial immune or inflammatory response. And as I say, lots of really productive discussions there. We have a virtual data room that's populated and open. And we've got people in the data room kind of exploring the, as I say, the preclinical and clinical data we have. And it's all a case of once we have that clinical data in hand, then we kind of trigger those negotiations around, a deal and a transaction, to generate revenue from there. So again, I'll reiterate from a POLB 001 standpoint, we're very excited with the progress we've made. And obviously, in the not-too-distant future, there'll be very exciting milestones to report. I think we've gone over a little bit on time, so I will just kind of go briefly through the GLP-1 program. People are very familiar with GLP-1, initially diabetes drugs, but now very applicable to obesity. These are primarily given by injection, and there's a big need or an unmet need to have an oral option for that. We've partnered with AnaBio here down in Cork. They've got drugs that -- sorry. They've got products on the market that use this encapsulation technology. And it's more in the food science space. But we're using this technology to encapsulate GLP-1, protect it from the stomach acids. And when there's a change in pH, that is released in the small intestine, which is the site of action here. So a huge market, huge opportunity. In our partnering discussions we've had at the partnering conferences, people have reached out to discuss this program. And as we're standing now, we've got a clinical trial that's designed, ready to execute. We are moving into that kind of manufacturing phase, the timelines for manufacturing, that's going on. Again, it's -- the manufacturing has been demonstrated before. We've done a lot of the validation studies on acids, et cetera. So now it's just to get that GLP-1 material ready for the clinical trial. It'll be run by a Professor Carel le Roux up in University of Ulster. He's very well recognized in the metabolic disease space. Again, it's a very straightforward clinical trial in that it's 20 volunteers. We're looking at safety and tolerability and pharmacokinetics, getting the drug onboard. And we'll test that from glucose tolerance test. Very simple study where we want to see the drug having effect on metabolism essentially in these volunteers. So it's designed to get the rapid readout and so very excited to see this program move forward as well. Again, there's a good deal of interest in that from a business development standpoint. I'll wrap up with this slide. I certainly want to leave time for questions and I see there are a few coming in. But again, a reminder, a very experienced team. We are executing right now. And I think we've done a very -- I'm very proud of the team. We've done a terrific job the last 12 months to move 001 to be here. We are on the precipice of dosing patients, so that's very exciting. These are very high-value programs. I think we've found the right disease for POLB 001 to go after, this acute inflammatory condition. Importantly, with the fundraise last year, we've got our financial runway into 2027. So that gives us time and scope to negotiate the best deal for Poolbeg once we have the data in hand. But as I said, the partnering discussions have been on many levels, as I say, large and small companies. We've got many discussions going on in parallel, data room open, reviewing the preexisting data. But as I say, people are waiting for this clinical data to read out. Because that's the value inflection point. That's the derisking episode where you're having data in this TOPICAL clinical trial in multiple myeloma patients -- relapsed/refractory multiple myeloma patients. This will be the key trigger for Poolbeg. So again, thank you all for your time again this afternoon, this late afternoon. And what we'll do now is that we'll switch to some of the questions that came in, and again, appreciate your time on that. Jeremy Skillington: All right, so we'll jump straight in. Oliver has a question. When are the CRS trials due to be completed? Summer '26. Can you pin this down, June, July or August? Although summer in the U.K. is virtually a 2-week period. Nice one. Good bit of levity there. Also once completed, will it be go or no-go decision? Or is there a potential for a phased decision tree solution if not the results you're looking for? I think, listen, that's a really good question. We could spend a while kind of talking about that. I think we mentioned earlier on, like one of our ambitions was to get the data as quickly as possible. That goes without question. And this is why with ACT, who are going to run the clinical trials with Emma, we're zoning in on 6 clinical trial sites. Now we're exploring options for more. And what comes from that then is kind of rapid enrollment. That's ultimately the goal here, get more patients onboard quickly, get more drug onboard quickly. Liam and Mina and the team have done a terrific job of kind of lining up that kind of analysis that comes after that. It's well understood that teclistamab drives CRS in greater than 70% of patients. But we're going to analyze that immune and inflammatory response at a molecular level. So these are looking at all of the cytokines that are there, signs and symptoms, but at the kind of blood and molecular level looking at that. So it depends is probably the answer. But it is once we have that certain number of patients going through where we can kind of interpret the data. We've done statistics, et cetera, that up to 30 patients would be the full trial. But as mentioned previously, this is an open-label trial, so we'll have access to the data pretty rapidly on that for each individual patient. So it's not blinded, so we know that each patient will get the drug. So it's a really good question, but as I say, we're planning and what we've built so far is going to get rapid enrollment to say 6 clinical trial sites, maybe more. And then your question around decision trees. I mean it's -- obviously, we got to wait to see what the data is. But I think if the data is strong, and the way we've built up the business development, partnership aspects, I think there'll be multiple suitors here. I think there'll be strong interest if the data's positive. Because it can be applied to multiple pharma companies, and I mentioned the cancer supportive care area. So as I say, we'll be running full steam on those negotiations when it comes to -- one of the interesting questions here is kind of the deal type. We feel that, on the one hand, with the big pharma may come in and just take over and run the trial themselves, there could be opportunity to partner with a smaller company where we would kind of help and assist, kind of run the clinical trial. Because it is our baby in one sense, but it is our expertise in what we're doing. So you're right. There'll be decision trees and discussion negotiations, multiple parties. We'll figure that out. Oliver had a second question here. Is 30 people enough for a trial for a commercial outcome? Again, maybe, Liam, you can talk to that just around the stats discussions that we've had around how we ended up with 30. Liam Tremble: Yes. So really happy to, Jeremy. Yes, so 30 patients is essentially more than enough for our purposes right now. About 70% of these patients are going to have CRS, so there's going to be a very strong indication of the level of efficacy. The priority from a clinical development perspective is to really get into your placebo-controlled trials as early as possible once you have an idea of the effect size. So we're going to see the effects in Grade 1 and Grade 2 and also the other elements of CRS management, like hospitalization, that will give us a really good indication of how to design later-stage trials. So 30 patients for this purpose is actually ample. Jeremy Skillington: Cool. These are kind of numbers that are not plucked out of the air. There's been kind of deep analysis into what are the right numbers. So again, credit to Liam and the team for their discussions with qualified statisticians to come up with those numbers. All right. Another question here. Could we see a deal after interim data? I mean again, it's a good question. Maybe I've already answered it. But when it comes down to what that data looks like, and as I say, rapid enrollment, we'll get an early read into what the data look like, if it's -- if we're seeing an impressive suppression of that inflammatory response, that CRS, then I think for certain companies, that might be enough to transact. For others maybe, and I've been through this in my past where there's always that next experiment or the next data point or the next dataset. Some companies are maybe a little more conservative when it comes to decision-making. Maybe I'm alluding to the fact these are more the bigger guys who have to work the chain of command. But I do think that, as I say, having interim data will be a key point. And if it's positive, I think there'll be strong interest. Richard had a question. Your projected time scale towards commercialization. Again, commercialization is always tricky in this industry. I mean getting on the market is one question. Again, that'll be done with a partner and we're driving that forward. As I say, we're experts in CRS, we're experts in running these initial clinical trials. The larger clinical trials we can do ourselves. But having a partner onboard to kind of fund that would be critical. But there are -- that'll be kind of a few years down the line. But as I say, once it's launched on the market, then it'll be -- we feel it'll be broadly applied to any and all bispecific CAR T. So again timeline, that'll be driven by the partner and say that we don't see ourselves as obviously driving that forward ourselves in isolation. Potentially through a partnership. Another question. If data lands well this summer, what does success look like? That's a really good question. I mean in my mind, and this goes back to my kind of business development training, I mean, we're looking at a nice, substantial transaction. We're looking at a partner to come onboard with capabilities, with funding, with funds. What happens in the industry when it comes to these licensing transactions, whether, as I say, maybe people want to buy the program, buy the company, just license the program, that'll be for another time and other discussions. But I think that what we're seeing what success looks like is certainly a juicy upfront payment when it comes to the work that we've put in. Because we've done a lot of work. We've derisked the program. It's a large market, it's an attractive market. We've filed important intellectual property, so we'll be protected. So we see significant value for our contributions there. And then, as I say, the structure after that is down to the individual company we'll speak with or decide to collaborate with, whether it's, as I say, just passing the baby across that a large pharma could develop, or co-develop ourselves. But that's all -- we believe, with strong data, that Poolbeg will have the leverage for those negotiations because the interest is so high. Appreciate that. I think we have time for one more question. How much interest are you seeing in the oral GLP-1 for potential partners? Again, appreciate the question. Good question. In our most recent partnering conference attendances at BIO-Europe, for example, we had companies reaching out to us. I was always pleasantly surprised, some of them are kind of in Asia, some of them in Europe. Some of them already had existing metabolic disease programs, and they were looking to kind of branch out, add to their pipeline. I think -- I don't want to be flippant and talk about no-brainer. But if you get GLP-1 that can be delivered orally, it opens up a whole host of markets and market opportunities. It's a huge and growing market. And moving away from injectables, the industry wants to go there, the patients want to go there. So if we can demonstrate that clinical proof of concept in the trial that I outlined with Carel le Roux, I think there'll be strong interest then in partnering the program out. And again, revenue from upfront payments, et cetera. So appreciate that. I think we've ran slightly over time. Appreciate people's patience. But yes, we can wrap up now. Just again, thank you again for attending.
Operator: Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Q1 2026 Earnings Call of Puma SE. [Operator Instructions] I would now like to turn the conference over to Manuel Bosing, Director, Investor Relations. Please go ahead. Manuel Bosing: Thank you very much, Maura. Hello, everyone, and welcome to the PUMA conference call for the first quarter. Joining me today are our CEO, Arthur Hoeld; and our CFO, Markus Neubrand. Before we start, please take note of the cautionary statement regarding forward-looking information. Arthur and Markus will guide you through today's presentation covering our business recap, financial update and way forward. After the presentation, we will open the floor for your questions. [Operator Instructions] With that, over to you, Arthur. Arthur Hoeld: Manuel, thank you very much, and welcome and good afternoon from my side as well. Before we start to get into the business topics and the updates about Q1, I, of course, want to take a moment to also reference another announcement which we made this morning. Markus Neubrand, our CFO, has decided with the Supervisory Board to step down from his office as of today, end of the month, and will remain in the company until end of September. I would like to use the opportunity and say a sincere thank you to Markus for the support I got personally from him during my on-boarding phase at PUMA, and also for guiding not just the financial team, but the organization through what was not the easiest of times for our company. He was instrumental in terms of developing the reset program with us and also getting the company now into a transition mode for the years to come. So Markus, thank you very much. We'll handle the call together, almost as always, like this, the last couple of quarters, and I wish you all the best for your personal future as well. At the same time, we have announced the arrival of a new CEO, which is Mark Langer. Mark will start with us early next month, i.e., on Monday next week. And I'm very much looking forward to welcome an industry veteran, someone that is very familiar to most of you in his new role as of early May. With that being said, we'll now start to get into the results. And I would [ briefly ] like to touch upon the top line results. Markus will, of course, in detail, explain what you have also already seen in the announcement this morning. So first of all, Q1 was a result that is in line with our expectations, and we would like to call this a very solid start into the year of 2026, a transition year as we called out. We've made significant progress this year already in our operating model, which is necessary to build the foundation for our future growth here at PUMA. Despite the macroeconomic and geopolitical uncertainties, we do remain confident on our track to achieve our plans for this year and beyond. When we look at the first quarter, sales are a minus 1% versus last year currency adjusted. The decline in demand is partially offset by continued clearance of our inventory progressing ahead of our plan. Wholesale declined due to a lower demand, primarily in EMEA, with DTC continued to show support by strong outlet performance, i.e., the clearance business there, and a modest growth in e-commerce despite us continuing to have reduced promotion levels versus previous year. The footwear division declined to continued challenges we see in the style area, but we're also very encouraged by solid development with our NITRO franchises in running and in HYROX, i.e., training. Our profitability has improved versus last year, and our EBIT stands at shy of EUR 52 million right now. Improved gross margin and a lower OpEx is certainly something which is worthwhile noting, and Markus will go into more details later on. Let me start also by focusing what is pivotal and what is most important for a sports brand like PUMA, and that's the success of our athletes and our teams in the first quarter. We have talked about an all PUMA final at the Africa Cup of Nations in January. We've also seen an all PUMA final at European Men's Handball Championships between Denmark and Germany. Great start to the year, which was then continued when you look at track and field with another world record, the 15th set by Men's Handball in pole vaulting, where is now at a staggering 6 meters and 31. At the World Athletic Indoor Championship, 21 PUMA athletes grabbed medals, and that was by far the best performing brand that we've seen in championship, including our Swiss Simon Ehammer setting a new world record in heptathlon. Amanal Petros set a new German record in the half-marathon in Berlin, again underlining the great achievements and the great potential that the NITRO technology has for us as a brand. Ferrari has seen three consecutive podium finishes in the first three races of the new Formula 1 season, and Joanna Wietrzyk has set a new world record in the HYROX women's racing in Warsaw only recently. Finally, a quick look at football, which is, of course, pivotal this year. Man City took the Carabao Cup against Arsenal a few weeks ago. And as you've also noticed, they have advanced to the FA Cup final and are at the moment, leaders of the table in the premiership. So all in all, a great start to the year, a great sporting start for PUMA as a brand. But at the same time, we can also record that our recent product launches have really achieved, and in some instance, even overachieved our best hopes. We have 11 teams qualified for the FIFA World Cup in North America in a couple of weeks' time. We've launched those kits with the so-called Rolling Nations event in New York just a few weeks ago, and had more than 10,000 visitors live for that event. From an HYROX perspective, we're very, very pleased that we've been the first one to market that has launched a specifically developed product around the event in Las Vegas, and product has been sold out, but will of course, get restocked in the very near future. We've seen continued great results with our NITRO technology here with the launch of the Deviate NITRO Elite 4 at the London Marathon, but also being displayed in Boston recently. Mathias Gidsel has launched its very own first handball shoe, and also here a sellout result, which was unprecedented for us in that area. There was a lot of great news from a sports perspective, but also from a style perspective. When you look at our street culture, we're very intrigued by the continued success we have with low profile. In this case, with the launch of H-Street, a campaign was featuring the PUMA ambassador and K-pop artist, Rosé. And at the same time, we're looking ahead into the future, where we are revitalizing Suede, a key iconic footwear piece for PUMA in the future with different activations, including our House of Suede at the Paris Fashion Week. So, there's a lot of things which have happened, which give us confidence that we are on the right track. But everything, of course, is framed within the three-year program that we have outlined to all of you at the middle of last year. Our transformation started with a reset in 2025 and is now in execution mode in 2026, a year of transition. And at this point in time, I would just like to briefly recap again our objectives for 2026 that do remain unchanged. It is, on the one hand, a continuation of a three-year transformation journey that our company and our brand will undergo. We will definitely accelerate PUMA's brand momentum and that brand momentum will fuel future commercial success. It is very key that we continue to remind ourselves that commercial success will follow brand success, and that's exactly the order in which we're working towards. That also means we're going to shift towards a higher quality revenue with improved focus on profitability, including better placements in our retail environment and with our customer collaborations. We will continue to work on our financial discipline and will deliver reliable results in the quarters and in the future. All will be underpinned by us building a high-performing team around the world, and some key efforts, not just from a structural perspective, have already been taken in 2025. When you look at the continued execution of our right-sizing efforts, there are a few which are worth mentioning. We have a continued focus to elevate our distribution quality, particularly in key markets like North America. As previously shared, our mass merchant business in the U.S. will see a steep double-digit decline until end of this year, and the work has started already. In a moment, I'll also elaborate on the take-back of overstock at wholesale partners, we've made some significant progress. In our very own channels, we have significantly reduced level of discounts and will further decline, will, however, always remain on industry standards. Our industry does see significant promotional activities, and PUMA will, of course, at key moments, key commercial moments, be on par with our competition to also make sure we liquidate our inventories. We see continued efforts to improve our cash management. We've made an immediate reduction of our purchase orders, and these are fully implemented already for before winter '26 season. We have a dedicated work stream in place to analyze our account receivables, and we have put tangible actions in place to optimize those. We are equally continually focused on our cost base, for short-term tactical cost reallocations, which will be part of the ongoing transition, but equally, and I'll show you a detail of that one, with the full elevation of our range size and the complexity in our organization. And finally, a continued assessment of our operational efficiencies in line with the ongoing efforts to improve PUMA's operating model. To name here is our reorganization of our home market, Europe, which is in full swing and has been communicated to all affected teams in the first quarter already. Looking at specific examples, here is our progress on the continued right-sizing efforts. We talked about the overstock reduction at wholesale partners, and I can report that we have in North America, achieved a mid-double-digit decline of inventory levels at selected wholesalers. I will call it a very solid progress in the first quarter of 2026 to also liquidate our excess inventory. The target for us remains that we normalize to healthy levels and they were rebuilding as sustainable business with our strategic partners based on the better segmentation, consumer activation and also life cycle management. Last year, we have announced that we're going to rightsize also our range size and the complexity that comes with it. Historically, PUMA has had a fairly complex and specifically for the size of our organization, partly inefficient range. We have immediately reviewed starting in July and August last year, and we've taken decisive actions which already impact and affect spring/summer '27 as a collection. Significant progress has been made by the teams to increase the efficiency of the range and to also normalize our SKU content to a healthy level for the size of our PUMA business. It's worth mentioning here that our storytelling product and distribution approach, which we have concerted and aligned together, have really led to a better point of view as a brand and ultimately will allow us to have a more succinct brand identity, both in terms of the customer presentation but also in terms of how we energize our consumers around the brand again. And then finally, we have an ongoing reduction of our corporate positions by 20% from the end of '26 versus the beginning of 2025, so in the span over 24 months. As a reminder, 500 positions have been successfully reduced in the first half in '25 as part of the Next Level Cost Efficiency program. Middle of last year, we then identified another 900 positions to be reduced until the end of this year. And here is the status of where we are with the execution of that program. 50%, i.e., 450 positions were already identified, communicated and executed, i.e., the affected employees have already left the organization latest by the end of Q1. Out of the remaining 50%, that's another 450 positions, 80% were already identified and communicated with the departure of the affected employees ongoing. So it's only 20% remaining, and they are entirely identified with communication in different stages, depending on the local requirements and processes that we, of course, adhere to. And then last but not least, it's also worthwhile mentioning that we continue the leadership changes in our senior lineup. We have briefly mentioned the switch from Markus to Mark, from a CEO, positioning. But underneath also we continue to have adjustments in our leadership organization. Four new additions have been communicated recently. Emily Mueller-Lennox will return to PUMA and will start her duties as Vice President of the Business Unit Kids under Maria's leadership. Also in Maria's team, we have recently announced and appointed a new Vice President of Creative Direction. Creative direction for us is pivotal for the turnaround of the PUMA brand to strengthen our brand identity and really to discuss a next level from a creation to product execution perspective. James has vast industry experience between innovation and product excellence, and it's really exciting to see him on board now. Two further leaders have been announced, starting with Maria's organization, Laurent Fricker will start in June to take up the position of VP, BU Style. And in that capacity, he will be overseeing our Select and our Prime business. That's a business which we last year separated from our core business to make sure we're going to have really a different and a prosperous business in that pivotal area, also from a commercial perspective. Last but not least, moving to commerce. Bertrand Blanc will take up the position of Vice President Wholesale in Matthias' team starting next Monday already, and his key missions to ensure that we are rebuilding a healthy and sustainable business with key strategic partners across our markets. Finally, we are also in the final stages of closing our hiring for the new VP of e-commerce, who would then complete the lineup in Matthias' Center of Excellence across all channels. That's it for me from now, and I would like now to hand over to Markus. Thank you. Markus Neubrand: Thank you, Arthur, and hello to everyone, also from my side. Following Arthur's business recap, I will now walk you through the key financial metrics for PUMA's first quarter, highlighting the impact of the right-sizing efforts Arthur outlined on our financials. We began our transition year 2026 with a solid first quarter. On sales, we saw a decrease of 1% currency adjusted, which is a notable improvement from the previous two quarters. Sales development was influenced by both reset activities and clearance. On one hand, we continue to see a negative impact on sales from our reset measures, which included reduction of undesirable business and lower promotions in our full price stores and e-commerce. On the other hand, we saw positive effect from clearance of elevated inventories. The clearance was executed through selected wholesale partners and our own factory outlets. Overall, without the negative impact from reset initiatives and the positive effect from clearance, we recorded an underlying decline in sales in the low to mid-single digits. We expect that both clearance and reset impact will continue but further decrease throughout the year. Now, let's look at the sales breakdown by channel. Wholesale decreased by 2.8%, mainly due to a lower demand from wholesale partners in EMEA. Direct-to-consumer sales grew by 3.8%, driven primarily by a 5.7% rise in owned and operated retail store sales, which mainly resulted from inventory clearance in our outlets. E-commerce also saw a 0.6% uptick, supported by new APAC marketplaces and reduced promotional activity. Overall, the D2C share increased to 28.3% from 27.5% last year. Looking at our regional performance in the first quarter. EMEA sales declined by around 10% currency adjusted. This was broadly driven by weaker underlying demand in the region, and due to our reduction of undesirable wholesale business. In addition, sales in the Middle East, which attributes less than 2% of our sales, were impacted by the ongoing regional conflict. The Americas delivered currency-adjusted growth of around 6% with double-digit growth in Latin America, supported by improving underlying demand and 2% growth in North America. Inventory clearance supported sales development in both regions, especially in the U.S. market, where it offset the lower mass merchant business. Sales in Asia Pacific increased by around 8% currency adjusted, driven primarily by strong D2C performance across both owned and operated stores and e-commerce. On the product side, we continue to see strong demand for low profile and especially the Speedcat family. Greater China grew 9% on the back of a strong Chinese New Year performance, and the rest of Asia Pacific increased by around 7%, reflecting strong D2C momentum in Southeast Asia. Turning to performance by product division in the first quarter. Footwear sales declined 2.3% -- within footwear, running and training continued to show strong momentum, supported by NITRO styles and the rapid expansion of HYROX-related products, which partially offset declines in other categories. Apparel sales increased 0.9%, driven primarily by training and golf categories. Football also delivered a solid performance, supported by strong demand for federation kits ahead of the FIFA World Cup. Accessory sales up 0.3%, mainly supported by the golf category. Let me now walk you through our operating performance in the first quarter. As mentioned earlier, sales are down 1% currency adjusted with a reported decline of 6.3% due to FX headwinds, especially in U.S. dollar, Turkish lira and Argentine peso. Gross profit margin improved by 60 basis points to 47.7%, which I will elaborate a bit more in just a minute. Royalty and commission income increased by 13%, mainly reflecting a stronger Formula 1 business, supported by an additional raise compared to the prior year. Operating expenses, excluding one-time effects, decreased by 5.5% to EUR 848 million. I will come to more details in a later slide as well. Driven by higher gross profit margin and lower operating expenses, adjusted EBIT increased to around EUR 64 million, up 5% year-on-year. One-time effects were down year-over-year and amounted to EUR 12.6 million, mainly related to personal expenses connected to the cost efficiency program. EBIT, therefore, came in at around EUR 52 million, up almost 20% year-on-year. Financial results at around minus negative EUR 60 million improved significantly. This was mainly due to favorable currency movements, particularly U.S. dollar and Mexican peso, which more than offset the slight increase of interest expenses on bank debt. Income taxes increased to around EUR 10 million, driven by higher earnings before tax. Consequently, profit from continued operations came in at EUR 26.5 million, a significant improvement compared to Q1 2025. Let me now explain the development of our gross profit margin in the first quarter. Overall, gross profit margin increased 60 basis points to 47.7%. The most significant driver you see here is promotions and inventory reserves. While promotions had a negative impact on gross profit margin, the reversal of inventory reserves recorded in the second half of 2025 contributed to a significant positive impact. In addition, we recorded lower freight costs compared to the higher base in Q1 2025. A more favorable channel mix, reflecting a higher share of direct-to-consumer also supported the margin development. These positive effects were partly offset by product mix and regional mix as well as currency effects, which weighed on the margin compared to last year. Now, moving over to our operating expenses, which fell 5.5% to EUR 848 million, excluding one-time effects. The reduction was driven by savings from the cost efficiency program and lower marketing expenses. Marketing decreased compared to high levels in Q1 2025. This was based on phasing effects and not a structural reduction, as we continue to invest in brand and growth opportunities. Together with favorable currency movements, these factors offset the higher cost and channel mix due to the mentioned increase of the D2C share and increase in other OpEx costs. Let me now walk you through the development of our EBIT margin in the first quarter. EBIT margin improved from 2.2% in Q1 2025 to 2.8% in Q1 2026. The main positive driver was the increase in gross profit margin by 60 basis points, as mentioned before. Royalty and commission income also contributed 20 basis points, driven by a stronger Formula 1 business. Although OpEx fell in absolute terms, OpEx ratio increased by 40 basis points since costs did not decrease as sharply as sales. One-time effects, on the other hand, contributed a 20 basis point increase to the EBIT margin as these effects declined compared to the previous year. Let us now take a closer look at working capital. Inventories declined by around 9% to EUR 1.9 billion, mainly driven by lower purchasing volumes in line with the expected lower sales base for the year and inventory clearance. Trade receivables decreased by around 20% to EUR 1.2 billion, mainly due to lower sales levels. Trade payables were down around 26% to around EUR 1 billion, also reflecting reduced purchasing volumes in the quarter. Overall, working capital decreased by almost 10% year-over-year to EUR 1.8 billion, reflecting continued progress on inventory cleanup and disciplined purchasing and evidencing overall improved working capital management. Looking specifically at inventory development, inventory levels continued to decline in the first quarter and are slightly ahead of plan, supported by lower purchasing volumes and ongoing clearance activities. As communicated previously, we expect inventories to normalize by the end of 2026, assuming disciplined purchasing and continued execution of our clearance plans. Turning to free cash flow. Free cash flow was reported at minus EUR 201 million for the end of Q1, consistent with the typical seasonal pattern in our business, free cash flow remained negative in the first quarter. However, it demonstrates a notable improvement over the previous year. This year-over-year improvement was mainly driven by more efficient working capital management, including inventory clearance and lower and more prudent purchasing volume, as we discussed earlier, higher earnings before taxes, lower capital expenditures, while we continued our investment focusing on D2C channel to enhance our long-term competitiveness. As said during our full year 2025 presentation in February, we expect free cash flow to be positive in 2026. Finally, let me comment on net debt development. Net debt increased seasonally to EUR 1.3 billion, up year-over-year from around EUR 1 billion at the end of Q1 2025. This increase mainly reflected higher bank liabilities supporting the operating business and financing working capital. Cash position stood at EUR 326 million, up around 15% year-over-year. In addition, we had unutilized credit lines of around EUR 800 million, resulting in total financial headroom of around EUR 1.1 billion. This means that we maintained sufficient financial headroom to support the transformation journey and strategic investments. Given the currently elevated level of net debt, deleveraging is a clear priority, and we target to reduce net debt over the coming years. Before I hand back to Arthur, as he mentioned earlier, this will be my last earnings call as CFO of -- at PUMA's. It has been a privilege working with the team through the transformation journey, and PUMA is well on track. With that, I will now hand back to Arthur for the way forward. Arthur Hoeld: Of course. Thank you very much again. Let me now turn toward our outlook for the full year 2025. We will be building on the momentum from a very solid start to the new year, and we are going to reiterate our full year outlook. It is important to highlight that our outlook does not reflect potential implications from the ongoing conflict in the Middle East or the U.S. Supreme Court decisions on U.S. tariffs. In the Middle East, our priority has been the well-being of our staff, ensuring their safety remains of paramount focus for us. From a business perspective, direct exposure to the region is relatively limited, with sales accounting for less than 2% of the total group revenues. On the risk side, we do see two layers, however. At this point, the impact on sales and supply chain is manageable, and we're prepared for different scenarios. The greater uncertainty, however, lies in broader consumer sentiment in response to the evolving economic and geopolitical environment globally. On tariffs, following the Supreme Court ruling over U.S. tariffs have come down. That said, visibility on refunds is still limited, and the situation may shift quickly again. For our top line, for full year '26, we expect a currency-adjusted sales decline in the low to mid-single-digit percentage range. We are expecting that our second half in 2026 will be stronger than our first half. And additionally, sales growth in the second quarter of '26 is anticipated to be clearly below the first quarter. With regards to our sales channels, we do anticipate a decrease in wholesales, while our direct-to-consumer business is expected to maintain growth. We anticipate a substantial improvement in gross profit margin, while OpEx are not expected to materially lower in absolute terms as we do continue to invest in strengthening our DTC channels, as Markus has already referred to. Our EBIT is forecast to range between minus EUR 50 million to minus EUR 150 