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Operator: Good morning, ladies and gentlemen, and welcome to the Standex International Fiscal Third Quarter 2026 Financial Results Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, May 1, 2026. And now I would like to turn the conference over to Christopher Howe, Director of Investor Relations. Please go ahead. Huang Howe: Thank you, operator, and good morning. Please note that the presentation accompanying management's remarks can be found on the Investor Relations portion of the company's website at www.standex.com. Please refer to Standex's safe harbor statement on Slide 2. Matters that Standex management will discuss on today's conference call include predictions, estimates, expectations and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex's most recent annual report on Form 10-K as well as other SEC filings and public announcements for a detailed list of risk factors. In addition, I'd like to remind you that today's discussion will include references to the non-GAAP measures of EBIT, which is earnings before interest and taxes; adjusted EBITDA, which is earnings before interest, taxes, depreciation and amortization; adjusted EBITDA, EBITDA margin and adjusted EBITDA margin. We will also refer to other non-GAAP measures, including adjusted net income, adjusted operating income, adjusted net income from continuing operations, adjusted earnings per share, adjusted operating margin, free operating cash flow and pro forma net debt to EBITDA. Adjusted measures exclude the impact of restructuring, purchase accounting, amortization from acquired intangible assets, acquisition-related expenses and onetime items. These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the company's financial performance. On the call today is Standex's Chairman, President and Chief Executive Officer, David Dunbar; and Chief Financial Officer and Treasurer, Ademir Sarcevic. David Dunbar: Thank you, Chris. Good morning, and welcome to our fiscal third quarter 2026 conference call. This quarter provides another strong proof point that our strategy, shifting to our faster-growing end markets and increasing new product development is working. We delivered top line sales growth of 8%, including organic growth of 6.5%. Our sales in the fast-growing end markets are now about 30% of our total, and new products are expected to add 300 basis points of growth to our 2026 sales results. It is also exciting to see how the mix of our businesses has evolved. Today, Electronics and our Engineering Technologies business generate about 70% of sales and nearly 80% of total segment profits, both built around custom-engineered solutions for attractive secular markets. That mix shift is what we set out to achieve. Our Engineering Technologies segment has effectively repositioned itself as a vital partner for space, defense and aviation customers. So we are renaming the segment Standex Aerospace & Defense. Looking ahead, demand remains healthy. Company-wide book-to-bill was 1.05 and Electronics delivered 1.14, setting us up well as we move into the fourth quarter. I would like to thank our employees, our executives and the Board of Directors for their efforts and continued dedication and support that drove our solid fiscal third quarter 2026 results. Now let's look at the results beginning on Slide 3. In the third quarter, sales increased 8.1% year-on-year to $224.6 million, including 6.5% organic growth. Electronics grew 6.8% organically. New product sales grew approximately 40% to approximately $18.7 million. Sales in the fast-growth markets were approximately $69 million, more than 30% of total sales. We are pleased with the momentum in the business reflected in an overall book-to-bill ratio of 1.05 and within Electronics of 1.14. Adjusted operating margin of 19.7%, was up 30 basis points year-on-year. On March 6, we completed the divestiture of Federal Industries at an enterprise value of approximately $70 million. This is in line with our Portfolio Simplification strategy, allowing us to focus our management and capital resources more on fast growth markets and new product launches. We used the proceeds to pay down about $62 million of debt, reducing net leverage to 1.9x. Beginning this quarter, we will report under four operating segments: Electronics, Aerospace & Defense, Scientific and Engraving & Hydraulics. The Hydraulics business has been combined with the Engraving business under the Engraving & Hydraulics segment. This divestiture continues a decade of deliberate portfolio shaping toward higher growth, higher-margin businesses. In 2014, we operated 16 businesses. Today, we're down to 5. And following the Amran/Narayan acquisition, Electronics represents more than half of Standex, helping drive the performance you see today. Our original fiscal year 2026 sales outlook included a full year contribution from Federal Industries. Even after the Federal divestiture, we still expect fiscal 2026 revenue to increase by about $100 million versus 2025, supported by momentum in new products and fast growth markets, especially in Electronics and Aerospace & Defense. I'm pleased with the momentum that we are building and launching new products. We expect to launch more than 15 new products this fiscal year on top of 16 new products last fiscal year. We expect new product sales pro forma for the Federal divestiture to grow by $24 million to $64 million, adding nearly 300 basis points of organic growth in the year. Our sales into the fast-growing markets such as Space, Defense and Grid, are expected to increase to approximately $270 million, constituting about 30% of our total sales. On a sequential basis, we expect slightly higher revenue driven by higher contributions from fast growth end markets and new product sales and slightly to moderately higher adjusted operating margin due to higher volume and pricing and productivity initiatives, partially offset by growth investments. On a year-on-year basis, in fiscal fourth quarter 2026, we expect slightly to moderately higher revenue, driven by mid- to high single-digit organic growth from growing backlog in fast-growth markets and increased new product sales, partially offset by the revenue impact from the Federal divestiture. We expect slightly lower adjusted operating margin as organic growth and realization of productivity actions are more than offset by growth investments in capacity expansions, higher medical costs and increased variable compensation expenses. I will now turn the call over to Ademir to discuss our financial performance in greater detail. Ademir Sarcevic: Thank you, David, and good morning, everyone. Let's turn to Slide 4, third quarter 2026 summary. On a consolidated basis, total revenue increased approximately 8.1% year-on-year to $224.6 million. This reflected organic growth of 6.5%, 0.2% benefit from acquisitions and 1.4% benefit from foreign currency. Third quarter 2026 adjusted operating margin increased 30 basis points year-on-year to 19.7%. Adjusted earnings per share increased 13.5% year-on-year to $2.21. Net cash provided by operating activities was $9 million in the third quarter of fiscal 2026 compared to $9.6 million a year ago. Capital expenditures were $2.7 million compared to $6.1 million a year ago. As a result, we generated fiscal third quarter free cash flow of $6.3 million compared to $3.5 million a year ago. Now please turn to Slide 5, and I will begin to discuss our segment performance and outlook, beginning with Electronics and Aerospace & Defense. Electronics revenue increased 7.6% year-on-year to a record $119.7 million, driven by organic growth of 6.8% and 0.8% benefit from foreign currency. Organic growth was driven by sales into fast-growth markets and increased new product sales. Adjusted operating margin of 29.3% in fiscal third quarter 2026 decreased 50 basis points year-on-year due to growth investments, partially offset by higher volume, pricing initiatives and product mix. Our book-to-bill in fiscal third quarter was 1.14 with orders of approximately $136 million. This marks the seventh consecutive quarter with book-to-bill near or above 1. This consistent streak of book-to-bill around 1, targeted capacity expansion within grid an acceleration in new product sales adds durability to our growth. In addition, our monthly order for over $50 million in both March and April, further indicating robust demand and a run rate to a strong fiscal 2027 performance as these orders convert into sales. Sequentially, in fiscal fourth quarter 2026, we expect slightly to moderately higher revenue, reflecting higher sales into fast growth end markets and increased new product sales. We expect slightly higher adjusted operating margin, primarily due to higher revenue, partially offset by continued growth investments. On a year-on-year basis, we expect high single-digit organic growth. Aerospace & Defense revenue increased 33.7% to $36.6 million, driven by organic growth of 20.8%, 12.2% benefit from recent McStarlite acquisition and 0.7% benefit from foreign currency. Organic growth was driven by increased project activity in the commercialization of space end market. Adjusted operating margin of 18% decreased 60 basis