million. This includes one-off effects, which are projected to be significantly lower compared to last year '25. CapEx is expected to come in at around EUR 200 million and will focus mainly on our digital infrastructure and the investments in our DTC channels. Looking forward, again, of course, I would like to bring it back to sports -- and the sports company that we are. Well anticipated is the FIFA World Cup with 11 PUMA teams competing. It's the best representation this brand has since 2006, where at the time, the PUMA team was listing the trophy. From HYROX perspective, there are several high-profile events coming up, most notably the largest event to date in New York, with more than 50,000 participants and the World Cup in Stockholm, where the HYROX World Championship will take place again with significant amount of PUMA product being competing in the events. And last but not least, Formula 1 will return to Miami after a break with many, many other exciting races coming up where we definitely see the potential of PUMA as a brand that is well established in the Formula 1, in the motorsport scene, which seems to have a growing dynamic with consumers worldwide. I would also like to reiterate and repeat again that for our brand, our North Star remains to become a top three sports brand in the future again. We are committed to return to above-industry growth and equally committed to return to healthy profits in '27 and beyond. At this point in time, we'd like to thank all shareholders, partners and first and foremost, all employees in joining us on the journey. To wrap it up, there are three major messages for the first quarter in '26. Our financial results came in as expected, both from a sales and from a profitability perspective, as we've outlined. We are well on our transformation journey. We are progressing as planned with a solid start into a transition year 2026. And for the full year, our outlook is confirmed and we remain committed to achieving our plans as outlined. With that, I would like to hand it back to Manuel. Thank you. Manuel Bosing: Thank you, Arthur. Thank you, Markus. We are now ready to start the Q&A session. Operator, please open the lines for questions. Operator: [Operator Instructions] First question comes from the line of Will Wood from Bernstein. William Woods: The first question, I'm trying to understand the phasing of your sales throughout the year. You maintain the kind of guidance of low to mid-single-digit decline, but obviously, Q1 was much better at negative 1%, and you said that you expect improvement throughout the year. Can you give any commentary on how Q2 is going? And how much of the Q1 performance was driven by the boost of clearing inventory versus the underlying growth in the business? And then the second question is on, obviously, as we move into H2 and 2027, I appreciate it's still early days, but it's -- I think the focus will shift from resetting the brand and the transition year to rebuilding the brand heat into 2027. How are you feeling about the product pipeline into 2027 at the moment? Are you happy with the spring/summer range, et cetera? And any commentary there? Markus Neubrand: Thank you both for your questions. I will start answering the first one and then hand over to Arthur. Regarding the cadence of the revenue growth by quarter throughout 2026. as Arthur outlined, I think on the way forward, we expect the second half of 2026 to be stronger than the first half of 2026. Therefore, it's fair to assume that the top line development in the second quarter will be more muted compared to Q1. We expect Q2 to expect it to come in clearly below the Q1 results in terms of sales growth. Talking about, and I think then also part of your question that you want to understand regarding Q1 development. The inventory clearance, as outlined also in our prepared remarks in Q1, had a positive impact on our sales growth and the positive impact on the inventory clearance was more pronounced than the negative impact from the reset activities relating to the cleanup of the division undesirable business and reduced promotional level. Arthur Hoeld: And to your second question, Will, in terms of rebuilding brand heat and our perspective on the range on spring/summer '27, I do believe we are making progress there. We're making progress in terms of building on our strength, which is definitely the NITRO platform, across running and training. Specifically, we will launch new products in both areas, and we have received pretty positive feedback in the same vein as for our new football boot collection. Where we do see progress as well, but where of course the work is still ahead of us, is in the style and the lifestyle area, where we see continued success, and we believe continued success from a low-profile perspective also into '27, but our efforts are clearly now around making the Suede a more iconic proposition in '26 -- '27 with brand activities starting in '26 again, and then also further dimensioning our offer with lifestyle running as one of the key future pillars. These efforts have started to be built into spring/summer '27, but they will be by no means complete yet from a product nor from a marketing activation perspective. Thank you. Operator: The next question comes from the line of Thierry Cota from Bank of America. Thierry Cota: Two questions from me. First, on the OpEx, they were down 5.5% in Q1. I was wondering whether you could give us the drop at constant currency, and if you think that around 5% drop is a good estimate for the whole year? And secondly, on the balance sheet, I think you've said that you wanted to have a clean inventory at the end of the year. I was wondering what that means in terms of percentage of sales, is it around 23%, which I think was the level in '24, a good level. Do you think you can reach that? And the working capital, likewise, do you think could drop back by the end of the year to the mid-teens, please? Markus Neubrand: Thank you, Thierry, for your two questions. Let me start with the second part first regarding the inventory development. As mentioned during my prepared remarks, we firmly committed to normalize our inventories by the end of this year. If you look at the inventory as a percentage of sales, it's expected to further come down over the following quarters to more normalized levels below 25% of sales until the end of the year. The decline will be driven by inventory clearance and adjusted purchasing volume as we outlined, I think that earlier, -- in my prepared remarks. The first question when talking about the OpEx development, as mentioned also in my prepared remarks, FX was a positive, I think contributor and then also to the overall OpEx decrease. But also on a currency adjusted on a constant currency basis, our OpEx decreased also in Q1. I think please understand, I think we're not disclosing, I think, that level of detail for the full year and what that means in terms of OpEx development here. I need to go back to the statement also Arthur made a our outlook, where we -- I think that also for the OpEx overall will not be materially lower. And I think then also compared to 2025, as we continue also to invest into our D2C business and into our brand. Operator: The next question comes from Monique Pollard from Citi. Monique Pollard: What I first wanted to understand is, you talked in the release about the strong demand for low profile and Speedcat in China, and you referred to in the questions above, the benefits you are seeing from low profile and how that can be a driver for success into 2027. Just wondered if you could highlight for us any other markets where you're seeing meaningful demand for low profile. I guess, you know, the tie-up with Rose, that you're seeing good benefits in some other pockets of Asia and whether there are any other markets. And then the second question was on the Americas' growth. So, you know, strong growth up 6.1% and Latin America in particular, very strong in the period, up 10.5% -- just wondered if there's anything that's driving that growth that you can call out outside of, obviously, the clearance activity that you've talked to. Arthur Hoeld: So let me start with the low-profile answer to your question. We do see significant traction of the business continuously in pretty much all Asian markets, that is Korea, that is Japan, but specifically Southeast Asia, where we have restocking activity at this point in time going on. However, also on the other side of the globe, in North America, we do see customers, primarily customers which are more style focused and have a stronger women's basis. Who do significant results to the tune that PUMA at this point in time, with some retailers is the #2 brand from a sellout perspective. So we definitely recognize a continued continuation of the trend of low profile where only very few brands are playing, but it also it is worthwhile noting that our reset activities last year are definitely paying off now. So by right-sizing the market, right-sizing the volumes that are out there, we are extending and prolonging the life cycle of these silhouettes, which are very much the benefit of our product range and our product offer. When you then talk about the Americas, I think it's two different answers I would like to give you. In Latin America, both from a brand but also a distribution perspective, we have been well-positioned over the years. The job the team has done there, the cleanliness of the market, the distribution, and the power of presenting our brand, our product propositions, has historically already been very good, and we're now, of course, continuing to harvest the fruits. In North America, I think it's worthwhile mentioning that some of the reset activities, of course, have led to a significant impact from a wholesale perspective. But as I said, there are pockets of growth also with partners over there. And then our DTC business is, of course, also benefiting from inventories that we're liquidating for our factory outlets and a decent business in our own e-commerce channel despite promotional reductions. Thank you. Operator: The next question comes from the line of Piral Dadhania from RBC. Piral Dadhania: My first one just relates to NITRO as a product platform. I think you talked, Arthur, around some of your plans on the lifestyle side for the remainder of '26 and '27, in response to previous questions. Could you just help us understand what the plan is in relation to commercialization of NITRO, both in running and also using it in other footwear styles and subcategories? And then my second question is one which you may or may not be able to answer, and it just relates to any update in terms of the Anta acquisition of minority stake in PUMA. Have you got any visibility on the timing of when that deal may close? Arthur Hoeld: Thank you, Piral. Let me start with the second question because the answer is rather short. There are no news versus what we announced earlier in the year. We are awaiting the closure of the transaction, and that timing remains to be seen. So no further news to share on that topic. From a NITRO perspective, the NITRO platform will be relevant across most performance categories in Puma. That means we are not only having products available in the running segment, well known, but also our latest HYROX proposition is fully based on a NITRO platform. The specific indoor handball shoe that we've launched in collaboration with Mathias Gidsel, the world's best player in this field, was also based on a NITRO technology, a Nitro platform. So, NITRO is more than, quote-unquote, "Just a running platform." It will really be the major footwear technology that we are promoting across all different performance segments when it comes to '26 and 2027. Thank you. Operator: Next question comes from the line of Adam Cochrane from Deutsche Bank. Adam Cochrane: Two questions, if I may. The first one is, in terms of the lead time on your new product purchases when you're talking about your new ranges for spring/summer '27, given the input cost inflation that we're hearing about because of oil prices, when do you actually have to start ordering these product the suppliers? And are you hearing anything on potential cost inflation on those future ranges? And the second question is, can you just give us an idea of how far you are through in terms of the clearance activities, just as a way that we can try and benchmark, is it 25% of the way through, 50% at the end of the first quarter? And on that regard, there's quite a big gross margin gain from the inventory provision reversal. Is that something that might happen again in future quarters? Or is that just something that is, as you sell the product? Or do you just revalue the inventory as at the end of the first quarter? Markus Neubrand: Adam, thank you for your questions. Let me first answer the second part, I think, regarding the clearance progress of the inventories. As we mentioned, I think we are slightly ahead of plan, made good progress in Q1 with the reduction of our inventories and with the clearance, I think which also resulted in the decrease of the inventories, I think since we peaked, if you look at the chart in the middle of 2025. With the targeted clearance also through selective wholesale partners and our factory outlets, we, of course, also then recognize -- also then -- need to revalue our inventories, which leads also to inventory reserves. On the other side, as we also outlined the gross profit margins, you've seen also that our promotions, I think that also in wholesale have been more pronounced, I think which you can see. I think that, of course, as the mechanism, I think as we're working through the target reduction. This process will continue throughout 2026. I think as we are firmly committed to normalize the inventories until the end of the year. When we provided also the guidance for the full year, we outlined that we expect the gross profit margin to improve. And one of the key drivers, I think that also the substantial improvement of the gross profit margin in 2026 will be driven by lower promotions, but also, of course, with the targeted reduction of that excess inventory, which will also the reverse of inventory reserves, I think will contribute to that gross profit margin development. Then coming to your first question related to the Middle East crisis and the oil price driven, I think, then increase of the input costs. If we look at, first, let me start for autumn/winter '26, all of the orders, I think until end of autumn 2026 have been placed. And I think we see no cost inflation on our product costs. For spring/summer '27, I think that's where we know and I think as in the early stages. So that's where we start to present I think and to take orders now within the next months from our accounts. And now as we speak, we are in discussions with our vendors. And we see selective, I think then also increases in the product cost, but not material in spring/summer '27. And Autumn/Winter '27, of course, is still too early to see, nothing that, of course, how the situation overall evolves. Operator: The next question comes from the line of Andreas Riemann from ODDO BHF. Andreas Riemann: First one to Arthur on SKU reduction. So by how much did you reduce SKUs? And would you say that you are going forward plan to sell a global product to all markets? Or is part of your offer still a local product that reflects local preferences? That would be the first question. The second one for Markus. The financial result improved actually materially and you speak about currency benefits. So have you changed your hedging strategy? And is that sustainable? Or was Q1 rather a one-off? This is the second question. Arthur Hoeld: Thank you very much, Andreas. So to start with the first question in terms of range size reduction, we have reduced our range size by a significant mid-double digit. So the process between spring/summer '25 and now spring/summer '28, the collection that we're at the moment developing has been significant, and we are committed to also then executing that. What this means, of course, there will be a more significant global footprint from PUMA, i.e., also more mandatory part of the collection that we would like to see in each and every market. That's also part of our life cycle management across both style, but also the performance areas. What that does not mean, however, is that we're reducing or even abolishing our policy to offer locally relevant products. We continue to have regional creation centers in Asia and North America and India to make sure we're going to cater for the needs of the local consumer to complement and to complete the range offer. So it will be a mix and a blend between a stronger global offer, a stronger global life cycle management and the additions, the well-needed additions in order to cater for demand from a local perspective. Thank you. Markus Neubrand: Thank you, Andreas, for your question on the financial results. Yes, a significant improvement, as outlined year-over-year in the Q1 of 2026. Let me first start with the -- also what I mentioned in prepared remarks. Our interest expenses on bank debt has been slightly increasing, of course, given the elevated levels and higher levels of bank financing compared year-over-year. The biggest factor, and I think that I also outlined in the prepared remarks, is driven by positive favorable currency movements. And here, particularly the U.S. dollar and Mexican peso had a positive impact, I think also on -- I think then also our financial results. I think that means from a translation, but also valuation of derivatives, I think that impact our financial results. So given the nature also of FX, of those developments, I think where it would be rather prudent not to, and I think then continue to project, I think, such favorable currency movements for the quarters to come. Operator: The next question comes from the line of Warwick Okines from BNP Paribas. Alexander Richard Okines: Just a couple of trying to understand the shape of the year, please. So firstly, just back on the Q2 sales comments you made. Is the main reason for the lower or the bigger sales decline in Q2 compared with Q1? Is the main factor here, less promotional support? Or are there other factors? 'Cause presumably the drag from the reset is moderating? And then the second question is just if you could comment a little bit more about the EBIT shape for the year. It's helpful for you to have commented about inventory reversals continuing for the rest of the year. But maybe just to comment on how you see the phasing of your EBIT losses through the next three quarters. Markus Neubrand: Thank you very much for your questions. Q2, and I think as I mentioned earlier, is expected from a sales growth perspective to come in clearly below Q1. And the key reason is the impact of the reset and here specifically the reduction of the undesirable business, I think which is more pronounced in the second quarter compared to what we expect, I think, then also what we've seen in Q1. The clearance, I think, as I mentioned earlier, of the excess inventories, of course, continues throughout the year. Coming to the second part of your question, of course, now from a sales perspective, also what does it mean also from an EBIT development for the remainder of 2026. It is fair to say that we started 2026 clearly on a positive note from an EBIT perspective. There's still a lot of moving parts for the remaining of the year, including, of course, the top line development, as I just outlined, but as well also the level of one-time costs as we will make sure to set the right foundation in 2026 to return to growth in 2027. If we then also look at the geopolitical and macroeconomic uncertainties that we -- especially with the Iran conflict that we see and the tariffs, the Iran conflict, the negative impact is expected on sales and margin and even more importantly, on consumer sentiment, tariffs as of now, there will be a positive impact on margin, but to which extent is still unclear and can, as we know, change on a daily basis. Therefore, we confirm our reported EBIT guidance for full year 2026 to be within the range -- guided range of minus EUR 50 million to minus EUR 150 million. Operator: [Operator Instructions] The next question comes from the line of Jurgen Kolb from Kepler Cheuvreux. Jurgen Kolb: Thanks very much for everything and probably also welcome back, Mark. I guess you're listening in, so welcome back to the market. On the two questions, first of all, on the run shoe business, I think you mentioned that the running shoes, the NITRO foam is selling strong and is quite successful. Maybe you could talk a little bit about your progress on getting the shoes into the specialty store chain, and in which markets are you actually seeing the strong sell-through or a marked improvement? Secondly, on current trends, I guess you indicated the Middle East conflict, obviously, the main or the difficult to forecast effect is from the consumer behavior. Have you noticed any underlying trend changes from the consumer? I know it's probably difficult for you because there is so much going on in your stores and with the wholesaler in terms of clearing inventories and what have you. But in terms of any observations that you have could be quite interesting to note if there's anything currently going on. Arthur Hoeld: Jurgen, thank you very much for the question. So when you talk about the running shoe specialists, what we have embarked upon last year is that specifically in Europe and in North America, we have drastically ramped up our specialist sales force. That means specialists PUMA people who visit running accounts, who will be then promoting the PUMA brand, but also our NITRO technology. Only in Paris this weekend, we had 110 specialty accounts from all over the globe, spending two days with us, getting excited about our collections, but also giving us feedback in terms of where they see our efforts. That's primarily where we see growth happening, but equal spilling over into the mainstream accounts that would be in Europe, and Intersport, and others basically. So that's what we project in '26 and in '27, then the major part of the growth to be coming from. We don't have any specific region where NITRO is either overexposed or underperforming. We do see this as a global development for us actually. And when you talk about underlying consumer sentiment, it is difficult to, of course, project where the market is going and consumer sentiment is on the one hand, driven by significant inventory and promotional activities again. We, of course, also do see that there is energy in the market there is energy in the market, both in Europe and U.S. in terms of consumers continuously seeking the sporting goods industry and seeking out sneakers. From our very own perspective, we are very much focusing on the major areas that we've discussed earlier to improve both our brand trajectory, but also our product offer simply based on the effect that despite any economic headwinds or despite industry dynamics, we see significant headroom for PUMA to grow versus competition from our current perspective. Thank you very much. Jurgen Kolb: And just one very, very quick update on an add-on question. Your contracts with the container shipping companies and the freight contracts there, when does it end? And are you already in negotiations for the next contract? Markus Neubrand: Jurgen, good question, and I'll take that one. The contract, I think that we have, I think, with our carriers on the inbound side, runs until the end of June of this year. And yes, as we currently speak, I think that's where we're already in advanced negotiations with our partners on the inbound transportation side. Jurgen Kolb: I assume costs are not going up. Markus Neubrand: I think looking at what is currently, and I think if you look at the market, with the oil prices and you know and I think how the mechanisms are in those contracts, there are surcharges. And I think that also what we've seen, I think, since the start of the Middle East crisis, also that there have been bunker and fuel surcharges being raised. So that's actually where we see, of course, also then an impact also from the Middle East crisis, I think then also to come through. But as Arthur mentioned, overall, I think that also we have plans in place. I think looking at our supply chain, I think then also and evaluating different scenarios how to mitigate these impacts. Operator: There are no further questions at this time. I hand back to Manuel Bing for closing comments. Manuel Bosing: Thank you very much, Maura, and thanks to everyone for your questions. We appreciate your interest in PUMA. We'll stay in touch, and we look forward to speaking with you again soon. This concludes our call for Q1 2026. Thank you, everyone, and goodbye. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.
Daniel Fairclough: Good afternoon, everyone. This is Daniel Fairclough from the ArcelorMittal Investor Relations team. Thank you for joining this call to discuss ArcelorMittal's performance and progress in the first quarter of 2026. Leading today's call will be our Group CFO, Mr. Genuino Christino. Before we begin, I would like to mention a few housekeeping items. As usual, we will not be going through the presentation that was published on our website this morning. However, I do want to draw your attention to the disclaimers on Slide 20 of that presentation. Following opening remarks from Genuino, we will move directly to the Q&A session. [Operator Instructions] And with that, I will hand the call over to Genuino. Genuino Christino: Thanks, Daniel. Welcome, everyone, and thanks for joining today's call. As usual, I will keep my remarks brief and much of what I say will echo the messages from recent quarters. That reflects the consistency of our performance, the clarity of our focus and the discipline with which we continue to execute our strategy. What we are delivering at the bottom of the cycle positions us very well for the near future, particularly as more favorable policy conditions translate into a stronger operating environment with improving margins and returns. Alongside the impact of our growth strategy, this supports the free cash flow outlook and the delivery of consistent capital returns to shareholders. But first, I want to address safety. Our multiyear safety transformation program is now delivering more consistent and improved outcomes across our organization. Leadership expectations are clearly defined, risk management practices are being applied more uniformly and our focus on process safety has expanded across installations. Advanced analytics, including AI are strengthening these efforts, for example, enabling early identification of workers entering hazardous areas and triggering fast alerts and interventions that human monitoring alone. Most importantly, the sustained focus on safety is translating to tangible improvements in performance across the group. We provide a more detailed account of this progress in the sustainability report published last week, which I encourage you to review for a fuller picture of how we are advancing our safety objectives. Now I want to focus this quarter on 3 key points. First and foremost, our results consistently demonstrate clear structural improvements. In the first quarter, we delivered EBITDA of $131 per tonne, up $15 per tonne year-on-year and around 50% higher than our historical average margins. This clearly demonstrates the strengthening of our underlying earnings power over recent years. Importantly, this performance does not yet reflect the significantly stronger price environment seen in recent months, which we expect to be more fully evident in our second quarter results. Underlying free cash flow performance was robust. Excluding the seasonal working capital investment and the strategic growth CapEx, underlying free cash flow was running at an annualized rate of over $2 billion. Again, considering where we are in the cycle, this represents a strong outcome. Consistent and disciplined execution of our strategy is driving improved performance and providing the capacity to continually invest with discipline and focus and materially enhance the future earnings potential of ArcelorMittal. This brings me to my second point, our compelling growth opportunities, which clearly set us apart from our peers. We are allocating capital to the highest return opportunities. This includes projects that are actively enabling the energy transition, expanding our iron ore mining capacity and adding new value-added capabilities. We recently approved an EAF investment in Dunkirk. The decision was enabled by the more supportive policy backdrop, the cost visibility from a competitive long-term energy contract and the support of the French government. Our EAF projects are expected to deliver incrementally high EBITDA to provide an acceptable return on the capital deployed. So we have reflected Dunkirk together with the previously announced EAF projects in Sestao and Gijon into the expected EBITDA impact from strategic projects. This now stands at an incremental $1.8 billion from 2026 onwards. My final point is on the positive outlook, which is underpinned by trade policy. Given the change to trade policy, the steel sector today offers much more defensive characteristics, particularly in Europe than it did in the past. More effective trade protections are leading to increasingly regionalized market structures, enabling domestic producers to recapture market share from unfairly subsidized imports. The biggest shift occurring in Europe. We are very pleased with the agreement achieved in the new Tariff Rate Quota tool in Europe. As a result, we can expect this to be in effect from 1st of July 2026. Together with CBAM, this underpins our positive outlook for our European business. We are seeing stronger customer engagement, higher order inquiries and customers shifting more towards domestic supply. This is apparent in the material improvement in steel prices and spreads since the start of the year. As a result, despite the volatility of energy markets caused by the conflict in Iran, we continue to expect our production and shipments to improve across all regions in 2026. And we should see a clear improvement in our EBITDA in all Steel segments next quarter. As I conclude, the message is simple. We are consistently delivering structurally improved results while executing our strategy with discipline. Our high-return growth opportunity to differentiate us from our peers as does our track record of capital returns through the consistent application of our policy. That framework has already delivered a 38% reduction in our share count and a doubling of the dividend over the past 5 years. At the same time, we have advanced the business strategically, enhancing resilience and structurally improving returns on capital, all achieved while maintaining a strong investment-grade balance sheet. With that, Daniel, I believe we can begin the Q&A. Daniel Fairclough: Great. Thank you, Genuino. So we have quite a long question -- list of questions already. So we will move to the first, which we'll take from Alan. Unknown Analyst: A couple of questions from my side. The usual question is probably a good place to start. If you can walk us through the usual profit bridges Q1 versus Q2? And where do you see the greatest delta in prices and volumes? And how are your divisional costs evolving sequentially, including the CO2 cost implications in Europe? That's the first question. Genuino Christino: So I will ask Daniel to start with the bridge. Daniel, do you want to kick it off? Daniel Fairclough: Yes, sure. Thanks, Genuino. And it's a very simple bridge, which you've already alluded to, I think, in your opening remarks, you referenced that we expect all of the Steel segments to improve in the second quarter relative to the first quarter. And the drivers behind that improvement are common across the segments. So it's a theme of improved volumes and improved prices. So that's applicable to Europe. It's applicable to North America, and it's applicable to Brazil. Genuino Christino: Yes. Perhaps then I will add, Daniel. I mean the point on carbon cost, I mean, as you know, I mean, we have the new benchmarks, right, from beginning of the year, and that's ETS 4.2. So I'm sure you know what it means in terms of reduction of free allowances, right? But I think what is important here, and we have in our results is that now with CBAM, which so far, based on what we can see, is proving to be very effective, right? I mean we see that prices since the introduction of CBAM has moved up by this year, just look at the index almost EUR 100, right? And you don't see that yet in our results. You see, of course, the costs in Europe already, right, as we accrue the higher CO2 costs, but you don't see yet the benefits of CBAM, that's I would say. So that should come, of course, from quarter 2 onwards. Unknown Analyst: And my second question is, if you're able to give us some qualitative color on the European customer behavior, how receptive are they to the new pricing frameworks both CBAM and the upcoming safeguard? And are you worried about inventory levels in Europe? Or are you seeing any client retrenchment because of the Middle Eastern conflict? So any color you can give us on your customer profile in Europe today would be much appreciated. Genuino Christino: Yes. Well, I made some comments in my prepared opening remarks, right? We are seeing more activity. The order book is good. So when I compare where we were last year, I would say the order book is stronger. We see customers trying to develop the relationships -- so that is all supportive, Alan. That's good. So -- and that's why, I mean, we feel, of course, confident to confirm the guidance that we discussed at the time of Q4 results, higher shipments in Europe year-on-year, right? And I would expect our second half actually to be stronger than the first half, which is, as you know, unusual. Typically, our second half is weaker. But because of everything that we are discussing here, I would expect shipments in the second half to be actually stronger. Yes. So I think it's all moving in the right direction. Daniel Fairclough: Great. So we'll move now to take a question from Bastian at Deutsche Bank. Bastian Synagowitz: My first one is also a follow-up actually on maybe your guidance, particularly on the steel production side in Europe specifically, which was, I guess, very low in terms of production in Q1. And you talked about the maintenance, but shipments were down quite a lot as well, which I guess one could say is a little bit surprising given the impact from CBAM we've seen already as well as maybe some withdrawal from imports. So I'm wondering how far we will see a real catch-up in the second quarter driving very strong year-on-year growth and whether you would be able to even give a bit more detail on that, that would be great. That's my first question. Genuino Christino: Yes. Sure, Bastian. Yes, you're right. So we are, of course -- and as we discussed in Q4, we had maintenance in some of our facilities, right? And we have just 1 or 2 days ago, restarted one of our furnaces in Poland. And we continue to work on our furnace in France and Spain. So we're going to be in a position to bring back the capacity as and when we see the demand, right? And as a result, the furnace in Poland is already -- we are ramping up that as we speak. I mean inventories, and I have not really touched on it, so I should do it now. I mean we know that imports were quite elevated in Q4, right? We saw imports coming down in quarter 1, right? But evidence suggests that imports, at least at the beginning of quarter 2 elevated. So you still have players to try, of course, to get materials here before the new TRQ starts from 1st of July. Having said that, we don't believe that inventories are too high. I mean, of course, they are higher than, I would say, normal levels, but not so high. So our expectation is that the new TRQ comes into place, this inventory should normalize relatively quickly. Bastian Synagowitz: Okay. And in terms of what this means for, I guess, the overall cycle, I guess there are some players in the market, which do expect that imports in the second quarter will basically go up before they fade in the second half. Is this the view you do share as well? And I guess, what is your view maybe particularly also on the pricing side, prices have been very strong already. But is your view that rely comes third quarter, we will see further price dynamic most likely kicking in, in Europe? Or will it take longer to maybe digest and work through, I guess, inventory overhang, whatever disruptions we could see? Genuino Christino: Well, Bastian, I mean, what we are seeing, I mean, we saw prices actually moving up during the quarter, right, actually accelerating from beginning of the Iran war, also in response, right, to cost pressures. So I think it's fair to say that imports in quarter 2 should still be high, right, as we discussed because just it's normal, right? So players are trying to get the materials here before the new TRQ. But again, it's not ideal, of course. We're going to need to work through that. But we don't expect that to really be to take the market long to absorb that. And of course, on prices, as you know, we cannot comment, right? We can -- I can only refer you to what we are seeing. If you look at the index, it's right? I mean we have a nice -- not only prices increasing during the year, but it's spreads, right? So when you look at the spreads also evolving positively, also as a result of introduction of CBAM at the beginning of the year. I think we need to look at the European market. As we have always been saying, right, it is the combination of the 2 CBAM and TRQ that is very, very powerful here, right? And we have one piece, and we're going to have the second piece now from 1st of July. Bastian Synagowitz: Okay. Great. Maybe a very quick one on India, which you didn't mention in your early second quarter indication. I guess we have seen decent performance actually