points year-on-year, primarily due to project mix. Sequentially, we expect slightly to moderately higher revenue due to growth in new product sales and more favorable project timing. We expect slightly to moderately higher adjusted operating margin due to higher volume and realization of productivity initiatives. On a year-on-year basis, we expect double-digit organic growth. Now please turn to Slide 6 for a discussion of the Scientific and Engraving & Hydraulics segment. Scientific revenue decreased 1.7% to $18 million primarily due to organic decline from lower demand from academic and research institutions affected by NIH cuts. Adjusted operating margin of 21.9% decreased 70 basis points year-on-year due to lower sales. Sequentially, we expect slightly higher revenue and similar adjusted operating margin due to product mix. Engraving & Hydraulics revenue increased 2.2% to $44.8 million, driven by 4% benefit from foreign currency, partially offset by organic decline of 1.8%. The organic decline was driven by general market weakness for hydraulic cylinders. Adjusted operating margin of 14.3% in fiscal third quarter 2026 increased 210 basis points year-on-year due to higher sales and realization of previously executed restructuring actions. In our next fiscal quarter, on a sequential basis, we expect slightly lower revenue and similar to slightly higher adjusted operating margin from realization of restructuring actions and productivity initiatives. Next, please turn to Slide 7 for a summary of Standex's liquidity statistics and capitalization structure. Our current available liquidity is approximately $191 million. At the end of the third quarter, Standex had net debt of $369.1 million compared to net debt of $470.4 million at the end of fiscal third quarter 2025. Our net leverage ratio currently stands at 1.9x. We paid down our debt by approximately $62 million during the fiscal third quarter 2026. In fiscal fourth quarter 2026, we expect interest expense between $6.8 million and $7 million. Standex's long-term debt at the end of fiscal third quarter 2026 was $472.8 million. Cash and cash equivalents totaled $103.7 million. We declared our 247th quarterly consecutive cash dividend of $0.34 per share and approximately 6.3% increase year-on-year. In fiscal 2026, we expect capital expenditures between $27 million and $30 million. I will now turn the call over to David for concluding remarks. David Dunbar: Thank you, Ademir. Please turn to Slide 8. To summarize, I'm very pleased to see the continued organic growth in the third quarter with a book-to-bill ratio of 1.05, when adjusted for the Federal divestiture. Organic growth was driven by our Electronics and Aerospace & Defense segments, which grew 6.8% and 20.8%, respectively. We will continue to align our organic and inorganic growth investments around secular end markets and new products that expand our presence and deepen our customer relationships. Our acquisition strategy will continue to focus on businesses with accretive margins, exposure to fast-growth markets and delivery of customer solutions. With the divestiture of Federal Industries, we have realigned our company around four operating segments. We expect fiscal 2026 sales to increase approximately $100 million over fiscal 2025, with margin expansion. While we remain on course, we will provide an update to our long-term targets on the next earnings call, considering the changing portfolio composition with the Federal Industries' divestiture. We will now open the line for questions. Operator: [Operator Instructions] First, we will hear from Chris Moore with CJS Securities. Christopher Moore: Maybe we could start on the defense opportunity. You talked about providing missile nose cones solutions, include nose cones for interceptors, tactile missiles as well as development hypersonics. Maybe can you just give us a sense for the scale of that opportunity? What kind of orders look like? Is there -- are there long lead times? Just any thoughts there would be really helpful. David Dunbar: Yes. So there, we're talking about within the Engineering Technologies. We have -- we serve defense in the magnetics business in Electronics and in Engineering Technologies. The Engineering Technologies business provides nose cones out of their Wisconsin facility. And about 15% of the Engineering Technologies -- or Aerospace & Defense segment is defense. Most of that is missiles. There is an opportunity to significantly increase that in the coming years. We have had discussions with customers and actually with the Under Secretary of the Department of Defense asking if we are able to ramp and they give us different scenarios. These upper scenarios really kind of depend on the government procurement process, passing orders from multiyear commitments to us. We have received some orders, we expect a nice increase in those sales in 2027, potentially greater if they can unlock the procurement process. Christopher Moore: Got it. I appreciate that. Maybe just switch gears to Amran/Narayan. Just in terms of the Croatian facility, trying to understand where you are in terms of construction? And then just in terms of creating the infrastructure for full market penetration there, what's a reasonable time frame? And are the competitive dynamics much different in Europe than you see in the U.S? David Dunbar: Yes. There's a lot in that question. We had no presence in Croatia with that business before. There was no footprint in Europe. We now have the Croatia site. It is operating. We made our first products a few weeks ago. We have customers visiting this month and next to qualify the site. We have external auditors to achieve various certifications, including ISO certifications that we expect in June. So shipments are beginning at a kind of a slow rate, begin to ramp much more quickly after those June audits are complete. So we're still confident that our longer-term expectation of at least $60 million in 3 to 5 years is reasonable based on the commitments we have from our current European customers. We are also now building a sales -- a commercial organization in Europe so we can understand your third question, which is what about the competitive dynamics there? There is certainly more opportunity than we see. It's a larger market than North America. It's a much larger market than India. And we have -- so we believe once we're on the ground with our sales team with the site there, we will be able to answer that third question for you and figure out what we need to do to take that $60 million expectation higher. Christopher Moore: Just a quick follow up. Probably, we're a couple of years before you're really accelerating in Europe? David Dunbar: We ship into Europe from India now. So some of those shipments will begin to come from Europe. We'll continue to ship from India. So in our FY '27, we think upper single-digit million shipment number is kind of a reasonable expectation. There is upside to that. How it ramps beyond that, I guess we'll have to report in the coming year or so. But there certainly is upside because the market is there, and we have the footprint and are building capacity to grow beyond that. Operator: next question will be from Matt Koranda at ROTH Capital Partners. Matt Koranda: I guess I just want to start with the Electronics segment and the order flow looks like it's up north of 75% year-on-year. Wanted to hear a little bit about the drivers of the strength and order flow between grid and the core magnetics and Sensing Solutions business. David Dunbar: Yes. So the growth, I may have to add, Matt, about the 75%, I don't see the 75% math. We had great book-to-bill, 1.14 on growing sales. We're seeing strong order flow in our core switches business, which for us is a good indication that the general industry, certainly in Asia, is picking up. That in the quarter, we were -- the sales were up over 20%, which is relays are strong. Our sales in the Grid were up about 20% with a book-to-bill of about 1.1 or something. So we see very strong order flow there. And it's kind of a tale of two cities in the industrial world, space, defense, grid, aviation, those businesses are all growing double digits. General industry in North America and Europe is still fairly slow. And as I said before, general industry in Asia looks like it has really picked up. Ademir Sarcevic: Yes. And if I can just add to that, Matt. As we said in our prepared remarks, we had 2 consecutive months of orders over $50 million for Electronics, which has never happened before. Some of that is clearly the strength we have seen and continue to see in the grid space and some of these fast-growth end markets. But also, as to David's point, indication that the general industrial markets are stabilizing, and we are kind of turning the corner. Now it takes us a little time to convert those orders into sales, but it makes us pretty bullish about what we're going to see in FY '27 in terms of top line performance, again, assuming there is no significant macroeconomic or geopolitical challenges. Matt Koranda: Okay, that's helpful, guys. And then I guess for my second question, I wanted to ask a portfolio question. It seems like now that you're under 2 turns of leverage, you