in Q1. Prices also picked up, but then there is obviously the energy situation. So I guess, what is the trajectory for India into the second quarter? Genuino Christino: Yes. It's also good. You're right. So because of the DRI, we are more exposed to gas in India. But as you know, I mean, we have -- we are fully hedged, Bastian. So we don't expect cost pressure coming from gas in India. So we are fully hedged. And the price environment has also improved, which already benefited Q1, right? And we would expect also a good second quarter for our Indian operations. Daniel Fairclough: So we'll move to take the next question from Reinhardt at Bank of America. Reinhardt van der Walt: First one, maybe just we've spoken a lot about inventories, and it seems like it's creating a bit of an uncertain picture around when this domestic demand will kind of kick in. What are you seeing across the European steel industry in terms of capacity mobilization -- outside of the actions that you've taken, do you think that the European industry is ready for the challenge of producing that additional volume? Genuino Christino: Well, Reinhardt, I'm not going to talk much about what the competition is doing, right? I think what we have been saying very consistently is that ArcelorMittal is in a good position, right, to take our market share of the reduced imports and we can do more, right? So to the extent that others cannot, so then we're going to be in a good position as we talked about, we have a lot of flexibility here. So we have the finances that we can bring back. We have the possibility to bring back blast furnaces. We have more downstream capacity. So we're going to be in a good position here to make sure that the market is supplied that we don't have any shortages in the -- as a result of this. Reinhardt van der Walt: Understood. That's very clear. Just maybe a second question on the Dunkirk EAF investment. You're looking to do any kind of downstream additions there or to get any changes in your product mix maybe out of that capacity as you go through the capital allocation? Genuino Christino: So can you repeat the question? I'm not sure that I got it. Reinhardt van der Walt: Yes, sure sir. So as you're converting over to EAF, are you looking to add any downstream investment as well, any kind of finishing capacity as part of that project? Genuino Christino: No, not really. We're going to be able to, of course and that's why the CapEx can be reduced to some extent because we're going to be able to still use some of the equipment there, right? And downstream will, of course, be intact. We're going to be able to -- so basically, what you're changing is the upstream, right? So instead of the blast furnace and the converters, you're going to have the EAF, the ladle furnaces and then we're going to just follow the normal process of that plant. So we should be in a position to achieve the same mix, which [indiscernible] as you know, it's quite high. We have a very quality high order book there, which we, of course, it's very important for us to protect. And that's exactly the idea here that we should be in a position to produce the same grades as we can today with the blast furnace. Daniel Fairclough: So we'll move now to take a question from Boris at Kepler Cheuvreux. Boris Bourdet: The first question is about the new capacity restarts at both in France and Dabrowa in Poland and plus EAF capacity in Spain. How much capacity are you bringing back with those new furnaces? And the second question would be on North America. Are you still facing the same headwind about the tariffs, Section 232? And can you share with us the expectations you might have for the coming renegotiation of USMCA agreement? Genuino Christino: Yes. So we have a couple of questions there. So the first one on the capacity in Europe. So all these furnaces, they are 2-plus million tonnes. So they are relatively large-sized furnaces. As I mentioned before, so we started [indiscernible], and we are getting ready in force and also in Spain, right? And we'll, of course, announce when we are ready to bring these furnaces back up, right? But we're just doing all the work so that we are in a position to restart them when we need them, right? In North America, look, I mean, the USMCA, I mean, it's early days. I think we have to wait to see really how it starts, right? It's probably wouldn't be right for me to speculate. The only thing I can say is that we hope that the outcome will be one that we feel that we can operate as a single block, right? I think for us, for our business, what would be ideal is that we have Mexico, we have Canada, putting the same barriers against the imports that we have similar protection as we have in the United States, right? And then the material then can flow. So that's what I would say. I think we have to wait there, Boris. Boris Bourdet: Okay. And just the current headwind that we still something like $150 million per quarter due to that. Genuino Christino: Yes, there is no change there. The headwinds remain basically the same, Boris. Daniel Fairclough: Great. Thanks, Boris. So we'll move now to take a question from Tristan at BNP Paribas. Tristan Gresser: I have two questions. The first one is a question on North America and Section 232. We've seen recently that there could be some relief for Mexican, Canadian producer to build new capacity in the U.S. to supply the auto market. Do you believe this could be retroactively applied to your first Calvert EAF? And if not, is that a consideration for the potential second one? Genuino Christino: Yes, Tristan. So I think it's important to be clear, right? So that today, we are not receiving any tariff relief, right? And all imports into the U.S., including from Canada and Mexico continue to pay Section 232, 50% tariffs. I think you know our position on tariffs, which is very consistent. For over 20 years, we have been arguing that the global steel industry has been suffering from overcapacity and continuously pushing for fair trade, whether it is in the U.S., Brazil, Europe, Canada or other parts of the world. So we do fully support the Section 232. But we also support being able to operate, as I was saying before, as one regional market across North America and that there are no tariffs on steel that is melted and put in Canada and Mexico. And as you know, we have been seriously considering the second EAF in Calvert as the U.S. is an attractive market to make steel. And in terms of potential tariff release, as you know, tax has been now published, designed to stimulate additional investments in the U.S., and we are analyzing it. So it's a lot of details has now been published, and we're just going through that. And the answer is not really a clear yes. We still need to study it. And I just want to also just take the opportunity as a lot has been written on this topic. I would actually like to also take the opportunity to confirm that we are contributing steel to the White House Ballroom. So approximately 600 tonnes have been delivered to date. As you know, we have a track record of both supplying strong high-quality steels to U.S. customers and donating steel to iconic buildings and projects around the world that showcase its strength and flexibility. Just to give an example, when the Freedom Tower was one of the strongest steel in the world, they came to our facilities. So we are pleased to add the White House to the list of iconic American buildings where our steel will stand strong for years in this country. So we just need to wait a bit more. We're going to go through the details, and then we're going to be in a position to update everyone. Tristan Gresser: Okay. Okay. No, that's clear, but that's a potential thing to consider. My second question is on the green steel economics in Europe. I was a bit surprised to see that you were only targeting $200 million of EBITDA for your 3 EAF projects. Because if I understood correctly, Sestao in Spain is potentially adding another 1 million tonne of new volumes. Gijon is replacing 1 million tonne and Dunkirk is replacing 2 million tonnes. So that's close to 4 million tonnes of EAF steel. And it does not look like there are much of productivity gains or green steel premiums baked into that. So maybe if you could discuss a little bit the high-level assumptions you're making and perhaps the delta is on the cost base and if you expect a big increase there from moving from BF to EF. Genuino Christino: Well, Tristan, there are a couple of points there, right? I think it is important to appreciate that we are talking about -- we are just giving you the incremental EBITDA, right? So it's incremental to what we are adding today. So -- and as you know, the idea here is that we're going to be except for Sestao, where we are really increasing capacity. In Dunkirk, we're going to be replacing one furnace. So we are not really looking to increase capacity. So what you have is really what is incremental. And then I think it's also important to take into account the amount of the investments, right? And that's why we were so focused as a company to make sure that we have the right conditions, right, so that we can justify this investment. That's why the focus on making sure that we have visibility in terms of CBAM, visibility in terms of imports [indiscernible]. We have visibility in terms of our energy contract, which we now have for this project, as you know. So I would encourage you also to look at what is the net amount of this CapEx, right? And then in the case of Dunkirk, not only you're going to have the 50% support through the white certificates, but we're going to also be in a position to avoid the reline of the furnace that we're going to be replacing. So that's why in the end, we feel that we're going to be in a position to earn a return on our investment. And when it comes to the assumptions, we don't want to be too specific about it, Tristan. As you can imagine, this is also commercially sensitive. We have our teams going out and marketing already for the future of this contracts, the green steel. I mean, as you know, for some time, at least we believe that this will be limited, right? And I think this is -- it's -- our teams are out there. So we don't want to be talking too much about the assumptions. Daniel Fairclough: So we'll move to take the next question, which I think will be from, yes, Ephrem at Citi. Ephrem Ravi: I'm just trying to understand the Page 12 AMNS future growth optionality figures. There's 15 million tonnes from Hazira, 8 million tonnes from Andhra, which gives you 23. My understanding was that Hazira was after 15, there is an optionality of Phase 2a to 18 and then Phase 2b to 24. And then obviously, the Greenfield in Andhra is sort of separate. So is the Phase 2 being delayed? Is that how we should sort of interpret that in favor of pushing ahead with the Greenfield in Andhra in order to balance the balance sheet and skill sets? Genuino Christino: I think you're right. I mean, of course, we have to phase it, right? And absolutely right. So we have in front of us the 2 options. And it continues to be an option for us, right, to take Hazira further, and that will most likely happen over time as well. But right now, yes, that's the sequencing that we see, right, and which is to start Andhra. And yes, and Hazira will remain an option for us as well as after we complete this first phase in Andhra, we can go also for another phase, right? So the 40 million tonnes vision for the Indian operations remain intact. Ephrem Ravi: And then you've said that obviously, your current energy situation is manageable, hedging and support of policies framework for insulates margins. Can you give us a sense of time line for that in terms of how long -- because, I mean, energy prices could remain high for 6 months, 12 months, 2 years. So if they remain for how long would your hedging policies cover it? And at what point do you think you and the industry will have to start thinking about energy surcharges in your steel? Genuino Christino: Yes. Well, specifically in India, we are -- our program goes -- it's a multiyear program, Ephrem. So I think we are in a good place there. So it's a multiyear. And even in Europe for gas, we will also have a multiyear plan program. So I think we are -- as I said, I think we are in a good place. Daniel Fairclough: Great. Thanks, Ephrem. So we'll move to the next question, which we'll take from Cole at Jefferies. Cole Hathorn: I'd just like a little bit of color on the metals on iron ore, just the ramp-up on volumes and how you see that into the second quarter? Just any color you can provide? And then I'd also just like to follow up on imports into Europe ahead of the trade barriers. I mean we've seen a lot of logistics disruptions globally. Do you think that there's a possibility that everyone is expecting a lot of imports into Europe, but considering the supply chains, we just don't see them delivered in time or customers potentially pull back on some of those orders just considering they might not meet the delivery dates. Just any thoughts on that? Genuino Christino: Yes. So maybe I'll take this one, Daniel, and then maybe you can comment on iron ore. So you're right. So I think what we are seeing, of course, is at this point in time, what we are seeing is more a cost issue, right? We are seeing freight rates going up. And of course, some of the journey is also taking longer because of the conflict. But it's not something that we believe should be delaying the arrival of the materials. So I think that's why as we discussed, we feel that the second quarter should still end up with elevated levels of imports, right? And as a final quarter and then from Q3 onwards, the new TRQ comes into play. And I would say that this window is now closed, right, as we are here almost the beginning of May, the window to imports, they are basically under the existing safeguards regime are getting close to an end. And the fact that we don't have yet the quotas for the new TRQ split by country, I mean, it makes it even a little bit harder for imports, right? So that's what we are seeing. Dan, you want to talk about the iron ore? Daniel Fairclough: Yes. Sorry, Cole, would you mind just repeating that question? Cole Hathorn: Just a little bit of color on the iron ore production that you're expecting into 2Q and any of the phasing through the year, just so we can think about that in the model? Daniel Fairclough: Yes, sure. So thank you. So we did have obviously a good start to the year in Liberia, another record production shipment quarter. So I think as we -- and that will just continue over the next 3 quarters. So we've signaled in our initial guidance at the beginning of the year that we expect to be at full capacity in the second half and to achieve at least 80 million tonnes of shipments. So yes, I would just be -- that's how we would be factoring it into the model. Some further improvement in the second quarter. I expect that we will navigate the rainy season through Q3. We continue to improve on our ability to navigate that. And then I would expect we should finish with a strong fourth quarter performance. Cole Hathorn: And then maybe just following up on iron ore. You've been very clear that the energy situation is manageable across the rest of the business. But are there any things we should be thinking about in iron ore costs just for diesel, et cetera, on the mining side? Genuino Christino: I think the only thing I would call out, Cole, is freight, right? I think the profitability of mining in Q2 will depend, of course, much more, of course, where prices finally land and freight, right? So oil will have an impact as well. But based on what I see today, I would be more focused on prices and freight. Daniel Fairclough: So we'll move to the next question, which we'll take from Andy at UBS. Andrew Jones: I've got a few follow-ups to previous questions. Just on that potential tariff carve-out in North America. My understanding is it's based upon volumes sold just into the auto sector. So if you ship slabs from Mexico into Calvert, would you -- is it your understanding you potentially get some relief on those if they then be sold into auto? That's the first one. I've got a couple of ones to follow. Genuino Christino: Andy, as I said, I mean, we just got all these details, right? And the teams are busy going through that. So I don't want to anticipate the analysis. If you don't mind, I think we will address that with you next quarter. I'm sure we'll have more color and information to provide on that. Andrew Jones: Yes. Okay. No worries. And just a couple of modeling ones. On the Ukraine contribution, I mean, that was obviously a drag in the first quarter. Can you quantify that on EBITDA? And do you see anything changing into 2Q? Genuino Christino: Yes. Yes, it was -- Q1 was a challenging quarter for Ukraine, right? So energy prices, in particular, really very, very high. So as we discussed before, so Ukraine, they have been managing relatively well, right? So in the whole of 2025, as we discussed, at EBITDA level, they managed to be basically neutral, still free cash negative, of course, because of CapEx. Q1 EBITDA was negative as a result of the high energy costs. Energy has come down, so which is good news. So we do expect to do better in the second quarter, right? But as we know, the situation remains very challenging. But at least on that front, we expect to do better, and that has been really one of the key drivers of the result. Andrew Jones: Okay. That's clear. And just finally on Mexico, the operating issues that you had last year, there was a little bit of overspill into 1Q. Like how material was that? I think you -- I think maybe in the fourth quarter, you called out 65 million hit. I mean what was the equivalent number in 1Q? Was it material? Genuino Christino: Yes. So the evolution in Mexico is very good, right? We started the blast furnace, which is producing long products. So we were not yet at full capacity in Q1 in long. So we're going to be at full capacity in quarter 2. So I would expect our production and shipments in North America to continue to improve as we move forward, right? But it's no longer, of course, the same magnitude that we had in prior quarters. So I think it's a very good evolution. As we discussed at the time of Q4, you see profitability in North America almost doubling, and we should continue to see progress going forward in the second quarter. But production is now up and running, and it's only now the full capacity of this furnace that you should see in quarter 2. Daniel Fairclough: So we'll move now to take a question from Timna at Wells Fargo. Timna Tanners: I wanted to actually double-click as the kids say these days on North America just a bit more, if I could. I think we obviously, as you pointed out in the last response, seen a nice benefit. It was the biggest contributor to Q1 over Q4 from rising prices. You have some locked up in annual contracts. Can you talk to us about how auto annual contracts fleshed out a bit or give us high-level color on that? And then also, do you think that you could see the same order of magnitude in the U.S. into Q2 given the pace of price increases? And then also I wanted some more color on how Calvert was ramping up? Genuino Christino: Yes. So automotive, I mean, as you know, in U.S., our contracts, they are really the negotiations happen throughout the year. It's a little bit more spread out compared to Europe. In Europe, we have a concentration really at the beginning of the year. In U.S., it's more, I would say, more like 30% Q1, 30% from quarter 2 and then the rest is 25% is Q3. And so I think we are doing well. And as you know, we don't really comment so much on the outcome of these negotiations. But I have to say that they are going in line with our expectations. It's good. The ramp-up at Calvert, the EAF is progressing. So in quarter 1, we were a little bit running above already 20%, 25%, and we are progressing. We believe that by the end of quarter 2, we should be at much higher levels. And we remain optimistic that we're going to be getting close to ending this ramp-up phase by the end of this year, Timna. And then if I have... Go ahead, Timna. Timna Tanners: No, I just wanted to ask about if you would be able to quantify the extent of the price increase in Q1 over Q4, if that could be sustained given recent price strength continuing into Q2? Genuino Christino: Yes. Look, we're not going to be quantifying that, but I mean, I think you know very well how prices have moved up in the U.S. I mean they continue to rise, and you should see that reflect in our results. We talked about automotive, the annual contracts and how much is resetting, right? So yes. Timna Tanners: Okay. And one further one, if I could, please. We're hearing a bit about switching away from aluminum to steel. In the U.S., of course, it's been a more extreme change in prices between the 2. But even in Europe, to the extent that the BYDs are getting built and have more steel amount in them versus aluminum. So it would be great to get any observations that you're seeing on switching away from aluminum to steel and automotive. Genuino Christino: Yes. So when we look at -- I think you're right. I think this is -- to be honest, it has been at least now less of an issue. We continue to be very focused on that, showing the benefits of steel to our customers. I think we have been very successful there, Timna, as you know. So I think we continue to make improvements there. So it's not something that I would highlight to you as a big concern that we have at this point, right? But of course, we remain very focused on R&D, making sure that we have the right grades, we achieve what customers want. So we have successes. And so when we look at the level of intensity, steel intensity on average, we see relatively stability. Daniel Fairclough: So we'll move now to a question from Tom at Barclays. Tom Zhang: Just one quick follow-up for me, just on Ukraine, you talked about obviously high energy costs having an impact in Q1. Are you seeing anything from CBAM impacting Ukraine? I guess one of your Ukrainian peers has called out CBAM as being quite a big disruptor for Ukrainian steel going into Europe. I think it's not exempt at the moment. There's been a few articles saying maybe some order cancellations. Yes, are you seeing any kind of impact there? Genuino Christino: Yes. I think there was the expectation that Ukraine will be exempted, right? And they are not. And we believe that is right. There shouldn't be exemptions, right? At the same time, prices are increasing in Europe. So if you have the right cost base, of course, then you should be competitive. In our business, of course, we are focused in Ukraine on the domestic market, right, and also selling pig to different parts of the group. There's good demand for pig, which we continue to sell. Tom Zhang: Sorry, I didn't quite catch that. Did you say it shouldn't be or it should be exempt from CBAM? Genuino Christino: It shouldn't be an exemption. Tom Zhang: Shouldn't. Okay. So you're focusing more on the domestic market. And you would say there was some kind of earnings impact that I guess, persists into Q2 if an exemption doesn't come through. Then just second question, just on sort of buyback thoughts really. I mean I know your capital allocation policy hasn't changed. We haven't seen any buybacks for nearly a year now. If I look at your free cash over the last 12 months, it is positive. And I guess you're talking about earnings ramping up through the rest of the year. Is that sort of back on the cards potentially to restart that buyback program? Genuino Christino: Well, I think you're right. So you know our policy, right? And we had, by the way, in Q1, our first quarterly dividend which was paid. We remain very optimistic that we're going to be free cash flow positive this year. And then the policy will kick in. And based on the visibility that I have today, I see no reason why we would not go above the minimum 50% as we have been doing in the last couple of years. And if I can remind everyone, the policies has been really great. I mean we bought more than 38% of our stock. And I think we are close to restart that. Tom Zhang: Okay. Great. And sorry, you just said I'm so optimistic free cash flow positive this year, then the policy will kick in. Does that mean the policy only kicks in once you sort of see the full year numbers in? Or is it more dynamic than that if you have visibility, you could start sooner? Genuino Christino: Yes. I mean it is more dynamic. Daniel Fairclough: Great. So we have time for maybe 2, 3 more questions. So the first, we will take from Max at ODDO. Maxime Kogge: So first question is you published last week a sustainability report where you cut your carbon emissions objective to minus 10% from minus 30% previously by 2030. I think the new objective is very dependent actually on being delivered on time in 2030. So my question is what would be, in your view, a more realistic time line for the 30% reduction? Is it the mid-30s, late 30s, even beyond? And how should we think about the sequencing of the next EAF projects in Europe? Are you waiting for Gijón to be delivered and ramped up before potentially launching investments? Or will it come perhaps even later? Genuino Christino: You want to start with this one, Daniel? Daniel Fairclough: Yes. Thanks, Genuino. So I think you're right to observe the change to our 2030 target. We well flagged that, I think, in recent reports and communications. What's, I think, important to take away is that, that 2030 target is based on the announced projects. So it's a number that we are confident we can achieve and that's why we updated it. In terms of the timing of the next EAF projects, I think if you look at our communications on our messaging, we've also been quite clear that our EAF projects are going to be sequential. So we don't expect significant overlap on any of our blast furnace to EAF project. So the focus right now is completing Gijón. We've just announced Dunkirk, and that will occupy us for the medium term. And then the intention and time is to obviously communicate on what the project that will then follow will be. So let's really focus on getting a smooth start to Dunkirk at this stage, and then we will update on the next project in due course. Maxime Kogge: Okay. And just the second and last one is about the German stimulus plan. So expectations in recent weeks have come down actually amid the red tape, other priorities perhaps an infra for the new German government. So what's your latest view on the topic? You were quite vocal previously on it saying that it could increase demand in Europe by around 2% per year over the next 10 years. Is that still your scenario? And when do you expect that to really kick in already next 2 2026 or it's more of a story of 2027 or even 2028 based on your latest understanding? Genuino Christino: Well, I mean, to be honest, I mean, we don't see any significant change there. I mean when we look at the impact of the program. We start actually to see some activity, right? So I don't believe that the overall numbers that we talked about, they will change. I mean we -- at least that's not the intelligence that we have. We will, of course, have to -- we'll keep monitoring that. But I think we are progressing as the progress is happening there. Daniel Fairclough: Great. So we do have time for 2 more questions. So we'll take the first from Dominic at JPMorgan. Dominic O'Kane: Just 2 quick questions. You've spoken and given us a lot of granularity on Europe. And again, just maybe coming back to the U.S. given how tight we see that market at the moment, do you think there's any possibility that you actually run harder through Q2 than normal? So obviously, we often see a summer slowdown. Do you think there is potential that given the state of lead times that you may run harder than normal? And second question, just on -- so any kind of obvious cash flow items we need to be aware of for Q2 modeling for the net debt bridge. Genuino Christino: Dominic, so in U.S., I mean, as you know, I mean, we are running our facilities full. I mean Calvert, we have been running at high levels, and that will continue, right? So where you're going to see improvements in terms of production shipments is going to be more really in Mexico and a little bit also in Canada, right? And the focus in U.S. for us right now is to ramp up EAF as we talked about, that will bring more results, so it should contribute to results. And the second part of the question, can you repeat that for me, please? Dominic O'Kane: But just in terms of modeling for net debt in Q2, are there any... Genuino Christino: I would not -- Daniel, I would not focus so much in quarter 2, right? I mean I guess my message is more really when I think about the year as a whole, as you know, we have -- typically, we will have a larger release of working capital in the second half. That should continue to be the case despite all the improvements that we are discussing, we are seeing, right? And we explained that because we built some strategic inventories at end of last year that we're going to be releasing. So despite all the good developments that we are seeing in terms of prices, volumes in the second half, our expectation is that for full year, working capital should not really be consuming a significant amount of cash, which should then support even more the free cash flow generation. Daniel Fairclough: Is that helpful, Dominic? So I think the focus there just to reiterate is normally, the working capital movement in Q2, Q3 is not a major delta in the cash flow bridge, where it is a major delta is normally Q1 and Q4. So normally, we invest in working capital in the first quarter, and this year has been no different. And then normally, we see a nice release of working capital in Q4 and Q2, Q3 normally that's broadly a wash. Great. So I think we will now move to the last question, which we're going to take from Matt at Goldman Sachs. Matthew Greene: I have one question on your Indian operations, perhaps in 2 parts. Genuino, you mentioned costs are largely hedged, that's fine. But given India's reliance on gas imports primarily from the Middle East and some of your peers flagging shortages, could you outline where you're sourcing your gas from today and whether you've received any force majeure on future deliveries? And then just a follow-up, given your use of gas-based DRI and captive power, what measures can you realistically take to manage gas availability or reduce gas intensity across the Indian operations? Genuino Christino: So I think we are in a good place there as well. I mean we have different sources of gas. So we are not really dependent only on Middle East. So we are in a good place. So we have not had any force majeure. So we have received all our gas. We have no indication as we speak in end of April, beginning of May, no indication of force majeure. So I think we are -- as we discussed, I think we are in a good place there. So we are not expecting any disruptions because of availability for sure on the price and also on availability, it's not something that we are overly concerned at this point. Daniel Fairclough: Great. So I'll hand back to Aditya Mittal for any closing remarks. Genuino Christino: Yes. So thank you, everyone. Before we close, let me briefly reflect on the key messages from today's discussion. First, our first quarter performance again demonstrates the structural improvement in the earnings power of ArcelorMittal. Margins are well above historical levels with the further benefits of more favorable policy still to accrue. Underlying free cash is annualizing at over $2 billion. Second, we have a clear and differentiated growth pipeline. Our strategic investments are supporting our results and materially enhancing our future EBITDA potential. Finally, the positive outlook for our business is underpinned by more supportive trade policy, especially for Europe. More effective trade protections are fostering a more regionalized market structure, providing a robust platform for higher capacity utilization and profitability and higher and more consistent returns on capital employed. Alongside the impact of our growth strategy, this supports the free cash flow outlook for ArcelorMittal and the delivery of consistent capital returns to shareholders. With that, I will close today's call. And if you have any follow-up questions, please reach out to Daniel and his team. Thank you again for joining us, and I look forward to speaking with you soon. Stay safe and keep those around you safe as well. Thank you.