got plenty of capacity to deploy incremental dollars to M&A. Just wanted to hear the latest on the funnel and how you guys are thinking about add-ons to kind of the core segments as you sort of add more capacity at this point in time? David Dunbar: Yes. Matt, we like the position we're in now. We are delighted with the integration of the Amran/Narayan of the grid business, and how that continues to perform. And with a leverage under 2 now, but we're building sizable powder. And if you look at the makeup of our business, now 70% of our sales come from Engineered Components in Engineering Technologies and Electronics. And those are the businesses that serve these fast-growing markets with customized products. So that is -- that's the universe where we will explore opportunities. And in our funnel, we always have a number of kind of family-owned businesses that are similar to -- or privately owned businesses, similar to acquisitions we made over the decades at Standex. With the Grid acquisition, that has also opened up opportunities for us to look at related products, to solve bigger problems, to become an even more important partner to our customers. So in the Switchgear, in addition to the instrument transformer, there are other products that support the metering and the electrical quality measures of the Switchgear itself. On the Electronics side, there are a lot of opportunities around components and modules. I think we've mentioned in the past, every time a customer works with us, we have to say for Reed switch-based sensor, a switch or a relay, they are also working with other suppliers and other components for that same product that are customized to some extent, whether it's capacitors or filters or something like this. So that really opens the aperture for us to explore wider opportunities. So for that, we're -- we were in discussion with a number of third parties to help us identify targets. So we have an existing funnel. We're working at expanding the funnel with these new opportunities as we fully explore opportunities to expand these engineered components businesses. Operator: Next question will be from Ross Sparenblek with William Blair. Ross Sparenblek: Maybe just a level side on the top line guide. Are we picking out the first 3 quarters of Federal, kind of $25 million? Or are we leaving that in there just taking in the fourth quarter? Ademir Sarcevic: The Federal is out in the fourth quarter guidance. Ross Sparenblek: So just the fourth, okay. And then you guys said grid was up 20% year-over-year. So that implies what, like a $160 million run rate? Pretty healthy. Ademir Sarcevic: Yes. David Dunbar: Yes, yes. Ross Sparenblek: And so then you guys said a book-to-bill of 1.1. So that means core organic growth, book-to-bill is probably 1.15, up nearly 20%. We're definitely seeing some momentum? Ademir Sarcevic: You've got your math right. Ross Sparenblek: That's what I get paid for. And any updates on India and the progress you've seen with rolling out lean there and driving that capacity? David Dunbar: Well, I tell you, we had -- just a few weeks ago, if Vineet's here with us today. He was in India a few weeks ago with a very large team for a global grid capacity expansion Kaizen. So we have an extensive plan to look at global demand, a roll-up from customers around the world by product family. We have a site in Texas, a site in India, site in Croatia now. We're producing in Mexico and our Mexico site and are looking at our global capacity expansion. So our assumptions -- We do have assumptions that within India simply with Lean, there was another, call it, 15-plus percent capacity expansion from Lean which fuels us in addition to Mexico and Croatia through this year. As you know, we have the Texas site coming on next year. Your question was about India. So we have a good handle on the initial -- there's unexploited Lean opportunities there, 15-plus percent capacity. Ross Sparenblek: Okay. And maybe if I could squeeze one more. Can you just remind us really quick on the growth investments within Electronics, just the size of the cadence? A couple of million dollars in quarter? Ademir Sarcevic: Yes. So if you kind of break it down by part, Ross, most of our growth investments are coming in the grid business. Obviously, there's some investments we put into Croatia. That's probably -- it's about, call it, 30, 40 basis points, if you think about it from kind of a margin standpoint of impact right now because, obviously, we're not shipping products yet out of Croatia. And then as David mentioned, and as you know, we're expanding capacity in Houston and Mexico. So you have to hire some people and get some of the rolling before we can -- before we declare those sites operational. So there's probably another, I would probably tell you 50, 60 basis points of those investments as well, kind of the -- from a run rate basis standpoint. Ross Sparenblek: Okay. So there's Section 232 issues. There was some one-off stipulation regarding Grid. I didn't fully dig into details. It just seems like given the growth in Amran, those margins should have been maybe a little bit higher as stated in Electronics? Ademir Sarcevic: Yes. Look, we think we're going to continue to expand margins in Electronics, especially as you kind of think about where we are growing, is our fast-growth end markets where we are more profitable. So we do expect we're going to clip that 30% in adjusted operating margin in the near future. Operator: Next question will be from Michael Shlisky at D.A. Davidson. Michael Shlisky: Speaking of operating margins, just looking at the results, pretty clear that Engraving & Hydraulics are now kind of the lowest of the four. I guess those are kind of two different businesses. Can you comment on your plans for those businesses? You're always trying to hone it a little bit better and a little bit higher year after year. Is there a potential that those are next to go, I'd say, after Federal? David Dunbar: Well, in there -- as you know, they're strong businesses in their sectors. They're not burning platforms in that sense. It's kind of a question of timing to find the best opportunities for these businesses. Within Engraving, we have some pretty interesting growth initiatives going on. We talked about making these specialized parts, functional textures, those are ramping up. So the businesses themselves are fundamentally sound. We have some profit improvement projects in both of them. And if you look at our history, where we've invested in acquisitions, we love the Engineered Components businesses. You will likely see more of that. And we have some very good businesses that Hydraulics & Engraving, they could be fit somewhere else. And well, we continue to monitor the situation and we'll make a decision at the time. Michael Shlisky: Okay.In Aerospace, given the organic growth you're seeing now and you've got quite a few opportunities ahead of you. Do you see a need to expand capacity there on a greenfield basis? Ademir Sarcevic: In the Aerospace & Defense segment, is that your question, Mike? Michael Shlisky: Yes. Ademir Sarcevic: Yes. Not from a greenfield standpoint, at least not in the near term. We have a bit of a capacity in our sites. But obviously, as the business continues to grow at some point, we might have to look at additional space. But no immediate plans as of right now. We feel we service what's coming our way in the near term. David Dunbar: Yes, I guess the one caveat to that is we mentioned the missile programs. If these missile orders do appear for some of these higher scenarios, then we will expand the footprint. Ademir Sarcevic: That's correct. Michael Shlisky: Okay. Got it. David Dunbar: But we would only do that with the long term -- I'm sorry, but we would only do that with a long-term commitment from the customer, and we'd certainly communicate that in a future quarter. Michael Shlisky: Right. I imagine you have an ROIC hurdle to beat there, and it wouldn't be any different than you would for Amran or anything else. David Dunbar: Right. Right, exactly. Michael Shlisky: Great. And then it sounds like you're not looking to give us too much guidance on fiscal 2027, but can you just comment on the new product menu for 2027. Do you have as many rolling out next year that you had this year? Do you have much in the pipeline? Can you expect a halfway decent year from that part of the growth plan? David Dunbar: Yes. If you just step back and think our general growth model, we think we've got these fast growth markets that continue to grow upper teens, 20% a year, that's 6 points of growth from that. Our new products, we still expect that to add 300 basis points of growth. And then whatever happens with general industries may be a tailwind to that. So just as a high level, I would be thinking -- in that zone for 2027, if the guide is beneath here. So in terms of numbers of products in 2027 got in line with... Ademir Sarcevic: Yes, Definitely, Mike. I think we think the momentum will continue. Actually, it might even increase because as we are adding -- our funnel is increasing internally of new product ideas. Operator: [Operator Instructions] Next, we will hear from Gary Prestopino with Barrington Research. Gary Prestopino: In your new segment breakdown, the other category, is that legacy Federal before the divestiture? What exactly is in there? Ademir Sarcevic: That's Legacy. That's all it is. Gary Prestopino: Okay. That's all it is. Okay. So with the sale of Federal, was the corporate expense associated with Federal, does that come out of the equation? I noticed like your corporate expense was about $8.6 million this quarter, a step down from last quarter, which was abnormally high. But as we're modeling, what kind of number should we be looking at for that corporate expense number? Ademir Sarcevic: Yes, Gary, it's Ademir. I mean we don't really allocate a lot of corporate costs. So there's no corporate costs that would go away with Federal. I mean what's really driving the reduction in the corporate cost for this quarter is we -- we got slightly lower medical costs versus some of the prior quarters. There was some adjustment to the bonus payouts. And that's basically it. But we do assume that going forward, kind of $9 million to $10 million run rate is probably the right number. Gary Prestopino: Okay. And then just in terms of your tax rate because I noticed it was down, I think, this quarter and obviously, a lot of moving parts with the numbers with the sale of Federal. But for Q4, is it looking like it will be about 24%? Ademir Sarcevic: Yes, 24% to 25% is kind of what I would tell you is a good estimate. Gary Prestopino: Okay. And then just last question in terms of what's your growth in Electronics. I mean, can you -- is it all across the board and grid, replacement of grid, data centers? Or where are you starting to see abnormal growth? . David Dunbar: Did you say abnormal growth? Gary Prestopino: Right. Yes. Growth's in excess of what you were thinking in terms of the expectation. David Dunbar: Yes. So the growth driver is certainly a grid, defense. There is a defense component in Electronics. And I mentioned it earlier, our sales of Bare Switches, our Reed Switches, which was up 20% year-on-year. So that -- those go everywhere. So a sign of a general industry strength primarily in Asia. And our relay sales are strong. They're driven by kind of test and measurement equipment, similar drivers to the grid, serving data centers and the equipment that go into data centers. I know we look at it, we have three businesses in there, as you know. We've got what we used to call Magnetics, our Edge business, which is really a North American business. That was down in the quarter year-on-year, largely due to some execution issues. Their book-to-bill was very strong. The Detect, the SST business, which is where the switches and sensors are was upper single digits. That includes the switch business I talked about before. And then grid, of course, which we talked about. So kind of triangulates into your growth question from a couple of different angles. Operator: At this time, Mr. Dunbar, we have no other questions registered. Please proceed, sir. David Dunbar: All right. Thank you. I appreciate everybody connecting today on this call. We always enjoy reporting on our progress at Standex. Thank you also to our employees and shareholders for your continued support and contributions. I look forward to speaking with you again in our fiscal fourth quarter call. Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good weekend.
Operator: Greetings, and welcome to the AMG First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Patricia Figueroa, Head of Investor Relations for AMG. Thank you. You may begin. Patricia Figueroa: Good morning, and thank you for joining us today to discuss AMG's results for the first quarter of 2026. Before we begin, I'd like to remind you that during this call, we may make a number of forward-looking statements, which could differ from our actual results materially due to a number of factors, including those described in today's earnings press release and our most recent Form 10-K and subsequent filings with the SEC, and AMG assumes no obligation to update these statements. Also, please note that nothing on this call constitutes an offer of any products, investment vehicles or services of any AMG affiliates. A replay of today's call will be available on the Investor Relations section of our website, along with a copy of our earnings release and reconciliations for any non-GAAP financial measures, including any earnings guidance provided. In addition, we have posted an updated investor presentation to our website and encourage investors to consult our site regularly for updated information. With us today to discuss the company's results for the quarter are Jay Horgen, President and Chief Executive Officer; and Dava Ritchea, Chief Financial Officer. With that, I'll turn the call over to Jay. Jay Horgen: Thanks, Patricia, and good morning, everyone. AMG reported record results for the first quarter with adjusted EBITDA of approximately $317 million and economic earnings per share of $8.23, representing year-over-year growth of 39% and 58%, respectively. Rising demand for liquid alternative strategies and ongoing strength in private markets fundraising generated record quarterly net client cash flows of more than $22 billion, bringing net flows over the last 12 months to $52 billion, an organic growth rate of 7% over the period. In the quarter, given our confidence in AMG's business profile and growth prospects, we repurchased shares at an elevated pace, deploying approximately $186 million and bringing share buybacks over the past 12 months to more than $700 million, a reduction of 10% in our shares outstanding. AMG generated these excellent first quarter results against the volatile market backdrop, highlighting the value of AMG's differentiated model and the ongoing strength of our diverse business. As we have seen over AMG's history, our business is resilient and well positioned to navigate periods of uncertainty and dislocation. AMG's highly diversified profile has once again demonstrated that resilience as we ended the first quarter in a position of even greater strength relative to the beginning of the year with record assets under management and record fee-related EBITDA, and we have continued to build on this momentum in April. With 40 affiliates managing a broad range of private markets, liquid alternatives and differentiated long-only strategies, this is the type of environment where we expect AMG to not only weather a volatile environment well, but outperform. Given that we have strategically evolved towards alternative strategies over the last several years, a number of important secular trends are driving our organic growth story today. In private markets, where our affiliates manage $148 billion in assets, we see opportunities for growth across all 11 affiliates, with the strongest momentum coming in 2 areas: infrastructure and real estate, where our affiliates manage more than $60 billion and secondary solutions where our affiliates manage approximately $50 billion. We expect rising demand for infrastructure strategies as infrastructure investment has become a global imperative due to population growth, the need to modernize aging assets and an evolving economy shaped by energy security, supply chain realignment and the rapid growth of digital infrastructure, all against the backdrop of rising inflation. We also expect ongoing demand for secondary solutions across private equity, infrastructure and credit, given the role such strategies play in underlying portfolio management for both GPs and LPs to address liquidity, manage duration and adjust exposures, attributes that are even more important in the environment today given monetization headwinds in private equity. Together, infrastructure and secondary solutions have generated substantial organic growth from both institutional and individual investors over the past 12 months. In liquid alternatives, where our affiliates manage more than $261 billion in assets, we are benefiting most from growth in 2 trends: institutional demand for absolute return strategies and the growing focus on after-tax compounding in the wealth channel. Absolute return strategies, which account for approximately $180 billion in assets include multi-strategy, global macro, relative value fixed income and trend following and are designed to generate returns that have low or no correlation to broader markets. They provide AMG's business with ballast relative to pro-cyclical strategies in private markets and differentiated equities, enhancing the stability of our earnings over time. For the same reasons, clients globally are increasingly attracted to these absolute return strategies, especially as the outlook for the macro environment has become more uncertain. As a result, we had a meaningful uptick in flows in the quarter, driven by institutional demand for absolute return strategies with contributions from nearly all of our affiliates in liquid alternatives, and we expect continued organic growth momentum in these strategies. In addition, within liquid alternatives, we are benefiting from significant client demand for tax-aware long/short strategies. These strategies account for approximately $69 billion of our AUM in liquid alternatives strategies or about 8% of