Operator: Please stand by. Welcome to the Merit Medical Systems First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note that this conference call is being recorded, and the recording will be available on the company's website for replay shortly. I would now like to turn the call over to Martha Aronson, Merit Medical Systems' President and Chief Executive Officer. Martha Aronson: Thank you, operator, and welcome, everyone. I'm joined on the call today by Raul Parra, our Chief Financial Officer and Treasurer; and Brian Lloyd, our Chief Legal Officer and Corporate Secretary. Brian, would you please take us through the safe harbor statements? Brian Lloyd: Thank you, Martha. This presentation contains forward-looking statements that receive safe harbor protection under federal securities laws. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to risks and uncertainties. The utilization of any of these risks or uncertainties as well as extraordinary events or transactions impacting our company could cause actual results to differ materially from the expectations and projections expressed or implied by our forward-looking statements. In addition, any forward-looking statements represent our views only as of today, April 30, 2026, and should not be relied upon as representing our views as of any other date. We specifically disclaim any obligation to update such statements, except as required by applicable law. Please refer to the sections entitled Cautionary Statement regarding forward-looking statements in today's press release and presentation for important information regarding such statements. For a discussion of factors that could cause actual results to differ from these forward-looking statements, please also refer to our most recent filings with the SEC, which are available on our website. Our financial statements are prepared in accordance with accounting principles, which are generally accepted in the United States. However, we believe certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations and can be useful for period-over-period comparisons of such operations. This presentation also contains certain non-GAAP financial measures. A reconciliation of non-GAAP financial measures to the most directly comparable U.S. GAAP measures is included in today's press release and presentation furnished to the SEC under Form 8-K. Please refer to the sections of our press release and presentation entitled non-GAAP Financial Measures for important information regarding non-GAAP financial measures discussed on this call. Readers should consider non-GAAP financial measures in addition to, not as a substitute for financial reporting measures prepared in accordance with GAAP. Please note that these calculations may not be comparable with similarly titled measures of other companies. Both today's press release and our presentation are available on the Investors page of our website. I will now turn the call back to Martha. Martha Aronson: Thank you, Brian. Let me start with a brief agenda of what we will cover during our prepared remarks. I will begin with a brief summary of the first quarter financial results. Then I will discuss several areas of operating and strategic progress that we have made in recent months, including an important strategic acquisition in the oncology space that we made subsequent to quarter end. Then Raul will provide a more in-depth review of the quarterly financial results as well as our financial guidance for 2026, which we updated in today's press release. We will then open the call for your questions. Beginning with a review of our first quarter results. We reported total revenue of $381.9 million, up 7% year-over-year on a GAAP basis and up 5% year-over-year on a constant currency basis. Our constant currency revenue results exceeded the high end of the expectations that we outlined on the Q4 2025 earnings call. First quarter constant currency growth was driven by 2.7% organic constant currency growth and contributions from our acquisitions of Biolife and the C2 CryoBalloon device, both of which exceeded the high end of our expectations. Our organic constant currency growth includes the impact of the strategic divestiture of our DualCap product line in February of 2026, which we discussed in our Q4 2025 call. Excluding divested revenue, our organic constant currency growth was 3.7% in the first quarter. With respect to the profitability performance in Q1, we delivered financial results that significantly exceeded expectations. Our non-GAAP operating margin increased 47 basis points year-over-year to 19.7%, representing the highest first quarter operating margin in the company's history. The team delivered 9% growth in non-GAAP EPS, which exceeded the high end of expectations. We generated $25 million of free cash flow, an increase of 26% year-over-year. We are pleased with the solid start to fiscal year 2026, and I want to thank our team members all around the world for their effort and commitment to our customers. We updated our guidance in today's press release to include the expected financial impacts from our acquisition of View Point Medical on April 1. Importantly, we remain confident in our team's ability to drive stable constant currency growth, improving profitability and solid free cash flow this year. Our organization is aligned around our priorities for 2026, specifically to drive strong execution around the globe and to successfully complete our continued growth initiatives program, which includes our previously disclosed financial targets for the 3-year period ending December 31, 2026. Turning now to a discussion on 3 key operating and strategic announcements we made since our last earnings call. First, on March 16, we announced the U.S. commercial introduction of The Resilience Through-the-Scope or TTS Esophageal Stent. The Resilience Stent is indicated for treatment of esophageal fistulas and structures caused by malignant tumors. Resilience is designed to demonstrate the greatest migration resistance amongst currently available TTS Esophageal Stents and facilitates physician control and accurate placement. Resilience targets an attractive market opportunity in the United States, and we expect adoption and utilization of this differentiated product to contribute nicely to the growth in Merit's endoscopy platform in the coming years. Second, on April 1, building upon our oncology platform, we announced the acquisition of View Point Medical for an aggregate transaction consideration of $140 million, of which $90 million was paid in cash at closing. View Point Medical is based in Carlsbad, California and manufactures the OneMark Detection Imaging System and OneMark Tissue Markers. This unique ultrasound enhanced technology offers an innovative solution to localize more lesions at the time of biopsy, representing an estimated 1.3 million procedures annually in the United States alone. This represents an expansion of the annual addressable procedure opportunity of approximately 3x for our oncology business. Merit has built a market leadership position in wire-free non-radioactive breast localization procedures. Our leadership has been built upon our SCOUT platform, which utilizes the precision and accuracy of radar. The OneMark system is U.S. FDA cleared for percutaneous placement in soft tissue tumors to mark biopsy sites or lesions, and it consists of a surgical detection system and ultrasound enhanced tissue markers. After placement, the tissue markers are designed to be visible across commonly used imaging modalities and engineered to minimize interference with future imaging studies. This acquisition expands our portfolio of therapeutic oncology products dedicated to the diagnosis and localization of breast and soft tissue tumors. The combination of SCOUT and OneMark provides physicians with localization options during the initial diagnostic biopsy, which may reduce the need for a separate procedure to mark the location of the tumor prior to surgery. We believe this acquisition presents multiple strategic and financial positives. Importantly, this acquisition is consistent with our continued growth initiatives program. This acquisition represents another example of Merit selectively investing to expand our product portfolio in key strategic markets that leverage our existing commercial footprint. Finally, I want to highlight our new presentation of revenue, which we formally introduced in a Form 8-K filed on April 13. As discussed on our Q4 call, Merit's new executive leadership team and I have been working through a comprehensive analysis of the business, and it became clear during this process that we had an opportunity to streamline our internal planning and reporting processes with the goal of aligning how we think about, evaluate and plan each of our underlying businesses. We also identified an opportunity to streamline how we talk about the business externally as well. We believe there is significant value in aligning how we talk about the business, both internally and externally, and we expect these changes to help the investment community not only better understand the composition of our business today, but also the underlying growth drivers of our business going forward. To that end, as disclosed in the Form 8-K on April 13 and reported in our earnings press release today, we are now reporting our revenue in 2 product categories: foundational and therapeutic. Foundational products are used primarily for access and enabling functions in vascular and other procedures. Merit's foundational products comprised about 2/3 of our total revenue in 2025 and sales increased at a 6% compound annual growth rate over the last 3 years. Therapeutic products are devices and systems that treat disease in a number of very large markets that together represent significant growth potential. Merit's therapeutic products comprised about 1/3 of our total revenue in 2025 and sales increased at an 11% compound annual growth rate on an organic basis over the last 3 years. Given that we call on a wide variety of clinicians and our products are a part of so many procedures, we have solidified our new operating model internally around 8 platforms: Access, Vascular intervention, procedural solutions, cardiac therapies, renal therapies, oncology, endoscopy and OEM. The Access and Procedural Solutions platforms are comprised entirely of foundational products. The Vascular intervention and OEM platforms are comprised of both foundational and therapeutic products. Cardiac therapies, renal therapies, oncology and endoscopy are comprised entirely of therapeutic products. In the Form 8-K, we shared 4 years of historical revenue in each of these platforms. To reiterate, going forward, we plan to report revenue results by foundational and therapeutic products. In addition, we intend to continue to highlight additional color on the underlying drivers of growth within the underlying platforms. As I shared last quarter, each of our platforms is being co-led by a marketing lead and a research and development lead. Each team is comprised of cross-functional and cross-geographic members so that we have better alignment on product and commercial priorities, improved communication across functions and geographies and a team who feels accountable for that platform globally. I am very pleased with how our teams are taking ownership, increasing communication and thinking about how best to serve our customers in each area. I truly believe that focusing our efforts in this way will enable us to drive even greater growth within each one of these platforms in the years to come. With that, I'll turn the call over to Raul for an in-depth review of our quarterly financial results and our updated financial guidance for 2026. Raul? Raul Parra: Thank you, Martha. I will start with a detailed review of our revenue results in the first quarter. Note, unless otherwise stated, all growth rates are approximated and presented on both a year-over-year and constant currency basis. First quarter total revenue increased $18.6 million or 5%, exceeding the high end of the expectations we outlined on our fourth quarter call. Excluding sales of acquired products, our total revenue growth on an organic constant currency basis was 2.7% at the high end of our expectations. Excluding divested revenue, our organic constant currency growth was 3.7% in the first quarter. By geography, our total revenue in Q1 was primarily driven by growth in the U.S., where sales increased $14.5 million or 6.8% and international sales increased $4.1 million or 3%, both of which modestly exceeded the high end of our expectations in Q1. Turning to a review of our revenue results by product category. First quarter total revenue was driven by a $10.1 million or 4% increase in sales of foundational products and an $8.5 million or 7% increase in sales of therapeutic products. Including the contributions from acquired products of $6.6 million and $2.5 million, respectively, sales of foundational and therapeutic products increased 1.5% and 5.2%, respectively, on an organic constant currency basis. Organic growth in the foundational product category was driven primarily by our Vascular Intervention and access platforms, which offset year-over-year declines in sales of OEM and procedural solution products, the later of which impacted by our divestiture of DualCap product line. Organic growth in the therapeutic product category was driven by strong growth in our cardiac therapies and Endoscopy platforms and contribution from solid growth in our Vascular Intervention and oncology platforms, offsetting year-over-year sales declines in our OEM and renal therapies platforms. We were pleased with our first quarter total revenue results that exceeded the high end of our expectations despite the notable headwinds to year-over-year revenue growth experienced in our OEM business in Q1. OEM sales declined 14% year-over-year in Q1, significantly lower than what was assumed in our guidance. Sales to OEM customers outside the U.S. continue to see demand trends impacted by the macro environment, particularly in the APAC region, and these headwinds were largely consistent with our expectations. OEM sales to U.S. customers were impacted by inventory destocking dynamics related to product line transfers to Tijuana, Mexico as expected. That said, customer orders came in lower than expected, which we would characterize as transient or timing based rather than a reflection of share loss. Our OEM business remains healthy despite the quarter-to-quarter fluctuations in growth rates. We continue to believe the appropriate normalized growth profile of our OEM business is in the mid- to high single digits annually. Turning to a review of our P&L performance. For the avoidance of doubt, unless otherwise noted, my commentary will focus on the company's non-GAAP results during the first quarter of 2026, and all growth rates are approximated and presented on a year-over-year basis. We have included reconciliations from our GAAP reported results to the most directly comparable non-GAAP item in our press release and presentation available on our website. Gross profit increased 7% in the first quarter. Our gross margin was 53.2%, down 20 basis points year-over-year, but notably stronger than our internal expectations. Q1 gross margin included a $4.6 million impact from tariffs compared to no impact in the prior year period, representing a 120 basis point impact to gross margin in the period. Operating expenses increased 5% in the first quarter. The increase in operating expense was driven primarily by $5.4 million or 5% increase in SG&A expense and to a lesser extent, a $1.1 million or 5% increase in R&D expense compared to the prior year period. Total operating income in the first quarter increased $6.9 million or 10% from the prior year period to $75.3 million. Our operating margin was 19.7% compared to 19.3% in the prior year period, an increase of 47 basis points year-over-year. First quarter other expense net was $1.2 million compared to $1.7 million for the comparable period last year. The change in other expense net was driven primarily by gain loss on foreign exchange and higher interest income. First quarter net income was $56.7 million or $0.94 per share compared to $52.9 million or $0.86 per share in the prior year period. First quarter net income and EPS exceeded the high end of our guidance range by $3.7 million and $0.07, respectively. Turning to a review of our balance sheet and financial condition. As of March 31, 2026, we had cash and cash equivalents of $488.1 million, total debt obligations of $747.5 million and available borrowing capacity of approximately $697 million compared to cash and cash equivalents of $446.4 million, total debt obligations of $747.5 million and available borrowing capacity of approximately $697 million as of December 31, 2025. Our net leverage ratio as of March 31 was 1.6x on an adjusted basis. The increase in cash and cash equivalents in the first quarter was driven by a combination of strong free cash flow generation of $24.7 million and $25.5 million of proceeds from our divestiture and sale of the DualCap product line, offset partially by $6.3 million in cash used for financing activities in the period. Subsequent to quarter end, we acquired View Point Medical for an aggregate consideration of $140 million. Of that amount, $90 million was paid in cash at closing and 2 deferred payments of $25 million each are scheduled to be paid no later than first and second anniversary of the closing date, respectively. In addition to the favorable strategic rationale for this acquisition that Martha outlined earlier, the financial rationale for this transaction is compelling. While we expect the transaction to be $0.05 dilutive to our 2026 non-GAAP EPS for the 12 months ending December 31, 2027, the acquisition is projected to be accretive to our non-GAAP EPS. Longer term, we project this acquisition to be accretive to Merit's multiyear growth and profitability profile. Specifically, we project sales of View Point Medical's OneMark system to grow at least 20% per year with 70% non-GAAP gross margins and non-GAAP operating margins above our company average. Turning to a review of our fiscal year 2026 financial guidance. As reported in our earnings press release, we have updated our financial guidance for 2026 to reflect the projected contributions to our total revenue and impact on our non-GAAP EPS previously disclosed on February 24, 2026. Specifically, from the acquisition effective date of April 1, 2026, through December 31, 2026, the acquisition is projected to contribute revenue in the range of $2 million to $4 million and to dilute Merit's initial 2026 guidance for non-GAAP earnings per share by approximately $0.05. This non-GAAP EPS dilution includes approximately $2 million of lower interest income on cash balances used for the total purchase consideration and excludes approximately $5.3 million of noncash and nonrecurring transaction-related expenses. For the 12 months ending December 31, 2026, we now expect total GAAP net revenue growth in the range of 6.3% to 7.8% year-over-year and 5.6% to 7% year-over-year on a constant currency basis, excluding an expected 80 basis point tailwind to GAAP growth from changes in foreign currency exchange rates. There are a few factors to consider when evaluating our projected constant currency revenue growth range for 2026, including: first, our constant currency growth range assumes sales of foundational products increase in the mid-single digits year-over-year and sales of therapeutic products increase in the high single digits year-over-year. Second, our total net revenue guidance for fiscal year 2026 now assumes inorganic revenue contributions in the range of approximately $17 million to $20 million compared to $13 million to $15 million previously. This increase in inorganic revenue expectation is driven by the combination of $2 million to $4 million of View Point Medical revenue and stronger-than-expected contributions from our Biolife and C2 acquisitions in the first quarter. Excluding inorganic revenue, our 2026 guidance continues to reflect total net revenue growth on a constant currency organic basis in the range of approximately 4.5% to 6% year-over-year. Third, our total net revenue guidance for fiscal year 2026 continues to assume U.S. revenue from the sales of the WRAPSODY CIE of approximately $7 million. Fourth, our total net revenue guidance for fiscal year 2026 reflects the impact of our DualCap divestiture. Product sales and royalty revenue for DualCap totaled approximately $20 million in 2025 and net of approximately $1.6 million of sales in Q1 2026, the divestiture represents an estimated year-over-year headwind of approximately 130 basis points to our total constant currency revenue growth in 2026. With respect to profitability guidance for 2026, we continue to expect non-GAAP diluted earnings per share in the range of $4.01 to $4.15, up 5% to 8%. Note, our non-GAAP EPS range reflects the $0.05 of dilution from the acquisition of View Point Medical, funded by the better-than-expected non-GAAP EPS results we delivered in the first quarter. All of the modeling considerations regarding our profitability and cash flow expectations for 2026 introduced on our fourth quarter call remain unchanged. For avoidance of doubt, our 2026 non-GAAP EPS guidance continues to assume a 12-month tariff impact of approximately $15 million or $0.19 per share compared to a $9 million or $0.12 per share realized during the last 8 months of 2025. As a reminder, the expected 12-month tariff impact assumed in our 2026 non-GAAP EPS range was based on tariff policies in place prior to the decision of the U.S. Supreme Court in late February. This continues to be an evolving situation. The ultimate impact of the U.S. Supreme Court decision and subsequent new and/or additional tariffs or retaliatory actions or changes to tariffs on our business will depend on the timing, amount, scope and nature of such tariffs, among other factors, most of which are currently unknown. We intend to review our 2026 financial guidance when we report our financial results for the 3- and 6-month periods ending June 30, 2026. We will provide an update on the estimated 12-month tariff impact and potential gains related to refunded tariff payments in prior periods. Finally, we would like to provide additional transparency related to our growth and profitability expectations for the second quarter of 2026. Specifically, we expect our total revenue in the range of $400 million to $410 million, representing a growth of 5% to 7% year-over-year on a GAAP basis and up approximately 4% to 7% on a constant currency basis. Note, our second quarter constant currency sales growth expectations include inorganic revenue in the range of approximately $4 million to $4.5 million. Excluding inorganic contributions, total revenue is expected to increase in the range of approximately 3% to 5% on an organic constant currency basis. With respect to our profitability expectations for the second quarter of 2026, we expect non-GAAP operating margins in the range of approximately 18.7% to 20.4% compared to 21.2% last year and non-GAAP EPS in the range of $0.90 to $1 compared to $1.01 last year. With that, I will now turn the call back to Martha for closing comments. Martha Aronson: Thanks, Raul. As you can hear, we continue to be on a nice trajectory to successfully complete the third and final year of CGI. I want to commend the organization once again for staying focused on delivering these results while also closing a strategic acquisition on April 1 and embarking on our long-range strategy work. I want to add that when our extended leadership team spent several days kicking off our long-range strategy work during the quarter, we had very robust conversations about each platform, and there was tremendous energy around this work. We also recommitted ourselves to ensuring that our infrastructure is solid so that we can continue to scale our business globally. As I've said before, we will do that with both organic product development alongside disciplined tuck-in acquisitions focused on our strategic platforms. Finally, as I've continued my global travels and spend time with customers, investors and employees, I continue to be inspired and excited about the future of Merit Medical. Operator, we would now like to open the line for questions. Operator: [Operator Instructions]. Our first question will come from Michael Petusky of Barrington Research. Michael Petusky: Nice results. I guess there wasn't much in the way other than, I guess, the reaffirmed guide on WRAPSODY. Martha, are there any updates you want to share there, whether it's anecdotal or more quantitative just on early days progress? Martha Aronson: Yes. Thanks very much, Mike. You asked -- just to clarify, you asked about WRAPSODY? Michael Petusky: Yes. Martha Aronson: No, we're real pleased with how WRAPSODY is going. Again, just to remind folks, we did a bit of a reset, if you will, on how we're approaching our go-to-market strategy with WRAPSODY. We really instituted that toward the end of last year. I'd say at this point, we're very pleased with how we're doing. We've given, I think, our previous guidance or our revised guidance in 2026 of $7 million for WRAPSODY for the fiscal year, and we're tracking right on that. Michael Petusky: Then I'm not sure who this is for, but just curious about -- are you guys -- like is there a formal process? Are you guys seeking refunds in terms of the tariffs that you had to pay last year and the first part of this year? If so, how does that process work? Raul Parra: Yes. Maybe just -- I'll just kind of give a guidance overview, if you don't mind, Mike, because there's a lot of moving parts to this. Just as a reminder, for our 2026 guidance, we have left it unchanged essentially from what we did in the first quarter, which is we've got $15 million that's baked into our guidance for 2026 versus the $9 million that we had in 2025. That's unchanged since the U.S. Supreme Court decision. I think there's still a potential for the administration to challenge that, I believe, through May. I think we'll reevaluate that as part of our second quarter kind of reevaluation and we'll discuss that further, I think, after the second quarter once we kind of get a little -- I guess on firmer ground, right? It's a moving target. There's also the Section 232 stuff that's hanging out there. Michael Petusky: I was just going to say, have you guys filed -- like is there a paperwork to file to seek refunds at this point for you guys or no? Raul Parra: Yes. We have started the process of reimbursement. Like I said, though, I think the challenge is that the administration can still challenge the reimbursement through May. I think from our perspective, we've started the process of filing and have essentially filed for the majority of that. I think we'll have an update, hopefully, on our second quarter call as to how that shakes out. Feeling optimistic, I would say, if things stay as they are today, I definitely think that the $15 million would come down. Operator: Our next question comes from Jason Bednar of Piper Sandler. Jason Bednar: Nice start to the year here. I wanted to start first on View Point, the recent deal. It's a pretty sizable revenue contribution step up from this year to next. Maybe just if you could help us out with how you see this coming together? What's supporting that growth ramp going from $2 million to $4 million in revenue this year up to $14 million to $16 million next year? Then should we think about that 20% growth rate you referenced starting in 2028, building on that $14 million to $16 million? Then I guess, looped in here, just any considerations around synergies that could be realized with respect to that SCOUT platform? Martha Aronson: Yes. Thanks, Jason. I appreciate the question. A couple of comments on that, if you will. I mean, first of all, I mean, I'm just going to kind of take a step back, if you will, on oncology, right? It's about a $100 million platform for us, and it's been growing very nicely. Yet it's been a one product -- pretty much a one-product platform. We have been looking for a while at ways to try to add to that platform because we have an outstanding field organization, and we want to get some additional products in their hands. If you think about the breast cancer market, right, and particularly, you have to go to the biopsy phase, in terms of the whole phase. Somebody has a mammogram or something is seen, and so in the U.S. alone, there's 1.6 million breast biopsies that are done each year. For SCOUT, the product that we've had for a period of time now, the applicable market has been about 300,000 of those procedures each year. With the addition of OneMark, you actually expand the market 3x to 4x because now that other 1.3 million breast biopsies that are done tend to be done for lower-risk patients. The SCOUT tends to be used for higher-risk patients. We're really just seeing a terrific market expansion opportunity here. It really then just comes down to a physician choice about whether they'd rather use Radar technology or ultrasound technology. We're super excited about that. I'll just say, I think the other really important thing about this is that both of these approaches happen at the time of biopsy, whereas many of the other -- if you don't do something at a time biopsy, a patient may have to go through an additional localization procedure before their surgery. We're really excited about what it means for patients. I think, again, breast cancer grows about 4% a year and actually the wire-free localization market where we play is growing at about 13% a year. I think when you ask about our confidence in the future growth rates, we feel good about that. Raul Parra: Yes. I'll add, Jason, at the midpoint of our '27 guide, which was around $15 million, you can definitely tack on the 20% that we called out. On the synergies, just to be clear, in the guide for 2027 on a full-year basis, it is accretive both on the top line and the bottom line with nice strong gross margins at 70%. We're really excited about it. Jason Bednar: I want to pivot to the OEM part of the business. I appreciate all the extra color in the prepared remarks, Raul. I heard you on the 1Q performance and the normalized growth profile for OEM. I guess kind of the genesis of the question here is, can you say that the worst is behind you for OEM? Does that performance get sequentially better in 2Q? Does growth return in the second part of this year, second half of this year? Bigger picture on OEM, Martha, we've obviously seen you take some actions on portfolio management at Merit. How do you think about the value OEM provides to Merit versus maybe what you could potentially realize through strategic moves like some of the actions we've seen across other medtech OEM players here in the last several months? Raul Parra: I'll take the last part of the question first, Jason, if you don't mind. I think just to kind of level set people on what our OEM business is, we essentially sell capacity, so I would say that we're different than other OEM companies out there. We're not a contract manufacturer. We are selling our own product. Divesting of that just doesn't really work, right? We end up with a bunch of extra capacity. Having said that, we love our OEM business. It's a great asset. Our OEM business remains healthy despite the quarter-to-quarter fluctuations. I know you guys find that frustrating. I think as we see the visibility specifically, we're getting excited about what we can do there. We continue to believe the appropriate kind of normalized growth profile is in the mid- to high single digits. I think we're starting to see orders for Q2. That gives us a lot of confidence that I think we are going to be in that mid -- at the very least, I always kind of like to point to the low end. You guys know how I work, but we should be at the very least at that mid-single digits growth profile that I just talked about. Excited about to see how the quarter goes, but early start is looking really good. Jason Bednar: Just to clarify, you're saying mid-singles is how you're seeing 2Q come together, mid-single-digit growth for OEM. Raul Parra: That's right. Operator: Our next question comes from Sam Eiber of BTIG. Sam Eiber: Maybe I can follow up on some of the supply dynamics in the cardiac business that was called out in the prior quarter. Just curious to get an update on how that's shaking out here? Then I'll have a quick follow-up. Raul Parra: Yes. I mean I think we continue to be on track. I think maybe to kind of walk through that issue, right, when we initially had our first quarter -- or sorry, fourth quarter call, it was a supply chain issue that unfortunately did turn into a recall. I'm sure a lot of you guys saw the notice go out. Again, from a financial perspective, it's immaterial to our 2026 financial results. We continue to be on track to have this product back on the market. It's unfortunate that this came to this, but just to kind of highlight it, it's a Class I recall, but we haven't had any of those since 2017. Just to clarify, this was in renal, right, just for clarity. Sam Eiber: Maybe just a quick follow-up on some of the geopolitical issues we're seeing out of the Middle East. Just wondering if you're able to help, I guess, quantify or think through any kind of impact on the revenue line and then the input costs, whether it's freight, oil, how should we be thinking about that over the course over the rest of the year? Raul Parra: Yes. I mean on the positive side, I mean, we have yet to receive any price increases from our vendors. We are seeing fuel surcharges. I think those are pretty typical. We usually see those at least once a year as gas prices fluctuate. That's nothing that we're used to dealing with that. I would say that right now, I think what we're seeing, everything is manageable. I guess if the issue continues, I think we'll have to reevaluate that. As of now, we feel like we can overcome whatever is coming our way. The other thing, too, that I'll call out is on the sales side, we continue to get orders from the Middle East region. We did leave about $1.5 million of revenue on the table from shippers that just weren't able to come and pick the product up and deliver it. We are seeing an impact. I would say that it's very manageable. Again, we continue to feel really optimistic about the guidance that we put out there for 2026. Operator: Our next question comes from David Rescott of R.W. Baird. David Rescott: Two from us, and I'll ask them both upfront. I heard some of the commentary around OEM as it relates to the quarter and Q2 and the guide for the year. I recall there is some Asia Pac impact in there in general. Curious on if you could provide any color just around what the assumptions are for China and Asia Pac at this point and more broad strokes on how that is shaking out versus contribution from that region in the prior year, at least? Then thinking more on the operating margin side, I believe the results that you put up were a little bit better than we had expected on the operating margin front, lower OpEx growth, it seemed to be the case, better gross margin. Can maybe you help us think about how you're thinking about some of the controls on the OpEx side through the rest of the year? I believe you've commented on gross margins already, but I would be curious around any of the underlying assumptions you have for better-than-expected operating margins through the year. Raul Parra: Yes. Maybe I'll just hit on the APAC region, right? I mean I think on the OEM side, that's where you started, specific to kind of the APAC region. That was essentially in line with our expectations. APAC as a whole was up 1% on a constant currency in Q1, which was a beat for us. It was versus the high end of our guidance. China sales increased by about 2% year-over-year on a constant currency in Q1, essentially in line with our expectations. [VBP] impact was, I would say, modestly better than expected. As far as China, I think we continue to expect, I would say, low single digits for 2026 as we continue to deal with volume-based purchasing. Moving on to the operating expense side of things. Yes, look, I mean, I think when -- obviously, we were expecting a lower gross margin. We controlled operating expenses and then with the conflict, as that came out, we really kind of talked to the executive team about being in control of those operating expenses. I think they did a really good job of doing that. We obviously let that flow through to the bottom line with $0.11 beat and a much better operating margin than we had initially indicated on the fourth quarter call. One of the nice things is that we were able to offset the $0.05 dilution of View Point and essentially increased our EPS guide to cover for that. Again, overall, I think the P&L was off to a really good start, strong start for Q1. We beat on the revenue side by over $4 million. Gross margin was better than anticipated. We've controlled operating expenses. That gives us a lot of confidence as we head into the rest of the year and really confident in the full-year operating margin guide and obviously focused on our CGI targets. Martha Aronson: David, I might just throw in one comment, if I could. I mean hats go off to Raul and Travis and our finance team. I think one of the things we've been working on is a number of our processes across the company and getting our finance partners involved in that earlier in the process. I just think we're doing our best to ensure discipline, I'd say, throughout the organization when it comes to spend. Again, just a hats off to our finance team partnering up with all of our engineering staff, our operations team, etc. Operator: Our next question comes from Ed Leahy of Bank of America. Unidentified Analyst: Two for me on OneMark. One, when you did the deal, how much were you factoring in it being complementary versus cannibalistic to SCOUT? I know you said a physician preference. Is this a move that can open up broader accounts? Would some accounts have both systems? Do you think there are any impact on SCOUT sales during the inorganic period that could impact growth? Martha Aronson: Yes. Thanks for the question. No, we really do think this is a market expansion play, right? Obviously, there could be a handful of accounts. As you said, we could have a situation where some have both. and there could be some where someone does choose one over the other, but there really is an opportunity, frankly, it's a little bit of a -- we call it a better and the best offering, if you will. There's really an opportunity to target the accounts very specifically, which our team has done a great job already in being ready to go do that so that we really see it as a total expansion of that time and biopsy localization market. Unidentified Analyst: Then I think we saw one market was actually running a trial that was head-to-head with SCOUT. Obviously, now that both products are yours, do the outcomes of that trial change the strategy with SCOUT depending on if it goes one way or the other and what are the plans there? Martha Aronson: No. Again, I mean I just literally got off the phone earlier today with one of the team members from OneMark. I mean, this group is super excited to be part of Merit. Merit is super excited to have them as part of our team. There was actually -- there's a major congress happening literally starting today, the society for breast surgeons, and there was a training with fellows earlier today. Literally, what the team was reporting back to me is how it really is a physician preference kind of a thing. Some people are just more sort of audible and they like the radar and hearing it. Then frankly, others say being able to see it visually, they prefer that approach. We're just excited to have this enhanced product offering across the portfolio. As we said, just a great add to the Merit Oncology platform. Operator: Our next question comes from James Sidoti of Sidoti & Company. James Sidoti: If I heard you correctly, with gross margin, we're able to maintain that, keep that basically flat despite about $5 million of tariff expense. What drove that? Was that a mix issue? Or can you give us some more color on that? Raul Parra: Yes. I mean, it was essentially 100 basis point impact to -- or 120 basis point impact to our gross margin, the tariffs were. Again, hats off to our sales force and focusing on selling the right product at the right price. Obviously, we have some acquisitions, too, that are helping us, and that's part of that mix component. We continue to focus on the throw the kitchen sink approach at the gross margin. I think the conflict in the Middle East is exactly why we do that. There are surcharges that are coming that we were still over being able to overcome. Our operations group is doing everything they can to try and maintain or improve costs in a really challenging environment. I would say it's a little bit of everything, Jim, but there is a mix component that's helping us. Again, I think we've done a really good job over the last -- under FSG and CGI and really focusing on the right products. Then we did divest of the DualCap. That was a very low gross margin product, and that's helping also. Again, we're hyper focused on those CGI goals. As you guys know, gross margin is an important contributor to operating margin, which is why we focus on it so much. James Sidoti: Then inventory was up about $20 million in the quarter. Can you explain that? Raul Parra: Yes. I mean, again, there's acquisitions that have taken place, and we're building out those inventories. I think there are certain areas that we were a little low in. As you guys recall, over the last year in our Endoscopy segment, we dealt with a little bit of supply chain issues. Getting that to a healthy point. Same with our oncology business. I would say same within our cardiac and renal therapies. Those are all areas that had really strong sales that we essentially just getting the safety levels to an area that we feel comfortable with. You're also in an environment right now where you start to look at the supply chain, just making sure that you're covered just given the performance of the company that we expect, and so just making sure our safety stocks are at the right level. James Sidoti: If I can, I'm going to sneak one more in. Can you just tell us what the distribution looks like for the OneMark system prior to the acquisition? How many people will be selling it now that it's a Merit product? Martha Aronson: Well, we don't -- Jim, we don't share exactly how big our sales organizations are. I mean, View Point was certainly a smaller organization. Again, it will fold really nicely into our team, as I said, who's really excited to have their View Point colleagues join them. I'll say this, it's not a major expansion of our sort of commercial footprint, but I would say the energy behind it will certainly make up for that. James Sidoti: The big jump to revenue in 2027, that's not because of increased distribution, you think that should increase product awareness? Martha Aronson: Correct. It's increased product awareness and it's being able to have options as you go into each and every account, and it's some really excellent account planning and targeting that our team is undertaking. Operator: Our next question comes from John Young of Canaccord. John Young: Congratulations on the quarter. Martha, I just wanted to ask, when you came into the seat, just there was an emphasis on OUS growth of your