AMG's business. And while tax loss harvesting has been a secular trend for decades, clients and advisers are increasingly attuned to the impact of their portfolio allocation decisions on compounding returns after tax. AMG has benefited from this underlying secular trend through ongoing organic growth, which has been significant over the past year. As I mentioned, these 4 growth areas: infrastructure, secondary solutions, absolute return strategies and beta-sensitive long/short strategies have driven organic growth in the quarter and over the past 12 months. Looking ahead, given the continued tailwinds in these areas and our affiliates' excellent long-term track records, AMG is well positioned for further growth. As demonstrated over the past 5 years, our business is strong, diversified and dynamic. Through our ability to shape AMG's business profile and scale our earnings power by allocating our capital to investments in new and existing affiliates, we will further evolve our business towards areas of growth and return. Our unique approach and track record as a partner are continuing to resonate with the highest quality independent firms. We have had an active start to 2026 in this area. In January, we completed our investment in BBH Credit Partners, a leading taxable fixed income and credit franchise. In February, we announced a new partnership with Highbrook Investors, a private markets manager operating in the real estate sector. And we also announced an incremental minority investment in Garda Capital Partners, an existing highly successful affiliate operating in liquid alternatives. Stepping back from the quarter and to take a longer-term view of our business and our strategy. Over the past 5 years, we have transformed AMG and evolved our business profile in a way that we believe will benefit shareholders for years to come. During this period, our business generated more than $5 billion in capital, all of which through our disciplined capital allocation strategy we have reallocated to both high conviction growth investments and meaningful return of capital to shareholders, demonstrating our commitment to long-term value creation. Together, these strategic actions have resulted in exceptional earnings growth, generating mid-teens compound annual growth rate in economic earnings per share over the past 5 years. And this growth is accelerating. In 2025, economic earnings per share grew by more than 20%, and we expect that growth rate to increase to more than 30% this year. As we look ahead, our capital allocation decision-making will continue to be the most impactful element of our strategy. We anticipate our business will generate significantly higher levels of capital cumulatively over the next 5 years, and we expect the impact of deploying it towards growth investments and capital return will further shape and diversify our business profile and fuel our earnings growth. With our unique partnership-centric cash-generative return-focused model, we will continue to press our advantages, executing the same proven strategy with the same level of discipline that brought us here. Today, AMG's reputation, value proposition and capital flexibility have never been stronger, a powerful combination for our firm and for our shareholders. And with that, I'll turn it over to Dava. Dava Ritchea: Thank you, Jay, and good morning, everyone. AMG entered 2026 with significant momentum, and our first quarter results reinforce that strength, highlighted by record net inflows and significant year-over-year growth in fee-related earnings, adjusted EBITDA and economic earnings per share. Our alternatives business continues to scale, underpinned by strong organic growth from existing affiliates and further enhanced by the addition of several new high-quality partnerships. These results underscore the strength and resilience of our model as a result of the ongoing execution of our strategy to evolve the business towards areas of secular growth while remaining disciplined in our capital allocation decision-making. Starting with our results for the first quarter. AMG's AUM was $882 billion, the highest level in our history, driven by record positive net inflows for our alternative affiliates and the addition of AUM from new investments. Our business reached this record AUM level despite market headwinds from broader macro events. Net client cash inflows of more than $22 billion marked our fourth consecutive quarter of positive and increasing net flows, driven by ongoing strength in alternatives. In liquid alternatives, our affiliates generated $25 billion in net inflows, marking another record quarter with most of our liquid alternative affiliates, including AQR, Capula, Garda, Systematica and Winton, contributing to this strong result. Flows were broad-based. We had net inflows from wealth clients of $15 billion into long/short tax-aware strategies, $6 billion in net inflows into absolute return strategies from institutional clients and $4 billion of inflows into retail products across both beta-sensitive and absolute return strategies. This is consistent with broader industry trends of rising allocations to these strategies as investors value the role they play in portfolios across market cycles. As momentum continues to build across channels, we believe AMG's diversified liquid alternative Affiliates are well positioned to continue to attract new flows over time. Our private market affiliates raised $4 billion in the quarter, primarily driven by Pantheon and secondary strategies, along with infrastructure fundraises at Aura, EIG and Qualitas Energy. On the heels of a record fundraising year in 2025, we continue to see consistent demand given these affiliates' specialized strategies, deep institutional relationships and strong long-term track records. Importantly, with multiple private market affiliates contributing across vintages, products and channels, AMG exhibits a more durable and consistent fundraising pattern, reflecting a structurally diversified model rather than reliance on any single fundraise, differentiating our private markets profile from that of others. To give further color on our private markets profile, we have a distinctive strategic position in the industry. Nearly 90% of AUM managed by our affiliates in private markets is institutional, largely in drawdown-style funds. These drawdown funds form the core offering of our private market affiliates. Additionally, we have experienced growing demand for these strategies from wealth clients, and we are well positioned with our differentiated product offering and capital formation solutions for affiliates to access this long-term trend. Our affiliates' private market strategies are well diversified across strategies, including secondaries, private equity, infrastructure, real estate and private credit. Our private credit exposure is low, representing approximately 3% of AMG's total assets today. Within private credit, we have limited traditional direct lending exposure given the sale of our stake in Comvest's private credit business last year. More broadly, the credit exposure we have is more opportunistic in nature, including secondaries in private credit and structured credit and relative value in liquid alternatives. We believe the current credit market environment is creating compelling long-term opportunities for these strategies. In multi-asset and fixed income, our affiliates generated net inflows of $3 billion, mainly driven by BBH Credit Partners with additional contributions from Baker Street, Artemis, Beutel Goodman and GW&K. Finally, in equities, net outflows of approximately $9 billion in the quarter reflected ongoing industry and performance headwinds. However, we continue to see pockets of strength in our differentiated long-only business, including consistent positive net flows at Artemis based on its excellent long-term track record of investment performance. In aggregate, our first quarter flows highlight the structural advantages of AMG's diversified business model. With a broad group of affiliates spanning strategies, asset classes, geographies and client channels, we were able to navigate shifting market conditions and trends while continuing to capture growth opportunities. As we further evolve our mix towards higher growth alternatives, the resulting incremental diversification enhances the resilience of our cash flows and positions AMG to deliver more consistent, sustainable organic growth across market cycles. Turning to first quarter financial results. We reported adjusted EBITDA of $317 million, which grew 39% year-over-year. Fee-related earnings, which exclude net performance fees, grew 29% year-over-year, driven by positive organic growth, the positive impact of investment performance and margin expansion at some of our largest affiliates. Net performance fee earnings of $49 million in the quarter increased $29 million from the prior year, driven by Capula, Winton, AQR and ValueAct. Economic earnings per share of $8.23 grew 58% year-over-year, driven by these factors and further benefiting from the impact of share repurchases. Now moving to second quarter guidance. We expect adjusted EBITDA to be in the range of $290 million to $305 million based on current AUM levels, reflecting our market blend, which was up 5% quarter-to-date as of April 30 and including seasonably lower net performance fees of up to $10 million. Based on this and assuming an adjusted weighted average share count of 26.7 million, we expect second quarter economic earnings per share to be between $7.60 and $8.01, the midpoint of which represents approximately 45% growth versus Q2 2025. Finally, turning to the balance sheet and capital allocation. Building on an active 2025, we continue to execute our capital allocation strategy in the first quarter of 2026, with the January close of our partnership with BBH Credit Partners and the February announcement of our new investment in Highbrook and follow-on investment in Garda. In January, conversions related to our 2037 junior convertible trust preferred securities were fully settled in cash. The $174 million in conversion premium effectively represented the repurchase of 600,000 adjusted diluted shares and the share dilution associated with these securities has now been fully removed from our capital structure. We repurchased approximately $186 million in shares in the first quarter. And for the full year, we expect to repurchase approximately $500 million, subject to market conditions and capital allocation activity. Our balance sheet remains in a strong position given our long-dated debt, low leverage level and access to our revolver. This is further supported by a healthy underlying business generating recurring annual cash flows that continue to grow. These after-tax cash flows are at record levels, delivering approximately $1 billion annually. With these factors, we are well positioned to execute our growth strategy across all stages of a market cycle. We have ample capacity to both make growth investments and simultaneously return capital to shareholders. Our strong first quarter results reflect the accelerating momentum in our business and the advantages of our highly diversified affiliate model. Looking ahead, we are excited by the breadth of opportunities in front of us as we continue to evolve our business towards higher growth alternatives. We will remain deliberate and disciplined in deploying capital, investing in growth opportunities with new and existing affiliates while also consistently returning capital to shareholders. And we are confident in our ability to generate meaningful incremental value over time. Now we are happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Bill Katz with TD Cowen. William Katz: Appreciate the update. Jay, maybe I'll just pick up on some of your commentary. I think the investment community in the last few weeks has gotten myopically focused on AQR, just given some of the headlines coming out of Schwab, the [indiscernible], et cetera, it all seems to be noise to us. And it sounds like there's a lot of diversification from your comments today, which we appreciate the expanded discussion. Can you dig in a little bit further into maybe these 4 verticals of opportunity for growth? And then I was intrigued by your comments of April off to a good start. I was wondering if maybe expand on that as well? Jay Horgen: Yes. Great. Thanks for your question, Bill. So I'll start. Dava can help. We're going to talk about our flows and then maybe I'll circle back on AQR. So yes, the answer is our flows were broad-based, and they were along the lines of the 4 trends that I mentioned in our prepared remarks. Just to dimensionalize it, in the quarter, we had $29 billion in Alternative flows. That was a record for us. Over the past year, we generated $90 billion in flows into alternatives. And I know there's a temptation, there always has been to focus on one affiliate or one element of AMG. But AMG is truly a diverse business. These 4 growth drivers that I mentioned: infrastructure, secondary solutions, absolute return and tax-aware strategies, they're all powering the strong organic growth story and the $90 billion of flows into alternatives. Our flows were balanced across each of these 4 areas over the quarter and over the year with none accounting for a majority. So maybe I'll turn it to Dava just to drill down a little bit further contextualize some of this, and then I'll come back and address maybe some of the noise. Dava Ritchea: Thanks, Jay. So just digging in a little bit further here, our flow profile is really an output of our strategy. It aligns our business with areas of secular client demand trends and alternatives, and it continues to evolve our mix through organic growth and new investments. I'll double-click into each of private markets and then liquid alts. Starting with private markets. Our private market affiliates raise capital through multiple strategies, vehicles and channels, which help produce a more consistent fundraising profile than a single flagship-led model. That consistency is supported by durable client demand trends, most notably in infrastructure and real assets, secondaries and specialized allocations through -- such as decarbonization and health care. Our private market flows have been relatively consistent over the past 8 quarters, exhibiting about 18% annualized growth on average. As one of our largest and longest-standing affiliates, Pantheon has been a consistent driver of that fundraising, supported by a scaled multiproduct platform, particularly in secondaries. It's been recurring demand across vintages and has had meaningful contributions from institutional clients as well as within the wealth channel. Alongside of that, many of our other private market affiliates are more specialized and tend to raise capital through more targeted fundraises across their focus areas. Given we have 11 of these private market affiliates, we're less reliant on any single affiliate's capital raising calendar, and this tends to produce a more consistent, durable overall private market flow profile. And based on what we're seeing today, fundraising and client demand are expected to remain robust with multiple funds coming to market across our private market affiliate strategies, including all the affiliates we just recently partnered with over the past 15 months. Now turning over to liquid alternatives. We had $25 billion of flows this quarter, and flows this quarter were broad-based across both beta-sensitive and absolute return strategies, also broad-based across investor channels with institutional wealth and retail flows all coming through. This is consistent with broader industry trends as investors are increasing allocations to these strategies as they've demonstrated a real role that they can play across market cycles, and these allocations have been flowing to the largest managers. And here, we're well positioned with several of our affiliates like AQR, Garda, Capula and Verition. Finally, it's worth mentioning that we've been experiencing positive mix shift over the past year as well, leading to an increase in our management fee rate and margin expansion at some of our largest affiliates, which has had a direct benefit to our EBITDA. By contrast, though, we have continued to see some headwinds alongside of overall industry and equities. We reported about $9 billion in net outflows from equities this quarter, in line with average levels over the last 12 months. But when taken together, with $3 billion in net inflows in multi-asset and fixed income, we're seeing an improvement in our differentiated long-only net flows. Across these affiliates, we see pockets of strength, including at Artemis, where strong performance has led to positive net flows and at BBH Credit Partners, where we see ongoing demand for fixed income strategies. Jay Horgen: Great. Thanks, Dava. So I'm just going to comment on one thing here, which is in addition to the strong alternative flows, as we look out for the next 12 months, we actually think that our Long-Only outflows seem to be getting better. So our flow story just all around for the moment is positive relative to what it's been in the past. We had $52 billion of net flows for the last 12 months, and that trend seems to be getting better as we look forward. Now I'm going to take the second part of your question and just address AQR for a moment. And maybe I'll just start with a bit of a fun statement, which is over the past 15 years, I've answered a lot of questions on AQR, mostly on these earnings calls. Virtually, every time I answer the question, I start and I'll end as well with one observation. AQR is an incredibly innovative business. Their success is rooted in its decade-long reputation and history of this innovation. They deliver strategies and products that meet clients' objectives that can be used in portfolio construction and that can produce alpha. So AQR's reputation and its long-term investment track record across its broad range of strategies today, including absolute return, beta-sensitive, long-only. It's driving demand across all of its client types, institutional, wealth, retail. The firm's primary goal is to deliver institutional caliber pretax alpha to all investors. And for individuals, AQR has a focus on compounding after-tax returns. This is a very large addressable market. It's been around for a long time, and AQR is just one of the