background. Any updates on the progress or changes that you've made there? I know in the script, you spoke about some alignment changes. Has compensation incentives changed at all for the reps? Martha Aronson: No, as we go into 2026, there have not been any significant comp changes for our reps. I mean I will say you heard Raul talk about our gross margin improvement. I would say over the last several years, this organization has done a really nice job making sure our team knows which products to keep focused on, and we really are pushing a bit more emphasis on some of our higher-margin products. There's certainly that. I would just say, in general, I mean, we do have about 40% of our revenue is outside the United States. Again, as you heard, our international teams continue to do a really nice job for us. I'm quite pleased with that. John Young: Then just looking perhaps for any additional color on the Endoscopy segment and any progress that you guys made in the quarter on the integration and training of that sales force. Martha Aronson: Yes. We're really excited about the endoscopy platform. I mean, so we brought in the C2 CryoBalloon acquisition, which is so far doing better than our high-end expectations. We're really pleased about that. Then as you probably saw, we announced a new product, and we mentioned it in the script, The Resilience product, which is this through-the-scope esophageal stent. This is a really nice market for us. It's sub-$100 million size in terms of market. Again, that's in the world of Merit Medical, that's a really nice market sort of space for us. This is a great stent. It's actually because physicians get to put it in through a scope, they feel like they have a lot more control and accurate placement. Most importantly, what the feedback we've gotten initially is that it's not moving once it's there. Migration has really been an issue with the number of the stents that are out there in that market. Again, we're just -- we're really excited about the opportunity for Resilience and frankly, the endoscopy business in general. In fact, next week, I'll be at Digestive Diseases Week with the team, which is one of their big shows more on the GERD side of things. Again, all across endoscopy, we're very pleased. Raul Parra: Maybe I'll add a little color. As hopefully, you guys saw last year, I think our endoscopy team just got better every quarter as they integrated and learned how to sell kind of both bags essentially. Q1 was mid-teen growth. Really strong performance by them, and they're excited about what they're doing, which makes us excited about the potential that they have. Operator: Our next question comes from Jason Bedford of Raymond James. Zachary Gold: It's Zach Gold on for Jason Bedford here. You guys have talked about being open to deals that are somewhat larger than historical tuck-ins. Of course, we saw the View Point deal. As you look at the pipeline, can you remind us what those key areas are for the next deal? Then kind of in terms of sizing, would you say View Point is a good proxy for deal characteristics and size in terms of just helping us level set expectations on acquisitions? Martha Aronson: Yes. Thanks. Appreciate the question. Look, I mean, I think doing deals is not something where you get to say, I want to do something of exactly this size at this time to add precisely to this particular platform. That would be great. That would be a lovely world in which to live. Unfortunately, that's not reality. We're not going to put sort of a number around size of deal, if you will. As I said, we're looking at a lot of things. This company has grown a lot through acquisition. We plan to continue to do that. Again, I think it's really important to think of it in terms of tuck-ins or bolt-ons, nothing transformational. Every deal has to have a lot of strategic fit. As we're talking about, when we look at these platforms, part of what's exciting about this platform structure that we're using is I am looking to each platform to have a lot of conviction around any proposed deal, because they're going to own it. That's the way we're building up these various business lines. It's really critical that they believe in it and they have done the work and the analysis. We do a lot of that here kind of at corporate as well, but that's the way we're really thinking about acquisitions going forward. It's got to be strategic, and then it's got to fit certain financial metrics that we've got in place as well. Certainly being margin accretive would be one of them. Zachary Gold: Then if I can ask a second one here. Just curious on that Medtronic distribution deal you guys did during the quarter. Is there any stocking tied to that? Yes, is there stocking tied to that and then sort of a material impact for you guys on growth that comes from this agreement? Raul Parra: Obviously, they're going to gear up, and we're not going to give details. I mean this is -- it's not our practice to talk about our customers, what they're going to do and how they're going to launch. I would just say that we're really excited for our OEM division. I think they've done a good job of working with our OEM partners and customers on finding opportunity, and this happens to be one of them. It is built into our guidance for the year, which again gives us a high level of confidence in that mid-single-digit growth that we expect out of OEM. I think we're excited for them. I know there's been a lot of comments around OEM. I can tell you that, again, we have a high level of confidence in their performance for the rest of the year. Martha Aronson: Yes. I think this is -- I mean, it's actually -- it's just a really good example. I mean this is -- when we say OEM is lumpy, this is kind of a good example of it. As you saw, and Medtronic put out a press release on it. I mean we have a relationship with them. They've been an OEM customer as they shared in their press release. These things, they ebb and flow a little bit. I think as Raul said, though, we're very excited, and this definitely is a factor in us and are gaining confidence on our OEM platform for this fiscal year. Operator: Our next question comes from Mike Matson of Needham & Company. Michael Matson: I just want to ask one on capital allocation. I mean, I understand you're focused on M&A, and that's kind of been the priority. The stock is pretty beaten up, pretty cheap here. Would you consider doing a share repurchase at all? Raul Parra: Look, I think, obviously, that's a Board-level decision. I don't want to speak on their behalf. I think for now, with our net leverage ratio of 1.6, a lot of opportunity out there from an M&A perspective. We continue to, I think, conserve cash. We continue to generate strong free cash flow, as you guys saw, almost approximately $25 million for the first quarter, which was a really strong increase over prior Q1 of 2025. For now, we're just focused on CGI. We're focused on our free cash flow goals, and we are focused on delivering long-term sustainable growth. Operator: This concludes our question-and-answer session. I'd like to turn it back to Martha Aronson for closing remarks. Martha Aronson: Well, look, I just want to say thanks, everybody. Appreciate you dialing in today. As I said, pleased with our strong start to 2026. As I said, feel good about tracking nicely to our CGI goals. Most importantly, I do want to thank our team who's so committed to helping patients all around the world. Again, thanks, everybody, for joining us today. Operator: This concludes our conference call for today. Thank you for your participation.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Eldorado Gold Corporation First Quarter 2026 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Lynette Gould, Vice President, Investor Relations, Communications and External Affairs. Please go ahead, Ms. Gould. Lynette Gould: Thank you, operator, and good morning, everyone. I would like to welcome you to our conference call to discuss our first quarter 2026 results. Before we begin, I would like to remind you that we will be making forward-looking statements and referring to non-IFRS measures during the call. Please refer to the cautionary statements included in the presentation and the disclosure on non-IFRS measures and risk factors in our Management’s Discussion and Analysis. Joining me on the call today, we have George Burns, Chief Executive Officer; Christian Milau, President; Paul Ferneyhough, Executive Vice President and Chief Financial Officer; and Simon Hille, Executive Vice President and Chief Operating Officer. Our release yesterday details our first quarter 2026 financial and operating results. The release should be read in conjunction with our Q1 2026 financial statements and Management’s Discussion and Analysis, both of which are available on our website. They have also both been filed on SEDAR+ and EDGAR. All dollar figures discussed today are U.S. dollars unless otherwise stated. We will be speaking to the slides that accompany this webcast, which can be downloaded from our website. After the prepared remarks, we will open the call for Q&A, at which time we will invite analysts to queue. I will now turn the call over to George. George Burns: Thank you, Lynette, and good morning, everyone. I will begin with an overview of our first quarter and provide brief updates on McIlvenna Bay and Skouries. I will then hand the call over to Paul to review the financials, and then to Simon with an update on our operations. Following that, Christian will make some concluding remarks before opening up the call for questions. We have had a very busy and solid start to 2026, with performance in the quarter tracking in line with our expectations and full-year guidance. This year, production is back-half weighted as two mines come into production and several other operations deliver stronger results later in the year. 2026 is an important year for Eldorado Gold Corporation as we continue to advance two high-quality growth projects, Skouries in Greece and McIlvenna Bay in Saskatchewan. MacBay is nearing first concentrate production, followed by first concentrate at Skouries in Q3. Once in operation, both assets will meaningfully enhance our production profile and cash flow generation. Starting in 2026, to provide greater transparency as these polymetallic assets come online, we plan to enhance our disclosure by reporting copper assets on a dollar-per-pound co-product basis for Skouries and MacBay. Before getting into the project updates, I want to note that, as previously announced, I plan to retire as CEO later this year as we ramp up Skouries towards commercial production. Christian, who joined us last September, has been deeply involved across the business and is set up to seamlessly step into the role at that time. I am pleased to remain on the Board to support continuity, and Dan Myerson has joined the Board as Deputy Chair, providing important continuity from the Foran side. I want to take a moment to recognize the achievement of our colleagues at Lamaque. In March, they received the TSM Gold Leadership Award, a special recognition for mining operations who achieved Level AAA, the highest possible rating across all applicable TSM performance indicators. This recognition reflects the dedication of our employees and our unwavering commitment to responsible mining in Quebec and across our global operations, where TSM protocols are applied as a matter of practice under Eldorado Gold Corporation’s Sustainability Integrated Management System. Well done, Lamaque team. The Foran transaction represents a significant milestone for Eldorado Gold Corporation. At MacBay, we have now begun integration activities and are working closely with the existing team as the project nears first concentrate production. Following the close, members of our management team visited Saskatchewan and the MacBay project to welcome the team to Eldorado Gold Corporation, see progress firsthand, and engage with our stakeholders in Saskatchewan. What stood out was the enthusiasm of our new team, the capability supporting the operation, and the clear focus on safety, collaboration, and responsible execution. Now that MacBay is part of our portfolio, expect us to provide the following with our second quarter results: MacBay production and cost outlook for 2026, timing for an expansion study, and progress on a study for a potential lead-silver circuit. Following the close of the transaction, we have already approved approximately $17 million to spend on exploration for the remainder of 2026, reflecting the target-rich environment and our view that continued exploration success has the potential to drive meaningful long-term value. The quality of MacBay and its exploration potential reinforce our confidence that it will become a long-term cornerstone asset within our portfolio, delivering near-term growth while adding copper exposure in a stable, top-three global mining-friendly jurisdiction. Turning to Skouries in Greece on slide six, construction activities continue to progress well across all major areas. The team remains focused on disciplined, safe execution as we move through the final construction phase. At the end of the quarter, overall project progress was approximately 94%, steadily advancing towards first concentrate production. As execution activities have progressed and the project advances towards construction completion on schedule, we have updated our forecast to complete and revised our total project capital to $1.315 billion, an increase of approximately $155 million from the prior estimate. The primary driver was the increase related to construction workforce levels to support sustained final construction momentum. Total workforce has increased from 2,350 in mid-Q1 to approximately 3,200, which includes about 490 in operations. Advancing Skouries into safe production in the current metal environment is a key driver of value creation. This incremental capital reflects our continued focus on maintaining momentum towards first concentrate production. Accelerated operational capital at Skouries is now expected to be approximately $260 million, reflecting an incremental $82 million to expand pre-commercial mining and site works. This supports open-pit mining and advancing underground development ahead of first production. We are well positioned for startup with more than 2.8 million tons of ore stockpiled, which provides the entire planned mill tonnage for 2026. Overall, this investment supports a smoother ramp-up into production. On the process plant, work remains focused on final mechanical installations, piping, cable tray, and cabling as we prepare for first ore. With respect to the damaged cyclone feed pump variable-speed drives, temporary replacement equipment is expected to be installed in Q2. High- and medium-voltage electrical distribution for multiple stations is progressing. The process control building structure is complete, and electrical rooms are being progressively handed over to commissioning. On the power line and substations, the 150 kV power line and primary substation continued to advance to startup in Q3. Ahead of grinding area ore commissioning, final electrical regulatory authority approval will require completion of inspection and energization protocols. Powerline construction is progressing with the transmission tower assembly complete and pilot wire pulling now underway along the transmission line. The primary substation is advancing through ongoing assembly of the substation structures and control building structural completion. Pre-commissioning is now underway starting with the substations that feed the process plant, filter plant, and primary crusher, while commissioning continues across fire, utility, and process water systems. In parallel, we have begun pre-commissioning in flotation focused on air and instrumentation, as well as the SAG and ball milling instrumentation, electrical and control systems, and we started wet commissioning in the process water pumps and tailings thickeners. Together, Skouries and McIlvenna Bay represent a step change for Eldorado Gold Corporation in scale and portfolio diversification across jurisdictions and metals. With that, I will turn it over to Paul to review the financial results. Paul Ferneyhough: Thank you, George, and good morning. I will start on slide seven. In Q1 2026, we produced 100,358 ounces of gold, a 13% decrease year over year, primarily reflecting lower tons at stack grades at Kisladag and lower grades at Efemcukuru, partially offset by higher grades and improved recoveries at Olympias and Lamaque. Gold sales totaled 100,119 ounces at an average realized gold price of $4,891 per ounce, generating total revenue in excess of $532 million, a 50% increase from $355 million in the comparable quarter last year, driven by significantly higher gold prices. Production costs were $188 million, up from just over $148 million, driven primarily by royalty expense in Turkey and Greece, which accounted for approximately 70% of the increase, with the balance largely attributable to labor inflation in Turkey and incremental labor and contractor costs associated with continued development of the Lamaque Complex. Royalty expense increased to $50 million from $22 million last year, reflecting higher realized gold prices and higher royalty rates, partially offset by lower sales volumes. On a unit basis, total cash costs across the portfolio averaged $14.70 per ounce sold, up from $11.53, while AISC averaged $1,942 per ounce sold compared to $15.59 in the prior-year period, mainly reflecting higher royalty expense driven by the higher gold price environment, lower production, and labor cost impacts. Below the line, net earnings attributable to shareholders from continuing operations were $136 million, or $0.69 per share, compared to $72 million, or $0.35 per share, last year, primarily due to higher realized gold prices, partially offset by lower sales volumes, higher production costs, and higher income taxes. Adjusted net earnings were $188 million, or $0.95 per share, compared to $56 million, or $0.28 per share, last year. The adjustments this quarter included an $18 million foreign exchange translation loss on deferred tax balances, a $20 million unrealized loss on derivative instruments, and $8 million of acquisition costs related to the Foran Mining transaction. Turning to slide eight, we ended the quarter with cash and cash equivalents of approximately $630 million, maintaining a strong balance sheet and significant financial flexibility to fund our growth initiatives. Cash declined in Q1 relative to Q4 2025 primarily due to capital investment, share repurchases, dividend payments, and income taxes paid, partially offset by cash generated from operating activities. As we prepare the company for the significant cash flow that will come following ramp-up of production at Skouries and McIlvenna Bay, it is worth reflecting on our developing capital allocation policy, which is based on a framework built around five key priorities. First, we continue to allocate funds towards the highest-return opportunities within our global portfolio, including potential expansion projects at Lamaque and McIlvenna Bay, advancement at Perama Hill, ongoing optimization and expansion of Olympias, and continued investment for our stable, cash-generating mines in Turkey. Second, we have meaningfully increased our exploration investment focused on mine life extensions and the discovery of new resources. Third, we remain committed to maintaining balance sheet strength with a focus on reducing leverage over time, including the prudent management of our $500 million high-yield bond maturing in 2029, while preserving the flexibility to execute our pipeline of development projects. Fourth, we have established a sustainable base dividend policy of $0.075 per share per quarter. Finally, we continued in Q1 to opportunistically repurchase shares, reflecting our conviction in the company’s intrinsic value, particularly given the potential for an estimated double-digit free cash flow yield based on our current valuation, compared to industry-leading peers who currently trade at a lower yield. Overall, we believe our capital allocation framework appropriately balances growth, financial strength, and shareholder returns. With that, I will turn it over to Simon for an operational update. Simon Hille: Thank you, Paul. Starting on slide nine, at Lamaque we produced 42,306 ounces in Q1, up 5% year over year. The outperformance was primarily grade driven, and we also saw the initial contribution from Ormaque following the receipt of our operating authorization. All-in sustaining costs were $13.70 per ounce sold, modestly lower year over year, reflecting higher production volumes and continued cost focus, partially offset by the impact of deeper mining and timing of sustaining capital spend. Total capital spend was $48 million, including $20 million of sustaining capital, primarily for underground development, drilling, and equipment. Growth capital totaled $28 million, largely related to development of Ormaque and ramp development at the Triangle Mine and supporting infrastructure. Continuing to slide 10, at Kisladag, we produced 28,339 ounces as planned. As we have previously disclosed, 2026 is a cutback year for Phase 6 of the open pit, where the average grade is lower than the life of mine. All-in sustaining cost was $2,060 per ounce sold, primarily reflecting lower volumes sold on a higher cost base. Sustaining capital spend included $4 million, while growth capital included $51 million, including a one-time $24 million purchase of strategic land to support the North Heap Leach pad and North Rock waste dump expansions. The remaining planned $27 million was largely waste stripping and continued construction of Phase 3 at the heap leach in 2026. At Efemcukuru, on slide 11, we produced 15,394 payable ounces in Q1 relative to 19,307 payable in 2025. Lower output is primarily due to lower grade, partially offset by higher throughput. All-in sustaining costs increased to $2,528 per ounce sold, primarily reflecting the lower volumes sold and the higher cost base, as expected, with the higher sustaining capital tied to increased development meters. Sustaining capital spend included $5 million, primarily for underground development, and $2 million of growth capital related to the new portal development at Kokarpinar along with the development costs for the new Bati Zone. Finally, to slide 12, at Olympias, we produced 14,319 payable ounces of gold in Q1, up 21% from 11,829 ounces in 2025. This improvement reflects a stable ore blend and flotation performance that drove higher metal recoveries. Revenue increased to $88 million from $46 million, primarily on the higher realized gold price, higher sales volumes for gold and base metals, and with the base metals also benefiting from higher grades and recoveries. All-in sustaining cost was $2,031 per ounce sold, reduced from $2,842, primarily reflecting improved metal recovery and stable mill performance that resulted in lower cash cost per ounce sold as a result of higher volumes sold. Sustaining capital was $5 million, while growth capital was $8 million, driven by the mill expansion project, with sequential area completion commencing at the end of Q3 and ramp-up through 2026. Across all sites, safety remains core to our operations, and we continue to reinforce a culture of safe, responsible production. I will now turn it over to Christian for closing remarks. Christian Milau: Thank you, Simon, and good morning, everyone. Overall, the first quarter reflects a solid start to what is a defining year for Eldorado Gold Corporation. We are delivering solid operational and financial performance while continuing to make meaningful progress on our key growth projects as they march towards the finish line. In addition, we initiated our dividend and bought back over $80 million worth of Eldorado Gold Corporation shares in Q1. Importantly, we have continued to strengthen our leadership team over recent months, including the well-deserved promotion of Simon to Chief Operating Officer and the appointment of Gordana Viseptievich, who will be joining us shortly as Senior Vice President of Projects. Gordana has significant experience leading projects of a large and small scale globally, as well as experience working with G Mining Services, which will be a key partner on a number of future projects. Additionally, we would like to recognize Sylvain Lehoux, who has been promoted to Senior Vice President, Operations for Canada, taking on responsibility for Eldorado Gold Corporation’s growing Canadian portfolio. The deliberate steps we have taken to enhance our bench strength—particularly in project execution and operational leadership—are already contributing to improved alignment and stronger integration across the business. Complementing these efforts in 2026, we entered into a project alliance with G Mining Services to support project development and execution, reinforcing our technical capacity and ability to deliver projects safely, efficiently, and on schedule. As I have spent time across our sites and corporate offices, I have seen strong alignment with our values, particularly in how our teams are approaching collaboration and execution. These behaviors will be critical as we move through the remainder of the year. With Skouries and McIlvenna Bay advancing towards key milestones and first production, and with the strength of the team we have in place, we are entering a period of meaningful transformation for the company that we believe will enhance our scale, diversify our portfolio, and strengthen our long-term value proposition. Looking ahead, while Eldorado Gold Corporation remains predominantly a gold producer, the addition of meaningful copper production from Canada and Europe represents an exciting extension of our portfolio. At McIlvenna Bay, we are building exposure to copper in a top-tier mining jurisdiction with dependable infrastructure and access to a skilled workforce, and we appreciate the Major Projects Office support of the Strategic Projects for Canada and Eldorado Gold Corporation. Further, the district-scale exploration potential and work being done by the team in Saskatchewan is extremely exciting, with excellent targets to be followed up, as evidenced by our increased investment in exploration. Expect us to aggressively explore the Deposit and wider land package starting this year. This potential and the already long mine life will enhance our peer-leading average mine life and exciting exploration portfolio across all jurisdictions. At Skouries, we expect to deliver a long-life copper-gold asset within Europe, where demand for responsibly produced metals continues to grow. Northern Greece is highly prospective and will continue to grow as a core part of our portfolio. These two near-production mines provide substantial exposure to copper and its key role in electrification and the energy transition, while also enhancing the resilience of our portfolio through greater commodity and geographic diversification, and extending our average years of mine life into the mid-teens with excellent potential to extend further. I am excited about Eldorado Gold Corporation’s future and the strong culture and teams across the company. As we reach the significant cash flow inflection point later in 2026, I have a high level of confidence in our team, our strategy, and our ability to surface significant value from execution of peer-leading near-term growth. Thank you to our employees, partners, and you, shareholders, for your continued support. I will now turn the call back to the operator for questions from our analysts. Thank you. Operator: We will now open the call for questions. The first question comes from Don DeMarco with National Bank. Please go ahead. Don DeMarco: Thank you, operator, and good afternoon, George and team. First question, looking at Skouries, given that labor cost pressures contributed to the CapEx increase, is there a read-through to potentially cost pressures on operating costs going forward? George Burns: Hi, Don, thanks for the question. No read-through there. What drove this capital increase as we get to the final stage of construction was completing electrical and instrumentation in the plant, so we brought in three EU contractors just recently to help ensure we can maintain the early Q3 startup of the plant. It is essentially some extra labor to complete that electrical and instrumentation. No read-through in terms of our operating cost. Our operating manpower levels are going to come in as expected, and we have only had normal inflationary pressure on labor costs. If you look at our cost guidance for the fourth quarter as we bring it into operation, we continue to maintain a very low cost profile once we are into production. Don DeMarco: Okay. And so then, looking at the next couple of quarters before first concentrate, are there any risks on the horizon—maybe lingering cost pressures, whether related to labor, contractors, etc.—that might require additional capital that might be unforeseen at this time? George Burns: No, Don, we do not see that at this point. Again, from a construction perspective, we should have the construction complete at the midyear point, and we have said Q3 as first concentrate. Really, the variable for us remaining is how efficiently we can get the energy connected to be able to put first ore through the grinding mills and through the plant. There we are collaborating with the Greek power authority. If we get our construction completed in July, our expectation is final checks with us and them on that main substation can happen together in parallel, and that would result in an early Q3 startup. If we cannot get that collaboration and they do their checks subsequent to ours, it could slip to mid-Q3. But really that is not a cost impact. We will be ramping down construction workforce rapidly as we get this construction completed around midyear. Don DeMarco: Okay, great. And then for a final question, just shifting over to MacBay. I see that you have approved an exploration budget. Can you share the split between infill and expansion, and some of the targets that you might be focusing on with that budget? Simon Hille: Thanks, Don. Simon here. I can give you some color on our plans around the exploration portion of the budget. The Foran team had around a $4 million exploration budget for the year, to which we are adding $17 million for the remainder of the year, and the team is quite excited to mainly focus on three key targets: the Tesla copper-rich feeder zone, Bigstone expansion, and then adding some more geoscience to the existing land package around some airborne geophysical surveys and expanded LIBS on the whole-body characterization. These things should set us up for good success moving forward. In our exploration budget, we typically do not have infill. Infills are part of an operational budget. Don DeMarco: Okay, that is very helpful. That is all for me. Good luck with the rest of the development. Paul Ferneyhough: Thanks, Don. Operator: The next question comes from Analyst with Scotiabank. Please go ahead. Analyst: Hey, good morning, everyone. Thank you for taking my questions. Just a couple more questions on Skouries. We were quite surprised by the increase in capital costs, and you mentioned it was related mainly to the workforce at the electric plant. But what else happened? What else changed since the previous increase in Q4? George Burns: Again, really, 60% of that cost increase is the additional contractor workforce completing the electrical and instrumentation, and then the balance is split between materials, FX, and owner support costs. Bottom line, it is taking us a couple of months of additional full workforce to get the final construction complete. If you go back to our last guidance on Skouries capital, at that point the view was we would be waiting to get the power connected in the power lines and doing final things in the tailings filtration plant. Bottom line, this increase is us spending some additional dollars bringing in some additional EU contractors to ensure we are ready to run once that power is connected, hopefully early Q3. Analyst: Great, thank you. And then, you said 60% was the contract work with the balance being materials, FX, etc. Could you give a little bit more of a breakdown between what the materials were and the split of that remaining 40%? George Burns: Yes. There were about $15 million in materials across four key items. In the dry stack filter plant, our insurers have requested—and we have agreed—to put in additional fire protection; that is about $5 million. We have added about $4 million in additional spares to ensure a smooth ramp-up and balance of the year. We have added about $3 million in additional gensets that are helping us with pre-commissioning as we wait for power connection. There was about $1.5 million in freight. Then there was about $15 million in foreign exchange impacts, and the balance is really the indirect costs to support that couple of months of high labor intensity to finish the construction. Analyst: Thank you. Last question for me: What are the remaining risks in your opinion—whether that be capital or operating—to startup, and what contingencies do you have in place to make sure we hit this Q3 timeframe? George Burns: The key risk for the year remaining on Skouries is to get that power connected, and the timing of that will really determine whether we are closer to the bottom end of our production guidance or the top end. If we can get that power connected in July as we expect, we would expect to be higher in production guidance. In terms of cost risk, that is not a worry for me now. We have got a couple of months of maintaining these high workforce levels to complete the construction. The only remaining risk beyond that is just the normal commissioning risk. Once power is connected, we start moving ore through the circuit, and as always in every construction you have adjustments that need to be made. At this point, I think we have a 20-year mine life plus here, fantastic infrastructure that has been constructed, and I am pretty confident about the ramp-up. Analyst: Thank you for the color and best of luck with these two projects. Lynette Gould: Thank you. Operator: The next question comes from Analyst with RBC Capital Markets. Please go ahead. Analyst: Yes, thank you very much. Just going back to this labor conversation on Skouries. I understand the need for the additional contractors to meet the timelines, but was there some difference in thinking versus the prior plan in terms of labor productivity being challenged, or what really is prompting this change? George Burns: It is really taking more hours of electrical and instrumentation to get this finished. We have not hit the numbers we expected and, again, brought in three European contractors to button this up and get it running. Analyst: Got it. Thank you. And I understand it has only been a short amount of time since the Foran acquisition closed. I noted the second quarter will have a more comprehensive update. Is there anything you could provide in terms of what is required ahead of first production, or what milestones we should be looking at there? Simon Hille: It is Simon here. We are pretty excited. We were on the ground a couple of weeks ago and are in close contact with the team. The team is right in the thrust of what we call hot commissioning right now, which is where we start to add ore into various parts of the process to test the components and simulate what we will see as we run into full production, and we link those things together on a sequential basis. We are pretty excited that things are moving to plan, and we expect to see this running this month. Analyst: Great. Thank you very much. Operator: That is all the questions we have for today. This concludes the question-and-answer session and today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Greetings, and welcome to the WisdomTree Q1 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Jessica Zaloom, Head of Corporate Communications. Thank you, Jessica. You may begin. Jessica Zaloom: Good morning. Before we begin, I would like to reference our legal disclaimer available in today's presentation. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A number of factors could cause actual results to differ materially from the results discussed in forward-looking statements, including, but not limited to, the risks set forth in this presentation, in the Risk Factors section of WisdomTree's annual report on Form 10-K for the year ended December 31, 2025, and in subsequent reports filed with or furnished to the Securities and Exchange Commission. WisdomTree assumes no duty and does not undertake to update any forward-looking statements. Now it is my pleasure to turn the call over to WisdomTree's CFO, Bryan Edmiston. Bryan Edmiston: Thank you, Jessica, and good morning, everyone. I'll begin with a review of our first quarter results, followed by updates to our forward-looking guidance before turning the call over to Jarrett and Jono for additional business updates. . Our assets under management reached a record $152.6 billion, marking our fifth consecutive quarter of record AUM and up 6% from year-end driven by net inflows and market appreciation. Growth was broad-based with record AUM across our U.S., European and digital asset platforms. We generated $5.9 billion of net inflows globally, a 17% annualized organic growth rate, including $3.1 billion in Europe, $2.6 billion in the U.S., $100 million in digital assets and $75 million in private assets. Flows were led by our international equity exposures, including our Japan strategies and UCITS thematic products with particular strength in areas such as our European defense and rare earth funds. Fixed income was also a key contributor and our leveraged and inverse suite also generated meaningful inflows, reflecting elevated volatility in the commodity markets. Notably, flows were skewed toward higher fee products resulting in a 1 basis point increase in our average advisory fee during the quarter. We also just completed our acquisition of Atlantic House, a U.K.-based asset manager with approximately $4 billion in AUM, generating 53 basis points in advisory fees from its defined outcome and derivatives driven strategies. The business also generates complementary revenues including 25 basis points on $1.5 billion of AUA in managed models as well as structuring fees from bespoke investment solutions, which totaled $13 million during 2025. Taken together, these revenue streams represent an overall revenue yield of approximately 95 basis points. The purchase price is $200 million, which has been financed through recently issued convertible notes. This transaction is expected to increase our overall revenue yield by almost 2 basis points is modestly accretive and further enhances our product capabilities and distribution footprint across Europe, while supporting higher quality revenue growth over time. Overall, our record AUM and strong organic growth underscore the strength of our business, while our disciplined approach to strategic expansion positions us well to continue driving growth and long-term shareholder value. Global AUM currently stands at approximately $164.3 billion, up almost $12 billion or 8% from March 31, driven by favorable market conditions, approximately $800 million of net inflows and the inclusion of Atlantic house. Next slide. Revenues were $159.5 million during the quarter, an increase of 8% from the fourth quarter and 48% from the prior year quarter driven by higher AUM and growth in other revenues. Other revenues of $16.4 million reflect higher AUM and elevated trading activity in our European products, up from almost $13 million recognized in the prior quarter. Results versus the prior year quarter also include approximately $8 million of revenue contribution from Ceres. Ceres' contribution included management fees and performance fees of $5.2 million and $3 million, respectively. Performance fees reflect normal seasonality tied to performance-based fee structures along with limited activity in the solar portfolio during the quarter. Our adjusted operating margin has expanded 770 basis points when compared to the prior year quarter. Adjusted net income was $40.6 million or $0.27 per share. Adjusted net income excludes the loss on extinguishment of convertible notes related to the repurchase of a significant portion of our 2026 and 2029 maturities. This refinancing reflects a proactive repositioning of our capital structure, replacing lower conversion price instruments with new convertible notes at a 4.5% coupon and $21.58 per share conversion price, providing meaningful headroom and reducing potential dilution. This transaction also supports funding for the Atlantic House acquisition, aligning our financing strategy with our broader growth and capital allocation priorities. As a reminder, the Atlantic House acquisition is expected to add approximately $4 billion in AUM, generating 53 basis points in advisory fees, along with complementary revenues from managed models as well as structuring fees from bespoke investment solutions. The transaction closed this morning. Next slide. Now a few comments on our forward-looking guidance, which includes the impact of the Atlantic House acquisition on our expense base. Our compensation to revenue ratio of 26% to 28% remains unchanged, and we expect to trend towards the upper half of the range, reflecting the addition of Atlantic House which is accretive to our operating margins and earnings, but carries a modestly higher compensation ratio. We are also increasing our gross margin guidance by 1 percentage point, now ranging from 83% to 84%, reflecting continued operating leverage from organic growth as well as the Atlantic House acquisition. We are also increasing our discretionary spending guidance by $3 million to reflect the inclusion of Atlantic House. Our third-party distribution expense is expected to range from $20 million to $24 million, driven by higher AUM and elevated trading activity primarily across our European platforms, with commodity market volatility influencing where we fall within the range. Interest expense is forecasted to be approximately $53 million for the year, reflecting our current capital structure and the anticipated retirement of our remaining 2026 and 2029 notes this summer. Quarterly interest expense is expected to be approximately $15 million in the second quarter declining to approximately $14 million in both the third and fourth quarters. We are increasing our interest income guidance by $2 million to $10 million for the year, reflecting the level of our interest-earning assets in the forecasted rate environment. Our adjusted tax rate is expected to be approximately 24% to 25% compared to 24% previously, reflecting the addition of Atlantic House. And finally, our weighted average diluted shares were 152 million in the first quarter. We expect shares to increase to approximately 155 million to 158 million in the second quarter reflecting the full impact of shares issued in connection with our convertible note refinancing and then declining to approximately 154 million in the second half of the year, following the retirement of the remainder of our 2026 and 2029 notes, which we anticipate settling for cash. That's all I have. I will now turn the call over to Jarrett. Robert Lilien: All right. Thank you, Bryan, and good morning. This was another quarter marked by steady broad-based execution and continued momentum across the business. The results were strong, but more importantly, they reflect the consistency of a strategy that is delivering and scaling. As Bryan just highlighted, we generated nearly $6 billion of net inflows in the quarter including $2.6 billion in March, making this our strongest quarter since Q1 of 2023. And what stands out the most, though, is the quality and the breadth of those flows. . We saw inflows across 7 of our 8 major product categories, reinforcing that WisdomTree is increasingly winning as a diversified platform rather than tied to any single product theme or market call. And that matters because it demonstrates that we can generate growth across market environments and not just when conditions are favorable. This quarter also highlighted how clients are using us. They engage with us across geographies, asset classes and use cases from international developed equity to fixed income to leverage strategies to digital assets. And in March, in particular, we saw a bear market playbook unfold in real time across our platform. Clients were allocating to both offense and defense, income, liquidity and hedging strategies alongside risk-taking exposures. And what stood out in that environment was how well the platform held up despite an extremely volatile backdrop, AUM ended the quarter at approximately $153 billion and has since recovered to $164 billion including $4 billion from Atlantic House. And that resilience speaks directly to the strength and utility of our product lineup. Products like USFR continue to serve as an important portfolio ballast and more broadly, you can see the key drivers of that stability and growth. Our UCITS platform continues to lead with over $3.4 billion of inflows year-to-date, and AUM up over 26%. Portfolio Solutions continues to gain traction as a structural growth engine. And in digital, we generated $98 million of inflows in Q1 with AUM reaching a record $867 million, driven primarily by our tokenized money market fund. Importantly, the story there is evolving. It's increasingly about real use cases and adoption and not just infrastructure. Alongside that organic progress, we also continued to make measured strategic progress. Ceres is now part of the base business, and with the closing of Atlantic house this morning, we are continuing to build out the platform in a disciplined way. Both transactions are consistent with how we think about capital allocation and creating faster, more durable long-term growth, which John will walk through in more detail in a moment. Overall, there's a difference between having a strategy and delivering on it. And what we are doing is delivering, and we built a proven track record of consistent execution quarter-by-quarter, we are strengthening the platform and building real momentum. And with that, let me turn it over to Jono. Jonathan Steinberg: Thank you, Jarrett, and good morning, everybody. What Bryan and Jarrett just walked through really speaks to the strength of the business we have built. We delivered another quarter of broad-based execution in a volatile environment with strong inflows, with resilient assets and continued traction across the platforms. I think the most important takeaway is that this was not driven by any 1 product or 1 strategy or 1 market backdrop. It reflects a business that is becoming more diversified, more durable and increasingly more capable of compounding growth over time. That is exactly the foundation we want in place as we continue to build WisdomTree. That brings me to the 2 transactions we have recently closed; Seres and Atlantic House. We are not pursuing acquisitions for the sake of being acquisitive. M&A for us is a complement to organic growth, not the core strategy. The bar is high, the fit has to be clear and the transaction has to strengthen the business in tangible ways. At a high level, the logic is simple - we want companies that help us diversify the business by adding differentiated products and capabilities we do not have today. We want them to enhance the economics of the firm by bringing higher revenue yields and stronger margin characteristics. We want them to accelerate growth, by giving us more ways to win flows, deepen client relationships and extend those offerings more broadly across WisdomTree. Ceres is a very good example of that approach. It brought us into private assets to an uncorrelated asset class, and it did so in a way that adds attractive economics to the business. It expands our capabilities in an area where we see real client demand while also improving the earnings profile of the firm. Atlantic House fits the same logic. It adds differentiated derivatives capability expands our reach, particularly in the U.K. wealth channel and strengthens our ability to deliver more outcome-oriented solutions for clients. It also helps globalize our portfolio solutions business by extending that footprint into the U.K. and accelerating the international expansion of that offering. From an economic standpoint, Atlantic House brings a revenue yield of approximately 95 basis points which lifts our overall firm-wide revenue yield by about 2 basis points to roughly 43.5 basis points. Just as importantly, it brings expertise and solutions that we believe can be scaled through the broader global WisdomTree platform. So again, this is not simply about adding assets, it's about adding enhanced expertise and differentiated offerings with better economics and greater growth potential. Stepping back, what these deals really show is how we are continuing to strengthen the business. We are broadening the platform, improving the quality of our revenue and adding areas of expertise that we believe can help accelerate firm-wide organic growth over time. That is why both Ceres and Atlantic House fit so well with where we are taking wisdom trade. We are still in the early stages of integrating and scaling these capabilities, but the fit is clear, the rationale is clear and the opportunity is clear. We are building a business with more ways to win better economics and greater earnings power. That is how we will continue to deliver strong top line growth, continued margin expansion and even faster earnings per share growth over time. Thank you. Now let's open up the call to questions. Operator: [Operator Instructions] Our first questions come from the line of Wilma Burdis with Raymond James. Wilma Jackson Burdis: Could you talk about the advantages of WisdomTree's tokenized money market fund compared to other non-tokenized yield-generating options with respect to your new partnership with stable fix? Jonathan Steinberg: Absolutely. Thank you for the question. Will, you pick that up? William Peck: Yes, absolutely. So Page 11 of the deck talks about our -- we're positioned to win business through a combination of the functionality that we've got and our strong U.S. regulatory positioning. So unlike a lot of the tokenized money market funds that are out there, WTGXXRs is a 1940 Act fund sold by prospectus in the U.S. It's available to U.S. retail, U.S. businesses and global businesses as well. So just by virtue of doing that and also having kind of strong functionality around that. Also this quarter, we announced that we got an exemptive relief from the SEC to have the money market fund trade view of broker-dealer in the secondary market on an intraday 24/7 basis, which is like truly unique functionality, especially in the 4 here in the U.S. So we feel really strong about our positioning of our tokenized money market fund, and we're establishing a lot of partnerships and relationships. Stable C is a great example. Stable C as a start-up run by some former blocked employees, that's focused and their payments experts, they're focused on bringing payments use cases to small- and medium-sized businesses throughout the United States. And like I would not have thought about a small business in the U.S. as being kind of underbanked but kind of through these conversations, we've been learning a lot about how, hey, getting access to a tokenized money market fund yielding 3.5% today is much, much better than what they were getting through maybe nonexistent savings accounts paying essentially nothing, right? So it's just showing kind of new use cases in us kind of building distribution relationships, both in TradFi in addition to kind of like D5 channels where we've been focusing today. So that's some of the ways that we're differentiated and why we feel really good about our positioning right now. Wilma Jackson Burdis: Great. And then are there opportunities to generate higher fees on model portfolios as WisdomTree gain scale and the adviser relationships? And could you provide some detail on the overall relationship dynamics there, especially given the additional model AUM from Atlantic House? Jonathan Steinberg: Jerrett, I think that starts with you and maybe Jeremy. Robert Lilien: Sure. I think in general, yes, the model opportunity for us globally does a number of things. First of all, though, it brings stickier assets. deepens the relationship with our partners, and it does lead us to a nice stable mix of WisdomTree funds that are in those portfolios. In addition to that, as you add sort of horsepower from Atlantic House, you add even further sort of value add that as Jono sort of covered in prepared remarks, comes at a higher revenue capture. . So overall, these things, including SMAs, by the way, which is another area where we're pushing forward quite nicely. All of these things just lead to higher quality flows I think, with a tilt towards higher revenue capture and just better quality of earnings. Wilma Jackson Burdis: If I have time for 1 more. We saw other revenues were strong in the quarter. Could you talk about what contributed to that? And if there's going to be additional growth there? Bryan Edmiston: Yes. So this is Bryan and thank you for the question. You're right. Our Other revenues were $16 million this quarter versus $13 million last quarter. And again, that was driven by higher AUM and transaction fees, largely tied to our European commodity products. And if volatility persists, we could see similar levels of that revenue growth going forward. About 40% of that line item is the transaction fee element, 60% is AUM base. So there is some variability and volatility there as well. The other thing we don't want you to overlook is Atlantic House and that acquisition -- in 2025, Atlantic House generated about $16 million of revenue between its models and product structuring business. That revenue is also going to run through this line item going forward. So if you were to prorate that as of today, it would be about $11 million of incremental revenue. Jonathan Steinberg: Let me just add on the Atlantic House, there sort of derivative solutions that they've been doing just in the U.K. They have really established a business that has scaled. So they've done over $20 billion of structured solutions delivered across more than 120 clients. And we do believe that, that solution clients that want to want these sort of bespoke defined outcome for themselves. It's sort of like in almost like an SMA, but not the SMA structure, but very tailored to the clients' needs has both broad European and U.S. appeal. And so that other revenue line, we really do think should grow not just for the rest of this year, but significantly in 2027. Anything else, Wilma? Operator: Our next questions come from the line of Chris Kotowski with Oppenheimer. Unknown Analyst: This is actually John Coffey on for Chris. I just had a couple of questions. One is on Page 4. I think when you mentioned your 95 basis point yield for Atlantic House. Is that the right way to look at revenues going forward? Or do you think it should be -- or should I really look at some of the constituent parts like the models under advisement, yield and restructuring fees, like should this be really modeled out on sort of a more granular level? Or is that 95% a pretty good way to think about it going forward? Jonathan Steinberg: I'll start but maybe -- so I think about the business in revenue yield terms. It's very, very important to me that we grow our revenue yield. I think it's really one of the -- and it ties to even product consideration. So you think that we're 43.5 basis points on $165 billion today. Atlantic House was 95 basis points of revenue yield, Ceres 200 plus and just know that we are focused on it as part of our strategic initiatives. So now there is some volatility that is outside of our control, meaning asset mix, where the market goes. But from what we can control, that is a metric that we are laser-focused on. But Bryan I'll turn it to you... Bryan Edmiston: Yes. So -- from a modeling standpoint, I would suggest, though, just not looking at it as 1 overall revenue yield, but looking at the component part. So that advisory fee line is going to grow based upon the AUM on our platform, excluding Ceres AUM at whatever our revenue capture is in that particular line item. And again, that revenue capture ticked up 1 basis point this quarter. I would think about Ceres separately, modeling those management fees at 1% of AUM. And then the performance fee is another variable element to be taken into consideration as well. And then when it comes down to the last line item, our other revenue line, again, a lot of that has been driven by the activity that we're seeing out in Europe in our commodity products. You have a trend over the last few quarters in that particular line item. And as I just mentioned in the prior response, Atlantic House is also going to factor into that line item going forward, too. Unknown Analyst: All right. Great. Very helpful. And just 1 last question. When we think about Atlantic House, will that show up on your IR page, you have your daily AUMs? Is that something that at some point in the future, we'll start to see AUM from Atlantic House contributing to those? Or is this something like Ceres where it's sort of treated a little bit differently than your other ETPs? Bryan Edmiston: We should be having that AUM as part of what we're reporting over -- in the not-too-distant future. We need a little bit of time to just get integrated. Unknown Analyst: Jeremy Schwartz, could you just add a little bit on a future product around Atlantic House, which will also obviously contribute to the AUM on the IR side. But just from a strategy and even how it ties into revenue yields? Jeremy Schwartz: Yes. They currently have a bunch of use funds in addition to that derivative solutions business that Jono talked about, we definitely plan to be part of the global synergies is extending that franchise both to the market as well as the U.S. market. We definitely have plans to be aggressive with the product road map. And when you look at where has there been big growth in ETFs, the fun you let from income over or protection type strategy we're calling it defined outcome and sort of target type return we can do in many different asset classes. So we have targets to launch both in the U.S. and Europe as many as 15 to 20 funds over the next 24 months. And so we're going to have a big family. We're excited to be working with their team. It's a very strong, actively managed within them, and we think we can really position ourselves well versus the market in that space. So you'll definitely see a big product road map coming from us in both markets. Operator: Our next questions come from the line of Michael Grondahl with Northland Securities. Mike Grondahl: First question is with your not brand new, but newer digital money market fund, WTG XX, that is growing like a weed, but it seems like there's a lot of demand for that product. I wanted to understand a little bit better how you're marketing that? What's kind of that communication strategy just to get the word out? Jonathan Steinberg: Well, that's you, obviously, but touch on its use cases as well because it's being used differently in the world of on chain than just how it's being used in the mutual fund format. William Peck: Yes, absolutely. Thanks for the question. Yes, it's continuing to grow strongly. Even since this deck was dated as of March 31, at least the AUM. We're up another $50 million in April, and assets primarily into that fund. So it's continuing to grow. WisdomTree Connect users, we had 29 at year-end. There's 41 on the page as of March 31. That number is higher today as well. . So we are seeing kind of continued strong growth in that. Like I said, we distribute both to U.S. retail through WisdomTree Prime, also to global businesses and global platforms really through WisdomTree Connect. Today, 90%, 95% of the AUM is through the WisdomTree Connect platform. Really, that's focused on serving kind of different use cases that we've spoken about. It could be a stablecoin issuer. We've seen a lot of them post Genoa being implemented, looking to hold WTGXX's reserved asset for stable coins that they issued. WTG XX is clearly within the Genius Act, sorry, the Genius Act is a compliant reserve asset. It's treasury management for stablecoin native businesses. So this is exactly what Stable C is helping to serve. And the last piece is really around collateral mobility, right? The ability to use WTGXX in the yield bearing form of collateral rather than just sitting in stable coins, if you're doing a crypto transaction, also increasingly playing in other kind of non-crypto related transactions. WTX being a yield burn form of collateral that's able to be moved instantly, right, which gives people participating in that transaction kind of makes it much more capital efficient for them. So we're seeing actually considerable growth in that use case as well, onboarding new clients focused on that. So it's really those use cases where the tokenized Money Market Fund is adding a lot of value for people. It's not just a buy and hold sort of thing. It's about making it more useful serving different clients, really the Onchain community growing into more of the traditional finance community as well, that is aren't able to be served well from a kind of traditional money market fund. Mike Grondahl: Got it. And then, John, when talking about Atlantic House in those funds, you had mentioned the broad European appeal, U.S. appeal -- how should we think about you rolling out to those 2 additional markets? . Jonathan Steinberg: So we obviously launched 20, 30 funds a year every year. There will be a significant number of new fund launches in the next 18 to 24 months dedicated to the capabilities that we have just acquired around active derivative solutions, options-based strategies sometimes called buffer funds or to find outcome funds. It's a broad, broad category, more than $100 billion globally in ETFs. We think that sort of what's in the market today for the most part is like a 1.0. There's real room for differentiation. It's a little more developed here in the U.S., but still tremendous room for differentiation and growth almost open fields for the European team. The team that we acquired will play not just the portfolio management role, but they'll be part of the sales process really showing global clients, the -- they're very strong communicators. They really will give us, I think, an ability to we really raised assets against the funds that we're launching. I think that if I had a range of expense ratio. It's probably between 55 and 85 basis points for the types of products that we'll be launching, which is above our expense ratio average now. So very, very excited about putting the Atlantic has team to work. I hope that answers the question. Mike Grondahl: Yes. No, that's helpful. Operator: Our next questions come from the line of George Sutton with Craig-Hallum. Unknown Analyst: It is Logan on for George. Can you hear me all right? Robert Lilien: Yes. . Unknown Analyst: Yes. Awesome. I want to follow up there on the digital asset side. Well, I wondered if you could just kind of walk through the priorities there. I mean, I think for a long time, it was a bit more of a consumer-focused effort, -- it seems like a lot of the momentum now is on the institutional side. And then there's also been talk about times about white labeling. So I wondered if you could just kind of rank those for us. And then also the stable seed partnership is nice to see. Do you see kind of more opportunity for sort of distribution partnerships out there similar to that? William Peck: Yes. Happy to take that. So I wouldn't really rank them. I mean for us, it's about growing AUM and growing the number of people that are using the platform. So that's tied directly to the metrics that we have on the page for you guys. That's what I look at every day to see if we're being successful. Are we driving AUM growth are we driving the number of people using the platform. In the future, and you started to see this with the WTGXX announcement, there's going to be other types of transactions, other types of revenue streams, that we're going to see continue to grow over time as well. And that will be really like a third metric that I look at. So we don't kind of stack rank is 1 more important than the other. They all kind of are servicing as part of that. What I would say is unique about like digital asset and blockchain as we're seeing -- we're going to be servicing retail beyond just WisdomTree Prime. WisdomTree Prime is a key priority for us. We want to continue to drive people and use that platform, that app we're able to serve metamaskwalet holders, other self-custody wallet holders. And we want to meet people where they are. And economically, WisdomTree is indifferent. It's really about getting people to use our products and services. So again, not really stack ranking kind of different things. It's really an all of the above driving people to invest in our funds, use our products and services. Unknown Analyst: Will, could you just touch on because I think it's sometimes overlooked, the vertical integration of your offering, sort of your -- you've put in a lot of effort over the last 7 years. Can you just touch on the vertical integration? William Peck: Yes, absolutely. So touch on this on Page 11 as well. But I think if you look at some kind of competitive products out there, you find that there's probably like 3 or 4 different firms that kind of comprise that stack, right? There might be a separate tokenization provider and transfer agent and then there's a separate asset manager and there might be a separate kind of stable coin conversion service or a stable point orchestrator provider -- and then WisdomTree's case, since we've invested early, we've kind of built that all kind of we have built that all ourselves, right? So when you're buying the WisdomTree tokenized money market fund using USBC, for example, the other counterparty you're facing in that transaction is WisdomTree, right? We're able to convert the stable coin. If you wanted to trade it instantly, you can do it against our broker-dealer then you're investing in a WisdomTree managed fund. So we've built all of these capabilities ourselves, which has allowed us to win business in the areas we're competing today. It also opens up good optionality for us, and we're having active conversations around this to license elements of this technology stack to other asset managers or other people in the space. So we feel really good about the investments we've made to kind of be in this position. I mean this is such a hot topic on Wall Street. And I speak to a lot of people. And every time I do, I just feel great about the decisions we've made and the position that we occupy in the market. And I think we're going to be continuing to kind of grow market share as more and more people are adopting this technology. More and more wallets come online, stablecoin AUM continues to grow. We're going to continue to win share in that environment. Jonathan Steinberg: Thanks, Will. Anything else, Logan? . Unknown Analyst: Yes. One other. That was very helpful. You mentioned kind of the lower seasonal performance fees with Ceres but it looked like the inflows were pretty strong this quarter. Just curious if you could unpack that a little bit. I mean is that just blocking and tackling by the Ceres team? Or how much of that is maybe your distribution capability starting to have an impact there? Jonathan Steinberg: So I think this is a combination, probably you, Bryan and maybe Jeremy. Bryan Edmiston: Yes, sure. So on the flow side, it was -- I can respond to the flow side. Let me take it and Jeremy, if there's anything else to feel free to elaborate. But -- it was a strong first quarter, $75 million in the quarter. Our first fund was closing. So the closure of that fund did accelerate flow into this particular quarter to get where investors wanted to get some money in before that fund closed, and we're focused on getting our second fund launched in the not-too-distant future. So from a flow perspective, look, we can expect variability quarter-to-quarter. We generally don't provide guidance on flows. But that said, I would say our long-term target remains unchanged. We're targeting $750 million over 5 years, and we'll see if that ultimately proves to be conservative. On the performance fee, -- there was some seasonality there. The fee was a bit lower than it was in the fourth quarter of last year. There was some seasonality. There wasn't much solar activity this quarter. But again, we'll see some ebbs and flows in the mark, but we don't foresee any changes in the earnings power of our prior guidance. Our framework remains consistent as it relates to what we've communicated in the past. Think about it as take your AUM, take a flow assumption, multiply it by, call it, a 7% return on average and then factor in our 15% participation rate to arrive at a performance fee and we'd say that's our baseline working assumption and then there's upside for solar and data center opportunities as well. So again, really no change versus what we had previously communicated. Jeremy Schwartz: Yes, this is Jeremy Schwartz, our CIO. The only thing I would say on the seasonality is that the way the appraisals work is the same farms are appraised in Q1 of each Q1. And that Q1 has happened to be a little bit below performance on a regular basis, the last 4, 5 years. So I think we'd expect to sort of as the other farms continue to get appraised from Q2, Q3, Q4, they tend to be a bit higher in terms of where they have been. And so that's just for now, that what we've been seeing on the performance trend. But we remain optimistic on where things are going. . Robert Lilien: Yes. And this is Jarrett. Let me just hop into Bryan mentioned how we closed Fund I and Fund II is on its way. Fund II is on its way, and that will be launched in the next couple of months. That is when the WisdomTree distribution team gets involved already without having the fund to market. We've got strong interest, a strong pipeline of live leads -- so we're pretty optimistic on that good track record of flows continuing. Jonathan Steinberg: And let me just add an all foreshadow something that become increasingly important to WisdomTree in the second half of this year and in 2027, you will see, I believe, in very farmland in ETFs. As you probably know, the 40 Act does allow for up to 15% of assets in illiquid assets, and we do see appropriate in some broad commodity and real estate ETFs and opportunity to put in farmland. And so that battle of privates and ETFs is something that WisdomTree is very focused on in the -- or really the second half of this year and the coming years. Unknown Analyst: Understood. Congrats on the continued strength, I will leave it there. Operator: Thank you. We have reached the end of our question-and-answer session. And I would like to turn the floor back over to Jonathan Steinberg for any closing comments. Jonathan Steinberg: Thank you. Yes, let me say something. As we approach the 20th anniversary of launching our first 20 ETFs this June, it's worth pausing to recognize just how far we've come and how well positioned we are for what comes next. Today, with $165 billion in assets under management and a global team of 400 employees, WisdomTree stands stronger than at any point in our history, the efficiency of our business model, the breadth and diversity of our product set and the distinctly entrepreneurial culture continues to differentiate us in a crowded and evolving industry. Our first quarter momentum is not an outlier. It's the continuation of years of consistent high-quality organic growth, delivering 17% annualized organic growth across a diversified asset base in a volatile market underscores both the resilience of our platform and the strength of client demand. At the same time, expanding margins or translating that growth into meaningful earnings per share acceleration. Importantly, we are not standing still. Our investments in tokenization and private assets or opening new avenues for growth and positioning WisdomTree at the forefront of where the industry is heading. Our commitment to shareholders is clear in the numbers. we've compounded earnings per share at 30% over the past 5 years and more than 50% over multiple 3-year periods. This isn't just strong growth. It's growth that is accelerating, driven by increasing scale and efficiency. With the impact of recent acquisitions of Ceres and Atlantic House coming online in the second quarter, we expect that acceleration to continue over the next several quarters, the trajectory is unmistakable. We are entering our next chapter from a position of strength with momentum with innovation and with discipline, all working in our favor. If the first 20 years were about building the foundation, the next 20 years will be about scaling it in ways that create even greater value for our clients and our shareholders. So I want to thank all of you for participating in today's call, and we'll speak to you next quarter. Thank you. Operator: Thank you, ladies and gentlemen. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time, and enjoy the rest of your day.