participants in the market. We continue to see strong demand for these strategies, including in the second quarter. And we are not aware of anything that changes our positive outlook for the firm or their strategies and underlying trends supporting its ongoing business momentum. These tax-aware strategies, however, they only speak to one aspect of AQR's broad platform and its continued innovation. The firm has generated inflows across a range of strategies, including in this quarter. And we also are very excited about their absolute return strategies and the prospect for additional flows into these strategies, which have excellent performance and are gaining interest from all types of clients, including institutions. Now I'd like to take it back to the AMG level. Long/short strategy in wealth account for just 8% of our assets under management. As I mentioned, our affiliates generated $90 billion in flows into alternatives, a minority of those flows came from tax-aware strategies. AMG is highly diverse. And this one trend is just 1 of the 4 major drivers of our growth. Again, these 4 trends being infrastructure, secondary solutions, absolute return strategies and tax aware strategies. Again, all 4 balanced across -- all 4 are driving our growth and none are accounting for a majority. So then the last question you asked me is April. Interestingly, during the first quarter, we had, as others did, we had to face reasonably significant volatility in the market and Beta was down in the quarter. Yet AMG had record AUM and record cash flow and record earnings in the quarter. In April, we've seen strong beta. And because of the balance in our business, our assets are at another all-time high. Operator: Our next question comes from the line of Alex Blostein with Goldman Sachs. Alexander Blostein: I appreciate all the detail and extra discussion on the flow backdrop. I wanted to double-click into the wealth channel. You guys had quite a lot of success with Pantheon's retail product focused on secondaries and co-invest markets. How is the appetite for these kind of products in the channel today given the turbulence we're seeing in the credit part of the business? Obviously, that's not part of your model, but just curious if you're seeing any spillover effects of that into other parts of the wealth channel? And then maybe as part of that hit on the road map of additional products you're likely to launch in the coming 12 to 18 months as we think about further diversifying your flow base? Jay Horgen: Yes. Great. Thanks, Alex. I think that's an excellent question. We'll take it in a few different pieces. We'll talk about the wealth products, and then I'll circle back. I'll let Dava do that. Then -- I'll have Dava do that, and then I'll come back and do Pantheon more broadly and then other products that we're looking at introducing. Dava Ritchea: Great. Thanks for the question, Alex. So we remain constructive on the secular trend. And while we're monitoring the broader industry dynamics, wealth investors and advisers continue to broaden portfolios beyond traditional allocations and evergreen structures are an increasingly important way to access institutional quality alternatives in a more flexible wrapper. AMG is focused on delivering the right strategies in the right structure, meeting clients where they are on liquidity preference, access and portfolio needs. We believe AMG is differentiated in this channel, providing investors access to independent affiliates and their breadth of offerings across private markets and alternative credit. We see the most compelling opportunities today in differentiated strategies, led by credit secondaries. Liquidity needs, duration management and slower exits are driving greater secondary activity, while market noise and headline risk are creating pricing dislocations that can offer seasoned assets at attractive valuations. We also see opportunity in asset-backed credit solutions, where structural protections and collateral quality support capital preservation. Ultimately, the key to long-term success is education and setting expectations while staying disciplined. Education remains a critical enabler of growth for evergreen private market solutions. While these vehicles expand access, their structural features differ meaningfully from traditional private market funds and require deeper understanding. We are committed to providing scalable education that equips advisers to understand these mechanics, assess suitability and thoughtfully integrate evergreen solutions to support clients' long-term investment objectives. We believe these products can be a compelling option for wealth clients seeking diversified access to alternatives over a long time horizon. Let me walk you through the couple -- the main products that we have here on the platform. First, P-BUILD. This is the AMG Pantheon Infrastructure Fund, which we launched last year, and it's still in its seed phase. The portfolio is ramping nicely, and we expect it will benefit from the rising demand for infrastructure strategies as infrastructure investment has become a global imperative. P-BUILD is uniquely positioned to combine the benefits of infrastructure investments, including the potential for capital appreciation, yields, lower volatility and portfolio diversification with the added advantages of secondaries, which can offer greater risk mitigation, shorter investment durations and more immediate distributions compared to traditional infrastructure investments. The next one is P-SECC, the AMG Pantheon Credit Solutions Fund, and it's still relatively new, launched within the last 2 years. The fund's investment approach is first of its kind focused on private credit secondaries. Since inception, it's been among the top performers in its peer set. And given broader market dynamics, we believe the current environment creates a compelling investment opportunity for the fund. While near-term growth may be more muted due to traditional direct lending trends, we believe this is a compelling long-term product for investors and differentiated from peer offerings. In these environments, pricing dislocations and motivated sellers can allow access to high-quality seasoned investment opportunities at potentially attractive valuations. This dynamic enables selective capital deployment with a margin of safety, positioning the fund to benefit from both income generation and potential capital appreciation as markets stabilize. For P-SECC, periods of increased volatility can create particularly attractive entry points for disciplined secondary credit investing. And this growing opportunity set underscores the increasing role credit secondaries are playing in managing liquidity and portfolio exposures in a market characterized by heightened demand for capital flexibility. And finally, P-PEXX, the AMG Pantheon Fund, which has a long operating history since its launch in 2014, with a strong long-term track record of delivering private equity exposure through cycles. Notably, it has a compelling fee structure versus market comparables with a lower management fee, and it does not charge performance fees. It provides a single allocation globally diversified portfolio across co-investments, secondaries and primaries, diversified by manager, vintage, geography and sector, which we view as more sustainable for building long-term compounding of returns. We remain constructive on its outlook, including ongoing progress in expanding its reach to new wealth platforms and intermediaries. Overall, these 3 products represent a small but growing proportion of Pantheon, and when put into context of AMG, represent less than 1% of AUM today. We are confident in the long-term secular trend and the underlying fundamentals of each of these products, but mindful of the impact of current market dynamics in the evergreen space on near-term growth expectations. We continue to focus resources on partnering with affiliates in the U.S. wealth space through robust product development and access to our broad capital formation resources with several products, including the newly registered AMG BBH Fund in development. This fund is expected to be launched into a compelling credit market environment for its opportunistic structure and alternative credit approach. Jay Horgen: Yes. So Alex, Dava covered the landscape. But I think what I would maybe contextualize, maybe even just give some perspective is, look, the market had been painting everything with a single brush. This is actually an opportunity to differentiate. I think we see opportunities here because we think our products are unique, differentiated, certainly on the semi-liquid side. Education, as Dava said, is key. People have to understand what they own. There's suitability questions. But what we like about our products is that they're opportunistic in nature. I'll take the Pantheon Credit Secondaries Fund. It actually has an opportunity to take advantage of what's happening in the market. And that's the same with the newly registered BBH Opportunity Credit Fund. So we -- it's got in its name. So I think we're having -- in some ways, we might come out better through this period as people sort through what products really are differentiated and what products people want to own. So we're long-term constructive. As Dava said, there is a bit of sorting that's going to go through -- we're going to go through here. But on the -- as we come out of it, we have an expectation that we're going to be on our front foot. Maybe just on our wealth strategy more broadly, it is clearly important to us. We collaborate with our affiliates. We offer strategic capabilities to new and existing affiliates. It's part of our brand. It's part of our reputation, the ability to engage with our affiliates and help them meet their goals, exceed their goals and get them into this channel. It's very difficult to get into this channel. It's an area where you need scale. AMG offers our affiliates that scale. We also offer them the ability to package the products and bring them to the market. So it's a growth area for us long term. I think we made it through this period reasonably well, I think partly because we were methodical and careful. But obviously, we have good fortune on our side, too. We're not -- I think we're just trying to do the very best that we can here, and we do think this is a good long-term opportunity. Operator: Our next question comes from the line of Dan Fannon with Jefferies. Daniel Fannon: So Jay, I wanted to just talk about the environment for new investment. You guys have obviously been quite active over the last 12 months. But given some of the dislocations we're seeing in certainly the private credit markets or broadly within some of the equity markets, is that creating more of an opportunity for you to deploy capital in this environment? Or any changes kind of in the backdrop as you think about the new investment pipeline? Jay Horgen: Yes. Great, Dan. Thank you. And I apologize it's so early for you on the West Coast. So yes, look, we did have a very active period. The last 18 months has been one of our more active periods of new investments. It's one of the benefits that we have. It's contributing to our earnings this year and our growth rate this year. We're very excited about the businesses that we invested in over this period, largely speaking, in alternatives with a focus on private markets, but more specialty businesses. So coming off of an active period, really even into this first quarter because we were just closing on Highbrook, the second investment in Garda and BBH. When we look at the rest of this year, one of the things that we note is that public market valuations for alternatives are way down. It takes a little while to have that trickle into the M&A market, but I think we have an expectation that it will. We're mindful that some of the key competitors in that market are the ones who have lower valuations today. So maybe they're not offering their stock. So competition just may have gotten better for AMG. As you know, we've been an active participant, maybe, I would say, the most active participant for independent firms over the past 30 years. We are open for business. We like to partner with outstanding independent firms and maybe the competitive environment and pricing has gotten better for us as we look forward. So we're excited about that. Thanks for your question. Operator: Our next question comes from the line of Brian Bedell with Deutsche Bank. Brian Bedell: Good to see the really strong flows across the franchise and diversified contribution as well. We, of course, are getting more questions on the tax aware strategy. So I just want to zone in on that a little bit. Just your view maybe of -- obviously, really strong growth in 1Q. Maybe if you could talk a little bit about the contribution in 1Q from tax aware. And I think you mentioned it's 8% of AUM, but just I was curious if there's a way to frame like what percentage of EBITDA that is or I think you -- last time you spoke about AQR as a percentage of EBITDA was about 20%. I don't know if there's updated comments on that. And then just the -- as this is getting added to more platforms, given really strong retail demand, if you can talk about the pipeline of doing that because I know, of course, Fidelity had constrained it, and I think Schwab had put some guardrails around it. Of course, they're continuing to sell it. They just had some constraints around it. So just some comments around the growth outlook for that product as it pertains to adding it to more wirehouse and brokerage and private bank platforms? Jay Horgen: Okay. Yes. Thanks, Brian. Well, I'm not going to go back through my conversation or my response on AQR specifically. But I will maybe just broaden it and talk about the environment for these products. And I'm sure I'll weave in a few of those data points that you're looking for. Tax aware businesses and tax loss harvesting, it's been around since -- as far as I can tell, since 1993. So just for everyone who may think this is a new business, it's a 3-decade old business. I think what's happened in the market is that advisers realize that investors, individual investors, they pay tax. And institutional investors, they don't pay tax. And so when you think about your portfolio, you just have to think about it in general on an after-tax basis. It might change what -- where you allocate your capital. It might change the type of asset or the type of strategy you allocate to. So I think everyone should be aware the fact that taxes interrupt compounding. So if you're aware of that fact, then you need to at least consider it when you decide that you're going to create a portfolio. These products that have been around many people, many big firms that you all cover have these products. AQR is just one participant in the market. So I just want to make sure that everyone understands that. And then the other thing I would just say is we gave you the number on an AUM basis which is less than 8%, I rounded it up. It actually has contributed to less than 8% of our EBITDA last year in the first quarter. It just isn't that big. But it has grown significantly. It's not -- it has been less than a majority of our flows. So just like I said in my prepared remarks and then in the answer to the last question, the 4 major trends that are driving our business, they're balanced over that $90 billion of inflows that we had. No one of those trends made up a majority. And even in the most recent quarter, $29 billion, the same statement holds. So very balanced. I don't want to go through that all again, but we feel pretty good about that trend as well as the other 3 trends in our business. So I think in terms of sizing, it's important, but it's not a major factor. And when you zoom way out at AMG, and I think this is probably the most important thing that I haven't said yet is we have record cash flow. Our business AUM is at an all-time high. We had record EBITDA in the quarter. As Dava said, our EBITDA guidance that we gave you at the midpoint would be up -- or at least it would be up with significant growth and cash earnings per share would be up 45% at the midpoint. With that record cash flow, if you think about that annualized out at over $1 billion a year, it is that cash flow that we have to reinvest. And so as we reinvest, we diversify the business, we add new sources of earnings. Our business grows because of it. So if you're thinking about AMG today, you need to think about what AMG is going to look like in 12 months and then 3 years and then in 5 years. Because we generated $5 billion of cash flow over the last 5 years, we're expected to generate much more than $5 billion over the next 5 years. So the biggest impact to our business is what we do with those cash flows. And I think you know this, we have a very disciplined capital allocation philosophy. And as we continue to invest in growth areas and return capital through share repurchases, this record level of free cash flow is going to shape AMG. We are looking forward to doing that. And when you think about where we are today at these record levels, we are trading -- our shares are trading at less than 10x after-tax earnings on a backward-looking basis, not a forward but a backward-looking basis and less than 8x EBITDA on a backward-looking basis. It is an excellent opportunity for us to continue to buy back at an elevated pace. So we're excited about our capital opportunity. Dava mentioned in her script that we look forward to estimated share repurchases this year of $500 million. That's not all the capital that we have. If you think about the numbers I just gave you, $1 billion of after-tax earnings, $500 million is only half of that. And with a little bit of leverage because we'd like to lever it up to 2x, and right now, we're underleveraged at that point, we can do more than $1 billion. So in the next 12 months, more than $1 billion of capital will be the single biggest impact on our business for '27 and '28 and beyond. Operator: Ladies and gentlemen, that concludes our question-and-answer session and will conclude our call today. We thank you for your interest and participation. You may now disconnect your lines.
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: 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: 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 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.