Operator: Thank you for standing by. My name is Amy, and I will be the conference operator for today. At this time, I would like to welcome everyone to the FIBRA Prologis First Quarter 2026 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Alexandra Violante, Head of Investor Relations. You may begin. Alexandra Violante: Thank you, Amy, and good morning, everyone. Welcome to our first quarter 2026 earnings conference call. Before we begin our prepared remarks, please note that all information disclosed during this call is proprietary and all rights are reserved. This material is provided for informational purposes only and is not a solicitation of an offer to buy or sell any securities. Forward-looking statements made during this call are based on information available as of today. Our actual results, performance, prospects or opportunities may differ materially from those expressed in or implied by the forward-looking statements. Additionally, during this call, we may refer to certain nonaccounting financial measures. The company does not assume any obligations to update or revise any of these forward-looking statements in the future, whether as a result of new information, future events or otherwise, except as required by law. As is our practice, we have prepared supplementary materials that we may reference during the call as well. If you have not already done so, I will encourage you to visit our website at fibraprologis.com and download this material. On today's call, we will hear from Hector Ibarzábal, our CEO, who will discuss our strategy and market conditions; and from Jorge Girault, our CFO, who will review results and guidance. Also joining us today is Federico Cantú, our Head of Operations. With that, it is my pleasure to hand the call over to Hector. Hector Ibarzabal: Thank you, Ale, and good morning, everyone. As you know, we launched the tender offer for FIBRA Macquarie fully aligned with our long-term strategy. Our proven track record executing similar transactions gives us confidence in our ability to unlock value through our operating platform. We ended the first quarter of 2026 with solid operational results, supported by the quality and resilience of our portfolio as well as exceptional service to customers provided through the strength of Prologis platform. As the environment becomes more balanced, our outlook remains constructive. On the market side, in the context of ongoing uncertainty around trade and USMCA, selective but important customer activity continues to move forward, driven by operational needs. New leasing activity continues in line with 2025 quarterly levels with improved performance in border markets, particularly in nonautomotive manufacturing. Mexico City moderated from last year's peak due to softer e-commerce demand, although we expect a near-term recovery. Net absorption totaled 4.3 million square feet, well below 2025 average levels, primarily reflecting tenant consolidations in Mexico City and some tariff-related impacts in Tijuana. We do not expect these matters to become a trend in upcoming quarters. Market rents continue to grow modestly, led by consumption markets, while most border markets have stabilized. On the supply side, deliveries of 9 million square feet were 24% lower than the 2025 average. Vacancy in our 6 markets increased 70 basis points to 6.8%, mainly driven by move-outs in the consumption markets. However, we expect to see a stabilization in national vacancy in the following quarters, considering that the development pipeline has already declined to half of the peak levels seen in 2023. Furthermore, our portfolio continues to demonstrate outperformance, supported not only by the quality and location of our assets, but also by the execution of our teams on the ground and our close relationship with customers. Our strategy remains centered on Mexico's key industrial markets where we see the strongest long-term fundamentals. In addition, our sponsor Prologis provides meaningful advantages, including deep customer relations, market intelligence, clean energy and access to low cost of capital. On the disposition front, we will continue executing our strategy by exiting non-core markets. In the meantime, we have been creating value through operating and re-leasing them with excellence. I need to be clear, we are selling good assets in good markets. We have the balance to hold them as they are generating value, and we will wait until the most adequate buyer appears. In summary, despite external noise, our business remains resilient. Our strategy is clear, and we are well positioned for long-term growth. Before I turn it over to Jorge, allow me to close on a more personal note. This marks my final earnings call after more than a decade with FIBRA Prologis and since our IPO in June of 2014. It has been a privilege to be part of this journey from the beginning and to participate in every earnings call along the way. I also had the opportunity to help start the business in Mexico in the early 2000s, making this journey especially meaningful to me. I'm particularly proud that FIBRA Prologis is today the largest FIBRA in Mexico by market capitalization. And among the most successful in total return since our IPO, reflecting the quality of our assets and the discipline and long-term vision behind our strategy. Looking ahead, the company is in very capable hands. Jorge will assume the role of CEO. We have worked together for more than 30 years, sharing a strong alignment of values and a deep understanding of the business. I can think of no one better to lead the company going forward. Alexandra will step into the CFO role. She has done an outstanding job leading Investor Relations, building a strong market [ conditions ] and demonstrating deep financial discipline. This is a well-deserved opportunity, and I'm confident she will do great. I'm deeply grateful to our investors for the trust, our customers for their partnership and especially to our team for their permanent commitment and excellence. We have built a platform defined by quality, discipline and long-term vision, one that I'm confident will continue to perform. I step down at the end of June, closing a great cycle with great pride in what we have accomplished and full confidence in FIBRA Prologis' future. With that, I'll turn it over to Jorge. Jorge Girault: Thank you, Hector, and good morning, everyone. Despite regional and global uncertainties in the context of USMCA and Middle East tensions, we started the year with a strong note. With the integration of Terrafina into FIBRA Prologis balance sheet, we are harvesting the synergies of the strength of our platform by lowering cost of capital through our investment-grade rating and lowering expenses for 2026. All this in line with our goal of value creation for our investors and our focus on growing in a diligent and prudent manner. Before reviewing our financial results, I'd like to note that starting this year, we will report exclusively in U.S. dollars, our functional currency. We will no longer present figures in pesos in our financial information. We believe this change simplifies the valuation of our performance. Moving to financial results. FFO was $99.6 million for the quarter or $0.06 per certificate, basically flat year-over-year. AFFO totaled approximately $80 million for the quarter, in line with our expectations. Let me go to our operational fundamentals. Leasing activity was 3.6 million square feet during the quarter. Our period end and average occupancy were around 97%. Same-store cash and GAAP NOI growth was 9.9% and 10.7%, respectively. Net effective rent change for the quarter and 12 months was close to 60%. As you can see, we keep on harvesting the mark-to-market in our portfolio, which stands today above 30%. What this means is that we can grow revenues without additional investment. This is a result of our strategy, people on the ground focused on delivering value and obviously, market dynamics. Turning to the balance sheet. We continue to operate with a conservative financial profile. We're maintaining a healthy loan-to-value and we'll keep on extending our debt maturities. We will use our financial flexibility to our investors' advantage with a focus on delivering superior quality returns. Moving to guidance. We're keeping our guidance unchanged, which you can see on Page 8 of our financial supplemental information. In terms of our tender offer for 100% of FIBRA Macquarie CBFI's, launched on April 7, which will close by May 12, I would like to remind you that we have all required approvals in place. Also, following law of regulation, we will not further comment on the progress of this transaction. Like Hector said, FIBRA Prologis is the largest FIBRA in Mexico by market capitalization and ranks among the top 20 publicly traded companies in the Mexican Stock Exchange. It's also among Prologis' largest vehicles globally by AUM and GLA. Mexico as a stand-alone market is Prologis' second largest in terms of area, underscoring Mexico as a key market out of 20 contracts Prologis invest in. Since our IPO, we have delivered approximately 490% total return or 16% annually, outperforming our peers. This reflects our ability to leverage Prologis global platform and execute a disciplined strategy. I want to thank our people on the ground for their commitment and support on achieving these outstanding results. Before I finish, I want to thank Hector for your guidance, support, friendship and for putting your faith in me 32 years ago. You're a great leader and an exceptional human being. I am grateful for the trust and opportunity from Prologis leadership. I follow the path of remarkable leaders, Antonio Gutiérrez Cortina, who founded Caxion; Luis Gutiérrez, who took the company into the institutional arena and Hector Ibarzábal, who brought it all together and built the company we know today with passion and dedication that have carried across generations. Hector, you are one of my closest friends and someone I deeply admire. Thank you for everything. I will miss you. I will miss our daily interactions. I wish you the best in the years ahead, which knowing you have yet to come. I also want to thank and welcome and congratulate Alexandra Violante, who has led Investor Relations for the past 5 years with excellence and Montserrat Chávez, who after 15 years leading SG&A will now take the IR role. I am very proud that these promotions came from within our team, ensuring continuity while positioning us for what's ahead. To our stakeholders, my commitment is clear to leverage our unmatched platform, portfolio and balance sheet to continue creating value in the years to come. With that, let me turn it to [indiscernible]. Operator: [Operator Instructions] The first call comes from the line of Pablo Monsivais with Barclays. Pablo Monsivais: First of all, Hector, we're going to miss you. Thank you for everything. And Jorge, Ale and Montse, congratulations on your new appointments. If I can ask to what extent the dynamics that you're seeing on softer trends in the consumption market could support medium-term rent increases? Are we seeing the peak of the cycle for rent increments? Hector Ibarzabal: Thank you, Pablo, for your words and for having been with us all this long way. I think consumption markets are evolving. It is a fact that consumption is slowing the pace a little bit. But as I have mentioned in previous occasions, when consumption gets tighter, e-commerce has even a greater opportunity. E-commerce is the best instrument that people have to make sure that their buying power is getting the most for the money. So probably the 2-digit growth on market rents in Mexico City were peak, as you mentioned. But eventually, I'm confident that in the short term, they will recover. Jorge Girault: Pablo, again, thanks for your words. This is Jorge. Regarding the portfolio itself, as I mentioned, the mark-to-market today is about 30%. So as we roll, we keep on harvesting that mark-to-market. So market rents as we have seen, especially in the border has softened. So the space between where our markets are, our rent markets, our portfolio rents are and the market is still pretty substantial, and we are harvesting that business. Operator: The next question comes from the line of Gordon Lee with BTG. Gordon Lee: I'd just like to echo Pablo's gratitude to Hector. My best wishes for whatever comes next. I'm sure it will be exciting and also my best wishes for Jorge, Ale and Montserrat. Just very quickly, it seems -- generally, it seems from your comments and I guess from the decision to launch new projects by PLD, together with other comments from companies that are involved in the development side of things, both public companies and private companies that it seems like there's a little bit more activity or more appetite from potential new clients for new space. So I was wondering what -- if there's a common theme to that or what you would attribute it to? Is it just the passage of time and that passage of time forcing decisions? Is it the view that whatever happens with USMCA in relative terms, Mexico will, for certain products, be better off than other locations? Or what is it that you're seeing, if you're seeing that's prompting that sort of increased appetite at the margin for space? Jorge Girault: Thank you, Gordon, and thank you for your words. Again, it's a little bit of everything you said. As Hector mentioned in his opening remarks, supply has come down, which is something good from occupancy levels and from market dynamics. Some markets are requiring this new development. Mexico City and Guadalajara are requiring bigger footprints, if you may. And we see some clients that are taking decisions regardless of the indecision on USMCA. So it's a little bit of both, and some markets are getting this type of traction. I don't know, Hector, if you want to add anything. Hector Ibarzabal: Yes. I think that leading companies, they do understand that this uncertainty will be or is already the new normal. And they have operational needs. So they are commencing to move forward important projects, I would say, understanding that this condition will not necessarily be defined automatically by the execution of the USMCA whenever it happens. So I think that the leading trends from important customers are going to be itself a confident sign to the remainder companies to keep on moving. Mexico fundamentals are strong, location, supply chain, availability of labor, and that's going nowhere. So we're confident about the future, even though we need to surpass these volatility times that we're currently living. Operator: Your next question comes from the line of Alejandra Obregon with Morgan Stanley. Alejandra Obregon: Hector, thank you for all the learnings and collaboration over the years. And I guess my very best wishes to all the entire team for what's coming next. So my question is a little bit perhaps a follow-up on the prior 2 questions. If you can perhaps elaborate on these leasing spreads and incremental demand on the margin, whether it's more visible in any particular market, especially on the manufacturing ones, whether you're growing more constructive in any of these markets on a given particular driver? So that would be my first question. And if I can double-click on that same question, but for the non-core portfolio, whether you're seeing any, I'm going to say, upside or downside risks for the assets that you have inside of the non-core portfolio? Federico Cantú: Thank you, Alejandra, for your question. This is Federico Cantú. So as far as leasing spreads, we don't break them out per market, but we have very healthy spreads across all our markets and especially in our consumption markets, Mexico City being a standout. So as Jorge mentioned, we expect to continue to harvest that -- our mark-to-market at 33% over the coming quarters. And even without any rent growth, we still have that opportunity. As our teams continue to leverage our customer experience, our locations, top quality product, that is something that our teams are very good at doing. And as it relates to the non-core portfolio, as was mentioned, we have had very good activity. Our teams are close to our customers. We had good leasing activity. We had good retention as well as we -- our mark-to-market is still also positive in those markets where there is activity. And so again, we feel good about that portfolio as well to continue to add value over time. Hector Ibarzabal: Let me highlight, Ale, what is happening in the non-core portfolio. Somehow, I mentioned it in my opening remarks. We have been able to increase in renewing contracts on the Terra portfolio 45.2% rents. There is no way that, that portfolio is not creating value when you have this type of re-leasing activity. So we are confident that the differentiation that Prologis has on making the right attention to the customer, providing the service and doing the right CapEx in the facility, plus all the other initiatives like clean energy that we're providing represents a real differentiator that allow us to be always on top of competitors regarding our leasing conditions. Our portfolio is gaining value. Development cost is not decreasing. So we are very confident and we understand well how much value we have created through Terrafina. And this is the main reason for us to have approached the following M&A transaction. We are confident that we will be able to replicate what we are doing and what we have done with Terrafina. Jorge Girault: And Ale, I don't want to make the answer more longer still, but to your question on the border markets and consumption markets. I mean if you look at the Page 12 of the supplemental financial information, you will see that market like Tijuana, which is a border market and has been softer, had almost a 72% increase in rent change and other market -- and Mexico City has almost 76%. So you can see how -- yes, the border markets are maybe softer, but the rent change depends on the venue of the -- the tenure of the lease agreement when you leased it at what levels and so on. So it's a mix of things, and we feel can harvest that. Operator: Thank you. The next question comes from the line of Piero Trotta with Citibank. Piero Trotta: Hector, wish you all the best for new phase and wish you luck and congratulations to Jorge as well. My question is regarding the better occupancy on the non-core portfolio, which improved to around 97%. I would like to understand what is driving this or was driven by disposition? And a question related to that as well is if tenants are becoming more price sensitive and migrating towards assets with lower rental rates? Or does the flight to quality trend remain intact? That's it. Federico Cantú: Thank you, Piero, for your question. So yes, we've had very good occupancy in our non-core portfolio. As I mentioned, our teams continue to stay close to our customers. We've had new leasing activity mostly in the Bajío region, and we've renewed important customers. So we feel good about our prospects, as we've mentioned, to continue to maintain and increase value in this portfolio. And as it relates to price, I want to highlight here the great quality of our buildings, as Hector mentioned, our investment in the properties, our top locations. We -- there is some of that flight to quality, as you mentioned, but also I would like to highlight the great job and the outstanding job our teams do on the ground to leverage our position and get to market rents and these lease spreads, which are phenomenal. So I'd like to again highlight that. And we do that across all our markets, leveraging our brand, our position and the great quality of the buildings that we have. Jorge Girault: And Piero, let me just -- this is Jorge, level-set on the question regarding the price on rent. Since IPO back in June 2014, we have lost maybe 9 tenants because of price increases. Rent is not the highest component of cost of our clients. Some have to take the decision because of M&A or other -- or they need more space or less space, whatever and we cannot deliver that. So that's an important fact. And again, the portfolio core or not non-core, it's a good portfolio. It's a good market. We treat everyone the same. But obviously, we will keep to our strategy. And this is one of the reasons that we have been keeping a good occupancy. It's not nuclear science. Operator: [Operator Instructions] The next call comes from the line of [indiscernible] with Goldman Sachs. Unknown Analyst: Here. So first off, I want to thank Hector. Thank you for the partnership over the last few years. It's been very insightful for our franchise. And I wish you well in whatever the future brings to you. And for the rest of the team, Jorge and Ale, I wish success in your new roles. So I wanted to follow up on the non-core portfolio. I know that there's been a couple of questions, but just wanted to understand a few items about it. So today, it accounts about for 24% of your GLA, 20% of NOI. You mentioned that there's been numerous investments done, upside has been delivered. But as I recall previously, you mentioned that you intended to divest part, if not all of this portfolio. So is the intention now to retain it and continue to grow it? And if so, could we see meaningful upside considering that occupancy has already reached around 97%. Those are my questions. Jorge Girault: Thank you, Gerardo. This is Jorge. To answer your question in a summary manner is we will keep to our strategy of investing in 6 markets, [indiscernible] 3 border markets and 3 consumption markets that we have always had. We will eventually sell our non-core portfolio. That's what we have said. It will take some time, and we've been harvesting the quality of those assets in the good markets and increasing the rents. We have -- I mean, like Hector said, on the Terrafina portfolio, we grew the rents 45%. In the part that we want to sell, the number has been close to 40% on rent increase. So we have been creating value in this portfolio. It has been, at the end of the day, in hindsight, a good thing not to sell it for now. That doesn't mean that we won't. We will keep to our strategy. But we want to do it in time. And like Hector said in his commentary at the beginning, at the right time and to the right buyer. And this is why we are not guiding on disposition. That doesn't mean we won't sell. It will take us some time. There has been, as you know, a lot of noise in the market, and we will take our time to sell and bring value to our investors, but that's the plan. Operator: At this time, there are no further questions. Mr. Ibarzábal, I would like to turn the call back over to you. Hector Ibarzabal: Thank you very much. I really appreciate your attention. Your time is very valuable. For me, it has been an impressive journey. And the most outstanding thing that I have done in the past besides the results that we have commented is all the close relations and all the many friends that I have been able to gather along the way. I'm not going anywhere far. So I wish you all the best, and I'm pretty confident that the new team will do it even better than what I was able to do. Thank you very much, and see you soon, guys. Operator: Thank you. That concludes today's conference call. You may now disconnect.
Operator: Good afternoon. This is the conference operator. Welcome, and thank you for joining the Credit Agricole First Quarter 2026 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Clotilde L'Angevin, Deputy General Manager of Credit Agricole. Please go ahead, madam. Clotilde L'Angevin: Thank you. Thank you very much. Hello, everybody. I'm conscious that this is a very busy day for you, so I'm going to try to be short. And so starting on Page 4 to tell you that we have solid results this quarter for Credit Agricole S.A., EUR 1.7 billion despite the turbulent environment. All of the Q1 2025 figures here are presented in pro forma. So for the Q1 2026, we don't change anything. But to compare it with the past, we consider that in the past, Banco BPM had been equity accounted at 20.1%. Now net income, therefore, increased by 1.8 percentage points -- percent sorry, pro forma, thanks to an increase in revenues to EUR 7 billion, supported by sustained activity, ongoing digitalization and strong client capture. We also have strong operational efficiency. The cost-to-income ratio improved by 0.6 percentage points quarter-on-quarter in CASA. And we have well-controlled risks with cautious provisioning on this quarter in the context of the conflicts in the Middle East. And all of this leads to a strong profitability, and we're posting a high ROTE at 13.7%. CET1 ratio is at 11.4%, well above the 11% target, which is impacted notably by M&A operations. We increased our position this quarter in Banco BPM capital, now reaching 22.9% since we decided to seize the opportunity of a dip in the share price in March to continue to build up our stake, but no change in our strategy. The group continues to develop. We announced this quarter the acquisition of a small Ukrainian bank, Lviv, in the west of the country that will allow Credit Agricole Ukraine to strengthen its positions with SMEs and with corporates in the agri sector. And we launched a couple of weeks ago, the European digital platform, Credit Agricole Savings in Germany, only 5 months after it was announced in our medium-term plan, ACT 2028. On the next slide, you see the key figures. We have a good performance of the group Credit Agricole, with a strong increase in net income, 5.5%, driven by revenues, 2.8%, which reached this quarter the record level of EUR 10 billion. In particular, this is thanks to the strong performance of regional banks revenues, 7.8%, which benefited from a spectacular upturn in net interest income by 34%. There is a cautious provisioning in all of the business lines in the context of geopolitical uncertainty, which leads to an increase in cost of risk on outstandings over 4 rolling quarters this quarter, but it remains under control. And of course, we maintain a strong position in terms of solvency and liquidity. So I talked to you about the impact of Banco BPM. We also have unfavorable market effects on insurance OCIs and on market RWAs for the CET1 of CASA. And we also have a front-loading of the consumption of CACIB's RWAs in order to accompany their customers. We can come to that a little bit later on when we talk about solvency. Now moving to Slide 7, activity. Activity was sustained across all of the business lines this quarter. This supported, in fact, the revenues. So what we can note this quarter is a strong customer capture, 600,000 new customers this quarter, 450,000 in France in retail banking. And what's important is that it also benefited from increased digital acquisition in France and in Italy. So we had client capture that was boosted by digital acquisition, in particular, for LCL with the launch of L by LCL Pro, which explains the increase in customer capture for the professionals, 20% of capture on professionals was digital. Digital acquisition also explains 40% of client capture for Credit Agricole Italia. And we're launching several 100% self-care digital solutions in France in home loans, in savings with the launch of full self-care securities accounts and share savings plans and with a new life insurance contract, Oriance . And in the regional banks, we're going to launch a full digital onboarding in a couple of days. Now if I move business by business to activity, in retail banking in France, credit production was strong, even though this performance was mainly driven by regional banks production in a very competitive market. Corporate and professionals loan growth was 7%. And in Italy, we had a very dynamic loan production for the corporates x 2 quarter-on-quarter in the context of a competitive market. And production is very dynamic in Poland, in particular, for individuals and in Egypt. The loans outstanding in the on-balance sheet assets continued to grow in France and in Italy, also the off-balance sheet assets. And so therefore, Asset Gathering division posted a very dynamic quarter. Thanks to insurance, where we have an increase in premium income on all of the activities, savings and retirement, personal insurance, P&C. We had a record net inflows of EUR 5.7 billion, of which EUR 1.5 billion, thanks to the Oriance solution, and we reached EUR 18 million contracts in P&C this quarter. We have a weather-related effect impact, but activity is still very strong. For Amundi, we have very strong net inflows and growing AUMs. The medium- to long-term inflows are strong, in particular, thanks to ETFs and index-based solutions and activity is dynamic in the third-party distributions and retirement solutions. And finally, in wealth management, the AUMs are increasing, and you can note the fact that we finalized the acquisition of the wealth management customers of BNP in Monaco this quarter. For personal finance and mobility, production increased year-on-year despite the unfavorable conditions in the car markets that weighed on our mobility activity and in particular, on remarketing, we had an increase in the stock of used cars this quarter, but production increased year-on-year for personal finance and mobility. And finally, in Large Customers division, the CIB posted its second best quarter after the record level that it had reached in the first quarter of last year. And so excluding FX impact, CIB is stable at this level, thanks to an excellent performance of investment banking and despite the wait-and-see attitude of our corporate customers and financing activities and the fact that FICC was impacted by a lower activity on primary markets. And finally, for CACEIS we had a high level of settlement and delivery volumes. It was boosted by market volatility. And of course, we continue to transform our business after the integration of the European activities of RBC. Now this feeds into revenues on the next slide that increased by 0.9% this quarter. If we read it on a like-for-like basis, i.e., if we exclude the Amundi U.S. deconsolidation for EUR 90 million in the first quarter of last year, and the impact of the first consolidation of ICG shares this quarter for EUR 68 million this quarter, revenues increased by 3.2%, sorry, Q1, Q1. Like-for-like, all of the business lines contributed positively to the growth in revenues, except for the Large Customers division, which is impacted by a EUR 69 million FX effect. Asset Gathering revenues decreased due to the scope effect. But excluding these two scope effects, we have an increase of EUR 59 million. It's mainly thanks to higher management fees and performance fees at Amundi, which more than offset a slight decline in insurance revenues impacted by the weather-related events that I talked to you about, storms and floods in P&C and impacted by a deterioration of market conditions in savings and retirement that was mostly absorbed by the CSM, but we have a residual revenue impact. For Large Customers, I was telling you that we have a very high quarter, second best after the record level that it reached in Q1 2025. For SFS, we have a positive price effect, which was offset this quarter by a change in the residual values of the cars in Drivalia. Drivalia, as you know, is a subsidiary of Credit Agricole Auto Bank. So this is why it has an impact on revenues. For retail banking, we had a very strong upturn in net interest income for LCL, plus 13% and a stability of net interest income in Italy. And we can see right now what we talked about in the medium-term plan for France, an increase in the net interest income, thanks to a reduction in the cost of resources, a normalization of the customer deposit mix and the rate effect and also the gradual repricing of loans and fees increased in all geographies. And finally, on the Corporate Centre, we had favorable volatility effects. Now moving to expenses. We have -- again, on a like-for-like basis, we have positive jaws, 1.7 percentage points. So we do have a few positive factors, in particular, the favorable FX impact on CIB costs and decreased provisions for variable compensation. But more importantly, operational efficiency is improving. We have this quarter, the full effect of the synergies for the CACEIS RBC operation, and therefore, we can confirm EUR 100 million additional income in 2026 linked to this operation. The group integration with [ Indosuez ] is progressing also. We now have 40% of synergies that are realized. And Amundi and Credit Agricole Italia are expecting cost savings in the subsequent quarters. We talked about that at the end of last year. And these positive jaws that we observe, we can observe them despite the fact that we continue to invest in our investments. We continue to invest in the transformation of LCL, as you can see here in retail banking. And we invest also in SFS for our Credit Agricole savings and development platform in Germany, for which the total costs are expected to be below EUR 50 million in 2026. Now moving to cost of risk. Cost of risk, in fact, decreased this quarter compared to the Q4 2025, but increased by 32% compared to Q1 2025, mainly due to our prudent provisioning in the context of geopolitical and economic uncertainty. Because as you can see, most of the increase is due to Stage 1 and Stage 2 provisioning, about EUR 100 million, including scenario updates. We adjusted the weighting of the different scenarios. This is for about EUR 38 million. And we added overlays, geographic and sectorial overlays related to the conflict in the Middle East, around EUR 28 million. So we have about EUR 60 million provisioning due to the Middle East conflict. We have other provisions that include legal risk that represent EUR 39 million, and those include an adjustment of EUR 17 million for the U.K. car loan litigation after the FCA released the conclusions of their consultation that they had launched at the end of last year. And so as you can see, despite these elements, the Stage 3 incurred cost of risk is very close to the Q1 2025 levels after a significant increase in Q4 2025. And if we look at what happens by business line, half of Stage 3 and total cost of risk is explained by SFS with CAPFM being the main contributor, but the increase in cost of risk for CAPFM is mainly driven by these S1, S2 additions. The Stage 3 provisions are relatively stable and they're even decreasing, in fact, due to successful sales of NPL portfolios. The increase in CIB is essentially due to Stage 1 and Stage 2 provisions linked to the Middle Eastern conflict and the cost of risk remains broadly low with investment-grade customers mainly and a diversified and a balanced geopolitical risk. For French Retail Banking, the cost of risk is under control after a strong increase in the Q4. The default flow remains steady, both for LCL and the regional banks, and it's mainly driven by professionals and SMEs. So what we're doing is we're continuing to monitor quite closely the same sectors that we talked about last year, retail, distribution, automobile, transportation for LCL and for the regional banks, real estate professionals, construction and farmers. And in Italy, cost of risk is decreasing and credit quality indicators are improving. So to conclude on this, there's no surge in loan loss provisions. We have an annualized cost of risk on outstandings that decreased Q1, Q4 and our credit quality indicators remain at a very good level. We have the NPLs that are stable. We have coverage ratio for CASA and loan loss reserves that are increasing, which will allow us to absorb surges in Stage 3 cost of risk going forward. As you know, our provisioning is always prudent, and that's also why, as I said, we remain cautious, and we continue to monitor closely these sectors that I was talking about. Skipping Slide 11 to move on to the Slide 12 on income. In fact, we have a solid income in a volatile environment. I just wanted to make two comments, the fact that we have equity accounted entities that are increasing. We have a decrease for SFS for leases related to losses on remarketing activity in the current automobile context, and we have an unfavorable base effect in China, but we have an up for Asset Gathering related to the ICG first consolidation impact. This is a one-off of EUR 85 million. And we also have a Victory Capital scope effect, which is the [ running ] contribution this quarter, thanks to synergies. So we now have ICG at 5.2%, and we plan to increase it to 9.9% over the rest of the year. And so next quarters, we're going to have a regular contribution in our equity account on ICG, but for this time, it's a one-off. And also, you have to recall that we're benefiting this quarter from the fact that we do not bear minority interest on CACEIS any longer compared to EUR 35 million per quarter in the Q1 2025. But most importantly, gross operating income is increasing on a like-for-like basis by 5.5%. We have 1.8% net income growth to EUR 1,676 million. So a very strong performance this quarter, thanks to strong activity and good operational efficiency. Solvency. Now we have a very high level of capital this quarter, and the CET1 ratio is at 11.4%, which is still well above our target at 11%, thanks to retained results. But we did have a decrease from 11.8% to 11.4% due to a certain number of elements. First, we have organic growth, 23 basis points. In particular, with an impact of CIB, which accounts for 14 basis points. Why? Because we have a couple of elements. We can come back to that afterwards, but we have, in particular, a market impact on the RWAs. And we also have a front-loading of the annual RWA budget in the first quarter for CACIB in the context of strong activity in March to support the customers of CACIB. That's the first dimension. Second, we have an M&A impact, 17 basis points, out of which we have 14 basis points linked to the increase in our stake in Banco BPM to 22.9% that I was talking about. In fact, this gives me the opportunity to mention the fact that in our past acquisitions, we completed the analysis that we did at the end of last year that showed that we had met our ROI criteria. In addition to these figures, we computed the average return on capital. You have that in the annex, and it's around 18%. So a quite profitable M&A past acquisitions. So organic growth, M&A. Finally, we have a methodological impact with CRR3 adjustments, and we have market effects on the insurance OCIs due to the rate spread and equity fluctuations by 4 basis points. So all in all, we remain at a very strong level of CET1 ratio for CASA, 11.4%, which allows us to provision EUR 0.26 per share in terms of dividend. The RWAs are increasing also due to a foreign effect -- foreign exchange impact for CACIB. This foreign exchange impact has no effect on the CET1 because, as you know, we immunize our CET1 ratio against adverse foreign exchange fluctuations on the dollar by neutralizing the impact on the numerator, but you do have that in the increase in the RWAs. Moving to the slide on the CET1 ratio of Group Credit Agricole. We have very strong capital at this level. As you know, our objective is not to accumulate capital at the level of CASA. So the relevant figure for the group is that of group Credit Agricole. We're very comfortably above our SREP requirement, which, as you know, has increased by [ 50 basis points ] this quarter due to the increase in the systemic buffer, but we're still very comfortable with 670 basis points above the requirement. And we have more or less the same impact that we had for CASA that I talked about. We have a little bit more limited impact of Banco BPM due to the exemption threshold that I was talking to you about last time. RWAs are increasing a little bit due to technical adjustments on the Basel IV impact on the corporate RWAs of the regional banks. And the leverage ratio is very comfortable as well as the TLAC and the MREL ratio. On liquidity on the next slide, very comfortable liquidity position, very high level of liquidity reserves, EUR 475 billion. The LCR and NSFR ratios are excellent. And just to tell you that almost 2/3 of our funding plan had already been completed during the first quarter. So we're very comfortable also in terms of funding plan. And as you can see here, we have stable customer deposits and very diversified and granular deposits. On the next slide, on transitions, we presented new targets in our ACT 2028 plan. Our objective, as you know, is to be a leader in customer capture and technology and, of course, a leader in transition, and we reaffirmed our net zero commitments. And so we have new targets, which are the following: one, to reach a green-brown ratio of 90:10. So we're well on track to reach this. Our second target is to reach EUR 240 billion in financing of environmental and social transition. The split today is 65% environment and 35% social. Again, we're well on track. And finally, CACIB should reach EUR 1 billion in annual revenues from sustainable finance. And just note that on the 24th of April, Amundi announced that they would be the asset manager of the GGBI fund. So that's something which we're proud of as well. And so coming to the last slide that I'm going to comment on, Slide 17, to conclude by saying that net income increased this quarter pro forma for CASA in the group, thanks to strong activity in all of the businesses in asset management, in insurance, thanks also to strong improvement in net interest income in France. We conquered customers. We accelerated digitalization. We rolled out -- started to roll out our medium-term plan with the launch of this European digital platform, CA Savings in Germany. We announced the acquisition this quarter of a small Ukrainian bank. We increased our position in Banco BPM capital that now reaches 22.9%. And so revenues increased to EUR 7 billion, thanks to this activity, digitalization and strong client capture. Operational efficiency is strong with favorable jaws and an improvement in cost-to-income ratio. Our risks are well controlled. We have cautious provisioning in the context of the conflict in the Middle East. And all of this leads to strong profitability. We're posting a high ROTE ratio at 13.7%. So these are very strong and solid results in an uncertain environment. I'm going to stop here. Thank you very much for your attention, and we can now open the floor to questions. Operator: [Operator Instructions] The first question is from Giulia Miotto, Morgan Stanley. Giulia Miotto: I have two. So first of all, on BAMI, you have increased the stake to 22.9%, but you have room to increase more to 29%. So how should we think about this one? Shall we assume that whenever there is a dip, you are interested to increase this? And also, in the past, you have stated that your preferred outcome would be a merger. Is that still how you're thinking about that? So that's the first question. The second one is instead on the launch in Germany, you said it's a couple of weeks old. Can you perhaps share some stats on how that is going, how you launched, what type of clients you are attracting, that would be super interesting. And then -- sorry, I actually have a final one, a number -- question on SFS. Revenues were down quarter-on-quarter. Costs were up. Any comment on the evolution of this business? Clotilde L'Angevin: All right. Thank you, Giulia, for your questions. So first, on Banco BPM. So first of all, maybe to explain a little bit, we had an authorization by the ECB to cross the 20% threshold and therefore, exercise significant influence without taking control. So we seized the opportunity of a dip in the stock price of Banco BPM to go beyond our 20.1% stake. And we did this for market reasons, we're not changing our long-term strategy. And our long-term strategy is really to be able to contribute to the value creation of Banco BPM. And so that's why we submitted our own list of candidates for the directors of Banco BPM as well as our own list of candidates for the statutory auditor role in order to offer a positive contribution to governance, holding more than 20% of capital. So our objective was to promote the creation of long-term value by presenting candidates with very solid and relevant expertise, and we had 4 directors that were selected at the end of the AGM, which corresponds, in fact, to our stake of 22.9%. So we're not ruling ever going out beyond, but you have to bear in mind that the authorization that we requested from the ECB was to cross the 20.1% threshold and therefore, exercise significant influence without taking control. On your question regarding the different scenarios, as always, there's a lot of scenarios that are possible. Most of them don't depend on us. They're positive for us because we have a strong position. We want to position ourselves as a long-term partner of Banco BPM. And I just want to remind you of the fact that our strategy has not changed in Italy. We have this partnership with Banco BPM, but we really want to develop our universal banking model in the long term, in particular, with Credit Agricole Italia for which we want to develop digitalization synergies with the other businesses. And we also want to develop these businesses, which are all present in Italy. So no change in this strategy, but our strong position allows us to be comfortable and a long-term partner of Banco BPM. That's on your first question. On your second question, yes, indeed, it's a couple of weeks old, but we're confident as to the success of this savings platform in Germany. So just to recall, in the medium-term plan, we said that we wanted to target 2 million customers. We're now at 1 million customers. We have EUR 15 billion in on-balance sheet savings, which we want to double in Germany. So the savings platform is going to help us do that. In fact, it's relatively simple because we already have the legal entity, Creditplus, what we're doing is we're building with a very low cost, in fact, it's less than EUR 10 million, this savings platform that will be turned into an app at the end of the year in order to provide also day-to-day banking. And what we consider to be our competitive edge is the fact that compared to a lot of competitors who have a limited number of on-balance sheet solutions. We have 7 offers in terms of on-balance sheet savings. So this is going to be interesting for the targets that we have, which are mass affluent and affluent customers. And then down the line, what we want to do is we want to expand by plugging onto that the off-balance sheet solutions, i.e., Amundi, Credit [ Agricole ] to really expand on the offer. But even with these 7 products that we have, we consider that we already have a competitive edge. So that was on Germany. Now on SFS. Maybe -- if we look on SFS, maybe a little bit more widely because we have a certain number of drivers for SFS. We have consumer finance per se for which we have strong positive price effects. And then we have a revenue impact of the second dimension, which is mobility. Now how is this working in terms of mobility? Now remember, in the Q4, we had talked about the reviewal of remarketing values of the vehicles for Leasys. Leasys is equity accounted, but we also have leasing activity in Credit Agricole Bank, which represents revenues for us. And so what happened in the Q1 was that in the first quarter, we have, as you know, an automobile market that is still slowing down, and this had impacted some of our partners, particularly in electronic -- electric cars. And so what we did for Credit Agricole Bank was to adjust the residual value of our vehicles portfolio, in particular, in the U.K. and in Italy. But production is increasing for Credit Agricole Bank, both compared to Q1 2025 and compared to Q4 2025. So we have a production that is increasing, but we have a negative impact of this revision of residual values at Drivalia. And we also have an impact at Leasys, which is due most here now to a decrease in car resale performance due to the increase in the stock of used vehicles. So we have -- to kind of sum it up, we have an automobile market that is depressed and in particular, with a certain number of players with which we have strong commercial activity ties who have had observed an increase in the stock of used cars. This has an impact on the residual value and the marketing value of our vehicles. But down the line, we're developing the drivers of profitability for mobility generally. Value-driven pricing, diversification of distribution channels, the improvement of remarketing processes with IT tools, efficiency. So of course, the evolution of the market is going to be key. And of course, there is a sensitivity. There is sensitivity of the residual values that every quarter have to be adjusted. But we have these drivers going forward, which allow us to be confident on the -- in particular, the restoration of profitability for leases. Operator: The next question is from Jacques-Henri Gaulard, Kepler Cheuvreux. Jacques-Henri Gaulard: If I may come back on SFS for a minute, I think the issue I have with it is the fact that it's sort of supposed to actually improve, and it seems the improvement really takes a lot of time. So it's more about getting a sense about where you think this business is going to turn around both at revenue level, but also on the equity accounted side. And when can you say, okay, we've definitely turned the page of that, and we're going to be able to actually look forward to, I don't know, second half of this year [ or 2027. ] That's the first question. The second is on capital. I mean, really, it happens that you had the consolidation of BPM. It's more the fact that everything being equal, do you think that we can proxy the CET1 towards the end of the year as being more or less now the retained earnings x 3, whatever that is. And are you expecting any sort of turbulence that could actually derail from that? Clotilde L'Angevin: All right. Thank you, Jacques-Henri. So in terms of inflection, we have to be very cautious because we do depend on the automobile market. And we do have, as I was saying, a strong sensitivity of the remarketing value of our automobiles to the stock of the vehicles -- of the used car vehicles. And this stock of the used car vehicles also depends on the capacity -- the production capacity of a lot of our partners. So for example, we're confident, for example, that Tesla is going to pick up. GAC, which is our partner in China. Also, there are more difficulties for Stellantis, but this is something that really depends on the market. Now profitability will pick up over the year, but it's true that we will have an effect of, in particular, the revision of remarketing value of the used cars in the Q4. We will going to carry a little bit of that effect from the next quarters because it does have an impact on the price that we're going to resell our cars at. So there will be an impact that will continue in 2026, but we are in a reversal, of course, compared to the Q4 of 2025. Now in terms of CET1, maybe to just take the opportunity of your question to really come back a little bit to the different elements that can explain the evolution that we have here in terms of the capital for CASA. So you're talking about what we can see by the end of the year. The guidance that I can give you for the end of the year is more that for the medium-term plan. For the medium-term plan, we're still -- we talked to you about the fact that we would have strategic flexibility of 150 basis points by the end of 2028 that could be used for M&A or for an exceptional dividend if we do not use that type of M&A. This quarter, we have used about 16 basis points -- 16, 17 basis points for M&A. And so excluding that, we're still very comfortable with our strategic flexibility at the end of the plan. And we're very comfortable also with the CET1 ratio that should remain comfortable by the end of 2026. Now why is that? Is that -- we're going to have indeed retained earnings. And what's also interesting is that a part of the impact of the RWAs of CACIB this quarter is, in particular, due to market activities, about EUR 3.1 billion in terms of market activities, as you can see on the CET1 slide. And we can say that roughly 2/3 of that are potentially reversible if the markets normalize. We have a volatility effect on the SAR of the trading portfolio. We have a trading book counterparty risk. These two effects are effects that could be reversible. So that's maybe -- if we break down the RWAs of CACIB, I guess we can say we have three dimensions. One is an FX effect, EUR 1 billion linked to the appreciation of the dollar between the Q4 and the Q1. Two is this effect linked to the market activities of which 2/3 are potentially reversible. And the rest is a front-loading of organic growth. We often have a front-loading of organic growth for the CIB in the first half of the year. And so we expect that we're going to have the impact on income, on revenue of that also by the end of the year. But again, all in all, we're comfortable with our CET1 ratio end of the year and 2028 and more importantly, with the strategic flexibility we were talking about in the medium-term plan. Operator: The next question is from Delphine Lee, JPMorgan. Delphine Lee: So first one is just double checking the guidance on net interest income that for LCL remains high single digit because obviously, that would imply a slowdown compared to Q1. And also what do you factor in for [ Livret A ] in your guidance? And also secondly, on Cariparma, I think you previously guided to -- for the year to have a bit of pressure on NII. Is that still the case? And is it something we should expect for the coming quarters? And then my last question is just to come back on Banco BPM. Just wanted to have a little bit of your thoughts around sort of the M&A scenarios. I know you mentioned they're not in your control. It looks like discussions have moved from Cariparma to now Monte dei Paschi. So just trying to understand a little bit sort of what you think could be possible for the group in terms of defending partnerships? Clotilde L'Angevin: All right. Thank you, Delphine, for your questions. So maybe first on net interest income for LCL, there is no change in our high single-digit guidance for 2026. Even though it's true that the rate scenario -- in fact, you still have these three effects that I was talking to you about before. On the asset side, you have a repricing. And the marginal increase in the rate scenario is favorable in this respect. Long-term rate increase is favorable for this repricing. It depends on the competitive capacity of LCL to reprice, but the rates are increasing in LCL and the regional banks. First point. Then you have on the liability side, you have the short-term rate where you can have a slight increase that can decrease the positive impact because you know that for the liabilities, the positive effect is when the cost of resources decreases. But we're well hedged against any increase in short-term rates because this time around, we don't have a real shock to the net interest to the rates. And so we should not have any significant shift in the liabilities mix. And also our macro hedging is quite strong, in particular for inflation. So things are relatively positive. We have no change in this high digit single -- high single-digit guidance for 2026, even though we have to always be careful as to the repricing capacity in a competitive market. Now for [ Livret A, for Livret A, ] we usually have a tendency to hedge the [ Livret A. ] So we do -- we could consider that we have, for example, a EUR 90 billion impact for the regional banks -- EUR 90 billion pre-centralization of [ Livret A ] for the regional banks. You have about EUR 18 billion for LCL pre-centralization. So you could consider an impact of the decrease in [ Livret A ] on that, which you can calculate, which is going to be a couple of hundred million, but this would be before hedging, and we have a tendency to hedge. So the impact on [ Livret A ] for us is relatively neutral. For your question on Credit Agricole Italia. Now we have a very competitive housing market in Italy. We have, in particular, renegotiations, which have an impact. And in fact, they did have an impact this quarter on the loans outstanding for the home loans, which was -- which decreased in Credit Agricole Italia this quarter. I talked about a very strong increase in corporate loan production. But in housing, we have a market which is very competitive. But despite this, we were quite happy to have the stabilization of net interest income. We're still prudent in terms of our guidance. So no change in our guidance in this respect, i.e., maybe just below 0 or around 0 this year before picking up afterwards in the coming years. M&A for Banco BPM. All right. So well, in fact, for M&A for Banco BPM, even though there's lots of -- there's been lots of noise, rumors, et cetera, regarding Banco BPM. For us, things have not really changed except the fact that since we are now -- we now have 4 seats at the Board, we will participate in the analysis of any scenarios that could present themselves to Banco BPM. And so we would participate in any decision regarding these different scenarios. That's all I can tell you for now. We're now -- we now have seats on the Board, and so we're going to be a player. We are at the table. We are a player in these different scenarios. But to tell you the truth, as I was saying before, a lot of these scenarios do not depend on us, but I think most of them are positive. Because as I was saying, we are a long-term player in Italy. We have many ways that we can develop in Italy, for example, organically through CAI, organically through our businesses. So all of this is positive. Operator: Next question is from Sharath Kumar, Deutsche Bank. Sharath Ramanathan: Firstly, on asset quality, your Middle East exposure at EUR 21 billion seems higher than peers. Can you elaborate on the nature and the risks in case of a prolonged conflict in the Middle East? And more broadly on asset quality, what risks do you see if oil prices remain well above $100 a barrel for a prolonged period? Then a couple of clarifications. Firstly, on the capital consumption for Banco BPM, when you increased the stake in 2025, the CET1 consumption was proportionately smaller commensurate to the stake increase versus the minus 14 basis points impact you have now. So if you can clarify on that? And lastly, again, a follow-up on Specialized Financial Services. Can you quantify the used car sales contribution maybe in '25 and first quarter, just to see where -- how much is the delta? And on equity accounted entities, previously, you said double-digit contribution from Leasys for 2026. Do you stick to this view? Clotilde L'Angevin: All right. Okay. Thank you. Now if I look at your question on loan loss reserves, if I move to Page 47 (sic) [ Page 46 ] in the annex, you have this level of loan loss reserves, which is at EUR 22.6 billion for Group Credit Agricole and EUR 9.7 billion for Credit Agricole S.A. And as you can see here, you have -- and you could do that if you have even longer period, you can see that prudent provisioning for us is in our DNA. In fact, we are provisioning, but we have always been doing so in the face of uncertainties, geopolitical uncertainties. And so this is also why we have this very high level of loan loss reserves, even though as you know, the impaired loans ratio, as you can see on Page 47 (sic) [ Page 46 ], is stable. And this is also why we have this very high coverage ratio of 82.6% at the level of the group. We have with our Stage 1 and 2 outstanding loan loss reserves, EUR 9.3 billion. We have about 3 years of cost of risk. And for CASA, with EUR 3.4 billion, we have about 1.5 years of cost of risk. But this is, in fact, a structural policy that we have, which is always to provision in a very prudent manner, the risks, and this is what we did this quarter. But of course, this is something that can, therefore, absorb any surge in Stage 3 cost of risk going forward. In terms of capital consumption, so I don't want to go back to the very technical discussion that we had in the Q4 regarding the first consolidation of Banco BPM. But just to tell you a little bit how things are working when you have these 14 basis points for the CET1 is that, in fact, when we increased our share from 20% -- 20.1% to 22.9% in fact, we're increasing it based upon an equity accounted value, which we have integrated around EUR 10. So we have a goodwill now based upon that. Any additional purchase of shares of Banco BPM has to be done with a goodwill. So you have a goodwill impact that is directly deducted, right? And because last year, when we did the first consolidation, we didn't have any goodwill because we consolidated at cost. And so we had badwill, right? So now you have a goodwill impact first, around EUR 120 million. And you also have an RWA impact, which is different from CASA between CASA and group Credit Agricole because for CASA, as you know, we have saturated the exemption threshold for the more than 10% participation, but we have not done that [indiscernible]. So that's why the impact for CASA is 14 basis points, whereas the impact for the group is 5 basis points. And then your last question on the used cars. In fact, we have a couple of dozen impacts of the residual value of cars for Drivalia that compensate for a favorable price effect for SFS on revenues. So you have just about, let's say, around EUR 30 million impact on -- positive impact on price effect and around EUR 30 million impact this quarter for Drivalia of the residual value of used cars. And for leasing, we have, of course, a remarketing issue. And what I can tell you about that is that we're having a situation where we're just about breakeven for Leasys, and we still confirm the guidance that I gave you at the -- in the Q4 call, which was a single-digit contribution for 2026. Operator: The next question is from Stefan Stalmann, Autonomous Research. Stefan-Michael Stalmann: I have two questions, please. So the first one is on your organic risk-weighted asset growth that you highlighted. It seems that you have actually seen a very major expansion of your exposure to non-bank financial institutions, so NBFI, which obviously receives quite a lot of market scrutiny these days. Can you maybe add a little bit of color on why you have grown this portfolio so rapidly in the first quarter? And the second point goes back to your ROIC disclosure. That's very helpful. It looks like you spent EUR 12.5 billion on your acquisitions over this time horizon, but your regulatory capital requirements were about EUR 4 billion lower. Can you maybe explain what exactly drove that discount and which transactions, in particular, required so much less regulatory capital than what you spent on these deals? Clotilde L'Angevin: All right. So first, the question on our exposure. As you can see on Page 50 in the annex, we have our exposure to other nonbinding financial -- non-banking sorry, financial activities that have not changed significantly. This figure is something that takes into account a lot of elements that are not only, for example, hedge funds, but you have securitization vehicles, you have monetary funds, you have hedge funds, you have broker-dealers, investments, you have all of the insurance banks outside of the EU. So this figure, for example, when you have securitization by CACIB for its customers, it's our NBFI and it's a figure that, in fact, adds up a lot of bits and pieces and that's difficult to interpret. What I want to tell you regarding the fact that the issue that has worried maybe a lot of observers recently is regarding our debt fund exposure. And so on private debt, our exposure as of end of March is EUR 2.9 billion, very low, 0.2% of our commercial lending. And as you can see on Page 49, we gave you a certain number of elements regarding the LBO exposure, which is very low, commercial real estate, which is again low with a lot of investment grade. And of course, our Middle East exposure, which is, in fact, mainly on the sovereign and state-owned exposures. Now thank you, Stefan, for highlighting, in fact, the work we did, the team's work to calculate, in fact, the return on capital of these operations. These operations, the EUR 12.5 billion that I was talking about, in fact, we looked at the operations that it is possible to calculate an ROIC on. So you have on big operations, you're going to have a lot of Amundi operations. You have Pioneer, for example, you have Lyxor, you have Sabadell Asset Management. We have also [ Indosuez ] operations with the group. We have CACEIS for example, for Santander. So we have a lot of different operations. Of course, the buyback of the Santander Securities Service share in CACEIS. So all of these operations have different figures in terms of regulated capital. And what I wanted to stress about was the fact that to calculate this return on invested capital, what we take into account is we take the net income group share. And on the denominator, we take the effect of the minority interest, the goodwill, badwill, and we suppose that we have 11% of RWAs. So all in all, the calculations are different for each of these types of operations that I talked about, but they have very different maturities. The ROI is different according to the timing. The ROIC is different according to the timing. And this is a picture of these operations as of 2025. But really what we wanted to insist upon was the fact that we have the very strict financial criteria that we talked about in the medium-term plan, ROI accretive. This is a figure that shows you that we have this accretive nature of our activity, but also the integration capacity and the alignment with our strategy. So this is what we wanted to insist upon on, and insisting upon the fact that the 18% figure is quite strong. Stefan-Michael Stalmann: Could I just follow up on this, please? I mean the common denominator here on the slide seems to be that from a regulatory capital perspective, you need a lot less capital than what you actually spent on the acquisitions. And I'm just curious about why this gap is there. Is there anything that you -- any color that you could add there? Clotilde L'Angevin: I think what it really depends on the nature of the operation and the nature of the businesses that made these acquisitions, Amundi, CACEIS and [ Indosuez ]. And so when we look at the denominator for CET1, the way we look at it is that we take off the impact of goodwill, badwills, minority interest, and we consider that we have 11% of RWAs, which is, in fact, a way that we transpose the targets that we have for CET1 to the different businesses. So it's de facto an internal allocation of RWAs between our businesses. So this is the way we look at the profitability of these operations business by business, comparing them to the target we have, which is 11% of CET1. Operator: The next question is from Benoit Valleaux, ODDO BHF. Benoit Valleaux: Two short questions on my side on insurance. The first one in P&C. You have an increase of your combined ratio of 2.5 percentage points versus last year. You mentioned a very high level of nat cat losses in Q1. I'd just like to know if you can quantify in absolute terms this level of nat cat Q1 this year versus -- and the change versus Q1 last year, just to see how revenues in P&C would have evolved without this nat cat event. And the second question on the life side. So very strong activity in Q1. Nevertheless, the CSM decreased by 1.9 percentage points due to negative market impact. I'd just like to know what would have been the increase without this market impact into the CSM. Clotilde L'Angevin: All right. Thank you, Benoit, for your questions. They are very -- always very interesting on insurance. So regarding the weather-related claims, in fact, the gross impact is just above EUR 200 million this quarter. It's a gross impact linked to storms on the Atlantic front, to floods. And so this impact is quite close to -- if you do a rule of thumb to what we could expect with the market share of P&C Pacifica, which is about 12% market share for this type of insurance. And so this is the gross impact. And thanks to a certain number of absorption mechanisms, thanks to reversals of provisions, what we can say is that the impact in terms of variation Q1-Q1 of this weather-related claims is below EUR 50 million. That's the first point. The second point is that indeed, we always look now for insurance at the CSM. And what's important for us is always to say, and this is what we say this quarter, that we have a new business contribution that is higher than the CSM allocation. But you're right to point out the fact that we had a decrease in March compared to December due to these market effects. We have market effect on revenues in [ Credit Agricole Assurances ] due to the equity I mentioned, but we also have and that's the most -- the majority of it, the market effect in insurance feed into the CSM. Now if we did not have this market impact, we -- I can say we would have about plus 8% impact, [ plus 8% ] growth of the CSM between December and March, which is quite logical if you look at the very strong and record net inflows this quarter of insurance, which was, as you can see, EUR 5.7 billion this quarter. So this is reflected in the growth, excluding market effects of the CSM, which remains at a very high level, [ EUR 27 billion. ] Operator: The next question is from Tarik El Mejjad, Bank of America. Tarik El Mejjad: Just a very quick two questions, please. First one is on the capital treatment of future growth or provisioning, if that goes both ways? And how often you will adjust basically that provisioning? Is it every quarter? Or is it your own judgment? And secondly, on... Clotilde L'Angevin: Sorry, Tarik. Can you repeat the question, sorry, the capital provision on what, sorry? Tarik El Mejjad: On growth, the growth you have on your capital trajectory in the quarter that you took upfront. Clotilde L'Angevin: Okay. The front-loading of RWAs in CACIB, that's what you're talking about, right? Tarik El Mejjad: Correct. And sorry, been a long day. And then the -- on CASA -- sorry, on the -- yes, CASA, I mean, Credit Agricole's EUR 800 million investments in CASA. I mean, I know you say as Credit Agricole, but I mean, the liquidity now is getting even lower. And what do you think the rationale and the end game there? Clotilde L'Angevin: All right. Thank you, Tarik, for your questions. It's been a long day, I know, for all of you guys. So thank you for listening to all of these elements that are oftentimes technical, but which reflect the diversity of our group. So this front-loading, the front-loading that we have of CACIB is, in fact, relatively -- of the RWAs of CACIB, sorry, is in fact, not that special because we do have a tendency to front-load the RWAs in order to front-load the effect that we're going to have in revenues. This time, we front-loaded the organic growth to take an advantage of the active markets in March. So this dimension is not per se reversible. It's the front loading. What's reversible is the 2/3 that I was talking about of the impact on RWAs of the market activities, the volatility impact and the counterparty issuer spreads for the trading book counterparty risk. So here, this -- so if you take that off, if you take off the FX effect, the rest of the growth of CACIB, you're going to have between EUR 1 billion and EUR 2 billion, that's the front-loaded organic growth. You have a little bit which is related, by the way, to rating downgrades in line with increased provisions, but the rating downgrades, when is that going to stop, it's difficult to say. But I would not say that the front-loading is reversible. I would say that the front-loading, we hope to see the impact on results in the coming quarters of this front-loading. Now the SAS, as you know, we are -- SAS Rue La Boetie, which is our today, 63.5% shareholder. So we are, as you know, the daughter, they are the mother. So I cannot comment on what they're saying. But what I can tell you is that they are a very sophisticated investor that knows us very well. And so this program, as you know, they said that they would remain below 65%. They reiterated that, that they had said before. This program is a way for our regional bank, the mother, to really take stock of the fact that we have strong profitability and it is a good idea to invest in Credit Agricole S.A. for the future. They have -- they trust very much our medium-term plan, which is based on customer capture, which is based on transformation, which will provide strong profitability, EUR 8.8 billion in net income at the end of the medium-term plan. And this is very much aligned with their objectives, which is to develop customer capture, to develop performance profitability, to develop capital liquidity at the level of the group. So all of this is very consistent. There is no change in any form of endgame from what -- as much as I know of. For us, it's really the fact that they're investing in a very profitable stake, which is CASA. Operator: The next question is from Alberto Artoni, Intesa Sanpaolo. Alberto Artoni: I have just two quick ones. The first is on capital. And I just noticed that there are 11 basis points of capital consumption this quarter, which relates to methodologies and model changes. And I was wondering if this 11 basis points can -- is on top or can be referred to the slide that you presented when the ACT '28 plan was introduced in which you allowed for 40 basis point regulatory and methodology increases during the plan. So is this part of this 40, so it means that there are 29 left? Or is still 40 to go and this is on top? Clotilde L'Angevin: All right. Thank you for your question. In fact, when we look at the medium-term plan, we look excluding CRR3 impact. And this 11 basis points impact is, in fact, an end of the year impact of CRR3. So it is excluded from the 40 basis points of methodology because what we do in the medium-term plan is that we consider everything to be besides CRR3 impact because in the medium-term plan, if you recall, we had talked about the CRR3 impact, which was 50 basis points. And then we added on this 40 basis points, which was regulatory and methodological impact, including FRTB, which is beyond CRR3. So what I think we can say is that this is kind of the end today of CRR3 impact mostly, mostly. Alberto Artoni: Okay. Very clear. And my second question, just a quick clarification on the Banco BPM stake. Is there -- do the regional banks have a direct stake in Banco BPM? So at the group level, what is the stake? Is it higher than 22.9% or is it 22.9%? Clotilde L'Angevin: No, it's 22.9%. 22.9%, CASA stake. Alberto Artoni: Okay. Okay. So the group does not -- the regional banks do not hold any stake in Banco BPM. Clotilde L'Angevin: Yes. Indirectly, of course -- no. Our stake is 22.9% and it's CASA. Operator: The next question is from Chris Hallam, Goldman Sachs. Chris Hallam: Just two. The first is a bit of a follow-up to Jacques-Henri's question earlier on capital. Could you just maybe just remind us what you can already see coming on capital through the remaining 9 months of the year? Because if I look over the last 5 years or so, you typically haven't really seen an increase in the CET1 ratio through the second, third, fourth quarter for a variety of reasons, including M&A. But consensus as of today now has a 60 basis point increase from here to year-end. So any steer you could give on that would be super helpful. And then again, it's a bit of a follow-up to an earlier question. So not regarding the 14 basis points on BPM, but just how much capital is the whole BPM stake currently consuming? Or put another way, if you sold it today at the latest price, how much capital would be released? Clotilde L'Angevin: All right. So it's difficult to tell you, Chris, for the capital. I prefer to give you guidance regarding the medium-term plan. For the medium-term plan, we're comfortable with our 11% target and our 150 basis point flexibility to which we take off the 16 basis points that we have today. That's all I can tell you, but I can tell you that we're not worried about capital going forward also because we always know that we can develop also the optimization, the securitizations that we can do in particular with SRTs because, as you know, our SRTs are lower than that of what our peers are doing today. Now for Banco BPM, for Banco BPM, we have a EUR 3 billion stake that we equity accounted at the end of last year. Now we have an increase in that, which we bought at the share price, of course. So you have to add to that the share price impact, but in any case, this capital impact of the equity accounted value plus the impact of the increase in the share price, which represents about EUR 120 million in terms of goodwill. This is something that will generate in terms of equity accounted value. It will generate based upon, of course, the income of Banco BPM, something around EUR 100 million every quarter in terms of P&L impact. Operator: The next question is a follow-up from Sharath Kumar, Deutsche Bank. Sharath Ramanathan: Apologies for following up. Just two quick ones. Firstly, on Leasys equity contribution, I think you said double-digit contribution during the fourth quarter earnings. Today, I heard you say single-digit contribution, if you can clarify? Secondly, on interim dividend, can you confirm if the policy is to pay 50% of the first half net profit in October? Clotilde L'Angevin: All right. Thank you. Yes, for Leasys, what I'm telling you when I'm talking about double-digit contribution is talking about the year contribution for the year 2026. So here, we were just about breakeven in the first quarter. So you can see that that's going to pick up because what I'm confirming is a double-digit contribution to yearly net income. And so yes, for the interim, what we're going to do is we're going to apply a 50% payout ratio on the 15th of October based upon the first half year net income. And so we're really adopting market practice in this respect. Operator: [Operator Instructions] Miss L'Angevin, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Clotilde L'Angevin: All right. Thank you. Thank you very much, everybody. I'm really feeling for you in this very long day. I just wanted to tell you that we have our next meeting for you guys, which is the workshop that we're organizing for LCL, which is on the 26th of May, sorry. Thank you, Cecile. On the 26th of May, so we're going to be very happy to see you at that time. That's our next meeting. And of course, we have the General Assembly just before that on the 20th of May in Saint-Brieuc in Brittany, where we hope there's going to be a lot of sun. So looking forward to see you guys there and have a very relaxing weekend after this long week of earnings calls. Bye-bye, everyone. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.